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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
One) Act of 1934 for the fiscal year ended December 31, 1998
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File Number 0-21409
CELLNET DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2951096
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification Number)
125 Shoreway Road, San Carlos, California 94070 (Address of principal executive
offices)
Registrant's telephone number, including area code: (650) 508-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act COMMON STOCK, $.001
par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 15, 1999 was approximately $203 million based upon the
last sales price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the registrant, have been excluded in that such
persons may be deemed to be affiliates. This determination is not necessarily
conclusive.
At March 15, 1999 registrant had outstanding 42,873,700 shares of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive proxy statement for the annual meeting of
stockholders of CellNet which will be filed no later than 120 days after
December 31, 1998
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PART I
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22
Item 6. Selected Consolidated Financial Data 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 52
Item 8. Financial Statements and Supplementary Data 53
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 78
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PART III
Item 10. Directors and Executive Officers of the Registrant 79
Item 11. Executive Compensation 79
Item 12. Security Ownership of Certain Beneficial Owners and Management 79
Item 13. Certain Relationships and Related Transactions 79
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 80
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SIGNATURES 84
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PART I
ITEM 1. BUSINESS
THIS ITEM CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. CELLNET'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" UNDER "RISK FACTORS THAT MAY AFFECT FUTURE
OPERATING PERFORMANCE" AND ELSEWHERE IN THIS REPORT.
GENERAL
CellNet Data Systems, Inc. ("CellNet") has designed, developed and is
commercially deploying in scale innovative wireless data communications networks
which provide high-volume, low-cost, real-time data collection services, capable
of monitoring millions of fixed endpoints. The primary application of CellNet's
network is the provision of commercial, industrial and residential network meter
reading services to electric, gas and water suppliers. The meter reading
services for electric suppliers position CellNet to benefit from the
deregulation of the electric utility industry. As of December 31, 1998, CellNet
had approximately 4,008,000 meters under long-term contracts and a potential for
an additional 500,000 meters under an agreement with C3 Communications, of which
a total of approximately 1,770,000 meters were generating revenues ("in revenue
service") for CellNet. The CellNet network uses radio devices fitted to assets
such as utility meters that are capable of reading and reporting 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, also known as Commercial Data Services, 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 an early market opportunity to offer wireless data
communications services on a broad 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 utility 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 millions of 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 rate making, in which a utility's rates
are determined by its return on assets, to performance-based rate making, in
which a utility's rates and profitability are based upon its cost, efficiency
and service quality.
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With deregulation of the electric utility industry underway, established
utilities are coming under increasing regulatory, consumer and competitive
pressures. The changing regulatory environment means that other utility industry
participants, such as energy service providers, 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. CellNet believes its network meter reading 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 provides
meter reading services through a proven, efficient, low-cost, scaleable network
that enables both established utilities and other utility industry participants
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 utilities to
respond effectively to regulatory changes, reduce costs and enhance their
operating efficiencies, defer capital spending and implement customer retention
plans. CellNet's system also facilitates market entrance by new power market
participants.
CellNet is actively targeting the largest Metropolitan Statistical Areas and
Consolidated Metropolitan Statistical Areas, which together represent a majority
of the approximately 250 million electric, gas and water meters in the United
States, state-by-state, as deregulation becomes effective. CellNet believes that
utilities and other utility industry participants 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 CellNet 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 utilities, CellNet
believes that actual implementation of utility deregulation will ultimately
accelerate purchasing decisions by established utilities. CellNet is evaluating
new opportunities arising from deregulation. CellNet's open systems architecture
is designed for deployment strategies focused either on established utilities or
new power market participants, or both, without requiring significant
modifications to CellNet's network system.
As of December 31, 1998, CellNet had existing long-term contracts to provide
network meter reading services to Kansas City Power & Light Company ("KC Power &
Light") for approximately 437,000 meters, AmerenUE (formerly known as the Union
Electric Company) ("AmerenUE") for approximately 1,264,000 meters, Northern
States Power Company ("N. States Power") for approximately 1,087,000 meters,
Puget Sound Energy, Inc. ("Puget Sound Energy") for approximately 800,000 meters
and Indianapolis Power & Light Company ("Indianapolis Power & Light") for
approximately 420,000 meters. CellNet also has an agreement with C3
Communications for a potential of 500,000 meters. Of the meters covered under
these contracts, approximately 1,770,000 meters were in revenue service as of
December 31, 1998. Each of these contracts results from CellNet's "saturation
deployment" strategy for providing network meter reading services to existing
utilities. Under this strategy, CellNet builds out a network to cover virtually
every meter in a utility's designated service area. The strategy allows coverage
of all of the energy consumers in those service areas. To implement the
strategy, CellNet builds out its wide area network and local area network
concurrently. The network begins generating revenue shortly after meters come
on-line, and new meters can be added incrementally. CellNet has ongoing
discussions concerning additional contracts of a similar kind with other
utilities in the United States.
CellNet began actively targeting new power market participants in September
1997. To date, CellNet has entered into contracts with eighteen energy service
providers and two energy aggregators, including contracts with nonregulated
power marketing arms of the nation's large utilities and energy providers for
the provision of network meter reading services in California, including Sempra
Energy Solutions, New West Energy, Duke Solutions, Commonwealth Energy, and
Dynergy, a division of NGC Corp. CellNet expects to enter into similar
arrangements with additional new power market
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participants both in California and in certain other states where deregulated
markets open up further opportunities for the deployment of CellNet's networks.
Each of these contracts results from CellNet's alternative "broad deployment"
strategy, which is a variation of CellNet's saturation deployment strategy
outlined above. Under CellNet's broad deployment strategy, CellNet first deploys
its wide area network in service areas where the largest consumers of energy are
located and where energy consumers and other power market participants are most
likely to value CellNet's services and/or to concentrate their marketing
efforts. As contracts for the provision of network meter reading services are
obtained, CellNet builds out its local area network on an incremental basis as
necessary to service those customers or for advanced coverage of certain areas.
Broad deployment offers energy service providers who lack the established
utilities' designated geographical customer bases the flexibility to build as
they grow or to pursue particular market niches. It also offers established
utilities, which are not yet prepared to commit resources to a long-term
saturation deployment project, the opportunity to cover a portion of their
customers initially and to increase coverage in their service areas over time,
potentially to all of their meters. However, contracts resulting from CellNet's
saturation deployment strategy are expected to remain the majority of contracts
for CellNet networks for the foreseeable future.
By using networks deployed under either the saturation or broad deployment
strategy, CellNet is also able to offer network meter reading information and
metering services directly to energy consumers, to the extent that the
information provided by such services is not being made available to them by
their own utility or energy service provider. Use of these networks also allows
CellNet to offer network meter reading services to monitor sub-meters for
industrial and commercial customers who desire to itemize their overall energy
usage by monitoring the energy consumption of heating, ventilation and air
conditioning systems, individual manufacturing processes or pieces of equipment,
or individual departments.
CellNet 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 CellNet's systems include
remote status monitoring of home security systems, vending machines, office
equipment, parking meters and other equipment as well as remote control of
traffic equipment. CellNet has worked with industry leaders such as Xerox,
Honeywell, Inc., Real Time Data, Inc., and Interactive Technologies, Inc. to
develop such applications. CellNet believes that its utility networks will
provide an excellent platform to position CellNet as a leading wholesale
provider of wireless data communications services for such non-utility
applications.
CellNet believes that a significant international market also exists for its
services with an estimated 600 million electric, gas and water meters outside of
the United States and substantial opportunities for non-utility applications.
CellNet is pursuing international markets through a joint venture with Bechtel
Enterprises, Inc. The joint venture, BCN Data Systems L.L.C. ("BCN") has
concentrated its initial efforts on entering the market in the United Kingdom
and is also considering opportunities in Australia and elsewhere. See "Business
Strategy -- Pursue International Expansion."
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 rate making, in which an electric
utility's rates are determined by its return on assets, to performance-based
rate making, 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
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transformed as a result of competition. 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 the past
year, several major electric utilities entered into merger agreements and other
consolidation transactions and bought and sold generation assets. 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. Under
the EP Act, individual states have the sole authority to mandate the transport
and delivery or "wheeling" of electric power to retail customers. As a result,
eighteen states (Arizona, California, Connecticut, Illinois, Maine, Maryland,
Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New York,
Oklahoma, Pennsylvania, Rhode Island,Vermont and Virginia) 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, Nevada, New Hampshire and New Jersey are also requiring
utilities to "unbundle," or offer as separate services, metering, billing and
collection, and three more states are formally investigating such unbundling.
Unbundling implies that a third party, such as a new power market participant,
would be free to own the electric meter that measures usage and attaches to a
commercial, industrial or residential customer's premises. Traditionally, the
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 furthest in the deregulation process, the
California Public Utility Commission (the "CPUC") mandated competitive retail
wheeling and unbundling effective April 1, 1998 for large commercial and
industrial customers and January 1, 1999 for all remaining customers. By
mandating retail wheeling the CPUC allows the customer to choose among energy
service providers. The CPUC has also mandated hourly metering capability for
commercial and industrial customers choosing direct access and which require
more than 50 kW of power, which will be decreased to 20kW in the year 2002.
The changing regulatory environment means that new power market participants
will be entering into a market traditionally dominated by established utilities.
To date, more than 33 parties have registered with the CPUC as Registered Energy
Service Providers to provide electric services in California. The established
utilities are focused 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 believes it 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.
CellNet 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 commercial and
industrial customers in California. Other deregulating states which require
hourly metering for commercial and industrial customers include Michigan and
Arizona. It is possible that other states will follow. CellNet believes that
CellNet's meter reading technology, or meter reading technology similar to it,
will be needed to do such hourly meter reading.
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THE CELLNET SOLUTION
CellNet has designed, developed and deployed in scale the first wireless data
communications network designed to provide high-volume, real-time event
monitoring of up to several million endpoints. Since the primary application of
the network is to provide network meter reading 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 can enable 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;
- meter tampering ("power theft") notification;
- 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 or increase
their market shares, while new power market participants will seek to capture
market share in the post-deregulation retail market. CellNet's system is
designed to enable established utilities and new power market participants to
respond effectively to regulatory changes and enhance their performance, and
differentiate their service in the competitive markets. CellNet's system will
facilitate the strategic objectives of established utilities and new power
market participants 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 that are 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 commercial and
industrial customer choosing direct access and which require more than 50 kW of
power, which will be decreased to 20 kW in the
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year 2002. The manual meter reading process, even if automated through the use
of hand-held and drive-by automatic meter reading equipment, does not meet these
criteria. The consumption data collected by automatic meter reading is typically
transmitted to the utility's information system on a monthly basis. Such
periodic meter readings do not provide necessary metering data to implement
these regulatory and competitive initiatives.
RESPOND TO REGULATORY INITIATIVES. Where 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 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. 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 meter reading when a customer moves
in or moves out of a building, 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.
CellNet's fully automated wireless data network helps utilities to reduce both
direct and indirect operating costs associated with meter reading.
OFFER LOW-COST NETWORK SYSTEM. The CellNet system offers a low-cost,
frequency-efficient network, 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 CellNet 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
network meter reading 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, (i) problems may be detected earlier and
solved more quickly, (ii) operations may become more reliable, and (iii) 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.
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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 rate making 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 network
meter reading services will enable 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 a network meter reading 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.
BUSINESS STRATEGY
CellNet intends to deploy and operate a series of wireless data communications
networks and to earn recurring revenues by providing network meter reading
services. CellNet also intends to earn revenues to an increasing degree through
the sale of certain equipment to energy service providers and by using the
network to support a variety of non-utility applications. Principal elements of
CellNet's strategy are to (i) focus on power, gas and water markets, (ii)
promote development of non-utility applications, (iii) form strategic
relationships, (iv) pursue international expansion and (v) outsource a
substantial portion of its manufacturing and installation activities. CellNet is
also focusing increasingly on licensing its technology to leading manufacturers
in key industries, to ensure development of compatible products. See "-- Form
Strategic Relationships."
FOCUS ON POWER SUPPLY MARKETS
CellNet is initially targeting the largest Metropolitan Statistical Areas, which
represent a majority of the approximately 250 million electric, gas and water
meters in the United States, state-by-state, as deregulation becomes effective.
CellNet believes that energy service providers operating in or entering these
densely populated markets will be the most likely affected by increased consumer
competitive and regulatory pressures, and as such, will have the greatest need
to adopt wireless network meter reading. These Metropolitan Statistical Areas
also offer the greatest potential markets for non-utility applications. CellNet
is also pursuing selected opportunities with electric, gas and water service
providers outside of the largest Metropolitan Statistical Areas.
PROMOTE DEVELOPMENT OF NON-UTILITY APPLICATIONS (COMMERCIAL DATA SERVICES)
Through the efficient use of spectrum, each CellNet network is designed to have
the capacity, after serving all of a utility's network meter reading and
distribution automation requirements, to support non-utility services that would
benefit from the availability of a low-cost wireless network. Under broad
deployment, CellNet expects to have significantly enhanced opportunities to
implement non-utility applications, because CellNet's networks will be available
in a substantially greater number of high population density centers. CellNet
has worked with leading manufacturers and application developers in
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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, office and factory equipment, and
intelligent home devices, such as remote control thermostats; and
- intelligent transportation monitoring systems for parking meters and
street lights.
CellNet 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 and Interactive Technologies, Inc.
("Interactive Technologies"), a leading provider of wireless home security
systems, have developed a security system which is capable of communicating over
CellNet's networks.
By using a CellNet network, parking meters can be managed and monitored, and
theft and tampering can be mitigated. CellNet currently has a field trial
underway demonstrating the use of its technology with parking meters.
Remote monitoring of vending machines could substantially reduce the cost of
servicing those machines. Real Time Data, Inc. ("Real Time Data") has developed
a vending machine monitoring device which tracks product sales and inventory.
Real Time Data and CellNet have worked together to integrate Real Time Data's
devices with CellNet's networks.
Remote metering and monitoring of photocopy and other office machines would
allow companies that lease or service such machines to reduce their costs of
collecting billing data from installed machines. Additionally, advanced
monitoring services can reduce the cost to service and maintain such machines.
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-like" panel which allows consumers
to use electricity more efficiently by programming appliances, such as the
heating, ventilation and air conditioning system and hot water heater. Devices
within the home would communicate with one another over existing electrical
wiring using power line carrier 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.
FORM STRATEGIC RELATIONSHIPS
CellNet is forming strategic relationships 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:
ASEA BROWN BOVERI. CellNet entered into a strategic relationship with Asea
Brown Boveri, a leading manufacturer of meter products. Asea Brown Boveri
currently installs CellNet meter modules in its meter products at its factories.
Asea Brown Boveri is also working with CellNet on a new product, which provides
the capability for advanced metering systems.
8 CELLNET
<PAGE>
BADGER METER, INC. ("BADGER"). CellNet entered into an agreement with Badger, a
leading seller and manufacturer of products using flow measurement and control
technology to serve industrial and utility markets worldwide. Under this
agreement, Badger incorporates CellNet's patented radio technology into Badger's
water meter reading products.
BECHTEL ENTERPRISES, INC. ("BECHTEL"). CellNet entered into a joint venture
with Bechtel, called BCN Data Systems, L.L.C., to pursue international
opportunities. See "-- Pursue International Expansion."
CONNEXT, INC. ("CONNEXT"). CellNet entered into a joint marketing agreement
with ConnexT, a subsidiary of Puget Sound Energy 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 CellNet entered into a non-binding memorandum
of understanding ("MOU") to develop and implement, on a non-exclusive basis,
automated network meter reading solutions that incorporate both parties'
products.
HONEYWELL. Honeywell and CellNet have worked together on creating "smart
communicating" thermostats that can work in a home energy management system.
Honeywell also has been a subcontractor for meter installations using CellNet
technology.
INTERACTIVE TECHNOLOGIES. CellNet entered into an agreement with Interactive
Technologies, a leading provider of wireless, in-home security systems, to
develop moderately-priced security systems based on Interactive Technologies'
existing security devices and CellNet's wireless technology.
LANDIS & GYR. CellNet and Landis & Gyr, which is now a division of Siemens,
agreed to a joint project whereby Landis & Gyr will incorporate CellNet's data
communications technology into its recently released Altimus-TM- electricity
metering system.
SIEMENS ENERGY AND AUTOMATION, INC./SIEMENS MEASUREMENTS LTD.
("SIEMENS"). CellNet is working with PSI, a Siemens business unit, to integrate
PSI's Energy Analyzer Plus software for collecting data over the PSTN from a
variety of high-end electric and gas meters with the CellNet system, so as to
enable CellNet to offer multi-technology network meter reading services. CellNet
and BCN licensed CellNet's technology to Siemens in the United Kingdom to
manufacture metering products which communicate over CellNet's networks. The
first products manufactured by Siemens that incorporate CellNet's technology
have been completed and are being shipped.
REAL TIME DATA. As described above, Real Time Data, a developer of remote
vending machine monitoring systems, has worked with CellNet to develop vending
machine monitoring systems that are compatible with CellNet's wireless network
technology.
SCHLUMBERGER. CellNet has entered into an agreement with Schlumberger, an
international, worldwide leader in oil field services, measurement and systems
and telecommunications, to license to Schlumberger CellNet's proprietary radio
technology for use in Schlumberg's electric, gas and water meter product lines.
Under this license, Schlumberger has been manufacturing and shipping
Schlumberger's Centron electric meters and water meters using CellNet's
technology.
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<PAGE>
CELLNET APPLICATIONS PARTNERS PROGRAM (CAPP)
Twelve leading software companies have announced their participation in the
CellNet CAPP program and their intention to offer products and services
compatible with the CellNet system, enabling CellNet customers to expand their
usage of the CellNet system. These partners include:
AMEREN ABACUS, a CellNet-ready informational metering service from Ameren
Corporation, which provides financial and operations managers with frequent and
detailed energy consumption information.
CONFIGURED ENERGY SYSTEMS (CES) which supplies product-based Integrated
Distribution Management Systems for electric utility operations dispatch,
trouble management, crew management, feeder restoration, and other operations
functions.
CONNEXT, INC., which provides Internet-enabled solutions that facilitate all
aspects of customer relations, sales and marketing and billing for energy
companies.
ENERCOM, which develops Internet and PC-based energy application software for
energy companies.
ENERGY INTERACTIVE (EI), which provides energy information software products and
services for energy providers.
INSITE SERVICES, which provides bill consolidation, data acquisition, bill
auditing, bill payment administration, rate analysis, energy benchmarking,
customized Internet reporting and usage analysis.
LODESTAR CORPORATION (formerly, Utility Marketing Services/UMS), which provides
Internet-based billing and customer care software solutions.
NATIONAL WATER & POWER, INC., which provides utility management and billing
company.
OARSMAN CORPORATION, which provides interactive tool and information systems for
residential, commercial, industrial, and agricultural customers.
SILICON ENERGY CORP, which provides enterprise-wide energy information decision
support, demand monitoring and management and system control.
STRATEGIC RESOURCE SOLUTIONS, which offers specialized software, systems and
expertise for maintaining multi-site facilities and controlling building
environments.
STARK NORTH AMERICA, INC., which provides energy information systems and
services for utilities, energy service providers and end-users.
PURSUE INTERNATIONAL EXPANSION
With an estimated six hundred million utility meters located outside of the
United States and with substantial opportunities to use the CellNet system for
non-utility applications, the international market offers significant additional
opportunities for CellNet.
CellNet and Bechtel have formed BCN as an international joint venture in order
to take advantage of these opportunities. BCN has the exclusive right to deploy
and operate CellNet's wireless data communications system in countries outside
the United States. CellNet is generally allocated 50% of BCN's net income or
loss. CellNet licenses its technology to BCN and BCN is authorized to sublicense
that technology to individual local operating project entities in which BCN or
other
10 CELLNET
<PAGE>
affiliates of CellNet and Bechtel are expected to invest and generally maintain
operating control. The managing board of BCN is composed of an equal number of
representatives from each party and reviews and approves all major business
decisions.
In considering international expansion opportunities for the CellNet System, BCN
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.
BCN considers the United Kingdom a particularly attractive market, with
approximately 50 million meters and deregulation underway. BCN is currently
concentrating its efforts primarily on entering the market in the United
Kingdom, and is also investigating opportunities in Australia and elsewhere.
OUTSOURCE SUBSTANTIAL MANUFACTURING AND INSTALLATION ACTIVITIES
CellNet outsources a substantial portion of its manufacturing and installation
activities. As a result, CellNet makes use of 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
capacity and resources to meet highly variable production requirements. CellNet
will retain overall network construction responsibility, but intends to rely on
subcontractors for network and meter installation, such as GTE, Honeywell and
others, for network and meter installation, who have demonstrated their
capabilities, experience and reliability and who have good working relationships
with CellNet's customers. CellNet believes that outsourcing installation
activities will reduce the start-up time and CellNet's investment risk for each
project.
SALE OF NETWORK EQUIPMENT
CellNet intends to enter into contracts for the sale of certain network
equipment to utilities, new power market participants and other customers.
CellNet further intends to enter into reseller agreements and value added
reseller agreements with certain qualified companies. To date, CellNet has
received insignificant revenues from such contracts but expects to earn revenues
to an increasing degree from such contracts.
WIRELESS COMMUNICATIONS INDUSTRY OVERVIEW
CellNet operates within the wireless communications industry, which includes
PCS, specialized mobile radio, microwave, cellular (including cellular digital
packet data), paging and multiple address radio system 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. Historically,
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.
CellNet's system is a wireless telecommunications network designed to utilize
small amounts of spectrum and to provide low-cost, high-volume, real-time
monitoring of large numbers of fixed endpoints. CellNet believes that other
telecommunications solutions or market segments are not as well suited for use
in network meter reading, 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 areas, where other
telecommunications solutions may be less expensive. 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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<PAGE>
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 network meter reading services
which include:
LOWER AVERAGE MARKET ADOPTION RISK. In general, CellNet constructs its
saturation deployment networks after entering into a long-term relationship with
a utility or other client. In such circumstances, CellNet does not need to
finance construction of networks in anticipation of obtaining customers.
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 existing saturation subscriber endpoints do not
experience frequent change or "churn." The marketing and administrative costs
typically associated with churn, and the capital risk associated with variable
penetration rates, are thus virtually eliminated. Further, due to inflation
escalation clauses in CellNet's existing services agreements, CellNet believes
that the value of its revenue per endpoint in real terms will likely be
maintained over time.
HIGHER CUSTOMER CREDIT QUALITY. CellNet receives the majority of its contract
service revenue directly from energy service providers rather than from
individual subscribers. As a result, CellNet 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. CellNet'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. Radio devices, which
represent the bulk of network components, are simply "plugged in" as newly
retrofitted meters to replace an existing meter. CellNet's MicroCell Controllers
typically take two hours to physically install and its CellMasters one or two
days to physically 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 telecommunications providers such as those providing cellular
phone service.
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 CellNet is able to utilize a small amount of frequency (the equivalent
of approximately a single cellular voice channel) for a wide metropolitan area,
it has not been subject to the substantial frequency acquisition costs
associated with wireless communications companies.
TECHNOLOGY
CellNet's network meter reading 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 communications and applications support software,
and (vi) efficient use of bandwidth to minimize spectrum acquisition costs.
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<PAGE>
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 which manage the endpoint devices in their local
coverage area (as part of a local area network or "local area network")
and which collect and process data transmissions from such endpoint
devices;
- CellMasters which relay data from MicroCell Controllers located in a wide
coverage area (as part of a wide area network or "wide area network") 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.
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 MicroCell Controller
and typically includes a transceiver or transmitter. CellNet has developed
endpoint devices which may be fitted to each of the major types of utility
meters 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 MicroCell
Controller once every few minutes. Electric meter endpoints are also able to
transmit "distress signals" indicating meter tampering or power outages. CellNet
began introducing its commercial endpoint devices for gas meters in 1996 and
completed the development and introduction of additional models in 1997. CellNet
contracted with Badger and Schlumberger to develop endpoint devices for water
meters and introduced its first models in 1998. CellNet is also working with
industry leaders to develop endpoint devices for non-utility applications. See
"-- Business Strategy -- Form Strategic Relationships."
MICROCELL CONTROLLERS. A MicroCell Controller is a device which is mounted on a
utility pole or other fixed location in the center of a microcell and which
collects and routes data from all of the endpoints in the microcell to the
System Controller via the wide area network. 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 MicroCell
Controller 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 MicroCell Controller 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 performed at the MicroCell Controller level. The
MicroCell Controller 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
MicroCell Controllers and Remote Terminal Units over an area typically covering
approximately 20-75 square miles (2.5-5-mile radius). The coverage area can vary
substantially depending upon the deployment techniques employed. 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
wide area networks covering specific service areas are composed of a number of
CellMaster units. A CellMaster communicates with the MicroCell Controllers using
a radio link in the 928/952 mHz band, which is a licensed portion of spectrum.
13 CELLNET
<PAGE>
REMOTE TERMINAL UNITS. Remote Terminal Units monitor and operate equipment at
specific points in an electric utility's distribution system. CellNet integrates
a two-way radio device into Remote Terminal Unit equipment manufactured for a
utility by other parties, which enables remote operation of these Remote
Terminal Units. 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 system
operator, who manages the network for CellNet's clients, to manage traffic,
monitor performance and configure network devices. At the network systems
operations center, the System Controller provides customized gateways to
integrate with client data systems. As non-utility applications are deployed,
CellNet may integrate additional server devices to manage such non-utility
applications at the System Controller level.
CellNet's network equipment, MicroCell Controllers, CellMasters and System
Controllers are equipped with back-up batteries and continue to operate in the
event of a power outage.
CellNet also operates the CellNet Central Operations Room at its 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. CellNet 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 network meter reading
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 Radio Network Operating System
("R(-)NOS") is a proprietary system that provides sophisticated network
communication services between the System Controller and the CellMaster units,
Remote Terminal Units, MicroCell Controllers 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 R(-)NOS is able to maintain fast response times and system
capacity by distributing a significant portion of the network's computing power
at the MicroCell Controller level.
The R(-)NOS offers the benefits of incrementally adding processing power as well
as supporting remote operations required for 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 R(-)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 R(-)NOS architecture
will enable the system to offer services for many new applications unrelated to
network meter reading services such as distribution automation and non-utility
applications. By building on a general
14 CELLNET
<PAGE>
network capability CellNet 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, CellNet
believes that this architecture can evolve to incorporate future advances in
wireline and wireless communications. CellNet has made a substantial commitment
to establishing a strong competitive position, having invested several 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 wide area network
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 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. As of December 31, 1998,
CellNet has obtained 154 spectrum licenses in 54 of the top 60 Metropolitan
Statistical Areas and Consolidated Metropolitan Statistical Areas. CellNet
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.
MANUFACTURING AND OPERATIONS
CellNet currently outsources the manufacture and assembly of its high volume,
low cost equipment such as endpoint radio devices and a portion of its lower
volume, more complex equipment, including MicroCell Controllers. 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 CellMasters and those MicroCell Controllers that it
does not already outsource. 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.
CellNet's proprietary system for retrofit information management analyzes
operating data, generates reports, and provides this information to customers
for inclusion in their databases. CellNet presently installs its endpoint radios
on both new and previously installed electric meters at its retrofit facility in
Kansas City, Missouri. Similar regional retrofit centers may be established as
needed to meet the network installation requirements under new services
agreements. In addition, certain meter manufacturers are installing CellNet
meter radios on new meters as a part of their meter manufacturing process.
CellNet'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. CellNet
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
15 CELLNET
<PAGE>
and cost. See "Risk Factors That May Affect Future Operating Performance --
CellNet Depends on Third-Party Manufacturers and Faces Risks Associated with
Component Shortages."
SYSTEM DEPLOYMENT AND OPERATION
For each of its network deployments, CellNet 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 and water 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 MicroCell Controllers
take typically less than two hours each to physically install and the
CellMasters one or two days to physically 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 CellNet'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, such as radio frequency network design, system software
installation and integration, training of local systems administration
personnel, FCC licensing requirements, and remote systems monitoring.
CellNet's local personnel are responsible for radio frequency 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 saturation deployment project, local personnel for
the project employed by CellNet typically number from twenty to fifty people
(for deployments the size of KC Power & Light and AmerenUE), 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.
CellNet also intends to provide substantial customer support, including on-going
field support and critical centralized network support functions through
regional network control centers. Currently, CellNet is providing sophisticated
network monitoring from its facilities in California.
SALES AND MARKETING
CellNet has organized its sales and marketing efforts based on utility and
non-utility network applications. For its utility segment, CellNet's initial
target market includes the larger Metropolitan Statistical Areas and
Consolidated Metropolitan Statistical Areas in the United States which represent
a large majority of the meters in the United States. CellNet is also pursuing
selected utilities outside the larger Metropolitan Statistical Areas and
Consolidated Metropolitan Statistical Areas. CellNet has a sales and marketing
organization of 63 persons 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.
CellNet intends to concentrate its marketing efforts for non-utility
applications on industry-leading providers of products and services that would
benefit from CellNet's low-cost wireless network. CellNet is working with
leading manufacturers
16 CELLNET
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and applications developers to promote and develop products and services that
utilize CellNet's networks. See "-- Business Strategy -- Promote Development of
Non-Utility Applications (Commercial Data Services)." CellNet expects that the
manufacturers and developers of such products and services would market such
products and services to end users.
CellNet 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 marketing,
product management and consumer products.
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.
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 wide area network radio system has been developed using advanced
digital signal processing techniques and a radio frequency 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 a Remote Terminal Unit or MicroCell Controller. The
CellMaster's burst data recovery process is also the subject of an issued
patent's claim.
The spread spectrum radio technology utilized in the CellNet local area network
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 CellNet 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
appealed the decision. In the interim, based upon a Court of Appeals ruling in
another case (DH Technology v. Synergystex International), the U.S. patent
office has accepted Axxon's tender of late payment, which suggests that the
disputed patents may no longer be treated as expired. While such patents are
included in CellNet's license of the Axonn spread spectrum technology, CellNet
does not believe that the ultimate outcome of the Axxon case would have a
material adverse impact on CellNet's business, operating results, financial
condition and cash flows.
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CellNet has developed a proprietary approach to transmitting metering
information which allows the local area network to accumulate time of use,
demand and load profile data. CellNet's protocols and data transmission methods
are incorporated in its proprietary software imbedded in its products
("firmware"). During the development and test deployments of the CellNet wide
area network and local area network radio systems, CellNet 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 radio frequency systems.
CellNet'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
That May Affect Future Operating Performance -- Risks Associated with the
Uncertainty of Protection of Copyrights, Patents and Proprietary Rights."
RESEARCH AND DEVELOPMENT
CellNet 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. CellNet spent $30.2
million, $27.5 million, and $25.4 million for research and development in 1998,
1997 and 1996, respectively. CellNet presently employs more than 131 software
and hardware engineers and other professional staff in these efforts and
contracts with a number of highly-specialized outside consultants for additional
services as required. The focus of CellNet'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 MicroCell
Controllers), 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. CellNet 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. CellNet's future success will depend, in part, on
CellNet's success in these development projects which will require continued
substantial investments. See "Risk Factors That May Affect Future Operating
Performance -- Risks Associated with Technological Performance and Buildout of
the System; Rapid Technological Change and Uncertainty."
As part of CellNet's research and development efforts, CellNet 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 network meter reading 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. CellNet 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 automatic meter reading equipment to utilities. Itron
is currently providing to customers its Genesis-TM- system, a wireless radio
network marketed as similar to CellNet's for meter reading purposes.
There are other potential competitors in the marketplace, although none of them
currently has a large commercially deployed system. Mtel has announced that it
intends to adapt its technology to carry data from local area networks operated
by third parties who would offer residential services similar to network meter
reading some time in 1999, with
18 CELLNET
<PAGE>
the development of endpoint radios and network management capabilities being
left to other independent companies. Whisper Communications now offers its True
2 Way-TM- fixed-based radio frequency architecture communications technology for
automated meter reading and other services and has several trials and one
deployment underway. Metricom, a provider primarily of subscriber-based,
wireless data communications for users of portable and desktop computers, is
currently involved in the automated meter reading market through trials with
Whisper Communications. Schlumberger is working with a number of companies
including CellNet, to conduct pilot trials of utility network automation
systems. Other wireless communications providers who have entered the market for
utility and commercial data services include cellular control channel companies
such as Cellemetry and Aeris Communications. These companies offer low bandwidth
services that compete with some of CellNet's metering applications. Several
companies are offering telephone-based network automated meter reading services
or equipment. Among these are Teldata, Inc. and American Innovations. Bell South
Wireless (formerly, Ram Mobile Data) offers data services that may compete with
a variety of CellNet's data services. 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 CellNet although they have not yet done so.
Communications or technology companies may also seek to adapt new or existing
technology to serve this market.
Many of CellNet's present and potential future competitors have significantly
greater financial, marketing, technical and manufacturing resources, name
recognition and experience than CellNet. There may be many potential alternative
solutions to CellNet's network meter reading services. CellNet'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 CellNet. While CellNet believes its
technology is widely regarded as competitive at the present time, there can be
no assurance that CellNet'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 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 CellNet achieves
significant success it could draw additional competitors into the market.
Traditional providers of wireless services may in the future choose to enter
CellNet's markets. However, such telecommunications applications are not well
suited for use in network meter reading 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 CellNet's services and CellNet'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
network meter reading services, and additional competitors may emerge as CellNet
continues to develop non-utility applications. There can be no assurance that
CellNet will be able to compete successfully against current and future
competitors, and any failure to do so would have a material adverse effect on
CellNet's business, operating results, financial condition and cash flows.
CellNet believes the principal competitive factors for network meter reading
services include price, quality of service, system functionality and capacity
for frequent readings, reliability, and ease of installation. CellNet believes
it competes favorably in these areas. In particular, CellNet believes that it is
the leading developer of large-scale network-based network meter reading system
capable of simultaneously collecting, processing, transporting and sharing data
from millions of endpoints on an efficient and timely basis.
19 CELLNET
<PAGE>
SPECTRUM REGULATION
CellNet's network equipment uses radio spectrum and as such, is subject to
regulation by the FCC. CellNet's network equipment uses both licensed radio
spectrum allocated for multiple address radio system operations in the 928/952
MHz band, and unlicensed spectrum in the 902-928 MHz band. In order to obtain a
license to operate CellNet'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 CellNet 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. CellNet 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. CellNet
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 CellNet's spectrum utilization strategy. See
"Risk Factors That May Affect Future Operating Performance -- CellNet Depends on
its Access to Radio Frequency Spectrum, which may be Affected by Regulation by
the FCC."
EMPLOYEES
As of December 31, 1998, CellNet had 856 employees, including 131 in product
development, 153 in materials and manufacturing, 63 in sales and marketing, 463
in field service and support, and 46 in administration. None of CellNet's
employees is currently represented by a labor union. CellNet believes that its
relationship with its employees is good.
ITEM 2. PROPERTIES
CellNet's administrative, sales and marketing, product development and
production facilities are located in San Carlos, California, where CellNet
leases approximately 107,000 square feet in three buildings under lease and
sublease agreements expiring in December 2000. Subsidiaries of CellNet lease
approximately 141,000 square feet of additional warehouse, manufacturing and
office space to support field operations in California and various other states.
CellNet anticipates that it will be able to acquire additional space as required
for its operations on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
In October 1996, Itron, one of CellNet's competitors, filed a complaint against
CellNet in the Federal District Court in Minnesota alleging that CellNet
infringed an Itron patent which was issued in September 1996. Itron sought a
judgment for damages, attorneys fees and injunctive relief. On January 28, 1999,
the Court ruled in favor of CellNet that, as a matter of law, CellNet's system
did not infringe the Itron patent. The Court also ruled in favor of Itron that
the Itron patent was valid against certain prior art. These rulings are subject
to possible appeal by either or both of the parties. CellNet has not yet
determined its course of action in this regard. CellNet believes that the
ultimate outcome of the lawsuit is not expected to have a material adverse
effect on CellNet's business, operating results, financial condition and cash
flows.
In April 1997, CellNet 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. CellNet sought an injunction, damages and other relief. On November
2, 1998, the Court ruled that Itron's patent does not infringe upon CellNet's
Patent No. 4,783,623. CellNet recently filed its notice of appeal in this
action.
The consolidated complaint of Jere Settle and Karen Zully v. John M. Seidl, et
al., No. 398464, filed in the Superior Court of California for the County of San
Mateo, is a purported class action on behalf of CellNet's stockholders against
CellNet,
20 CELLNET
<PAGE>
certain of its officers and directors and underwriters of CellNet's initial
public offering seeking unspecified damages and rescission for alleged liability
under various provisions of the federal securities law and California state law.
The plaintiffs alleged generally that the Prospectus and Registration Statement
dated September 26, 1996, pursuant to which CellNet issued 5,000,000 shares of
common stock to the public, contained materially misleading statements and/or
omissions in that CellNet was obligated to disclose, but failed to disclose,
that a patent conflict with Itron, Inc. was likely to ensue. The complaint was
dismissed on February 9, 1998, without leave to amend. Plaintiffs filed an
appeal in the California Court of Appeal, which is pending. In the opinion of
CellNet, the ultimate outcome of the appeal is not expected to have a material
adverse effect on CellNet's business, operating results, financial condition and
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
21 CELLNET
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CellNet's Common Stock is traded on the Nasdaq National Market under the symbol
"CNDS." The following table sets forth, for the periods indicated, the range of
the low and high sales prices for CellNet's Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
HIGH LOW
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Fiscal 1997
First Quarter $ 14.875 $ 7.125
Second Quarter 12.750 6.750
Third Quarter 13.125 10.500
Fourth Quarter 12.750 7.375
- --------------------------------------------------------------------------------------------
Fiscal 1998
First Quarter $ 10.250 $ 7.438
Second Quarter 14.063 9.125
Third Quarter 9.938 5.313
Fourth Quarter 7.031 4.375
- --------------------------------------------------------------------------------------------
Fiscal 1999
First Quarter (through March 15, 1999) $ 8.875 $ 5.000
- --------------------------------------------------------------------------------------------
</TABLE>
As of March 15, 1999, there were approximately 1,414 holders of record of
CellNet's Common Stock. On March 15, 1999, the last reported sale price on the
Nasdaq National Market for the Common Stock was $5.750. The market for CellNet's
Common Stock is highly volatile. See "Risk Factors That May Affect Future
Operating Performance -- CellNet's Common Stock Price is Volatile."
CellNet has not declared or paid any dividends on its capital stock since its
inception. CellNet 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. In
addition, CellNet's existing financing arrangements restrict the payment of any
dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with CellNet'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, 1998, 1997 and 1996 and the consolidated balance
sheet data at December 31, 1998 and 1997 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, 1995
and 1994 and the consolidated balance sheet data at December 31, 1996, 1995 and
1994 are derived from audited consolidated financial statements not included
herein.
22 CELLNET
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
- ------------------------------------------------------------------------------------------------------------------------
Revenues $ 13,009 $ 5,842 $ 1,669 $ 2,126 $ 1,651
Costs and expenses:
Cost of revenues 31,699 18,907 8,429 4,965 1,109
Research and development 30,197 27,524 25,394 20,883 9,091
Marketing and sales 11,988 10,148 6,021 4,114 3,179
General and administrative 17,926 15,670 12,036 6,258 2,353
Depreciation and amortization 18,449 11,973 6,123 2,295 992
- ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 110,259 84,222 58,003 38,515 16,724
- ------------------------------------------------------------------------------------------------------------------------
Loss from operations (97,250) (78,380) (56,334) (36,389) (15,073)
Equity in loss of unconsolidated affiliate (2,851) (2,834) -- -- --
Other income (expense), net (36,430) (21,252) (16,355) (4,564) 441
- ------------------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes, dividends and accretion on
preferred securities and extraordinary loss on early extinguishment
of 1995 Senior Notes (136,531) (102,466) (72,689) (40,953) (14,632)
Provision for income taxes 4 1 5 3 2
- ------------------------------------------------------------------------------------------------------------------------
Loss before dividends and accretion on preferred securities and
extraordinary loss on early extinguishment of 1995 Senior Notes (136,535) (102,467) (72,694) (40,956) (14,634)
Dividends and accretion on preferred securities (4,951) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Loss before extraordinary loss on early extinguishment of 1995 Senior
Notes (141,486) (102,467) (72,694) (40,956) (14,634)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (11,417) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $(141,486) $(113,884) $(72,694) $(40,956) $(14,634)
- ------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share:
Before extraordinary loss on early extinguishment of 1995 Senior Notes $ (3.40) $ (2.59) $ (6.08) $ (13.93) $(13.02)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (0.29) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $ (3.40) $ (2.88) $ (6.08) $ (13.93) $(13.02)
- ------------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per share 41,632 39,506 11,963 2,939 1,124
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
23 CELLNET
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
- ------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and short-term investments $ 86,233 $148,058 $178,875 $143,797 $ 24,508
Restricted cash 17,984 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total assets 344,062 293,985 259,551 184,306 31,809
Long-term obligations, including current portion 349,187 269,551 207,852 183,348 546
Mandatorily redeemable preferred securities of subsidiary holding
solely Company preferred stock 106,191 -- -- -- --
Series CC redeemable convertible preferred stock -- -- -- 29,486 29,486
Total stockholders' equity (deficit) (137,496) 2,264 40,245 (38,103) (1,564)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 CELLNET
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS ITEM CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. CELLNET'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 THAT MAY AFFECT FUTURE OPERATING PERFORMANCE"
HEREUNDER AND ELSEWHERE IN THIS REPORT.
OVERVIEW
CellNet intends to deploy and operate a series of wireless data communications
networks pursuant to services agreements with utilities and other parties
including new power market participants to earn recurring revenues by providing
network meter reading services and to use the networks to support a variety of
non-utility applications. CellNet employs two basic strategies in the deployment
of its networks -- saturation deployments for providing network meter reading
services to existing utilities, and broad deployments for providing network
meter reading services to other parties including new power market participants.
Under CellNet's saturation deployment strategy, CellNet builds out its wide area
network and local area network concurrently in order to cover virtually every
meter in a utility's designated service area. The saturation deployment strategy
has proven effective because it allows coverage of all of the energy consumers
in those service areas. Under CellNet's broad deployment strategy, CellNet first
deploys its wide area network in service areas where the largest consumers of
energy are located and where energy consumers and other power market
participants are most likely to value CellNet's services and/or to concentrate
their marketing efforts. As contracts for the provision of network meter reading
services are obtained, CellNet builds out its local area network on an
incremental basis as necessary to service those customers or for advanced
coverage of certain areas. Both the local area network and wide area network can
be further expanded incrementally as additional business outside the existing
coverage areas is obtained. Broad deployment offers energy service providers who
lack the established utilities' designated geographical customer bases the
flexibility to build as they grow or to pursue particular market niches. It also
offers established utilities who are not yet prepared to commit their resources
to a long-term saturation deployment project the opportunity to cover a portion
of their customers initially and to increase coverage in their service areas
over time, potentially to all of their meters. By using networks deployed under
either strategy, CellNet is also able to offer (i) network meter reading
services directly to energy consumers, to the extent that the information is not
being made available to them by their own utility or energy service provider,
(ii) network meter reading services which monitor sub-meters for industrial and
commercial customers which desire to monitor the energy consumption of
particular heating, ventilation and air conditioning systems, individual
manufacturing processes or pieces of equipment and individual departments, and
(iii) a range of non-utility wireless data communication services for such
applications as home security, remote status monitoring of vending machines,
office equipment and parking meters, and remote control of traffic lights.
CellNet's business strategy has affected and will continue to affect its
financial condition and results of operations as follows:
COMPOSITION OF REVENUES. CellNet derives substantially all of its revenues from
fees earned under services agreements related to its wireless communications
networks. Under CellNet's existing services agreements with utilities, CellNet
receives monthly network meter reading 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 CellNet's future revenues will
depend upon its ability to obtain additional services agreements with utilities
and other parties including new power market participants and upon CellNet'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 CellNet does not enter into any additional services agreements or other
arrangements. As a result,
25 CELLNET
<PAGE>
CellNet expects that its revenues will not grow smoothly over time, but will
increase unevenly as CellNet 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
That May Affect Future Operating Performance -- CellNet's Future Revenues are
Uncertain; -- CellNet's Success Depends Upon its Entering into Additional
Services Contracts; and -- CellNet Expects its Operating Results to
Significantly Fluctuate."
UNCERTAINTY OF MARKET ACCEPTANCE. CellNet's future revenues will depend on the
number of new services agreements with established utilities and other parties
including new power market participants and on the amount of network meter
reading services to be provided thereunder. CellNet's existing revenues
principally arise from established utilities. During 1998, 92% of CellNet's
revenues were derived from its contracts with KC Power & Light, AmerenUE and N.
States Power. During 1997, approximately 88% of CellNet's revenues were derived
from its contracts with KC Power & Light and AmerenUE. The utility industry is
historically characterized by long purchasing cycles and cautious decision
making, and purchases of CellNet'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 CellNet'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, CellNet believes that implementation of
utility deregulation will ultimately accelerate the utility decision-making
process. CellNet believes that it will enter into additional services contracts
with other utilities and other parties including new power market participants,
as well as expand its contracts with current network customers; however, if
CellNet's services do not gain widespread industry 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, CellNet is seeking
opportunities to provide its network meter reading services to other parties
including new power market participants. CellNet believes it is well positioned
to offer competitive advantages to established utilities and other parties
including new power market participants. CellNet has entered into several
contracts with new power market participants and others for the provision of
network meter reading services. However there can be no assurance that CellNet
will be able to enter into contracts covering a sufficient number of meters to
recoup its costs of deployment, on terms favorable to CellNet, or at all.
CellNet also anticipates that, under contracts with new power market
participants, it would build out its networks, at least in part, before the
capacity is fully committed. For these reasons, CellNet's ability to obtain
financing for the capital expenditures associated with these contracts may be
limited, although CellNet 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 CellNet, reducing CellNet's costs. CellNet also
anticipates that its contracts with new power market participants and other
parties 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. CellNet intends to reduce this risk by marketing its
services to a wide range of new power market participants and other parties, but
there can be no assurance that CellNet will be successful in such marketing
efforts, or that the new power market participants or other parties will be
successful in capturing any significant share of the energy service market.
CellNet's long-term business plan contemplates the generation of a significant
percentage of future revenues from non-utility services. CellNet 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. CellNet currently has no services contracts which provide for the
implementation of such services, and CellNet has not yet deployed such services
on a commercial scale. In addition, unless CellNet is successful in deploying
its wireless networks in targeted service areas, CellNet 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.
26 CELLNET
<PAGE>
REVENUES LAG NETWORK DEPLOYMENT. CellNet 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 network meter reading data obtained.
CellNet 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 CellNet's capital investments and expenses incurred to deploy
such network for several years. As of December 31, 1998, CellNet had
approximately 4,008,000 meters under long-term contracts and has a potential
500,000 meters under an agreement with C3 Communications, of which approximately
1,770,000 meters were in revenue service. As additional segments of CellNet's
networks are installed and used by its customers for billing purposes, CellNet
expects to realize a corresponding increase in its network service revenues.
However, if CellNet is able to deploy successfully an increasing number of
networks over the next few years, the operating losses created by this lag in
revenues, the 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 the additional networks.
IMPACT OF RAPID EXPANSION. CellNet 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. CellNet has incurred substantial operating losses
since its inception and, as of December 31, 1998, had an accumulated deficit of
$423.1 million. CellNet does not expect significant revenues relative to
anticipated operating costs during 1999 and expects to incur substantial and
increasing operating losses and negative net cash flow after capital
expenditures for the foreseeable future as it expands and installs additional
networks. CellNet does not expect positive cash flow after capital expenditures
from its network meter reading services operations for several years. CellNet
will require substantial capital to fund operating cash flow deficits and
capital expenditures for the foreseeable future and expects to finance these
requirements through significant additional external financing. See "Risk
Factors That May Affect Future Operating Performance -- History and Continuation
of Operating Losses" and "-- Risks Associated with CellNet's Substantial Debt
and its Ability to Service the Debt; CellNet's Need for Substantial Future
Capital."
INTEREST INCOME. CellNet has earned substantial amounts of interest income on
short-term investments of the proceeds of its financing activities. CellNet
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, 1998, 1997 and 1996 were $13.0
million, $5.8 million and $1.7 million, respectively. During the year ended
December 31, 1998, AmerenUE, KC Power & Light and N. States Power accounted for
approximately 49%, 28% and 15% of CellNet's revenues, respectively. During 1997,
KC Power & Light and AmerenUE accounted for approximately 47% and 41% of
CellNet's revenues, respectively. During 1996, KC Power & Light and AmerenUE
accounted for 69% and 21% of CellNet's revenues. The increase in revenues from
year-to-year resulted primarily from increases in network service revenues,
consistent with the increase in the number of installed, revenue-generating
meters. CellNet's network service revenues for the years ended December 31,
1998, 1997 and 1996 were $11.2 million, $5.1 million and $1.2 million,
respectively.
27 CELLNET
<PAGE>
CellNet generally realizes service revenues under its services agreements only
when its networks or portions thereof are successfully installed and operating
and its clients begin billing their own customers or begin using the network
meter reading services provided. Revenues are expected to increase as CellNet
continues to install its networks, the networks or portions thereof become
operational, and its clients begin billing their own customers or begin using
the network meter reading services provided. CellNet expects to have product
sales associated with certain network meter reading deployments. Such sales
could be material to CellNet's revenues, although no assurance can be given in
this regard. Due primarily to the nature, amount and timing of revenues received
to date, no meaningful year-to-year comparisons can be made. Revenues received
during the years ended December 31, 1998, 1997 and 1996, respectively, are not
reliable indicators of revenues that might be expected in the future.
COST OF REVENUES
For the years ended December 31, 1998, 1997 and 1996, cost of revenues primarily
consisted of network operations costs. Cost of revenues was $31.7 million, $18.9
million and $8.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase in cost of revenues from year-to-year was driven by
increasing costs of providing network services to support the roll-out of new
and existing networks. Cost of network operations consists of labor costs and
associated costs necessary for network monitoring operations, network deployment
management and customer training. Cost of network operations also includes the
increased installation, applications and radio frequency engineering staffing to
support anticipated additional utility contracts. Network operations do not
currently generate a profit as CellNet has not yet achieved a scale of services
sufficient to cover network costs. CellNet will incur significant 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 $78.6 million, $65.3 million and $49.6 million for the years ended December
31, 1998, 1997 and 1996, respectively. The increase in operating expenses on a
year-to-year basis is attributable to CellNet's rapid growth and to increasing
research and development, marketing and sales and general and administrative
expenditures and increasing depreciation and amortization expense. CellNet
expects to moderately reduce its spending on research and development activities
in the coming year. Marketing and sales costs are expected to increase
moderately over current levels as CellNet continues its efforts to sign new
service agreements. General and administrative costs are expected to increase
over time in line with CellNet's expected growth and are expected to increase
moderately for the next few years in connection with the installation of a new
enterprise information system which commenced in the second quarter of 1998.
Depreciation and amortization expense is expected to grow as a result of
increased additions to networks, property and leasehold improvements.
RESEARCH AND DEVELOPMENT. Research and development expenses are attributable
largely to continuing system software, firmware and equipment developments
costs, prototype testing, personnel costs, consulting fees and supplies.
Research and development costs are expensed as incurred. CellNet's networks
include certain software applications which are integral to their operation. The
costs to develop such software have not been capitalized as CellNet 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 $30.2 million, $27.5 million
and $25.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively, net of technology migration expenses reimbursable by BCN Data
Systems, L.L.C. of $245,000 and $2.8 million, for the years ended December 31,
1998 and 1997, respectively. No expenses were reimbursable by BCN in 1996.
Research and development spending increases in 1998 over 1997 primarily reflect
additions to CellNet's engineering staff and the continued
28 CELLNET
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expenditure for technology migration without a corresponding reimbursement by
BCN in 1998. Increases in research and development spending in 1997 over 1996
reflect additions to CellNet's engineering staff and related expenses incurred
in 1997. CellNet expects that research and development expenses will decrease
moderately in the near term as CellNet's hardware and software products mature.
MARKETING AND SALES. Marketing and sales expenses consist principally of
personnel costs, including commissions paid to sales and marketing personnel,
travel, advertising, trade show and other promotional costs. Marketing and sales
expenses were $12.0 million, $10.1 million and $6.0 million for the years ended
December 31, 1998, 1997 and 1996, respectively. These expenses have increased
from year-to-year due to CellNet's accelerated efforts to sign new services
agreements and expenses related to significantly larger advertising programs.
CellNet expects marketing and sales expenses to increase moderately in the
coming year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
compensation paid to general management, administrative personnel costs, travel
and communications and other general administrative expenses, including fees for
professional services. General and administrative expenses for the years ended
December 31, 1998, 1997 and 1996 were $17.9 million, $15.7 million and $12.0
million, respectively. The increase in these expenses in 1998 over 1997 resulted
primarily from an increase in expenditures for employee incentive compensation
of $1.6 million and expenses related to a new enterprise information system of
$333,000. The increase in 1997 expenses over 1996 resulted primarily from an
increase in professional fees. CellNet expects general and administrative
expenses to increase over time in line with expected growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $18.4
million, $12.0 million and $6.1 million for the years ended December 31, 1998,
1997 and 1996, respectively. Depreciation and amortization expense is
attributable to CellNet's networks, including both equipment manufactured by
CellNet and systems partially installed in the field, property and leasehold
improvements. Depreciation and amortization expense has increased as a result of
increased additions to its networks, property and leasehold improvements
year-over-year.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE
CellNet accounts for its investment in BCN, which began operations in 1997,
using the equity method. In the years ended December 31, 1998 and 1997, CellNet
recognized $2.9 million and $2.8 million as its share of BCN's losses,
respectively. CellNet expects to recognize increased losses in the future from
its share of BCN's losses.
INTEREST INCOME AND EXPENSE
Prior to June 1995, CellNet funded its liquidity needs primarily from the
issuance of equity securities. In June and November 1995, CellNet issued and
sold a total of $325.0 million aggregate principal amount at maturity of
CellNet's 13% Senior Notes due 2005 (the "1995 Notes") and related warrants (the
"1995 Warrants") for proceeds, net of issuance costs, of $169.9 million.
On October 2, 1996, CellNet completed an initial public offering (the "Initial
Public Offering") in which it sold 5,000,000 shares of its Common Stock at an
offering price of $20 per share for aggregate net proceeds of $92.2 million
after deducting underwriting discounts and commissions and offering expenses
payable by CellNet. In connection with the Initial Public Offering, CellNet also
received $1.2 million in proceeds from the cash exercise of the 1995 Warrants
(the "Warrant Exercise") to purchase 495,918 shares of CellNet's Common Stock.
In addition, on October 2, 1996, CellNet completed certain direct placements
(the "Direct Placements") in which it sold 1,579,404 shares of its Common Stock
for proceeds of approximately $28.0 million.
29 CELLNET
<PAGE>
In September 1997, CellNet issued and sold a total of approximately $654.1
million aggregate principal amount at maturity of 14% Senior Notes due 2007 (the
"1997 Notes") and warrants (the "1997 Warrants") for proceeds, net of issuance
costs, of $96.3 million. In connection with the issuance of the 1997 Notes,
$231.0 million of the issue price for the 1997 Notes and 1997 Warrants was
issued in exchange for all of CellNet's 1995 Notes.
In May 1998, a new subsidiary of CellNet, CellNet Funding, LLC ("Funding")
completed an offering of Exchangeable Preferred Securities Mandatorily
Redeemable 2010 (the "Preferred Securities") for proceeds net of issuance costs
of $106.0 million. The restricted cash at December 31, 1998 of approximately
$18.0 million includes the proceeds of the offering which are designated for the
payment of cash dividends on the Preferred Securities through June 1, 2001.
Funding invested the restricted cash in U.S. Treasury strips ("Treasury Strips")
which was placed in escrow upon the closing of the offering of the Preferred
Securities.
In November 1998, two wholly-owned subsidiaries of CellNet each entered into a
revolving line of credit agreement ("the Revolving Credit Agreements") with a
group of banks, which provide for borrowings of $60.0 million and $15.0 million,
respectively, through December 31, 2007, at which time the Revolving Credit
Agreements expire. Borrowings are secured by the wholly-owned subsidiaries'
assets, contracts and leases. Borrowings bear interest at the wholly-owned
subsidiaries' option at various rates based on the lead bank's prime rate, or
margins above the Federal Funds rate or the London Interbank Offer Rate (LIBOR).
The wholly-owned subsidiaries pay a commitment fee on the unused portion of
their available borrowings under their respective Revolving Credit Agreements.
CellNet has earned interest income on the invested proceeds from these
financings. CellNet has also incurred significant interest expense from the
amortization of the original issue discount on the 1995 Notes and the 1997
Notes. Interest expense will increase significantly in future periods as a
result of the increased accretion of a larger original issue discount balance
from the issuance of the 1997 Notes, and from interest and commitment fees
incurred from the Revolving Credit Agreements.
Interest income has been and will continue to be received by CellNet from the
short-term investment of proceeds from the issuance of equity and debt
securities pending the use of such proceeds by CellNet for capital expenditures
and operating and other expenses. Interest income is expected to be variable
over time as proceeds from the issue and sale of additional equity and debt
securities are received and as funds are used by CellNet in its business.
Interest income was $7.5 million, $8.2 million and $7.4 million for the three
years ended December 31, 1998, 1997 and 1996, respectively.
No interest on the 1997 Notes is payable prior to April 1, 2003. Thereafter,
until maturity on October 1, 2007, interest will be payable semi-annually in
arrears on each April 1 and October 1. The carrying amount of the 1997 Notes
accretes from the date of issue and CellNet's interest expense includes such
accretion. Interest expense on the Revolving Credit Agreements is generally
payable quarterly or upon the maturity date of the advance if less than 90 days.
Commitment fees on the unused portion of the Revolving Credit Agreements are
payable quarterly. Interest expense, net of capitalized interest, was $43.8
million, $29.3 million and $23.8 million for the years ended December 31, 1998,
1997 and 1996, respectively.
30 CELLNET
<PAGE>
PROVISION FOR INCOME TAXES
CellNet has not provided for or paid federal income taxes due to CellNet's net
losses. A nominal provision has been recorded for various state minimum income
and franchise taxes.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $289.0 million and $149.0 million available to offset future
federal and state taxable income, respectively. Such federal carryforwards
expire in 2001 through 2013. Such state carryforwards expire in 1999 through
2013. 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. Based upon CellNet's history of operating
losses and the expiration dates of the loss carryforwards, CellNet has recorded
a valuation allowance to the full extent of its net deferred tax assets.
DIVIDENDS AND ACCRETION ON PREFERRED SECURITIES OF SUBSIDIARY
The Preferred Securities consist of 4.4 million exchangeable preferred
securities of Funding that bear a cumulative dividend at a rate of 7% per annum.
The net proceeds from the placement of the Preferred Securities, after offering
costs, was $106.0 million and will fully accrete to the face value of $110.0
million on June 1, 2010. The dividend is paid quarterly in arrears each March 1,
June 1, September 1 and December 1, and commenced September 1, 1998. Dividend
expense for the year ended December 31, 1998 was $4.7 million. Accretion of the
Preferred Securities for the year ended December 31, 1998 was $202,000.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
On September 29, 1997, CellNet exchanged $654.1 million aggregate value at
maturity of 1997 Notes and 1997 Warrants for $100.3 million in new proceeds and
the extinguishment of its $325.0 million aggregate value at maturity of 1995
Notes. The exchange of the 1995 Notes was accounted for as an early
extinguishment of debt, resulting in an extraordinary charge of $11.4 million
consisting of the unamortized portion of the debt issuance cost of the 1995
Notes of $4.8 million, $3.5 million attributable to consent fees and other costs
related to the extinguishment of the 1995 Notes, and accelerated accretion of
interest on the 1995 Notes of $3.1 million.
IMPACT OF THE YEAR 2000
Many currently installed computer systems, software products and electronic
products are coded to accept only two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, during 1999, computer
systems and software ("Information Technology Systems") and other property and
equipment not directly associated with information systems ("Non-Information
Technology Systems"), such as elevators, phones, other office equipment used by
many companies, including CellNet, its suppliers and customers and its potential
suppliers and customers, may need to be upgraded, repaired or replaced to comply
with such "Year 2000" requirements.
CellNet is in the process of conducting an internal review of all of its
Information Technology Systems and contacting all material software and other
suppliers to determine any major areas of exposure of its Information Technology
Systems to Year 2000 issues. As a result of the internal review to date, CellNet
believes that its wireless data networks, through which it provides network
meter reading and other services to its customers, are Year 2000 compliant. In
1998, CellNet decided to replace certain of CellNet's internal legacy corporate
information systems that required modification, upgrade or replacement in order
to be Year 2000 compliant. Replacement of these systems began during the second
quarter of 1998. A majority of CellNet's core financial and reporting systems
have already been replaced and CellNet expects to
31 CELLNET
<PAGE>
complete the installation of the remainder of these systems in advance of the
year 2000. Each of the new systems installed or to be installed has been
identified by its supplier as being Year 2000 compliant.
CellNet is also in the process of conducting an internal review of its
Non-Information Technology Systems and contacting all material software and
other suppliers to determine whether there are or are likely to be any Year 2000
compliance problems.
To date, CellNet has spent an immaterial amount to review and remedy its Year
2000 compliance issues in as much as its internal legacy corporate information
systems would have been replaced in any case. CellNet estimates that it will
spend approximately $4.0 million for the replacement of its internal legacy
corporate information systems, of which $3.1 million was incurred through
December 31, 1998, and does not expect to spend any material amounts in
completing its Year 2000 review or to remedy any problems that may be found.
CellNet has been informed by most of the suppliers responding to CellNet's
inquiries to date that such suppliers will be Year 2000 compliant by the year
2000. Any failure of these third parties' systems to timely achieve Year 2000
compliance could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness. CellNet has not determined the state of compliance of certain
third party suppliers of services such as phone companies, long distance
carriers and electric companies, the failure of any one of which could severely
disrupt CellNet's ability to carry on its business as well as disrupt the
business of CellNet's suppliers and customers.
Although CellNet believes that its wireless data networks, through which it
provides network meter reading and other services to its customers, are Year
2000 compliant, failure to provide Year 2000 compliant business solutions to its
customers or to receive such business solutions from its suppliers could result
in liability to CellNet or otherwise have a material adverse effect on CellNet's
business, operating results, financial condition, cash flows and its ability to
service its indebtedness. Furthermore, CellNet believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase products and services such as those
offered by CellNet, which could result in a material adverse effect on CellNet's
business, operating results, financial condition, cash flows and its ability to
services its indebtedness. To date, CellNet has not established a contingency
plan to address the worst case scenario in the event it or its suppliers are not
year 2000 compliant, but will do so as yet unidentified risks are identified.
See "Risk Factors That May Affect Future Operating Performance -- Risks
Associated with Year 2000 Compliance."
LIQUIDITY AND CAPITAL RESOURCES
CellNet 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, CellNet 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 1998, 1997 and 1996, net cash used for CellNet's operating activities totaled
$69.6 million, $57.1 million and $41.2 million, respectively. Net cash used for
operating activities resulted primarily from cash used to fund net operating
losses.
In 1998, 1997 and 1996, net cash used for CellNet's investing activities totaled
$142.7 million, $53.3 million and $3.7 million, respectively. CellNet's
investing activities consisted primarily of purchases of network components and
32 CELLNET
<PAGE>
inventory, the construction and installation of networks, purchases of property
and equipment and purchases, sales and maturities of short-term investments. In
1998 purchases of short-term investments exceeded proceeds from the sale of
short-term investments by $13.8 million. In 1997 and 1996, net proceeds from the
sale and maturation of short-term investments were $17.7 million and $41.1
million, respectively, and were used to fund operating activities.
In 1998, 1997 and 1996, net cash provided by CellNet's financing activities
totaled $136.7 million, $97.2 million and $121.0 million, respectively. In June
and November 1995, CellNet received an aggregate of $175.8 million of gross
proceeds ($169.9 million in net proceeds) from the private sale of the 1995
Notes and related warrants. During 1996, CellNet financed its operations
primarily from the proceeds of the offering of the 1995 Notes and 1995 Warrants,
together with interest income of $7.4 million. On October 2, 1996, CellNet
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 CellNet. In connection with its initial public offering,
CellNet also received $1.2 million in proceeds from the cash increase of the
1995 Warrants to purchase 495,918 shares of CellNet's Common Stock. In addition,
on October 2, 1996, CellNet completed the Direct Placements in which it sold
1,579,404 shares of its Common Stock for proceeds of $28.0 million. On September
24, 1997, CellNet received an aggregate of approximately $332.3 million from the
sale of the 1997 Notes and 1997 Warrants. All holders of outstanding 1995 Notes
tendered and exchanged their 1995 Notes for 1997 Notes having an initial
accreted value of $231.0 million. 1997 Warrants to purchase 8,942,517 shares of
CellNet's Common Stock with an exercise price of $14.30 per share were attached
to the 1997 Notes. Aggregate proceeds of $74.5 million were attributable to the
1997 Warrants. The 1997 Notes were issued at an initial accreted value of $257.8
million and will fully accrete to a face value of $654.1 million.
The 1997 Notes were issued at a substantial discount from their aggregate
principal amount at maturity of $654.1 million. Although interest is not payable
on the 1997 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 1997 Notes will bear
interest, payable semi-annually, at a rate of 14% per annum, with payments
commencing April 1, 2003. No principal payments on the 1997 Notes are due prior
to maturity on October 1, 2007. There is a risk that CellNet will not be able to
refinance the 1997 Notes prior to the date cash interest payments become due and
payable on such Notes or at their maturity date. CellNet's ability to refinance
the 1997 Notes will depend on prevailing capital market conditions, CellNet's
performance and financial position and CellNet's indebtedness, which is
projected to be high. Any inability by CellNet to refinance the 1997 Notes would
limit CellNet's ability to meet its obligations on such 1997 Notes.
In May 1998, Funding completed an offering of Preferred Securities for proceeds
net of issuance costs of $106.0 million.
In November 1998, two wholly-owned subsidiaries of CellNet entered into the
Revolving Credit Agreements with a group of banks, which provide for borrowings
of $60.0 million and $15.0 million, respectively, through December 31, 2007, at
which time the Revolving Credit Agreements expire. Borrowings are secured by the
two wholly-owned subsidiaries' assets, contracts and leases. Borrowings bear
interest at the two wholly-owned subsidiaries' option at various rates based on
the lead bank's prime rate, or margins above the Federal Funds rate or the
London Interbank Offer Rate (LIBOR). At December 31, 1998, the wholly-owned
subsidiaries had outstanding advances totaling $31.4 million. The Revolving
Credit Agreements contain covenants which limit the ability of the wholly-owned
subsidiaries to incur additional indebtedness, create liens, pay dividends or
make distributions, consolidate, merge or sell all or substantially all of their
assets, guarantee obligations of other entities, or enter into transactions with
affiliates. Additionally, the Revolving Credit Agreements require the
wholly-owned subsidiaries to maintain compliance with certain operating and
financial covenants, including minimum revenue, minimum operating cash flow,
maximum capital expenditures, leverage ratio, pro forma debt service ratio and
an interest coverage ratio. Borrowings under the Revolving Credit Agreements are
secured by
33 CELLNET
<PAGE>
the two wholly-owned subsidiaries' assets, contracts and leases. At December 31,
1998, the two wholly-owned subsidiaries were in compliance with the above
covenants.
As of December 31, 1998, CellNet had cash, cash equivalents and short-term
investments totaling $86.2 million. As of December 31, 1997, CellNet had cash,
cash equivalents and short-term investments totaling $148.1 million. The
decrease of $61.9 million from 1997 to 1998 resulted from operating costs and
the development and construction of CellNet's wireless communications networks,
offset by proceeds from the issuance of the Preferred Securities of $106.0
million and the revolving credit agreements of $31.4 million, respectively.
Deployments of CellNet's wireless communications networks will require
substantial additional capital. CellNet is budgeted to make approximately $99.3
million in capital expenditures in 1999 for saturation deployment network
installations. In addition, CellNet anticipates that it may make modest
additional capital expenditures relating to the installation of its broad
deployment network in California. The exact amount of such expenditures will
depend, in part, upon the amount of network meter reading and other services
contracted for. CellNet may make additional capital expenditures in connection
with the installation of new networks, the expansion of existing networks and/or
an acceleration in anticipated network installation schedules. In addition,
funds will be required for a number of purposes including, but not limited to,
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.
CellNet 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 CellNet obtains new services agreements or enters into other
arrangements for the installation of its networks, and that CellNet will require
significant amounts of additional capital from external sources. Sources of
additional capital for CellNet and its subsidiaries may include project or
conventional bank financing, including financing provided by utilities to
finance the construction of networks being built out primarily for them, public
and private offerings of debt and equity securities and cash generated from
operating activities. CellNet expects that a substantial portion of its future
financing will be at the subsidiary level on a project basis. CellNet 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. CellNet
expects that the recurring revenue stream from long-term services contracts and
other arrangements will support the amortization of debt raised for the project
involved, however no assurance can be given that this will occur. CellNet
expects that operating activities will require the consumption of a substantial
amount of cash resources for the next several years.
CellNet believes that existing cash, cash equivalents, short-term investments,
anticipated interest income, other revenues and expected sources of project
financing of approximately $120 million will be sufficient to meet its cash
requirements through March 2000. CellNet intends to raise a substantial amount
of capital in 1999 and expects that it will continue to require substantial
amounts of additional capital in the future. The extent of additional financing
will depend on the success of CellNet's business. CellNet 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 CellNet or, if available, that it can be obtained on terms
acceptable to CellNet and within the limitations contained in the Indenture or
that may be contained in any additional financing arrangements. The Indenture
governing the 1997 Notes contains certain covenants that limit CellNet's ability
to incur additional indebtedness. Future financings may be dilutive to existing
stockholders. Failure to obtain such financing could result in the delay or
abandonment of some or all of CellNet's development and expansion plans and
expenditures, which could limit the ability of CellNet to meet its debt service
requirements and could have a material adverse effect on its business and on the
value of the Common Stock. See "Risk Factors That May Affect Future Operating
Performance --
34 CELLNET
<PAGE>
Risks Associated with CellNet's Substantial Debt and its Ability to Service the
Debt; CellNet's Need for Substantial Future Capital."
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
CELLNET DEPENDS ON THE UTILITY INDUSTRY FOR ACCEPTANCE OF THE CELLNET SYSTEM.
CellNet offers automated meter reading services and data generated from such
services to utilities, new power market participants and utility customers.
CellNet contracts with these parties to establish wireless data networks for
automated meter reading and the automated distribution of data. CellNet's
success will be almost entirely dependent upon whether or not these parties (a)
sign additional contracts with CellNet for network meter reading and other
services or (b) otherwise allow CellNet to install wireless data networks for
servicing a substantial number of endpoint monitoring devices including utility
meters.
The automation of utility meter reading and data distribution is a relatively
new and rapidly changing market. CellNet believes that, as the utility industry
becomes more competitive through various deregulation and privatization
initiatives, there will be an increased need for more accurate, timely and
efficient collection of consumption and other operating data. This will
ultimately accelerate the adoption of automated meter reading, data collection
and data distribution systems and techniques. However, this is entirely
dependent upon decisions made by utilities, other utility industry participants
and utility customers over whom CellNet has no control. CellNet cannot
accurately predict the size of this market or its potential growth.
The CellNet system is one possible solution for automated meter reading and data
distribution. It has not been adopted as an industry standard and it may not be
adopted on a broad scale. Competing systems have been and likely will continue
to be selected by utilities and other potential clients. In the event utilities,
other utility industry participants and utility customers do not adopt CellNet's
technology or do so less rapidly than expected by CellNet, CellNet's future
financial results, including its ability to service its indebtedness and achieve
positive cash flow or profitability, will be materially and adversely affected.
Participants in the utility industry have historically been cautious and
deliberate in making decisions concerning the adoption of new technology. This
process, which can take up to several years to complete, may include the
formation of evaluation committees, a review of different technical options,
technology trials, equipment testing and certification, performance and cost
justifications, regulatory review, one or more requests for vendor quotes and
proposals, budgetary approvals and other steps. Although deregulation and
privatization initiatives may ultimately accelerate the adoption of CellNet's
technology, the timing and extent of such adoption cannot be predicted. Only a
limited number of utilities have made a commitment to purchase CellNet's
services to date. If CellNet does not enter into additional services contracts
or enter into contracts on terms favorable to CellNet, CellNet's business,
operating results, financial condition, cash flows and its ability to service
its indebtedness will be materially and adversely affected.
CellNet expects to install networks to support a "saturation deployment"
strategy (where the network is intended to cover all or a substantial portion of
the meters in a utility's designated service area pursuant to contract with that
utility). CellNet also expects to install networks to support a "broad
deployment" strategy (where the network is installed incrementally to cover
service areas where the largest consumers of energy or other utility services
are located and where CellNet expects to be able, over time, to secure an
adequate number of service contracts with non-utility clients, such as
independent marketers and utility customers, to justify network installation and
operation). Although broad deployment networks are deployed incrementally to
meet anticipated service requirements and to mitigate financial risks, CellNet
expects that such networks will be installed before a sufficient number of
service contracts are in hand to generate revenues adequate enough to cover the
costs of network construction and associated operating costs.
35 CELLNET
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CellNet's business, operating results, financial condition, cash flows and its
ability to service its indebtedness will be materially and adversely affected if
any of the following occur:
- CellNet cannot successfully market its services to utility industry
participants;
- CellNet's clients do not capture a significant portion of the utility
market;
- CellNet is unable to enter into contracts covering a sufficient number of
meters to recoup its costs of deployment and operation or to enter into
contracts on terms favorable to CellNet; or
- CellNet is unable to obtain financing for the construction and operation
of such networks.
CELLNET'S FUTURE REVENUES ARE UNCERTAIN.
The timing and amount of future revenues will depend almost entirely upon (a)
CellNet's ability to obtain new services agreements with established utilities
and other utility industry participants and (b) the successful deployment and
operation of CellNet's wireless data networks. CellNet expects that utilities
and other parties will sign new services contracts for saturation or broad
deployments on an irregular basis. CellNet expects that the installation of each
saturation deployment network will require two to four years after a services
contract has been signed. Service revenues from both types of such networks are
not expected to exceed CellNet's capital investments and expenses incurred to
deploy and operate such networks for several years. CellNet will not begin to
receive recurring revenues under a services contract until portions of the
network become operational, which, for saturation deployments, is expected to
occur at least six months after the execution of the applicable services
contract. Although CellNet begins to incur capital expenditures for the
construction of networks used in broad deployments, it does not begin to receive
recurring revenues until portions of the network are operating. Delays or
difficulties in the network installation process may materially and adversely
affect CellNet's results of operations. The cost of network deployments will
vary based upon a wide variety of factors, including radio frequency
characteristics, the size of a service territory and density of endpoints within
such territory, cost of site leases, the nature and sophistication of services
being provided, the cost of spectrum acquisition, costs of governmental
approvals and fees, local labor rates and other economic factors.
CELLNET'S SUCCESS DEPENDS UPON ITS ENTERING INTO ADDITIONAL SERVICES CONTRACTS.
CellNet currently derives almost all of its revenues from long-term services
contracts with a limited number of established utilities. During 1998, 92% of
CellNet's revenues were derived from its contracts with KC Power & Light,
AmerenUE and N. States Power. During 1997, approximately 88% of CellNet's
revenues were derived from its contracts with KC Power & Light and AmerenUE.
CellNet 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. If CellNet does not
successfully complete commercial deployments of the CellNet system under current
services contracts or obtain enough additional services contracts on
satisfactory terms for network deployments in a sufficient number of locations,
CellNet will not achieve adequate cash flow to service its indebtedness or
achieve positive cash flow or profitability.
CELLNET EXPECTS ITS OPERATING RESULTS TO SIGNIFICANTLY FLUCTUATE.
CellNet's operating results will fluctuate significantly in the future due to a
variety of factors, some of which are outside of CellNet's control, including
the following factors:
- the rate at which established utilities, other utility industry
participants and utility customers enter into new services contracts;
- general economic conditions and economic conditions in the utility
industry;
36 CELLNET
<PAGE>
- 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 CellNet or its competitors and the mix
of services sold; and
- pricing changes and new service introductions by CellNet and its
competitors and prices charged by suppliers.
In response to a changing competitive environment, CellNet may elect from time
to time to make certain pricing, service or marketing decisions or enter into
strategic relationships or investments that could result in a material adverse
effect on CellNet's business, operating results, financial condition, cash flows
and its ability to service its indebtedness.
CELLNET DEPENDS ON NON-UTILITY APPLICATIONS.
CellNet is planning to generate a significant percentage of future revenues from
non-utility services as part of its long-term business plan. Potential
non-utility applications of CellNet's systems include home security, remote
status monitoring of vending machines, office equipment and parking meters and
other equipment, as well as remote control of traffic lights. If CellNet is
unable to generate significant revenue from such additional non-utility
services, CellNet's ability to service its indebtedness and to achieve
profitability will be materially and adversely affected. While CellNet is
working with industry leaders to develop such non-utility applications, there is
no guarantee that CellNet will successfully develop or commercially introduce of
any such services. CellNet does not currently have any contracts to deploy
non-utility services on a commercial scale. In addition, unless CellNet is
successful in deploying its wireless networks in targeted service areas, CellNet
may not be able to offer any such services in these areas or may be able to
offer these services only on a limited basis.
CELLNET DEPENDS ON FORMING AND MAINTAINING BUSINESS RELATIONSHIPS TO ACHIEVE
MARKET PENETRATION.
CellNet must form relationships with leading companies in order to expand
existing markets and enter new markets. CellNet is currently investing, and
plans to continue to invest, significant resources to develop these
relationships. CellNet 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. If CellNet cannot develop additional relationships
with such companies, maintain existing relationships or achieve the purpose
underlying such existing relationships or successfully discourage such companies
from forming competing arrangements, CellNet's business, operating results,
financial condition, cash flows and its ability to service its indebtedness
could be materially and adversely affected.
RISKS ASSOCIATED WITH CELLNET'S SUBSTANTIAL DEBT AND ITS ABILITY TO SERVICE THE
DEBT; CELLNET'S NEED FOR SUBSTANTIAL FUTURE CAPITAL.
CellNet has substantial outstanding indebtedness, including $654.1 million in
aggregate principal amount at maturity of its 14% Senior Discount Notes due 2007
(the "1997 Notes"). CellNet will be required to pay cash interest on the 1997
Notes commencing April 1, 2003 and repay the 1997 Notes on October 1, 2007. In
May 1998, Funding, a wholly-owned finance subsidiary of CellNet, completed its
offering of Preferred Securities, which will fully accrete to a face value of
$110.0 million on June 1, 2010. The Preferred Securities bear a cumulative
dividend at the rate of 7% per annum. Funding has purchased Treasury Strips
sufficient in amount to pay cash dividends on the Preferred Securities through
June 1, 2001 and has deposited the Treasury Strips in escrow with the Escrow
Agent for the benefit of the holders of the Preferred Securities. Funding is
required to pay quarterly dividends in cash on the Preferred Securities through
June 1, 2001, and thereafter, in cash or shares of CellNet common stock, at the
option of Funding. The Preferred Securities are subject to mandatory redemption
on June 1, 2010 at a redemption price of 100% of the liquidation preference of
the Preferred
37 CELLNET
<PAGE>
Securities, plus accrued and unpaid dividends, if any. CellNet has issued
Preferred Stock to Funding (the "CellNet Preferred Stock") and provided the
holders of the Preferred Securities certain guarantees of payment of dividends,
distributions, and redemptions.
In November 1998, two wholly-owned subsidiaries of CellNet each entered into the
Revolving Credit Agreements with a group of banks, which provide for borrowings
of $60.0 million and $15.0 million, respectively, through December 31, 2007, at
which time the Revolving Credit Agreements expire. Borrowings are secured by the
wholly-owned subsidiaries' assets, contracts and leases. Borrowings bear
interest at the wholly-owned subsidiaries' option at various rates based on the
lead bank's prime rate, or margins above the Federal Funds rate or LIBOR. At
December 31, 1998, the wholly-owned subsidiaries had outstanding advances
totaling $31.4 million.
CellNet intends to incur substantial additional indebtedness to finance
operations and to install networks. As a result, CellNet will have a substantial
debt balance and related debt service obligations. CellNet's capital
expenditures will increase significantly if new services contracts are signed,
and CellNet expects that its cash flow, in part due to increased capital
expenditures, will be negative until such time as revenues exceed increased
capital and operating costs. The ability of CellNet to meet its debt service
requirements will depend upon achieving significant and sustained growth in
CellNet's cash flow, which will be affected by a number of factors, including
CellNet's success in implementing its business strategy, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond CellNet's control. CellNet's ability to generate such cash flow is
subject to a number of risks and contingencies, including the following:
- CellNet may not obtain a sufficient number of new services contracts on
terms favorable to CellNet;
- network installations may not be completed on a timely basis;
- revenues may not be generated quickly enough to meet CellNet's operating
costs and debt service obligations;
- the operating and/or capital costs associated with the installation and
maintenance of CellNet's networks could be higher than projected;
- CellNet's wireless systems could experience performance problems; and
- the adoption of CellNet's services could be less widespread than
anticipated.
Accordingly, CellNet's operations may not generate positive cash flow or become
profitable on a timely basis, or at all. CellNet or its subsidiaries may not
have sufficient resources to meet their debt service obligations. If CellNet is
unable to generate sufficient cash flow or obtain sufficient liquidity to
service its indebtedness, CellNet will have to take actions which could
materially and adversely affect CellNet's business such as to reduce or delay
planned capital expenditures, sell assets, restructure or refinance its
indebtedness or seek additional equity capital. CellNet may not be able to
affect these strategies on satisfactory terms, if at all, and these strategies
may yield insufficient proceeds to make the required payments on any of
CellNet's indebtedness. In particular, there is a risk that CellNet would be
unable, if needed, to refinance the 1997 Notes prior to the date cash interest
payments become due and payable on the 1997 Notes or at their maturity date,
given uncertainty about prevailing capital market conditions, CellNet's then
performance and financial position and CellNet's projected high levels of
indebtedness. Such inability to refinance the 1997 Notes could result in
cross-defaults under other indebtedness and may limit CellNet's ability to meet
its obligations in respect of the CellNet Preferred Stock and Funding's ability
to meet its obligations in respect of the Preferred Securities.
38 CELLNET
<PAGE>
In addition, the level of CellNet's indebtedness could materially and adversely
affect, among other things:
- CellNet's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, and other general corporate
purposes;
- CellNet's cash flow, if any, to the extent that it cannot be used in
CellNet's business and must be dedicated to the payment of principal and
interest on its indebtedness; and
- CellNet's ability to withstand economic downturns and competitive
pressures and to respond flexibly to changing business and economic
conditions.
CellNet will require substantial additional funds for the development,
commercial deployment and expansion of its networks, and for funding operating
losses. As of December 31, 1998, CellNet had $86.2 million in cash, cash
equivalents and short-term investments. CellNet intends to raise a substantial
amount of additional capital in 1999 and expects that it will continue to
require substantial amounts of additional capital in the future. Depending upon
the number and timing of any new services agreements and upon the associated
network deployment costs and schedules, CellNet may require additional equity or
debt financing earlier than estimated in order to fund its working capital and
other requirements. Additional financing may not be available when required or,
if available, it may not be on terms satisfactory to CellNet.
In the event that CellNet is unable to generate sufficient cash flow and is
otherwise unable to obtain funds necessary to meet required payments on its
indebtedness, CellNet could be in default under the terms of the agreements
governing its indebtedness. 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 CellNet.
HISTORY AND CONTINUATION OF OPERATING LOSSES.
CellNet has incurred substantial and increasing operating losses since
inception. As of December 31, 1998, CellNet had an accumulated deficit of $423.1
million, primarily resulting from expenses incurred in the development of
CellNet's wireless data communications system, marketing of CellNet's wireless
network, distribution automation and other services, the installation of its
wireless data communications networks and the payment of other normal operating
costs.
CellNet does not expect to generate significant revenues relative to its
anticipated operating costs during 1999 and expects to incur substantial and
increasing operating losses and negative net cash flow after capital
expenditures for the foreseeable future. CellNet 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. CellNet's network service revenues from a particular network are
expected to lag significantly behind network installation expenses until such
network is substantially complete. If CellNet 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. Accordingly,
CellNet expects that operating activities will require the consumption of
substantial cash resources for the next several years.
SUBSTANTIAL AND INCREASING COMPETITION.
Electronics, communications and utility product companies are beginning to
develop various wireless network meter reading systems as a result of the
deregulation of the electric utility industry and the potential market for other
applications once a common infrastructure is in place. A number of these systems
currently compete, and others may in the future compete, with the CellNet
system. Deregulation will likely cause competition to increase. CellNet believes
that
39 CELLNET
<PAGE>
at this time its most significant direct competitor in the marketplace is Itron,
an established manufacturer and seller of hand-held and drive-by automated meter
reading equipment for utilities. Itron is currently providing to customers its
Genesis-TM- system, a wireless radio network marketed as similar to CellNet's
for meter reading purposes.
There are other potential alternative solutions to CellNet's network meter
reading services including traditional wireless solutions. Mtel has announced
that it intends to adapt its technology to carry data from local area networks
operated by third parties who would offer residential services similar to
network meter reading some time in 1999, with the development of endpoint radios
and network management capabilities being left to other independent companies.
Whisper Communications now offers its True 2 Way-TM- fixed-based radio frequency
architecture communications technology for automated meter reading and other
services and has several trials and one deployment underway. Metricom, a
provider primarily of subscriber-based, wireless data communications for users
of portable and desktop computers, is currently involved in the automated meter
reading market through trials with Whisper Communications. Schlumberger is
working with a number of companies including CellNet, to conduct pilot trials of
utility network automation systems. Other wireless communications providers who
have entered the market for utility and commercial data services include
cellular control channel companies such as Cellemetry and Aeris Communications.
These companies offer low bandwidth services that compete with some of CellNet's
metering applications. Several companies are offering telephone-based network
automated meter reading services or equipment. Among these are Teldata, Inc. and
American Innovations. Bell South Wireless (formerly, Ram Mobile Data) offers
data services that may compete with a variety of CellNet's data services.
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 CellNet
although they have not yet done so. Communications or technology companies may
also seek to adapt new or existing technology to serve this market.
Many of CellNet's present and potential future competitors have substantially
greater financial, marketing, technical and manufacturing resources, name
recognition and experience than CellNet. CellNet'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 CellNet. While CellNet believes its
technology, including its software, is widely regarded as competitive at the
present time, CellNet's competitors may successfully develop 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 CellNet'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 CellNet achieves significant success it could draw additional
competitors into the market. Providers of wireless services may in the future
choose to enter CellNet's markets. Such existing and future competition could
materially and adversely affect the pricing for CellNet's services and CellNet'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 network meter reading services, and additional
competitors may emerge as CellNet continues to develop non-utility applications.
CellNet may be unable to compete successfully against current and future
competitors, and any failure to do so would have a material adverse effect on
CellNet's business, operating results, financial condition, cash flows and its
ability to service its indebtedness.
RISKS ASSOCIATED WITH TECHNOLOGICAL PERFORMANCE AND BUILD-OUT OF THE SYSTEM;
RAPID TECHNOLOGICAL CHANGE AND UNCERTAINTY.
CellNet's initial target market is the monitoring, control and automation of
utilities' electric, gas and water meters and distribution networks. Unforeseen
problems may occur with respect to CellNet's technology, products or services,
and CellNet may not successfully complete the development and commercial
implementation of its technology on a wide
40 CELLNET
<PAGE>
scale. CellNet must continue to expand and upgrade its ability to implement
successfully its wireless networks. CellNet may not be able to develop
successfully a full range of endpoint devices.
CellNet's future success will also depend, in part, on its ability to enhance
its existing hardware, software and wireless communications technology.
Significant technological advances occur rapidly and frequently in the
telecommunications industry. The advent of computer-linked electronic networks,
fiber optic transmission, advanced data digitization technology, cellular and
satellite communications capabilities, specialized mobile radio services and PCS
and other commercial mobile radio services have radically expanded
communications capabilities and market opportunities. Future advances may render
CellNet's technology obsolete or less cost effective than competitive systems or
erode CellNet'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 CellNet's customers. Consequently,
CellNet may be unable to offer competitive services or obtain appropriate new
technologies on a timely basis or on satisfactory terms. CellNet's future
performance will also depend significantly on its ability to respond to future
regulatory changes.
CellNet must make continued substantial investments to develop its technology.
CellNet has encountered product development delays in the past affecting both
software and hardware components of its system.
CELLNET DEPENDS ON ITS ACCESS TO RADIO FREQUENCY SPECTRUM, WHICH MAY BE AFFECTED
BY REGULATION BY THE FCC.
CellNet attempts to obtain exclusive usage of licensed bandwidth and/or secure
its own licenses in compliance with FCC regulations in order to ensure the
ability to deliver wireless data services on a wide scale. These licenses,
referred to as spectrum licenses, are required by the FCC for the wireless
transmission of data over a specific radio frequency. CellNet has obtained
spectrum licenses in many of the largest Metropolitan Statistical Areas and
Consolidated Metropolitan Statistical Areas in the United States. As of December
31, 1998, CellNet had obtained a total of 154 spectrum licenses in 54 of the top
60 Metropolitan Statistical Areas/Consolidated Metropolitan Statistical Areas.
However, sufficient frequency spectrum may not be available to fully enable the
delivery of all or a part of CellNet's wireless based data services or CellNet
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 CellNet. CellNet could also be unable to obtain frequency in
certain areas. Any of these circumstances could have a material adverse impact
on CellNet's future ability to provide its network services and on CellNet's
business, operating results, financial condition, cash flows and its ability to
service its indebtedness.
CellNet's network equipment uses radio spectrum and, as such, is subject to
regulation by the FCC. CellNet's network equipment uses both licensed spectrum
allocated for multiple address radio system operations in the 928/952 MHz band
and unlicensed spectrum in the 902-928 MHz band. 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. CellNet 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. CellNet
plans to use these provisions of the FCC's rules to expand its network system.
The FCC requires that a minimum configuration of an multiple address radio
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 multiple
address radio system frequencies. The eighteen-month deadline may be extended
upon a showing of good cause, but the FCC may not grant any such extension.
CellNet is responding to this requirement by selectively building out
transmission capacity
41 CELLNET
<PAGE>
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 CellNet's equipment utilizing the 902-928 MHz
band, although the equipment must be certified by CellNet and the FCC as being
compliant with certain FCC restrictions on radio frequency emissions designed to
protect licensed services from objectionable interference. While CellNet
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 CellNet's business, operating results, financial
condition, cash flows and its ability to service its indebtedness. The FCC's
rules 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.
The FCC's rules expressly recognize 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 Commission is currently issuing
new LMS licenses by competitive bidding for the 902-928 MHz band; these new
licenses, when issued, will authorize operation of LMS systems in virtually all
areas of the nation which are not currently served by an LMS system. While the
Company believes that the FCC's rules are adequate to provide interference
protection for its systems, the authorization of additional LMS licenses may
materially and adversely impact the Company's operations in any given location.
While CellNet intends to offer alternate market services over its private,
internal network, some of those services may include the use of CellNet's
network for private carrier service offerings. CellNet'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 multiple address
radio system frequencies on which CellNet 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,
CellNet may be required to restructure such offering or to utilize other
frequencies for the purpose of providing such service. CellNet may not be able
to gain access to such other frequencies. Future interpretation of regulations
by the FCC or changes in the regulation of CellNet's industry by the FCC or
other regulatory bodies or legislation by Congress could have a material adverse
effect on CellNet's business, operating results, financial condition, cash flows
and its ability to service its indebtedness.
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 the following:
- the restriction on future licenses in the 928/952/956 MHz band (in which
CellNet now operates its wide area network) to systems exclusively used
for private internal purposes;
- the prohibition on future licensing in this band for systems which provide
"subscriber-based services;
- the designation of the 932/941 and 928/959 MHz bands for licensees
offering subscriber-based services;
- 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;
- the use of competitive bidding to award licenses for subscriber-based
services;
- the grandfathering and protection from interference of existing licensees,
but only to the extent of their current service areas;
- 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
- for incumbent and new licensees, liberalizing some of the technical and
operational restrictions on the use of the licensed channels.
42 CELLNET
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These proposals have received substantial public comment from a wide range of
industry sectors currently utilizing the multiple address radio system channels,
including extensive comments from CellNet. CellNet has urged, in particular,
that there should not be any restrictions imposed on the use of the 928/952 MHz
bands in which CellNet has developed its network facilities that would
unreasonably limit CellNet's ability to provide its current and anticipated
utility and non-utility service offerings. CellNet 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. CellNet has
also supported many of the proposed changes that will make the use of the band
more technically efficient, although CellNet 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.
CellNet'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.
In August 1997, the FCC's authority to utilize competitive bidding as a
licensing mechanism was amended and expanded by Congress in the Budget Act of
1997. Under this recent enactment, the FCC must use competitive bidding
procedures to choose between any mutually exclusive applications, except where
the radio frequency spectrum is being used for public radio safety services.
Congress included a very broad definition of "public radio safety services," to
include private internal radio services used by state and local governments and
non-governmental entities, including emergency road services provided by not-
for-profit organizations that are used to protect the safety of life, health, or
property and that are not made commercially available to the public. As a
result, licensed systems that protect the safety of life, health, or property
and are not made commercially available to the public are not subject to
licensing by FCC auctions.
The new auction legislation occurred after the Notice of Proposed Rulemaking in
WT Docket 97-81 and will, in CellNet's view, require the FCC to review and
revise its proposals in that proceeding relating to the breadth of the auction
authority granted to the FCC, which no longer distinguishes between private
internal systems, and proposals relating to the grant of "subscriber-based"
services. CellNet is unable to determine how the new auction legislation will
affect the proposals in that proceeding, whether CellNet's use of multiple
address radio system spectrum will subject its applications to the possibility
of auctions or will, instead, be considered a "public safety" use, or whether
the Commission will otherwise exempt the 928/952 MHz band in which CellNet
currently operates from circumstances in which mutual exclusivity between
applicants for the same license, requiring the use of auctions, is likely to
exist. It is expected that the FCC will act in WT Docket 97-81 to issue new
proposals consistent with the new auction legislation. However the Company is
unable to predict what those proposals will be or whether they will be favorable
to the Company's interest. Given the uncertainty surrounding the future
regulations governing the licensing of the MAS channels, it is possible that
some or all of the Company's uses of the MAS channels would be determined to
restrict the ability to acquire additional licenses in the 928/952 MHz band,
thereby requiring the Company to developequipment capable of operating in one of
the other MAS bands. It is also possible that the Company may be required to
obtain any future channels in the 928/952 MHz band or in any other MAS band for
which the Company desires a license from the FCC only through a competitive
bidding assignment process. Although CellNet believes that additional licensed
frequency will be generally available to it as required, the cost associated
with acquiring such licensed frequency as well as CellNet's operating costs
could increase, perhaps substantially, and CellNet could experience substantial
delays in adapting its networks if new 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 CellNet's business, operating results, financial
condition, cash flows and its ability to service its indebtedness.
In connection with the foregoing, the FCC has temporarily suspended acceptance
of multiple address radio system 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
43 CELLNET
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for multiple address radio system 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 CellNet's pending applications
for licenses in the 928/952 MHz band have been or are being processed in due
course. In addition, CellNet's applications for the assignment of licenses held
by others have been processed during the processing suspension. At the request
of CellNet, the FCC has determined that CellNet's current use of the multiple
address radio system spectrum constitutes the use as a private, internal
network, and so CellNet's applications for new licenses, and for major
modifications to existing licenses, are being processed in due course. CellNet's
future uses of the multiple address radio system spectrum may not similarly
qualify as a use in a private, internal network. The FCC may change or expand
its freeze on the processing of applications to recognize the impact of the new
auction legislation described above. In either case, CellNet's ability to obtain
new licenses could be materially and adversely affected, with similar
consequences on CellNet's ability to service areas where it has not yet acquired
adequate frequencies.
Finally, when CellNet acquires licenses assigned to other applicants, or
utilizes licenses issued in the past, CellNet is required to modify its licenses
to reflect more advanced technological parameters now utilized by CellNet and
its systems. CellNet has developed such amendments with the approval of the
FCC's staff and has received and anticipates continuing to receive timely grant
of all required modifications. However, a particular modification may not be
granted timely to CellNet's introduction of service on a particular license, and
the failure to obtain the required license modifications could have a material
adverse effect on CellNet's ability to serve areas covered by such unmodified
licenses.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
CellNet is offering its network meter reading services in international markets
through BCN, its international joint venture with Bechtel Enterprises, Inc.
CellNet does not expect to generate material revenues from BCN's operations
during 1999. CellNet 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,
including the proceeds from necessary financings, are not adequate to offset the
expense of establishing and maintaining these international activities,
CellNet's business, operating results, financial condition, cash flows and its
ability to service its indebtedness could be materially and adversely affected.
International demand for CellNet or BCN's services and systems may not
materialize, and where present, is likely to vary by country, based on many
factors including:
- the degree of regulation in a given country;
- competitive factors;
- demand for services;
- labor costs;
- the availability of spectrum and the costs of spectrum acquisition; and
- political and economic conditions.
In addition, CellNet may not be able to develop and implement localized versions
of its network meter reading system without significant effort and cost due to
many factors, including the differing standards among utilities on a
country-by-country basis. To date, CellNet has extremely limited experience in
developing a localized version of its wireless data communications system for
foreign markets. CellNet believes BCN's ability to establish business alliances
in each international market will be critical to its success. If BCN is
unsuccessful in developing, marketing and implementing its system in
international markets or in establishing successful business alliances for these
markets, BCN's future international operations could be materially and adversely
affected and, consequently, CellNet's business, operating
44 CELLNET
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results, financial condition, cash flows and its ability to service its
indebtedness could be materially and adversely affected. In addition, there are
certain risks inherent in doing business internationally, any of which could
materially and adversely affect BCN's potential international operations,
including:
- changes in regulatory requirements, import/export restrictions, tariffs
and non-tariff trade barriers;
- the ability to obtain financing for the construction and operation of
networks;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts receivable;
- political conditions;
- fluctuations in currency exchange rates;
- potentially adverse tax consequences;
- legal and economic factors; and
- the ability to protect CellNet's intellectual property.
One or more of such factors could have a material adverse effect on BCN's future
international operations and, consequently, on CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness.
CellNet's strategy of pursuing international markets through BCN may involve
additional partners in particular countries. While BCN anticipates having a
majority interest and control over the Board of Directors of entities through
which business is carried out in foreign countries, in the event that this does
not occur, BCN may not have control over the operations and assets of such
entities. In any business venture in which CellNet or BCN may determine to
participate, there is a risk that the other venture partner may at any time have
economic, business or legal interests or goals that are inconsistent with those
of CellNet or BCN or that such partner will not impose the same or similar
accounting and financial controls as CellNet or BCN. The risk is also present
that a partner may be unable to meet its economic or other obligations and that
CellNet or BCN may be required to fulfill those obligations. Furthermore, the
entity's structure or the laws of a foreign country may limit or substantially
tax the amount of funds that can be transferred to CellNet or BCN.
RISKS ASSOCIATED WITH A GROWING BUSINESS.
CellNet's recent growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources.
CellNet's ability to manage growth effectively will require it to continue to
implement and improve its operational and financial systems and to expand or
manage its employee base. CellNet's growth may require the addition of new
management personnel and the development of additional expertise by existing
management personnel. CellNet may be unable to effectively manage the expansion
of its operations. In addition, CellNet's systems, procedures or controls may be
inadequate to support CellNet's operations or Company management may be unable
to exploit opportunities for CellNet's services. An inability to manage growth,
if any, could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness.
CELLNET RELIES ON KEY PERSONNEL.
The success of CellNet is substantially dependent on its key management and
technical personnel, the loss of one or more of whom could materially and
adversely affect CellNet's business. Substantially all of CellNet's employees
and officers are employed on an at-will basis. Presently, CellNet does not
maintain a "key man" life insurance policy on any of its
45 CELLNET
<PAGE>
executives or employees. CellNet'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 CellNet may
be unable to attract or retain highly qualified technical and managerial
personnel in the future. If CellNet is unable to attract and retain the
necessary technical and managerial personnel, CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness could be materially and adversely affected.
RISKS ASSOCIATED WITH THE UNCERTAINTY OF PROTECTION OF COPYRIGHTS, PATENTS AND
PROPRIETARY RIGHTS.
CellNet relies on a combination of trade secret protection, copyright, patent,
trademark and confidentiality agreements and licensing arrangements to establish
and protect its proprietary rights. CellNet'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 CellNet has obtained and applied for patents, and
intends to file other applications for patents covering its products and
processes, additional patents may not be issued or, if issued, may not provide
adequate protection for CellNet's proprietary rights. In addition, any patents
issued to CellNet or licensed by CellNet may be challenged, invalidated or
circumvented, and the patent rights may not adequately protect CellNet's
intellectual property rights.
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 CellNet's products or
approach. Despite its efforts, CellNet may not be able to safeguard and maintain
these proprietary rights, and CellNet's competitors may independently develop
and patent technologies that are substantially equivalent or superior to
CellNet's technologies. Participants in the wireless industry, including
competitors of CellNet, 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 pending at the United States Patent and Trademark
Office. The issuance of third-party patents could require CellNet 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
CellNet to significant liabilities, require disputed rights to be licensed or
restrict CellNet's ability to use such technology. CellNet also relies to a
substantial degree upon unpatented trade secrets. Others, including CellNet's
competitors, may independently develop or otherwise acquire substantially
equivalent trade secrets. In addition, whether or not additional patents are
issued to CellNet, others may receive patents which contain claims applicable to
products or processes developed by CellNet. If any such claims were to be
upheld, CellNet would require licenses. Such licenses may not be available on
acceptable terms, if at all. In addition, CellNet could incur substantial costs
in defending against suits brought against it by others for infringement of
intellectual property rights or in prosecuting suits which CellNet might bring
against other parties to protect its intellectual property rights. From time to
time CellNet receives inquiries with respect to the coverage of its intellectual
property rights, and inquiries could develop into litigation.
In October 1996, Itron, one of CellNet's competitors, filed a complaint against
CellNet in the Federal District Court in Minnesota, alleging that CellNet
infringed an Itron patent which was issued in September 1996. Itron sought a
judgment for damages, attorneys' fees and injunctive relief. On January 28,
1999, the Court ruled in favor of CellNet that, as a matter of law, CellNet's
system did not infringe the Itron patent. The Court also ruled in favor of Itron
that the Itron patent was valid against certain prior art. These rulings are
subject to possible appeal by either or both of the parties. CellNet has not yet
determined its course of action in this regard. CellNet believes that the
ultimate outcome of the lawsuit is not expected to have a material adverse
effect on CellNet's business, operating results, financial condition and cash
flows.
46 CELLNET
<PAGE>
CELLNET DEPENDS ON THIRD-PARTY MANUFACTURERS AND FACES RISKS ASSOCIATED WITH
COMPONENT SHORTAGES.
CellNet relies and will continue to rely on outside parties to manufacture most
of its network equipment such as radio devices and printed circuit boards. As
CellNet signs additional services contracts, third party manufacturers must
significantly ramp-up the amount of manufacturing to be undertaken for CellNet
in order to enable CellNet to meet its contractual commitments. These
manufacturers may not be able to meet CellNet's manufacturing needs in a
satisfactory and timely manner. In addition, CellNet may be unable to obtain
additional manufacturers when and if needed. Although CellNet believes
alternative manufacturers are available, if CellNet is unable to develop
alternative suppliers quickly or cost-effectively, CellNet's ability to
manufacture and install systems could be impaired which would materially and
adversely affect CellNet's business, operating results, financial condition,
cash flows and its ability to service its indebtedness. CellNet'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 CellNet believes that
these manufacturers would have an economic incentive to perform such
manufacturing for CellNet, the quality, amount and timing of resources to be
devoted to these activities are not within the control of CellNet, and
manufacturing problems may 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 CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness.
CellNet purchases certain subassemblies, components and network equipment from
single sources or from a limited number of sources. 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. CellNet'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. Some components
relied upon may have an excessive failure rate or inferior capabilities. A
significant price increase or interruption in supply from one or more of such
suppliers could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flows and its ability to service its
indebtedness. Although CellNet believes alternative suppliers of subassemblies,
components and network equipment are available, the inability of CellNet to
develop alternative sources quickly or cost-effectively could materially impair
its ability to manufacture, install and maintain systems. Lead times can be as
long as a year for certain components, which may require CellNet to use working
capital to purchase inventory significantly in advance of receiving any
revenues.
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 other utility industry
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. Similar situations could also arise in
connection with network deployments for gas and water meters.
RISKS OF SYSTEM FAILURES, DELAYS AND INADEQUACIES.
The performance, reliability and availability of CellNet's wireless data
networks are critical to CellNet's reputation and ability to attract and retain
customers and earn revenues from network meter reading services as well as
non-utility applications. These wireless data networks are vulnerable to damage
or interruption from fire, flood, earthquakes, storms
47 CELLNET
<PAGE>
and other similar events. Any system failure that causes interruption in the
availability of network services whether caused by an act of God or not could
result in a loss of revenue and, if sustained or repeated, could reduce the
attractiveness of CellNet's services for future utilities or other customers.
The occurrence of any of the foregoing could have a material adverse effect on
CellNet's business, operating results, financial condition and cash flows and
its ability to service its indebtedness.
RISK OF POSSIBLE TERMINATION OF CONTRACTS.
CellNet expects that a substantial portion of its future revenues will be
provided pursuant to services contracts of various kinds. These contracts will
generally be subject to cancellation or termination in certain circumstances or
in the event of CellNet fails to meet in material respects the agreed network
meter reading and other performance standards on a consistent basis over agreed
time periods, subject to certain rights to cure any such failure. Each of
CellNet'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. In many instances, 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 may contain similar provisions. Contracts with new power market
participants generally allow for termination without cause on thirty days prior
written notice except to the extent they have already ordered services under the
contract. In the event that such a services contract is terminated, CellNet may
incur substantial losses. In addition, CellNet's contracts with other utility
market participants will generally have shorter terms than CellNet's existing
utility contracts.
CellNet's current contracts with new power market participants generally have
terms of one to five years, compared to terms of ten to twenty years generally
with utilities. Since a network's service revenues are not expected to exceed
CellNet's capital investments to deploy such network for several years, the
termination or cancellation of one or more significant services contracts would
have a material adverse effect on CellNet's business, operating results,
financial condition, cash flows and its ability to service its indebtedness.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE.
Many currently installed computer systems, software products and electronic
products are coded to accept only two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, during 1999 CellNet,
its suppliers and customers and its potential suppliers and customers, may need
to upgrade, repair or replace certain equipment computer systems or software to
ensure that its operations will not be adversely impacted by system failures
related to "Year 2000" noncompliance.
CellNet is in the process of conducting an internal and external review of all
of its systems and contacting all material software and other suppliers to
determine any major areas of exposure of its systems to Year 2000 issues. As a
result of the internal review to date, CellNet believes that its wireless data
networks, through which it provides network meter reading and other services to
its customers, are Year 2000 compliant. As a result of the external review to
date, CellNet believes that its material suppliers will be Year 2000 compliant
by the year 2000.
To date, CellNet has spent an immaterial amount and does not expect to spend a
material amount to review and remedy Year 2000 compliance problems. Although
CellNet believes that its wireless data networks, through which it provides
network meter reading and other services to its customers, are Year 2000
compliant, failure to provide Year 2000 compliant business solutions to its
customers or to receive such business solutions from its suppliers could result
in liability to CellNet or otherwise have a material adverse effect on CellNet's
business, operating results, financial condition, cash flows and its ability to
service its indebtedness. Furthermore, CellNet believes that the purchasing
patterns of
48 CELLNET
<PAGE>
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products and services such as those offered
by CellNet, which could result in a material adverse effect on CellNet's
business, operating results, financial condition, cash flows and its ability to
services its indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of the Year 2000."
CELLNET IS BOUND BY ITS SHAREHOLDERS' AGREEMENT.
Under the terms of a Shareholders' Agreement among CellNet and certain
stockholders of CellNet (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), CellNet is obligated to nominate for
election representatives of certain stockholders as directors at each meeting of
CellNet'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 CellNet than they would otherwise have and to provide
certain stockholders with, among other things, certain registration, first
refusal, co-sale and other rights.
RISKS ASSOCIATED WITH LITIGATION.
In October 1996, Itron, one of CellNet's competitors, filed a complaint against
CellNet in the Federal District Court in Minnesota alleging that CellNet
infringes an Itron patent which was issued in September 1996. Itron is seeking a
judgment for damages, attorneys fees and injunctive relief. On January 28, 1999,
the Court ruled in favor of CellNet that, as a matter of law, CellNet's system
did not infringe the Itron patent. The Court also ruled in favor of Itron that
the Itron patent was valid against certain prior art. These rulings are subject
to possible appeal by either or both of the parties. CellNet has not yet
determined its course of action in this regard. CellNet believes that the
ultimate outcome of the lawsuit is not expected to have a material adverse
effect on CellNet's business, operating results, financial condition and cash
flows.
In April 1997, CellNet 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 electric meter reading Encoder Receiver Transmitter
(ERT-Registered Trademark-) device infringes CellNet's U.S. Patent No.
4,783,623. CellNet sought an injunction, damages and other relief. On November
2, 1998, the Court ruled that Itron's patent does not infringe upon CellNet's
Patent No. 4,783,623. CellNet recently filed its notice of appeal in this
action.
The consolidated complaint of Jere Settle and Karen Zully v. John M. Seidl, et
al., No. 398464, filed in the Superior Court of California for the County of San
Mateo, is a purported class action on behalf of CellNet's stockholders against
CellNet, certain of its officers and directors and underwriters of CellNet's
initial public offering seeking unspecified damages and rescission for alleged
liability under various provisions of the federal securities law and California
state law. The plaintiffs alleged generally that the Prospectus and Registration
Statement dated September 26, 1996, pursuant to which CellNet issued 5,000,000
shares of common stock to the public, contained materially misleading statements
and/or omissions in that CellNet was obligated to disclose, but failed to
disclose, that a patent conflict with Itron, Inc. was likely to ensue. The
complaint was dismissed on February 9, 1998, without leave to amend. Plaintiffs
filed an appeal in the California Court of Appeal, which is pending. In the
opinion of CellNet, the ultimate outcome of the appeal is not expected to have a
material adverse effect on CellNet's business, operating results, financial
condition and cash flows.
49 CELLNET
<PAGE>
CELLNET'S COMMON STOCK PRICE IS VOLATILE.
The trading price of CellNet's common stock has been highly volatile since
CellNet's initial public offering and is likely to continue to be subject to
wide fluctuations in response to a variety of factors, including:
- quarterly variations in operating results;
- signing new services contracts or securing new customers;
- consolidations in the industry;
- technological innovations or the introduction of new products by CellNet
or its competitors;
- developments in patents or other intellectual property rights;
- general conditions in the network meter reading services industry and
other industries in which CellNet's services are provided;
- comments or recommendations issued by analysts who follow CellNet and its
competitors; and
- general economic and market conditions.
In addition, in some future period CellNet's operating results could be below
the expectations of public market analysts and investors. In such event, the
price of CellNet's common stock could be materially and adversely affected.
Additionally, the stock market in general, and the market for technology stocks
in particular, have recently experienced extreme price and volume fluctuations
that are not related to the operating performance of particular companies. These
broad market fluctuations could have a significant impact on the market price of
the common stock and the Preferred Securities.
CELLNET HAS DECLARED NO DIVIDENDS ON COMMON STOCK AND IS RESTRICTED FROM DOING
SO IN THE FUTURE.
CellNet has not declared or paid any dividends on its common stock since its
inception. CellNet 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 on the common stock in the
foreseeable future. In addition, CellNet's existing financing arrangements
restrict the payment of any dividends on the common stock.
RISKS ASSOCIATED WITH A SUBSTANTIAL PORTION OF SHARES ELIGIBLE FOR FUTURE SALE.
A substantial portion of CellNet's common stock is presently eligible for
immediate sale in the public market subject, in the case of certain shares, to
the limitations of Rules 144, 144(k) or 701 under the Securities Act. In
addition, the holders of a significant number of such shares of common stock are
entitled to certain registration rights with respect to such shares and the
number of shares sold in the public market could increase substantially upon
exercise of such registration rights.
RISKS RELATED TO PREFERRED SECURITIES OF FUNDING.
In May 1998, Funding, a wholly-owned finance subsidiary of CellNet, completed an
offering of Preferred Securities which will fully accrete to a face value of
$110.0 million on June 1, 2010. The Preferred Securities bear a cumulative
dividend at the rate of 7% per annum. Funding has purchased Treasury Strips
sufficient in amount to pay cash dividends on the Preferred Securities through
June 1, 2001 and has deposited the Treasury Strips in escrow with the Escrow
Agent for the benefit of the holders of the Preferred Securities. Funding is
required to pay quarterly dividends in cash on the Preferred Securities through
June 1, 2001, and thereafter, in cash or shares of CellNet common stock, at the
option of Funding. The first two dividend payments were made on September 1 and
December 1, 1998 in the amount of $2.2 million and $1.9 million, respectively.
The Preferred Securities are subject to mandatory redemption on June 1, 2010 at
a redemption price of 100% of the liquidation preference of the Preferred
Securities, plus accrued and unpaid dividends, if any. CellNet
50 CELLNET
<PAGE>
has provided the holders of the Preferred Securities certain guarantees of
payment of dividends, distributions, and redemptions. The Preferred Securities
involve a high degree of risk, and accordingly, reference must be made to the
Risk Factors and other cautionary statements set forth in the Registration
Statement on Form S-3 in respect of the Preferred Securities and in Funding's
Reports on Form 10-K and Form 10-Q and other filings by Funding with the
Securities and Exchange Commission.
RISKS ASSOCIATED WITH CELLNET'S ANTI-TAKEOVER PROVISIONS.
On November 24, 1998 (the "Rights Dividend Declaration Date"), the Board of
Directors of CellNet adopted a Stockholder Rights Plan (the "Rights Plan") and
declared a dividend of one Preferred Share Purchase Right (a "Right") for each
outstanding share of common stock. The dividend was paid to stockholders of
record on December 21, 1998 (the "Record Date"). In addition, one Right will be
issued with each share of common stock that becomes outstanding between the
Record Date and the earlier to occur of the Distribution Date (as defined below)
and the Expiration Date (as defined below). This includes common stock that is
issued upon conversion of securities convertible into common stock such as stock
options, warrants, and the Preferred Securities.
The Distribution Date will occur, if at all, on the earlier of (a) the close of
business on the tenth (10(th)) day after a person or group acquires beneficial
ownership of fifteen percent (15%) or more of CellNet's common stock (including
common stock issuable upon conversion or exchange of any convertible
securities), and (b) the close of business on the tenth (10th) business day
after a person or group announces a tender or exchange offer, the consummation
of which would result in ownership by a person or group of fifteen percent (15%)
or more of CellNet's common stock (including common stock issuable upon
conversion or exchange of any convertible securities).
The Rights may not be exercised prior to the Distribution Date. Following the
Distribution Date, each Right will entitle the holder to purchase for $50.00
(the "Exercise Price") one one-thousandth (1/1000) of a share of CellNet's
Series A Participating Preferred Stock, $0.001 par value per share (the
"Preferred Stock") subject to certain adjustments in both price and number of
shares.
If a person or group acquires beneficial ownership of fifteen percent (15%) or
more of CellNet's common stock (including common stock issuable upon conversion
or exchange of any convertible securities) (an "Acquiring Person"), then each
Right (other than Rights owned by an Acquiring Person or its affiliates) will
entitle the holder thereof to purchase, for the Exercise Price, a number of
shares of CellNet's common stock having a then current market value of twice the
Exercise Price.
If, after an Acquiring Person acquires beneficial ownership of fifteen percent
(15%) or more of CellNet's common stock (including common stock issuable upon
conversion or exchange of any convertible securities), (a) CellNet merges into
another entity, (b) an acquiring entity merges into CellNet, or (c) CellNet
sells more than fifty percent (50%) of its assets or earning power, then each
Right (other than Rights owned by an Acquiring Person or its affiliates) will
entitle the holder thereof to purchase, for the Exercise Price, a number of
shares of the common stock of the person or entity engaging in the transaction
having a then current market value of twice the Exercise Price.
At any time after an Acquiring Person acquires beneficial ownership of fifteen
percent (15%) or more of CellNet's common stock (including common stock issuable
upon conversion or exchange of any convertible securities) and prior to the
acquisition by the Acquiring Person of fifty percent (50%) of CellNet's common
stock (including common stock issuable upon conversion or exchange of any
convertible securities), the Board of Directors may exchange the Rights (other
than Rights owned by the Acquiring Person or its affiliates), in whole or in
part, for shares of CellNet's common stock at an exchange ratio of one (1) share
of common stock per Right (subject to certain adjustments).
51 CELLNET
<PAGE>
The Rights are redeemable at CellNet's option (with the approval of the Board of
Directors) at any time prior to the close of business on the day (prior to the
Expiration Date) of a public announcement that an Acquiring Person has acquired
beneficial ownership of fifteen percent (15%) or more of CellNet's common stock
(including common stock issuable upon conversion or exchange of any convertible
securities). Upon exercise of CellNet's option to redeem the Rights, holders
will be entitled to receive a redemption payment of $0.001 per Right (subject to
certain adjustments) payable in cash or in shares of CellNet's common stock.
The Rights expire (the "Expiration Date") on the earliest of (a) November 24,
2008, (b) the consummation of any of the following transactions--(i) CellNet
merges into another entity, (ii) an acquiring entity merges into CellNet, or
(iii) CellNet sells more than fifty percent (50%) of its assets or earning
power, (c) the effective date of a redemption of the Rights determined by the
Board of Directors, and (d) the time at which the Board of Directors orders an
exchange of the Rights.
Under certain circumstances, Rights beneficially owned by an Acquiring Person or
an affiliate or associate of an Acquiring Person and any subsequent holder of
such Rights may become null and void. The Rights have no voting rights. The
Rights have the benefits of certain customary anti-dilution provisions.
The foregoing is a summary of certain principal terms of the Rights Plan and is
qualified in its entirety by reference to the terms of the Rights Agreement
pursuant to which the Rights have been issued. A copy has been filed with the
Securities and Exchange Commission on Form 8-A dated December 9, 1998.
The Rights Plan was adopted to provide protection to CellNet's stockholders in
the event of an unsolicited attempt to acquire CellNet on terms that are not in
the stockholders' best interests. The Rights Plan does not prevent an
acquisition of CellNet, impact CellNet's ability to negotiate a transaction on
mutually agreeable terms, or limit CellNet's flexibility in responding to
offers. The Rights Plan is designed to prevent the use of coercive and/or
abusive takeover techniques and to encourage any potential acquiror to negotiate
directly with the Board of Directors for the benefit of all stockholders. The
Rights Plan is also designed to afford the Board of Directors adequate time
within which to consider any takeover proposal and, if appropriate, to explore
alternatives. In addition, the Rights Plan is intended to provide increased
assurance that a potential acquiror would pay an appropriate control premium in
connection with any acquisition of CellNet. Nevertheless, the Rights Plan could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change of control of CellNet.
CellNet is authorized to issue additional shares of undesignated preferred
stock. The Board of Directors has the authority, without further action by the
stockholders, to issue such stock in one or more series, to fix the rights,
preferences, privileges and restrictions thereof. The issuance of such stock may
also have the effect of delaying, deferring or preventing a change in control of
CellNet, may discourage bids for CellNet's common stock at a premium over its
market price and may materially and adversely affect the market price of and the
voting and other rights of the holders of common stock. In addition, CellNet is,
and will continue to be, subject to the anti-takeover provisions of the Delaware
General Corporation Law, which could have the effect of delaying or preventing a
change of control of CellNet. Furthermore, upon a change of control, the holders
of CellNet's outstanding 1997 Notes are entitled, at their option, to be repaid
in cash. Such provisions may have the effect of delaying or preventing changes
in control or management of CellNet. All of these factors could materially and
adversely affect the price of CellNet's common stock and the Preferred
Securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
CellNet uses senior notes, revolving credit agreements and mandatorily
redeemable preferred securities to finance its operations. These on-balance
sheet financial instruments, to the extent they provide for variable rates of
interest expose CellNet to interest rate risk, with the primary interest rate
risk exposure resulting from changes in LIBOR or the prime rate
52 CELLNET
<PAGE>
which are used to determine the interest rates that are applicable to borrowings
under revolving credit agreements with two wholly-owned subsidiaries of CellNet.
The revolving credit agreements require the subsidiaries to partially hedge the
interest rate exposure using off-balance sheet derivative financial instruments.
CellNet did not have off-balance sheet derivative instruments in place at
December 31, 1998, but anticipates having such off-balance sheet derivative
instruments in place in 1999.
The information below summarizes CellNet's financial instruments exposed to
market risks associated with fluctuations in interest rates as of December 31,
1998. To the extent CellNet's financial instruments expose CellNet to interest
rate risk, they are presented within each market risk category in the table
below. The table presents principal cash flows and related interest rates by
year of maturity for CellNet's senior notes, revolving credit agreements and
mandatorily redeemable preferred securities in effect at December 31, 1998 and,
in the case of the senior notes and mandatorily redeemable preferred securities,
exclude the potential exercise of the relevant redemption features. The Notes to
the consolidated financial statements contain descriptions of CellNet's senior
notes, revolving credit agreements and mandatorily redeemable preferred
securities, and should be read in conjunction with the table below (in
thousands).
<TABLE>
<CAPTION>
YEAR OF MATURITY TOTAL DUE
------------------------------------------------------------- AT
1999 2000 2001 2002 2003 THEREAFTER MATURITY
--- --- --- --- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Notes -- Fixed Rate.............. -- -- -- -- -- $ 654,133 $ 654,133
Interest Rate......................... -- -- -- -- -- 14%
Mandatorily Redeemable Preferred
Securities -- Fixed Rate.............. -- -- -- -- -- $ 110,000 $ 110,000
Interest Rate......................... -- -- -- -- -- 7.0%
Revolving Credit Agreements -- Variable
Rate.................................. -- -- -- -- $ 1,163 $ 30,187 $ 31,350
Average Interest Rate................. -- -- -- -- 7.9% 8.2%
<CAPTION>
FAIR
VALUE
---------
<S> <C>
Senior Notes -- Fixed Rate.............. $ 104,661
Interest Rate.........................
Mandatorily Redeemable Preferred
Securities -- Fixed Rate.............. $ 57,200
Interest Rate.........................
Revolving Credit Agreements -- Variable
Rate.................................. $ 31,350
Average Interest Rate.................
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
53 CELLNET
<PAGE>
[LOGO]
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, 1998 and 1997,
and the related consolidated statements of operations and comprehensive loss,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also include the financial statement
schedule listed in Item 14(a)(2). These financial statements and financial
statement schedule 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 2, 1999
54 CELLNET
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 35,505 $111,112
Short-term investments 50,728 36,946
Accounts receivable -- trade 5,022 1,519
Accounts receivable -- other 2,442 5,123
Prepaid expenses and other 1,358 2,060
- ------------------------------------------------------------------------------------------
Total current assets 95,055 156,760
Networks -- net 176,090 92,308
Network components and inventory 32,616 24,225
Restricted cash 17,984 --
Property -- net 16,499 16,061
Debt issuance costs and other -- net 5,818 4,631
- ------------------------------------------------------------------------------------------
Total assets $344,062 $293,985
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 11,703 $ 11,706
Accrued compensation and related benefits 4,970 2,189
Accrued liabilities 4,168 2,655
Current portion of capital lease obligations 691 466
- ------------------------------------------------------------------------------------------
Total current liabilities 21,532 17,016
- ------------------------------------------------------------------------------------------
Senior notes 316,709 268,673
Revolving credit agreements 31,350 --
Deferred revenue 5,339 5,620
Capital lease obligations 437 412
Commitments and contingencies (Notes 10 and 11) -- --
Mandatorily redeemable preferred securities of subsidiary holding
solely Company preferred stock 106,191 --
Stockholders' equity (deficit):
Preferred stock -- $.001 par value; 15,000,000 shares authorized; no
shares outstanding -- --
Common stock -- $.001 par value; 100,000,000 shares authorized;
shares outstanding: 1998, 42,494,406; 1997, 41,845,475 211,672 209,996
Notes receivable from sale of common stock (640) (676)
Warrants 74,545 74,546
Accumulated deficit (423,085) (281,599)
Net unrealized gain (loss) on short-term investments 12 (3)
- ------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (137,496) 2,264
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $344,062 $293,985
- ------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
55 CELLNET
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Network service revenues $ 11,231 $ 5,060 $ 1,210
Product revenues 813 493 368
License fees and other revenues 965 289 91
- ----------------------------------------------------------------------------------------------------
Total revenues 13,009 5,842 1,669
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of network operations 30,423 18,322 8,100
Cost of product and other revenues 1,276 585 329
Research and development 30,197 27,524 25,394
Marketing and sales 11,988 10,148 6,021
General and administrative 17,926 15,670 12,036
Depreciation and amortization 18,449 11,973 6,123
- ----------------------------------------------------------------------------------------------------
Total costs and expenses 110,259 84,222 58,003
- ----------------------------------------------------------------------------------------------------
Loss from operations (97,250) (78,380) (56,334)
Equity in loss of unconsolidated affiliate (2,851) (2,834) --
Other income (expense):
Interest income 7,524 8,190 7,372
Interest expense, net of capitalized interest (43,769) (29,334) (23,823)
Other -- net (185) (108) 96
- ----------------------------------------------------------------------------------------------------
Total other income (expense), net (36,430) (21,252) (16,355)
- ----------------------------------------------------------------------------------------------------
Loss before provision for income taxes, dividends and accretion on
preferred securities and extraordinary loss on early extinguishment
of 1995 Senior Notes (136,531) (102,466) (72,689)
Provision for income taxes 4 1 5
- ----------------------------------------------------------------------------------------------------
Loss before dividends and accretion on preferred securities and
extraordinary loss on early extinguishment of 1995 Senior Notes (136,535) (102,467) (72,694)
Dividends and accretion on preferred securities (4,951) -- --
- ----------------------------------------------------------------------------------------------------
Loss before extraordinary loss on early extinguishment of 1995 Senior
Notes (141,486) (102,467) (72,694)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (11,417) --
- ----------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders (141,486) (113,884) (72,694)
- ----------------------------------------------------------------------------------------------------
Other comprehensive income -- Unrealized gain on short-term
investments 15 -- --
- ----------------------------------------------------------------------------------------------------
Comprehensive loss $(141,471) $(113,884) $(72,694)
- ----------------------------------------------------------------------------------------------------
Basic and diluted earnings per share:
Before extraordinary loss on early extinguishment of 1995 Senior
Notes $ (3.40) $ (2.59) $ (6.08)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (0.29) --
- ----------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $ (3.40) $ (2.88) $ (6.08)
- ----------------------------------------------------------------------------------------------------
Shares used in computing earnings per share 41,632 39,506 11,963
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
56 CELLNET
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------------
NET
UNREALIZED
CONVERTIBLE PREFERRED NOTES GAIN (LOSS)
STOCK COMMON STOCK RECEIVABLE ON SHORT-
--------------------- -------------------- FROM SALE OF ACCUMULATED TERM
SHARES AMOUNT SHARES AMOUNT COMMON STOCK WARRANTS DEFICIT INVESTMENTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1,
1996 9,136,675 $ 27,195 5,034,262 $ 27,608 $(866) $2,984 $(95,021) $(3) $ (38,103)
Sale of common stock
in public offering
(net of issuance
costs of $7,841) -- -- 5,000,000 92,159 -- -- -- -- 92,159
Exercise of Series BB
warrants 1,410,600 1,179 -- -- -- -- -- -- 1,179
Conversion of Series
CC redeemable
preferred stock upon
public offering -- -- 6,431,536 29,486 -- -- -- -- 29,486
Conversion of Series
AA, BB, and DD
preferred stock upon
public offering (10,547,275) (28,374) 19,683,950 28,374 -- -- -- -- --
Common stock issued
under stock plans -- -- 866,775 186 -- -- -- -- 186
Sale of common stock
in private
placements -- -- 1,579,404 28,000 -- -- -- -- 28,000
Repurchase of common
stock -- -- (58,410) (20) -- -- -- -- (20)
Collection of notes
receivable -- -- -- -- 52 -- -- -- 52
Net loss applicable
to common
stockholders -- -- -- -- -- -- (72,694) -- (72,694)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, December
31, 1996 -- -- 38,537,517 205,793 (814) 2,984 (167,715) (3) 40,245
Exercise of common
stock warrants
issued in connection
with 1995 Senior
Notes -- -- 2,599,986 2,987 -- (2,974) -- -- 13
Expiration of common
stock warrants -- -- -- 9 -- (9) -- -- --
Common stock issued
under stock plans -- -- 707,972 1,207 -- -- -- -- 1,207
Common stock warrants
issued in connection
with 1997 Senior
Notes -- -- -- -- -- 74,545 -- -- 74,545
Collection of notes
receivable -- -- -- -- 138 -- -- -- 138
Net loss applicable
to common
stockholders -- -- -- -- -- -- (113,884) -- (113,884)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, December
31, 1997 -- -- 41,845,475 209,996 (676) 74,546 (281,599) (3) 2,264
Common stock issued
under stock plans -- -- 644,398 1,683 -- -- -- -- 1,683
Exercise of common
stock warrants -- -- 36,933 1 -- (1) -- -- --
Repurchase of
unvested common
stock and
cancellation of
related note
receivable -- -- (32,400) (8) 8 -- -- -- --
Collection of notes
receivable -- -- -- -- 28 -- -- -- 28
Net unrealized gain
on short-term
investments -- -- -- -- -- -- -- 15 15
Net loss applicable
to common
stockholders -- -- -- -- -- -- (141,486) -- (141,486)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, December
31, 1998 -- $ -- 42,494,406 $211,672 $(640) $74,545 $(423,085) $12 $(137,496)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
57 CELLNET
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common stockholders $(141,486) $(113,884) $(72,694)
Adjustments to reconcile net loss applicable to common stockholders
to net cash used for operating activities:
Depreciation and amortization 18,449 11,973 6,123
Accretion on senior notes 43,181 28,631 23,113
Accretion on preferred securities 202 -- --
Write-off of remaining 1995 Senior Note debt issuance costs -- 4,791 --
Accelerated accretion on 1995 Senior Notes -- 3,127 --
1997 Senior Notes issued as non-cash consent fees -- 912 --
Amortization of debt issuance costs 424 566 600
Loss (gain) on disposition of property 3 59 (1)
Equity in loss of unconsolidated affiliate 2,851 2,834 --
Other 1,486 -- --
Changes in:
Accounts receivable -- trade (3,503) (669) 310
Accounts receivable -- other 2,681 (3,859) (306)
Prepaid expenses and other 702 (936) (184)
Accounts payable (3) 3,573 892
Accrued compensation and related benefits 2,781 (182) 1,018
Accrued liabilities and deferred revenue 2,588 5,969 (31)
- ------------------------------------------------------------------------------------------------------
Net cash used for operating activities (69,644) (57,095) (41,160)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Networks (90,669) (45,391) (35,944)
Network components and inventory (8,391) (13,014) 453
Purchase of property (8,044) (10,668) (9,012)
Proceeds from sale of property 19 20 11
Investment in unconsolidated affiliate (4,207) (1,478) --
Purchase of short-term investments (120,899) (43,139) (329,674)
Proceeds from sales and maturities of short-term investments 107,132 60,836 370,810
Increase in restricted cash (21,486) -- --
Proceeds from maturity of restricted cash 4,107 -- --
Other assets (244) (419) (309)
- ------------------------------------------------------------------------------------------------------
Net cash used for investing activities (142,682) (53,253) (3,665)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred securities, net of issuance
costs 105,989 -- --
Issuance of Senior Notes and warrants -- 100,324 --
Debt issuance costs (1,367) (4,004) (210)
Proceeds from revolving credit agreements 31,350 -- --
Repayment of capital lease obligations (688) (450) (307)
Proceeds from exercise of preferred stock warrants -- -- 1,179
Proceeds from sale of common stock, net of repurchases 1,407 1,220 120,325
Collection of note receivable from sale of common stock 28 138 52
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 136,719 97,228 121,039
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (75,607) (13,120) 76,214
CASH AND CASH EQUIVALENTS, Beginning of year 111,112 124,232 48,018
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, End of year $ 35,505 $ 111,112 $124,232
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property under capital leases $ 938 $ 654 $ 161
Capitalized interest on networks $ 4,855 $ 3,047 $ 1,537
Conversion of preferred stock and warrants into common stock $ 1 $ -- $ 57,860
Repurchase of unvested common stock and cancellation of related note
receivable $ 8 $ -- $ --
Change in unrealized gain on short-term investments $ 15 $ -- $ --
Exchange of 1995 Senior Notes for 1997 Senior Notes $ -- $ 231,039 $ --
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 127 $ 113 $ 110
Cash paid for income taxes $ 4 $ 1 $ 5
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
58 CELLNET
<PAGE>
CELLNET DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Since 1993, CellNet Data Systems, Inc. and
subsidiaries (the Company or CellNet) 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.
The Company provides its services to utility companies, energy service
providers and other customers pursuant to contract. The contracts vary in
length, generally, from 5 to 20 years. Utilities have up to two five-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 under the longer term contracts, 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 does not expect to receive revenues sufficient to meet
anticipated operating costs and expenses during 1999. Management plans to
increase operations through the installation of additional networks for other
utility companies and other non-utility clients and intends to fund these
operations through additional debt and equity financings.
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.
59 CELLNET
<PAGE>
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 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.
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. Four customers accounted for
41%, 24%, 13% and 11% of trade accounts receivable at December 31, 1998.
Three of these customers accounted for 49%, 28% and 15% of revenues for the
year ended December 31, 1998. Two of these customers accounted for 57% and
31% of trade accounts receivable at December 31, 1997 and for 47% and 41% of
revenues for the year then ended. The same two customers accounted for 69%
and 21% of revenues for the year ended December 31, 1996. Concentration of
credit risk is expected to decrease as the Company deploys additional
networks and provides its services to an increasing number of customers.
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.
NETWORKS, NET. Networks, which are stated at cost, include both equipment
assembled at the Company and systems installed or partially installed at
customer sites. Interest is capitalized using the Company's cost of debt
until the point in the installation at which each network begins generating
revenue. Accordingly, $4,855,000, $3,047,000 and $1,537,000 of interest was
capitalized during 1998, 1997 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, 1998 and 1997,
accumulated depreciation was $16,140,000 and $6,212,000, respectively.
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, 1998, 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.
RESTRICTED CASH. Restricted cash includes the proceeds of the offering which
are designated for the payment of cash dividends on the Preferred Securities
through June 1, 2001 (see Note 7). These proceeds were invested in U.S.
Treasury Strips and were placed in escrow upon the closing of the offering of
the Preferred Securities and mature at each of the dividend payment dates.
Restricted cash is stated at amortized cost.
PROPERTY, NET. 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.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered; such review is
60 CELLNET
<PAGE>
performed by comparing the undiscounted cashflows associated with the asset
to the asset's carrying value. If an impairment is identified, the asset is
written down to its fair value.
INVESTMENT IN UNCONSOLIDATED AFFILIATE. The investment is accounted for
using the equity method (see Note 3). Equity in loss of unconsolidated
affiliate is based upon the Company's beneficial interest.
DEBT ISSUANCE COSTS. Debt issuance costs associated with the senior notes
are capitalized and amortized using the effective interest method over the
lives of the related debt. Financing fees incurred in connection with the
revolving credit agreements (see Note 6), are capitalized and amortized using
the straight-line method over the terms of the agreements.
SEGMENT INFORMATION. In 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) 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. The Company operates in one reportable segment: the design,
development and operation of its CellNet wireless data communication system
to provide automated network meter reading and other services to the utility
industry. The Company operates exclusively in the United States.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, which defines derivatives, requires that all derivatives
be carried at fair value and provides for hedge accounting when certain
conditions are met. SFAS 133 is effective for quarters of fiscal years
beginning after June 15, 1999. The Company has not fully assessed the
implications of this new standard.
REVENUE RECOGNITION. Network service revenue, associated with installed
networks, is recognized in the period of service. Product revenue is
recognized upon product shipment.
The Company and a utility customer have entered into a joint marketing and
licensing agreement for the purpose of jointly developing and marketing
utility automation and utility management services utilizing the Company's
wireless data communications network deployed in the customer's service area.
The Company has received a license fee of $6,000,000 for the use of certain
of the Company's network interface technology and has agreed to pay the
customer certain marketing service and incentive fees based upon network
revenues and upon revenues received from the sale of the services being
developed and marketed. The customer has the right to terminate the agreement
at any time prior to January 1, 2000 and to require the Company to refund the
license fee less the amount of any marketing service and incentive fees
previously paid. The amount of the license fee is recorded as deferred
revenue and is being recognized over the term of the agreement.
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 1997 Senior Notes was approximately $104,661,000 and
$223,350,000 at December 31, 1998 and 1997, respectively. The estimated fair
value of the Company's preferred securities was approximately $57,200,000 at
December 31, 1998. The estimated fair values of cash equivalents, short-term
investments and preferred securities are based on quoted market prices, and
the estimated fair value of the Senior Notes is based on information provided
by the initial purchaser of the original notes.
COMPREHENSIVE LOSS. In 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
61 CELLNET
<PAGE>
from nonowner sources. Statements of comprehensive loss for the years ended
December 31, 1998, 1997 and 1996 have been included with the statements of
operations.
NET LOSS PER SHARE. Basic EPS for all periods presented is computed by
dividing net loss by the weighted average number of common shares outstanding
(excluding shares subject to repurchase -- see Note 8). Diluted EPS for all
periods presented is the same as basic EPS since all other potential dilutive
securities (common stock subject to repurchase, common stock options and
warrants and preferred securities) are excluded as they are anti-dilutive.
2. SHORT-TERM INVESTMENTS
The fair value and the amortized cost of short-term investments at December
31, 1998 and 1997 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>
- ------------------------------------------------------------------------------------------------
Unrealized Unrealized
Amortized Loss on Gain on Market
DECEMBER 31, 1998 Cost Investment Investment Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 8,000 $-- $17 $ 8,017
Auction-rate preferred stock 23,805 (5) -- 23,800
Corporate debt securities 53,446 (4) 4 53,446
- ------------------------------------------------------------------------------------------------
Total 85,251 (9) 21 85,263
Less amounts included in cash and cash equivalents (34,535) -- -- (34,535)
- ------------------------------------------------------------------------------------------------
$ 50,716 $(9) $21 $ 50,728
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Unrealized Unrealized
Amortized Loss on Gain on Market
DECEMBER 31, 1997 Cost Investment Investment Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 7,298 $(4) $-- $ 7,294
Auction-rate preferred stock 27,700 -- -- 27,700
Corporate debt securities 113,016 -- 1 113,017
- ------------------------------------------------------------------------------------------------
Total 148,014 (4) 1 148,011
Less amounts included in cash and cash equivalents (111,065) -- -- (111,065)
- ------------------------------------------------------------------------------------------------
$ 36,949 $(4) $1 $ 36,946
- ------------------------------------------------------------------------------------------------
</TABLE>
62 CELLNET
<PAGE>
The final maturity periods of short-term investments at December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Market Value of Maturities
------------------------------------------
Greater
Within than 10
One Year Years Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 8,017 $ -- $ 8,017
Auction-rate preferred stock -- 23,800 23,800
Corporate debt securities 53,446 -- 53,446
- -------------------------------------------------------------------------------------------
Total 61,463 23,800 85,263
Less amounts included in cash and cash
equivalents (34,535) -- (34,535)
- -------------------------------------------------------------------------------------------
$ 26,928 $ 23,800 $ 50,728
- -------------------------------------------------------------------------------------------
</TABLE>
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 its Senior
Note Indenture (see Note 6).
3. INVESTMENT IN UNCONSOLIDATED AFFILIATE
In 1996, the Company and Bechtel Enterprises, Inc. formed BCN Data Systems
L.L.C. (BCN) to deploy the Company's technology outside the United States.
The Company participates in the BCN joint venture and generally is allocated
50% of BCN's net income or loss. The investment in BCN is accounted for using
the equity method. For the years ended December 31, 1998 and 1997, the
Company recognized $2,851,000 and $2,834,000, respectively, as its share of
BCN's losses. No losses were recognized in 1996. The Company's cumulative
contributions were $5,685,000 at December 31, 1998. At December 31, 1998,
there is no remaining investment in BCN as the Company's cumulative share of
BCN's losses equaled the Company's cumulative capital contributions. In 1997,
the Company made capital contributions of $1,478,000, and the Company's share
of BCN's losses in excess of such capital contributions is recorded in
accrued liabilities (see Note 5).
Under a license and consulting services agreement completed in 1997, BCN has
agreed to reimburse the Company for certain costs incurred by the Company in
adapting the Company's technology for use by BCN outside the United States.
In 1998 and 1997, the Company recorded $245,000 and $2,755,000, respectively,
as an offset to research and development expenses for the reimbursement of
such costs. In 1997, the Company sold its operating subsidiary, DAC (UK)
Limited, at cost to BCN.
63 CELLNET
<PAGE>
4. PROPERTY
Property consists of (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Office furniture and equipment $ 21,649 $ 14,944
Manufacturing equipment and tools 13,362 11,338
Engineering equipment 5,119 4,969
Vehicles 231 231
- -------------------------------------------------------------------------------------------
Total 40,361 31,482
Accumulated depreciation and amortization (23,862) (15,421)
- -------------------------------------------------------------------------------------------
Total $ 16,499 $ 16,061
- -------------------------------------------------------------------------------------------
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Property taxes $ 1,780 $ --
Professional services 687 332
Dividends on preferred securities (see Note 7) 642 --
Accrued contractual obligations 579 195
Deferred revenue 345 620
Loss in excess of investment in unconsolidated affiliate (see Note 3) -- 1,356
Other 135 152
- ----------------------------------------------------------------------------------------------
Total $ 4,168 $ 2,655
- ----------------------------------------------------------------------------------------------
</TABLE>
6. SENIOR NOTES AND CREDIT AGREEMENTS
1995 NOTES. In 1995, the Company received $175,837,000 in gross proceeds
from the issuance and private placement of $325,000,000 aggregate principal
amount at maturity of its 13% Senior 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 1995 Warrants). Aggregate proceeds of $2,974,000 were
attributed to the 1995 Warrants. The unregistered Notes were subsequently
exchanged for an equal number of Series B 13% Senior Notes with identical
terms (the 1995 Notes) registered under the Securities Act of 1933, as
amended (the Securities Act).
1997 NOTES. On September 29, 1997, the Company raised $100,324,000 in gross
proceeds from the sale and issuance of 14% Senior Notes due 2007 (the 1997
Notes). All holders of outstanding 1995 Notes tendered and exchanged their
1995 Notes for 1997 Notes having an initial accreted value of $231,039,000.
All outstanding 1995 Warrants were exercised prior to expiration in 1997.
Warrants to purchase 8,942,517 shares of the Company's Common Stock (the 1997
Warrants) with an exercise price of $14.30 per share were attached to the
1997 Notes.
64 CELLNET
<PAGE>
Aggregate proceeds of $74,545,000 were attributed to the 1997 Warrants. The
1997 Notes were issued at an initial accreted value of $257,730,000 and will
fully accrete to a face value of $654,133,000 on October 1, 2002. From and
after October 1, 2002, the 1997 Notes will begin to accrue interest payable
in cash at an annual rate of 14% payable each April 1 and October 1,
commencing April 1, 2003.
The 1997 Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after October 1, 2002 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 prior to October 1, 2000 up to 25% of the aggregate principal
amount of the 1997 Notes at 114% 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) provided that after any such redemption
at least $490,599,750 aggregate principal amount at maturity of the 1997
Notes remains outstanding. There are no sinking fund requirements. In the
event of a change of control (as defined), each holder of the 1997 Notes has
the option to require the Company to repurchase such holder's 1997 Notes at
101% of the accreted value thereof on the date of repurchase (if prior to
October 1, 2002) or 101% of the aggregate principal face amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date (if on or after
October 1, 2002).
The 1997 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 1997 Notes were issued contains certain covenants that, among other
things, limit the ability of the Company to make dividend payments, make
investments (including investments in affiliates), 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, 1998.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT. On September 29, 1997,
the Company exchanged $654,133,000 aggregate value at maturity 1997 Notes and
1997 Warrants for $100,324,000 of new proceeds and the extinguishment of its
$325,000,000 aggregate value at maturity of the 1995 Notes. The exchange of
the 1995 Notes was accounted for as an early extinguishment of debt,
resulting in an extraordinary charge of $11,417,000, consisting of the
unamortized portion of the debt issuance cost of the 1995 Notes of
$4,791,000, $3,499,000 attributable to consent fees and other costs related
to the extinguishment of the 1995 Notes and accelerated accretion of interest
on the 1995 Notes of $3,127,000.
In December 1997, the Company exchanged the unregistered 1997 Notes for an
equal number of Series B 14% Senior Notes with identical terms (the New 1997
Notes) registered under the Securities Act. Costs associated with the
Company's registration of the New 1997 Notes under the Securities Act have
been capitalized as part of debt issuance costs.
REVOLVING CREDIT AGREEMENTS. In November 1998, CellNet Data Services (KC),
Inc. and CellNet Data Services (SL), Inc. (CellNet KC and CellNet SL,
respectively, or the Borrowers collectively), wholly-owned subsidiaries of
the Company, each entered into a reducing revolving credit agreement (the
Agreements) with a group of banks. The Agreements provide for borrowings of
up to $15,000,000 and $60,000,000 for CellNet KC and CellNet SL, respectively
and expire in December 2007. At December 31, 1998, outstanding borrowings
under the Agreements for CellNet KC and CellNet SL were $12,600,000 and
$18,750,000, respectively. The Agreements provide for quarterly reductions in
the availability of borrowings commencing 2001 through the remaining term of
the Agreement. In addition, borrowings outstanding under the Agreements are
subject to mandatory prepayment (i) with the proceeds of certain asset sales
and (ii) on an annual basis up to 12.5% of the Borrowers Excess Cash Flow (as
defined in the Agreements).
65 CELLNET
<PAGE>
The Borrowers pay an annual commitment fee which fluctuates based on the
Borrower's Leverage Ratio (as defined in the Agreements) on the unused
portion of their available borrowings.
The Agreements contain covenants which limit the ability of the Borrowers to
incur additional indebtedness, create liens, pay dividends or make
distributions, consolidate, merge or sell all or substantially all of their
assets, guarantee obligations of other entities, or enter into transactions
with affiliates. Additionally, the Agreements require the Borrowers to
maintain compliance with certain operating and financial covenants, including
minimum revenue, minimum operating cash flow, maximum capital expenditures,
leverage ratio, pro forma debt service ratio and an interest coverage ratio.
Borrowings under the Agreements are secured by the Borrower's assets,
contracts and leases. At December 31, 1998, the Borrowers were in compliance
with the above covenants.
The Agreements bear interest at rates, which are at the Borrower's option,
based upon (i) the higher of Prime Rate or the Federal Funds Rate plus 0.5%
(Base Rate) plus a variable margin or (ii) the Eurodollar rate plus a
variable margin. The margin fluctuates based on the Borrower's Leverage Ratio
from 0.125% to 1.5% on CellNet KC's Base Rate and 0.5% to 1.875% on CellNet
SL's Base Rate and 1.5% to 2.875% on CellNet KC's Eurodollar rate and 1.125%
to 2.5% on CellNet SL's Eurodollar rate. The weighted average interest rates
at December 31, 1998 were 7.94% and 8.31% for CellNet KC and CellNet SL,
respectively. As of December 31, 1998, outstanding borrowings for Cellnet SL
mature beginning in 2004 through 2007. As of December 31, 1998, outstanding
borrowings for CellNet KC mature as follows: 2003, $1,163,000; thereafter,
$30,187,000.
CUSTOMER LINE OF CREDIT. CellNet Data Services (SE), Inc. (CellNet SE), a
wholly-owned subsidiary of the Company, entered into a term loan agreement
(Term Loan) with one of its customers. The Term Loan provides for borrowings
of up to $40,000,000. The Term Loan provides for up to one drawdown per
month, bears interest at 6.5% per annum and is secured by CellNet SE's
assets, including contracts and leases. The Term Loan documents contain
covenants which limit the ability of CellNet SE to incur additional
indebtedness, create liens, pay dividends or make distributions, consolidate,
merge or sell all or substantially all of their assets, guarantee obligations
of other entities, or enter into transactions with affiliates. The drawdowns
are payable on the fifth anniversary of the initial drawdown. Interest on the
drawdowns is payable quarterly, beginning with the first calendar quarter
after the initial drawdown. There have been no drawdowns as of December 31,
1998.
7. MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
In May 1998, a new subsidiary of the Company, CellNet Funding, LLC (Funding)
completed the sale of 7% Exchangeable Preferred Securities Mandatorily
Redeemable 2010 (the Preferred Securities) for gross proceeds of
$110,000,000. Net proceeds from the offering, after offering costs, were
approximately $105,989,000. The recorded amount of the Preferred Securities
will fully accrete to the face value of $110,000,000 on June 1, 2010. The
restricted cash at December 31, 1998 of approximately $17,984,000 includes
the proceeds of the offering which are designated for the payment of cash
dividends on the Preferred Securities through June 1, 2001. Funding invested
the restricted cash in U.S. Treasury Strips (the Treasury Strips) which were
placed in escrow upon the closing of the offering of the Preferred
Securities. The Treasury Strips have been pledged to The Bank of New York as
escrow agent (the Escrow Agent) pursuant to an escrow agreement for the
benefit of the holders of the Preferred Securities. The Escrow Agent is
required under the Escrow Agreement to release from escrow amounts sufficient
to pay quarterly dividends on the Preferred Securities through September 1,
2001. Dividend payments were made in 1998 for a total of $4,107,000 from
proceeds of the Treasury Strips.
The Preferred Securities consist of 4,400,000 exchangeable preferred
securities of Funding that bear a cumulative dividend at the rate of 7% per
annum. The dividend is paid quarterly in arrears each March 1, June 1,
September 1 and
66 CELLNET
<PAGE>
December 1. The dividend is payable in cash through June 1, 2001 and
thereafter, by cash or shares of Company common stock, at the option of
Funding. The Preferred Securities are exchangeable at any time prior to June
1, 2010, at the option of the holders, into Company common stock, at a rate
of 1.8328 shares of Company common stock per Preferred Security, or $13.64
per share, subject to adjustment. On or prior to June 1, 2001, the Preferred
Securities must be automatically exchanged for common stock of the Company at
an exchange price of $13.64 per share in the event the Current Market Value
(which is a formula as defined in the Written Action of the Manager of
Funding, (the Written Action)) of the Company's common stock equals or
exceeds the following percentage of the exchange price, for at least 20 days
of any 30-day trading period during the 12 month period ending prior to June
1 of the indicated year: 170% prior to June 1, 1999; 160% from June 1, 1999
through June 1, 2000; and 150% from June 2, 2000 up to and prior to June 1,
2001. The Preferred Securities are subject to mandatory redemption on June 1,
2010 at a redemption price of 100% of the liquidation preference of the
Preferred Securities, plus accrued and unpaid dividends, if any. Funding may
redeem, at its option, the Preferred Securities, in whole or in part, at any
time on or after June 1, 2001 at certain redemption prices equal to a
percentage of the liquidation preference (set forth in the Written Action)
which declines each year until maturity of the Preferred Securities, together
with accrued and unpaid dividends, if any.
Pursuant to and to the extent set forth in the guarantee of the Preferred
Securities (the Guarantee) by the Company for the benefit of the holders of
Preferred Securities, the Company has agreed to pay in full to the holders of
the Preferred Securities (except to the extent paid by Funding), as and when
due, regardless of any defense, right of set off or counterclaim which
Funding may have or assert, the following payments (the Guarantee Payments),
without duplication: (i) any accrued and unpaid distributions that are
required to be paid on the Preferred Securities, to the extent Funding has
sufficient funds legally available therefor, (ii) the redemption price, with
respect to any Preferred Securities called for redemption by Funding, to the
extent Funding has sufficient funds legally available therefor, and (iii)
upon a voluntary or involuntary dissolution, winding-up or termination of
Funding, the lesser of (a) the aggregate of the liquidation preference and
all accrued and unpaid dividends on the Preferred Securities to the date of
payment to the extent Funding has sufficient funds legally available therefor
and (b) the amount of assets of Funding remaining for distribution to holders
of Preferred Securities upon the liquidation of Funding. The Guarantee may
also be subject to contractual restrictions under agreements governing future
indebtedness of the Company.
On May 19, 1998, after the investment in Treasury Strips, Funding applied the
remaining net proceeds from the offering of the Preferred Securities together
with other capital contributed by the Company to purchase $93,500,000 of the
Company's Preferred Stock (the CellNet Preferred Stock) which pays dividends
each March 1, June 1, September 1 and December 1 in additional shares of
CellNet Preferred Stock through June 1, 2001. Subsequent to June 1, 2001,
dividends are payable in cash or shares of common stock, at the option of the
Company. The CellNet Preferred Stock is exchangeable, at the option of
Funding, at any time prior to June 1, 2010 into shares of the Company's
common stock at an exchange rate based on the exchange rate of the Preferred
Securities. The CellNet Preferred Stock is subject to mandatory redemption on
June 1, 2010.
The separate complete financial statements of Funding have not been included
herein because such disclosure is not considered to be material to the
holders of the Preferred Securities. For the period from May 13, 1998
(inception), through December 31, 1998, the statement of operations of
Funding included only the preferred dividends paid or accrued, accretion of
the Preferred Securities, dividend income earned and accrued on the CellNet
Preferred Stock and interest income earned on the restricted cash. The
balance sheet information for Funding is as follows (in thousands):
67 CELLNET
<PAGE>
CELLNET FUNDING, LLC BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------
DECEMBER 31, 1998
- ----------------------------------------------------------
<S> <C>
ASSETS:
- ----------------------------------------------------------
Dividends receivable from CellNet $ 4,106
Investment in CellNet preferred stock 93,500
Restricted cash 17,984
- ----------------------------------------------------------
Total assets $ 115,590
<CAPTION>
- ----------------------------------------------------------
<S> <C>
LIABILITIES AND MEMBER'S EQUITY:
- ----------------------------------------------------------
Accrued dividends payable $ 642
Payable to CellNet 564
Mandatorily redeemable preferred securities 106,191
MEMBER'S EQUITY:
Common limited liability securities outstanding 10
Additional paid-in capital 8,341
Accumulated deficit (158)
- ----------------------------------------------------------
Total member's equity 8,193
- ----------------------------------------------------------
Total liabilities and member's equity $ 115,590
- ----------------------------------------------------------
</TABLE>
8. COMMON STOCK
At December 31, 1998, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Issuance under employee stock purchase plan 867,423
Issuance upon exercise of common stock warrants 8,949,017
Issuance under stock option plans 5,589,766
Issuance under preferred securities (see Note 7) 8,064,516
- ------------------------------------------------------------------------------------------
Total 23,470,722
- ------------------------------------------------------------------------------------------
</TABLE>
STOCKHOLDER RIGHTS PLAN. In November 1998, the Company's Board of Directors
adopted a stockholder rights plan and declared a dividend of one preferred
share purchase right (Right) for each outstanding share of common stock. In
addition, one Right will be issued with each share of common stock that
becomes outstanding before the earlier to occur of the Distribution Date (as
defined) and the Expiration Date (as defined), including common stock that is
issued upon exercise, conversion or exchange of options, warrants and other
convertible or exchangeable securities. The Rights become exercisable, unless
earlier redeemed or expired, 10 days after a person or group acquires
beneficial ownership of 15% or more of the Company's common stock or
announces a tender or exchange offer that would result in such ownership.
When exercisable, each Right entitles the holder to purchase 1/1000th of a
share of the Company's Series A Participating Preferred Stock for $50 (the
Exercise Price), subject to certain adjustments, and to
68 CELLNET
<PAGE>
purchase a number of shares of the Company's common stock (or, in certain
circumstances, the common stock of an acquiring company) having a then
current market value of twice the Exercise Price. The Rights are redeemable
at the Company's option for $0.001 per Right, subject to certain limitations.
The Rights expire on the earliest to occur of November 24, 2008 and certain
transactions and events (as defined).
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
at various times during 1999 and 2000. At December 31, 1998, 233,214
outstanding shares of such stock were subject to repurchase.
1996 EMPLOYEE STOCK PURCHASE PLAN. A total of 1,200,000 shares of common
stock are reserved for issuance under the Employee Stock Purchase Plan (the
Plan). Under the Plan, the Company withholds a specified percentage of each
salary payment to participating employees over certain offering periods,
generally six months. The price at which common stock may be purchased under
the 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. In
1998 and 1997, 169,476 and 163,101 shares were issued under the Plan at a
weighted average price of $6.67 and $6.38 per share, respectively. At
December 31, 1998, 867,423 shares remain available for issuance under the
Plan.
WARRANTS. At December 31, 1998, the following warrants to purchase common
stock were outstanding:
Warrants to purchase 6,500 shares of common stock at $2.00 per share. The
warrants expire on February 24, 1999.
Warrants to purchase 8,942,517 shares of common stock at $14.30 per share
were granted in connection with the issuance and sale in 1997 of the
Company's 14% Senior Notes (see Note 6). The warrants expire on October 1,
2007.
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 fair market value and terms of exercise are determined by the Board of
Directors. Options outstanding at December 31, 1998 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, 1998, there were 1,720,328 shares available
for future grant under the Plans.
69 CELLNET
<PAGE>
A summary of stock option activity under the Plans on a combined basis is as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Outstanding Options
------------------------
Weighted
Average
Number of Exercise
Shares Price
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Balances, January 1, 1996 3,273,634 $ 0.565
Granted (weighted average fair value $1.486 per share) 889,910 3.827
Exercised (866,775) 0.214
Cancelled (109,679) 0.683
- ------------------------------------------------------------------------------------------
Balances, December 31, 1996 3,187,090 1.278
Granted (weighted average fair value $6.060 per share) 942,600 11.052
Exercised (544,871) 0.307
Cancelled (177,575) 4.865
- ------------------------------------------------------------------------------------------
Balances, December 31, 1997 3,407,244 3.948
Granted (weighted average fair value $5.289 per share) 1,172,595 9.381
Exercised (474,922) 0.582
Cancelled (235,479) 7.009
- ------------------------------------------------------------------------------------------
Balances, December 31, 1998 3,869,438 $ 5.821
- ------------------------------------------------------------------------------------------
</TABLE>
Additional information regarding options outstanding as of December 31, 1998
is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Options Outstanding
-------------------------- Options Exercisable
Weighted -----------------------
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Price
Prices Outstanding Life Price Exercisable Exercise
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.0500 - $ 0.2500 628,937 4.70 $ 0.173 590,501 $ 0.168
0.5000 633,089 5.97 0.500 462,837 0.500
1.0000 - 2.0000 514,274 7.15 1.906 261,640 1.900
3.0000 - 7.6300 268,513 8.93 6.056 51,123 5.792
9.2500 780,145 9.52 9.250 12,060 9.250
9.5625 - 11.5000 773,680 8.68 11.112 185,794 11.205
12.8125 - 13.8125 270,800 8.57 13.582 74,926 13.477
- -------------------------------------------------------------------------------------------
$ 0.0500 - $13.8125 3,869,438 7.57 $ 5.821 1,638,881 $ 2.640
- -------------------------------------------------------------------------------------------
</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.
70 CELLNET
<PAGE>
Statement of Financial Accounting Standards No. 123 (SFAS 123), ACCOUNTING
FOR STOCK-BASED COMPENSATION, 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 made using the minimum value
method prior to the Company's initial public offering and the Black-Scholes
option pricing model with the following weighted average assumptions for
stock option grants: expected life, 12 months following vesting in 1998 and
1997 and 21.3 months following vesting in 1996; stock volatility, 74% in
1998, 71% in 1997 and 60% in 1996, subsequent to the Company's initial public
offering; risk free interest rates, 4.8% in 1998, 5.5% in 1997 and 6.0% in
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.
The weighted average fair value of purchase rights under the Employee Stock
Purchase Plan was $3.34 and $3.67 in 1998 and 1997, respectively. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions in 1998 and 1997,
respectively: expected term, six months after grant; stock volatility, 74% in
1998 and 71% in 1997; risk free interest rates, 4.8% in 1998 and 5.5% in
1997; and no dividends during the expected term.
If the computed fair values of the 1998, 1997 and 1996 awards had been
amortized to expense over the vesting period of the awards, pro forma net
loss would have been $145,254,000 ($3.49 per share) in 1998, $115,946,000
($2.93 per share) in 1997 and $73,314,000 ($6.13 per share) in 1996. However,
the impact of outstanding unvested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1998, 1997 and
1996 pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock options.
EARNINGS PER SHARE. The Company excluded certain potentially dilutive
securities each year from its dilutive EPS computation because either the
exercise price of the securities exceeded the average fair values of the
Company's common stock or the Company had net losses, and, therefore, these
securities were antidilutive. A summary of the excluded potential dilutive
securities as of the end of each fiscal year is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock subject to repurchase 233,214 768,028 1,275,841
Common stock options 3,869,438 3,407,244 3,187,090
Common stock warrants 8,949,017 8,992,517 2,650,000
Preferred securities 8,064,516 -- --
- --------------------------------------------------------------------------------------
</TABLE>
9. INCOME TAXES
No federal income taxes were provided in 1998, 1997 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
71 CELLNET
<PAGE>
income taxes differs from the amount computed by applying the federal
statutory income tax rate to income before income taxes and extraordinary
item as follows (in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes computed at federal statutory rate $ (47,786) $ (35,863) $ (25,441)
State income taxes, net of federal effect (4,323) (1,578) (2,544)
Research tax credits (965) (349) 3,760
Disqualified yield on debt issued 6,481 2,006 --
Change in valuation allowance 49,194 35,714 23,349
Other (2,597) 71 881
- -------------------------------------------------------------------------------------------
Total provision $ 4 $ 1 $ 5
- -------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to deferred taxes
were as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Tax net operating loss and credit carryforwards $ 114,365 $ 78,280
Senior note original issue discount 31,049 21,754
Research and development expenses capitalized for tax purposes 1,236 657
Expenses not currently deductible for tax purposes 6,535 3,300
- ------------------------------------------------------------------------------------------
Total deferred tax assets 153,185 103,991
Valuation allowance on deferred tax assets (153,185) (103,991)
Net deferred income taxes $ -- $ --
- ------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $289,000,000 and $149,000,000 available to offset future
federal and state taxable income, respectively. Such federal carryforwards
expire in 2001 through 2013. Such state carryforwards expire in 1999 through
2013. 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.
Research and development tax credit carryforwards of approximately $5,300,000
and $2,900,000 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.
72 CELLNET
<PAGE>
10. COMMITMENTS AND LEASES
At December 31, 1998 and 1997, equipment with a net book value of $1,239,000
and $1,027,000 (net of accumulated amortization of $1,734,000 and $1,180,000,
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 December 31, 2000 through March
2008.
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>
1999 $ 745 $ 2,220
2000 356 2,012
2001 92 732
2002 22 672
2003 1 640
Thereafter -- 3,127
- ---------------------------------------------------------------------------------------------
Total minimum lease payments 1,216 $ 9,403
---------
Amount representing interest (88)
- ----------------------------------------------------------------------------------
Present value of minimum lease payments 1,128
Current portion 691
- ----------------------------------------------------------------------------------
Long-term lease obligations $ 437
- ----------------------------------------------------------------------------------
</TABLE>
Facilities rent expense was $3,307,000, $2,146,000 and $1,301,000 for 1998,
1997 and 1996, respectively.
11. 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 suits of this nature. Although the ultimate
outcome of these matters is not presently determinable, management believes
that the resolution will not have a material effect on the Company's
operating results, financial condition and cash flows.
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 infringed an Itron patent which was issued in September 1996.
Itron sought a judgment for damages, attorneys' fees and injunctive relief.
On January 28, 1999, the Court ruled in favor of the Company that, as a
matter of law, the Company's system did not infringe the Itron patent. The
Court also ruled in favor of Itron that the Itron patent was valid against
certain prior art. These rulings are subject to possible appeal by either or
both of the parties. The Company has not yet determined its course of action
in this regard. In the opinion of management, the ultimate outcome of the
lawsuit is not expected to have a material adverse effect on the Company's
operating results, financial condition and cash flows.
73 CELLNET
<PAGE>
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 electric meter reading Encoder Receiver Transmitter
(ERT-Registered Trademark-) device infringes the Company's U.S. Patent No.
4,783,623. The Company sought an injunction, damages and other relief. On
November 2, 1998, the Court ruled that Itron's patent does not infringe upon
the Company's U.S. Patent No. 4,783,623. The Company recently filed its
notice of appeal in this action.
The consolidated complaint of Jere Settle and Karen Zully v. John M. Seidl,
et al., No. 398464, filed in the Superior Court of California for the County
of San Mateo, is a purported class action on behalf of the Company's
stockholders against the Company, certain of its officers and directors and
underwriters of the Company's initial public offering seeking unspecified
damages and rescission for alleged liability under various provisions of the
federal securities law and California state law. The plaintiffs alleged
generally 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 the Company was obligated to disclose, but failed to disclose, that a
patent conflict with Itron, Inc. was likely to ensue. The complaint was
dismissed on February 9, 1998, without leave to amend. Plaintiffs filed an
appeal in the California Court of Appeal which is pending. In the opinion of
management, the ultimate outcome of the appeal is not expected to have a
material adverse effect on the Company's operating results, financial
condition and cash flows.
12. QUARTERLY RESULTS (UNAUDITED)
The following summarized unaudited results of operations for the quarters in
the years ended December 31, 1998 and 1997 have been accounted for using
generally accepted accounting principles for interim reporting purposes and
reflect adjustments (consisting of normal recurring adjustments) which the
management of the Company considers necessary for the fair presentation of
results of operations for these interim periods (in thousands, except per
share data):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
QUARTERS ENDED
-------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1998 1998 1998 1998 1997 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,383 $ 3,497 $ 2,860 $ 2,269 $ 1,816 $ 1,533 $ 1,514 $ 979
Loss from operations (28,051) (24,253) (24,108) (20,838) (22,214) (19,899) (18,576) (17,691)
Loss before
extraordinary loss
on early
extinguish-ment of
1995 senior notes (40,930) (35,780) (34,560) (30,216) (31,333) (25,208) (23,922) (22,004)
Extraordinary loss on
early extinguishment
of 1995 senior notes -- -- -- -- -- (11,417) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to
common stockholders $(40,930) $(35,780) $(34,560) $(30,216) $(31,333) $(36,625) $(23,922) $(22,004)
- -------------------------------------------------------------------------------------------------------------------------------
Basic and diluted
earnings per share:
Before extraordinary
loss on early
extinguishment of
1995 senior notes $ (0.97) $ (0.86) $ (0.83) $ (0.73) $ (0.77) $ (0.61) $ (0.62) $ (0.59)
Net loss applicable
to common
stockholders $ (0.97) $ (0.86) $ (0.83) $ (0.73) $ (0.77) $ (0.90) $ (0.62) $ (0.59)
Shares used in
computing net loss
per share 42,207 41,764 41,469 41,139 40,965 40,624 38,734 37,701
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
74 CELLNET
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
CELLNET DATA SYSTEMS, INC.
CONDENSED
BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,489 $ 111,100
Short-term investments 50,728 36,946
Accounts receivable -- trade 64 93
Accounts receivable -- other 2,161 4,843
Prepaid expenses and other 855 1,770
- -----------------------------------------------------------------------------------------------------
Total current assets 89,297 154,752
Networks -- net 114 783
Network components and inventory 15,166 18,284
Property -- net 11,414 10,835
Investment in unconsolidated subsidiaries 14,884 --
Receivables from unconsolidated subsidiaries 232,057 130,386
Debt issuance costs and other -- net 4,471 4,632
- -----------------------------------------------------------------------------------------------------
Total assets $ 367,403 $ 319,672
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 4,682 $ 10,622
Accrued compensation and related benefits 4,970 2,189
Dividends payable to unconsolidated subsidiary 4,106 --
Accrued liabilities 1,215 925
Excess of equity in loss of unconsolidated subsidiaries over capital invested 79,012 34,326
Current portion of capital lease obligations 431 405
- -----------------------------------------------------------------------------------------------------
Total current liabilities 94,416 48,467
- -----------------------------------------------------------------------------------------------------
Senior notes 316,709 268,673
Capital lease obligations 274 268
Commitments and contingencies (Note 1) -- --
Mandatorily redeemable preferred stock -- $.001 par value; 15,000,000 shares
authorized; shares outstanding: 1998, 9,350; 1997, none 93,500 --
Stockholders' equity (deficit):
Common stock -- $.001 par value; 100,000,000 shares authorized; shares
outstanding: 1998, 42,494,406; 1997, 41,845,475 211,672 209,996
Notes receivable from sale of common stock (640) (676)
Warrants 74,545 74,546
Accumulated deficit (423,085) (281,599)
Net unrealized gain (loss) on short-term investments 12 (3)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (137,496) 2,264
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 367,403 $ 319,672
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
75 CELLNET
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
CELLNET DATA SYSTEMS, INC.
CONDENSED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Management fees from subsidiaries $ 651 $ 281 $ 75
Product cost and other revenues 188 225 168
- ---------------------------------------------------------------------------------------------------
Total revenues 839 506 243
- ---------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of network operations 9,432 7,146 4,841
Cost of product and other revenues 126 130 55
Research and development 30,125 27,524 25,394
Marketing and sales 11,988 10,148 6,021
General and administrative 17,926 15,661 11,721
Depreciation and amortization 5,568 5,138 3,337
- ---------------------------------------------------------------------------------------------------
Total costs and expenses 75,165 65,747 51,369
- ---------------------------------------------------------------------------------------------------
Loss from operations (74,326) (65,241) (51,126)
Equity in loss of unconsolidated subsidiaries (45,208) (24,552) (8,089)
Other income (expense):
Interest income 6,837 8,190 7,370
Interest expense (24,528) (19,961) (20,600)
Other -- net (151) (902) (246)
- ---------------------------------------------------------------------------------------------------
Total other income (expense), net (17,842) (12,673) (13,476)
- ---------------------------------------------------------------------------------------------------
Loss before provision for income taxes, dividends on preferred
stock and extraordinary loss on early extinguishment of 1995
Senior Notes (137,376) (102,466) (72,691)
Provision for income taxes 4 1 3
- ---------------------------------------------------------------------------------------------------
Loss before dividends on preferred stock and extraordinary loss on
early extinguishment of 1995 Senior Notes (137,380) (102,467) (72,694)
Dividends on preferred stock (4,106) -- --
- ---------------------------------------------------------------------------------------------------
Loss before extraordinary loss on early extinguishment of 1995
Senior Notes (141,486) (102,467) (72,694)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (11,417) --
- ---------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders (141,486) (113,884) (72,694)
- ---------------------------------------------------------------------------------------------------
Other comprehensive income -- Unrealized gain on short-term
investments 15 -- --
- ---------------------------------------------------------------------------------------------------
Comprehensive loss $(141,471) $(113,884) $ (72,694)
- ---------------------------------------------------------------------------------------------------
Basic and diluted earnings per share:
Before extraordinary loss on early extinguishment of 1995 Senior
Notes $ (3.40) $ (2.59) $ (6.08)
Extraordinary loss on early extinguishment of 1995 Senior Notes -- (0.29) --
- ---------------------------------------------------------------------------------------------------
Net loss applicable to common stockholders $ (3.40) $ (2.88) $ (6.08)
- ---------------------------------------------------------------------------------------------------
Shares used in computing earnings per share 41,632 39,506 11,963
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
76 CELLNET
<PAGE>
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common stockholders $(141,486) $(113,884) $(72,694)
Adjustments to reconcile net loss applicable to common stockholders
to net cash used for operating activities:
Depreciation and amortization 5,568 5,138 3,337
Accretion on senior notes 48,036 31,677 24,650
Write-off of remaining 1995 Senior Note debt issuance costs -- 4,791 --
Accelerated accretion on 1995 Senior Notes -- 3,127 --
1997 Senior Notes issued as non-cash consent fees -- 912 --
Amortization of debt issuance costs 424 566 600
Loss (gain) on disposition of property 3 61 (1)
Equity in loss of unconsolidated subsidiaries 45,208 24,552 8,089
Other 276 -- --
Changes in:
Accounts receivable -- trade 29 827 443
Accounts receivable -- other 2,682 (4,539) 452
Prepaid expenses and other 915 (823) (18)
Accounts payable (5,940) 2,804 929
Accrued compensation and related benefits 2,781 (183) 1,026
Dividends payable to unconsolidated subsidiary 4,106 -- --
Accrued liabilities 290 (22) 72
- ------------------------------------------------------------------------------------------------------
Net cash used for operating activities (37,108) (44,996) (33,115)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Networks 606 (448) (37)
Network components and inventory 3,118 (10,327) 2,398
Purchase of property (5,598) (7,137) (5,928)
Proceeds from sale of property 19 20 11
Investment in unconsolidated subsidiaries (15,406) -- --
Receivables from unconsolidated subsidiaries (101,671) (64,794) (49,011)
Purchase of short-term investments (120,899) (43,139) (329,674)
Proceeds from sales and maturities of short-term investments 107,132 60,836 370,810
Other assets (263) (420) (309)
- ------------------------------------------------------------------------------------------------------
Net cash used for investing activities (132,962) (65,409) (11,740)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 93,500 -- --
Issuance of Senior Notes and warrants -- 100,324 --
Debt issuance costs -- (4,004) (210)
Repayment of capital lease obligations (476) (397) (282)
Proceeds from exercise of preferred stocks warrants -- -- 1,179
Proceeds from sale of common stock, net of repurchases 1,407 1,220 120,325
Collection of notes receivable from sale of common stock 28 138 52
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 94,459 97,281 121,064
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (75,611) (13,124) 76,209
CASH AND CASH EQUIVALENTS, Beginning of year 111,100 124,224 48,015
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, End of year $ 35,489 $ 111,100 $124,224
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property under capital leases $ 508 $ 510 $ 76
Conversion of preferred stock and warrants into common stock $ 1 $ -- $ 57,860
Exchange of 1995 Senior Notes for 1997 Senior Notes $ -- $ 231,039 $ --
Repurchase of unvested common stock and cancellation of related note
receivable $ 8 $ -- $ --
Change in unrealized gain on short-term investments $ 15 $ -- $ --
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 57 $ 90 $ 83
Cash paid for income taxes $ 4 $ 1 $ 3
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
77 CELLNET
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
CELLNET DATA SYSTEMS, INC.
NOTES TO CONDENSED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CellNet Data Systems, Inc. ("CellNet") , a Delaware corporation, is the
ultimate parent of all CellNet subsidiaries. The accompanying financial
statements reflect the financial position, results of operations and
comprehensive loss and cash flows of CellNet on a separate company basis. All
subsidiaries of CellNet are reflected as investments accounted for under the
equity method of accounting. Accordingly, intercompany payables and
receivables have not been eliminated.
CellNet has various agreements with each of its wholly-owned subsidiaries.
Under the Management Services agreements, CellNet provides each of its
subsidiaries with management and administrative services, including network
operations and installation management, and CellNet charges the subsidiaries
a management fee calculated based on the subsidiaries' gross revenues. Under
the Open Account agreements, CellNet advances operating funds to each
subsidiary and charges each subsidiary interest on the unpaid balance of the
advance plus accrued interest.
No cash dividends were paid to CellNet by its subsidiaries during the years
ended December 31, 1998, 1997 or 1996.
For accounting policies and other information including the meaning of
capitalized terms, see the Notes to the Consolidated Financial Statements of
CellNet Data Systems, Inc., included elsewhere herein.
2. SENIOR NOTES
For information regarding CellNet's Senior Notes, see the Notes to
Consolidated Financial Statements of CellNet Data Systems, Inc. included
elsewhere herein.
3. MANDATORILY REDEEMABLE PREFERRED STOCK
For information regarding CellNet's Mandatorily Redeemable Preferred Stock,
see Notes to the Consolidated Financial Statements of CellNet Data Systems,
Inc., included herein.
* * * * *
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
78 CELLNET
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
registrant's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
registrant's Proxy Statement.
79 CELLNET
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Annual Report on Form 10-K.
1. The following consolidated financial statements of CellNet Data Systems,
Inc. are filed as part of this Form 10-K:
<TABLE>
<S> <C>
Independent Auditors' Report
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Operations and Comprehensive Loss for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
</TABLE>
2. Financial Statement Schedule.
The following financial statement schedule of the Company is filed in
Part IV, Item 14(a) of this Annual Report on Form 10-K:
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
All other schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
Consolidated Financial Statements or notes thereto.
3. Reports on Form 8-K.
Not applicable.
4. Exhibits.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<C> <S>
EXHIBIT DESCRIPTION
- ---------------------------------------------------------------------------------------------
3.1(6) Amended and Restated Certificate of Incorporation filed on February 10, 1998.
3.2(6) Bylaws as amended February 4, 1998.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Indenture between CellNet and The Bank of New York dated June 15, 1995, including
the form of Senior Discount Note.
4.3(1) Warrant Agreement between CellNet and The Bank of New York dated June 15, 1995,
including the form of Warrant.
4.4(1) Notes Registration Rights Agreement dated June 15, 1995 by and between CellNet and
Smith Barney Inc.
4.5(1) Warrants Registration Rights Agreement dated June 15, 1995 by and between CellNet
and Smith Barney Inc.
</TABLE>
80 CELLNET
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
<C> <S>
- ---------------------------------------------------------------------------------------------
4.6(1) First Supplemental Indenture between CellNet and The Bank of New York dated
November 21, 1995.
4.7(1) First Supplemental Warrant Agreement between CellNet and The Bank of New York
dated November 21, 1995.
4.8(1) First Supplemental Notes Registration Rights Agreement dated November 21, 1995 by
and between CellNet and Smith Barney Inc.
4.9(1) First Supplemental Warrants Registration Rights Agreement dated November 21, 1995
by and between CellNet and Smith Barney Inc.
4.10(1) Warrant Agreement between CellNet and Axonn Corporation dated August 12, 1992.
4.11(1) Form of Warrant Agreement between CellNet and Diablo Research Corporation.
4.12(1) Stock Purchase Agreement dated September 6, 1996 between CellNet and Northern
States Power Company.
4.13(1) Stock Purchase Agreement dated September 4, 1996 between CellNet and AmerenUE
Development Corporation.
4.14(1) Stock Purchase Agreement dated September 16, 1996 between CellNet and Bechtel
Enterprises, Inc.
4.15(2) Second Supplemental Indenture by and between CellNet and The Bank of New York
dated as of August 30, 1996.
4.16(3) Warrant Agreement between CellNet and The Bank of New York dated as of September
29, 1997
4.17(3) Registration Rights Agreement among CellNet and the Placement Agents dated as of
September 24, 1997.
4.18(3) Warrant Registration Rights Agreement among CellNet and the Placement Agents dated
as of September 24, 1997.
4.19(3) Third Supplemental Indenture by and between CellNet and The Bank of New York dated
as of August 28, 1997.
4.20(3) Fourth Supplemental Indenture by and between CellNet and The Bank of New York
dated as of September 29, 1997.
4.21(2) Specimen 13% Senior Discount Note Due 2005, Series B.
4.22(3) Specimen 14% Senior Discount Note Due 2007, Series B
4.23 Preferred Shares Rights Agreement between CellNet Data Systems and The Bank of New
York dated November 24, 1998.
4.24(7) Form of Guarantee Agreement, dated as of May 19, 1998, between CellNet and CellNet
Funding, LLC.
4.25(7) Form of Escrow and Security Agreement, dated as of May 19, 1998, among CellNet,
CellNet Funding, LLC and The Bank of New York.
4.26(7) Form of Written Action of the Manager of CellNet Funding, LLC, dated as of May 13,
1998, with respect to the terms of the 7% Exchangeable Limited Liability Company
Preferred Securities.
4.27(7) Form of Certificate of Designation, Rights and Preferences of the Redeemable
Preferred Stock of CellNet filed May 18, 1998 with the Secretary of State of the
State of Delaware.
4.28(7) Specimen certificate representing shares of Preferred Stock of CellNet.
10.1(1) Form of current Indemnification Agreement for directors and officers.
10.2A(1) 1992 Stock Option Plan and forms of agreements thereunder.
10.2B(1) 1994 Stock Plan and forms of agreements thereunder.
10.3(1) 1996 Employee Stock Purchase Plan.
</TABLE>
81 CELLNET
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
<C> <S>
- ---------------------------------------------------------------------------------------------
10.4(1) Shareholder's Agreement between CellNet 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(1) Lease between CellNet and WDT Shoreway dated April 6, 1989 for the Registrant's
San Carlos headquarters.
10.6(1) Restricted Stock Purchase Agreement between CellNet and John M. Seidl dated
December 27, 1994.
10.7(1) Restricted Stock Purchase Agreement between CellNet and James J. Jennings dated
August 1, 1995.
10.8(1) Restricted Stock Purchase Agreement between CellNet and Philip H. Mallory dated
July 21, 1995.
10.9(1) Restricted Stock Purchase Agreement between CellNet and Larsh M. Johnson dated
August 1, 1995.
10.10+(1) License Agreement between CellNet and Axonn Corporation dated August 21, 1992, as
amended by an Addendum and a Second Addendum, each dated November 8, 1993.
10.11+(1) License Agreement between CellNet and Axonn Corporation dated March 25, 1996.
10.12+(1) License Agreement between CellNet and Life Point Systems Limited Partnership dated
August 12, 1994.
10.13(1) Agreement between CellNet and James Jennings dated July 11, 1994.
10.14(1) Form of Employee Severance Agreement.
10.15(1) Form of Promissory Note between CellNet and certain officers of the Registrant in
connection with the purchase of restricted stock.
10.16(4) Restricted Stock Purchase Agreement between CellNet and David L. Perry dated June
29, 1995.
10.17(4) Restricted Stock Purchase Agreement between CellNet and David L. Perry dated June
29, 1995.
10.18(4) Restricted Stock Purchase Agreement between CellNet and Paul G. Manca dated July
31, 1995.
10.19(4) Amendment dated February 5, 1997 to License Agreement between CellNet and Axonn
Corporation dated August 21, 1992, as amended.
10.20(5) 1997 Bonus Plan
10.21 Multiple-Draw Term Loan Agreement by and between CellNet Data Services (SE), Inc.
and Puget Sound Energy, Inc. dated as of March 31, 1998.
10.22 Loan Agreement by and among CellNet Data Services (KC) Inc., Toronto Dominion
(Texas), Inc., TD Securities (USA), Inc. and certain lenders dated November 23,
1998.
10.23 Loan Agreement by and among CellNet Data Services (SL), Inc., Toronto Dominion
(Texas), Inc., TD Securities (USA), Inc., The Bank of New York and certain
lenders dated November 23, 1998.
10.24 Form of Promissory Note between the Registrant and each of Larsh M. Johnson and
John O. Wambaugh.
21.1 Subsidiaries of CellNet.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
- ---------------------------------------------------------------------------------------------
</TABLE>
+ Confidential Treatment granted.
(1) Incorporated by reference to CellNet's Registration Statement on Form S-1
(File No. 333-09537) filed on September 24, 1996.
(2) Incorporated by reference to CellNet's Registration Statement on Form S-4
(File No. 333-15395) filed on November 1, 1996.
(3) Incorporated by reference to CellNet's Registration Statement on Form S-4
(File No. 333-37967) filed on October 15, 1997.
(4) Incorporated by reference to CellNet's Report on Form 10-K filed on March 7,
1997.
82 CELLNET
<PAGE>
(5) Incorporated by reference to Cell Net's Report on Form 10-Q filed on August
13, 1997.
(6) Incorporated by reference to CellNet's Report on Form 10-K filed March 9,
1998.
(7) Incorporated by reference to CellNet's Registration Statement on Form S-4
(File No. 333-50851) filed on May 13, 1998.
83 CELLNET
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in San Carlos, State of
California, on March , 1999.
<TABLE>
<S> <C> <C>
CELLNET DATA SYSTEMS, INC.
BY: /S/ JOHN M. SEIDL
--------------------------------------------
John M. Seidl
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
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, and agents, 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 to this Report on Form 10-K, and all documents in connection
therewith, with the Securities and Exchange Commission, 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 conforming all that said
attorneys-in-fact and agents of 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 Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated above.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<C> <S>
SIGNATURE TITLE
<CAPTION>
- --------------------------------------------------------------------------------------------
/s/ JOHN M. SEIDL Chairman of the Board, President and Chief
- ------------------------------------------- Executive Officer (Principal Executive
John M. Seidl Officer)
<C> <S>
/s/ PAUL G. MANCA
- ------------------------------------------- Vice President and Chief Financial Officer
Paul G. Manca (Principal Financial and Accounting Officer)
/s/ PAUL M. COOK
- ------------------------------------------- Director
Paul M. Cook
/s/ NEAL M. DOUGLAS
- ------------------------------------------- Director
Neal M. Douglas
/s/ E. LINN DRAPER, JR.
- ------------------------------------------- Director
E. Linn Draper, Jr.
/s/ WILLIAM C. EDWARDS
- ------------------------------------------- Director
William C. Edwards
/s/ WILLIAM HART
- ------------------------------------------- Director
William Hart
</TABLE>
84 CELLNET
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
- -------------------------------------------------------------------------------------------
<S> <C>
EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------------------
4.23 Preferred Shares Rights Agreement between CellNet Data Systems and The Bank
of New York dated November 24, 1998.
10.21 Multiple-Draw Term Loan Agreement by and between CellNet Data Services (SE), Inc.
and Puget Sound Energy, Inc. dated as of March[nb]31, 1998.
10.22 Loan Agreement by and among CellNet Data Services (KC) Inc., Toronto Dominion
(Texas), Inc., TD Securities (USA), Inc. and certain lenders dated November 23,
1998.
10.23 Loan Agreement by and among CellNet Data Services (SL), Inc., Toronto Dominion
(Texas), Inc., TD Securities (USA), Inc., The Bank of New York and certain
lenders dated November[nb]23, 1998.
10.24 Form of Promissory Note between the Registrant and each of Larsh M. Johnson and
John O. Wambaugh.
21.1 Subsidiaries of CellNet.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 4.23
CELLNET DATA SYSTEMS, INC.
AND
THE BANK OF NEW YORK
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF NOVEMBER 24, 1998
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TABLE OF CONTENTS
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PAGE
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Section 1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3. Issuance of Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. Form of Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Countersignature and Registration. . . . . . . . . . . . . . . . . . . . . . 9
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates . . . . . . . . . .10
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights. . . . . . . .11
Section 8. Cancellation and Destruction of Rights Certificates. . . . . . . . . . . . .13
Section 9. Reservation and Availability of Preferred Shares . . . . . . . . . . . . . .13
Section 10. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 11. Adjustment of Exercise Price, Number of Shares or Number of Rights. . . . .14
Section 12. Certificate of Adjusted Exercise Price or Number of Shares. . . . . . . . .21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. . . .21
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . .25
Section 15. Rights of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . .26
Section 17. Rights Certificate Holder Not Deemed a Stockholder. . . . . . . . . . . . .26
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . .27
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . .27
Section 20. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . .28
Section 21. Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . .30
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Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . .30
Section 23. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Section 25. Notice of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section 27. Supplements and Amendments. . . . . . . . . . . . . . . . . . . . . . . . .34
Section 28. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 29. Determinations and Actions by the Board of Directors, etc.. . . . . . . . .35
Section 30. Benefits of this Agreement. . . . . . . . . . . . . . . . . . . . . . . . .35
Section 31. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 33. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Section 34. Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
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EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
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RIGHTS AGREEMENT
Agreement, dated as of November 24, 1998, between CellNet Data Systems,
Inc., a Delaware corporation (the "COMPANY"), and The Bank of New York.
On November 24, 1998 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board
of Directors of the Company authorized and declared a dividend of one Preferred
Share Purchase Right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on December 21, 1998 (the "RECORD DATE"), each Right representing the right to
purchase one one-thousandth of a share of Series A Participating Preferred Stock
(as such number may be adjusted pursuant to the provisions of this Agreement),
having the rights, preferences and privileges set forth in the form of
Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as EXHIBIT A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding
the foregoing, no Person shall be deemed to be an Acquiring Person as the result
of an acquisition of Common Shares by the Company which, by reducing the number
of shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), then such Person shall
be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of
such additional Common Shares of the Company such Person does not beneficially
own 15% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, (i) if the Company's Board of Directors
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently (including, without limitation, because (A) such
Person was unaware that it beneficially owned a percentage of the Common Shares
that would otherwise
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cause such Person to be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), or (B) such Person was aware of the
extent of the Common Shares it beneficially owned but had no actual knowledge of
the consequences of such beneficial ownership under this Agreement) and without
any intention of changing or influencing control of the Company, and if such
Person divested or divests as promptly as practicable a sufficient number of
Common Shares so that such Person would no longer be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement; and (ii) if, as of the date hereof, any Person is
the Beneficial Owner of 15% or more of the Common Shares outstanding, such
Person shall not be or become an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), unless and until such time as such
Person shall become the Beneficial Owner of additional Common Shares (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding Common Shares in Common Shares or pursuant to a split or subdivision
of the outstanding Common Shares), unless, upon becoming the Beneficial Owner of
such additional Common Shares, such Person is not then the Beneficial Owner of
15% or more of the Common Shares then outstanding.
(b) "ADJUSTMENT FRACTION" shall have the meaning set forth in
Section 11(a)(i) hereof.
(c) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and
shall be deemed to "BENEFICIALLY OWN" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly, for
purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder
(or any comparable or successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other
than the Rights), warrants or options, or otherwise; PROVIDED, HOWEVER,
that a Person shall not be deemed pursuant to this Section 1(d)(ii)(A)
to be the Beneficial Owner of, or to beneficially own, (1) securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or
(2) securities which a Person or any of such Person's Affiliates or
Associates may be deemed to have the right to acquire pursuant to any
merger or other acquisition agreement between the Company and such
Person (or one or more of its Affiliates or Associates) if such
agreement has been approved by the Board of Directors of the Company
prior to there being an Acquiring Person; or (B) the right to vote
pursuant to any
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agreement, arrangement or understanding; PROVIDED, HOWEVER, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Section 1(d)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance
with, the applicable rules and regulations of the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof)
with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding, whether or not in
writing (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of
securities) for the purpose of acquiring, holding, voting (except to the
extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing
of any securities of the Company; PROVIDED, HOWEVER, that in no case
shall an officer or director of the Company be deemed (x) the Beneficial
Owner of any securities beneficially owned by another officer or
director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or
(y) the Beneficial Owner of securities held of record by the trustee of
any employee benefit plan of the Company or any Subsidiary of the
Company for the benefit of any employee of the Company or any Subsidiary
of the Company, other than the officer or director, by reason of any
influence that such officer or director may have over the voting of the
securities held in the plan.
(e) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in California and in New York are
authorized or obligated by law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date shall mean
5:00 P.M., New York time, on such date; PROVIDED, HOWEVER, that if such date is
not a Business Day it shall mean 5:00 P.M., New York time, on the next
succeeding Business Day.
(g) "COMMON SHARES" when used with reference to the Company
shall mean the shares of Common Stock of the Company, $0.001 par value. Common
Shares when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(h) "COMMON STOCK EQUIVALENTS" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(i) "COMPANY" shall mean CellNet Data Systems, Inc., a
Delaware corporation, subject to the terms of Section 13(a)(iii)(C) hereof.
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(j) "CURRENT PER SHARE MARKET PRICE" on any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days immediately prior to such date; PROVIDED, HOWEVER, that in the event that
the Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. If the Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Preferred Shares shall be conclusively
deemed to be the Current Per Share Market Price of the Common Shares as
determined pursuant to this Section 1(j), as appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by 1000. If the Security is not publicly held or so listed
or traded, Current Per Share Market Price shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(k) "CURRENT VALUE" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(l) "DISTRIBUTION DATE" shall mean the earlier of (i) the
Close of Business on the tenth day (or such later date as may be determined by
action of the Company's Board of Directors after the Shares Acquisition Date
(or, if the tenth day after the Shares Acquisition Date occurs before the Record
Date, the Close of Business on the Record Date) or (ii) the Close of Business on
the tenth Business Day (or such later date as may be determined by action of the
Company's Board of Directors) after the date
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that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be an Acquiring Person.
(m) "EQUIVALENT SHARES" shall mean Preferred Shares and any
other class or series of capital stock of the Company which is entitled to the
same rights, privileges and preferences as the Preferred Shares.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(o) "EXCHANGE RATIO" shall have the meaning set forth in
Section 24(a) hereof.
(p) "EXERCISE PRICE" shall have the meaning set forth
in Section 4(a) hereof.
(q) "EXPIRATION DATE" shall mean the earliest of (i) the
Close of Business on the Final Expiration Date, (ii) the Redemption Date,
(iii) consummation of any transaction contemplated by Section 13 hereof, or
(iv) the time at which the Board of Directors orders the exchange of the Rights
as provided in Section 24 hereof.
(r) "FINAL EXPIRATION DATE" shall mean November 24, 2008.
(s) "NASDAQ" shall mean the National Association of
Securities Dealers, Inc. Automated Quotations System.
(t) "PERSON" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(u) "POST-EVENT TRANSFEREE" shall have the meaning set forth
in Section 7(e) hereof.
(v) "PREFERRED SHARES" shall mean shares of Series A
Participating Preferred Stock of the Company.
(w) "PRE-EVENT TRANSFEREE" shall have the meaning set forth
in Section 7(e) hereof.
(x) "PRINCIPAL PARTY" shall have the meaning set forth in
Section 13(b) hereof.
(y) "RECORD DATE" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(z) "REDEMPTION DATE" shall have the meaning set forth in
Section 23(a) hereof.
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(aa) "REDEMPTION PRICE" shall have the meaning set forth in
Section 23(a) hereof.
(bb) "RIGHTS AGENT" shall mean The Bank of New York or its
successor or replacement as provided in Sections 19 and 21 hereof.
(cc) "RIGHTS CERTIFICATE" shall mean a certificate
substantially in the form attached hereto as Exhibit B.
(dd) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning
set forth in the recitals at the beginning of this Agreement.
(ee) "SECTION 11(a)(ii) TRIGGER DATE" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(ff) "SECTION 13 EVENT" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(gg) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
(hh) "SHARES ACQUISITION DATE" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; PROVIDED THAT, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(ii) "SPREAD" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(jj) "SUBSIDIARY" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(kk) "SUBSTITUTION PERIOD" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ll) "SUMMARY OF RIGHTS" shall mean a summary of this
Agreement substantially in the form attached hereto as Exhibit C.
(mm) "TOTAL EXERCISE PRICE" shall have the meaning set forth
in Section 4(a) hereof.
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(nn) "TRADING DAY" shall mean a day on which the principal
national securities exchange on which a referenced security is listed or
admitted to trading is open for the transaction of business or, if a referenced
security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(oo) A "TRIGGERING EVENT" shall be deemed to have occurred
upon any Person becoming an Acquiring Person.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable, upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. ISSUANCE OF RIGHTS CERTIFICATES.
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b), 3(c) and 3(d) hereof) by
the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Rights Certificates) and
not by separate Rights Certificates and (ii) the right to receive Rights
Certificates will be transferable only in connection with the transfer of Common
Shares. Until the earlier of the Distribution Date or the Expiration Date, the
surrender for transfer of such certificates for Common Shares shall also
constitute the surrender for transfer of the Rights associated with the Common
Shares represented thereby. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common
Share has been made pursuant to Section 11 hereof, then at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of Common Shares,
and the holders of such Rights Certificates as listed in the records of the
Company or any transfer agent or registrar for the Rights shall be the record
holders thereof.
(b) On the Record Date or as soon as practicable thereafter,
the Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the
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records of the Company's transfer agent and registrar. With respect to
certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with the Summary of Rights. Until
the Distribution Date (or, if earlier, the Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance of any Common Shares specifies to the contrary,
Rights shall be issued in respect of all Common Shares that are issued after the
Record Date but prior to the earlier of the Distribution Date or the Expiration
Date or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date. Certificates representing such Common Shares shall also be
deemed to be certificates for Rights, and shall bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN CELLNET
DATA SYSTEMS, INC. AND THE BANK OF NEW YORK AS THE RIGHTS AGENT,
DATED AS OF NOVEMBER 24, 1998 AS THE SAME MAY BE AMENDED FROM
TIME TO TIME (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF CELLNET DATA SYSTEMS,
INC. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES
AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE BANK OF
NEW YORK WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF
THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN
REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO
IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON
OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
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(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange, or a national market system or
automated quotation system, on which the Rights may from time to time be listed
or included, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date (or in the case of Rights issued with respect to
Common Shares issued by the Company after the Record Date, as of the date of
issuance of such Common Shares) and on their face shall entitle the holders
thereof to purchase such number of one-thousandths of a Preferred Share as shall
be set forth therein at the price set forth therein (such exercise price per one
one-thousandth of a Preferred Share being hereinafter referred to as the
"EXERCISE PRICE" and the aggregate Exercise Price of all Preferred Shares
issuable upon exercise of one Right being hereinafter referred to as the "TOTAL
EXERCISE PRICE"), but the number and type of securities purchasable upon
the exercise of each Right and the Exercise Price shall be subject to adjustment
as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Company's Board of Directors has determined
is part of a plan, arrangement or understanding which has as a primary purpose
or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS
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AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of
the Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Financial Officer, its President or any Vice President, either manually or by
facsimile signature, and by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal (if any) or a facsimile thereof. The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates on behalf of the Company had not ceased to be such officer of the
Company; and any Rights Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and
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signed the certificate contained in the form of assignment on the reverse side
of such Rights Certificate and shall have provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and
deliver to the person entitled thereto a Rights Certificate or Rights
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date and prior to the Close of Business on the Expiration
Date by surrender of the Rights Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office of the Rights Agent designated for such purpose, together with payment of
the Exercise Price for each one-thousandth of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) as
to which the Rights are exercised.
(b) The Exercise Price for each one-thousandth of a Preferred
Share issuable pursuant to the exercise of a Right shall initially be Fifty
Dollars ($50.00), shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Exercise Price for the number of one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, cash
or other assets as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9(e) hereof, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is the transfer agent for the Preferred Shares) a certificate or certificates
for the number of one-thousandths of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests or
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(B) if the Company shall have elected to deposit the total number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) issuable upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one-thousandths of a
Preferred Share (or, following a Triggering Event, other securities, cash or
other assets as the case may be) as are to be purchased (in which case
certificates for the Preferred Shares (or, following a Triggering Event, other
securities, cash or other assets as the case may be) represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, and (iv) when appropriate, after receipt thereof, deliver such cash
to or upon the order of the registered holder of such Rights Certificate. The
payment of the Exercise Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iii) hereof) and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, may be made in cash or by certified bank
check, cashier's check or bank draft payable to the order of the Company. In
the event that the Company is obligated to issue securities of the Company other
than Preferred Shares, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "POST-EVENT TRANSFEREE"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Company's Board of Directors has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a "PRE-EVENT TRANSFEREE"), or (iv) any
subsequent transferee receiving transferred Rights from a Post-Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and
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Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or to any other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or any of such Acquiring
Person's Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall, in addition to having complied with the requirements of
Section 7(a) above, have (i) completed and signed the certificate contained in
the form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES.
(a) The Company covenants and agrees that it will use its
best efforts to cause to be reserved and kept available out of its authorized
and unissued Preferred Shares not reserved for another purpose (and, following
the occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Preferred Shares (and, following
the occurrence of the Triggering Event, Common Shares and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be
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delivered by the Company upon exercise of the Rights is described in
Section 11(a)(ii) or Section 11(a)(iii) hereof, or as soon as is required by law
following the Distribution Date, as the case may be, a registration statement
under the Securities Act with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Securities Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable for such
securities and (B) the date of expiration of the Rights. The Company may
temporarily suspend, for a period not to exceed ninety (90) days after the date
set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating, and notify the Rights Agent,
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement and notification to the Rights Agent at such time as the
suspension is no longer in effect. The Company will also take such action as
may be appropriate under, or to ensure compliance with, the securities or "blue
sky" laws of the various states in connection with the exercisability of the
Rights. Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction, unless the requisite
qualification in such jurisdiction shall have been obtained, or an exemption
therefrom shall be available, and until a registration statement has been
declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares (or other
securities of the Company) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares (or other securities of the
Company) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Rights Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares (or
other securities of the Company) in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares (or other securities of the Company) upon the exercise of any Rights
until any such tax shall have been paid (any such tax being payable by the
holder of such Rights Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
Section 10. RECORD DATE. Each Person in whose name any certificate for
a number of one-thousandths of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of Preferred Shares (or other securities of
the Company) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Total Exercise Price with respect to which the
Rights have been exercised (and any applicable transfer taxes)
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was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the transfer books of the Company are closed, such Person shall
be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a holder of Preferred Shares (or other securities of the Company)
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "ADJUSTMENT FRACTION"), the numerator of which shall be the total
number of Preferred Shares (or shares of capital stock issued in such
reclassification of the Preferred Shares) outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
outstanding immediately prior to such time; PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (2) the number of one-thousandths of a
Preferred Share (or share of such other capital stock) issuable upon the
exercise of each Right shall equal the number of one-thousandths of a Preferred
Share (or share of such other capital stock) as was issuable upon exercise of a
Right immediately prior to the occurrence of the event described in clauses
(A)-(D) of this Section 11(a)(i), multiplied by the Adjustment Fraction;
provided, however, that, no such adjustment shall be made pursuant to this
Section 11(a)(i) to the extent that there shall have simultaneously occurred an
event described in clause (A), (B), (C) or (D) of Section 11(n) with a
proportionate adjustment being made thereunder. Each Common Share that shall
become outstanding after an adjustment has been made pursuant to this
Section 11(a)(i) shall have associated with the number of Rights, exercisable at
the Exercise Price and for the number of one-thousandths of a Preferred Share
(or shares of such other capital stock) as one Common Share has associated with
it immediately following the adjustment made pursuant to this Section 11(a)(i).
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(ii) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following such
Triggering Event each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the Total
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event, in lieu of a number of one-thousandths of a Preferred Share, such number
of Common Shares of the Company as shall equal the result obtained by
multiplying the Exercise Price in effect immediately prior to the occurrence of
the Triggering Event by the number of one-thousandths of a Preferred Share for
which a Right was exercisable (or would have been exercisable if the
Distribution Date had occurred) immediately prior to the first occurrence of a
Triggering Event, and dividing that product by 50% of the Current Per Share
Market Price for Common Shares on the date of occurrence of the Triggering
Event; provided, however, that the Exercise Price and the number of Common
Shares of the Company so receivable upon exercise of a Right shall be subject to
further adjustment as appropriate in accordance with Section 11(e) hereof to
reflect any events occurring in respect of the Common Shares of the Company
after the occurrence of the Triggering Event.
(iii) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) hereof, the Company may, if the Company's Board of
Directors determines that such action is necessary or appropriate and not
contrary to the interest of holders of Rights (and, in the event that the number
of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company), the Company shall: (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "CURRENT VALUE") over (2) the Exercise Price (such excess, the
"SPREAD") and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which the Company's Board of Directors has deemed to have the
same value as Common Shares (such shares or units of shares of preferred stock
are herein called "COMMON STOCK EQUIVALENTS")), except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval for
such issuance, (4) debt securities of the Company, except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval for
such issuance, (5) other assets, or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value has
been determined by the Company's Board of Directors based upon the advice of a
nationally recognized investment banking firm selected by the Company's Board of
Directors; PROVIDED, HOWEVER, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Triggering Event and
(y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the
"SECTION 11(a)(ii) TRIGGER DATE"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right and without requiring
payment of the Exercise Price, Common Shares (to the extent available), except
to the extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If the
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Company's Board of Directors shall determine in good faith that it is likely
that sufficient additional Common Shares could be authorized for issuance upon
exercise in full of the Rights or that any necessary regulatory approval for
such issuance will be obtained, the thirty (30) day period set forth above may
be extended to the extent necessary, but not more than ninety (90) days after
the Section 11(a)(ii) Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares or take
action to obtain such regulatory approval (such period, as it may be extended,
the "SUBSTITUTION PERIOD"). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the Current Per
Share Market Price of the Common Shares on the Section 11(a)(ii) Trigger Date
and the value of any Common Stock Equivalent shall be deemed to have the same
value as the Common Shares on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling such holders (for a period
expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Preferred Shares or Equivalent Shares or securities
convertible into Preferred Shares or Equivalent Shares at a price per share (or
having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Shares) less than the then Current Per Share Market Price
of the Preferred Shares or Equivalent Shares on such record date, then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record date,
plus the number of Preferred Shares or Equivalent Shares, as the case may be,
which the aggregate offering price of the total number of Preferred Shares or
Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and Equivalent Shares (if any)
outstanding on such record date, plus the number of additional Preferred Shares
or Equivalent Shares, as the case may be, to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); PROVIDED, HOWEVER, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Company's
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the holders
of the Rights. Preferred Shares and Equivalent Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of
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any such computation. Such adjustment shall be made successively whenever such
a record date is fixed, and in the event that such rights, options or warrants
are not so issued, the Exercise Price shall be adjusted to be the Exercise Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in Preferred Shares) or subscription
rights, options or warrants (excluding those referred to in Section 11(b)),
then, in each such case, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
Current Per Share Market Price of a Preferred Share or an Equivalent Share on
such record date, less the fair market value per Preferred Share or Equivalent
Share (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Preferred
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; PROVIDED, HOWEVER, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution is not so
made, the Exercise Price shall be adjusted to be the Exercise Price which would
have been in effect if such record date had not been fixed.
(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; PROVIDED,
HOWEVER, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(d), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to
Section 11(a) or 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and, if required, the Exercise Price thereof, shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Shares
contained in Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j),
11(k) and 11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with respect
to the Preferred Shares shall apply on like terms to any such other shares.
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(f) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as
provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
Preferred Shares (calculated to the nearest one hundred-thousandth of a share)
obtained by (i) multiplying (x) the number of Preferred Shares covered by a
Right immediately prior to this adjustment, by (y) the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price, and (ii) dividing
the product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any
adjustment of the Exercise Price as a result of the calculations made in
Section 11(b) or (c) to adjust the number of Rights, in substitution for any
adjustment in the number of Preferred Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one hundred-thousandth)
obtained by dividing the Exercise Price in effect immediately prior to
adjustment of the Exercise Price by the Exercise Price in effect immediately
after adjustment of the Exercise Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Exercise
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(h), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Exercise Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Exercise Price per one one-thousandth of a Preferred Share
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and the number of one-thousandths of a Preferred Share which were expressed in
the initial Rights Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment
reducing the Exercise Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(k) In any case in which this Section 11 shall require that
an adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; PROVIDED, HOWEVER, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(l) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Exercise Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price,
(iii) issuance wholly for cash of Preferred or Common Shares or securities which
by their terms are convertible into or exchangeable for Preferred or Common
Shares, (iv) stock dividends, or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred or Common Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares (by reverse stock split or otherwise) into a smaller number of
Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) hereof: (1) each Common
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Share (or shares of capital stock issued in such reclassification of the Common
Shares) outstanding immediately following such time shall have associated with
it the number of Rights as were associated with one Common Share immediately
prior to the occurrence of the event described in clauses (A)-(D) above; (2) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by multiplying the Exercise Price in effect immediately prior to such time by a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one-thousandths of a Preferred Share (or shares of such other capital stock) as
were issuable with respect to one Right immediately prior to such event. Each
Common Share that shall become outstanding after an adjustment has been made
pursuant to this Section 11(n) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Preferred Share (or shares of such other capital stock) as one Common Share
has associated with it immediately following the adjustment made pursuant to
this Section 11(n). If an event occurs which would require an adjustment under
both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(n) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
Section 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares a copy of
such certificate, and (c) mail a brief summary thereof to each holder of a
Rights Certificate in accordance with Section 26 hereof. Notwithstanding the
foregoing sentence, the failure of the Company to make such certification or
give such notice shall not affect the validity of such adjustment or the force
or effect of the requirement for such adjustment. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
contained therein and shall not be deemed to have knowledge of such adjustment
unless and until it shall have received such certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, following a Triggering Event, directly
or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a wholly-owned Subsidiary of the
Company in a transaction the principal purpose of which is to change the
state of incorporation of the Company and which complies with
Section 11(m) hereof);
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(ii) any Person shall consolidate with the Company, or
merge with and into the Company and the Company shall be the continuing
or surviving corporation of such consolidation or merger and, in
connection with such merger, all or part of the Common Shares shall be
changed into or exchanged for stock or other securities of any other
person (or of the Company); or
(iii) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in
one or more transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the
Company or one or more of its wholly-owned Subsidiaries in one or more
transactions, each of which individually (and together) complies with
Section 11(m) hereof),
then, concurrent with and in each such case,
(A) each holder of a Right (except as provided
in Section 7(e) hereof) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the Total
Exercise Price applicable immediately prior to the occurrence of
the Section 13 Event in accordance with the terms of this
Agreement, such number of validly authorized and issued, fully
paid, nonassessable and freely tradeable Common Shares of the
Principal Party (as hereinafter defined), free of any liens,
encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by dividing such Total
Exercise Price by 50% of the Current Per Share Market Price of
the Common Shares of such Principal Party on the date of
consummation of such Section 13 Event, PROVIDED, HOWEVER, that
the Exercise Price and the number of Common Shares of such
Principal Party so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with
Section 11(e) hereof;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this
Agreement;
(C) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply
only to such Principal Party following the first occurrence of a
Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient
number of its Common Shares) in connection with the consummation
of any such transaction as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter
deliverable upon the exercise of the Rights; and
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(E) upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party,
each holder of a Right shall thereupon be entitled to receive,
upon exercise of a Right and payment of the Total Exercise Price
as provided in this Section 13(a), such cash, shares, rights,
warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such
transaction, owned the Common Shares of the Principal Party
receivable upon the exercise of such Right pursuant to this
Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock)
as may be necessary to permit the subsequent exercise of the
Rights in accordance with the terms hereof for such cash, shares,
rights, warrants and other property.
(F) For purposes hereof, the "earning power"
of the Company and its Subsidiaries shall be determined in good
faith by the Company's Board of Directors on the basis of the
operating earnings of each business operated by the Company and
its Subsidiaries during the three fiscal years preceding the date
of such determination (or, in the case of any business not
operated by the Company or any Subsidiary during three full
fiscal years preceding such date, during the period such business
was operated by the Company or any Subsidiary).
(b) For purposes of this Agreement, the term "PRINCIPAL
PARTY" shall mean:
(i) in the case of any transaction described in clause
(i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer
of the securities into which the Common Shares are converted in such
merger or consolidation, or, if there is more than one such issuer, the
issuer the Common Shares of which have the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x)
the Person that is the other party to the merger, if such Person
survives said merger, or, if there is more than one such Person, the
Person the Common Shares of which have the greatest aggregate market
value of shares outstanding, or (y) if the Person that is the other
party to the merger does not survive the merger, the Person that does
survive the merger (including the Company if it survives), or (z) the
Person resulting from the consolidation; and
(ii) in the case of any transaction described in clause
(iii) of Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant
to such transaction or transactions, or, if more than one Person that is
a party to such transaction or transactions receives the same portion of
the assets or earning power so transferred and each such portion would,
were it not for the other equal portions, constitute the greatest
portion of the assets or earning power so transferred, or if the Person
receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding;
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PROVIDED, HOWEVER, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
rules set forth in clauses (1) and (2) above shall apply to each of the owners
having an interest in the venture as if the Person owned by the joint venture
was a Subsidiary of both or all of such joint venturers, and the Principal Party
in each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and 13(b) hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of such
Principal Party upon exercise of outstanding Rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights and that such transaction shall not result in a default by such
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause
such registration statement to remain effective (with a prospectus at
all times meeting the requirements of the Securities Act) until the
Expiration Date, and similarly comply with applicable state securities
laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of
the Rights on a national securities exchange or to meet the eligibility
requirements for quotation on Nasdaq and list (or continue the listing
of) the Rights and the securities purchasable upon exercise of the
Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all
respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act.
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In the event that at any time after the occurrence of a Triggering Event
some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).
(d) In case the "Principal Party" for purposes of
Section 13(b) hereof has provision in any of its authorized securities or in its
certificate of incorporation or by-laws or other instrument governing its
corporate affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to Section 13
hereof), in connection with, or as a consequence of, the consummation of a
Section 13 Event, Common Shares or Equivalent Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, Common Shares or Equivalent Shares of such
Principal Party at less than such then Current Per Share Market Price, or
(ii) providing for any special payment, tax or similar provision in connection
with the issuance of the Common Shares of such Principal Party pursuant to the
provisions of Section 13 hereof, then, in such event, the Company hereby agrees
with each holder of Rights that it shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with or as a consequence
of, the consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at
any time after the Distribution Date, effect or permit to occur any Section 13
Event, if (i) at the time or immediately after such Section 13 Event there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or
(iii) the form or nature of organization of the Principal Party would preclude
or limit the exercisability of the Rights.
(f) The provisions of this Section 13 shall similarly apply
to successive mergers or consolidations or sales or other transfers.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
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<PAGE>
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 1(j) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). Interests in fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; PROVIDED, that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a Preferred Share. For purposes of this Section 14(b), the current
market value of a Preferred Share shall be one thousand times the closing price
of a Common Share (as determined pursuant to the second sentence of Section 1(j)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a Common
Share. For purposes of this Section 14(c), the current market value of a Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 1(j) hereof) for the Trading Day immediately
prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of a Right.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of
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this Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of, the
obligations of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
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In no event will the Rights Agent be liable for special, indirect, incidental or
consequential loss or damage of any kind whatsoever, even if the Rights Agent
has been advised of the possibility of such loss or damage.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other securities of the Company, instrument of assignment or transfer, power
of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; PROVIDED, HOWEVER, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Rights Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of Current Per Share Market Price) 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 by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
or any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such change or adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) 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 Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
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Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares and the Common Shares, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
(a) Notwithstanding any of the provisions of this Agreement
or of the Rights to the contrary, the Company may, at its option, issue new
Rights Certificates evidencing Rights in such form as may be approved by its
Board of Directors to reflect any adjustment or change in the Exercise Price and
the number or kind or class of shares or other securities or property
purchasable under the Rights Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance or sale of
Common Shares following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to Common Shares
so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement or upon the exercise, conversion or exchange of
other securities of the Company outstanding at the date hereof or upon the
exercise, conversion or exchange of securities hereinafter issued by the Company
and (b) may, in any other case, if deemed necessary or appropriate by the Board
of Directors of the Company, issue
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Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; PROVIDED, HOWEVER, that (i) no such Rights
Certificate shall be issued and this sentence shall be null and void AB INITIO
if, and to the extent that, such issuance or this sentence would create a
significant risk of or result in material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued or would
create a significant risk of or result in such options' or employee plans' or
arrangements' failing to qualify for otherwise available special tax treatment
and (ii) no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
(b) Notwithstanding any of the provisions of this Agreement
or of the Rights to the contrary, in the event a holder of the Company's
Preferred Stock Redeemable 2010 (the "CELLNET REDEEMABLE PREFERRED STOCK")
receives a request on or prior to the Expiration Date from a holder of 7%
Exchangeable Limited Liability Company Preferred Securities Mandatorily
Redeemable 2010 (the "FUNDING PREFERRED SECURITIES") of CellNet Funding, LLC, a
Delaware limited liability company, to exchange Funding Preferred Securities for
Common Shares (a "FUNDING PREFERRED SECURITIES EXCHANGE"), the holder of such
Funding Preferred Securities shall be entitled to receive in connection with
such Funding Preferred Securities Exchange such number of Rights (or such other
consideration required pursuant to this Agreement or as the Board of Directors
otherwise considers appropriate) as would be required to be issued under this
Agreement to a holder of the same number of Common Shares as the holder of
Funding Preferred Securities is entitled to receive in connection with the
Funding Preferred Securities Exchange, whether or not the Distribution Date has
then occurred. No holder of Funding Preferred Securities receiving Common
Shares with Rights attached (on or prior to the Distribution Date and on or
prior to the Expiration Date) in a Funding Preferred Securities Exchange and no
holder of Funding Preferred Securities receiving Common Shares with Rights
detached (following the Distribution Date and on or prior to the Expiration
Date) in a Funding Preferred Securities Exchange, shall be entitled to any
greater rights under this Agreement than any other holder of Common Shares; and
a Right (or such other consideration required pursuant to this Agreement or as
the Board of Directors otherwise considers appropriate) issued to such prior
holder of Funding Preferred Securities shall be unexercisable or null and void
to the same extent as such Right (or such other consideration required pursuant
to this Agreement or as the Board of Directors otherwise considers appropriate)
would be unexercisable or null and void, as applicable, in the hands of any
other holder of Common Shares pursuant to the terms of this Agreement.
(c) Notwithstanding any of the provisions of this Agreement
or of the Rights to the contrary, in the event The Bank of New York, as the
Company's Warrant Agent, receives a request from a holder of the Company's
Warrants, each representing the right to purchase initially one share of Common
Stock, no par value per share, of the Company, issued in connection with the
issuance of the Company's 14% Senior Discount Notes due 2007, to exercise such
Warrants for Common Shares (a "WARRANT EXERCISE"), the holder of such Warrants
shall be entitled to receive in connection with such Warrant Excercise such
number of Rights (or such other consideration required pursuant to this
Agreement or as the Board of Directors otherwise considers appropriate) as would
be required to be issued under this Agreement to a holder of the same number of
Common Shares as the holder of Warrants is entitled to receive in connection
with the Warrant Exercise, whether or not the Distribution
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Date has then occurred. No holder of Warrants receiving Common Shares with
Rights attached (on or prior to the Distribution Date and on or prior to the
Expiration Date) in a Warrant Exercise and no holder of Warrants receiving
Common Shares with Rights detached (following the Distribution Date and on or
prior to the Expiration Date) in a Warrant Exercise, shall be entitled to any
greater rights under this Agreement than any other holder of Common Shares; and
a Right (or such other consideration required pursuant to this Agreement or as
the Board of Directors otherwise considers appropriate) issued to such prior
holder of Warrants shall be unexercisable or null and void to the same extent as
such Right (or such other consideration required pursuant to this Agreement or
as the Board of Directors otherwise considers appropriate) would be
unexercisable or null and void, as applicable, in the hands of any other holder
of Common Shares pursuant to the terms of this Agreement.
Section 23. REDEMPTION.
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of the Shares Acquisition Date and the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a redemption price of
$0.001 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being herein referred to as the "REDEMPTION PRICE") and the Company may,
at its option, pay the Redemption Price either in Common Shares (based on the
Current Per Share Market Price thereof at the time of redemption) or cash. Such
redemption of the Rights by the Company may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The date on which the Board of Directors elects to
make the redemption effective shall be referred to as the "REDEMPTION DATE."
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; PROVIDED,
HOWEVER, that the failure to give or any defect in, any such notice shall not
affect the validity of such redemption. Within ten (10) days after the action
of the Board of Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
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Section 24. EXCHANGE.
(a) Subject to applicable laws, rules and regulations, and
subject to Section 24(c) hereof, the Company may, at its option, by majority
vote of the Board of Directors, at any time after the occurrence of a Triggering
Event, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 7(e) hereof) for Common Shares at an exchange ratio of one Common
Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to Section 24(a) hereof and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Common Shares equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall give
public notice of any such exchange; PROVIDED, HOWEVER, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Company shall mail a notice of any such exchange to all of the holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the Common
Shares for Rights will be effected and, in the event of any partial exchange,
the number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by each
holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a) hereof, the
Company shall either take such action as may be necessary to authorize
additional Common Shares for issuance upon exchange of the Rights or
alternatively, at the option of a majority of the Board of Directors, with
respect to each Right (i) pay cash in an amount equal to the Current Value (as
hereinafter defined), in lieu of issuing Common Shares in exchange therefor, or
(ii) issue debt or equity securities or a combination thereof, having a value
equal to the Current Value, in lieu of issuing Common Shares in exchange for
each such Right, where the value of such securities shall be determined by a
nationally recognized investment banking firm selected by majority vote of the
Board of Directors, or (iii) deliver any combination of cash, property, Common
Shares and/or other securities having a value equal to the Current Value in
exchange for each Right. For purposes of this Section 24(c) only, the Current
Value shall mean the product of the Current Per Share Market Price of Common
Shares on the date of the occurrence of the event described above in
subparagraph (a),
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multiplied by the number of Common Shares for which the Right otherwise would be
exchangeable if there were sufficient shares available. To the extent that the
Company determines that some action need be taken pursuant to clauses (i),
(ii) or (iii) of this Section 24(c), the Board of Directors may temporarily
suspend the exercisability of the Rights for a period of up to sixty (60) days
following the date on which the event described in Section 24(a) hereof shall
have occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to the
above provision and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 11(k) hereof).
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event or Section 13 Event, the Company shall give notice
thereof to each holder of Rights in accordance with Section 26 hereof at least
twenty (20) days prior to occurrence of such Triggering Event or such Section 13
Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under
Sections 11(a)(ii) and 13 hereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
CellNet Data Systems, Inc.
125 Shoreway Road
San Carlos, California 94070
Attention: Corporate Secretary
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with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Barbara Lubitz
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the date of the
occurrence of a Triggering Event, the Company may supplement or amend this
Agreement in any respect without the approval of any holders of Rights and the
Rights Agent shall, if the Company so directs, execute such supplement or
amendment. From and after the occurrence of a Distribution Date, the Company
and the Rights Agent may from time to time supplement or amend this Agreement
without the approval of any holders of Rights in order to (i) cure any
ambiguity, (ii) correct or supplement any provision contained herein which may
be defective or inconsistent with any other provisions herein, (iii) shorten or
lengthen any time period hereunder, or (iv) to change or supplement the
provisions hereunder in any manner that the Company may deem necessary or
desirable and that shall not adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); PROVIDED, this Agreement may not be supplemented or amended
to lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Prior
to the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
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Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other parties and
(y) not subject the Board to any liability to the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. GOVERNING LAW. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
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Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" CellNet Data Systems, Inc.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
"RIGHTS AGENT" The Bank of New York
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT A
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF CELLNET DATA SYSTEMS, INC.
The undersigned, John M. Seidl, does hereby certify:
1. That he is the duly elected and acting Chief Executive Officer of
CellNet Data Systems, Inc., a Delaware corporation (the "CORPORATION").
2. That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the said Corporation,
the said Board of Directors on August 24, 1998, adopted the following resolution
authorizing a series of 100,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock of the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1 DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.001 per share, and
the number of shares constituting such series shall be 100,000.
Section 2 PROPORTIONAL ADJUSTMENT. In the event the Corporation
shall at any time after the date of the filing of this Certificate with the
Secretary of State of Delaware (i) declare any dividend on Common Stock of the
Corporation ("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3 DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior right of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating Preferred Stock shall be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available for that purpose, quarterly dividends payable in cash on the last day
of January, April, July and October in each year (each such date being referred
to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
<PAGE>
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other (except
as provided in Section 2 hereof) than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock.
(b) The Corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of
Series A Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 4 VOTING RIGHTS. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
-2-
<PAGE>
Section 5 CERTAIN RESTRICTIONS.
(a) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 3 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating Preferred
Stock;
(ii) declare or pay dividends on, make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Participating Preferred Stock;
(iv) purchase or otherwise acquire for
consideration any shares of Series A Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
-3-
<PAGE>
Section 6 REACQUIRED SHARES. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein and, in the Restated Certificate of Incorporation, as then amended.
Section 7 LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series A Participating Preferred Stock shall be entitled to receive an
aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A Participating
Preferred Stock.
Section 8 CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
Section 9 NO REDEMPTION. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 10 RANKING. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11 AMENDMENT. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.
Section 12 FRACTIONAL SHARES. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing
-4-
<PAGE>
resolution and the provisions of Delaware law and to take such actions as they
may deem necessary or appropriate to carry out the intent of the foregoing
resolution."
The undersigned further declares that the matters set forth in the
foregoing Certificate of Designation are true and correct of the undersigned's
own knowledge.
Executed at San Carlos, California on December 9, 1998
---------------------------------------------------------
Paul G. Manca, Vice President and Chief Financial Officer
Attest:
- -------------------------------------
David L. Perry, Secretary
-5-
<PAGE>
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) NOVEMBER 24, 2008, (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES
THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS
AGREEMENT.]*
RIGHTS CERTIFICATE
CELLNET DATA SYSTEMS, INC.
This certifies that ______________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of November 24, 1998, (the "RIGHTS
AGREEMENT"), between CellNet Data Systems, Inc., a Delaware corporation (the
"COMPANY"), and The Bank of New York ( the "RIGHTS AGENT"), to purchase from
the Company at any time after the Distribution Date (as such term is defined in
the Rights Agreement) and prior to 5:00 P.M., New York time, on November 24,
2008, at the office of the Rights Agent designated for such purpose, or at the
office of its successor as Rights Agent, one one-thousandth (1/1,000) of a fully
paid non-assessable share
- -----------------------------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
of Series A Participating Preferred Stock, $0.001 par value, (the "PREFERRED
SHARES"), of the Company, at a Exercise Price of $50.00 per one-thousandth of a
Preferred Share (the "EXERCISE PRICE"), upon presentation and surrender of this
Rights Certificate with the Form of Election to Purchase and related Certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) set forth above are the number and Exercise Price as of
November 24, 1998, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Exercise Price and the number and kind
of Preferred Shares or other securities which may be purchased upon the exercise
of the Rights evidenced by this Rights Certificate are subject to modification
and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office of the Rights
Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.001 per Right or (ii) may be exchanged by
the Company in whole or in part for Common Shares, substantially equivalent
rights or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate amount of securities as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a
Preferred Share will be issued upon the exercise of any Right or Rights
evidenced hereby but in lieu thereof a cash payment will be made, as provided in
the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled
to vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action,
-2-
<PAGE>
or to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _______________, 19____.
ATTEST: CellNet Data Systems, Inc.
By:
- ------------------------------ -----------------------------------
David L. Perry, Secretary John M. Seidl, Chief Executive
Officer and President
Countersigned:
THE BANK OF NEW YORK
as Rights Agent
By:
------------------------
Its:
------------------------
-3-
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED ____________________ hereby sells, assigns and
transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 19____
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person,
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19____
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate)
To: ___________________________
The undersigned hereby irrevocably elects to exercise
_________________________ Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of
one-thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ___________________ , 19____
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: _______________, 19____
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
-2-
<PAGE>
EXHIBIT C
STOCKHOLDER RIGHTS PLAN
CELLNET DATA SYSTEMS, INC.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001
PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
SUMMARY OF RIGHTS
RIGHTS DIVIDEND DECLARATION
On November 24, 1998 (the "Rights Dividend Declaration Date"), the Board of
Directors of CellNet Data Systems, Inc. ("CellNet" or the "Company") declared a
dividend of one right (a "Right") to purchase one one-thousandth (1/1000) of a
share of the Company's Series A Participating Preferred Stock, $0.001 par value
per share (the "Preferred Stock"), for each outstanding share of common stock,
par value $0.001 per share (the "Common Stock"). The dividend is payable to
stockholders of record on December 21, 1998 (the "Record Date"). In addition,
one Right shall be issued with each share of Common Stock that becomes
outstanding between the Record Date and the earlier to occur of the Distribution
Date (as defined below) and the Expiration Date (as defined below). This
includes Common Stock that is issued upon conversion of securities convertible
into or exchangeable for Common Stock such as stock options, warrants, and 7%
Exchangeable Preferred Securities Mandatorily Redeemable 2010 of CellNet
Funding, LLC, a wholly-owned subsidiary of the Company.
DISTRIBUTION OF RIGHTS
Prior to the Distribution Date (as defined below), the Rights will be
evidenced by and trade with the Common Stock. After the Distribution Date, the
Rights will separate from the Common Stock and become transferable apart from
the Common Stock. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights will be mailed to holders of record
of Common Stock as of the close of business on the Distribution Date and such
certificates will then alone evidence such Rights.
The Distribution Date will occur, if at all, on the earlier of (a) the
close of business on the tenth (10th) day (or such later day as may be
determined by a majority of the Board of Directors) after a person or group
acquires beneficial ownership of fifteen percent (15%) or more of the Company's
Common Stock (including Common Stock issuable upon conversion or exchange of any
convertible securities), and (b) the close of business on the tenth (10th)
business day (or such later day as may be determined by a majority of the Board
of Directors) after a person or group announces a tender or exchange offer, the
consummation of which would result in ownership by a person or group of fifteen
percent (15%) or more of the Company's Common Stock (including Common Stock
issuable upon conversion or exchange of any convertible securities).
<PAGE>
INITIAL EXERCISE OF RIGHTS -- PURCHASE OF CELLNET SERIES A PARTICIPATING
PREFERRED STOCK
The Rights may not be exercised prior to the Distribution Date. Following
the Distribution Date, each Right will entitle the holder to purchase for $50.00
(the "Exercise Price") one one-thousandth (1/1000) of a share of the Company's
Preferred Stock, subject to certain adjustments in both price and number of
shares.
FLIP-IN PROVISIONS -- RIGHT TO BUY COMPANY COMMON STOCK
Unless the Rights are earlier redeemed or have expired, if a person or
group acquires beneficial ownership of fifteen percent (15%) or more of the
Company's Common Stock (including Common Stock issuable upon conversion or
exchange of any convertible securities) (an "Acquiring Person"), THEN proper
provision shall be made by the Company's Board of Directors so that each Right
(other than Rights owned by an Acquiring Person or its affiliates) will entitle
the holder thereof to purchase, for the Exercise Price, a number of shares of
the Company's Common Stock having a then current market value of TWICE the
Exercise Price.
FLIP-OVER PROVISIONS -- RIGHT TO BUY ACQUIRING COMPANY COMMON STOCK
Unless the Rights are earlier redeemed or have expired, if, after an
Acquiring Person acquires beneficial ownership of fifteen percent (15%) or more
of the Company's Common Stock (including Common Stock issuable upon conversion
or exchange of any convertible securities), (a) the Company merges into another
entity, (b) an acquiring entity merges into the Company, or (c) the Company
sells more than fifty percent (50%) of its assets or earning power, THEN each
Right (other than Rights owned by an Acquiring Person or its affiliates) will
entitle the holder thereof to purchase, for the Exercise Price, a number of
shares of the common stock of the person or entity engaging in the transaction
having a then current market value of TWICE the Exercise Price.
EXCHANGE PROVISIONS
At any time after an Acquiring Person acquires beneficial ownership of
fifteen percent (15%) or more of the Company's Common Stock (including Common
Stock issuable upon conversion or exchange of any convertible securities) and
prior to the acquisition by the Acquiring Person of fifty percent (50%) of the
Company's Common Stock (including Common Stock issuable upon conversion or
exchange of any convertible securities), the Board of Directors may exchange the
Rights (other than Rights owned by the Acquiring Person or its affiliates), in
whole or in part, for shares of the Company's Common Stock at an exchange ratio
of one (1) share of Common Stock per Right (subject to certain adjustments).
REDEMPTION PROVISIONS
The Rights are redeemable at the Company's option (with the approval of the
Board of Directors) at any time prior to the close of business on the day (prior
to the Expiration Date) of a public announcement that an Acquiring Person has
acquired beneficial ownership of fifteen percent (15%) or more of the Company's
Common Stock (including Common Stock issuable upon conversion or exchange of any
convertible securities). Upon exercise of the Company's option to redeem the
Rights,
-2-
<PAGE>
holders will be entitled to receive a redemption payment of $0.001 per Right
(subject to certain adjustments) payable in cash or in shares of the Company's
Common Stock.
EXPIRATION OF RIGHTS
The Rights expire (the "Expiration Date") on the earliest of (a) November
24 , 2008, (b) the consummation of any of the following transactions -- (i) the
Company merges into another entity, (ii) an acquiring entity merges into the
Company, or (iii) the Company sells more than fifty percent (50%) of its assets
or earning power, (c) the effective date of a redemption of the Rights
determined by the Board of Directors, and (d) the time at which the Board of
Directors orders an exchange of the Rights.
LIMITATIONS
Under certain circumstances, Rights beneficially owned by an Acquiring
Person or an affiliate or associate of an Acquiring Person and any subsequent
holder of such Rights may become null and void.
AMENDMENTS AND RIGHTS AGREEMENT
The terms of the Rights and the Rights Agreement (the "Rights Agreement")
dated November 24, 1998 between the Company and The Bank of New York as Rights
Agent may be amended in any respect without the consent of the Rights holders on
or prior to the date a person becomes an Acquiring Person. From and after the
Distribution Date, the terms of the Rights and the Rights Agreement may be
amended without the consent of the Rights holders in order to cure any
ambiguities or to make changes which do not adversely affect the interests of
Rights holders (other than an Acquiring Person or an affiliate or associate of
an Acquiring Person).
VOTING RIGHTS
The Rights will have no voting rights.
ANTI-DILUTION PROVISIONS
The Rights will have the benefits of certain customary anti-dilution
provisions.
TAXES
The Rights distribution should not be taxable for Federal income tax
purposes. However, following an event which renders the Rights exercisable or
upon redemption of the Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of November 24, 1998, between the Company and the
Rights Agent.
-3-
<PAGE>
EXHIBIT 10.21
MULTIPLE-DRAW TERM LOAN AGREEMENT
BY AND BETWEEN
CELLNET DATA SERVICES (SE), INC.
(THE "BORROWER")
AND
PUGET SOUND ENERGY, INC.
(THE "LENDER")
DATED AS OF
MARCH 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
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<S> <C>
Preamble
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2. The Term Loans. . . . . . . . . . . . . . . . . . . . . . . . . . -4-
3. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
4. Repayments and Prepayments. . . . . . . . . . . . . . . . . . . . -5-
5. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
6. Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
7. Representations and Warranties. . . . . . . . . . . . . . . . . . -5-
8. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . -6-
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
10. Events of Default; Acceleration . . . . . . . . . . . . . . . . . -8-
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
12. Statutory Notice. . . . . . . . . . . . . . . . . . . . . . . . -10-
</TABLE>
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MULTIPLE-DRAW TERM LOAN AGREEMENT
This MULTIPLE-DRAW TERM LOAN AGREEMENT (this "LOAN AGREEMENT") is made
as of March 31, 1998, by and between CellNet Data Services (SE), Inc. (the
"BORROWER"), a Delaware corporation, and Puget Sound Energy, Inc. (the
"LENDER"), a Washington corporation.
Section 1. DEFINITIONS.
(a) SPECIFIC DEFINITIONS: The following terms shall have the
respective meanings herein set forth below, or in the sections referred to
below:
BASE RATE: The annual rate of interest announced from time to
time by Bank of America National Trust and Savings Association as its
"reference rate," adjusted on the last day of each calendar quarter for the
next succeeding quarter.
BUSINESS DAY: Any day on which businesses in San Francisco,
California and Seattle Washington are open for business generally.
CELLNET: CellNet Data Systems, Inc., a Delaware corporation.
CHARTER DOCUMENTS: In respect of any entity, the certificate
or articles of incorporation or organization and the by-laws of such entity,
or other constitutive documents of such entity.
CN FREQUENCY: CN Frequency (SE), Inc., a Delaware corporation
and a wholly-owned Subsidiary of the Borrower.
COLLATERAL: means all the property, real or personal,
tangible or intangible, now owned or hereafter acquired, in which Lender has
been or is to be granted a Lien by the Borrower or any other Person, to
secure the Obligations.
COLLATERAL ASSIGNMENTS: The Collateral Assignment of Patents,
the Collateral Assignment of Trademarks and the Collateral Assignment of
Copyrights.
COLLATERAL ASSIGNMENT OF COPYRIGHTS: The Collateral
Assignment of Copyrights dated as of the date hereof or any subsequent date,
executed and delivered by the Borrower and the Lender.
COLLATERAL ASSIGNMENT OF PATENTS: The Collateral Assignment
of Patents dated as of the date hereof or any subsequent date, executed and
delivered by the Borrower and the Lender.
COLLATERAL ASSIGNMENT OF TRADEMARKS: The Collateral
Assignment of Trademarks dated as of the date hereof or any subsequent date,
executed and delivered by the Borrower and the Lender.
COMMITMENT: The obligation of the Lender to make Loans to the
Borrower up to an aggregate outstanding principal amount not to exceed $35
million, as such amount may be reduced from time to time or terminated
hereunder.
<PAGE>
CONSENT: In respect of any person or entity, any permit,
license or exemption from, approval, consent of, registration or filing with
any local, state or federal governmental or regulatory agency or authority,
required under applicable law.
DEFAULT: An event or act which with the giving of notice
and/or the lapse of time, would become an Event of Default.
DRAWDOWN DATE: In respect of any Loan, the date on which such
Loan is made to the Borrower.
ENVIRONMENTAL LAWS: All laws pertaining to environmental
matters, including without limitation, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, in all rules, regulations, judgments, decrees, orders and
licenses arising under all such laws.
ERISA: The Employee Retirement Income Security Act of 1974
and all rules, regulations, judgments, decrees, and orders arising thereunder.
EVENT OF DEFAULT: The occurrence of the events listed in
Section 10 hereof.
EVENT OF MATURITY: The occurrence of (i) any of the events
listed in Section 10(e) hereof, or (ii) any other event listed in Section 10
hereof, as a result of which the Lender has given via overnight express mail,
and the Borrower has received, or would be deemed to have received in
accordance with Section 11 hereof, the written notice described in Section
10(2) hereof.
GAAP: Generally accepted accounting principles consistent
with those adopted by the Financial Accounting Standards Board and its
predecessor as in effect from time to time.
GOVERNMENTAL BODY: means the government of the United States,
any state, or any foreign country, or any governmental or regulatory
official, body, department, bureau, subdivision, agency, commission, court,
arbitrator, or authority, or any instrumentality thereof, whether federal,
state, or local.
INDEBTEDNESS: In respect of any entity, all obligations,
contingent and otherwise, that in accordance with GAAP should be classified
as liabilities, including without limitation (a) all debt obligations, (b)
all liabilities secured by Liens, (c) all guarantees, and (d) all liabilities
in respect of bankers' acceptances or letters of credit.
INSOLVENCY LAWS: Bankruptcy, insolvency, receivership,
reorganization and other laws providing relief to debtors.
LICENSE AGREEMENT: The license agreement entered into on
October 30, 1997, by and between Borrower and CellNet.
LIENS: Any encumbrance, mortgage, pledge, hypothecation,
charge, restriction or other security interest of any kind securing any
obligation of any entity or person.
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<PAGE>
LOAN: Any loan made or to be made by the Lender to the
Borrower pursuant to Section 2 hereof.
LOAN DOCUMENTS: This Loan Agreement, the Note and the
Security Documents, in each case as from time to time amended or supplemented.
MATERIALLY ADVERSE EFFECT: Any (a) materially adverse effect
on the financial condition or business operations of the Borrower and its
Subsidiaries, taken together or (b) material impairment of the ability of the
Borrower to perform its obligations hereunder or under any of the other Loan
Documents.
MATURITY DATE: The fifth anniversary of the date the first
Loan is made hereunder or such earlier date on which all Loans may become due
and payable pursuant to the terms hereof.
METER RADIO: A "Meter Radio" as defined in the Services
Agreement.
NOTE: The Secured Promissory Note dated as of the date
hereof, executed and delivered by the Borrower to the Lender.
OBLIGATIONS: All indebtedness, obligations and liabilities of
the Borrower to the Lender, existing on the date of this Loan Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising,
accruing or incurred under this Loan Agreement or any other Loan Document or
in respect of any of the Loans or the Note or other instruments at any time
evidencing any thereof, including without limitation all principal, interest
(whether accruing before or after judgement or the commencement of any
proceedings under Insolvency Laws), any expenses and any and all other
amounts payable in accordance with the terms of the Loan Documents, and all
or any portion or such obligations or liabilities that are paid to the extent
all or any part of such payment is avoided or recovered directly or
indirectly from the Lender as a preference, fraudulent transfer or otherwise.
PERMITTED LIENS: Liens constituting (i) Liens in favor of the
Lender; (ii) Liens in favor of holders of Permitted Purchase Money
Obligations, covering only the assets financed and directly-related assets
including proceeds (including insurance proceeds) products, replacements,
substitutions and attachments; (iii) Liens securing taxes or other
governmental charges not yet due or being protested via appropriate
proceedings; (iv) deposits or pledges made in connection with social security
obligations; (v) Liens of carriers, warehousemen, mechanics and materialmen
as to obligations not overdue; (vi) easements, rights-of-way, zoning
restrictions and similar minor Liens which individually and in the aggregate
do not have a Materially Adverse Effect; (vii) bankers' liens and rights of
set-off in respect of deposit accounts, (viii) landlords' liens in respect of
leased real property, (ix) Liens on insurance policies and the proceeds
thereof securing the financing of the premiums with respect thereto; (x)
Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by the Liens of the types described above; provided,
that any extension, renewal or replacement Lien shall be limited to the
property or asset encumbered by the existing Lien and the principal amount of
the Indebtedness being extended, renewed or refinanced does not increase and
(xi) other Liens existing on the date hereof and listed on SCHEDULE I hereto.
PERMITTED PURCHASE MONEY OBLIGATIONS: Obligations owing by
the Borrower and any of its Subsidiaries to holders of purchase money,
installment sale or capitalized lease obligations of the Borrower (other than
any such obligations involving the purchase or lease of any equipment
necessary to operate the wireless
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<PAGE>
data communications network and operating systems installed pursuant to the
Services Agreement), not to exceed in principal amount or discounted rental
stream, $2.5 million in the aggregate at any time outstanding.
PERSON: means any individual, partnership, joint venture,
firm, corporation, association, trust, limited liability company, or other
enterprise or any Governmental Body.
REQUIREMENT OF LAW: In respect of any person or entity, any
law, treaty, rule, regulation or determination of an arbitrator, court, or
other governmental authority, in each case applicable to or binding upon such
person or entity or affecting any of its property.
SECURITY AGREEMENT: The Security Agreement dated as of the
date hereof, executed and delivered by the Borrower and the Lender.
SECURITY DOCUMENTS: The Security Agreement, the Collateral
Assignments and the Stock Pledge Agreement.
SERVICES AGREEMENT: The Network Meter Information Services
Agreement dated as of October 30, 1997, executed and delivered by the
Borrower and the Lender.
SERVICE AREA: The "Service Area" as defined in the Services
Agreement.
STOCK PLEDGE AGREEMENT: The Stock Pledge Agreement dated as
of the date hereof, executed and delivered by the Borrower and the Lender.
SUBSIDIARY: In respect of the Borrower, any business entity
of which the Borrower at any time owns or controls directly or indirectly
more than fifty percent (50%) of the outstanding shares of stock having
voting power, regardless of whether such right to vote depends upon the
occurrence of a contingency.
SYSTEM: The "System" as defined in the Services Agreement.
UCC: The Uniform Commercial Code, as enacted and in effect in
the State of Washington (or any other applicable jurisdiction) on the date of
reference thereto.
(b) RULES OF INTERPRETATION. The following rules shall govern the
interpretation and construction of this Loan Agreement and the other Loan
Documents: (i) a reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time
in accordance with its terms and the terms of this Loan Agreement; (ii) the
singular includes the plural and the plural includes the singular; (iii) a
reference to any law includes any amendment or modification to such law; (iv)
a reference to any Person includes its permitted successors and permitted
assigns; (v) accounting terms not otherwise defined herein have the meanings
assigned to them by GAAP applied on a consistent basis by the accounting
entity to which they refer; (vi) the words "include," "includes" and
"including" are not limiting; (vii) all terms not specifically defined herein
or by GAAP, which terms are defined in the UCC, have the respective meanings
assigned to them therein; (viii) reference to a particular "Section" refers
to that section of this Loan Agreement unless otherwise indicated; and (ix)
the words "herein," "hereof," "hereunder" and words of like import shall
refer to this Loan Agreement as a whole and not to any particular section or
subdivision of this Loan Agreement.
Section 2. THE TERM LOANS. Upon the terms and subject to the
conditions of this Loan Agreement, the Lender agrees to lend to the Borrower
such sums as the Borrower may request, from the date hereof until but not
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<PAGE>
including the Maturity Date, PROVIDED that the sum of the initial principal
amount of all Loans (after giving effect to all amounts requested) shall not
exceed the Commitment, Borrower may request only one Loan per calendar month
and the amount of such Loan shall not exceed $50 per meter retrofitted with a
Meter Radio and installed in the Service Area during such month in accordance
with the terms of the Services Agreement. The Borrower shall notify the
Lender in writing at least two Business Days prior to the date of the Loan
being requested, of the Drawdown Date (which must be a Business Day) and the
principal amount of such Loan. Subject to the foregoing, so long as the
Commitment is then in effect and the conditions set forth in Section 8 hereof
have been met, the Lender shall advance the amount requested to the Borrower
in immediately available funds for deposit in the account specified by the
Borrower in the notice requesting such Loan not later than the close of
business on such Drawdown Date. The obligation of the Borrower to repay to
the Lender the principal of the Loans and interest accrued thereon shall be
evidenced by a promissory note in the aggregate principal amount of
$35,000,000, executed and delivered by the Borrower and payable to the order
of the Lender (the "NOTE").
Section 3. INTEREST. So long as no Event of Default is continuing,
the Borrower shall pay interest on the Loans at a rate of 61/2% per annum,
such interest to be payable in arrears on the first Business Day of each
calendar quarter for the immediately preceding calendar quarter, commencing
with the first such Business Day following the date hereof. Following the
occurrence and during the continuance of an Event of Default, all amounts
payable under any of the Loan Documents shall bear interest at a rate per
annum (after as well as before judgment) which is equal to the sum of (i) the
Base Rate, plus (ii) two percent (2%) until all such amounts have been paid
in full or (as the case may be) such Event of Default has been cured or
waived in writing by the Lender. Notwithstanding the foregoing or any other
provision of any Loan Document, no interest shall be required to be paid at a
rate in excess of the maximum rate permitted by applicable law, and if any
payments by the Borrower include interest in excess of such maximum rate, the
Lender shall apply the excess first to reduce the unpaid principal of the
Loans, then the excess, if any, shall be returned to the Borrower.
Section 4. REPAYMENTS AND PREPAYMENTS. The Borrower hereby agrees
to pay the Lender on the Maturity Date the entire unpaid principal of and
interest on all Loans. The Borrower may elect to prepay the outstanding
principal of all or any part of any Loan without premium or penalty at any
time. Each repayment or prepayment of principal of any Loan shall be
accompanied by payment of the unpaid interest accrued to such date on the
principal being repaid or prepaid.
Section 5. PAYMENTS. All payments to be made by the Borrower
hereunder shall be made in U.S. dollars in immediately available funds to the
Lender for deposit in the account specified by the Lender for such purpose by
written notice the Borrower without set-off or counterclaim and without any
withholding or deduction whatsoever. If any payment hereunder is required to
be made on a day which is not a Business Day, it shall be paid on the
immediately preceding Business Day. All computations of interest payable
hereunder shall be made by the Lender on the basis of a 365-day or, as the
case may be, 366-day year and the actual number of days elapsed.
Section 6. COLLATERAL. As security for repayment of all of the
Loans and all other Obligations, the Borrower shall grant to the Lender a
first and exclusive Lien in substantially all of its assets, properties and
rights, intangible and intangible, including without limitation all of the
capital stock of its Subsidiaries (now and hereafter formed), all accounts,
general intangibles, chattel paper, documents, inventory, equipment,
leasehold interests, leasehold improvements, pole attachment agreements,
licenses (including the License Agreement), financial assets, computers and
other electronic data processing hardware, books, records, trademarks,
patents, copyrights, software, trade names, instruments, investment property
now owned or hereafter acquired, and proceeds thereof. The Borrower agrees
to use reasonable efforts to obtain consent to assignment of its Oracle
license.
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<PAGE>
Section 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants to the Lender on the date hereof, on the date of any request for
any Loan, and on each Drawdown Date that: (a) the Borrower and each of its
Subsidiaries is duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation and is duly qualified and in
good standing in the State of Washington; (b) the execution, delivery and
performance by the Borrower and each of its Subsidiaries of the Loan
Documents to which it is a party (i) are within its corporate authority, (ii)
have been duly authorized, (iii) do not conflict with or contravene its
Charter Documents; (c) upon execution and delivery thereof, each Loan
Document shall constitute the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms except as enforcement may
be limited by rules of law governing (i) Insolvency Laws and (ii) specific
performance, injunctive relief or other equitable remedies, whether in a
proceeding in equity or at law; (d) the Borrower has good and marketable
title to all its material properties, subject only to Permitted Liens, and
possesses all assets, including patents, trademarks, copyrights, other
intellectual properties and licenses to use the same, franchises and
Consents, adequate to operate the System; (e) since December 2, 1996 there
has been no change in the Borrower or any of its Subsidiaries which could
reasonably be expected to have a Materially Adverse Effect; (f) there are no
legal or other proceedings or investigations pending or threatened against
the Borrower or any of its Subsidiaries before any court, tribunal or
regulatory authority which would, if adversely determined, alone or together,
could reasonably be expected to have a Materially Adverse Effect; (g) the
execution and delivery of, and performance of its obligations, under the Loan
Documents by the Borrower, including borrowing under this Loan Agreement (i)
do not require any Consents; and (ii) are not and will not be in conflict
with or prohibited or prevented by (A) any Requirement of Law, or (B) any
Charter Document, corporate minute or resolution, instrument, agreement or
provision thereof, in each case binding on it or affecting its property; and
(h) upon execution and delivery of the Security Documents and the filing of
documents thereby required, the Lender shall have an exclusive and
first-priority perfected security interest in the Collateral, subject only to
Permitted Liens, with no financing statements, chattel mortgages, real estate
mortgages or similar filings on record anywhere which conflict with such
first-priority interest.
Section 8. CONDITIONS PRECEDENT. In addition to the making of the
foregoing representations and warranties and the delivery of the Loan
Documents and such other documents and the taking of such actions as the
Lender may require at or prior to the time of executing this Loan Agreement,
the obligation of the Lender to make any Loan to the Borrower hereunder is
subject to the satisfaction of the following further conditions precedent:
(a) each of the representations and warranties of the Borrower to the Lender
shall be true and correct in all material respects as of the time made; (b)
no Default or Event of Default shall be continuing; (c) the Borrower shall
have delivered to the Lender a certificate, summarizing in reasonable detail
the installation of Meter Radios in the Service Area on which the request for
the Loan is premised; and (d) in the case of the first Loan to be made
hereunder, (i) the Services Agreement and License Agreement shall have been
executed and delivered, (ii) this Loan Agreement and the other Loan Documents
shall have been executed and delivered and (iii) the Lender shall have
received (A) the resolutions of the Borrower's Board of Directors,
authorizing its execution, delivery and performance of the Loan Documents and
the transactions contemplated thereby, (B) a secretary's certificate of the
Borrower, certifying the incumbency of officers authorized to execute the
Loan Documents on behalf of the Borrower, and borrower's Charter Documents,
(C) a favorable opinion of counsel to the Borrower, addressing matters
germane to this Loan Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby in form and substance acceptable
to Lender, (D) insurance certificates evidencing compliance with the
requirements of this Loan Agreement and the other Loan Documents, (E) copies
of any requisite Consents (F) such financing statements and other documents
reasonably deemed necessary by the Lender to perfect the security interests
granted to the Lender; (G) evidence that the Lender's security interests in
the Collateral constitute first priority and exclusive security interests, to
the extent required hereby and by the other Loan Documents; (H) evidence that
the Borrower has rights to use all patents, trademarks, copyrights, licenses,
permits, rights under agreements, and other rights necessary to operate the
System and (I) a letter from CellNet, pursuant to which CellNet (1) agrees
that, upon the occurrence of any Event of Default and at the sole and
exclusive option of the Lender, CellNet will enter into an
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<PAGE>
agreement with the Lender, upon reasonable terms (including compensation), to
assist the Lender in operating, maintaining, repairing and otherwise
supporting the System and (2) agrees to the assignment as collateral security
of, and acknowledges that the Borrower is not in default under, the License
Agreement. To the extent that any of the foregoing conditions precedent to
the first Loan made pursuant to this Loan Agreement have not been satisfied
prior to or on the execution and delivery of this Loan Agreement, the Lender
shall have a reasonable opportunity to review and approve the satisfaction of
such condition prior to making the first Loan hereunder.
Section 9. COVENANTS.
(a) The Borrower agrees that until the termination of the Commitment
and the payment and satisfaction in full of all the Obligations, the Borrower
will, and where applicable will cause CN Frequency and each other Subsidiary to
comply with its obligations as set forth throughout this Loan Agreement and
will:
(i) keep true and accurate books of account in
accordance with GAAP;
(ii) (A) maintain its corporate existence, business and
assets, (B) keep its business and assets adequately insured, (C) maintain its
chief executive office in the United States, (D) maintain all licenses,
franchises, consents and other rights necessary to conduct its business,
including, without limitation, the License Agreement, and (E) comply in all
material respects with applicable Requirements of Law, including ERISA,
Environmental Laws and the payment of all taxes and other assessments;
(iii) notify the Lender promptly in writing of (A) the
occurrence of any Default or Event of Default, (B) any change of address, (C)
any pending litigation or similar proceeding affecting the Borrower or such
Subsidiary, and (D) the initiation of any proceedings against any assets,
licenses or properties of the Borrower or such Subsidiary encumbered in favor
of the Lender;
(iv) not use the proceeds of the Loans for "margin
security" or "margin stock" within the meaning of Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System;
(v) transfer, or cause to be transferred, to CN
Frequency, all licenses necessary to conduct its business and to enable the
Borrower to perform its obligations under the Services Agreement;
(vi) maintain its properties and assets in good
condition and repair to the extent required by the Services Agreement and
permit the Lender or its designated representatives to inspect the same;
(vii) at any time or from time to time upon the request
of Lender, Borrower will, and will cause each of its Subsidiaries to, at its
expense, promptly execute, acknowledge and deliver such further documents and
do such other acts and things as Lender may reasonably request in order to
effect fully the purposes of the Loan Documents and to provide for payment of
the Obligations in accordance with the terms of this Loan Agreement, the Note
and the other Loan Documents;
(viii) use the proceeds of the Loan solely to finance the
installation and operation of the System in order to provide the Service
under the Services Agreement; and
(ix) maintain all rights necessary to develop and
operate the System.
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<PAGE>
(b) The Borrower agrees that until the termination of the
Commitment and the payment and satisfaction in full of all the Obligations,
the Borrower will not and where applicable will not permit its Subsidiaries
to:
(i) create, incur or assume any Indebtedness, except
(A) Indebtedness to the Lender arising under the Loan Documents, (B)
Permitted Purchase Money Obligations (C) current liabilities of the Borrower
or such Subsidiary not incurred through the borrowing of money or the
obtaining of credit, including trade payables, and credit on an open account
customarily extended, (D) Indebtedness in respect of taxes or other
governmental charges contested in good faith and by appropriate proceedings,
and (E) Indebtedness existing on the date hereof and listed on SCHEDULE II
hereto;
(ii) create or incur, or permit to exist, any Liens on
any of the property or assets of the Borrower, CN Frequency or any other
Subsidiary, except Permitted Liens;
(iii) become party to a merger, wind up liquidate or
dissolve its affairs, or to effect any disposition of worn out or obsolete
assets other than in the ordinary course, or to purchase, lease or otherwise
acquire assets other than in the ordinary course;
(iv) terminate, or cause to be effective any material
change to, any material agreements required for the operation of the System,
including, without limitation, the License Agreement; or
(v) engage in transactions with its affiliates, except
(A) transactions on SCHEDULE III hereto and (B) transactions on terms no less
favorable to the Borrower than those obtainable in an arms-length negotiation
with independent third parties, considering any transaction in connection
with any series of related transactions of which it is a part.
Section 10. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events (each an "Event of Default") shall occur: (a) the Borrower shall fail
to pay when due and payable any principal of or interest on the Loans or any
other sum due under any of the Loan Documents within five days after the same
becomes due; (b) the Borrower shall fail to perform any term, covenant or
agreement contained in the Loan Documents which is susceptible of cure, and
such failure shall continue for more than 30 days; (c) the Borrower shall
fail to perform any material term, covenant or agreement contained in the
Loan Documents which is not susceptible of cure; (d) any representation or
warranty of the Borrower or any of its Subsidiaries in the Loan Documents or
in any certificate or notice given in connection therewith shall have been
false or misleading in any material respect at the time made or deemed to
have been made; (e) the Borrower or any of its Subsidiaries (i) shall make an
assignment for the benefit of creditors, (ii) shall be adjudicated bankrupt
or insolvent, (iii) shall seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or receiver as to all or part of its
assets, (iv) shall commence, approve or consent to, any case or proceeding
under any Insolvency Law and, in the case of an involuntary case or
proceeding, such case or proceeding is not dismissed within 60 days following
the commencement thereof, or (v) shall be the subject of an order for relief
in an involuntary case under federal bankruptcy law; (f) the Borrower and its
Subsidiaries shall be unable to pay debts as they mature; (g) there shall
remain undischarged for more than 30 days any final judgment or execution
action against the Borrower or any of its Subsidiaries that, together with
other outstanding claims and execution actions against the Borrower and its
Subsidiaries exceeds $1,000,000 in the aggregate; (h) there has been an event
of default by the Borrower under the Services Agreement entitling the Lender
to terminate the Services Agreement; (i) CellNet shall cease to own 100% of
the voting stock, directly or indirectly, of the Borrower or (j) the License
Agreement terminates or is amended in any respect adverse to the Borrower
without Lender's prior consent, or the Borrower defaults in its obligations
under the License Agreement;
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<PAGE>
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clause 10(e) above, the
Commitment shall automatically terminate, and the entire unpaid principal
amount of the Loans, all interest accrued and unpaid thereof, and all other
amounts payable hereunder and under the other Loan Documents shall
automatically become forthwith due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by
the Borrower; and
(2) In the case of any Event of Default other than under clause 10(e)
above, the Lender may, by written notice to the Borrower, terminate the
Commitment and/or declare the unpaid principal amount of the Loans, all
interest accrued and unpaid thereof, and all other amounts payable hereunder
and under the other Loan Documents to be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower.
(3) In case any one or more of the Events of Default shall have
occurred and be continuing, and whether or not the Lender shall have
accelerated the maturity of the Loans, the Lender may proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Loan Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to the Lender are evidenced,
including as permitted by applicable law the obtaining of the appointment of
a receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Lender.
No remedy herein conferred upon the Lender is intended to be exclusive
of any other remedy and each and every remedy shall be cumulative and in
addition to every other remedy hereunder, under the other Loan Documents, now
or hereafter existing at law or in equity or otherwise.
Section 11. MISCELLANEOUS. The Borrower shall pay to the Lender on
demand all reasonable costs and expenses (including legal and other
professional fees) incurred by the Lender in connection with (i) the exercise
or the enforcement of any of the rights of Lender under any of the Loan
Documents or (ii) the failure by the Borrower to perform or observe any of
the provisions of any of the Loan Documents, in each case, after the
occurrence and during the continuance of any Event of Maturity; PROVIDED,
that if any action or proceeding is brought to construe or enforce this Loan
Agreement or any other Loan Document, the prevailing party shall be entitled
to collect from the losing party all costs and expenses incurred, including
reasonable attorneys' fees and court costs. Otherwise, each party shall be
responsible for its own costs and expenses. Any communication to be made
hereunder shall (i) be made in writing, but unless otherwise stated, may be
made by facsimile transmission or letter, and (ii) be made or delivered to
the address of the party receiving notice which is identified with its
signature below (unless such party has by five (5) days' written notice
specified another address), and shall be deemed made or delivered, when
dispatched, left at that address, or two (2) Business Days after being
mailed, by registered or certified express mail, postage prepaid, or
delivered to a reputable overnight courier for delivery, to such address.
This Loan Agreement shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns, but the Borrower may not assign
its rights or obligations hereunder. This Loan Agreement may not be amended
or waived except by a written instrument signed by the Borrower and the
Lender, and any such amendment or waiver shall be effective only for the
specific purpose given. No failure or delay by the Lender to exercise any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other right,
power or privilege. The provisions of this Loan Agreement are severable and
if any one provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, such invalidity or unenforceability shall
affect only such provision in such jurisdiction. This Loan Agreement,
together with all Exhibits and Schedules hereto, expresses the entire
understanding of the parties with
-9-
<PAGE>
respect to the transactions contemplated hereby. This Loan Agreement and any
amendment hereby may be executed in several counterparts, each of which shall
be an original, and all of which shall constitute one agreement. In proving
this Loan Agreement, it shall not be necessary to produce more than one such
counterpart executed by the party to be charged. THIS LOAN AGREEMENT AND THE
NOTE ARE CONTRACTS UNDER THE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD
TO CONFLICT OF LAWS, PRINCIPLES AND SHALL BE CONSTRUED IN ACCORDANCE
THEREWITH AND GOVERNED THEREBY. THE BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS BE BROUGHT IN THE COURTS OF THE
STATE OF WASHINGTON OR ANY FEDERAL COURT SITTING THEREIN AND BY EXECUTION AND
DELIVERY OF THIS LOAN AGREEMENT BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. Borrower hereby agrees that services of process sufficient for
personal jurisdiction in any action against Borrower in the State of
Washington may be made by registered or certified mail, return receipt
requested, to Borrower at its address as provided in this Section 11, and
Borrower hereby acknowledges that such service shall be effective and binding
proceedings in the courts of any other jurisdiction, or object thereto. EACH
OF THE PARTIES TO THIS LOAN AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE LOAN TRANSACTION
CONTEMPLATED BY THE LOAN DOCUMENTS OR THE LENDING RELATIONSHIPS THAT ARE
BEING ESTABLISHED. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this transaction, including without
limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Each party hereto acknowledges that
this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Loan
Agreement, and that each will continue to rely on this waiver in their
related future dealings. Each party hereto further warrants and represents
that it has reviewed this waiver with its legal counsel and that it knowingly
and voluntarily waives its jury rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS, OR MODIFICATIONS TO THIS LOAN AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Loan
Agreement may be filed as a written consent to a trial by the court.
Section 12. STATUTORY NOTICE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Multiple-Draw Loan Agreement as of the date first above written.
CELLNET DATA SERVICES (SE), INC.
By:
-----------------------------
Name:
Title:
Address: 125 Shoreway Road
San Carlos, CA 94070
Attn: Chief Financial Officer and
General Counsel
Tel: (650) 508-6000
Fax: (650) 508-6886
PUGET SOUND ENERGY, INC.
By:
-----------------------------
Name:
Title:
Address: One Bellevue Center, 15th Floor
P.O. Box 97034
Bellevue, WA 98009
Attn: Chief Financial Officer and
General Counsel
Tel: (425) 462-3084
Fax: (425) 462-3300
-11-
<PAGE>
SCHEDULE I
LIENS
None.
-12-
<PAGE>
SCHEDULE II
EXISTING INDEBTEDNESS
None.
-13-
<PAGE>
SCHEDULE III
TRANSACTIONS WITH AFFILIATES
1. License Agreement dated as of October 30, 1997, by and between the Borrower
and CellNet.
2. Open Account Agreement dated as of December 9, 1996 by and between the
Borrower and CellNet.
3. Management Agreement dated as of December 9, 1996 by and between the
Borrower and CellNet.
-14-
<PAGE>
EXHIBIT 10.22
- -------------------------------------------------------------------------------
LOAN AGREEMENT
BY AND AMONG
CELLNET DATA SERVICES (KC), INC.,
AS BORROWER,
TORONTO DOMINION (TEXAS), INC.,
AS ADMINISTRATIVE AGENT,
TD SECURITIES (USA), INC.,
AS LEAD ARRANGER AND SYNDICATION AGENT,
AND
THE FINANCIAL INSTITUTIONS WHOSE NAMES
APPEAR AS LENDERS ON THE SIGNATURE PAGES HEREOF,
AS LENDERS
NOVEMBER 23, 1998
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.1 The Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.2 Manner of Borrowing and Disbursement . . . . . . . . . . . . . 14
Section 2.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.5 Voluntary Prepayment . . . . . . . . . . . . . . . . . . . . . 18
Section 2.6 Voluntary Reduction of the Commitment. . . . . . . . . . . . . 18
Section 2.7 Scheduled Reduction of Commitment. . . . . . . . . . . . . . . 19
Section 2.8 Mandatory Reduction of Commitment. . . . . . . . . . . . . . . 19
Section 2.9 Notes; Loan Accounts . . . . . . . . . . . . . . . . . . . . . 20
Section 2.10 Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.11 Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.12 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.13 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.14 Lender Tax Forms . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.15 Replacement Lender . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 23
Section 3.1 Conditions Precedent to Initial Advance. . . . . . . . . . . . 23
Section 3.2 Conditions Precedent to Each Advance . . . . . . . . . . . . . 26
ARTICLE 4 Representations and Warranties . . . . . . . . . . . . . . . . 27
Section 4.1 Representations and Warranties . . . . . . . . . . . . . . . . 27
Section 4.2 Survival of Representations and Warranties . . . . . . . . . . 33
ARTICLE 5 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 34
Section 5.1 Preservation of Existence and Similar Matters. . . . . . . . . 34
Section 5.2 Business; Compliance with Applicable Law . . . . . . . . . . . 34
Section 5.3 Maintenance of Properties. . . . . . . . . . . . . . . . . . . 34
Section 5.4 Accounting Methods and Financial Records . . . . . . . . . . . 34
Section 5.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.6 Payment of Taxes and Claims. . . . . . . . . . . . . . . . . . 35
Section 5.7 Visits and Inspections . . . . . . . . . . . . . . . . . . . . 35
Section 5.8 Payment of Indebtedness; Loans . . . . . . . . . . . . . . . . 36
Section 5.9 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.10 Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.11 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.12 Interest Rate Hedging. . . . . . . . . . . . . . . . . . . . . 37
Section 5.13 Covenants Regarding Formation of Subsidiaries and the Making
of Investments and Acquisitions. . . . . . . . . . . . . . . . 37
Section 5.14 Payment of Wages . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.15 Compliance with Contracts. . . . . . . . . . . . . . . . . . . 38
Section 5.16 Year 2000 Problem. . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 6 Information Covenants. . . . . . . . . . . . . . . . . . . . . 38
Section 6.1 Quarterly Financial Statements and Information . . . . . . . . 38
Section 6.2 Annual Financial Statements and Information. . . . . . . . . . 39
Section 6.3 Performance Certificates . . . . . . . . . . . . . . . . . . . 39
Section 6.4 Copies of Other Reports. . . . . . . . . . . . . . . . . . . . 39
Section 6.5 Notice of Litigation and Other Matters . . . . . . . . . . . . 40
ARTICLE 7 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.1 Indebtedness of the Borrower and its Subsidiaries. . . . . . . 41
Section 7.2 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 41
Section 7.3 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . 41
Section 7.4 Liquidation, Merger, Disposition of Assets . . . . . . . . . . 42
Section 7.5 Limitation on Guaranties . . . . . . . . . . . . . . . . . . . 42
Section 7.6 Investments and Acquisitions . . . . . . . . . . . . . . . . . 43
Section 7.7 Restricted Payments and Purchases. . . . . . . . . . . . . . . 43
Section 7.8 Minimum Revenue. . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.9 Minimum Operating Cash Flow. . . . . . . . . . . . . . . . . . 44
Section 7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 44
Section 7.11 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.12 Pro Forma Debt Service Ratio.. . . . . . . . . . . . . . . . . 45
Section 7.13 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . 45
Section 7.14 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . 45
Section 7.15 Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.16 ERISA Liabilities. . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 8 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.3 Payments Subsequent to Declaration of Event of Default . . . . 49
ARTICLE 9 The Administrative Agent . . . . . . . . . . . . . . . . . . . 50
Section 9.1 Appointment and Authorization. . . . . . . . . . . . . . . . . 50
Section 9.2 Interest Holders . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.3 Consultation with Counsel. . . . . . . . . . . . . . . . . . . 50
Section 9.4 Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.5 Administrative Agent and Affiliates. . . . . . . . . . . . . . 50
Section 9.6 Responsibility of the Administrative Agent . . . . . . . . . . 51
Section 9.7 Security Documents . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.8 Action by the Administrative Agent . . . . . . . . . . . . . . 51
Section 9.9 Notice of Default or Event of Default. . . . . . . . . . . . . 51
Section 9.10 Responsibility Disclaimed. . . . . . . . . . . . . . . . . . . 52
Section 9.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.12 Credit Decision. . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.13 Successor Administrative Agent . . . . . . . . . . . . . . . . 53
Section 9.14 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 53
Section 9.15 Administrative Agent May File Proofs of Claim. . . . . . . . . 53
ARTICLE 10 Change in Circumstances Affecting Eurodollar Advances. . . . . 54
Section 10.1 Eurodollar Basis Determination Inadequate or Unfair. . . . . . 54
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 10.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.3 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.4 Effect On Other Advances . . . . . . . . . . . . . . . . . . . 55
ARTICLE 11 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.3 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.4 Set-Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.6 Accounting Principles. . . . . . . . . . . . . . . . . . . . . 60
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.10 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.11 Table of Contents and Headings . . . . . . . . . . . . . . . . 61
Section 11.12 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . 61
Section 11.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.14 Other Relationships. . . . . . . . . . . . . . . . . . . . . . 61
Section 11.15 Directly or Indirectly . . . . . . . . . . . . . . . . . . . . 61
Section 11.16 Reliance on and Survival of Various Provisions . . . . . . . . 62
Section 11.17 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 62
Section 12.1 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A - Omitted
Exhibit B - Form of Assignment of Utility Contract
Exhibit C - Form of Borrower's Pledge Agreement
Exhibit D - Omitted
Exhibit E - Form of Certificate of Financial Condition
Exhibit F - Form of Note
Exhibit G - Form of Performance Certificate
Exhibit H - Form of Request for Advance
Exhibit I - Form of Security Agreement
Exhibit J - Form of Subordination Agreement
Exhibit K - Form of Subsidiary Guaranty
Exhibit L - Form of Subsidiary Pledge Agreement
Exhibit M-1 - Form of Guarantying Subsidiary Security Agreement
Exhibit M-2 - Form of Non-Guarantying Subsidiary Security Agreement
Exhibit N - Form of Use of Proceeds Letter
Exhibit O - Form of Borrower's Loan Certificate
Exhibit P - Form of Subsidiary Loan Certificate
Exhibit Q - Form of Legal Opinion of General Counsel to Borrower
Exhibit R - Form of Legal Opinion of FCC Counsel to Borrower
Exhibit S - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1 - Allocation of Commitment among the Lenders, Commitment
Ratios, and Lenders' Addresses for Notice
Schedule 2 - FCC Licenses, IOAs
Schedule 3 - Subsidiaries and Investments of the Borrower
Schedule 4 - Owned and Material Leased Real Property
Schedule 5 - Litigation
Schedule 6 - Agreements with Affiliates
Schedule 7 - Indebtedness for Money Borrowed of the Borrower and its
Subsidiaries
iv
<PAGE>
LOAN AGREEMENT
by and among
CELLNET DATA SERVICES (KC), INC., as Borrower;
TORONTO DOMINION (TEXAS), INC., as Administrative Agent;
TD SECURITIES (USA), INC., as Lead Arranger and Syndication Agent;
and
THE FINANCIAL INSTITUTIONS WHOSE NAMES
APPEAR AS LENDERS ON THE SIGNATURE PAGES HEREOF, as Lenders.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by each of the parties hereto, the parties agree as
follows as of the 23rd day of November, 1998:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement:
"ACQUISITION" shall mean (whether by purchase, exchange, issuance of stock
or other equity or debt securities, merger, reorganization or any other method)
(i) any acquisition by the Borrower or any of its Subsidiaries of any other
Person, which Person shall then become consolidated with the Borrower or any
such Subsidiary in accordance with GAAP, or (ii) any acquisition by the Borrower
or any of its Subsidiaries of all or any substantial amount of the assets of any
other Person. For purposes of the preceding sentence, an amount of assets shall
be deemed to be "substantial" if such assets have a fair market value in excess
of $1,000,000; provided, however, that the purchase of equipment and other goods
and services in the ordinary course of business shall not be deemed to be
"ACQUISITIONS."
"ACTIVE METER" shall mean an Installed Meter which is currently
operational.
"ADMINISTRATIVE AGENT" shall mean Toronto Dominion (Texas), Inc., as
Administrative Agent for the Lenders, together with any successor Administrative
Agent appointed pursuant to Section 9.13 hereunder.
"ADMINISTRATIVE AGENT'S OFFICE" shall mean the office of Toronto Dominion
(Texas), Inc., as Administrative Agent hereunder, located at 909 Fannin Street,
Suite 1700, Houston, Texas 77010, or such other office as may be designated
pursuant to the provisions of Section 11.1 of this Agreement.
"ADVANCE" shall mean the aggregate amount advanced by the Lenders to the
Borrower pursuant to Article 2 hereof on the occasion of any borrowing.
"AFFILIATE" shall mean, with respect to a Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, such
first Person. For purposes of this definition, "control" when used with respect
to any Person includes, without limitation, the direct or indirect beneficial
ownership of more than ten percent (10%) of the voting securities or voting
equity of such Person, or the power to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise. Unless
otherwise specified, "Affiliate" shall mean an Affiliate of the Borrower.
"AGREEMENT" shall mean this Loan Agreement.
1
<PAGE>
"AGREEMENT DATE" shall mean November 23, 1998.
"ANNUALIZED OPERATING CASH FLOW" shall mean, as of any calculation date,
the product of (i) Operating Cash Flow for the most recently completed fiscal
quarter for which financial statements are available, multiplied by (ii) four
(4).
"APPLICABLE LAW" shall mean, in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person, including, without limiting the
foregoing, the Licenses, the Communications Act and all Environmental Laws, and
all orders, decisions, judgments and decrees of all courts and arbitrators in
proceedings or actions to which the Person in question is a party or by which it
is bound.
"APPLICABLE MARGIN" shall mean the interest rate margin applicable to
Advances hereunder as determined in accordance with Section 2.3(f) hereof.
"ASSIGNMENT OF UTILITY CONTRACT" shall mean the Assignment of Utility
Contract by Borrower between the Borrower and the Administrative Agent, pursuant
to which the Borrower collaterally assigns its interests in the Utility Contract
to the Administrative Agent to secure the Obligations. Such agreement shall be
substantially in the form of EXHIBIT B attached hereto.
"AUTHORIZED SIGNATORY" shall mean such senior officers and directors of the
Borrower as may be duly authorized and designated in writing by the Borrower to
execute documents, agreements and instruments on behalf of the Borrower.
"BASE RATE" shall mean, at any time, the higher of (a) the rate of interest
adopted by the Administrative Agent as the reference rate for the determination
of interest rates for loans of varying maturities in Dollars to United States
residents of varying degrees of creditworthiness and being quoted at such time
by The Toronto-Dominion Bank, New York Branch as its "base rate" or "prime
rate," or (b) the Federal Funds Rate plus one-half of one percent (1/2%). The
Base Rate is not necessarily the lowest rate of interest charged to borrowers of
the Administrative Agent or its Affiliates.
"BASE RATE ADVANCE" shall mean an Advance which the Borrower requests to be
made as a Base Rate Advance or is reborrowed as a Base Rate Advance, and which
bears interest at the Base Rate Basis, in accordance with the provisions of
Section 2.2 hereof, and which shall be in a principal amount of at least
$1,000,000 and in an integral multiple of $250,000.
"BASE RATE BASIS" shall mean a simple interest rate equal to the sum of (i)
the Base Rate and (ii) the Applicable Margin. The Base Rate Basis shall be
adjusted automatically as of the opening of business on the effective date of
each change in the Base Rate to account for such change and shall also be
changed to reflect adjustments in the Applicable Margin.
"BORROWER" shall mean CellNet Data Services (KC), Inc., a Delaware
corporation.
"BORROWER'S PLEDGE AGREEMENT" shall mean that certain Borrower's Pledge
Agreement of even date between the Borrower and the Administrative Agent,
substantially in the form of EXHIBIT C attached hereto, as amended, supplemented
or otherwise modified from time to time, pursuant to which the Borrower shall
pledge to the Administrative Agent any stock owned by it.
"BUSINESS DAY" shall mean a day on which banks and foreign exchange markets
are open for the transaction of business required for this Agreement in London,
Houston, and New York, as relevant to the determination to be made or the action
to be taken.
2
<PAGE>
"CAPITAL EXPENDITURES" shall mean, in respect of any Person, expenditures
for the purchase of capital assets which are properly capitalized in accordance
with GAAP.
"CAPITALIZED LEASE OBLIGATION" shall mean that portion of any obligation of
a Person as lessee under a lease which is required to be capitalized on the
balance sheet of such lessee in accordance with GAAP.
"CASH INTEREST EXPENSE" shall mean, for any period, for the Borrower and
its Subsidiaries, on a consolidated basis, cash interest paid or accrued in
respect of Total Debt, together with fees paid or payable during such period and
associated therewith, all as determined in accordance with GAAP and shall also
include the interest component of payments for such period in respect of
Capitalized Lease Obligations.
"CELLNET" shall mean CellNet Data Systems, Inc., a Delaware corporation.
"CELLNET SUBORDINATED DEBT" shall mean unsecured, subordinated debt issued
by the Borrower in favor of CellNet having a maturity date not earlier than
December 31, 2008 and having subordination provisions reviewed by and approved
by the Majority Lenders, which are contained in the Subordination Agreement, and
which provisions, among other things, (a) shall not include any cross-default
with respect to a Default or an Event of Default under this Agreement, and (b)
shall include, without limitation, (i) a prohibition on interest or fee
payments, scheduled amortization or voluntary prepayments prior to repayment, in
full, of all Obligations hereunder, except to the extent specifically permitted
in this Agreement, (ii) a prohibition on the exercise of any remedies prior to
repayment, in full, of all Obligations hereunder, and (iii) a requirement that
the Administrative Agent have all voting rights otherwise exercisable by CellNet
during any bankruptcy proceedings.
"CERTIFICATE OF FINANCIAL CONDITION" shall mean a certificate,
substantially in the form of EXHIBIT E attached hereto, signed by the chief
financial officer of the Borrower, together with any schedules, exhibits or
annexes appended thereto.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" shall mean any property of any kind provided as collateral for
the Obligations under any of the Security Documents.
"COMMITMENT" shall mean the several obligations of the Lenders to advance
the sum of up to $15,000,000 to the Borrower on or after the Agreement Date, in
accordance with their respective Commitment Ratios, as provided under the terms
and conditions of this Agreement and as such amount may be reduced from time to
time in accordance with the provisions of this Agreement.
"COMMITMENT RATIOS" shall mean the percentages in which the Lenders are
severally bound to make Advances to the Borrower under the Commitment, which are
set forth (together with dollar amounts) on SCHEDULE 1 attached hereto as of the
Agreement Date.
"COMMUNICATIONS ACT" shall mean the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"DEBT SERVICE" shall mean, for any period, the amount of Cash Interest
Expense, together with scheduled principal repayments (excluding any repayments
made or required to be made in accordance with Section 2.8 hereof) in respect of
Indebtedness for Money Borrowed, of the Borrower and its Subsidiaries on a
consolidated basis. For purposes of this definition,
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"principal" shall include the principal component of payments for such period
in respect of Capitalized Lease Obligations.
"DEFAULT" shall mean any Event of Default, and any of the events specified
in Section 8.1, regardless of whether there shall have occurred any passage of
time or giving of notice, or both, that would be necessary in order to
constitute such event an Event of Default.
"DEFAULT RATE" shall mean a simple per annum interest rate equal to, (a)
with respect to the outstanding principal, the sum of the otherwise applicable
Interest Rate Basis plus two percent (2%), and (b) with respect to all other
Obligations, the Base Rate Basis plus two percent (2%).
"DOLLARS" or "$" shall mean the basic unit of the lawful currency of the
United States of America.
"ENVIRONMENTAL LAWS" shall mean, with respect to any Person, all applicable
federal, state and local laws, statutes, rules, regulations and ordinances,
codes, common law, consent agreements to which such Person is a party or by
which it is bound, orders, decrees, judgments and injunctions issued,
promulgated, approved or entered thereunder affecting such Person or its
property and relating to public health, safety or the pollution or protection of
the environment, including, without limitation, those relating to releases,
discharges, emissions, spills, leaching, or disposals to, on, or in air, water,
land or ground water, to the withdrawal or use of ground water, to the use,
handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited, or regulated substances,
including, without limitation, any such provisions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 et seq.).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA AFFILIATE" shall mean any Person, including a Subsidiary or an
Affiliate of the Borrower, that is a member of any group of organizations
(within the meaning of Code Sections 414(b), 414(c), 414(m), or 414(o)) of which
the Borrower is a member.
"EURODOLLAR ADVANCE" shall mean an Advance which the Borrower requests to
be made as a Eurodollar Advance or which is reborrowed as a Eurodollar Advance,
and which bears interest at the Eurodollar Basis, in accordance with the
provisions of Section 2.2 hereof, and which shall be in a principal amount of at
least $2,500,000 and in an integral multiple of $500,000.
"EURODOLLAR BASIS" shall mean a simple per annum interest rate equal to the
sum of (a) the quotient of (i) the Eurodollar Rate divided by (ii) one minus the
Eurodollar Reserve Percentage, stated as a decimal, plus (b) the Applicable
Margin. The Eurodollar Basis shall apply to Interest Periods of one (1), two
(2), three (3), and six (6) months, and, once determined, shall remain unchanged
during the applicable Interest Period, except for changes to reflect adjustments
in the Eurodollar Reserve Percentage and the Applicable Margin pursuant to
Section 2.3(f) hereof.
"EURODOLLAR RATE" shall mean, for any Interest Period, the interest rate
per annum (rounded upward to the nearest one-sixteenth of one percent (1/16%))
which appears on Telerate Page 3750 as of 11:00 a.m. (London time), or, if
unavailable, any generally accepted successor rate selected by the
Administrative Agent, two (2) Business Days before the first day of such
Interest
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Period, in an amount approximately equal to the principal amount of, and for
a length of time approximately equal to the Interest Period for, the
Eurodollar Advance sought by the Borrower.
"EURODOLLAR RESERVE PERCENTAGE" shall mean the percentage which is in
effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the maximum reserve requirement applicable with respect to Eurocurrency
liabilities (as that term is defined in Regulation D), whether or not any Lender
has any such Eurocurrency liabilities subject to such reserve requirement at
that time. The Eurodollar Basis for any Eurodollar Advance shall be adjusted as
of the effective date of any change in the Eurodollar Reserve Percentage.
"EVENT OF DEFAULT" shall mean any of the events specified in Section 8.1,
provided that any requirement for notice or lapse of time or both has been
satisfied.
"EXCESS CASH FLOW" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis, as of the end of any period of four
consecutive fiscal quarters of the Borrower and based on the financial
statements required to be provided under Section 6.2 hereof, the remainder of
(a) Operating Cash Flow for such fiscal period minus (b) the sum of the
following items for such fiscal period: (i) Capital Expenditures; (ii) cash
income taxes paid; (iii) Debt Service; and (iv) permanent prepayments of the
Loans (accompanied by permanent reduction of the Commitment) pursuant to
Section 2.6 hereunder.
"EXCESS CASH FLOW COMMENCEMENT DATE" shall mean the last day of the fourth
fiscal quarter ending after the Implementation Phase.
"FCC" shall mean the Federal Communications Commission, or any other
similar or successor agency of the federal government administering the
Communications Act.
"FEDERAL FUNDS RATE" shall mean, as of any date, the weighted average of
the rates on overnight federal funds transactions with the members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent or its Affiliate from
three (3) federal funds brokers of recognized standing selected by the
Administrative Agent or its Affiliate.
"FEE LETTERS" shall mean those certain agreements dated as of the Agreement
Date setting forth the applicable fees to be paid by the Borrower to the other
parties to this Agreement in connection with the Loans and Commitment created
hereunder.
"GAAP" shall mean generally accepted accounting principles in the United
States, consistently applied.
"GUARANTY" or "GUARANTEED," as applied to an obligation, shall mean and
include (a) a guaranty, direct or indirect, in any manner, of all or any part of
such obligation, and (b) any agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to drawn or undrawn letters of credit.
"GUARANTYING SUBSIDIARY" means any Subsidiary of the Borrower which may
issue guaranties of the Obligations hereunder without conflicting with the terms
of the Indenture.
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"GUARANTYING SUBSIDIARY SECURITY AGREEMENT" shall mean that certain
Guarantying Subsidiary Security Agreement of even date, between each of the
Borrower's Guarantying Subsidiaries, on the one hand, and the Administrative
Agent, on the other hand, substantially in the form of EXHIBIT M-1 attached
hereto, and shall include any supplement thereto executed by any such new
Guarantying Subsidiary.
"HAZARDOUS MATERIALS" shall mean any and all hazardous or toxic substances,
materials, or wastes, as defined or listed in Environmental Laws.
"IMPLEMENTATION PHASE" shall mean the period during which the Borrower and
CellNet are engaged in the design and construction of a wireless data
transmission system for KCPL, which period shall be deemed to end for purposes
of this Agreement on December 31, 1999.
"INDEBTEDNESS" shall mean, with respect to any Person, and without
duplication, (a) all Indebtedness for Money Borrowed and all other items, except
items of partners' equity or capital stock or surplus or general contingency or
deferred tax reserves, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person, including, without limitation, secured non-recourse obligations
of such Person, valued at the lesser of the fair market value of the property
subject to the secured obligation or the amount of the Indebtedness so secured,
(b) all direct or indirect obligations of any other Person secured by any Lien
to which any property or asset owned by such Person is subject, but only to the
extent of the lower of (i) the face amount of such obligations or (ii) the
higher of the fair market value or the book value of the property or asset
subject to such Lien if the obligation secured thereby shall not have been
assumed, (c) all obligations of such Person with respect to leases constituting
part of a sale and lease-back arrangement, and (d) all reimbursement obligations
with respect to drawn or undrawn letters of credit; provided, however,
"Indebtedness" shall not include obligations of the Borrower or any Subsidiary
to the Borrower or any other Subsidiary.
"INDEBTEDNESS FOR MONEY BORROWED" shall mean, with respect to any Person,
Indebtedness for money borrowed and Indebtedness represented by notes payable
and drafts accepted representing extensions of credit, all obligations evidenced
by bonds, debentures, notes or other similar instruments, all Indebtedness upon
which interest charges are customarily paid, all Capitalized Lease Obligations,
all reimbursement obligations with respect to drawn and undrawn letters of
credit, all Indebtedness issued or assumed as full or partial payment for
property or services (other than trade payables arising in the ordinary course
of business, but only if and so long as such accounts are payable on customary
trade terms), whether or not any such notes, drafts, obligations or Indebtedness
represent Indebtedness for money borrowed, and, without duplication, Guaranties
of any of the foregoing, valued at the lesser of the face amount of the Guaranty
or the principal amount of the Indebtedness guaranteed. For purposes of this
definition, interest which is accrued but not paid on the scheduled due date for
such interest shall be deemed Indebtedness for Money Borrowed.
"INDEMNITEE" shall have the meaning ascribed to it in Section 5.11 hereof.
"INDENTURE" means the Indenture dated as of June 15, 1995, as supplemented
through the date of this Agreement and as further supplemented from time to
time, by and between CellNet and The Bank of New York, as trustee, provided such
supplements are no more restrictive upon the Guarantying Subsidiaries than the
Indenture in effect on the Agreement Date.
"INSTALLED METER" shall mean any device for measuring and recording the
quantity or rate of flow of electricity or gas which has been installed by the
Borrower pursuant to the terms and conditions of the Utility Contract.
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"INTEREST HEDGE AGREEMENTS" shall mean any interest rate swap, cap, collar,
floor, caption or option agreements, or any similar arrangements designed to
hedge the risk of variable interest rate volatility or to reduce interest costs,
arising at any time between the Borrower, on the one hand, and any one or more
of the Lenders, or any other Person (other than an Affiliate of the Borrower),
on the other hand, as such agreement or arrangement may be modified,
supplemented and in effect from time to time.
"INTEREST PERIOD" shall mean (a) in connection with any Base Rate Advance,
the period beginning on the date such Advance is made and ending on the last
Business Day of the calendar quarter in which such Advance is made, provided,
however, that if a Base Rate Advance is made on the last day of any calendar
quarter, it shall have an Interest Period ending on, and its Payment Date shall
be, the last day of the following calendar quarter, and (b) in connection with
any Eurodollar Advance, the term of such Advance selected by the Borrower or
otherwise determined in accordance with this Agreement. Notwithstanding the
foregoing, however, (i) any applicable Interest Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Advances only, such Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding Business Day, (ii) any applicable Interest Period, with
respect to Eurodollar Advances only, which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall (subject to clause (i) above) end on the last day of such
calendar month, and (iii) no Interest Period shall extend beyond the Maturity
Date or such earlier date as would interfere with the Borrower's repayment
obligations hereunder. Interest shall be due and payable with respect to any
Advance as provided in Section 2.3 hereof.
"INTEREST RATE BASIS" shall mean the Base Rate Basis or the Eurodollar
Basis as appropriate.
"INVESTMENT" shall mean, with respect to any Person, any loan, advance or
extension of credit (other than to customers in the ordinary course of business)
by such Person to, or any Guaranty or other contingent liability with respect to
the capital stock, Indebtedness or other obligations of, or any contributions to
the capital of, any other Person, or any ownership, purchase or other
acquisition by such Person of any interest in any capital stock, limited
partnership interest, general partnership interest, or other securities of any
such other Person, other than an Acquisition. "INVESTMENT" shall also include
the total cost of any future commitment or other obligation binding on any
Person to make an Investment or any subsequent Investment.
"IOA" shall mean any Interim Operations Authorization issued to the
Borrower or any of its Subsidiaries by the FCC, listed as of the Agreement Date
on SCHEDULE 2 hereto.
"KCPL" shall mean Kansas City Power & Light Company, a Missouri
corporation.
"KCPL CONTRACT" shall mean that certain Services Agreement dated as of
August 5, 1994, between the Borrower and KCPL, as same may be amended,
supplemented or otherwise modified from time to time.
"LENDERS" shall mean the financial institutions whose names appear as
"Lenders" on the signature pages hereof and any other Person which becomes a
"Lender" hereunder after the Agreement Date; and "Lender" shall mean any one of
the foregoing Lenders.
"LEVERAGE RATIO" shall mean, as of any calculation date, the ratio of Total
Debt to Annualized Operating Cash Flow.
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"LICENSES" shall mean any radio, cellular, microwave, paging or wireless
communications service license, or any other license, authorization, certificate
of compliance, franchise, approval or permit, other than any IOA, for the
construction or the operation of any System of the Borrower, granted or issued
by the FCC and held by the Borrower or any of its Subsidiaries, or by any Person
in which the Borrower or any of its Subsidiaries has an Investment, all of which
are listed (together with IOAs so designated) as of the Agreement Date on
SCHEDULE 2 hereto. "LICENSES" shall also include the rights, under Applicable
Law, of the Borrower to use otherwise unlicensed spectrum as used by the
Borrower in the ordinary course of business as of the Agreement Date.
"LIEN" shall mean, with respect to any property, any mortgage, lien,
pledge, negative pledge or other agreement not to pledge, assignment, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other similar encumbrance of any kind in respect of
such property, whether created by statute, contract, the common law or
otherwise, and whether or not choate, vested or perfected.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Documents, the Subordination Agreement, the Fee Letters, all Requests for
Advance, all Interest Hedge Agreements between the Borrower, on the one hand,
and the Administrative Agent and the Lenders, or any of them, on the other hand,
and all other instruments and agreements executed or delivered in connection
with or contemplated by this Agreement.
"LOANS" shall mean, collectively, the amounts advanced from time to time by
the Lenders under this Agreement, not to exceed in aggregate principal amount
the amount of the Commitment, and evidenced by the Notes.
"MAJORITY LENDERS" shall mean (i) at any time that there exists no
Default hereunder, Lenders the total of whose Commitment Ratios equals or
exceeds fifty-one percent (51%), or (ii) at any time that there exists a
Default hereunder, Lenders the total of whose Loans outstanding equals or
exceeds fifty-one percent (51%) of the total principal amount of the Loans
then outstanding hereunder.
"MATERIALLY ADVERSE EFFECT" shall mean (i) any material adverse effect upon
the business, assets, liabilities, financial condition, results of operations or
properties of the Borrower and its Subsidiaries taken as a whole, or (ii) any
adverse effect upon the binding nature, validity, or enforceability of this
Agreement or the Notes, or upon the rights, benefits or interests of the Lenders
in and to the Loans or the rights of the Administrative Agent and the Lenders in
the Collateral, or (iii) any material and adverse effect upon the ability of the
Borrower and its Subsidiaries taken as a whole to perform the payment
obligations or other obligations under this Agreement or any other Loan
Document, or upon the value of the Collateral; in any such case, whether
resulting from any single act, omission, situation, status, event or
undertaking, or taken together with other such acts, omissions, situations,
statuses, events or undertakings.
"MATURITY DATE" shall mean the earlier of (a) December 31, 2007, or (b)
such earlier date on which the payment of all outstanding Obligations shall be
due (whether by acceleration or otherwise).
"MORTGAGE" shall mean any mortgage, deed to secure debt, deed of trust, or
other instrument encumbering or transferring title (in fee simple or leasehold)
to real property, in form and substance satisfactory to the Administrative
Agent, by which the Borrower or any Subsidiary grants a mortgage to the
Administrative Agent, as agent for the Lenders, or by which any Subsidiary
grants a mortgage to the Borrower which the Borrower collaterally assigns to the
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Administrative Agent, as agent for the Lenders, on Property owned or leased by
the Borrower or any Subsidiary to secure repayment of the Obligations.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 4001(a)(3)
of ERISA.
"NECESSARY AUTHORIZATIONS" shall mean all approvals and licenses from, and
all filings and registrations with, any governmental or other regulatory
authority, including, without limiting the foregoing, the Licenses and all
grants, approvals, licenses, filings and registrations under the Communications
Act, necessary in order to enable the Borrower or any of its Subsidiaries to
own, construct, maintain and operate its Systems and to make and hold
Investments in other Persons who own, construct, maintain, and operate Systems.
"NET INCOME" shall mean, for the Borrower and its Subsidiaries on a
consolidated basis, for any period, net income determined in accordance with
GAAP.
"NET PROCEEDS" shall mean, with respect to any Permitted Asset Sale, lease,
transfer or other disposition of assets by the Borrower or any of its
Subsidiaries, the aggregate amount of cash received for such assets (including,
without limitation, any payments received for non-competition covenants,
consulting or management fees, and any portion of the amount received evidenced
by a buyer promissory note or other evidence of Indebtedness), net of reasonable
and customary transaction costs properly attributable to such transaction and
payable by the Borrower or any of its Subsidiaries (other than to an Affiliate)
in connection with such sale, lease, transfer or other disposition of assets.
"NON-GUARANTYING SUBSIDIARY" shall mean any Subsidiary of the Borrower
which is not a Guarantying Subsidiary.
"NON-GUARANTYING SUBSIDIARY SECURITY AGREEMENT" shall mean that certain
Non-Guarantying Subsidiary Security Agreement of even date, between each of the
Borrower's Non-Guarantying Subsidiary, on the one hand, and the Borrower, on the
other hand, substantially in the form of Exhibit M-2 attached hereto, and shall
include any supplement thereto executed by any such new Non-Guarantying
Subsidiary.
"NOTES" shall mean those certain promissory notes in the aggregate original
principal amount of $15,000,000, one issued by the Borrower to each of the
Lenders, each one substantially in the form of EXHIBIT F attached hereto, and
any extensions, modifications, renewals or replacements of or amendments to any
of the foregoing.
"OBLIGATIONS" shall mean (i) all payment and performance obligations of
every kind, nature and description of the Borrower, its Subsidiaries, and any
other obligors to the Lenders, the Administrative Agent, or any of them, under
this Agreement and the other Loan Documents (including any interest, fees and
other charges on the Loans or otherwise under the Loan Documents that would
accrue but for the filing of a bankruptcy action with respect to the Borrower,
any such Subsidiary, or any such other obligor, whether or not such claim is
allowed in such bankruptcy action), as they may be amended from time to time, or
as a result of making the Loans, whether such obligations are direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now
existing or hereafter arising, and (ii) the obligation to pay an amount equal to
the amount of any and all damage which the Lenders, the Administrative Agent, or
any of them, may suffer by reason of a breach by the Borrower, any of its
Subsidiaries, or any other obligor, of any obligation, covenant or undertaking
with respect to this Agreement or any other Loan Document.
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"OPERATING CASH FLOW" shall mean, for any fiscal quarter, for the
Borrower and its Subsidiaries on a consolidated basis, Net Income for such
quarter (after eliminating any extraordinary gains and losses, including
gains and losses from the sale of assets, and minority interests, and equity
in earnings (losses) of non-consolidated entities), plus, to the extent
deducted or accrued in determining Net Income, the sum of each of the
following for such quarter: (i) depreciation, amortization, and other
non-cash charges, (ii) income tax expense, including reserves for deferred
items not paid during such quarter, (iii) interest expense, (iv) transaction
costs associated with entering into the Loan Documents on the Agreement Date,
and (v) transaction costs associated with any Permitted Asset Sale or any
Acquisition permitted by Section 7.4(a) or Section 7.6 hereunder; PROVIDED,
HOWEVER, for the fiscal quarter ending September 30, 1998, Net Income
hereunder shall exclude up to $700,000 of one-time property tax adjustments.
"PAYMENT DATE" shall mean the last day of any Interest Period.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PERFORMANCE CERTIFICATE" shall mean a certificate of an Authorized
Signatory of the Borrower as to its financial performance, in substantially the
form attached hereto as EXHIBIT G.
"PERFORMANCE TESTS" shall mean the financial covenants set forth in Section
7.8 and 7.9 hereof.
"PERMITTED ASSET SALE" shall mean the sale by the Borrower or any of its
Subsidiaries of its or their assets as and to the extent permitted under Section
7.4(a) hereof.
"PERMITTED DEBT" shall mean Indebtedness for Money Borrowed permitted to be
incurred and to remain outstanding by the Borrower and its Subsidiaries,
pursuant to Section 7.1 hereof.
"PERMITTED INVESTMENTS" shall mean Investments described in and permitted
to be made under Section 7.6 hereof.
"PERMITTED LIENS" shall mean, as applied to any Person:
(a) Any Lien in favor of the Administrative Agent (for itself and for
the ratable benefit of the Lenders) given to secure the Obligations;
(b) (i) Liens on real estate for real estate taxes not yet delinquent
and (ii) Liens for taxes, assessments, judgments (to the extent payment in full
(subject to a customary deductible) is not covered by insurance maintained with
responsible insurance companies), governmental charges or levies or claims the
non-payment of which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside on such Person's
books, but only so long as no foreclosure, distraint, sale or similar
proceedings have been commenced with respect thereto and remain unstayed for a
period of thirty (30) days after their commencement;
(c) Liens of landlords, carriers, warehousemen, mechanics, laborers
and materialmen incurred in the ordinary course of business for sums not yet due
or being diligently contested in good faith, if reserves or appropriate
provisions shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation and unemployment insurance;
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(e) Restrictions on the transfer of assets imposed by any of the
Licenses as now in effect or by the Communications Act, any state laws, and any
rules and regulations thereunder;
(f) Easements, rights-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person, or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness or other extensions of
credit and which do not in the aggregate materially detract from the value of
such properties or materially impair their use in the operation of the business
of such Person;
(g) Purchase money security interests, which (i) are perfected
automatically by operation of law, only for the period and limited to Liens on
assets so purchased (and directly-related assets, including proceeds,
replacements and products thereof and accessions and modifications thereto), or
(ii) are permitted pursuant to Section 7.1(d) hereof;
(h) Liens reflected by Uniform Commercial Code financing statements
filed in respect of Capitalized Lease Obligations permitted hereunder and true
leases or other precautionary or notice filings securing obligations not
otherwise constituting Indebtedness;
(i) Leases or subleases and licenses granted to others in the
ordinary course of business, not interfering in any material respect with the
business of the Borrower and its Subsidiaries taken as a whole, and any interest
or title of a lessor, licensor or under any lease or license;
(j) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by the Borrower or
any Subsidiary (including Liens on assets of any corporation that existed at the
time it became or becomes a Subsidiary); provided, that such Liens are not
granted in contemplation of or in connection with the acquisition of such assets
by the Borrower and that the Indebtedness secured by such Lien is permitted
hereunder;
(k) Liens consisting of rights of set-off of a customary nature or
bankers' liens on amounts on deposit, whether arising by contract or operation
of law, incurred in the ordinary course of business; and
(l) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by the Liens of the type described in
clauses (a), (g), (j) and (l); provided, that any extension, renewal or
replacement Lien shall be limited to the Property or asset encumbered by the
existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase.
"PERSON" shall mean an individual, corporation, limited liability company,
association, partnership, joint venture, trust or estate, an unincorporated
organization, a government or any agency or political subdivision thereof, or
any other entity.
"PLAN" shall mean, with respect to any Person, an employee benefit plan
within the meaning of Section 3(3) of ERISA or any other employee benefit plan
maintained for employees of such Person.
"PRO FORMA DEBT SERVICE" shall mean projected Debt Service for the Borrower
and its Subsidiaries on a consolidated basis with respect to the next succeeding
fiscal four-quarter period following the calculation date, and after giving
effect to any Interest Hedge Agreements and all Eurodollar Advances. For
purposes of this definition, (i) it shall be assumed that the principal
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amount of Indebtedness for Money Borrowed with respect to which Debt Service
is being calculated shall begin at the level outstanding on the calculation
date and be adjusted to reflect projected borrowings and repayments as
indicated by the Borrower's annual budget required to be delivered pursuant
to Section 6.4(e) hereof, and (ii) where interest payments on Indebtedness
for Money Borrowed for the fiscal four-quarter period immediately succeeding
the calculation date are not fixed by way of Interest Hedge Agreements for
the entire period, interest shall be calculated on such Indebtedness for
Money Borrowed for periods for which interest payments are not so fixed at
the lower of (y) the Base Rate Basis on the calculation date, or (z) the
Eurodollar Basis which would be in effect on the calculation date for a
Eurodollar Advance having a six-month Interest Period.
"PROPERTY" shall mean any real property or personal property, plant,
building, facility, structure, underground storage tank or unit, equipment,
inventory or other asset owned, leased or operated by Borrower or any Subsidiary
(including, without limitation, any surface water thereon or adjacent thereto,
and soil and groundwater thereunder).
"REMAINING EXCESS CASH FLOW" shall have the meaning set forth in Section
7.7(a) hereof.
"REPORTABLE EVENT" shall have the meaning set forth in Title IV of ERISA.
"REQUEST FOR ADVANCE" shall mean a certificate designated as a "Request for
Advance," signed by an Authorized Signatory requesting an Advance hereunder,
which shall be in substantially the form of EXHIBIT H attached hereto and shall,
among other things, (i) specify the date of the Advance, which shall be a
Business Day, the amount of the Advance, the type of Advance, and, with respect
to a Eurodollar Advance, the Interest Period selected by the Borrower, (ii)
state that there shall not exist, on the date of the requested Advance both
before and after giving effect thereto, a Default, and (iii) as to an Advance
which will increase the principal amount of the Loans then outstanding, specify
the use of the proceeds of the Advance being requested.
"RESTRICTED PAYMENT" shall mean (i) any direct or indirect distribution,
dividend or other cash payment by the Borrower or any of its Subsidiaries to any
Person (other than to the Borrower or any other Subsidiary of the Borrower) on
account of any general or limited partnership interest in, or ownership of any
shares of capital stock or other equity securities of, the Borrower or any of
its Subsidiaries; (ii) any payment in respect of CellNet Subordinated Debt; or
(iii) any payment by the Borrower or any of its Subsidiaries to a Person other
than the Borrower or any of its Subsidiaries under any management or consulting
agreement or other similar agreement or arrangement not entered into in the
ordinary course of business.
"RESTRICTED PURCHASE" shall mean any payment by the Borrower or any of its
Subsidiaries on account of the purchase, redemption or other acquisition or
retirement of any general or limited partnership interest in, or shares of
capital stock or other securities of, the Borrower or any of the Borrower's
Subsidiaries including, without limitation, any warrants or other rights or
options to acquire shares of capital stock or partnership interests of the
Borrower or any of the Borrower's Subsidiaries.
"SECURITY AGREEMENT" shall mean that certain Security Agreement of even
date between the Borrower and the Administrative Agent, substantially in the
form of EXHIBIT I attached hereto.
"SECURITY DOCUMENTS" shall mean the Borrower's Pledge Agreement, any
Subsidiary Pledge Agreement, the Security Agreement, any Guarantying Subsidiary
Security Agreement, any Non-Guarantying Subsidiary Security Agreement any
Subsidiary Guaranty, any Mortgage, the Assignment of Utility Contract, any other
agreement or instrument providing collateral for the
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<PAGE>
Obligations whether now or hereafter in existence, and any filings,
instruments, agreements, and documents related thereto or to this Agreement,
and providing the Administrative Agent, for itself and for the ratable
benefit of the Lenders, with Collateral for the Obligations.
"SECURITY INTEREST" shall mean all Liens in favor of the Administrative
Agent, for itself and for the ratable benefit of the Lenders, created hereunder
or under any of the Security Documents to secure the Obligations.
"SUBORDINATION AGREEMENT" shall mean that certain Subordination Agreement
of even date among the Borrower, CellNet and the Administrative Agent, providing
for the subordination of the CellNet Subordinated Debt to the Obligations, in
substantially the form of EXHIBIT J attached hereto.
"SUBSIDIARY" shall mean, as applied to any Person, (a) any corporation of
which more than fifty percent (50%) of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such voting
power by reason of the happening of any contingency, or any partnership of which
more than fifty percent (50%) of the outstanding partnership interests, is at
the time owned directly or indirectly by such Person, or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries of
such Person, or (b) any other entity which is directly or indirectly controlled,
or capable of being controlled through special or other voting rights, by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person. "Subsidiaries" as used herein, unless
otherwise indicated, shall mean all Subsidiaries of the Borrower. The
Subsidiaries of the Borrower as of the Agreement Date are set forth on
SCHEDULE 3 attached hereto.
"SUBSIDIARY GUARANTY" shall mean that certain Subsidiary Guaranty of even
date between each Guarantying Subsidiary of the Borrower, on the one hand, and
the Administrative Agent, on the other hand, substantially in the form of
EXHIBIT K attached hereto, and shall include any supplement thereto executed by
any such new Guarantying Subsidiary.
"SUBSIDIARY PLEDGE AGREEMENT" shall mean any Subsidiary Pledge Agreement
between any Guarantying Subsidiary of the Borrower having one or more of its own
corporate Subsidiaries, on the one hand, and the Administrative Agent, on the
other hand, substantially in the form of EXHIBIT L attached hereto, and shall
include any supplement thereto executed by any such new Guarantying Subsidiary
having one or more of its own corporate Subsidiaries.
"SYSTEM" shall mean the wireless data transmission systems designed, built
and operated by the Borrower.
"TOTAL DEBT" shall mean, for the Borrower and the Subsidiaries of the
Borrower on a consolidated basis, as of any calculation date, and without
duplication, the sum of (a) the principal amount of the Loans outstanding, and
(b) the aggregate principal amount of all other Indebtedness for Money Borrowed
other than CellNet Subordinated Debt.
"USE OF PROCEEDS LETTER" shall mean that certain Use of Proceeds Letter,
substantially in the form of EXHIBIT N attached hereto, delivered to the
Administrative Agent and the Lenders on the Agreement Date pursuant to Article 3
hereof.
"UTILITY CONTRACT" shall mean the KCPL Contract.
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<PAGE>
"YEAR 2000 PROBLEM" shall mean the risk that computer hardware or computer
applications used by the Borrower or any of its Subsidiaries (or their
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates on or prior to and any
date after December 31, 1999.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Each definition of an agreement or instrument in this Article 1 shall
include such agreement or instrument as amended from time to time in accordance
herewith.
ARTICLE 2
LOANS
Section 2.1 THE LOANS. The Lenders agree, severally in accordance with
their respective Commitment Ratios and not jointly, upon the terms and subject
to the conditions of this Agreement, to lend and re-lend to the Borrower, on and
after the Agreement Date, amounts requested by the Borrower which, in the
aggregate, do not exceed at any time the amount of the Commitment. Advances
under the Commitment may be repaid and reborrowed as provided in Section 2.2
hereof in order to reborrow Eurodollar Advances for new Interest Periods or to
otherwise effect changes in the Interest Rate Bases applicable to the Advances
hereunder. Any unpaid principal and interest of the Loans and any other
outstanding Obligations shall be due and payable in full on the Maturity Date.
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT.
(a) CHOICE OF INTEREST RATE. Any Advance under the Commitment shall, at
the option of the Borrower, be made as a Base Rate Advance or a Eurodollar
Advance; provided, however, that at such time as there shall have occurred and
be continuing a Default hereunder, the Borrower shall not have the right to
borrow or to re-borrow any Eurodollar Advances, and all subsequent Advances
shall be made as Base Rate Advances. Any notice given to the Administrative
Agent in connection with a requested Advance hereunder shall be given to the
Administrative Agent prior to 11:00 a.m. (Houston time) in order for such
Business Day to count toward the minimum number of Business Days required.
(b) BASE RATE ADVANCES.
(i) INITIAL ADVANCES. The Borrower shall give the Administrative
Agent in the case of Base Rate Advances at least one (1) Business Day's
irrevocable prior written notice in the form of a Request for Advance, or
telephonic notice followed immediately by a Request for Advance; provided,
however, that the Borrower's failure to confirm any telephonic notice with
a Request for Advance shall not invalidate any notice so given.
(ii) PREPAYMENTS AND CONVERSIONS. Upon at least one (1), with respect
to item (B) of this sentence, or three (3), with respect to item (A) of
this sentence, Business Days' irrevocable prior written notice (or
telephonic notice followed immediately by written notice) to the
Administrative Agent, and subject to the provisions of Section 2.2(c)(iii),
the Borrower may (A) convert all or a portion of the principal of a Base
Rate Advance to one or more Eurodollar Advances, or (B) prepay all or any
portion of such Base Rate Advance. On the date indicated by the Borrower,
such Base Rate Advance shall be so repaid or, as applicable, converted.
Advances prepaid or repaid (and not converted or rolled over at such time)
under
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<PAGE>
the Commitment may be reborrowed and will not permanently reduce the
Commitment unless otherwise specified in accordance with Section 2.6
hereof.
(c) EURODOLLAR ADVANCES.
(i) INITIAL ADVANCES. The Borrower shall give the Administrative
Agent in the case of Eurodollar Advances at least three (3) Business Days'
irrevocable prior written notice in the form of a Request for Advance, or
telephonic notice followed immediately by a Request for Advance; provided,
however, that the Borrower's failure to confirm any telephonic notice with
a Request for Advance shall not invalidate any notice so given. The
Administrative Agent shall determine the available Eurodollar Bases and
shall notify the Borrower of such Eurodollar Bases. The Borrower shall
promptly notify the Administrative Agent by telephone or telecopy, and
shall immediately confirm any such telephonic notice in writing, of its
selection of a Eurodollar Basis and Interest Period for such Advance;
provided, however, that the Borrower's failure to confirm any such
telephonic notice in writing shall not invalidate any notice so given.
(ii) PREPAYMENTS AND CONVERSIONS. At least three (3) Business Days
prior to each Payment Date for a Eurodollar Advance, the Borrower shall
give the Administrative Agent written notice specifying whether all or a
portion of any Eurodollar Advance outstanding on the Payment Date (A) is to
be rolled over as another Eurodollar Advance, (B) is to be converted to a
Base Rate Advance, or (C) is to be repaid. Eurodollar Advances may be
prepaid prior to the applicable Payment Date upon at least three (3)
Business Days prior written notice (or telephonic notice followed
immediately by written notice) to the Administrative Agent as set forth in
Section 2.5 hereof. Upon such Payment Date such Eurodollar Advance will,
subject to the provisions hereof, be so rolled over, repaid or, as
applicable, converted. Advances prepaid or repaid (and not converted or
rolled over at such time) under the Commitment may be reborrowed and will
not permanently reduce the Commitment unless otherwise specified in
accordance with Section 2.6 hereof.
(iii) MAXIMUM EURODOLLAR ADVANCES. At no time may the number of
outstanding Eurodollar Advances exceed five (5).
(d) NOTIFICATION OF LENDERS. Upon receipt of a Request for Advance, or a
notice from the Borrower with respect to a selection of an Interest Period, or a
notice from the Borrower with respect to any outstanding Advance prior to the
Payment Date for such Advance, the Administrative Agent shall promptly notify
each Lender by telephone or telecopy of the contents thereof and the amount of
such Lender's portion of the Advance. Each Lender shall, not later than 1:30
p.m. (Houston time) on the date of borrowing specified in such notice, make
available to the Administrative Agent at the Administrative Agent's Office, or
at such account as the Administrative Agent shall designate, the amount of its
portion of any Advance which represents an additional borrowing hereunder in
immediately available funds.
(e) DISBURSEMENT.
(i) Prior to 3:00 p.m. (Houston time) on the date of an Advance
hereunder, the Administrative Agent shall, subject to the satisfaction of
the conditions set forth in Article 3 hereof, disburse the amounts made
available to it by the Lenders in like funds by (A) transferring the
amounts so made available by wire transfer pursuant to the Borrower's
instructions, or (B) in the absence of such instructions, crediting the
amounts so made available to the account of the Borrower maintained with
the Administrative Agent.
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<PAGE>
(ii) Unless the Administrative Agent shall have received notice from
a Lender prior to 2:00 p.m. (Houston time) on the date of any Advance that
such Lender will not make available to the Administrative Agent such
Lender's ratable portion of such Advance, the Administrative Agent may
assume that such Lender has made or will make such portion available to the
Administrative Agent on the date of such Advance and the Administrative
Agent may in its sole discretion and in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to
the extent the Lender does not make such ratable portion available to the
Administrative Agent, such Lender agrees to repay to the Administrative
Agent on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Administrative Agent, at the
Federal Funds Rate for the first three (3) days and thereafter at the
Federal Funds Rate plus one percent (1%).
(iii) If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Lender's
portion of the applicable Advance for purposes of this Agreement. If such
Lender does not repay such corresponding amount immediately upon the
Administrative Agent's demand therefor, the Administrative Agent shall
notify the Borrower and the Borrower shall immediately pay such
corresponding amount to the Administrative Agent, together with interest
thereon. The failure of any Lender to fund its portion of any Advance
shall not relieve any other Lender of its obligation hereunder to fund its
respective portion of the Advance on the date of such borrowing, but no
Lender shall be responsible for any such failure of any other Lender.
(iv) In the event that, at any time when the Borrower is not in
Default and has satisfied all applicable conditions set forth in Article 3
hereof, a Lender for any reason fails or refuses to fund its portion of an
Advance, then, until such time as such Lender has funded its portion of
such Advance, or all other Lenders have received payment in full (whether
by repayment or prepayment) of the principal and interest due in respect of
such Advance, such non-funding Lender shall not have the right (A) to vote
regarding any issue on which voting is required or advisable under this
Agreement or any other Loan Document and the amount of the Loan or
Commitment held by such Lender shall not be counted as outstanding for
purposes of determining "Majority Lenders" hereunder, and (B) to receive
payments of principal, interest or fees from the Borrower.
Section 2.3 INTEREST.
(a) ON BASE RATE ADVANCES. Interest on each Base Rate Advance shall be
computed on the basis of a year of 365/366 days for the actual number of days
elapsed and shall be payable at the Base Rate Basis for such Advance, in arrears
on the applicable Payment Date for the period through the date immediately
preceding such Payment Date. Interest on Base Rate Advances then outstanding
shall also be due and payable on the Maturity Date.
(b) ON EURODOLLAR ADVANCES. Interest on each Eurodollar Advance shall be
computed on the basis of a 360-day year for the actual number of days elapsed
and shall be payable at the Eurodollar Basis for such Advance, in arrears on the
applicable Payment Date for the period through the day immediately preceding
such Payment Date, and in addition, if the Interest Period for a Eurodollar
Advance exceeds three (3) months, interest on such Eurodollar Advance shall also
be due and payable in arrears on every three-month anniversary of the beginning
of such Interest Period. If a Eurodollar Advance or portion thereof is
terminated prior to the expiration of the applicable Interest Period, interest
on such Eurodollar Advance or portion thereof shall also be due and payable in
arrears on such termination date. Interest on Eurodollar Advances then
outstanding shall also be due and payable on the Maturity Date.
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<PAGE>
(c) INTEREST IF NO NOTICE OF SELECTION OF INTEREST RATE BASIS. If the
Borrower fails to give the Administrative Agent timely notice of its selection
of a Eurodollar Basis, or if for any reason the appropriate Eurodollar Basis for
any Advance is not determined, the Base Rate Basis shall apply to such Advance.
(d) INTEREST UPON DEFAULT. Immediately upon the occurrence of an Event of
Default hereunder, the outstanding principal balance of the Loans, together with
accrued and unpaid interest and all other unpaid sums, shall bear interest at
the Default Rate. Such interest shall be payable on demand and shall accrue
until the earlier of (i) cure or waiver in writing of the applicable Event of
Default in accordance with Section 11.12 hereof, or (ii) agreement by the
Majority Lenders to rescind the charging of interest at the Default Rate.
(e) COMPUTATION OF INTEREST. In computing interest on any Advance, the
date of making the Advance shall be included and the date of payment shall be
excluded; provided, however, that if an Advance is repaid on the date that it is
made, one (1) day's interest shall be due.
(f) APPLICABLE MARGIN.
(i) With respect to any Advance under the Commitment outstanding
during the Implementation Phase, the Applicable Margin shall be, as of any
calculation date, 1.625% with respect to Base Rate Advances and 2.625% with
respect to Eurodollar Advances.
(ii) With respect to any Advance under the Commitment outstanding
after the Implementation Phase, the Applicable Margin shall be, as of any
calculation date, the interest rate margin determined by the Administrative
Agent based upon the Leverage Ratio determined for the most recent fiscal
quarter end, effective as of the second Business Day after the financial
statements referred to in Section 6.1 hereof are delivered by the Borrower
to the Administrative Agent and each Lender for the fiscal quarter most
recently ended, expressed as a per annum rate of interest as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Then the Base Rate Advance And the Eurodollar Advance
If the Leverage Ratio is: Applicable Margin is: Applicable Margin is:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 7.00 1.500% 2.500%
- ----------------------------------------------------------------------------------------------------------
Greater than or equal to 6.00 but less than 7.00 1.375% 2.375%
- ----------------------------------------------------------------------------------------------------------
Greater than or equal to 5.00 but less than 6.00 1.125% 2.125%
- ----------------------------------------------------------------------------------------------------------
Greater than or equal to 4.00 but less than 5.00 0.875% 1.875%
- ----------------------------------------------------------------------------------------------------------
Greater than or equal to 3.00 but less than 4.00 0.500% 1.500%
- ----------------------------------------------------------------------------------------------------------
Less than 3.00 0.125% 1.125%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In the event that the Borrower fails to timely provide the financial statements
referred to above in accordance with the terms of Section 6.1 hereof or the
Performance Certificate referred to in Section 6.3 hereof, and without prejudice
to any additional rights under Section 2.3(d) or Section 8.2 hereof, until the
second Business Day after such financial statements are delivered,
17
<PAGE>
the Applicable Margin shall be 1.50% for Base Rate Advances and 2.50% for
Eurodollar Advances.
Section 2.4 FEES.
(a) FEES PAYABLE UNDER THE FEE LETTERS. The Borrower agrees to pay to the
Administrative Agent, for the benefit of the Administrative Agent and the
Lenders, as their respective interests may appear, such fees as are mutually
agreed upon and as are described in the Fee Letters.
(b) COMMITMENT FEE. In addition to the fees described in Section 2.4(a),
the Borrower agrees to pay to the Administrative Agent, for the benefit of each
of the Lenders in accordance with their respective Commitment Ratios, a
commitment fee on the aggregate unborrowed balance of the Commitment, for each
day from the Agreement Date until the Maturity Date, at a rate (i) during the
Implementation Phase, of 0.500% per annum, and (ii) after the Implementation
Phase, as determined by the Administrative Agent based upon the Leverage Ratio
determined for the most recent fiscal quarter end, payable as of the second
Business Day after the financial statements referred to in Section 6.1 hereof
are delivered by the Borrower to the Administrative Agent and each Lender for
the fiscal quarter most recently ended, and equal to (x) in the event the
Leverage Ratio shall be greater than or equal to 7.00:1, 0.500% per annum, and
(y) in the event the Leverage Ratio shall be less than 7.00:1, 0.375% per annum.
In the event that the Borrower fails to timely provide (A) the financial
statements referred to above in accordance with the terms of Section 6.1 hereof
or (B) the Performance Certificate referred to in Section 6.3 hereof, and
without prejudice to any additional rights under Section 2.3(d) or Section 8.2
hereof, the commitment fee shall be 0.500% per annum until the actual delivery
of such statements. Such commitment fee shall be computed on the basis of a
year of 365/366 days for the actual number of days elapsed, shall be payable
quarterly in arrears on the last Business Day of each calendar quarter
commencing on December 31, 1998 and on the Maturity Date, shall be fully earned
when due, and shall be non-refundable when paid.
Section 2.5 VOLUNTARY PREPAYMENT. The principal amount of any Base Rate
Advance may be prepaid in full or in part at any time upon one (1) Business
Days' prior written notice to the Administrative Agent, without penalty or
premium; and the principal amount of any Eurodollar Advance may be prepaid
without penalty or premium prior to the applicable Payment Date, upon three (3)
Business Days' prior written notice to the Administrative Agent, provided that
Borrower shall reimburse any Lender for any loss or reasonable out-of-pocket
expense incurred by such Lender in connection with such prepayment, as set forth
in Section 2.11 hereof. Each notice of prepayment shall be irrevocable. Upon
receipt of any notice of prepayment, the Administrative Agent shall promptly
notify each Lender of the contents thereof by telephone or telecopy and of such
Lender's portion of the prepayment. Prepayments of principal hereunder in
respect of Base Rate Advances, shall be in minimum amounts of $1,000,000 and
integral multiples of $250,000, and prepayments of principal hereunder in
respect of Eurodollar Advances shall be in minimum amounts of $1,000,000 and
integral multiples of $500,000. Advances prepaid pursuant to this Section 2.5
may be reborrowed.
Section 2.6 VOLUNTARY REDUCTION OF THE COMMITMENT. The Borrower shall
have the right, on three (3) Business Days' irrevocable notice to the
Administrative Agent, to cancel all or a portion of the Commitment, on a pro
rata basis among the Lenders, provided that (a) any such cancellation shall be
made in a principal amount of not less than $5,000,000, and in an integral
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<PAGE>
multiple of $1,000,000; (b) as of the effective date of such notice, the
Commitment shall be permanently reduced to the amount stated in the Borrower's
notice for all purposes herein; and (c) on or prior to the effective date of
such notice, the Borrower shall pay to the Administrative Agent for the benefit
of the Lenders the amount necessary to reduce the principal amount of the then
outstanding Loans to not more than the amount of the Commitment as so reduced,
together with the accrued interest on the amount so prepaid and the commitment
fee set forth in Section 2.4 accrued through the date of the reduction with
respect to the amount reduced, and shall reimburse the Administrative Agent and
the Lenders for any loss or reasonable out-of-pocket expense incurred by any of
them in connection with such payment, as set forth in Section 2.11. Each such
reduction shall permanently reduce the amount of the Commitment and shall reduce
the dollar amount of each subsequent scheduled quarterly Commitment reduction
under Section 2.7 hereof on a weighted pro rata basis.
Section 2.7 SCHEDULED REDUCTION OF COMMITMENT. The Commitment shall be
permanently reduced commencing on December 31, 2001 and at the end of each
calendar quarter thereafter, in quarterly installments, based upon the quarterly
commitment reductions as follows:
<TABLE>
<CAPTION>
CALENDAR QUARTERS ENDING Quarterly Commitment Reduction
------------------------ ------------------------------
<S> <C>
December 31, 2001 through September 30, 2003 $ 375,000
December 31, 2003 through September 30, 2005 $ 562,500
December 31, 2005 through September 30, 2006 $ 750,000
December 31, 2006 through September 30, 2007 $ 937,500
December 31, 2007 $ 750,000
</TABLE>
On the date of each such Commitment reduction, the Borrower shall pay to the
Administrative Agent for the benefit of the Lenders the amount necessary to
reduce the principal amount of the then outstanding Loans to not more than the
amount of the Commitment as so reduced, together with the accrued interest on
the amount so prepaid and the commitment fee set forth in Section 2.4 accrued
through the date of the reduction with respect to the amount reduced, and shall
reimburse the Administrative Agent and the Lenders for any loss or reasonable
out-of-pocket expense incurred by any of them in connection with such payment,
as set forth in Section 2.11.
Section 2.8 MANDATORY REDUCTION OF COMMITMENT. In addition to the
scheduled repayments and Commitment reductions provided for in Section 2.7
hereof, the Commitment shall be reduced and the Borrower shall, if required
pursuant to Section 2.8(c) hereof, prepay the Loans, without penalty or premium,
as follows:
(a) EXCESS CASH FLOW. On or prior to the 45th day after the end of each
fiscal quarter ending after the Excess Cash Flow Commencement Date, the
Commitment shall be reduced by an amount equal to twelve and one-half percent
(121/2%) of the Excess Cash Flow for the four fiscal quarter period most
recently ended.
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<PAGE>
(b) PERMITTED ASSET SALES. If the Borrower or any Subsidiary shall, to
the extent permitted hereunder, consummate any Permitted Asset Sale, the
Commitment shall be reduced by an amount equal to one hundred percent (100%) of
the Net Proceeds received by the Borrower or such Subsidiary, as the case may
be, from such Permitted Asset Sale on the date of receipt of the proceeds
thereof by the Borrower or such Subsidiary.
(c) APPLICATION. Mandatory reductions pursuant to this Section 2.8 shall
permanently reduce the Commitment, and shall reduce the dollar amount of each
subsequent scheduled quarterly Commitment reduction under Section 2.7 hereof.
As of the date of each reduction of the Commitment as set forth above, the
Borrower shall pay to the Administrative Agent for the benefit of the Lenders
the amount, if any, necessary to reduce the principal amount of the Loans then
outstanding to not more than the amount of the Commitment as so reduced,
together with accrued interest on the amount so prepaid and the commitment fee
set forth in Section 2.4 accrued through the date of the reduction with respect
to the amount reduced.
Section 2.9 NOTES; LOAN ACCOUNTS.
(a) The Loans shall be repayable in accordance with the terms and
provisions set forth herein and shall be evidenced by the Notes. One Note shall
be payable to the order of each Lender. The Notes shall be issued by the
Borrower to the Lenders and shall be duly executed and delivered by one or more
Authorized Signatories.
(b) Each Lender may open and maintain on its books in the name of the
Borrower a loan account with respect to such Lender's portion of the Loans and
interest thereon. Each Lender which opens such a loan account shall debit such
loan account for the principal amount of its portion of each Advance made and
accrued interest thereon and shall credit such loan account for each payment on
account of principal of or interest on its Loan. The records of a Lender with
respect to the loan account maintained by it shall be prima facie evidence of
the Loans and accrued interest thereon, absent manifest error, but the failure
of any Lender to make any such notations or any error or mistake in such
notations shall not affect the Borrower's repayment obligations with respect to
the Loans.
Section 2.10 MANNER OF PAYMENT.
(a) Each payment (including any prepayment) by the Borrower on account of
the principal of or interest on the Loans, commitment fees and any other amount
owed to the Lenders, the Administrative Agent or any of them under this
Agreement or the Notes shall be made not later than 2:00 p.m. (Houston time) on
the date specified for payment under this Agreement to the Administrative Agent
at the Administrative Agent's Office, for the account of the Lenders, or the
Administrative Agent, as the case may be, in Dollars in immediately available
funds. Any payment received by the Administrative Agent after 2:00 p.m.
(Houston time) shall be deemed received on the next Business Day. Receipt by
the Administrative Agent of any payment hereunder at or prior to 2:00 p.m.
(Houston time) on any Business Day shall be deemed to constitute receipt on such
Business Day. In the case of a payment for the account of a Lender, the
Administrative Agent will promptly thereafter (and, if such amount is received
before 2:00 p.m. (Houston time), on the same day) distribute the amount so
received in like funds to such Lender. If the Administrative Agent shall not
have received any payment from the Borrower as and when due, the Administrative
Agent will promptly notify the Lenders accordingly.
20
<PAGE>
(b) The Borrower agrees to pay principal, interest, fees and all other
Obligations due hereunder, under the Fee Letters, under the Notes, or under the
other Loan Documents without set-off or counterclaim or any deduction
whatsoever.
(c) Prior to the acceleration of the Loans under Section 8.2 hereof, if
some but less than all amounts due from the Borrower are received by the
Administrative Agent with respect to the Obligations, the Administrative Agent
shall distribute such amounts in the following order of priority, all on a pro
rata basis to the Lenders where applicable: (i) to the payment on a pro rata
basis of any fees or expenses then due and payable to the Administrative Agent,
the Lenders, or any of them; (ii) to the payment of interest then due and
payable on the Loans; (iii) to the payment of all other amounts not otherwise
referred to in this Section 2.10(c) then due and payable to the Administrative
Agent or the Lenders, or any of them, hereunder or under the Notes; and (iv) to
the payment of principal then due and payable on the Notes.
(d) Subject to any contrary provisions in the definition of Interest
Period, if any payment under this Agreement or any of the other Loan Documents
is specified to be made on a day which is not a Business Day, it shall be made
on the next Business Day, and such extension of time shall in such case be
included in computing interest and fees, if any, in connection with such
payment.
Section 2.11 REIMBURSEMENT.
(a) Whenever any Lender shall sustain or incur any losses or out-of-pocket
expenses, as described in Section 2.11(b), in connection with (i) failure by the
Borrower to borrow any Eurodollar Advance after having given notice of its
intention to borrow in accordance with Section 2.2 hereof (whether by reason of
the Borrower's election not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3), or (ii) prepayment of any Eurodollar Advance
in whole or in part for any reason (except for reasons contemplated by Section
10.2 hereof which are applicable only to a single Lender), the Borrower agrees
to pay to such Lender, upon demand, an amount sufficient to compensate such
Lender for all such losses and reasonable out-of-pocket expenses. Such Lender's
good faith determination of the amount of such losses or out-of-pocket expenses,
as set forth in writing and accompanied by calculations in reasonable detail
demonstrating the basis for its demand, shall be presumptively correct.
(b) Losses and out-of-pocket expenses subject to reimbursement
hereunder shall be (i) any loss incurred by any Lender in connection with the
re-employment of funds prepaid, repaid, not borrowed, or paid, as the case
may be, and the amount of such loss shall be the excess, if any, of (A) the
interest or other cost to such Lender of the deposit or other source of
funding used to make any such Eurodollar Advance for the remainder of its
Interest Period, over (B) the interest earned (or to be earned) by such
Lender upon the re-lending or other redeployment of the amount of such
Eurodollar Advance for the remainder of its putative Interest Period, and
(ii) any other expenses incurred by any Lender or any participant of such
Lender permitted hereunder in connection with the re-employment of funds
prepaid, repaid, not borrowed, or paid, as the case may be.
Section 2.12 PRO RATA TREATMENT.
(a) ADVANCES. Each Advance from the Lenders shall be made pro rata on the
basis of the respective Commitment Ratios of the Lenders.
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(b) PAYMENTS. Except as provided in Section 2.2(e)(iv), Section 2.10(c),
Section 8.3, or Article 10 hereof, each payment and prepayment of principal of
the Loans, and each payment of interest on the Loans, shall be made to the
Administrative Agent by the Borrower, and shall be distributed by the
Administrative Agent to the Lenders, on a pro rata basis in respect of their
respective unpaid principal amounts outstanding immediately prior to such
payment or prepayment. If any Lender shall obtain any payment (whether
involuntary, through the exercise of any right of set-off, or otherwise) on
account of the Loans made by it in excess of its ratable share of the Loans
under its Commitment Ratio, such Lender shall forthwith purchase from the other
Lenders such participations in the Loans made by them as shall be necessary to
cause such purchasing Lender to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and each such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 2.12(b) may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
Section 2.13 CAPITAL ADEQUACY. If, after the date hereof, the adoption of
any Applicable Law regarding the capital adequacy of banks or bank holding
companies, or any change in Applicable Law (whether adopted before or after the
Agreement Date) or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender with any
directive issued or adopted after the date hereof regarding capital adequacy
(whether or not having the force of law) of any such governmental authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on any Lender's capital as a consequence of its obligations
hereunder with respect to the Loans and the Commitment to a level below that
which it could have achieved but for such adoption, change or compliance taking
into consideration such Lender's policies with respect to capital adequacy
immediately before such adoption, change or compliance and assuming that such
Lender's capital was fully utilized prior to such adoption, change or compliance
by an amount reasonably deemed by such Lender to be material, then such Lender
shall promptly notify the Borrower of such adoption, compliance, or change.
Upon demand by such Lender made within one hundred eighty (180) days of such
adoption, compliance or change, the Borrower shall promptly pay to such Lender
such additional amounts as shall be sufficient to compensate such Lender for
such reduced return, together with interest on such amount from the date of
demand until payment in full thereof at the Default Rate. A certificate of such
Lender setting forth the amount to be paid to such Lender by the Borrower as a
result of any event referred to in this paragraph and supporting calculations in
reasonable detail shall be presumptively correct.
Section 2.14 LENDER TAX FORMS. On or prior to the first Payment Date
hereunder and on or prior to the first Business Day of each calendar year
thereafter, each Lender which is organized in a jurisdiction other than the
United States or a political subdivision thereof shall provide each of the
Administrative Agent and the Borrower with two (2) properly executed originals
of Form 4224 or Form 1001 (or any successor forms) prescribed by the Internal
Revenue Service or other documents satisfactory to the Borrower and the
Administrative Agent, and properly executed Internal Revenue Service Form W-8 or
Form W-9, as the case may be, certifying (a) as to such Lender's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such Lender hereunder and under the Notes
or (b) that
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all payments to be made to such Lender hereunder and under the Notes are
subject to such taxes at a rate reduced to zero by an applicable tax treaty.
Each such Lender agrees to provide the Administrative Agent and the Borrower
with new forms prescribed by the Internal Revenue Service upon the expiration
or obsolescence of any previously delivered form, or after the occurrence of
any event requiring a change in the most recent forms delivered by it to the
Administrative Agent and the Borrower.
Section 2.15 REPLACEMENT LENDER. If the Borrower becomes obligated to
pay additional amounts pursuant to any of Section 2.13, Section 2.14 or Section
10.3 to any Lender, the Borrower may designate a financial institution
reasonably acceptable to the Administrative Agent to replace such Lender by
purchasing for cash and receiving an assignment of such Lender's pro rata share
of the Commitments and the rights of such Lender under the Loan Documents
without recourse to or warranty by, or expense to, such Lender, for a purchase
price equal to the outstanding amounts owed to such Lender.
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
the Lenders to undertake the Commitment and to make the initial Advance
hereunder is subject to the prior fulfillment of each of the following
conditions:
(a) The Administrative Agent shall have received each of the following, in
form and substance reasonably satisfactory to the Administrative Agent and its
counsel:
(i) The loan certificate of the Borrower, in substantially
the form attached hereto as EXHIBIT O, including a certificate of
incumbency with respect to each Authorized Signatory, together with
appropriate attachments which shall include, without limitation, the
following items: (A) a copy of the certificate of incorporation of the
Borrower, certified to be true, complete and correct by the Secretary
of State of Delaware, (B) a copy of the by-laws of the Borrower as in
effect on the Agreement Date, (C) certificates of good standing for
the Borrower issued by the Secretary of State or similar state
official for the State of Delaware and for each other state in which
the Borrower is required to qualify or has qualified to do business,
(D) a true, complete and correct copy of the authorizing resolutions
of the Borrower, authorizing it to execute, deliver and perform this
Agreement and the other Loan Documents to which it is a party, and (E)
a true, complete and correct copy of any agreement in effect with
respect to the voting rights, ownership interests, or management of
the Borrower;
(ii) Duly executed Subordination Agreement;
(iii) Duly executed Note to the order of each Lender in the amount
of such Lender's pro rata share of the Commitment;
(iv) Duly executed Borrower's Pledge Agreement, together with any
appropriate stock certificates and undated stock powers executed in blank;
(v) Duly executed Security Agreement;
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(vi) Lien search results with respect to the Borrower and each
Subsidiary from all appropriate jurisdictions and filing offices;
(vii) Original UCC-1 financing statements, signed by the Borrower
as debtor and naming the Administrative Agent as secured party to be filed
in all appropriate jurisdictions;
(viii) A loan certificate from each Subsidiary of the Borrower, in
substantially the form attached hereto as EXHIBIT P, including a
certificate of incumbency with respect to each officer authorized to
execute Loan Documents on behalf of such Subsidiary, together with
appropriate attachments which shall include, without limitation, the
following items: (A) a copy of the certificate or articles of
incorporation of such Subsidiary, certified to be true, complete and
correct by the Secretary of State from the jurisdiction of incorporation of
such Subsidiary, (B) certificates of good standing for such Subsidiary
issued by the Secretary of State or similar state official for each state
in which such Subsidiary is incorporated or required to qualify to do
business, (C) a true, complete and correct copy of the By-Laws of such
Subsidiary, and (D) a true, complete and correct copy of the resolutions of
such Subsidiary authorizing it to execute, deliver and perform the Loan
Documents to which it is a party;
(ix) A duly executed Subsidiary Security Agreement, executed and
delivered by each Guarantying Subsidiary of the Borrower;
(x) Original UCC-1 financing statements, signed by each Guarantying
Subsidiary, respectively, as debtor, and naming the Administrative Agent as
secured party to be filed in all appropriate jurisdictions;
(xi) A duly executed Subsidiary Guaranty executed and delivered by
each Guarantying Subsidiary of the Borrower;
(xii) A duly executed Subsidiary Pledge Agreement from any
Guarantying Subsidiary of the Borrower which has one or more corporate
Subsidiaries, together with appropriate stock certificates and undated
stock powers executed in blank;
(xiii) A duly executed Assignment of Utility Contract from the
Borrower with respect to its rights under the Utility Contract, and
together with appropriate UCC-l financing statement forms and other
appropriate forms of perfection;
(xiv) A certificate executed by the Borrower and KCPL in form and
substance satisfactory to the Administrative Agent certifying that the
Borrower is not in default under the KCPL Contract in any material respect
and attaching a true, correct and complete copy of the KCPL Contract;
(xv) Proof of payment of all title insurance premiums, documentary
stamp or intangible taxes, recording fees and mortgage taxes payable in
connection with the recording of any of the Loan Documents or the issuance
of the title insurance commitments referred to above (whether due on the
Agreement Date or in the future) including such sums, if any, due in
connection with any future Advances;
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(xvi) Copies of any existing environmental reviews and audits with
respect to Property owned by the Borrower and other information pertaining
to actual or potential environmental claims as Administrative Agent may
require;
(xvii) Copies of insurance binders or certificates covering the
assets of the Borrower and its Subsidiaries, naming the Administrative
Agent as additional insured or named loss payee, as applicable, and
otherwise meeting the requirements of Section 5.5 hereof;
(xviii) Legal opinions of (A) Wilson Sonsini Goodrich & Rosati,
P.C., counsel to the Borrower and the Subsidiaries, regarding, among
other things, the absence of conflict between the Loan Documents
CellNet's high-yield debt documents and instruments including the
Indenture, and (B) Wilkinson, Barker, Knauer & Quinn, LLP, FCC counsel
to the Borrower and the Subsidiaries, in each case addressed to each
Lender and the Administrative Agent, and dated as of the Agreement Date,
in substantially the forms attached hereto as EXHIBITS Q AND R,
respectively;
(xix) Duly executed Request for Advance for the initial Advance of
the Loans, which Request for Advance shall include calculations
demonstrating, as of the Agreement Date, and after giving effect to the
funding of the initial Advance hereunder and other payments being made and
effected as of the Agreement Date, the Borrower's pro forma compliance with
Sections 7.10, 7.11, 7.12 and 7.13 hereof;
(xx) Duly executed Use of Proceeds Letter;
(xxi) Duly executed Certificate of Financial Condition for the
Borrower and its Subsidiaries on a consolidated basis, given by the chief
financial officer of the Borrower which shall include a certification that
no event has occurred which could have a Materially Adverse Effect since
June 30, 1998;
(xxii) Audited financial statements of the Borrower and its
Subsidiaries on a consolidated basis for the fiscal year ended December 31,
1997, and an unaudited balance sheet and income statement of the Borrower
and its Subsidiaries on a consolidated basis for the fiscal quarter ended
June 30, 1998, demonstrating that CellNet has made an equity investment in
the Borrower in an amount not less than $60,000,000;
(xxiii) Copies of any pay-off letters, termination statements,
canceled mortgages and the like required by the Administrative Agent in
connection with the satisfaction in full of all pre-existing Indebtedness
for Money Borrowed (except for Permitted Debt and CellNet Subordinated
Debt) of the Borrower and its Subsidiaries, and the termination of any
Liens (other than Permitted Liens) on the assets of the Borrower or any of
its Subsidiaries including Liens securing the Indebtedness for Money
Borrowed being refinanced by the initial Advance;
(xxiv) Comfort Letter from CellNet, in form and substance
satisfactory to the Lenders;
(xxv) Operating and financial projections of the Borrower
indicating future compliance with all applicable covenants during the term
of this Agreement; and
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(xxvi) All such other documents as either the Administrative Agent
or any Lender may reasonably request, certified by an appropriate
governmental official or an Authorized Signatory if so requested.
(b) The Administrative Agent shall have received evidence satisfactory to
it that the Borrower has obtained all technically compatible FCC spectrum
allocations necessary to operate a wireless data transmission system for KCPL
and that all Necessary Authorizations, including all necessary consents to the
execution, delivery and performance by the Borrower of this Agreement and the
other Loan Documents to which it is a party and by the Subsidiaries of the Loan
Documents to which they are parties, have been obtained or made, are in full
force and effect and are not subject to any pending or, threatened reversal or
cancellation prior to its stated termination date, and the Administrative Agent
shall have received a certificate of an Authorized Signatory so stating.
(c) The Administrative Agent shall be satisfied with all terms and
conditions, including any subordination provisions, of all Indebtedness of
CellNet and all pre-existing Indebtedness (including Permitted Debt and CellNet
Subordinated Debt) of the Borrower.
(d) The Lenders, the Administrative Agent, and Paul, Hastings, Janofsky &
Walker LLP, special counsel to the Administrative Agent, shall receive payment
of all reasonable fees and expenses due and payable on the Agreement Date in
respect of the transactions contemplated hereby.
Section 3.2 CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of the
Lenders to make each Advance (including the initial Advance hereunder) is
subject to the fulfillment of each of the following conditions immediately prior
to or contemporaneously with such Advance:
(a) All of the representations and warranties of the Borrower and the
Subsidiaries under this Agreement and the other Loan Documents (including,
without limitation, all representations and warranties with respect to the
Borrower's Subsidiaries), which, pursuant to Section 4.2 hereof, are made at and
as of the time of such Advance, shall be true and correct at such time in all
material respects, both before and after giving effect to the application of the
proceeds of such Advance;
(b) The incumbency of persons authorized by the Borrower to sign documents
shall be as stated in the certificate of incumbency delivered pursuant to
Section 3.1(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Agent and each of the Lenders;
(c) There shall not exist, on the date of the making of the Advance and
after giving effect to the proceeds of the Advance, a Default or an Event of
Default hereunder, and the Administrative Agent shall have received a Request
for Advance signed by an Authorized Signatory so certifying;
(d) With respect to any Advance relating to any Acquisition, Investment or
the formation of any Subsidiary which is permitted hereunder, the Administrative
Agent and the Lenders shall have received such documents and instruments
relating to such Acquisition, Investment, or formation of a new Subsidiary as
are described in Section 5.13 hereof or otherwise required herein;
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(e) The Administrative Agent shall have received a duly executed Request
for Advance which shall include calculations demonstrating compliance with
Sections 7.10, 7.11, 7.12 and 7.13 hereof and certification that since the last
day of the fiscal quarter of the Borrower most recently ended, no event has
occurred which could have a Materially Adverse Effect;
(f) The Administrative Agent shall have received financial statements of
the Borrower demonstrating compliance with Sections 7.8 and 7.9 for the
immediately preceding fiscal quarter; and
(g) The Administrative Agent and each of the Lenders shall have received
all such other certificates, reports, statements, opinions of counsel or other
documents as it may reasonably request.
The Borrower hereby agrees that the delivery of any Request for Advance
hereunder shall be deemed to be the certification of the Authorized Signatory of
the Borrower as to the matters set forth in this Section 3.2.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants, for itself and, as applicable, on behalf of its
Subsidiaries, and for so long as any of the Obligations is outstanding and
unpaid or the Borrower shall have the right to borrow hereunder (whether or not
the conditions to borrowing have been or can be fulfilled), in favor of the
Administrative Agent and each Lender, that:
(a) ORGANIZATION; OWNERSHIP; POWER; QUALIFICATION.
(i) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware. The Borrower
has the corporate power and authority to own or lease and use its
properties and to carry on its business as now being and hereafter proposed
to be conducted. The Borrower is duly qualified and in good standing and
authorized to do business in each jurisdiction in which the conduct of its
business or the ownership or lease of its assets makes such qualification
necessary or prudent.
(ii) Each Subsidiary of the Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and has the corporate power and authority to own or lease
and use its properties and to carry on its business as now being and
hereafter proposed to be conducted. Each of the Borrower's Subsidiaries is
duly qualified, in good standing and authorized to do business in each
jurisdiction in which the conduct of its business or the ownership or lease
of its assets makes such qualification or authorization necessary or
prudent.
(b) AUTHORIZATION; ENFORCEABILITY. The Borrower has the corporate power
and has taken all necessary action to authorize it to borrow hereunder, to
execute, deliver and perform this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms, and to
consummate the transactions contemplated hereby and thereby. This
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Agreement has been duly executed and delivered by the Borrower and is, and
each of the other Loan Documents which is a contract or an instrument to
which the Borrower is party is, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms,
subject, as to enforcement of remedies, to the following qualifications: (i)
certain equitable remedies are discretionary and, in particular, may not be
available where damages are considered an adequate remedy at law, (ii)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement
of creditors' rights generally (insofar as any such law relates to the
bankruptcy, insolvency or similar event of the Borrower), and (iii)
enforcement may be limited by local rules and regulations or by FCC rules and
regulations, as the case may be.
(c) SUBSIDIARIES; INVESTMENTS; AUTHORIZATION; ENFORCEABILITY. The
Borrower's Subsidiaries and Investments and its direct and indirect ownership
thereof are set forth as of the Agreement Date on SCHEDULE 3 attached hereto,
and the Borrower has the unrestricted right to vote the issued and outstanding
shares of the Subsidiaries shown thereon; such shares of the Subsidiaries have
been duly authorized and issued and are fully paid and nonassessable. Each
Subsidiary of the Borrower has the corporate power and authority, and has taken
all necessary corporate action to authorize it to execute, deliver and perform
each of the Loan Documents to which it is a party in accordance with their
respective terms and to consummate the transactions applicable to such
Subsidiary which are contemplated by this Agreement and by such Loan Documents.
Each of the Loan Documents to which any Subsidiary of the Borrower is party is a
legal, valid and binding obligation of such Subsidiary enforceable against such
Subsidiary in accordance with its terms, subject, as to enforcement of remedies,
to the following qualifications: (i) certain equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy at law, (ii) enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction and other
similar laws affecting enforcement of creditors' rights generally (insofar as
any such law relates to the bankruptcy, insolvency or similar event of the
applicable Subsidiary), and (iii) enforcement may be limited by local rules and
regulations or by FCC rules and regulations, as the case may be.
(d) COMPLIANCE WITH OTHER LOAN DOCUMENTS AND CONTEMPLATED TRANSACTIONS.
The execution, delivery and performance, in accordance with their respective
terms, by the Borrower of this Agreement and the Notes, and by the Borrower and
its Subsidiaries of each of the other Loan Documents to which they are
respectively party, and the consummation of the transactions contemplated hereby
and thereby, do not and will not (i) require any consent or approval,
governmental or otherwise, not already obtained, (ii) violate any Applicable Law
respecting the Borrower or any Subsidiary of the Borrower, (iii) conflict with,
result in a breach of, or constitute a default under the certificate or articles
of incorporation or by-laws, as such documents are amended, of the Borrower or
of any Subsidiary of the Borrower, or under any material indenture, agreement,
or other instrument, to which the Borrower or any of its Subsidiaries is a party
or by which any of them or their respective properties may be bound, (iv)
conflict with, result in a breach of, or constitute a default or violation of,
the terms and conditions of any of the material Licenses, (v) result in or
require the creation or imposition of any Lien upon or with respect to any
property now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, except for Permitted Liens, or (vi) conflict with, result in a
breach of, or constitute a default under the certificate or articles of
incorporation or by-laws, as such documents are amended, of CellNet or any other
parent company of the Borrower, or under any material indenture, agreement, or
other instrument, to which CellNet or any other parent company of the Borrower
is a party or by which any of them or their respective properties may be bound.
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(e) BUSINESS. The Borrower and its Subsidiaries are engaged in the
business of owning, designing, developing, manufacturing, installing, servicing,
managing, marketing, upgrading, operating, and investing in Systems, or
otherwise providing wireless data services and in related or complementary
business activities. The Utility Contract is the legal, valid and binding
obligation of the parties thereto enforceable against each of them in accordance
with their terms.
(f) LICENSES. The Licenses and all IOAs have been duly authorized by the
grantors thereof and are in full force and effect. The Borrower and its
Subsidiaries are in compliance in all material respects with all of the
provisions thereof. The Borrower and its Subsidiaries have secured all material
Necessary Authorizations and all such material Necessary Authorizations are in
full force and effect. Neither any material License nor any material Necessary
Authorization is the subject of any pending or, to the best of the Borrower's
knowledge, threatened revocation by the Public Safety and Private Wireless
Division of the Wireless Telecommunications Bureau of the FCC.
(g) COMPLIANCE WITH LAW. The Borrower and its Subsidiaries are in
compliance with all Applicable Law.
(h) TITLE TO ASSETS. The Borrower has good, legal and marketable title
to, or a valid leasehold interest in, all of its assets. Each of the Borrower's
Subsidiaries has good, legal and marketable title to, or a valid leasehold
interest in, all of its assets. None of such properties or assets held by the
Borrower or any of its Subsidiaries is subject to any Liens, except for
Permitted Liens. Except for financing statements evidencing Permitted Liens, no
financing statement under the Uniform Commercial Code as in effect in any
jurisdiction and no other filing which names the Borrower or any of its
Subsidiaries as debtor or which covers or purports to cover any of the assets of
the Borrower or any of its Subsidiaries is currently effective and on file in
any state or other jurisdiction, and neither the Borrower nor any of its
Subsidiaries has signed any such financing statement or filing or any security
agreement authorizing any secured party thereunder to file any such financing
statement or filing.
(i) LITIGATION. There is no action, suit, revocation, proceeding or
investigation pending or, to the best of the Borrower's knowledge, threatened
against or in any other manner relating adversely to, the Borrower or any of its
Subsidiaries or any of their respective properties, including without limitation
any License or Necessary Authorization, in any court or before any arbitrator of
any kind or before or by any governmental body (including without limitation the
FCC), except as described on SCHEDULE 5 attached hereto as of the Agreement Date
or as subsequently disclosed to the Administrative Agent and the Lenders
pursuant to Section 6.5 hereof; and no such action, suit, proceeding or
investigation could reasonably be expected to have an adverse outcome which (i)
calls into question the validity of this Agreement or any other Loan Document,
(ii) challenges the continued possession and use of any License granted by the
FCC, by the Borrower, any of its Subsidiaries, or any Person in which the
Borrower has, directly or indirectly, an Investment and, in any such case, such
challenge could result in a Default pursuant to Section 8.1(n) or Section 8.1(o)
hereof, or (iii) could have a Materially Adverse Effect.
(j) TAXES. All federal, state and other tax returns (including
information returns) of the Borrower and each of its Subsidiaries required by
law to be filed have been duly filed and all federal, state and other taxes,
including, without limitation, withholding taxes, assessments and other
governmental charges or levies required to be paid by the Borrower or any of its
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Subsidiaries or imposed upon the Borrower or any of its Subsidiaries or any
of their respective properties, income, profits or assets, which are due and
payable, have been paid, except any such taxes (i) the payment of which the
Borrower or any of its Subsidiaries is diligently contesting in good faith by
appropriate proceedings, (ii) for which adequate reserves have been provided
on the books of the Borrower or the Subsidiary of the Borrower involved, and
(iii) as to which no Lien other than a Permitted Lien has attached and no
foreclosure, distraint, sale or similar proceedings have been commenced. The
charges, accruals and reserves on the books of the Borrower and each of its
Subsidiaries in respect of taxes are, in the reasonable business judgment of
the Borrower, adequate.
(k) FINANCIAL STATEMENTS. The Borrower has furnished or caused to be
furnished to the Administrative Agent and the Lenders its audited financial
statements on a consolidated basis with its Subsidiaries for the fiscal year
ended December 31, 1997, and its unaudited financial statements on a
consolidated basis with its Subsidiaries for the fiscal quarter ended
September 30, 1998, which, together with other financial statements furnished
to the Administrative Agent and the Lenders subsequent to the Agreement Date,
are complete and correct in all material respects and present fairly in
accordance with GAAP the financial position of the Borrower and its
Subsidiaries on a consolidated basis on and as at such dates and the results
of operations for the periods then ended, subject, in the case of the
quarterly statements, to year-end audit adjustment and the absence of
disclosure typically presented in footnotes. Neither the Borrower nor any of
its Subsidiaries has any material liabilities, contingent or otherwise, other
than as disclosed in the financial statements referred to in the preceding
sentence or as set forth or referred to in this Agreement, and there are no
material unrealized losses of the Borrower or any of its Subsidiaries and no
anticipated material losses of the Borrower or any of its Subsidiaries other
than those which have been disclosed in writing to the Administrative Agent
and the Lenders prior to the Agreement Date and identified as such.
(l) NO ADVERSE CHANGE. Since September 30, 1998, there has occurred no
event which has had or which could reasonably be expected to have a
Materially Adverse Effect.
(m) ERISA. The Borrower and each of its Subsidiaries and each of their
respective Plans are in compliance in all respects with ERISA and the Code
and neither the Borrower nor any of its Subsidiaries has incurred any
accumulated funding deficiency with respect to any such Plan within the
meaning of ERISA or the Code. The Borrower, each of its Subsidiaries, and
each other ERISA Affiliate have complied with all requirements of Sections
10001 and 10002 of the Consolidated Omnibus Budget Reconciliation Act of 1985
(Public Law No. 99-272), Section 4980B of the Internal Revenue Code. Neither
the Borrower nor any of its Subsidiaries has made any promises of retirement
or other benefits to employees, except as set forth in their respective
Plans. Neither the Borrower nor any of its Subsidiaries has incurred any
material liability to PBGC in connection with any such Plan. The assets of
each such Plan subject to Title IV of ERISA are sufficient to provide the
benefits under such Plan. Such assets are also sufficient to provide all
other "benefit liabilities" (as defined in Section 9313(a) of the Pension
Protection Act included in the Omnibus Budget Reconciliation Act of 1987,
Pub. L-100-203), Section 4001A(16) of ERISA, due under the Plan upon
termination. No Reportable Event has occurred and is continuing with respect
to any such Plan. No such Plan or trust created thereunder, or party in
interest (as defined in Section 3(14) of ERISA), or any fiduciary (as defined
in Section 3(21) of ERISA), has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the Code)
which would subject such Plan or any other Plan of the Borrower or any of its
Subsidiaries, any trust created thereunder, or any such party in interest
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or fiduciary, or any party dealing with any such Plan or any such trust, to
the tax or penalty in any material amount on "prohibited transactions"
imposed by Section 502 of ERISA or Section 4975 of the Code. Neither the
Borrower nor any of its Subsidiaries is a participant in or is obligated to
make any payment to a Multiemployer Plan. Neither the Borrower nor any of
its Subsidiaries (1) has had either a complete withdrawal or a partial
withdrawal under Section 4201 et. seq. of ERISA from a Multiemployer Plan
which had "unfunded vested benefits" within the meaning of Section 4211 of
ERISA or (2) has ever received a notice and demand from the plan sponsor of a
Multiemployer Plan under Section 4219(b)(1) of ERISA.
(n) COMPLIANCE WITH REGULATIONS T, U, AND X. Neither the Borrower nor
any Subsidiary of the Borrower is engaged principally in or has as one of its
important activities the business of purchasing or carrying, or extending
credit for the purpose of purchasing or carrying, any margin stock within the
meaning of Regulations T, U, and X of the Board of Governors of the Federal
Reserve System; nor will any proceeds of the Loans be used for such purpose.
(o) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither the Borrower nor any of its Subsidiaries is required to register
under the provisions of the Investment Company Act of 1940, as amended, and
neither the entering into or performance by the Borrower and its Subsidiaries
of this Agreement nor the issuance of the Notes violates any provision of
such Act or requires any consent, approval or authorization of, or
registration with, the Securities and Exchange Commission or any other
governmental or public body or authority pursuant to any provisions of such
Act. Neither the Borrower nor any of its Subsidiaries is a "public utility
holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(p) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its
Subsidiaries is required to obtain any consent, approval, authorization,
permit or license which has not already been obtained from, or effect any
filing or registration which has not already been effected with, any federal,
state or local regulatory authority in connection with the execution and
delivery of this Agreement. Neither the Borrower nor any of its Subsidiaries
is required to obtain any consent, approval, authorization, permit or license
which has not already been obtained from, or effect any filing or
registration which has not already been effected with, any federal, state or
local regulatory authority in connection with the performance, in accordance
with their respective terms, of this Agreement or any other Loan Document.
(q) ABSENCE OF DEFAULT. The Borrower and its Subsidiaries are in
compliance in all respects with all of the provisions of their respective
certificates or articles of incorporation and by-laws, or their partnership
agreements, as the case may be, and no event has occurred or failed to occur
which has not been remedied or waived, the occurrence or non-occurrence of
which constitutes, or with the passage of time or giving of notice or both
would constitute, (i) an Event of Default or (ii) a material default by the
Borrower or any of its Subsidiaries under any material indenture, agreement
or other instrument, any License, or any judgment, decree or order to which
the Borrower or any of its Subsidiaries is a party or by which the Borrower
or any of its Subsidiaries or any of their respective properties may be bound
or affected. Neither the Borrower nor any of its Subsidiaries is a party to
or bound by any contract or agreement continuing after the Agreement Date, or
bound by any Applicable Law, that could have a Materially Adverse Effect or
result in the loss of any License issued by the FCC.
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(r) ACCURACY AND COMPLETENESS OF INFORMATION. All information,
reports, prospectuses and other papers and data relating to the Borrower or
any of its Subsidiaries and furnished by or on behalf of the Borrower or any
of its Subsidiaries to the Administrative Agent or the Lenders were, at the
time furnished, true, complete and correct in all material respects to the
extent necessary to give the Administrative Agent and the Lenders true and
accurate knowledge of the subject matter. No fact or situation is currently
known to the Borrower which has had or could reasonably be expected to have a
Materially Adverse Effect.
(s) AGREEMENTS WITH AFFILIATES AND MANAGEMENT AGREEMENTS. Except as
set forth on SCHEDULE 6 attached hereto or as permitted hereunder and
disclosed to the Administrative Agent in writing, neither the Borrower nor
any of its Subsidiaries has (i) any written agreements or binding
arrangements of any kind with any Affiliate, or (ii) any material management
or consulting agreements of any kind.
(t) PAYMENT OF WAGES. The Borrower and each of its Subsidiaries are in
full compliance with the Fair Labor Standards Act, as amended, and the
Borrower and each of its Subsidiaries have paid all minimum and overtime
wages required by law to be paid to their respective employees.
(u) PRIORITY. The Security Interest is a valid and perfected first
priority security interest in the Collateral in favor of the Administrative
Agent, for itself and for the ratable benefit of the Lenders, securing, in
accordance with the terms of the Security Documents, the outstanding
Obligations, and the Collateral is subject to no Liens other than Permitted
Liens. The Liens created by the Security Documents are enforceable as
security for the outstanding Obligations in accordance with their terms with
respect to the Collateral subject, as to enforcement of remedies, to the
following qualifications: (i) certain equitable remedies are discretionary
and, in particular, may not be available where damages are considered an
adequate remedy at law, (ii) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar
laws affecting enforcement of creditors' rights generally (insofar as any
such law relates to the bankruptcy, insolvency or similar event of the
Borrower, or any Subsidiary), and (iii) enforcement may be limited by local
rules and regulations or by FCC rules and regulations, as the case may be.
Any Mortgage given by the Borrower or any Subsidiary to the Administrative
Agent grants a valid and perfected interest in the Property owned by the
Borrower or such Subsidiary. Any Mortgage secures, in accordance with its
terms, the Notes and the other outstanding Obligations and such interests
will be subject to no Liens that are prior to, on a parity with or junior to
the Lien in favor of the Administrative Agent other than Permitted Liens and
the CellNet Subordinated Debt, and any Mortgage will be enforceable as
security for the outstanding Obligations in accordance with its terms against
the Borrower and all third parties, subject to the following qualifications:
(i) certain equitable remedies are discretionary and, in particular, may not
be available where damages are considered an adequate remedy at law, and (ii)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement
of creditors' rights generally (insofar as any such law relates to the
bankruptcy, insolvency or similar event of the Borrower or such Subsidiary).
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(v) ENVIRONMENTAL MATTERS.
(i) The Borrower and its Subsidiaries are in substantial compliance
with all applicable Environmental Laws, and there is no condition which
could interfere with the continued operation of any of the Systems in
substantial compliance with Environmental Laws, or impair the financial
condition of Borrower or its Subsidiaries.
(ii) Neither the Borrower nor its Subsidiaries has received from
any governmental authority or any other Person any complaint, notice of
violation, alleged violation, investigation or advisory action or notice of
potential liability regarding matters of environmental protection or permit
compliance under applicable Environmental Laws with regard to the Systems.
There has been no pending or, to the Borrower's knowledge, threatened
complaint, notice of violation, alleged violation, investigation or notice
of potential liability under Environmental Laws with regard to any of the
Properties.
(iii) Neither the Borrower nor any of its Subsidiaries have
generated, treated, stored, or disposed of, any Hazardous Materials on or
under any of the Property except in substantial compliance with all
Environmental Laws.
(iv) Neither the Borrower nor any Subsidiary of the Borrower is a
party to any governmental administrative actions or judicial proceedings
pending under any Environmental Law applicable to the Borrower or any of
its Subsidiaries with respect to any of the Properties, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to any of the Properties.
(w) INDEBTEDNESS. Except as permitted pursuant to Section 7.1 hereof,
neither the Borrower nor any of its Subsidiaries has outstanding, as of the
Agreement Date, and after giving effect to the initial Advance hereunder on
the Agreement Date, any Indebtedness for Money Borrowed.
(x) INVESTMENTS. All Investments of the Borrower and its Subsidiaries
are shown as of the Agreement Date on SCHEDULE 3 attached hereto.
(y) REAL ESTATE. Other than as listed and described on SCHEDULE 4
attached hereto, (i) neither the Borrower nor any of its Subsidiaries owns
any real property, and (ii) no single parcel of such real estate has a fair
market value on the Agreement Date in excess of $100,000.
(z) YEAR 2000. The Borrower believes that its wireless data
communications networks are "Year 2000 Compliant" (that is, able to perform
properly date-sensitive functions for all dates before and after January 1,
2000). The Borrower and its Subsidiaries will require its third party
vendors and suppliers to be Year 2000 Compliant. The Borrower believes that
the advent of the millennium will have no adverse effect on the System.
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made, and shall be true and correct, at and
as of the Agreement Date and on the date of each Advance except to the extent
expressly applicable only to the Agreement Date or previously fulfilled in
accordance with the terms hereof. All representations and warranties made
under this Agreement shall
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survive, and not be waived by, the execution hereof by the Lenders and the
Administrative Agent, any investigation or inquiry by any Lender or the
Administrative Agent, or the making of any Advance under this Agreement.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower shall have the right to borrow hereunder (whether or not the
conditions to borrowing have been or can be fulfilled):
Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. The
Borrower will, and will cause each of its Subsidiaries to:
(a) preserve and maintain its existence, rights, franchises, licenses
and privileges in the state of its organization and in each other state in
which it operates the System, including, without limitation, the Licenses,
all IOAs (in accordance with their respective terms) and all other Necessary
Authorizations; and
(b) qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification or authorization necessary or prudent.
Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW. The Borrower
will, and will cause each of its Subsidiaries to, (a) engage solely in the
business of owning, operating and investing in Systems, or otherwise
providing wireless data services and in related or complementary businesses,
and (b) comply with the requirements of all Applicable Law.
Section 5.3 MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause each of its Subsidiaries to, maintain or cause to be maintained in the
ordinary course of business in good repair, working order and condition
(reasonable wear and tear excepted) all properties used in their respective
businesses (whether owned or held under lease), and from time to time make or
cause to be made all needed and appropriate repairs, renewals, replacements,
additions, betterments and improvements thereto, provided, however, that the
provisions of this Section 5.3 shall not prevent the Borrower or its
Subsidiaries from disposing of obsolete equipment and inventory in the
ordinary course of business.
Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. The Borrower
will, and will cause each of its Subsidiaries to, maintain a system of
accounting established and administered in accordance with GAAP subject, in
the case of quarterly statements, to year-end audit adjustments, keep
adequate records and books of account in which complete entries will be made
in accordance with GAAP and reflecting all transactions required to be
reflected by GAAP and keep accurate and complete records of their respective
properties and assets. The Borrower and its Subsidiaries will maintain a
fiscal year ending on December 31.
Section 5.5 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to:
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(a) Maintain insurance including, but not limited to, business
interruption coverage and public liability coverage insurance from
responsible companies in such amounts and against such risks to the Borrower
and each of its Subsidiaries as is prudent and satisfactory to the
Administrative Agent (including, without limitation, larceny, embezzlement,
employee fidelity, and other criminal misappropriation insurance).
(b) Keep their respective assets insured by responsible companies on
terms and in a manner reasonably acceptable to the Administrative Agent
against loss or damage by fire, theft, burglary, pilferage, loss in transit,
explosions and hazards insured against by extended coverage, in amounts which
are prudent for the wireless or telecommunications service industry, in
accordance with industry standards, and satisfactory to the Administrative
Agent, all premiums thereon to be paid by the Borrower and its Subsidiaries.
(c) Require that each insurance policy for the Borrower and its
Subsidiaries name the Administrative Agent, as agent for the Lenders, as
additional insured or named loss payee, as appropriate, to the extent of the
Obligations, and provide for at least thirty (30) days' prior written notice
to the Administrative Agent of any termination of or proposed cancellation or
nonrenewal of such policy, or material reduction in coverage.
(d) Apply proceeds of insurance for the Borrower and its Subsidiaries
paid to the Administrative Agent at any time no Default or Event of Default
exists hereunder to the repair or replacement of the lost or destroyed
property; otherwise, such proceeds shall be applied to the payment or
prepayment of the Obligations as provided under Section 2.10(c) or Section
8.3 hereof, as applicable. Any balance thereof remaining after payment in
full of the Obligations shall be paid to the Borrower or as otherwise
required by law.
Section 5.6 PAYMENT OF TAXES AND CLAIMS. The Borrower will, and will
cause each of its Subsidiaries to, pay and discharge all taxes, including,
without limitation, withholding taxes, assessments and governmental charges
or levies required to be paid by them or imposed upon them or their income or
profits or upon any properties belonging to them, prior to the date on which
penalties attach thereto, and all lawful claims for labor, materials and
supplies which, if unpaid, could become a Lien or charge upon any of their
properties; except that no such tax, assessment, charge, levy or claim need
be paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale or similar proceedings shall have been
commenced. The Borrower will, and will cause each of its Subsidiaries to,
timely file all information returns required by federal, state or local tax
authorities.
Section 5.7 VISITS AND INSPECTIONS. The Borrower will, and will cause
each of its Subsidiaries to, permit representatives of the Administrative
Agent and any of the Lenders to, upon reasonable notice to the Borrower or
such Subsidiary and during normal business hours, (a) visit and inspect the
properties of the Borrower or such Subsidiary, (b) inspect and make extracts
from and copies of their respective books and records, and (c) discuss with
their respective principal officers their respective businesses, assets,
liabilities, financial positions and results of operations. The Borrower and
each of its Subsidiaries will also permit representatives of the
Administrative Agent and any of the Lenders to discuss with their respective
auditors, subject to Section 11.17 hereof, their respective businesses,
assets, liabilities, financial positions
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and results of operations. The Borrower will, and will cause each of its
Subsidiaries to, and will use its best efforts to cause KCPL to, cooperate
with the Administrative Agent in ensuring, on a regular basis, that the
Administrative Agent and any of the Lenders may visit and inspect the System
located on KCPL's premises.
Section 5.8 PAYMENT OF INDEBTEDNESS; LOANS. Subject to any provisions
regarding subordination as set forth in any Loan Document, the Borrower will,
and will cause each of its Subsidiaries to, pay any and all of their
respective Indebtedness when and as it becomes due, and in any event prior to
the expiration of any grace period, other than amounts diligently disputed in
good faith and for which adequate reserves have been set aside in accordance
with GAAP.
Section 5.9 USE OF PROCEEDS. The Borrower will use the aggregate
proceeds of all Advances under the Commitment (a) to fund the development and
construction of a wireless data transmission system for KCPL pursuant to the
terms and conditions of the KCPL Contract, (b) to fund Capital Expenditures
and Acquisitions to the extent permitted herein, (c) to make Permitted
Investments, (d) to make Restricted Payments to the extent permitted under
Section 7.7 hereof, and (e) for working capital and other general corporate
purposes. Except as may be permitted under Section 7.6(a) hereof, no proceeds
of Advances hereunder shall be used for the purchase or carrying or the
extension of credit for the purpose of purchasing or carrying any margin
stock within the meaning of Regulations T, U, and X of the Board of Governors
of the Federal Reserve System.
Section 5.10 REAL ESTATE. The Borrower will, and will cause its
Subsidiaries to, grant a Mortgage securing the Obligations to the
Administrative Agent, for itself and for the ratable benefit of the Lenders,
in form and substance satisfactory to the Administrative Agent, covering each
parcel of real estate having a fair market value, exclusive of equipment, in
excess of $100,000 acquired by the Borrower or any of its Subsidiaries after
the Agreement Date. The Borrower will, and will cause its Subsidiaries to,
deliver to the Administrative Agent all documentation, including opinions of
counsel and policies of title insurance, which in the opinion of the
Administrative Agent is appropriate with each such grant, including any Phase
I environmental audit requested by the Administrative Agent or any Lender.
Section 5.11 INDEMNITY. The Borrower, for itself and on behalf of each
of its Guarantying Subsidiaries agrees, jointly and severally, to indemnify
and hold harmless each Lender and the Administrative Agent and each of their
respective Affiliates, employees, agents, representatives, officers and
directors (any of the foregoing shall be an "Indemnitee") from and against
any and all claims, liabilities, losses, damages, actions, reasonable
attorneys' fees and expenses (as such fees and expenses are incurred) and
demands by any party, including the costs of investigating and defending such
claims, (a) resulting from any breach or alleged breach by the Borrower or
any Subsidiary of the Borrower of any representation, warranty, or covenant
made hereunder or under any other Loan Document; (b) arising out of or in
connection with (i) the Commitment or the administration of the Loans or
otherwise under this Agreement or any other Loan Document (including the
taking of Collateral for the Obligations), including the use of the proceeds
of Loans hereunder in any fashion or the performance of their respective
obligations under the Loan Documents by the Borrower or any of its
Subsidiaries, (ii) allegations of any participation by the Lenders or the
Administrative Agent, or any of them, in the affairs of the Borrower or any
of its Subsidiaries, or allegations that any of them has any joint liability
with the Borrower or any of its Subsidiaries for any reason, or (iii) any
claims against the Lenders or the Administrative Agent, or any of them, by
any shareholder, partner, or other investor in or lender to the Borrower or
any
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Subsidiary, by any brokers or finders or investment advisers or investment
bankers retained by the Borrower or by any Affiliates of Borrower, arising
out of the Commitment or otherwise under this Agreement or any other Loan
Document; or (c) in connection with taxes (other than income taxes and other
than tax liability resulting from the failure by any Lender to comply with
the provisions of Section 2.14 hereof), fees, and other charges payable as a
result of making the Loans, or the execution, delivery, and enforcement of
this Agreement, the Security Documents, the other Loan Documents, and any
amendments thereto or waivers of any of the provisions thereof; unless the
Person seeking indemnification hereunder is determined in such case to have
acted with gross negligence or willful misconduct, in any case by a final,
non-appealable judicial order. The obligations of the Borrower and the
Subsidiaries under this Section 5.11 are in addition to, and shall not
otherwise limit, any liabilities which the Borrower or any Subsidiary might
otherwise have in connection with any warranties or similar obligations of
the Borrower or such Subsidiary in any other agreement or instrument or for
any other reason.
Section 5.12 INTEREST RATE HEDGING. Within ninety (90) days from the
Agreement Date and from the funding of any additional Advance requested by
the Borrower representing a new borrowing, the Borrower shall have entered
into one or more Interest Hedge Agreements which result in the fixing of a
limit on the Borrower's interest obligations at interest rates and other
terms (such terms to include consideration of the creditworthiness of the
other party to the proposed Interest Hedge Agreement) reasonably acceptable
to the Administrative Agent with respect to the Loans on an aggregate of not
less than thirty-three percent (33%) of the then outstanding principal amount
of Total Debt. Such Interest Hedge Agreements shall provide interest rate
protection for at least one (1) year from the date of such Interest Hedge
Agreement or Agreements. All obligations of the Borrower to the
Administrative Agent, the Lenders, or any of them, or any Affiliate of any of
them, pursuant to any Interest Hedge Agreement, shall be deemed to be part of
the Obligations.
Section 5.13 COVENANTS REGARDING FORMATION OF SUBSIDIARIES AND THE
MAKING OF INVESTMENTS AND ACQUISITIONS. At the time of any Acquisition of a
Guarantying Subsidiary permitted hereunder by the Borrower or any Subsidiary,
or the formation of any new Guarantying Subsidiary of the Borrower or any of
its Subsidiaries which is permitted under this Agreement, the Borrower will,
and will cause its Subsidiaries, as appropriate, to (a) provide to the
Administrative Agent an executed supplement to the Subsidiary Security
Agreement for such new Subsidiary, in substantially the form of the
supplement to EXHIBIT M attached hereto, together with appropriate UCC-1
financing statements, as well as an executed supplement to the Subsidiary
Guaranty for such new Guarantying Subsidiary, in substantially the form of
the supplement to EXHIBIT K attached hereto, which shall constitute both
Security Documents and Loan Documents for purposes of this Agreement, as well
as a loan certificate for such new Guarantying Subsidiary, substantially in
the form of EXHIBIT P attached hereto, together with appropriate attachments;
(b) pledge to the Administrative Agent all of the stock (or other instruments
or securities evidencing ownership) of such Subsidiary or Person which is
acquired, formed or beneficially owned by the Borrower or any of the
Borrower's Subsidiaries, as the case may be, as additional Collateral for the
Obligations to be held by the Administrative Agent in accordance with the
terms of the Borrower's Pledge Agreement, a supplement to the Subsidiary
Pledge Agreement, or a supplement to the Assignment of Utility Contract, and
execute and deliver to the Administrative Agent all such documentation for
such pledge as, in the reasonable opinion of the Administrative Agent, is
appropriate; and (c) provide all other documentation, including one or more
opinions of counsel satisfactory to the Administrative Agent which in the
opinion of the Administrative Agent is appropriate with respect to such
Acquisition or the
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formation of such Guarantying Subsidiary. At the time of any Acquisition of
any new Subsidiary permitted hereunder by the Borrower or any Subsidiary, or
the formation of any new Subsidiary of the Borrower or any of its
Subsidiaries, which new Subsidiary is, in either such case, a Non-Guarantying
Subsidiary, the Borrower shall provide to the Administrative Agent copies of
agreements and documents executed and delivered by such Subsidiary and the
Borrower, and collaterally assigned to the Administrative Agent by the
Borrower, and otherwise corresponding to all of the agreement's documents
described in clauses (a) through (c) of this subsection, including, without
limitation, an executed supplement to the Non-Guarantying Subsidiary Security
Agreement for such new Non-Guarantying Subsidiary, in substantially the form
of the supplement to EXHIBIT M-2 attached hereto. Investments made by the
Borrower or any of its Guarantying Subsidiaries after the Agreement Date
shall also be treated as additional Collateral and shall be subject to the
provisions of appropriate Security Documents. Any document, agreement or
instrument executed or issued pursuant to this Section 5.13 shall be a "Loan
Document" for purposes of this Agreement.
Section 5.14 PAYMENT OF WAGES. The Borrower and each of its
Subsidiaries shall at all times comply, in all material respects, with the
requirements of the Fair Labor Standards Act, as amended, including, without
limitation, the provisions of such Act relating to the payment of minimum and
overtime wages as the same may become due from time to time.
Section 5.15 COMPLIANCE WITH CONTRACTS. The Borrower and each of its
Subsidiaries shall at all times comply with the terms and conditions of the
Utility Contract.
Section 5.16 YEAR 2000 PROBLEM. The Borrower shall furnish or cause to
be furnished to each Lender and the Administrative Agent, promptly upon
creation thereof, copies of any review or assessment of the System in
connection with, or plan for the Borrower or any of its Subsidiaries relating
to, the Year 2000 Problem.
ARTICLE 6
INFORMATION COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow hereunder (whether or not the conditions to
borrowing have been or can be fulfilled), the Borrower will furnish or cause
to be furnished to each Lender and the Administrative Agent, at their
respective offices:
Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. Within
forty-five (45) days after the last day of each quarter of each fiscal year
of the Borrower, unaudited balance sheets of the Borrower on a consolidated
and consolidating basis with its Subsidiaries, as at the end of such quarter
and as of the end of the preceding fiscal year, and the related statements of
operations and the related statements of cash flows of the Borrower on a
consolidated and consolidating basis with its Subsidiaries, for such quarter
and for the elapsed portion of the year ended with the last day of such
quarter, which shall set forth in comparative form such figures as at the end
of and for such quarter and the appropriate prior period and shall be
certified by the chief financial officer of the Borrower, to be, in his or
her opinion, complete and correct in all material respects and to present
fairly, in accordance with GAAP (except as to the exclusion of certain
Subsidiaries which should be consolidated with the Borrower under GAAP), the
financial
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position of the Borrower on a consolidated and consolidating basis with its
Subsidiaries, as at the end of such period and the results of operations for
such period, and for the elapsed portion of the year ended with the last day
of such period, subject only to normal year-end adjustments and the absence
of footnotes.
Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION. Within one
hundred and twenty (120) days after the end of each fiscal year of the
Borrower, the audited consolidated and consolidating balance sheet of CellNet
and its Subsidiaries as of the end of such fiscal year and the related
audited consolidated and consolidating statements of operations for such
fiscal year and, to the extent available, for the previous two (2) fiscal
years, the related audited consolidated and consolidating statements of
changes in shareholders' equity for such fiscal year and, to the extent
available, for the previous two (2) fiscal years, and related audited
consolidated and consolidating statements of cash flows of such fiscal year
and, to the extent available, for the previous two (2) fiscal years, which
shall be accompanied by an opinion of independent certified public
accountants of recognized national standing reasonably acceptable to the
Administrative Agent, together with a statement of such accountants that in
connection with their audit, nothing came to their attention that caused them
to believe that the Borrower was not in compliance with the terms, covenants,
provisions or conditions of Article 7 hereof.
Section 6.3 PERFORMANCE CERTIFICATES. At the time the financial
statements are furnished pursuant to Sections 6.1 and 6.2 hereof, the
Performance Certificate:
(a) setting forth as at the end of such quarterly period or fiscal
year, as the case may be, the arithmetical calculations required to establish
(i) the Applicable Margin pursuant to Section 2.3(f) hereof, and (ii) whether
or not the Borrower was in compliance with the requirements of Sections 7.10,
7.11, 7.12 and 7.13 hereof;
(b) setting forth on a consolidated basis for the Borrower and its
Subsidiaries, for each such fiscal quarter or fiscal year, as the case may
be, (i) a summary of monthly revenues and (ii) (A) the number of Active
Meters at the beginning of such period, (B) the number of new Active Meters
added or deactivated during such period and (C) the number of Active Meters
at the end of such period;
(c) stating that, to the best of his or her knowledge, no Default or
Event of Default has occurred as at the end of such quarterly period or year,
as the case may be, or, if a Default or an Event of Default has occurred,
disclosing each such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by the Borrower
with respect to such Default or Event of Default; and
(d) setting forth, as of the end of such fiscal quarter or year, a list
of any IOAs pursuant to which the Borrower or any of its Subsidiaries is then
providing cellular telephone or other wireless telecommunications services.
Section 6.4 COPIES OF OTHER REPORTS.
(a) Promptly upon receipt thereof, copies of all material reports, if
any, submitted to the Borrower by the Borrower's independent public
accountants regarding the Borrower, including, without limitation, any
management report prepared in connection with the annual audit referred to in
Section 6.2.
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(b) Promptly upon receipt thereof, copies of any material adverse
notice or report regarding any License held by the Borrower or any Subsidiary
from the FCC.
(c) In connection with any proposed Acquisition by the Borrower or any
Subsidiary and promptly upon each request, such data, certificates, reports,
statements, opinions of counsel prepared for the Administrative Agent and the
Lenders, or any of them, documents or further information regarding the
business, assets, liabilities, financial position, projections, results of
operations, or Year 2000 issues described in Sections 4.1(z) and 5.16 hereof,
of the Borrower or any of its Subsidiaries as the Administrative Agent or any
Lender may reasonably request.
(d) Annually, one or more certificates of insurance indicating that the
requirements of Section 5.5 hereof remain satisfied for such fiscal year.
(e) Annually, and in no event later than the 120th day of each year, a
copy of the Borrower's annual budget for itself and its Subsidiaries for such
fiscal year.
(f) Promptly after the filing thereof, copies of all material reports,
proxies, forms or other documents required to be filed or submitted by
CellNet to the Securities and Exchange Commission or other federal or state
securities law enforcement agency or commission, without exhibits thereto
unless requested.
Section 6.5 NOTICE OF LITIGATION AND OTHER MATTERS. Notice specifying
the nature and status of any of the following events, promptly, but in any
event not later than five (5) Business Days after any officer the Borrower
becomes aware of the occurrence of any of the following events:
(a) the commencement of any proceeding or investigation by or before
any governmental body and any action or proceeding in any court or before any
arbitrator against, or to the extent known to the Borrower, in any other way
relating materially adversely to the Borrower or any Subsidiary of the
Borrower or any of their respective properties, assets or businesses or any
License;
(b) any event having a Materially Adverse Effect;
(c) any Default or the occurrence or non-occurrence of any event (i)
which constitutes, or which with the passage of time or giving of notice or
both would constitute a material default by the Borrower or any Subsidiary of
the Borrower under the Utility Contract or other material agreement other
than this Agreement to which the Borrower or any Subsidiary of the Borrower
is a party or by which any material portion of their respective properties
may be bound, or (ii) which could reasonably be expected to have a Materially
Adverse Effect, giving in each case the details thereof and specifying the
action proposed to be taken with respect thereto;
(d) the receipt by the Borrower or any of its Subsidiaries of a notice
of default from (i) KCPL relating to the KCPL Contract or (ii) any other
utility company relating to any other utility contract;
(e) the occurrence of any Reportable Event or a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975
of the Code) with respect to any Plan of the Borrower or any of its
Subsidiaries, or any of their ERISA Affiliates, or the institution or
threatened institution by PBGC of proceedings under ERISA to terminate or to
partially
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terminate any such Plan, or the termination or partial termination of any
such Plan, or the commencement or threatened commencement of any litigation
regarding any such Plan or naming it or the trustee of any such Plan with
respect to such Plan; and
(f) the occurrence of any event subsequent to the Agreement Date which,
if such event had occurred prior to the Agreement Date, would have
constituted an exception to the representation and warranty in Section 4.1(m)
of this Agreement.
ARTICLE 7
NEGATIVE COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow from the Lenders hereunder (whether or not the
conditions to borrowing have been or can be fulfilled):
Section 7.1 INDEBTEDNESS OF THE BORROWER AND ITS SUBSIDIARIES.
The Borrower shall not, and shall cause each of its Subsidiaries not to,
create, assume, incur or otherwise become or remain obligated in respect of,
or permit to be outstanding, any Indebtedness except:
(a) The Obligations;
(b) Current accounts payable, accrued expenses, customer advance
payments and other current liabilities (other than for money borrowed)
incurred in the ordinary course of business;
(c) CellNet Subordinated Debt;
(d) An amount not to exceed $500,000 in the aggregate at any time
outstanding consisting of (i) Capitalized Lease Obligations, and (ii)
Indebtedness secured by purchase money security interests described in
subparagraph (g)(ii) of the definition of Permitted Liens set forth in
Article 1 hereof;
(e) Other unsecured Indebtedness, including without duplication any
Guaranties of the Borrower or any Subsidiary not otherwise permitted pursuant
to clauses (a) through (d) of Section 7.5, in an amount not to exceed
$500,000 in the aggregate at any time outstanding; and
(f) Indebtedness under Interest Hedge Agreements entered into in
satisfaction of the Borrower's obligations under Section 5.12 hereof.
Section 7.2 LIMITATION ON LIENS. The Borrower shall not, and shall
cause each of its Subsidiaries not to, create, assume, incur or permit to
exist or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its properties or assets, whether now owned or
hereafter acquired, except for Permitted Liens.
Section 7.3 AMENDMENT AND WAIVER. The Borrower shall not, and shall
cause each of its Subsidiaries not to enter into any amendment of, or agree
to or accept or consent to any waiver of
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any of the material provisions of (a) its articles or certificate of
incorporation in any fashion which would adversely effect the position of the
Lenders, or (b) the Utility Contract.
Section 7.4 LIQUIDATION, MERGER, DISPOSITION OF ASSETS.
(a) DISPOSITION OF ASSETS. The Borrower shall not, and shall cause
each of its Subsidiaries not to, at any time sell, lease, abandon, or
otherwise dispose of any of its or their assets other than:
(i) the sale of immaterial amounts of assets at the fair market
value thereof in the ordinary course of business of the Borrower and
its Subsidiaries;
(ii) the sale of disposal of obsolete equipment;
(iii) the sale or exchange of assets, in the ordinary course of
business, in exchange for comparable substitute or replacement assets;
(iv) the sale of assets subject to purchase money or capitalized
lease financing otherwise permitted hereunder; or
(v) the sale of other assets (including any System and ownership
interests in Subsidiaries of the Borrower) provided that (x) all Net
Proceeds therefrom are applied as provided in Section 2.8(b) hereof, (y) no
Default then exists or would be caused thereby, and (z) all Lenders give
their prior written consent to such sale or other disposition.
At the time of any such sale pursuant to clause (v) above (a "Permitted Asset
Sale"), the Borrower shall provide the Administrative Agent and the Lenders
with projections assuming the consummation of the Permitted Asset Sale and
demonstrating pro forma compliance with Sections 7.8, 7.9, 7.10, 7.11, 7.12
and 7.13 hereof for the remaining term of this Agreement.
(b) LIQUIDATION OR MERGER. The Borrower shall not, and shall cause
each of its Subsidiaries not to, at any time liquidate or dissolve itself (or
suffer any liquidation or dissolution) or otherwise wind up, or enter into
any merger, provided that if no Default then exists or would be caused
thereby, the following such transactions are permitted: (i) a merger among
the Borrower and one or more Subsidiaries, provided the Borrower is the
surviving Person; (ii) a merger between or among two or more Subsidiaries;
(iii) an Acquisition permitted hereunder effected by a merger in which the
Borrower or a Subsidiary of the Borrower is the surviving Person; and (iv) a
liquidation or dissolution of one or more Subsidiaries into its or their
parent entity (provided the Borrower or one of its Subsidiaries is such
parent entity).
Section 7.5 LIMITATION ON GUARANTIES. The Borrower shall not, and
shall cause each of its Subsidiaries not to, at any time Guaranty, assume, be
obligated with respect to, or permit to be outstanding any Guaranty of, any
obligation of any other Person other than (a) a guaranty by endorsement of
negotiable instruments for collection in the ordinary course of business, (b)
obligations under agreements of the Borrower or any of its Subsidiaries
entered into in connection with leases of real property or the acquisition of
services, supplies and equipment in the ordinary course of business of the
Borrower or any of its Subsidiaries, (c) Guaranties permitted by Section
7.1(e) hereof, or (d) as may be contained in any Loan Document.
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Section 7.6 INVESTMENTS AND ACQUISITIONS. The Borrower shall not, and
shall cause each of its Subsidiaries not to, make any loan or advance, or
make any Investment or otherwise acquire for consideration evidences of
Indebtedness, capital stock or other securities of any Person, or make any
Acquisition, except that, so long as no Default then exists or would be
caused thereby, the Borrower and its Subsidiaries may, directly or through a
brokerage account, purchase (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
of America 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
of America or any state thereof or the District of Columbia or any U.S.
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).
Section 7.7 RESTRICTED PAYMENTS AND PURCHASES. The Borrower shall not,
and shall cause each of its Subsidiaries not to, directly or indirectly
declare or make any Restricted Payment or Restricted Purchase (other than to
the extent permitted in Section 7.6(b) hereof) except that so long as no
Default hereunder then exists or would be caused thereby:
(a) So long as the Leverage Ratio is below 5.00, on or after each date
specified for mandatory reduction of the Commitment pursuant to Section
2.8(a) hereof, the Borrower may pay dividends or repay CellNet Subordinated
Debt, provided that (i) the Borrower shall have prepaid the Loans from its
Excess Cash Flow for the preceding four (4) fiscal quarter period in the
amount required by Section 2.8(a) hereof, (ii) the amount of such dividends
and distributions paid and made on or after such date for such period shall
not exceed the amount required to be prepaid on the Loans by the Borrower
pursuant to Section 2.8(a) hereof (the "Remaining Excess Cash Flow"), and
(iii) the Borrower shall provide the Lenders with a certificate, signed by
the chief financial officer of the Borrower, demonstrating pro forma
compliance with the terms of this Section 7.7, after giving effect to such
dividend payments or repayments of CellNet Subordinated Debt;
(b) So long as the Leverage Ratio is below 5.00, the Borrower may pay
cash management fees to CellNet in an amount not to exceed, in any fiscal
year, five percent (5%) of the Borrower's annual gross revenues for the
preceding fiscal year; and
(c) The Borrower may make distributions to CellNet to repay CellNet
Subordinated Debt in an amount not to exceed $12,500,000 in the aggregate if
the Borrower shall have delivered to the Administrative Agent, a compliance
certificate demonstrating its pro forma compliance with Sections 7.8, 7.9,
7.10, 7.11, 7.12 and 7.13 hereof, after giving effect to such distributions.
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Section 7.8 MINIMUM REVENUE. During the Implementation Phase, the
Borrower shall not permit its gross revenue as of the end of any fiscal
quarter times four (4) to be less than the amounts set forth below for such
quarter:
<TABLE>
<CAPTION>
QUARTER ENDING AMOUNT
-------------- ------
<S> <C>
September 30, 1998 $2,924,000
December 31, 1998 $2,992,000
March 31, 1999 $3,145,000
June 30, 1999 $3,298,000
September 30, 1999 $3,502,000
December 31, 1999 $3,492,000
</TABLE>
Section 7.9 MINIMUM OPERATING CASH FLOW. During the Implementation
Phase, the Borrower shall not permit its Operating Cash Flow as of the end of
any fiscal quarter times four (4) to be less than the amounts set forth below
for such quarter:
<TABLE>
<CAPTION>
QUARTER ENDING AMOUNT
-------------- ------
<S> <C>
September 30, 1998 $425,000
December 31, 1998 $442,000
March 31, 1999 $818,000
June 30, 1999 $986,000
September 30, 1999 $1,044,000
December 31, 1999 $1,038,000
</TABLE>
Section 7.10 CAPITAL EXPENDITURES. The Borrower shall not make or
incur, in the aggregate, any Capital Expenditures, during a calendar year, in
excess of the amounts set forth below for the periods indicated:
<TABLE>
<CAPTION>
CALENDAR YEAR AMOUNT
------------- ------
<S> <C>
1998 $3,300,900
1999 $1,440,600
2000 and thereafter $500,000 per annum
</TABLE>
PROVIDED, HOWEVER, that the Borrower may make Capital Expenditures in excess
of the amounts listed above to the extent such Capital Expenditures are
funded by CellNet Subordinated Debt invested in the Borrower after the
Agreement Date. Up to twenty-five percent (25%) of any year's Capital
Expenditures limit which is unused for Capital Expenditures in such year may
be carried forward to the next year; PROVIDED, HOWEVER, that any amounts used
for Capital Expenditures which are funded by CellNet Subordinated Debt as
provided in the preceding clause shall not increase the unused Capital
Expenditures amount for purposes of this carryforward provision.
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Section 7.11 LEVERAGE RATIO. After the Implementation Phase, the
Borrower shall not at any time permit the Leverage Ratio to exceed the ratio
set forth below during the periods indicated:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Agreement Date through December 30, 1999 N/A
December 31, 1999 through and including June 29, 2000 8.50:1
June 30, 2000 through and including December 30, 2000 8.00:1
December 31, 2000 through and including June 29, 2001 7.50:1
June 30, 2001 through and including March 30, 2002 6.75:1
March 31, 2002 through and including March 30, 2003 5.00:1
March 31, 2003 and thereafter 4.00:1
</TABLE>
Section 7.12 PRO FORMA DEBT SERVICE RATIO. After the Implementation
Phase, the Borrower shall not permit as of the end of any fiscal quarter the
ratio of Annualized Operating Cash Flow to Pro Forma Debt Service to be less
than (a) 1.20:1 for the fiscal quarters ending during the period from
December 31, 1999 through December 30, 2003 and (b) 1.30:1 for any fiscal
quarter ending on or after December 31, 2003.
Section 7.13 INTEREST COVERAGE RATIO. After the Implementation Phase,
the Borrower shall not as of the end of any fiscal quarter permit the ratio
of (i) Annualized Operating Cash Flow to (ii) Cash Interest Expense for the
four (4) fiscal quarter period then ended, to be less than the ratio set
forth below for such quarter:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Agreement Date through December 30, 1999 N/A
December 31, 1999 through December 30, 2001 1.50:1
December 31, 2001 through December 30, 2003 2.00:1
December 31, 2003 and thereafter 2.50:1
</TABLE>
Section 7.14 AFFILIATE TRANSACTIONS. Except as specifically provided
herein (including, without limitation, Section 7.7 hereof) and as may be
described on SCHEDULE 6 attached hereto, and except for fees and
compensation payable to officers and directors within customary parameters,
the Borrower shall not, and shall cause each of its Subsidiaries not to, at
any time engage in any transaction with an Affiliate (except for transactions
between or among the Borrower and its Subsidiaries), or make an assignment or
other transfer of any of its properties or assets to any Affiliate, on terms
less advantageous to the Borrower or such Subsidiary than would be the case
if such transaction had been effected with a non-Affiliate.
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Section 7.15 REAL ESTATE. Neither the Borrower nor any of its
Subsidiaries shall purchase or become obligated to purchase any single parcel
of real estate having a purchase price in excess of $100,000 except in
compliance with Section 5.10 hereof.
Section 7.16 ERISA LIABILITIES. The Borrower shall not, and shall
cause each of its Subsidiaries not to (i) permit the assets of any of their
respective Plans to be less than the amount necessary to provide all accrued
benefits under such Plans on an ongoing basis, or (ii) enter into any
Multiemployer Plan.
ARTICLE 8
DEFAULT
Section 8.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) (i) Any representation or warranty made under this Agreement or any
other Loan Document shall prove to be incorrect or misleading when made or
deemed to be made pursuant to Section 4.2 hereof, or (ii) any legal opinion
given in connection with this Agreement shall be revoked or withdrawn after
its issuance;
(b) (i) The Borrower shall default in the payment of any interest, fees
or other amounts payable to the Lenders, the Administrative Agent, or any of
them, when due, and such Default shall not be cured by payment in full within
three (3) Business Days, or (ii) the Borrower shall default in the payment of
any principal amount of the Notes;
(c) The Borrower shall default in the performance or observance of any
agreement or covenant contained in Sections 5.12, 5.13, 5.14 or 5.15;
Sections 6.1, 6.2 or 6.3; or any Section in Article 7, other than Sections
7.8, 7.9 and 7.11.
(d) The Borrower shall default in the performance or observance of any
agreement or covenant contained in Section 7.11 hereof; PROVIDED, that if the
Borrower, within fifteen (15) days from the date the financial statements are
delivered to the Administrative Agent pursuant to Sections 6.1 and 6.2
hereof, by using the proceeds from its issuance of CellNet Subordinated Debt,
reduces the amount of Total Debt then outstanding as of the relevant
calculation date to an amount such that a Default would not occur under
Section 7.11, no Default or Event of Default shall be deemed to have
occurred; PROVIDED FURTHER, the Borrower may not use the right to prevent a
Default under Section 7.11 as set forth in the preceding clause in more than
one (1) consecutive quarter or on more than three (3) occasions in total.
(e) The Borrower shall fail to meet one of the Performance Tests
applicable to any fiscal quarter (i) at the end of the fiscal quarter in
which such Performance Test is applicable, and (ii) in the subsequent fiscal
quarter.
(f) The Borrower shall default in the performance or observance of any
other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1,
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and such default shall not be cured within a period of thirty (30) days from
the date of occurrence of such default;
(g) There shall occur any default in the performance or observance of
any agreement or covenant or breach of any representation or warranty
contained in any of the Loan Documents (other than this Agreement or as
otherwise provided in this Section 8.1) by the Borrower, any of its
Subsidiaries, or any other obligor thereunder, which shall not be cured
within a period of thirty (30) days from the date of occurrence of such
default;
(h) There shall be entered and remain unstayed a decree or order for
relief in respect of the Borrower, any of its Subsidiaries or KCPL under
Title 11 of the United States Code as now constituted or hereafter amended,
or any other applicable Federal or state bankruptcy law or other similar law,
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official of the Borrower, any of its Subsidiaries or
of KCPL, or of any substantial part of their respective properties, or
ordering the winding-up or liquidation of the affairs of the Borrower, any of
its Subsidiaries or KCPL; or an involuntary petition shall be filed against
the Borrower, any of its Subsidiaries or KCPL and a temporary stay entered,
and (i) such petition and stay shall not be diligently contested, or (ii)
such petition and stay shall continue undismissed for a period of forty-five
(45) consecutive days;
(i) The Borrower, any of its Subsidiaries or KCPL shall file a
petition, answer or consent seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
Federal or state bankruptcy law or other similar law, or the Borrower, any of
its Subsidiaries or KCPL shall consent to the institution of proceedings
thereunder or to the filing of any such petition or shall seek or consent to
the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Borrower,
any of its Subsidiaries or KCPL, or of any substantial part of their
respective properties, or the Borrower, any of its Subsidiaries or KCPL shall
fail generally to pay their respective debts as they become due, or the
Borrower, any of its Subsidiaries or KCPL shall take any action in
furtherance of any such action;
(j) A judgment shall be entered by any court against the Borrower or
any of its Subsidiaries for the payment of money which exceeds singly or in
the aggregate with other such judgments, $1,000,000, or a warrant of
attachment or execution or similar process shall be issued or levied against
property of the Borrower or any of its Subsidiaries which, together with all
other such property of the Borrower or any of its Subsidiaries subject to
other such process, exceeds in value $1,000,000 in the aggregate;
(k) There shall be at any time any "accumulated funding deficiency," as
defined in ERISA or in Section 412 of the Code, with respect to any Plan
maintained by the Borrower or any of its Subsidiaries, or to which the
Borrower or any of its Subsidiaries has any liabilities, or any trust created
thereunder; or a trustee shall be appointed by a United States District Court
to administer any such Plan; or PBGC shall institute proceedings to terminate
any such Plan; or the Borrower or any of its Subsidiaries shall incur any
liability to PBGC in connection with the termination of any such Plan; or any
Plan or trust created under any Plan of the Borrower or any of its
Subsidiaries shall engage in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject any such Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any such Plan or trust to
the tax or penalty in any material amount on "prohibited transactions"
imposed by Section 502
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of ERISA or Section 4975 of the Code and, in each case, such event or
condition, together with other such events or conditions, if any, would
subject the Borrower or its Subsidiaries to any tax, liability or penalty in
excess of $1,000,000;
(l) Any event shall occur which has a Materially Adverse Effect;
(m) There shall occur (i) any default under any Indebtedness of the
Borrower or any of its Subsidiaries in an aggregate principal amount
exceeding $1,000,000, (ii) any default under any Interest Hedge Agreement
having a notional principal amount of $1,000,000 or more, or (iii) any
default under the KCPL Contract;
(n) The FCC shall deliver to the Borrower or any of its Subsidiaries an
order to show cause why an order of revocation should not be issued based
upon any alleged attribution of alien ownership (within the meaning of 47
U.S.C. Section 310(b) and any interpretation of the FCC thereunder) to the
Borrower or any of its Subsidiaries and such order shall not have been
rescinded within sixty (60) days after such delivery, with respect to any
License;
(o) One or more Licenses shall be terminated or revoked such that the
Borrower and its Subsidiaries are no longer able to operate any System or any
portion thereof and retain the revenue received therefrom or any such License
shall fail to be renewed at the stated expiration thereof such that the
Borrower and its Subsidiaries are no longer able to operate the related
System or any portion thereof and retain the revenue received therefrom,
except in the event that the termination or revocation is with respect to any
License that is not material;
(p) Any Security Document or any Note or any other material Loan
Document or any material provision thereof shall at any time and for any
reason be declared by a court of competent jurisdiction, to be null and void,
or a proceeding shall be commenced by the Borrower or any of its
Subsidiaries, or by any governmental authority having jurisdiction over the
Borrower or any of its Subsidiaries, seeking to establish the invalidity or
unenforceability thereof (exclusive of questions of interpretation of any
provision thereof), or the Borrower or any of its Subsidiaries shall deny
that it has any liability or obligation for the payment of principal or
interest or other obligations purported to be created under any Loan Document;
(q) Any Security Document shall for any reason fail or cease to create
a valid and first-priority Lien on or Security Interest in any portion of the
Collateral purported to be covered thereby, subject to any Permitted Lien, or
any such Lien or Security Interest shall cease to be perfected; or
(r) (i) KCPL shall purchase the Borrower's wireless data transmission
system pursuant to the terms of the KCPL Contract, or (ii) the Borrower shall
cease to be a wholly-owned Subsidiary of CellNet.
Section 8.2 REMEDIES.
(a) If an Event of Default specified in Section 8.1 (other than an
Event of Default under Section 8.1(h) or Section 8.1(i)) shall have occurred
and shall be continuing, the Administrative Agent, at the request of the
Majority Lenders, shall formally declare that an Event of Default has
occurred and (i) terminate the Commitment and (ii) declare the principal of
and interest on the Loans and the Notes and all other amounts owed to the
Lenders and the Administrative Agent
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under this Agreement and the Notes and any other Obligations to be forthwith
due and payable without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived, anything in this Agreement or in
the Notes or any other Loan Document to the contrary notwithstanding, and the
Commitment shall thereupon forthwith terminate and all such amounts shall be
immediately due and payable.
(b) Upon the occurrence and continuance of an Event of Default
specified in Section 8.1(h) or Section 8.1(i), all principal, interest and
other amounts due hereunder and under the Notes, and all other Obligations,
shall thereupon and concurrently therewith become due and payable and the
Commitment shall forthwith terminate and the principal amount of the Loans
outstanding hereunder shall bear interest at the Default Rate, all without
any action by the Administrative Agent, the Lenders or the Majority Lenders
or any of them and without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in this Agreement or in
the other Loan Documents to the contrary notwithstanding.
(c) Upon acceleration of the Notes, as provided in subsection (a) or
(b) of this Section 8.2, the Administrative Agent and the Lenders shall have
all of the post-default rights granted to them, or any of them, under the
Loan Documents and under Applicable Law.
(d) Upon acceleration of the Notes, as provided in subsection (a) or
(b) of this Section 8.2, the Administrative Agent, upon request of the
Majority Lenders, shall have the right to the appointment of a receiver for
the properties and assets of the Borrower and its Subsidiaries, both to
operate and to sell such properties and assets, and the Borrower, for itself
and on behalf of its Subsidiaries, hereby consents to such right and such
appointment and hereby waives any objection the Borrower or any Subsidiary
may have thereto or the right to have a bond or other security posted by the
Administrative Agent on behalf of the Lenders, in connection therewith. The
rights of the Administrative Agent under this Section 8.2(d) shall be subject
to its prior compliance with the Communications Act and the FCC rules and
policies promulgated thereunder to the extent applicable to the exercise of
such rights.
(e) The rights and remedies of the Administrative Agent and the Lenders
hereunder shall be cumulative and not exclusive.
Section 8.3 PAYMENTS SUBSEQUENT TO DECLARATION OF EVENT OF DEFAULT.
Subsequent to the acceleration of the Loans under Section 8.2 hereof,
payments and prepayments under this Agreement made to any of the
Administrative Agent, the Lenders or otherwise received by any of such
Persons (from realization on Collateral for the Obligations or otherwise)
shall be paid over to the Administrative Agent (if necessary) and distributed
by the Administrative Agent as follows: FIRST, to the reasonable costs and
expenses, if any, incurred in connection with the collection of such payment
or prepayment including, without limitation, any reasonable costs incurred by
the Administrative Agent in connection with the sale or disposition of any
Collateral for the Obligations; SECOND, to the Lenders and the Administrative
Agent for any fees hereunder or under any of the other Loan Documents then
due and payable; THIRD, to the Lenders pro rata on the basis of their
respective unpaid principal amounts (except as provided in Section 2.2(e)),
to the payment of any unpaid interest which may have accrued on the
Obligations; FOURTH, to the Lenders pro rata until all Advances have been
paid in full (and, for purposes of this clause, obligations under Interest
Hedge Agreements with the Lenders or any of them shall be deemed to be
Advances and shall be paid on a pro rata basis with the Advances); FIFTH, to
the Lenders pro rata on the basis of their respective unpaid amounts, to the
payment of any other unpaid
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Obligations; SIXTH, to damages incurred by the Administrative Agent or any
Lender by reason of any breach hereof or of any other Loan Document; and
SEVENTH, upon satisfaction in full of all Obligations, to the Borrower or as
otherwise required by law. Notwithstanding the foregoing, each Lender may
allocate amounts received by it pursuant to this Section 8.3 in its
discretion to the various Obligations held by it.
ARTICLE 9
THE ADMINISTRATIVE AGENT
Section 9.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints and authorizes, and hereby agrees that it will require
any transferee of any of its interest in its Loan and in its Note irrevocably
to appoint and authorize, the Administrative Agent to take such actions as
its agent on its behalf and to exercise such powers hereunder and under the
Security Documents as are delegated by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. Neither the
Administrative Agent nor any of its respective directors, officers, employees
or agents shall be liable for any action taken or omitted to be taken by it
or them hereunder or in connection herewith, except for its or their own
gross negligence or willful misconduct.
Section 9.2 INTEREST HOLDERS. The Administrative Agent may treat each
Lender, or the Person designated in the last notice filed with the
Administrative Agent, whether under Section 11.1, Section 11.5, or otherwise
hereunder, as the holder of all of the interests of such Lender in its Loan
and in its Note until written notice of transfer, signed by such Lender (or
the Person designated in the last notice filed with the Administrative Agent)
and by the Person designated in such written notice of transfer, in form and
substance satisfactory to the Administrative Agent, shall have been filed
with the Administrative Agent.
Section 9.3 CONSULTATION WITH COUNSEL. The Administrative Agent may
consult with Paul, Hastings, Janofsky & Walker LLP, Atlanta, Georgia, special
counsel to the Administrative Agent, or with other legal counsel selected by
it with due care and shall not be liable for any action taken or suffered by
it in good faith in consultation with the Majority Lenders and in reasonable
reliance on such consultations.
Section 9.4 DOCUMENTS. The Administrative Agent shall be under no duty
to examine, inquire into, or pass upon the validity, effectiveness or
genuineness of this Agreement, any Note, any other Loan Document, or any
other instrument, document or communication furnished pursuant hereto or in
connection herewith, and the Administrative Agent shall be entitled to assume
(absent knowledge to the contrary) that they are valid, effective and
genuine, have been signed or sent by the proper parties and are what they
purport to be.
Section 9.5 ADMINISTRATIVE AGENT AND AFFILIATES. With respect to the
Commitment and its Loan, Toronto Dominion (Texas), Inc. and its Affiliates
shall have the same rights and powers hereunder and under the other Loan
Documents as any other Lender, and the Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in
any kind of business with the Borrower, any of its Subsidiaries or any
Affiliates of, or Persons doing business with, the Borrower, as if they were
not affiliated with the Administrative Agent and without any obligation to
account therefor.
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Section 9.6 RESPONSIBILITY OF THE ADMINISTRATIVE AGENT. The duties and
obligations of the Administrative Agent under this Agreement and the Security
Documents are only those expressly set forth in this Agreement and the
Security Documents. The Administrative Agent shall be entitled to assume
that no Default has occurred and is continuing unless it has actual
knowledge, or has been notified by the Borrower, of such fact, or has been
notified by a Lender in writing that such Lender considers that a Default has
occurred and is continuing, and such Lender shall specify in detail the
nature thereof in writing. The Administrative Agent shall not be liable
hereunder for any action taken or omitted to be taken except for its own
gross negligence or willful misconduct. The Administrative Agent shall
provide promptly each Lender with copies of such documents received from the
Borrower as such Lender may reasonably request.
Section 9.7 SECURITY DOCUMENTS. The Administrative Agent, as
collateral agent hereunder and under the Security Documents, is hereby
authorized to act on behalf of the Lenders, in its own capacity and through
other agents and sub-agents appointed by it with due care, under the Security
Documents, provided that the Administrative Agent shall not agree to the
release of any Collateral, or any property encumbered by any mortgage, pledge
or security interests except in compliance with Section 11.12 hereof. In
connection with its role as secured party with respect to the Collateral
hereunder, the Administrative Agent shall act as collateral agent, for itself
and for the ratable benefit of the Lenders, and such role as administrative
agent shall be disclosed on all appropriate accounts, certificates, filings,
mortgages, and other Collateral documentation.
Section 9.8 ACTION BY THE ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to use its discretion
with respect to exercising or refraining from exercising any rights which may
be vested in it by, and with respect to taking or refraining from taking any
action or actions which it may be able to take under or in respect of, this
Agreement, unless the Administrative Agent shall have been instructed by the
Majority Lenders to exercise or refrain from exercising such rights or to
take or refrain from taking such action; provided that the Administrative
Agent shall not exercise any rights under Section 8.2(a) of this Agreement
except upon the request of the Majority Lenders or all the Lenders, where
expressly required by this Agreement. The Administrative Agent shall incur
no liability under or in respect of this Agreement with respect to anything
which it may do or refrain from doing in the reasonable exercise of its
judgment or which may seem to it to be necessary or desirable in the
circumstances for the protection of the interests of the Lenders, except for
its gross negligence or willful misconduct, or conduct in breach of this
Agreement as determined by a final, non-appealable order of a court having
jurisdiction over the subject matter.
(b) The Administrative Agent shall not be liable to the Lenders or to
any Lender in acting or refraining from acting under this Agreement or any
other Loan Document in accordance with the instructions of the Majority
Lenders or of all the Lenders, where expressly required by this Agreement,
and any action taken or failure to act pursuant to such instructions shall be
binding on all Lenders.
Section 9.9 NOTICE OF DEFAULT OR EVENT OF DEFAULT. In the event that
the Administrative Agent or any Lender shall acquire actual knowledge, or
shall have been notified, of any Default (other than through a notice by one
party hereto to all other parties), the Administrative Agent or such Lender
shall promptly notify the Administrative Agent, and the Administrative Agent
shall take such action and assert such rights under this Agreement as the
Majority Lenders or of all the Lenders, where expressly required by this
Agreement, shall request in writing, and the
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Administrative Agent shall not be subject to any liability by reason of its
acting pursuant to any such request. If the Majority Lenders shall fail to
request the Administrative Agent to take action or to assert rights under
this Agreement in respect of any Default within ten (10) days after their
receipt of the notice of any Default from the Administrative Agent or any
Lender, or shall request inconsistent action with respect to such Default,
the Administrative Agent may, but shall not be required to, take such action
and assert such rights (other than rights under Article 8 hereof) as it deems
in its discretion to be advisable for the protection of the Lenders, except
that, if the Majority Lenders have instructed the Administrative Agent not to
take such action or assert such right, in no event shall the Administrative
Agent act contrary to such instructions.
Section 9.10 RESPONSIBILITY DISCLAIMED. The Administrative Agent shall
not be under any liability or responsibility whatsoever as Administrative
Agent:
(a) To the Borrower or any other Person as a consequence of any failure
or delay in performance by or any breach by, any Lender or Lenders of any of
its or their obligations under this Agreement;
(b) To any Lender or Lenders, as a consequence of any failure or delay
in performance by, or any breach by, (i) the Borrower of any of its
obligations under this Agreement or the Notes or any other Loan Document, or
(ii) any Subsidiary of the Borrower or any other obligor under any other Loan
Document; or
(c) To any Lender or Lenders, for any statements, representations or
warranties in this Agreement, or any other document contemplated by this
Agreement or any other Loan Document, or any information provided pursuant to
this Agreement, any other Loan Document, or any other document contemplated
by this Agreement, or for the validity, effectiveness, enforceability or
sufficiency of this Agreement, the Notes, any other Loan Document, or any
other document contemplated by this Agreement.
Section 9.11 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower) pro rata
according to their respective Commitment Ratios, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable fees and expenses of experts,
agents, consultants and counsel), or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of its role as
Administrative Agent under this Agreement, any other Loan Document, or any
other document contemplated by this Agreement or any action taken or omitted
by the Administrative Agent under this Agreement, any other Loan Document, or
any other document contemplated by this Agreement in its role as
Administrative Agent, except that no Lender shall be liable to the
Administrative Agent for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements resulting from the gross negligence or willful misconduct of
the Administrative Agent as determined by a final, non-appealable order of a
court having jurisdiction over the subject matter.
Section 9.12 CREDIT DECISION. Each Lender represents and warrants to
each other Lender and to the Administrative Agent that:
(a) In making its decision to enter into this Agreement and to make its
Advances it has independently taken whatever steps it considers necessary to
evaluate the financial condition and
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affairs of the Borrower and its Subsidiaries and that it has made an
independent credit judgment, and that it has not relied upon the
Administrative Agent or any other Lender, or information provided by the
Administrative Agent (other than information provided to the Administrative
Agent by the Borrower and forwarded by the Administrative Agent to the
Lenders); and
(b) So long as any portion of the Obligations remains outstanding, it
will continue to make its own independent evaluation of the financial
condition and affairs of the Borrower.
Section 9.13 SUCCESSOR ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower. Upon any such resignation,
the Majority Lenders shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been
so appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent which shall be any Lender
or a commercial bank organized under the laws of the United States of America
or any political subdivision thereof which has combined capital and reserves
in excess of $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges, duties and obligations of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Administrative Agent. The resignation of the Administrative Agent may
not take effect until a successor Administrative Agent is appointed.
Section 9.14 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its respective duties under the Loan Documents by or through
agents or attorneys selected by it using reasonable care, and shall be
entitled to advice of counsel concerning all matters pertaining to such
duties.
Section 9.15 ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM. The
Administrative Agent may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Administrative Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Administrative Agent, its agents,
financial advisors and counsel) and the Lenders allowed in any judicial
proceedings relative to the Borrower, or any of its creditors or property,
and shall be entitled and empowered to collect, receive and distribute any
monies, securities or other property payable or deliverable on any such
claims, and any custodian in any such judicial proceedings is hereby
authorized by each Lender to make such payments to the Administrative Agent
and, in the event that the Administrative Agent shall consent to the making
of such payments directly to the Lenders, to pay to the Administrative Agent
any amount due to the Administrative Agent for the reasonable compensation,
expenses, disbursements and advances of the Administrative Agent, its agents,
financial advisors and counsel, and any other amounts due the Administrative
Agent under Section 11.2 hereof. Nothing contained in this Agreement or the
other Loan Documents shall be deemed to authorize the Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition
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affecting the Notes or the rights of any holder thereof, or to authorize the
Administrative Agent to vote in respect of the claim of any Lender in any
such proceeding.
ARTICLE 10
CHANGE IN CIRCUMSTANCES
AFFECTING EURODOLLAR ADVANCES
Section 10.1 EURODOLLAR BASIS DETERMINATION INADEQUATE OR UNFAIR. If
with respect to any proposed Eurodollar Advance for any Interest Period, the
Administrative Agent determines after consultation with the Lenders that
deposits in Dollars (in the applicable amount) are not being offered to each
of the Lenders in the relevant market for such Interest Period, the
Administrative Agent shall forthwith give notice thereof to the Borrower and
the Lenders, whereupon until the Administrative Agent notifies the Borrower
that the circumstances giving rise to such situation no longer exist, the
obligations of any affected Lender to make such type of Eurodollar Advances
shall be suspended.
Section 10.2 ILLEGALITY. If after the date hereof, the adoption of any
Applicable Law, or any change in any Applicable Law (whether adopted before
or after the Agreement Date), or any change in interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by any Lender with any directive (whether or not having the
force of law) of any such authority, central bank or comparable agency, shall
make it unlawful or impossible for any Lender to make, maintain or fund
either or both types of Eurodollar Advances, such Lender shall so notify the
Administrative Agent, and the Administrative Agent shall forthwith give
notice thereof to the other Lenders and the Borrower. Upon receipt of such
notice, notwithstanding anything contained in Article 2 hereof, the Borrower
shall repay in full the then outstanding principal amount of each affected
Eurodollar Advance of such Lender, together with accrued interest thereon and
any reimbursement required under Section 2.11 hereof, on either (a) the last
day of the then current Interest Period applicable to such affected
Eurodollar Advances if such Lender may lawfully continue to maintain and fund
such Eurodollar Advances to such day or (b) immediately if such Lender may
not lawfully continue to fund and maintain such affected Eurodollar Advances
to such day. Concurrently with repaying each affected Eurodollar Advance of
such Lender, notwithstanding anything contained in Article 2 or Article 3
hereof, the Borrower may borrow a Base Rate Advance (or the other type of
Eurodollar Advance, if available) from such Lender, and such Lender shall
make such Advance, if so requested, in an amount such that the outstanding
principal amount of the Note held by such Lender shall equal the outstanding
principal amount of such Note immediately prior to such repayment.
Section 10.3 INCREASED COSTS.
(a) If after the date hereof, any Lender becomes aware of the adoption
of any Applicable Law, or any change in any Applicable Law (whether adopted
before or after the Agreement Date), or any interpretation or change in
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by any Lender with any directive
(whether or not having the force of law) of any such authority, central bank
or comparable agency, and any such adoption, change or interpretation:
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(i) shall subject any Lender to any tax, duty or other charge with
respect to its obligation to make Eurodollar Advances, or its Eurodollar
Advances, or shall change the basis of taxation of payments to any Lender
of the principal of or interest on its Eurodollar Advances or in respect of
any other amounts due under this Agreement, in respect of its Eurodollar
Advances or its obligation to make Eurodollar Advances (except for changes
in the rate or method of calculation of tax on the overall net income of
such Lender); or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System, but excluding any included in an applicable Eurodollar
Reserve Percentage or Domestic Reserve Percentage), special deposit,
capital adequacy, assessment or other requirement or condition against
assets of, deposits with or for the account of, or commitments or credit
extended by, any Lender or shall impose on any Lender or the London
interbank borrowing market or the New York certificate of deposit market
any other condition affecting its obligation to make Eurodollar Advances or
its Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to such Lender
of making or maintaining any such Eurodollar Advances, or to reduce the
amount of any sum received or receivable by such Lender under this Agreement
or under its Note with respect thereto, then within one hundred eighty (180)
days of such increase, such Lender may demand and within five (5) days after
demand by such Lender, the Borrower agrees to pay to such Lender, such
additional amount or amounts as will compensate such Lender for such
increased costs. Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Lender to compensation pursuant to
this Section 10.3
(b) Any Lender claiming compensation under this Section 10.3 shall
provide the Borrower with a written certificate setting forth the additional
amount or amounts to be paid to it hereunder and calculations therefor in
reasonable detail. Such certificate shall be presumptively correct, absent
manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. If any Lender demands
compensation under this Section 10.3, the Borrower may at any time, upon at
least five (5) Business Days' prior notice to such Lender, prepay in full the
then outstanding affected Eurodollar Advances of such Lender, together with
accrued interest thereon to the date of prepayment, along with any
reimbursement required under Section 2.11 hereof. Concurrently with prepaying
such Eurodollar Advances, the Borrower may borrow a Base Rate Advance from
such Lender, and such Lender shall, if so requested, make such Advance in an
amount such that the outstanding principal amount of the Note held by such
Lender shall equal the outstanding principal amount of such Note immediately
prior to such prepayment.
Section 10.4 EFFECT ON OTHER ADVANCES. If notice has been given
pursuant to Section 10.1, 10.2 or 10.3 suspending the obligation of any
Lender to make Eurodollar Advances, or requiring Eurodollar Advances of any
Lender to be repaid or prepaid, then, unless and until such Lender notifies
the Borrower that the circumstances giving rise to such repayment no longer
apply, all Advances which would otherwise be made by such Lender as
Eurodollar Advances shall, at the option of the Borrower, be made instead as
Base Rate Advances.
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ARTICLE 11
MISCELLANEOUS
Section 11.1 NOTICES.
(a) Unless otherwise specifically provided herein, all notices and
other communications under this Agreement shall be in writing and shall be
deemed to have been given three (3) days after deposit in the mail,
designated as certified mail, return receipt requested, postage-prepaid, or
one (1) day after being entrusted to a reputable commercial overnight
delivery service, or when sent by telecopy addressed to the party to which
such notice is directed at its address determined as provided in this Section
11.1, except that notices under Article 2 shall be effective only upon
receipt. All notices and other communications under this Agreement shall be
given to the parties hereto at the following addresses:
(i) If to the Borrower, to it at:
CellNet Data Services (KC), Inc.
125 Shoreway Road
San Carlos, California 94070
Attn: Paul Manca
Telecopier: (415) 592-6858
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Meredith S. Jackson, Esq.
Telecopier: (415) 493-6811
(ii) If to the Administrative Agent, to it at:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Manager, Agency
Telecopier: (713) 951-9921
with a copy to:
The Toronto-Dominion Bank
USA Division
31 West 52nd Street
New York, NY 10019-6101
Attn: Managing Director, Communications Finance
Telecopier: (212) 262-1928
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and to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, Suite 2400
Atlanta, Georgia 30308-2222
Attn: Kevin Conboy, Esq.
Telecopier: (404) 815-2424
(iii) If to the Lenders, to them at the addresses set forth beside
their names on SCHEDULE 1.
Copies shall be provided to Persons other than parties hereto only in the
case of notices under Article 8 hereof.
(b) Any party hereto may change the address to which notices shall be
directed under this Section 11.1 by giving ten (10) days' written notice of
such change to the other parties.
Section 11.2 EXPENSES. The Borrower will promptly pay, or reimburse:
(a) all reasonable out-of-pocket expenses of the Administrative Agent
in connection with the preparation, negotiation, execution and delivery of
this Agreement and the other Loan Documents, and the transactions
contemplated hereunder and thereunder and the making of the initial Advance
hereunder (whether or not such Advance is made), including, but not limited
to, the fees and disbursements of Paul, Hastings, Janofsky & Walker LLP,
special counsel for the Administrative Agent and its Affiliates;
(b) all reasonable out-of-pocket expenses of the Administrative Agent
in connection with the administration of the transactions contemplated in
this Agreement or the other Loan Documents, the restructuring and "work out"
of such transactions, and the preparation, negotiation, execution and
delivery of any waiver, amendment or consent by the Administrative Agent and
the Lenders relating to this Agreement or the other Loan Documents,
including, but not limited to, the fees and disbursements of any experts,
agents or consultants and of special counsel for the Administrative Agent; and
(c) all out-of-pocket costs and expenses of the Administrative Agent
and each Lender of obtaining performance under this Agreement or the other
Loan Documents and all out-of-pocket costs and expenses of collection of the
Administrative Agent and each lender if an Event of Default occurs in the
payment of the Notes, which in each case shall include reasonable fees and
out-of-pocket expenses of special counsel for the Administrative Agent.
Section 11.3 WAIVERS. The rights and remedies of the Administrative
Agent and the Lenders under this Agreement and the other Loan Documents shall
be cumulative and not exclusive of any rights or remedies which they would
otherwise have. No failure or delay by the Administrative Agent or the
Lenders, or any of them, in exercising any right, shall operate as a waiver
of such right. The Administrative Agent and the Lenders expressly reserve
the right to require strict compliance with the terms of this Agreement in
connection with any future funding of a request for an Advance. In the event
the Lenders decide to fund an Advance at a time when the Borrower is not in
strict compliance with the terms of this Agreement, such decision by the
Lenders shall not be deemed to constitute an undertaking by the Lenders to
fund any further
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Advances or preclude the Lenders and the Administrative Agent from exercising
any rights available under the Loan Documents or at law or equity. Any
waiver or indulgence granted by the Administrative Agent, the Lenders or the
Majority Lenders shall not constitute a modification of this Agreement,
except to the extent expressly provided in such waiver or indulgence, or
constitute a course of dealing at variance with the terms of this Agreement
such as to require further notice of their intent to require strict adherence
to the terms of this Agreement in the future.
Section 11.4 SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of an Event of Default and during the continuation
thereof, the Administrative Agent and the Lenders are hereby authorized by
the Borrower at any time or from time to time, without notice to the Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and to apply any and all deposits (general or special,
time or demand, including, but not limited to, Indebtedness evidenced by
certificates of deposit, in each case whether matured or unmatured) and any
other Indebtedness at any time held or owing by any Lender or the
Administrative Agent to or for the credit or the account of the Borrower or
any of its Subsidiaries against and on account of the Obligations which are
then due and payable irrespective of whether (a) any Lender or the
Administrative Agent shall have made any demand hereunder or (b) the
Administrative Agent shall have declared the principal of and interest on the
Loans and other amounts due hereunder to be due and payable as permitted by
Section 8.2 and although such Obligations or any of them, shall be contingent
or unmatured. Upon direction by the Administrative Agent with the consent of
the Majority Lenders, each Lender holding deposits of the Borrower or any of
its Subsidiaries shall exercise its set-off rights as so directed.
Section 11.5 ASSIGNMENT.
(a) The Borrower may not assign or transfer any of its rights nor
delegate any of its obligations hereunder or under the Notes without the
prior written consent of each Lender.
(b) Each of the Lenders may at any time enter into participation or
assignment agreements with one or more other Lenders or other Persons
pursuant to which each Lender may sell participations in or assign its
interests under this Agreement and the other Loan Documents, provided, that
unless otherwise agreed to by the Borrower and the Administrative Agent, (i)
all assignments and participations (other than assignments and participations
described in clause (ii) hereof) shall be in minimum principal amounts of
Five Million Dollars ($5,000,000), (ii) each Lender may sell assignments and
participations of up to one hundred percent (100%) of its interests hereunder
to (A) one or more affiliates of such Lender, (B) any other Lender, or (C)
any Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank, provided, that no such
assignment described in clause (C) shall relieve such Lender from its
obligations hereunder, and (iii) all assignments (other than assignments
described in clause (ii) hereof) and participations hereunder shall be
subject to the following additional terms and conditions:
(i) No assignment shall be sold without the prior written
consent of the Administrative Agent and (so long as no Event of Default
exists hereunder) the prior written consent of the Borrower, which consents
shall not be unreasonably withheld or delayed.
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(ii) Any Person purchasing a participation or an assignment of
the Loans from any Lender shall be required to represent and warrant that
its purchase shall not constitute a "prohibited transaction" (as defined in
Section 4.1(m) hereof).
(iii) The Borrower, the Lenders, and the Administrative Agent
agree that assignments permitted hereunder (including the assignment of any
Advance or portion thereof) may be made with all voting rights, and shall
be made pursuant to an Assignment and Assumption Agreement in substantially
the form attached hereto as EXHIBIT S. An administrative fee of $3,500
shall be payable to the Administrative Agent by the assigning Lender at the
time of any assignment hereunder.
(iv) No assignment, participation or other transfer of any rights
hereunder or under the Notes shall be effected that would result in any
interest requiring registration under the Securities Act of 1933, as
amended, or qualification under any state securities law.
(v) Each Lender agrees that (x) no participation agreement shall
confer any rights under this Agreement or any other Loan Document to any
purchaser thereof, (y) no Person to which a participation is issued shall
have any right to exercise or enforce any rights under this Agreement or
under any other Loan Document, and (z) any participation agreement
permitted hereunder shall (a) (subject to clause (vi) of this Section
11.5(b)) expressly provide that the issuer thereof will at all times retain
the right to vote or take any other actions with respect to its interests
hereunder for the full Commitment Ratio assigned to such issuing Lender
hereunder, both before and after the occurrence of any Default, and contain
an express representation by the participant that it is purchasing such
participation for its own account and not as agent or trustee for any Plan
or trust.
(vi) The participation may also provide that the issuing Lender
will not, without the consent of the participant, agree to any
modification, amendment or waiver of this Agreement which would otherwise
require unanimous consent of all of the Lenders.
(vii) The amount, terms and conditions of any participations or
assignments shall be as set forth in the participation or assignment
agreement between the issuing or assigning Lender and the Person purchasing
such participation or assignment, except as provided in the Assignment and
Assumption Agreement, and neither the Borrower, the Administrative Agent,
nor any other Lender shall have any responsibility or obligations with
respect thereto, or to any Person to whom such participation or assignment
may be issued.
(viii) No such assignment may be made to any Lender or other
financial institution (x) with respect to which a receiver or conservator
(including, without limitation, the Federal Deposit Insurance Corporation,
the Resolution Trust Company or the Office of Thrift Supervision) has been
appointed or (y) that is not "adequately capitalized" (as such term is
defined in Section 131(b)(1)(B) of the Federal Deposit Insurance
Corporation Improvement Act as in effect on the Agreement Date.
(c) Except specifically set forth in Section 11.5(b) hereof, nothing in
this Agreement or the Notes, expressed or implied, is intended to or shall
confer on any Person other than the respective parties hereto and thereto and
their successors and assignees permitted hereunder and
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<PAGE>
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or the Notes.
Section 11.6 ACCOUNTING PRINCIPLES. Except as set forth in the
following sentence, references in this Agreement to GAAP shall be to such
principles as in effect from time to time, and all accounting terms used
herein without definition shall be used as defined under GAAP. All
references to Operating Cash Flow, Total Debt, Debt Service, and other such
terms shall be deemed to refer to such items of the Borrower and its
Subsidiaries on a consolidated basis, consistently applied, unless otherwise
indicated herein.
Section 11.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 GOVERNING LAW. This Agreement and the Notes shall be
construed in accordance with and governed by the internal laws of the State
of New York applicable to agreements made and to be performed in New York.
If any action or proceeding shall be brought by the Administrative Agent or
any Lender in order to enforce any right or remedy under this Agreement or
under any Note, the Borrower hereby consents and will, and the Borrower will
cause each Subsidiary to, submit to the jurisdiction of any state or federal
court of competent jurisdiction sitting within the area comprising the
Southern District of New York on the date of this Agreement. The Borrower,
for itself and on behalf of its Subsidiaries, hereby agrees that service of
the summons and complaint and all other process which may be served in any
such suit, action or proceeding may be effected by mailing by registered mail
a copy of such process to the offices of the Borrower at the address given in
Section 11.1 hereof and that personal service of process shall not be
required. Nothing herein shall be construed to prohibit service of process
by any other method permitted by law or the bringing of any suit, action or
proceeding in any other jurisdiction. The Borrower agrees that final
judgment in such suit, action or proceeding shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by Applicable Law.
Section 11.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.10 INTEREST.
(a) In no event shall the amount of interest due or payable hereunder
or under the Notes exceed the maximum rate of interest allowed by Applicable
Law, and in the event any such payment is inadvertently made by the Borrower
or inadvertently received by any Lender, then such excess sum shall be
credited as a payment of principal, unless the Borrower shall notify the
Administrative Agent or such Lender in writing that it elects to have such
excess returned forthwith. It is the express intent hereof that the Borrower
not pay and the Lenders not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the
Borrower under Applicable Law.
(b) Notwithstanding the use by the Lenders of the Base Rate, the
Federal Funds Rate, and the Eurodollar Rate as reference rates for the
determination of interest on the Loans, the Lenders
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<PAGE>
shall be under no obligation to obtain funds from any particular source in
order to charge interest to the Borrower at interest rates related to such
reference rates.
Section 11.11 TABLE OF CONTENTS AND HEADINGS. The Table of Contents
and the headings of the various subdivisions used in this Agreement are for
convenience only and shall not in any way modify or amend any of the terms or
provisions hereof, nor be used in connection with the interpretation of any
provision hereof.
Section 11.12 AMENDMENT AND WAIVER. Neither this Agreement nor any
other Loan Document nor any term hereof or thereof may be amended orally, nor
may any provision hereof or thereof be waived orally but only by an
instrument in writing signed by (or, in the case of Security Documents
executed by the Administrative Agent for itself and on behalf of the Lenders,
signed by the Administrative Agent and approved by) the Majority Lenders and,
in the case of an amendment, by the Borrower, except that in the event of (a)
any increase in the amount of the Commitment, (b) any delay or extension in
the terms of repayment of the Loans provided in Section 2.7 hereof, (c) any
reduction in principal, interest or fees due hereunder or postponement of the
payment thereof, (d) any release of any Collateral for the Loans other than
in connection with a sale or disposition otherwise permitted hereunder, or
any failure to take Collateral to which the Lenders are otherwise entitled to
hereunder, (e) any waiver of any Default due to the failure by the Borrower
to pay any sum due to any of the Lenders hereunder, (f) any release of any
Guaranty of all or any portion of the Obligations, except in connection with
a merger, sale or other disposition otherwise permitted hereunder, or (g) any
amendment of this Section 11.12, or of the definition of Majority Lenders, or
of any portion of Sections 2.10, 2.12, 5.11 or Article 10 as they relate to
the relative priority of payment among the Obligations, or any other
provision of this Agreement or any of the other Loan Documents specifically
requiring the consent or approval of each of the Lenders, any amendment or
waiver or consent may be made only by an instrument in writing signed by (or,
in the case of Security Documents executed by the Administrative Agent for
itself and on behalf of the Lenders, signed by the Administrative Agent and
approved by) each of the Lenders and, in the case of an amendment, by the
Borrower. Any amendment to any provision hereunder governing the rights,
obligations, or liabilities of the Administrative Agent in its capacity as
such, may be made only by an instrument in writing signed by the
Administrative Agent and by each of the Lenders.
Section 11.13 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement and the other documents described or contemplated
herein embody the entire agreement and understanding among the parties hereto
and thereto and supersede all prior agreements and understandings relating to
the subject matter hereof and thereof.
Section 11.14 OTHER RELATIONSHIPS. No relationship created hereunder
or under any other Loan Document shall in any way affect the ability of the
Administrative Agent or its Affiliates and each Lender or its respective
Affiliates to enter into or maintain business relationships with the Borrower
or any of its Affiliates beyond the relationships specifically contemplated
by this Agreement and the other Loan Documents.
Section 11.15 DIRECTLY OR INDIRECTLY. If any provision in this
Agreement refers to any action taken or to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, whether
or not expressly specified in such provision.
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Section 11.16 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS. All
covenants, agreements, statements, representations and warranties made herein
or in any certificate delivered pursuant hereto (a) shall be deemed to have
been relied upon by the Administrative Agent and each of the Lenders
notwithstanding any investigation heretofore or hereafter made by them, and
(b) shall survive the execution and delivery of the Notes and shall continue
in full force and effect so long as any Note is outstanding and unpaid. Any
right to indemnification hereunder, including, without limitation, rights
pursuant to Sections 2.11, 2.13, 5.11, 10.3 and 11.2 hereof, shall survive
the termination of this Agreement and the payment and performance of all
other Obligations.
Section 11.17 CONFIDENTIALITY. Each Lender agrees to protect the
confidentiality of confidential information regarding the Borrower and its
Subsidiaries, to prevent unauthorized disclosures, to take reasonable steps
necessary to ensure that the information is received only by those who have a
need to know, and to hold all non-public, proprietary or confidential
information (which has been identified as such by the Borrower) obtained
pursuant to this Agreement in accordance with its customary procedures for
handling confidential information of this nature and in accordance with safe
and sound banking practices; however, the Lenders may make disclosure of any
such information to their examiners, outside auditors, and counsel in
connection with this Agreement or as reasonably required by any proposed
syndicate member or any proposed transferee or participant in connection with
the contemplated transfer of any Note or participation therein so long as
such Person agrees to be bound by this Section 11.17 or as required or
requested by any governmental authority or representative thereof or in
connection with the enforcement hereof or of any Loan Document or related
document or pursuant to legal process or with respect to any litigation
between or among the Borrower and any of the Lenders. In no event shall any
Lender be obligated or required to return any materials furnished to it by
the Borrower. The foregoing provisions shall not apply to a Lender with
respect to information that (i) is or becomes generally available to the
public (other than through such Lender), (ii) is already in the possession of
such Lender on a nonconfidential basis, (iii) comes into the possession of
such Lender from a Person other than the Borrower or an Affiliate of the
Borrower in a manner not known to such Lender to involve a breach of a duty
of confidentiality owing to the Borrower, or (iv) must be disclosed as
required by law, any court of competent jurisdiction, or bank regulator.
ARTICLE 12
WAIVER OF JURY TRIAL
Section 12.1 WAIVER OF JURY TRIAL. THE BORROWER, FOR ITSELF AND ON
BEHALF OF ITS SUBSIDIARIES, AND THE ADMINISTRATIVE AGENT AND EACH OF THE
LENDERS, HEREBY AGREE TO WAIVE AND HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY
IN ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE
BORROWER, ANY OF THE BORROWER'S SUBSIDIARIES, ANY OF THE LENDERS, OR THE
ADMINISTRATIVE AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS, IS A
PARTY, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF
THIS AGREEMENT, ANY OF THE NOTES OR THE OTHER LOAN DOCUMENTS.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first appearing above.
BORROWER: CELLNET DATA SERVICES (KC), INC.
By:
----------------------------------
Title:
-------------------------------
ADMINISTRATIVE
AGENT: TORONTO DOMINION (TEXAS), INC.
By:
----------------------------------
Title:
-------------------------------
LEAD ARRANGER AND
SYNDICATION AGENT: TD SECURITIES (USA), INC.
By:
----------------------------------
Title:
-------------------------------
LENDERS: TORONTO DOMINION (TEXAS), INC.
By:
----------------------------------
Title:
-------------------------------
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 23
LOAN AGREEMENT
BY AND AMONG
CELLNET DATA SERVICES (SL), INC.,
AS BORROWER,
TORONTO DOMINION (TEXAS), INC.,
AS ADMINISTRATIVE AGENT,
TD SECURITIES (USA), INC.,
AS LEAD ARRANGER AND SYNDICATION AGENT,
THE BANK OF NEW YORK,
AS CO-AGENT
AND
THE FINANCIAL INSTITUTIONS WHOSE NAMES
APPEAR AS LENDERS ON THE SIGNATURE PAGES HEREOF,
AS LENDERS
NOVEMBER 23, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 2.1 The Loans . . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 2.2 Manner of Borrowing and Disbursement. . . . . . . . . . . . .15
Section 2.3 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 2.4 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 2.5 Voluntary Prepayment. . . . . . . . . . . . . . . . . . . . .19
Section 2.6 Voluntary Reduction of the Commitment . . . . . . . . . . . .19
Section 2.7 Scheduled Reduction of Commitment . . . . . . . . . . . . . .20
Section 2.8 Mandatory Reduction of Commitment . . . . . . . . . . . . . .20
Section 2.9 Notes; Loan Accounts. . . . . . . . . . . . . . . . . . . . .21
Section 2.10 Manner of Payment . . . . . . . . . . . . . . . . . . . . . .21
Section 2.11 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . .22
Section 2.12 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . .22
Section 2.13 Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . .23
Section 2.14 Lender Tax Forms. . . . . . . . . . . . . . . . . . . . . . .23
Section 2.15 Replacement Lender. . . . . . . . . . . . . . . . . . . . . .24
ARTICLE 3 Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . .24
Section 3.1 Conditions Precedent to Initial Advance . . . . . . . . . . .24
Section 3.2 Conditions Precedent to Each Advance. . . . . . . . . . . . .27
ARTICLE 4 Representations and Warranties. . . . . . . . . . . . . . . . . .28
Section 4.1 Representations and Warranties. . . . . . . . . . . . . . . .28
Section 4.2 Survival of Representations and Warranties. . . . . . . . . .34
ARTICLE 5 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . .35
Section 5.1 Preservation of Existence and Similar Matters . . . . . . . .35
Section 5.2 Business; Compliance with Applicable Law. . . . . . . . . . .35
Section 5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . .35
Section 5.4 Accounting Methods and Financial Records. . . . . . . . . . .35
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .36
Section 5.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . .36
Section 5.7 Visits and Inspections. . . . . . . . . . . . . . . . . . . .36
Section 5.8 Payment of Indebtedness; Loans. . . . . . . . . . . . . . . .37
Section 5.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .37
Section 5.10 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . .37
Section 5.11 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . .37
Section 5.12 Interest Rate Hedging . . . . . . . . . . . . . . . . . . . .38
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Section 5.13 Covenants Regarding Formation of Subsidiaries and the
Making of Investments and Acquisitions. . . . . . . . . . . .38
Section 5.14 Payment of Wages. . . . . . . . . . . . . . . . . . . . . . .39
Section 5.15 Compliance with Contracts . . . . . . . . . . . . . . . . . .39
Section 5.16 Year 2000 Problem . . . . . . . . . . . . . . . . . . . . . .39
ARTICLE 6 Information Covenants . . . . . . . . . . . . . . . . . . . . . .39
Section 6.1 Quarterly Financial Statements and Information. . . . . . . .39
Section 6.2 Annual Financial Statements and Information . . . . . . . . .40
Section 6.3 Performance Certificates. . . . . . . . . . . . . . . . . . .40
Section 6.4 Copies of Other Reports . . . . . . . . . . . . . . . . . . .41
Section 6.5 Notice of Litigation and Other Matters. . . . . . . . . . . .41
ARTICLE 7 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . .42
Section 7.1 Indebtedness of the Borrower and its Subsidiaries . . . . . .42
Section 7.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . .43
Section 7.3 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . .43
Section 7.4 Liquidation, Merger, Disposition of Assets. . . . . . . . . .43
Section 7.5 Limitation on Guaranties. . . . . . . . . . . . . . . . . . .44
Section 7.6 Investments and Acquisitions. . . . . . . . . . . . . . . . .44
Section 7.7 Restricted Payments and Purchases . . . . . . . . . . . . . .44
Section 7.8 Minimum Revenue . . . . . . . . . . . . . . . . . . . . . . .45
Section 7.9 Minimum Operating Cash Flow . . . . . . . . . . . . . . . . .46
Section 7.10 Capital Expenditures. . . . . . . . . . . . . . . . . . . . .46
Section 7.11 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . .47
Section 7.12 Pro Forma Debt Service Ratio. . . . . . . . . . . . . . . . .47
Section 7.13 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . .47
Section 7.14 Affiliate Transactions. . . . . . . . . . . . . . . . . . . .47
Section 7.15 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . .48
Section 7.16 ERISA Liabilities . . . . . . . . . . . . . . . . . . . . . .48
ARTICLE 8 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . .48
Section 8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . .50
Section 8.3 Payments Subsequent to Declaration of Event of Default. . . .51
ARTICLE 9 The Administrative Agent. . . . . . . . . . . . . . . . . . . . .52
Section 9.1 Appointment and Authorization . . . . . . . . . . . . . . . .52
Section 9.2 Interest Holders. . . . . . . . . . . . . . . . . . . . . . .52
Section 9.3 Consultation with Counsel . . . . . . . . . . . . . . . . . .52
Section 9.4 Documents . . . . . . . . . . . . . . . . . . . . . . . . . .52
Section 9.5 Administrative Agent and Affiliates . . . . . . . . . . . . .52
Section 9.6 Responsibility of the Administrative Agent. . . . . . . . . .53
Section 9.7 Security Documents. . . . . . . . . . . . . . . . . . . . . .53
Section 9.8 Action by the Administrative Agent. . . . . . . . . . . . . .53
ii
<PAGE>
Section 9.9 Notice of Default or Event of Default . . . . . . . . . . . .53
Section 9.10 Responsibility Disclaimed . . . . . . . . . . . . . . . . . .54
Section 9.11 Indemnification . . . . . . . . . . . . . . . . . . . . . . .54
Section 9.12 Credit Decision . . . . . . . . . . . . . . . . . . . . . . .54
Section 9.13 Successor Administrative Agent. . . . . . . . . . . . . . . .55
Section 9.14 Delegation of Duties. . . . . . . . . . . . . . . . . . . . .55
Section 9.15 Administrative Agent May File Proofs of Claim . . . . . . . .55
ARTICLE 10 Change in Circumstances Affecting Eurodollar Advances. . . . . .56
Section 10.1 Eurodollar Basis Determination Inadequate or Unfair . . . . .56
Section 10.2 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 10.3 Increased Costs . . . . . . . . . . . . . . . . . . . . . . .56
Section 10.4 Effect On Other Advances. . . . . . . . . . . . . . . . . . .57
ARTICLE 11 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .58
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Section 11.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 11.3 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 11.4 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Section 11.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . .60
Section 11.6 Accounting Principles . . . . . . . . . . . . . . . . . . . .62
Section 11.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .62
Section 11.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .62
Section 11.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . .62
Section 11.10 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 11.11 Table of Contents and Headings. . . . . . . . . . . . . . . .63
Section 11.12 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . .63
Section 11.13 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . .63
Section 11.14 Other Relationships . . . . . . . . . . . . . . . . . . . . .63
Section 11.15 Directly or Indirectly. . . . . . . . . . . . . . . . . . . .63
Section 11.16 Reliance on and Survival of Various Provisions. . . . . . . .64
Section 11.17 Confidentiality . . . . . . . . . . . . . . . . . . . . . . .64
ARTICLE 12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . .64
Section 12.1 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . .64
</TABLE>
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EXHIBITS
Exhibit A - Form of Assignment of Intercompany Agreements
Exhibit B - Form of Assignment of Utility Contract
Exhibit C - Form of Borrower's Pledge Agreement
Exhibit D - Omitted
Exhibit E - Form of Certificate of Financial Condition
Exhibit F - Form of Note
Exhibit G - Form of Performance Certificate
Exhibit H - Form of Request for Advance
Exhibit I - Form of Security Agreement
Exhibit J - Form of Subordination Agreement
Exhibit K - Form of Subsidiary Guaranty
Exhibit L - Form of Subsidiary Pledge Agreement
Exhibit M-1 - Form of Guarantying Subsidiary Security Agreement
Exhibit M-2 - Form of Non-Guarantying Subsidiary Security Agreement
Exhibit N - Form of Use of Proceeds Letter
Exhibit O - Form of Borrower's Loan Certificate
Exhibit P - Form of Subsidiary Loan Certificate
Exhibit Q - Form of Legal Opinion of General Counsel to Borrower
Exhibit R - Form of Legal Opinion of FCC Counsel to Borrower
Exhibit S - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1 - Allocation of Commitment among the Lenders, Commitment
Ratios, and Lenders' Addresses for Notice
Schedule 2 - FCC Licenses, IOAs
Schedule 3 - Subsidiaries and Investments of the Borrower
Schedule 4 - Owned and Material Leased Real Property
Schedule 5 - Litigation
Schedule 6 - Agreements with Affiliates
Schedule 7 - Indebtedness for Money Borrowed of the Borrower and its
Subsidiaries
iv
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LOAN AGREEMENT
by and among
CELLNET DATA SERVICES (SL), INC., as Borrower;
TORONTO DOMINION (TEXAS), INC., as Administrative Agent;
TD SECURITIES (USA), INC., as Lead Arranger and Syndication Agent;
THE BANK OF NEW YORK
as Co-Agent,
and
THE FINANCIAL INSTITUTIONS WHOSE NAMES
APPEAR AS LENDERS ON THE SIGNATURE PAGES HEREOF, as Lenders.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each of the parties hereto, the parties agree
as follows as of the 23rd day of November, 1998:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement:
"ACQUISITION" shall mean (whether by purchase, exchange, issuance of
stock or other equity or debt securities, merger, reorganization or any other
method) (i) any acquisition by the Borrower or any of its Subsidiaries of any
other Person, which Person shall then become consolidated with the Borrower or
any such Subsidiary in accordance with GAAP, or (ii) any acquisition by the
Borrower or any of its Subsidiaries of all or any substantial amount of the
assets of any other Person. For purposes of the preceding sentence, an amount
of assets shall be deemed to be "substantial" if such assets have a fair market
value in excess of $1,000,000; provided, however, that the purchase of equipment
and other goods and services in the ordinary course of business shall not be
deemed to be "ACQUISITIONS."
"ACTIVE METER" shall mean an Installed Meter which is currently
operational.
"ADDITIONAL FACILITY INDEBTEDNESS" shall mean additional Indebtedness
for Money Borrowed (as to which no commitment has been issued by any Lender as
of the Agreement Date) in a principal amount not to exceed $25,000,000, incurred
by the Borrower in accordance with Section 2.1(b) of this Agreement.
"ADMINISTRATIVE AGENT" shall mean Toronto Dominion (Texas), Inc., as
Administrative Agent for the Lenders, together with any successor Administrative
Agent appointed pursuant to Section 9.13 hereunder.
"ADMINISTRATIVE AGENT'S OFFICE" shall mean the office of Toronto
Dominion (Texas), Inc., as Administrative Agent hereunder, located at 909 Fannin
Street, Suite 1700, Houston, Texas 77010, or such other office as may be
designated pursuant to the provisions of Section 11.1 of this Agreement.
"ADVANCE" shall mean the aggregate amount advanced by the Lenders to the
Borrower pursuant to Article 2 hereof on the occasion of any borrowing.
"AFFILIATE" shall mean, with respect to a Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such first Person. For purposes of this definition, "control" when used with
respect to any Person includes, without limitation, the direct
1
<PAGE>
or indirect beneficial ownership of more than ten percent (10%) of the voting
securities or voting equity of such Person, or the power to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise. Unless otherwise specified, "Affiliate" shall mean an Affiliate of
the Borrower.
"AGREEMENT" shall mean this Loan Agreement.
"AGREEMENT DATE" shall mean November 23, 1998.
"ANNUALIZED OPERATING CASH FLOW" shall mean, as of any calculation date,
the product of (i) Operating Cash Flow for the most recently completed fiscal
quarter for which financial statements are available, multiplied by (ii) four
(4).
"APPLICABLE LAW" shall mean, in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person, including, without limiting the
foregoing, the Licenses, the Communications Act and all Environmental Laws, and
all orders, decisions, judgments and decrees of all courts and arbitrators in
proceedings or actions to which the Person in question is a party or by which it
is bound.
"APPLICABLE MARGIN" shall mean the interest rate margin applicable to
Advances hereunder as determined in accordance with Section 2.3(f) hereof.
"ASSIGNMENT OF INTERCOMPANY AGREEMENTS" shall mean the Assignment of
Intercompany Agreements between the Borrower and the Administrative Agent,
pursuant to which the Borrower collaterally assigns its interests in the
Intercompany Agreements to the Administrative Agent to secure the Obligations.
Such agreement shall be substantially in the form of EXHIBIT A attached hereto.
"ASSIGNMENT OF UTILITY CONTRACT" shall mean the Assignment of Utility
Contract by Borrower between the Borrower and the Administrative Agent, pursuant
to which the Borrower collaterally assigns its interests in the Utility Contract
to the Administrative Agent to secure the Obligations. Such agreement shall be
substantially in the form of EXHIBIT B attached hereto.
"AUTHORIZED SIGNATORY" shall mean such senior officers and directors of
the Borrower as may be duly authorized and designated in writing by the Borrower
to execute documents, agreements and instruments on behalf of the Borrower.
"BASE RATE" shall mean, at any time, the higher of (a) the rate of
interest adopted by the Administrative Agent as the reference rate for the
determination of interest rates for loans of varying maturities in Dollars to
United States residents of varying degrees of creditworthiness and being quoted
at such time by The Toronto-Dominion Bank, New York Branch as its "base rate" or
"prime rate," or (b) the Federal Funds Rate plus one-half of one percent (1/2%).
The Base Rate is not necessarily the lowest rate of interest charged to
borrowers of the Administrative Agent or its Affiliates.
"BASE RATE ADVANCE" shall mean an Advance which the Borrower requests to
be made as a Base Rate Advance or is reborrowed as a Base Rate Advance, and
which bears interest at the Base Rate Basis, in accordance with the provisions
of Section 2.2 hereof, and which shall be in a principal amount of at least
$1,000,000 and in an integral multiple of $250,000.
"BASE RATE BASIS" shall mean a simple interest rate equal to the sum of
(i) the Base Rate and (ii) the Applicable Margin. The Base Rate Basis shall be
adjusted automatically as of the
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opening of business on the effective date of each change in the Base Rate to
account for such change and shall also be changed to reflect adjustments in the
Applicable Margin.
"BORROWER" shall mean CellNet Data Services (SL), Inc., a Delaware
corporation.
"BORROWER'S PLEDGE AGREEMENT" shall mean that certain Borrower's Pledge
Agreement of even date between the Borrower and the Administrative Agent,
substantially in the form of EXHIBIT C attached hereto, as amended, supplemented
or otherwise modified from time to time, pursuant to which the Borrower shall
pledge to the Administrative Agent any stock owned by it.
"BUSINESS DAY" shall mean a day on which banks and foreign exchange
markets are open for the transaction of business required for this Agreement in
London, Houston, and New York, as relevant to the determination to be made or
the action to be taken.
"CALIFORNIA INVESTMENT" shall mean the Borrower's Investment into
CellNet California, which is evidenced by the Intercompany Agreements, for the
development and construction of a wireless data services system in California,
which Investment shall not exceed $15,000,000.
"CAPITAL EXPENDITURES" shall mean, in respect of any Person,
expenditures for the purchase of capital assets which are properly capitalized
in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATION" shall mean that portion of any obligation
of a Person as lessee under a lease which is required to be capitalized on the
balance sheet of such lessee in accordance with GAAP.
"CASH INTEREST EXPENSE" shall mean, for any period, for the Borrower and
its Subsidiaries, on a consolidated basis, cash interest paid or accrued in
respect of Total Debt, together with fees paid or payable during such period and
associated therewith, all as determined in accordance with GAAP and shall also
include the interest component of payments for such period in respect of
Capitalized Lease Obligations.
"CELLNET" shall mean CellNet Data Systems, Inc., a Delaware corporation.
"CELLNET CALIFORNIA" shall mean Cell Net Data Services (CA) Inc., a
Delaware corporation.
"CELLNET SUBORDINATED DEBT" shall mean unsecured, subordinated debt
issued by the Borrower in favor of CellNet having a maturity date not earlier
than December 31, 2008 and having subordination provisions reviewed by and
approved by the Majority Lenders, which are contained in the Subordination
Agreement, and which provisions, among other things, (a) shall not include any
cross-default with respect to a Default or an Event of Default under this
Agreement, and (b) shall include, without limitation, (i) a prohibition on
interest or fee payments, scheduled amortization or voluntary prepayments prior
to repayment, in full, of all Obligations hereunder, except to the extent
specifically permitted in this Agreement, (ii) a prohibition on the exercise of
any remedies prior to repayment, in full, of all Obligations hereunder, and
(iii) a requirement that the Administrative Agent have all voting rights
otherwise exercisable by CellNet during any bankruptcy proceedings.
"CERTIFICATE OF FINANCIAL CONDITION" shall mean a certificate,
substantially in the form of EXHIBIT E attached hereto, signed by the chief
financial officer of the Borrower, together with any schedules, exhibits or
annexes appended thereto.
"CO-AGENT" shall mean The Bank of New York.
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"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall mean any property of any kind provided as collateral
for the Obligations under any of the Security Documents.
"COMMITMENT" shall mean the several obligations of the Lenders to
advance the sum of up to $60,000,000 to the Borrower on or after the Agreement
Date, in accordance with their respective Commitment Ratios, as provided under
the terms and conditions of this Agreement and as such amount may be reduced
from time to time in accordance with the provisions of this Agreement.
"COMMITMENT RATIOS" shall mean the percentages in which the Lenders are
severally bound to make Advances to the Borrower under the Commitment, which are
set forth (together with dollar amounts) on SCHEDULE 1 attached hereto as of the
Agreement Date.
"COMMUNICATIONS ACT" shall mean the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"DEBT SERVICE" shall mean, for any period, the amount of Cash Interest
Expense, together with scheduled principal repayments (excluding any repayments
made or required to be made in accordance with Section 2.8 hereof) in respect of
Indebtedness for Money Borrowed, of the Borrower and its Subsidiaries on a
consolidated basis. For purposes of this definition, "principal" shall include
the principal component of payments for such period in respect of Capitalized
Lease Obligations.
"DEFAULT" shall mean any Event of Default, and any of the events
specified in Section 8.1, regardless of whether there shall have occurred any
passage of time or giving of notice, or both, that would be necessary in order
to constitute such event an Event of Default.
"DEFAULT RATE" shall mean a simple per annum interest rate equal to, (a)
with respect to the outstanding principal, the sum of the otherwise applicable
Interest Rate Basis plus two percent (2%), and (b) with respect to all other
Obligations, the Base Rate Basis plus two percent (2%).
"DOLLARS" or "$" shall mean the basic unit of the lawful currency of the
United States of America.
"ENVIRONMENTAL LAWS" shall mean, with respect to any Person, all
applicable federal, state and local laws, statutes, rules, regulations and
ordinances, codes, common law, consent agreements to which such Person is a
party or by which it is bound, orders, decrees, judgments and injunctions
issued, promulgated, approved or entered thereunder affecting such Person or its
property and relating to public health, safety or the pollution or protection of
the environment, including, without limitation, those relating to releases,
discharges, emissions, spills, leaching, or disposals to, on, or in air, water,
land or ground water, to the withdrawal or use of ground water, to the use,
handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited, or regulated substances,
including, without limitation, any such provisions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 et seq.).
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.
"ERISA AFFILIATE" shall mean any Person, including a Subsidiary or an
Affiliate of the Borrower, that is a member of any group of organizations
(within the meaning of Code Sections 414(b), 414(c), 414(m), or 414(o)) of which
the Borrower is a member.
"EURODOLLAR ADVANCE" shall mean an Advance which the Borrower requests
to be made as a Eurodollar Advance or which is reborrowed as a Eurodollar
Advance, and which bears interest at the Eurodollar Basis, in accordance with
the provisions of Section 2.2 hereof, and which shall be in a principal amount
of at least $2,500,000 and in an integral multiple of $500,000.
"EURODOLLAR BASIS" shall mean a simple per annum interest rate equal to
the sum of (a) the quotient of (i) the Eurodollar Rate divided by (ii) one minus
the Eurodollar Reserve Percentage, stated as a decimal, plus (b) the Applicable
Margin. The Eurodollar Basis shall apply to Interest Periods of one (1), two
(2), three (3), and six (6) months, and, once determined, shall remain unchanged
during the applicable Interest Period, except for changes to reflect adjustments
in the Eurodollar Reserve Percentage and the Applicable Margin pursuant to
Section 2.3(f) hereof.
"EURODOLLAR RATE" shall mean, for any Interest Period, the interest rate
per annum (rounded upward to the nearest one-sixteenth of one percent (1/16%))
which appears on Telerate Page 3750 as of 11:00 a.m. (London time), or, if
unavailable, any generally accepted successor rate selected by the
Administrative Agent, two (2) Business Days before the first day of such
Interest Period, in an amount approximately equal to the principal amount of,
and for a length of time approximately equal to the Interest Period for, the
Eurodollar Advance sought by the Borrower.
"EURODOLLAR RESERVE PERCENTAGE" shall mean the percentage which is in
effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the maximum reserve requirement applicable with respect to Eurocurrency
liabilities (as that term is defined in Regulation D), whether or not any Lender
has any such Eurocurrency liabilities subject to such reserve requirement at
that time. The Eurodollar Basis for any Eurodollar Advance shall be adjusted as
of the effective date of any change in the Eurodollar Reserve Percentage.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
8.1, provided that any requirement for notice or lapse of time or both has been
satisfied.
"EXCESS CASH FLOW" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis, as of the end of any period of four
consecutive fiscal quarters of the Borrower and based on the financial
statements required to be provided under Section 6.2 hereof, the remainder of
(a) Operating Cash Flow for such fiscal period minus (b) the sum of the
following items for such fiscal period: (i) Capital Expenditures; (ii) cash
income taxes paid; (iii) Debt Service; and (iv) permanent prepayments of the
Loans (accompanied by permanent reduction of the Commitment) pursuant to
Section 2.6 hereunder.
"EXCESS CASH FLOW COMMENCEMENT DATE" shall mean the last day of the
fourth fiscal quarter ending after the Implementation Phase.
"FCC" shall mean the Federal Communications Commission, or any other
similar or successor agency of the federal government administering the
Communications Act.
"FEDERAL FUNDS RATE" shall mean, as of any date, the weighted average of
the rates on overnight federal funds transactions with the members of the
Federal Reserve System arranged
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by federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Administrative Agent or its Affiliate from three (3) federal
funds brokers of recognized standing selected by the Administrative Agent or its
Affiliate.
"FEE LETTERs" shall mean those certain agreements dated as of the
Agreement Date setting forth the applicable fees to be paid by the Borrower to
the other parties to this Agreement in connection with the Loans and Commitment
created hereunder.
"GAAP" shall mean generally accepted accounting principles in the United
States, consistently applied.
"GUARANTY" or "GUARANTEED," as applied to an obligation, shall mean and
include (a) a guaranty, direct or indirect, in any manner, of all or any part of
such obligation, and (b) any agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, any
reimbursement obligations with respect to drawn or undrawn letters of credit.
"GUARANTYING SUBSIDIARY" means any Subsidiary of the Borrower which may
issue guaranties of the Obligations hereunder without conflicting with the terms
of the Indenture.
"GUARANTYING SUBSIDIARY SECURITY AGREEMENT" shall mean that certain
Guarantying Subsidiary Security Agreement of even date, between each of the
Borrower's Guarantying Subsidiaries, on the one hand, and the Administrative
Agent, on the other hand, substantially in the form of EXHIBIT M-1 attached
hereto, and shall include any supplement thereto executed by any such new
Guarantying Subsidiary.
"HAZARDOUS MATERIALS" shall mean any and all hazardous or toxic
substances, materials, or wastes, as defined or listed in Environmental Laws.
"IMPLEMENTATION PHASE" shall mean the period during which the Borrower
and CellNet are engaged in the design and construction of a wireless data
transmission system for Union Electric, which period shall be deemed to end for
purposes of this Agreement on December 31, 1999.
"INDEBTEDNESS" shall mean, with respect to any Person, and without
duplication, (a) all Indebtedness for Money Borrowed and all other items, except
items of partners' equity or capital stock or surplus or general contingency or
deferred tax reserves, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person, including, without limitation, secured non-recourse obligations
of such Person, valued at the lesser of the fair market value of the property
subject to the secured obligation or the amount of the Indebtedness so secured,
(b) all direct or indirect obligations of any other Person secured by any Lien
to which any property or asset owned by such Person is subject, but only to the
extent of the lower of (i) the face amount of such obligations or (ii) the
higher of the fair market value or the book value of the property or asset
subject to such Lien if the obligation secured thereby shall not have been
assumed, (c) all obligations of such Person with respect to leases constituting
part of a sale and lease-back arrangement, and (d) all reimbursement obligations
with respect to drawn or undrawn letters of credit; provided, however,
"Indebtedness" shall not include obligations of the Borrower or any Subsidiary
to the Borrower or any other Subsidiary.
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"INDEBTEDNESS FOR MONEY BORROWED" shall mean, with respect to any
Person, Indebtedness for money borrowed and Indebtedness represented by notes
payable and drafts accepted representing extensions of credit, all obligations
evidenced by bonds, debentures, notes or other similar instruments, all
Indebtedness upon which interest charges are customarily paid, all Capitalized
Lease Obligations, all reimbursement obligations with respect to drawn or
undrawn letters of credit, all Indebtedness issued or assumed as full or partial
payment for property or services (other than trade payables arising in the
ordinary course of business, but only if and so long as such accounts are
payable on customary trade terms), whether or not any such notes, drafts,
obligations or Indebtedness represent Indebtedness for money borrowed, and,
without duplication, Guaranties of any of the foregoing, valued at the lesser of
the face amount of the Guaranty or the principal amount of the Indebtedness
guaranteed. For purposes of this definition, interest which is accrued but not
paid on the scheduled due date for such interest shall be deemed Indebtedness
for Money Borrowed.
"INDEMNITEE" shall have the meaning ascribed to it in Section 5.11
hereof.
"INDENTURE" means the Indenture dated as of June 15, 1995, as
supplemented through the date of this Agreement and as further supplemented from
time to time, by and between CellNet and The Bank of New York, as trustee,
provided such supplements are no more restrictive upon the Guarantying
Subsidiaries than the Indenture in effect on the Agreement Date.
"INSTALLED METER" shall mean any device for measuring and recording the
quantity or rate of flow of electricity or gas which has been installed by the
Borrower pursuant to the terms and conditions of the Utility Contract.
"INTERCOMPANY AGREEMENTS" shall mean all notes, loan agreements,
security agreements and other collateral documents by and between the Borrower
and CellNet California relating to and securing the California Investment, and
all other documents, instruments and agreements executed or delivered in
connection therewith.
"INTEREST HEDGE AGREEMENTS" shall mean any interest rate swap, cap,
collar, floor, caption or option agreements, or any similar arrangements
designed to hedge the risk of variable interest rate volatility or to reduce
interest costs, arising at any time between the Borrower, on the one hand, and
any one or more of the Lenders, or any other Person (other than an Affiliate of
the Borrower), on the other hand, as such agreement or arrangement may be
modified, supplemented and in effect from time to time.
"INTEREST PERIOD" shall mean (a) in connection with any Base Rate
Advance, the period beginning on the date such Advance is made and ending on the
last Business Day of the calendar quarter in which such Advance is made,
provided, however, that if a Base Rate Advance is made on the last day of any
calendar quarter, it shall have an Interest Period ending on, and its Payment
Date shall be, the last day of the following calendar quarter, and (b) in
connection with any Eurodollar Advance, the term of such Advance selected by the
Borrower or otherwise determined in accordance with this Agreement.
Notwithstanding the foregoing, however, (i) any applicable Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day unless, with respect to Eurodollar Advances
only, such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day, (ii) any
applicable Interest Period, with respect to Eurodollar Advances only, which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall (subject to
clause (i) above) end on the last day of such calendar month, and (iii) no
Interest Period shall extend beyond the Maturity Date or such earlier date as
would interfere with the
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Borrower's repayment obligations hereunder. Interest shall be due and payable
with respect to any Advance as provided in Section 2.3 hereof.
"INTEREST RATE BASIS" shall mean the Base Rate Basis or the Eurodollar
Basis as appropriate.
"INVESTMENT" shall mean, with respect to any Person, any loan, advance
or extension of credit (other than to customers in the ordinary course of
business) by such Person to, or any Guaranty or other contingent liability with
respect to the capital stock, Indebtedness or other obligations of, or any
contributions to the capital of, any other Person, or any ownership, purchase or
other acquisition by such Person of any interest in any capital stock, limited
partnership interest, general partnership interest, or other securities of any
such other Person, other than an Acquisition. "INVESTMENT" shall also include
the total cost of any future commitment or other obligation binding on any
Person to make an Investment or any subsequent Investment.
"IOA" shall mean any Interim Operations Authorization issued to the
Borrower or any of its Subsidiaries by the FCC, listed as of the Agreement Date
on SCHEDULE 2 hereto.
"LENDERS" shall mean the financial institutions whose names appear as
"Lenders" on the signature pages hereof and any other Person which becomes a
"Lender" hereunder after the Agreement Date; and "Lender" shall mean any one of
the foregoing Lenders.
"LEVERAGE RATIO" shall mean, as of any calculation date, the ratio of
Total Debt to Annualized Operating Cash Flow.
"LICENSES" shall mean any radio, cellular, microwave, paging or wireless
communications service license, or any other license, authorization, certificate
of compliance, franchise, approval or permit, other than any IOA, for the
construction or the operation of any System of the Borrower, granted or issued
by the FCC and held by the Borrower or any of its Subsidiaries, or by any Person
in which the Borrower or any of its Subsidiaries has an Investment, all of which
are listed (together with IOAs so designated) as of the Agreement Date on
SCHEDULE 2 hereto. "LICENSES" shall also include the rights, under Applicable
Law, of the Borrower to use otherwise unlicensed spectrum as used by the
Borrower in the ordinary course of business as of the Agreement Date.
"LIEN" shall mean, with respect to any property, any mortgage, lien,
pledge, negative pledge or other agreement not to pledge, assignment, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other similar encumbrance of any kind in respect of
such property, whether created by statute, contract, the common law or
otherwise, and whether or not choate, vested or perfected.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Documents, the Subordination Agreement, the Fee Letters, all Requests for
Advance, all Interest Hedge Agreements between the Borrower, on the one hand,
and the Administrative Agent and the Lenders, or any of them, on the other hand,
and all other instruments and agreements executed or delivered in connection
with or contemplated by this Agreement.
"LOANS" shall mean, collectively, the amounts advanced from time to time
by the Lenders under this Agreement, not to exceed in aggregate principal amount
the amount of the Commitment, and evidenced by the Notes.
"MAJORITY LENDERS" shall mean (i) at any time that there exists no
Default hereunder, Lenders the total of whose Commitment Ratios equals or
exceeds fifty-one percent (51%), or (ii) at any time that there exists a Default
hereunder, Lenders the total of whose Loans outstanding equals or
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exceeds fifty-one percent (51%) of the total principal amount of the Loans then
outstanding hereunder.
"MATERIALLY ADVERSE EFFECT" shall mean (i) any material adverse effect
upon the business, assets, liabilities, financial condition, results of
operations or properties of the Borrower and its Subsidiaries taken as a whole,
or (ii) any adverse effect upon the binding nature, validity, or enforceability
of this Agreement or the Notes, or upon the rights, benefits or interests of the
Lenders in and to the Loans or the rights of the Administrative Agent and the
Lenders in the Collateral, or (iii) any material and adverse effect upon the
ability of the Borrower and its Subsidiaries taken as a whole to perform the
payment obligations or other obligations under this Agreement or any other Loan
Document, or upon the value of the Collateral; in any such case, whether
resulting from any single act, omission, situation, status, event or
undertaking, or taken together with other such acts, omissions, situations,
statuses, events or undertakings.
"MATURITY DATE" shall mean the earlier of (a) December 31, 2007, or (b)
such earlier date on which the payment of all outstanding Obligations shall be
due (whether by acceleration or otherwise).
"MORTGAGE" shall mean any mortgage, deed to secure debt, deed of trust,
or other instrument encumbering or transferring title (in fee simple or
leasehold) to real property, in form and substance satisfactory to the
Administrative Agent, by which the Borrower or any Subsidiary grants a mortgage
to the Administrative Agent, as agent for the Lenders, or by which any
Subsidiary grants a mortgage to the Borrower which the Borrower collaterally
assigns to the Administrative Agent, as agent for the Lenders, on Property owned
or leased by the Borrower or any Subsidiary to secure repayment of the
Obligations.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"NECESSARY AUTHORIZATIONS" shall mean all approvals and licenses from,
and all filings and registrations with, any governmental or other regulatory
authority, including, without limiting the foregoing, the Licenses and all
grants, approvals, licenses, filings and registrations under the Communications
Act, necessary in order to enable the Borrower or any of its Subsidiaries to
own, construct, maintain and operate its Systems and to make and hold
Investments in other Persons who own, construct, maintain, and operate Systems.
"NET INCOME" shall mean, for the Borrower and its Subsidiaries on a
consolidated basis, for any period, net income determined in accordance with
GAAP.
"NET PROCEEDS" shall mean, with respect to any Permitted Asset Sale,
lease, transfer or other disposition of assets by the Borrower or any of its
Subsidiaries, the aggregate amount of cash received for such assets (including,
without limitation, any payments received for non-competition covenants,
consulting or management fees, and any portion of the amount received evidenced
by a buyer promissory note or other evidence of Indebtedness), net of reasonable
and customary transaction costs properly attributable to such transaction and
payable by the Borrower or any of its Subsidiaries (other than to an Affiliate)
in connection with such sale, lease, transfer or other disposition of assets.
"NON-GUARANTYING SUBSIDIARY" shall mean any Subsidiary of the Borrower
which is not a Guarantying Subsidiary.
"NON-GUARANTING SUBSIDIARY SECURITY AGREEMENT" shall mean that certain
non-Guarantying Subsidiary Security Agreement of even date, between each of the
Borrower's Non-Guarantying Subsidiaries, on the one hand, and the Borrower, on
the other hand, substantially in the form of
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EXHIBIT M-2 attached hereto, and shall include any supplement thereto executed
by any such new Non-Guarantying Subsidiary.
"NOTES" shall mean those certain promissory notes in the aggregate
original principal amount of $60,000,000, one issued by the Borrower to each of
the Lenders, each one substantially in the form of EXHIBIT F attached hereto,
and any extensions, modifications, renewals or replacements of or amendments to
any of the foregoing.
"OBLIGATIONS" shall mean (i) all payment and performance obligations of
every kind, nature and description of the Borrower, its Subsidiaries, and any
other obligors to the Lenders, the Administrative Agent, or any of them, under
this Agreement and the other Loan Documents (including any interest, fees and
other charges on the Loans or otherwise under the Loan Documents that would
accrue but for the filing of a bankruptcy action with respect to the Borrower,
any such Subsidiary, or any such other obligor, whether or not such claim is
allowed in such bankruptcy action), as they may be amended from time to time, or
as a result of making the Loans, whether such obligations are direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now
existing or hereafter arising, and (ii) the obligation to pay an amount equal to
the amount of any and all damage which the Lenders, the Administrative Agent, or
any of them, may suffer by reason of a breach by the Borrower, any of its
Subsidiaries, or any other obligor, of any obligation, covenant or undertaking
with respect to this Agreement or any other Loan Document.
"OPERATING CASH FLOW" shall mean, for any fiscal quarter, for the
Borrower and its Subsidiaries on a consolidated basis, Net Income for such
quarter (after eliminating any extraordinary gains and losses, including gains
and losses from the sale of assets, and minority interests, and equity in
earnings (losses) of non-consolidated entities), plus, to the extent deducted or
accrued in determining Net Income, the sum of each of the following for such
quarter: (i) depreciation, amortization, and other non-cash charges, (ii)
income tax expense, including reserves for deferred items not paid during such
quarter, (iii) interest expense, (iv) transaction costs associated with entering
into the Loan Documents on the Agreement Date, and (v) transaction costs
associated with any Permitted Asset Sale or any Acquisition permitted by Section
7.4(a) or Section 7.6 hereunder; PROVIDED, HOWEVER, for the fiscal quarter
ending September 30, 1998, Net Income hereunder shall exclude up to $700,000 of
one-time property tax adjustments.
"PAYMENT DATE" shall mean the last day of any Interest Period.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PERFORMANCE CERTIFICATE" shall mean a certificate of an Authorized
Signatory of the Borrower as to its financial performance, in substantially the
form attached hereto as EXHIBIT G.
"PERFORMANCE TESTS" shall mean the financial covenants set forth in
Section 7.8 and 7.9 hereof.
"PERMITTED ASSET SALE" shall mean the sale by the Borrower or any of its
Subsidiaries of its or their assets as and to the extent permitted under Section
7.4(a) hereof.
"PERMITTED DEBT" shall mean Indebtedness for Money Borrowed permitted to
be incurred and to remain outstanding by the Borrower and its Subsidiaries,
pursuant to Section 7.1 hereof.
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"PERMITTED INVESTMENTS" shall mean Investments described in and
permitted to be made under Section 7.6 hereof.
"PERMITTED LIENS" shall mean, as applied to any Person:
(a) Any Lien in favor of the Administrative Agent (for itself
and for the ratable benefit of the Lenders) given to secure the Obligations;
(b) (i) Liens on real estate for real estate taxes not yet
delinquent and (ii) Liens for taxes, assessments, judgments (to the extent
payment in full (subject to a customary deductible) is not covered by insurance
maintained with responsible insurance companies), governmental charges or levies
or claims the non-payment of which is being diligently contested in good faith
by appropriate proceedings and for which adequate reserves have been set aside
on such Person's books, but only so long as no foreclosure, distraint, sale or
similar proceedings have been commenced with respect thereto and remain unstayed
for a period of thirty (30) days after their commencement;
(c) Liens of landlords, carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet due or being diligently contested in good faith, if reserves or
appropriate provisions shall have been made therefor;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation and unemployment insurance;
(e) Restrictions on the transfer of assets imposed by any of
the Licenses as now in effect or by the Communications Act, any state laws, and
any rules and regulations thereunder;
(f) Easements, rights-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person, or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness or other extensions of
credit and which do not in the aggregate materially detract from the value of
such properties or materially impair their use in the operation of the business
of such Person;
(g) Purchase money security interests, which (i) are
perfected automatically by operation of law, only for the period and limited to
Liens on assets so purchased (and directly-related assets, including proceeds,
replacements and products thereof and accessions and modifications thereto), or
(ii) are permitted pursuant to Section 7.1(d) hereof;
(h) Liens reflected by Uniform Commercial Code financing
statements filed in respect of Capitalized Lease Obligations permitted hereunder
and true leases or other precautionary or notice filings securing obligations
not otherwise constituting Indebtedness;
(i) Leases or subleases and licenses granted to others in the
ordinary course of business, not interfering in any material respect with the
business of the Borrower and its Subsidiaries taken as a whole, and any interest
or title of a lessor, licensor or under any lease or license;
(j) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by the
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided, that such
Liens are not granted in contemplation of or in connection with the
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<PAGE>
acquisition of such assets by the Borrower and that the Indebtedness secured by
such Lien is permitted hereunder;
(k) Liens consisting of rights of set-off of a customary
nature or bankers' liens on amounts on deposit, whether arising by contract or
operation of law, incurred in the ordinary course of business; and
(l) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by the Liens of the type described in
clauses (a), (g), (j) and (l); provided, that any extension, renewal or
replacement Lien shall be limited to the Property or asset encumbered by the
existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase.
"PERSON" shall mean an individual, corporation, limited liability
company, association, partnership, joint venture, trust or estate, an
unincorporated organization, a government or any agency or political subdivision
thereof, or any other entity.
"PLAN" shall mean, with respect to any Person, an employee benefit plan
within the meaning of Section 3(3) of ERISA or any other employee benefit plan
maintained for employees of such Person.
"PRO FORMA DEBT SERVICE" shall mean projected Debt Service for the
Borrower and its Subsidiaries on a consolidated basis with respect to the next
succeeding fiscal four-quarter period following the calculation date, and after
giving effect to any Interest Hedge Agreements and all Eurodollar Advances. For
purposes of this definition, (i) it shall be assumed that the principal amount
of Indebtedness for Money Borrowed with respect to which Debt Service is being
calculated shall begin at the level outstanding on the calculation date and be
adjusted to reflect projected borrowings and repayments as indicated by the
Borrower's annual budget required to be delivered pursuant to Section 6.4(e)
hereof, and (ii) where interest payments on Indebtedness for Money Borrowed for
the fiscal four-quarter period immediately succeeding the calculation date are
not fixed by way of Interest Hedge Agreements for the entire period, interest
shall be calculated on such Indebtedness for Money Borrowed for periods for
which interest payments are not so fixed at the lower of (y) the Base Rate Basis
on the calculation date, or (z) the Eurodollar Basis which would be in effect on
the calculation date for a Eurodollar Advance having a six-month Interest
Period.
"PROPERTY" shall mean any real property or personal property, plant,
building, facility, structure, underground storage tank or unit, equipment,
inventory or other asset owned, leased or operated by Borrower or any Subsidiary
(including, without limitation, any surface water thereon or adjacent thereto,
and soil and groundwater thereunder).
"REMAINING EXCESS CASH FLOW" shall have the meaning set forth in Section
7.7(a) hereof.
"REPORTABLE EVENT" shall have the meaning set forth in Title IV of
ERISA.
"REQUEST FOR ADVANCE" shall mean a certificate designated as a "Request
for Advance," signed by an Authorized Signatory requesting an Advance hereunder,
which shall be in substantially the form of EXHIBIT H attached hereto and shall,
among other things, (i) specify the date of the Advance, which shall be a
Business Day, the amount of the Advance, the type of Advance, and, with respect
to a Eurodollar Advance, the Interest Period selected by the Borrower, (ii)
state that there shall not exist, on the date of the requested Advance both
before and after giving effect thereto, a Default, and (iii) as to an Advance
which will increase the
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<PAGE>
principal amount of the Loans then outstanding, specify the use of the proceeds
of the Advance being requested.
"RESTRICTED PAYMENT" shall mean (i) any direct or indirect distribution,
dividend or other cash payment by the Borrower or any of its Subsidiaries to any
Person (other than to the Borrower or any other Subsidiary of the Borrower) on
account of any general or limited partnership interest in, or ownership of any
shares of capital stock or other equity securities of, the Borrower or any of
its Subsidiaries; (ii) any payment in respect of CellNet Subordinated Debt; or
(iii) any payment by the Borrower or any of its Subsidiaries to a Person other
than the Borrower or any of its Subsidiaries under any management or consulting
agreement or other similar agreement or arrangement not entered into in the
ordinary course of business.
"RESTRICTED PURCHASE" shall mean any payment by the Borrower or any of
its Subsidiaries on account of the purchase, redemption or other acquisition or
retirement of any general or limited partnership interest in, or shares of
capital stock or other securities of, the Borrower or any of the Borrower's
Subsidiaries including, without limitation, any warrants or other rights or
options to acquire shares of capital stock or partnership interests of the
Borrower or any of the Borrower's Subsidiaries.
"SECURITY AGREEMENT" shall mean that certain Security Agreement of even
date between the Borrower and the Administrative Agent, substantially in the
form of EXHIBIT I attached hereto.
"SECURITY DOCUMENTS" shall mean the Borrower's Pledge Agreement, any
Subsidiary Pledge Agreement, the Security Agreement, any Guarantying Subsidiary
Security Agreement, any Non-Guarantying Subsidiary Security Agreement, any
Subsidiary Guaranty, any Mortgage, the Assignment of Intercompany Agreements,
the Assignment of Utility Contract, any other agreement or instrument providing
collateral for the Obligations whether now or hereafter in existence, and any
filings, instruments, agreements, and documents related thereto or to this
Agreement, and providing the Administrative Agent, for itself and for the
ratable benefit of the Lenders, with Collateral for the Obligations.
"SECURITY INTEREST" shall mean all Liens in favor of the Administrative
Agent, for itself and for the ratable benefit of the Lenders, created hereunder
or under any of the Security Documents to secure the Obligations.
"SUBORDINATION AGREEMENT" shall mean that certain Subordination
Agreement of even date among the Borrower, CellNet and the Administrative Agent,
providing for the subordination of the CellNet Subordinated Debt to the
Obligations, in substantially the form of EXHIBIT J attached hereto.
"SUBSIDIARY" shall mean, as applied to any Person, (a) any corporation
of which more than fifty percent (50%) of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect its board of
directors, regardless of the existence at the time of a right of the holders of
any class or classes of securities of such corporation to exercise such voting
power by reason of the happening of any contingency, or any partnership of which
more than fifty percent (50%) of the outstanding partnership interests, is at
the time owned directly or indirectly by such Person, or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries of
such Person, or (b) any other entity which is directly or indirectly controlled,
or capable of being controlled through special or other voting rights, by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person. "Subsidiaries" as used herein, unless
otherwise indicated, shall mean all Subsidiaries of the Borrower. The
Subsidiaries of the Borrower as of the Agreement Date are set forth on
SCHEDULE 3 attached hereto.
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<PAGE>
"SUBSIDIARY GUARANTY" shall mean that certain Subsidiary Guaranty of
even date between each Guarantying Subsidiary of the Borrower, on the one hand,
and the Administrative Agent, on the other hand, substantially in the form of
EXHIBIT K attached hereto, and shall include any supplement thereto executed by
any such new Guarantying Subsidiary.
"SUBSIDIARY PLEDGE AGREEMENT" shall mean any Subsidiary Pledge Agreement
between any Guarantying Subsidiary of the Borrower having one or more of its own
corporate Subsidiaries, on the one hand, and the Administrative Agent, on the
other hand, substantially in the form of EXHIBIT L attached hereto, and shall
include any supplement thereto executed by any such new Guarantying Subsidiary
having one or more of its own corporate Subsidiaries.
"SYSTEM" shall mean the wireless data transmission systems designed,
built and operated by the Borrower.
"TOTAL DEBT" shall mean, for the Borrower and the Subsidiaries of the
Borrower on a consolidated basis, as of any calculation date, and without
duplication, the sum of (a) the principal amount of the Loans outstanding, and
(b) the aggregate principal amount of all other Indebtedness for Money Borrowed
other than CellNet Subordinated Debt.
"UNION ELECTRIC" shall mean Union Electric Company, a Missouri
corporation, d/b/a AmerenUE.
"UNION ELECTRIC CONTRACT" shall mean that certain Utility Services
Agreement dated as of August 31, 1995, between the Borrower and Union Electric,
as same may be amended, supplemented or otherwise modified from time to time.
"USE OF PROCEEDS LETTER" shall mean that certain Use of Proceeds Letter,
substantially in the form of EXHIBIT N attached hereto, delivered to the
Administrative Agent and the Lenders on the Agreement Date pursuant to Article 3
hereof.
"UTILITY CONTRACT" shall mean the Union Electric Contract.
"YEAR 2000 PROBLEM" shall mean the risk that computer hardware or
computer applications used by the Borrower or any of its Subsidiaries (or their
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates on or prior to and any
date after December 31, 1999.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Each definition of an agreement or instrument in this Article 1 shall
include such agreement or instrument as amended from time to time in accordance
herewith.
ARTICLE 2
LOANS
Section 2.1 THE LOANS.
(a) REDUCING REVOLVING LOANS. The Lenders agree, severally in
accordance with their respective Commitment Ratios and not jointly, upon the
terms and subject to the conditions of this Agreement, to lend and re-lend to
the Borrower, on and after the Agreement Date, amounts requested by the Borrower
which, in the aggregate, do not exceed at any time the amount of the
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<PAGE>
Commitment. Advances under the Commitment may be repaid and reborrowed as
provided in Section 2.2 hereof in order to reborrow Eurodollar Advances for new
Interest Periods or to otherwise effect changes in the Interest Rate Bases
applicable to the Advances hereunder. Any unpaid principal and interest of the
Loans and any other outstanding Obligations shall be due and payable in full on
the Maturity Date.
(b) ADDITIONAL FACILITY INDEBTEDNESS. The Borrower may also borrow
up to $25,000,000 in aggregate principal amount of Additional Facility
Indebtedness, subject to the following conditions: (i) the Additional Facility
Indebtedness shall be acceptable to the Majority Lenders and incurred on terms
and conditions no more favorable to the Borrower than the terms and conditions
of the Loans and shall have a final maturity no earlier than the Maturity Date;
(ii) each Lender hereunder shall be offered the opportunity (but shall not be
obliged) to issue a commitment for its PRO RATA share of such Additional
Facility Indebtedness or, in the event that any Lender elects not to participate
or to issue a Commitment for less than its PRO RATA share, in an amount
increased to reflect the difference; and (iii) the Additional Facility
Indebtedness shall constitute Obligations hereunder and shall rank PARI PASSU
with the other Obligations.
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT.
(a) CHOICE OF INTEREST RATE. Any Advance under the Commitment shall,
at the option of the Borrower, be made as a Base Rate Advance or a Eurodollar
Advance; provided, however, that at such time as there shall have occurred and
be continuing a Default hereunder, the Borrower shall not have the right to
borrow or to re-borrow any Eurodollar Advances, and all subsequent Advances
shall be made as Base Rate Advances. Any notice given to the Administrative
Agent in connection with a requested Advance hereunder shall be given to the
Administrative Agent prior to 11:00 a.m. (Houston time) in order for such
Business Day to count toward the minimum number of Business Days required.
(b) BASE RATE ADVANCES.
(i) INITIAL ADVANCES. The Borrower shall give the
Administrative Agent in the case of Base Rate Advances at least one (1)
Business Day's irrevocable prior written notice in the form of a Request
for Advance, or telephonic notice followed immediately by a Request for
Advance; provided, however, that the Borrower's failure to confirm any
telephonic notice with a Request for Advance shall not invalidate any
notice so given.
(ii) PREPAYMENTS AND CONVERSIONS. Upon at least one (1), with
respect to item (B) of this sentence, or three (3), with respect to item
(A) of this sentence, Business Days' irrevocable prior written notice
(or telephonic notice followed immediately by written notice) to the
Administrative Agent, and subject to the provisions of
Section 2.2(c)(iii), the Borrower may (A) convert all or a portion of
the principal of a Base Rate Advance to one or more Eurodollar Advances,
or (B) prepay all or any portion of such Base Rate Advance. On the date
indicated by the Borrower, such Base Rate Advance shall be so repaid or,
as applicable, converted. Advances prepaid or repaid (and not converted
or rolled over at such time) under the Commitment may be reborrowed and
will not permanently reduce the Commitment unless otherwise specified in
accordance with Section 2.6 hereof.
(c) EURODOLLAR ADVANCES.
(i) INITIAL ADVANCES. The Borrower shall give the
Administrative Agent in the case of Eurodollar Advances at least three
(3) Business Days' irrevocable prior written notice in the form of a
Request for Advance, or telephonic notice followed immediately by a
Request for Advance; provided, however, that the Borrower's failure to
confirm any
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<PAGE>
telephonic notice with a Request for Advance shall not invalidate any
notice so given. The Administrative Agent shall determine the available
Eurodollar Bases and shall notify the Borrower of such Eurodollar Bases.
The Borrower shall promptly notify the Administrative Agent by telephone
or telecopy, and shall immediately confirm any such telephonic notice in
writing, of its selection of a Eurodollar Basis and Interest Period for
such Advance; provided, however, that the Borrower's failure to confirm
any such telephonic notice in writing shall not invalidate any notice so
given.
(ii) PREPAYMENTS AND CONVERSIONS. At least three (3) Business
Days prior to each Payment Date for a Eurodollar Advance, the Borrower
shall give the Administrative Agent written notice specifying whether
all or a portion of any Eurodollar Advance outstanding on the Payment
Date (A) is to be rolled over as another Eurodollar Advance, (B) is to
be converted to a Base Rate Advance, or (C) is to be repaid. Eurodollar
Advances may be prepaid prior to the applicable Payment Date upon at
least three (3) Business Days prior written notice (or telephonic notice
followed immediately by written notice) to the Administrative Agent as
set forth in Section 2.5 hereof. Upon such Payment Date such Eurodollar
Advance will, subject to the provisions hereof, be so rolled over,
repaid or, as applicable, converted. Advances prepaid or repaid (and
not converted or rolled over at such time) under the Commitment may be
reborrowed and will not permanently reduce the Commitment unless
otherwise specified in accordance with Section 2.6 hereof.
(iii) MAXIMUM EURODOLLAR ADVANCES. At no time may the number
of outstanding Eurodollar Advances exceed five (5).
(d) NOTIFICATION OF LENDERS. Upon receipt of a Request for Advance,
or a notice from the Borrower with respect to a selection of an Interest Period,
or a notice from the Borrower with respect to any outstanding Advance prior to
the Payment Date for such Advance, the Administrative Agent shall promptly
notify each Lender by telephone or telecopy of the contents thereof and the
amount of such Lender's portion of the Advance. Each Lender shall, not later
than 1:30 p.m. (Houston time) on the date of borrowing specified in such notice,
make available to the Administrative Agent at the Administrative Agent's Office,
or at such account as the Administrative Agent shall designate, the amount of
its portion of any Advance which represents an additional borrowing hereunder in
immediately available funds.
(e) DISBURSEMENT.
(i) Prior to 3:00 p.m. (Houston time) on the date of an
Advance hereunder, the Administrative Agent shall, subject to the
satisfaction of the conditions set forth in Article 3 hereof, disburse
the amounts made available to it by the Lenders in like funds by (A)
transferring the amounts so made available by wire transfer pursuant to
the Borrower's instructions, or (B) in the absence of such instructions,
crediting the amounts so made available to the account of the Borrower
maintained with the Administrative Agent.
(ii) Unless the Administrative Agent shall have received
notice from a Lender prior to 2:00 p.m. (Houston time) on the date of
any Advance that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of such Advance, the
Administrative Agent may assume that such Lender has made or will make
such portion available to the Administrative Agent on the date of such
Advance and the Administrative Agent may in its sole discretion and in
reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent the Lender does not
make such ratable portion available to the Administrative Agent, such
Lender agrees to repay to the Administrative Agent on demand such
corresponding amount together with interest thereon, for each day from
the date such amount is made available to the Borrower until the
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<PAGE>
date such amount is repaid to the Administrative Agent, at the Federal
Funds Rate for the first three (3) days and thereafter at the Federal
Funds Rate plus one percent (1%).
(iii) If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such
Lender's portion of the applicable Advance for purposes of this
Agreement. If such Lender does not repay such corresponding amount
immediately upon the Administrative Agent's demand therefor, the
Administrative Agent shall notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Administrative Agent,
together with interest thereon. The failure of any Lender to fund its
portion of any Advance shall not relieve any other Lender of its
obligation hereunder to fund its respective portion of the Advance on
the date of such borrowing, but no Lender shall be responsible for any
such failure of any other Lender.
(iv) In the event that, at any time when the Borrower is not
in Default and has satisfied all applicable conditions set forth in
Article 3 hereof, a Lender for any reason fails or refuses to fund its
portion of an Advance, then, until such time as such Lender has funded
its portion of such Advance, or all other Lenders have received payment
in full (whether by repayment or prepayment) of the principal and
interest due in respect of such Advance, such non-funding Lender shall
not have the right (A) to vote regarding any issue on which voting is
required or advisable under this Agreement or any other Loan Document
(other than issues requiring the affirmative vote of all Lenders
pursuant to Section 11.12 hereof) and the amount of the Loan or
Commitment held by such Lender shall not be counted as outstanding for
purposes of determining "Majority Lenders" hereunder, and (B) to receive
payments of principal, interest or fees from the Borrower.
Section 2.3 INTEREST.
(a) ON BASE RATE ADVANCES. Interest on each Base Rate Advance shall
be computed on the basis of a year of 365/366 days for the actual number of days
elapsed and shall be payable at the Base Rate Basis for such Advance, in arrears
on the applicable Payment Date for the period through the date immediately
preceding such Payment Date. Interest on Base Rate Advances then outstanding
shall also be due and payable on the Maturity Date.
(b) ON EURODOLLAR ADVANCES. Interest on each Eurodollar Advance
shall be computed on the basis of a 360-day year for the actual number of days
elapsed and shall be payable at the Eurodollar Basis for such Advance, in
arrears on the applicable Payment Date for the period through the day
immediately preceding such Payment Date, and in addition, if the Interest Period
for a Eurodollar Advance exceeds three (3) months, interest on such Eurodollar
Advance shall also be due and payable in arrears on every three-month
anniversary of the beginning of such Interest Period. If a Eurodollar Advance or
portion thereof is terminated prior to the expiration of the applicable Interest
Period, interest on such Eurodollar Advance or portion thereof shall also be due
and payable in arrears on such termination date. Interest on Eurodollar Advances
then outstanding shall also be due and payable on the Maturity Date.
(c) INTEREST IF NO NOTICE OF SELECTION OF INTEREST RATE BASIS. If
the Borrower fails to give the Administrative Agent timely notice of its
selection of a Eurodollar Basis, or if for any reason the appropriate Eurodollar
Basis for any Advance is not determined, the Base Rate Basis shall apply to such
Advance.
(d) INTEREST UPON DEFAULT. Immediately upon the occurrence of an
Event of Default hereunder, the outstanding principal balance of the Loans,
together with accrued and unpaid interest and all other unpaid sums, shall bear
interest at the Default Rate. Such interest shall be payable on demand and
shall accrue until the earlier of (i) cure or waiver in writing of the
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applicable Event of Default in accordance with Section 11.12 hereof, or (ii)
agreement by the Majority Lenders to rescind the charging of interest at the
Default Rate.
(e) COMPUTATION OF INTEREST. In computing interest on any Advance,
the date of making the Advance shall be included and the date of payment shall
be excluded; provided, however, that if an Advance is repaid on the date that it
is made, one (1) day's interest shall be due.
(f) APPLICABLE MARGIN.
(i) With respect to any Advance under the Commitment
outstanding during the Implementation Phase, the Applicable Margin shall
be, as of any calculation date, 2.000% with respect to Base Rate
Advances and 3.000% with respect to Eurodollar Advances.
(ii) With respect to any Advance under the Commitment
outstanding after the Implementation Phase, the Applicable Margin shall
be, as of any calculation date, the interest rate margin determined by
the Administrative Agent based upon the Leverage Ratio determined for
the most recent fiscal quarter end, effective as of the second Business
Day after the financial statements referred to in Section 6.1 hereof are
delivered by the Borrower to the Administrative Agent and each Lender
for the fiscal quarter most recently ended, expressed as a per annum
rate of interest as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Then the Base Rate Advance And the Eurodollar Advance
If the Leverage Ratio is: Applicable Margin is: Applicable Margin is:
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 7.00 1.875% 2.875%
- -----------------------------------------------------------------------------------------------------------
Greater than or equal to 6.00 but less than 7.00 1.750% 2.750%
- -----------------------------------------------------------------------------------------------------------
Greater than or equal to 5.00 but less than 6.00 1.500% 2.500%
- -----------------------------------------------------------------------------------------------------------
Greater than or equal to 4.00 but less than 5.00 1.250% 2.250%
- -----------------------------------------------------------------------------------------------------------
Greater than or equal to 3.00 but less than 4.00 1.000% 2.000%
- -----------------------------------------------------------------------------------------------------------
Less than 3.00 0.500% 1.500%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In the event that the Borrower fails to timely provide the financial statements
referred to above in accordance with the terms of Section 6.1 hereof or the
Performance Certificate referred to in Section 6.3 hereof, and without prejudice
to any additional rights under Section 2.3(d) or Section 8.2 hereof, until the
second Business Day after such financial statements are delivered, the
Applicable Margin shall be 1.50% for Base Rate Advances and 2.50% for Eurodollar
Advances.
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Section 2.4 FEES.
(a) FEES PAYABLE UNDER THE FEE LETTERS. The Borrower agrees to pay
to the Administrative Agent, for the benefit of the Administrative Agent and the
Lenders, as their respective interests may appear, such fees as are mutually
agreed upon and as are described in the Fee Letters.
(b) COMMITMENT FEE. In addition to the fees described in Section
2.4(a), the Borrower agrees to pay to the Administrative Agent, for the benefit
of each of the Lenders in accordance with their respective Commitment Ratios, a
commitment fee on the aggregate unborrowed balance of the Commitment, for each
day from the Agreement Date until the Maturity Date, at a rate (i) during the
Implementation Phase, of 0.500% per annum, and (ii) after the Implementation
Phase, as determined by the Administrative Agent based upon the Leverage Ratio
determined for the most recent fiscal quarter end, payable as of the second
Business Day after the financial statements referred to in Section 6.1 hereof
are delivered by the Borrower to the Administrative Agent and each Lender for
the fiscal quarter most recently ended, and equal to (x) in the event the
Leverage Ratio shall be greater than or equal to 7.00:1, 0.500% per annum, and
(y) in the event the Leverage Ratio shall be less than 7.00:1, 0.375% per annum.
In the event that the Borrower fails to timely provide (A) the financial
statements referred to above in accordance with the terms of Section 6.1 hereof
or (B) the Performance Certificate referred to in Section 6.3 hereof, and
without prejudice to any additional rights under Section 2.3(d) or Section 8.2
hereof, the commitment fee shall be 0.500% per annum until the actual delivery
of such statements. Such commitment fee shall be computed on the basis of a
year of 365/366 days for the actual number of days elapsed, shall be payable
quarterly in arrears on the last Business Day of each calendar quarter
commencing on December 31, 1998 and on the Maturity Date, shall be fully earned
when due, and shall be non-refundable when paid.
Section 2.5 VOLUNTARY PREPAYMENT. The principal amount of any Base
Rate Advance may be prepaid in full or in part at any time upon one (1) Business
Days' prior written notice to the Administrative Agent, without penalty or
premium; and the principal amount of any Eurodollar Advance may be prepaid
without penalty or premium prior to the applicable Payment Date, upon three (3)
Business Days' prior written notice to the Administrative Agent, provided that
Borrower shall reimburse any Lender for any loss or reasonable out-of-pocket
expense incurred by such Lender in connection with such prepayment, as set forth
in Section 2.11 hereof. Each notice of prepayment shall be irrevocable. Upon
receipt of any notice of prepayment, the Administrative Agent shall promptly
notify each Lender of the contents thereof by telephone or telecopy and of such
Lender's portion of the prepayment. Prepayments of principal hereunder in
respect of Base Rate Advances, shall be in minimum amounts of $1,000,000 and
integral multiples of $250,000, and prepayments of principal hereunder in
respect of Eurodollar Advances shall be in minimum amounts of $1,000,000 and
integral multiples of $500,000. Advances prepaid pursuant to this Section 2.5
may be reborrowed.
Section 2.6 VOLUNTARY REDUCTION OF THE COMMITMENT. The Borrower shall
have the right, on three (3) Business Days' irrevocable notice to the
Administrative Agent, to cancel all or a portion of the Commitment, on a pro
rata basis among the Lenders, provided that (a) any such cancellation shall be
made in a principal amount of not less than $5,000,000, and in an integral
multiple of $1,000,000; (b) as of the effective date of such notice, the
Commitment shall be permanently reduced to the amount stated in the Borrower's
notice for all purposes herein; and (c) on or prior to the effective date of
such notice, the Borrower shall pay to the Administrative
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Agent for the benefit of the Lenders the amount necessary to reduce the
principal amount of the then outstanding Loans to not more than the amount of
the Commitment as so reduced, together with the accrued interest on the amount
so prepaid and the commitment fee set forth in Section 2.4 accrued through the
date of the reduction with respect to the amount reduced, and shall reimburse
the Administrative Agent and the Lenders for any loss or reasonable
out-of-pocket expense incurred by any of them in connection with such payment,
as set forth in Section 2.11. Each such reduction shall permanently reduce the
amount of the Commitment and shall reduce the dollar amount of each subsequent
scheduled quarterly Commitment reduction under Section 2.7 hereof on a weighted
pro rata basis.
Section 2.7 SCHEDULED REDUCTION OF COMMITMENT. The Commitment shall be
permanently reduced commencing on December 31, 2001 and at the end of each
calendar quarter thereafter, in quarterly installments, based upon the quarterly
commitment reductions as follows:
<TABLE>
<CAPTION>
Calendar Quarters Ending Quarterly Commitment Reduction
------------------------ ------------------------------
<S> <C>
December 31, 2001 through September 30, 2002 $ 1,125,000
December 31, 2002 through September 30, 2003 $ 1,500,000
December 31, 2003 through September 30, 2005 $ 2,250,000
December 31, 2005 through September 30, 2006 $ 3,000,000
December 31, 2006 through September 30, 2007 $ 3,750,000
December 31, 2007 $ 4,500,000
</TABLE>
On the date of each such Commitment reduction, the Borrower shall pay to the
Administrative Agent for the benefit of the Lenders the amount necessary to
reduce the principal amount of the then outstanding Loans to not more than the
amount of the Commitment as so reduced, together with the accrued interest on
the amount so prepaid and the commitment fee set forth in Section 2.4 accrued
through the date of the reduction with respect to the amount reduced, and shall
reimburse the Administrative Agent and the Lenders for any loss or reasonable
out-of-pocket expense incurred by any of them in connection with such payment,
as set forth in Section 2.11.
Section 2.8 MANDATORY REDUCTION OF COMMITMENT. In addition to the
scheduled repayments and Commitment reductions provided for in Section 2.7
hereof, the Commitment shall be reduced and the Borrower shall, if required
pursuant to Section 2.8(c) hereof, prepay the Loans, without penalty or premium,
as follows:
(a) EXCESS CASH FLOW. On or prior to the 45th day after the end of
each fiscal quarter ending after the Excess Cash Flow Commencement Date, the
Commitment shall be reduced by an amount equal to twelve and one-half percent
(12 1/2%) of the Excess Cash Flow for the four fiscal quarter period
most-recently ended.
(b) PERMITTED ASSET SALES. If the Borrower or any Subsidiary shall,
to the extent permitted hereunder, consummate any Permitted Asset Sale, the
Commitment shall be reduced
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by an amount equal to one hundred percent (100%) of the Net Proceeds received by
the Borrower or such Subsidiary, as the case may be, from such Permitted Asset
Sale on the date of receipt of the proceeds thereof by the Borrower or such
Subsidiary.
(c) APPLICATION. Mandatory reductions pursuant to this Section 2.8
shall permanently reduce the Commitment, and shall reduce the dollar amount of
each subsequent scheduled quarterly Commitment reduction under Section 2.7
hereof. As of the date of each reduction of the Commitment as set forth above,
the Borrower shall pay to the Administrative Agent for the benefit of the
Lenders the amount, if any, necessary to reduce the principal amount of the
Loans then outstanding to not more than the amount of the Commitment as so
reduced, together with accrued interest on the amount so prepaid and the
commitment fee set forth in Section 2.4 accrued through the date of the
reduction with respect to the amount reduced.
Section 2.9 NOTES; LOAN ACCOUNTS.
(a) The Loans shall be repayable in accordance with the terms and
provisions set forth herein and shall be evidenced by the Notes. One Note shall
be payable to the order of each Lender. The Notes shall be issued by the
Borrower to the Lenders and shall be duly executed and delivered by one or more
Authorized Signatories.
(b) Each Lender may open and maintain on its books in the name of the
Borrower a loan account with respect to such Lender's portion of the Loans and
interest thereon. Each Lender which opens such a loan account shall debit such
loan account for the principal amount of its portion of each Advance made and
accrued interest thereon and shall credit such loan account for each payment on
account of principal of or interest on its Loan. The records of a Lender with
respect to the loan account maintained by it shall be prima facie evidence of
the Loans and accrued interest thereon, absent manifest error, but the failure
of any Lender to make any such notations or any error or mistake in such
notations shall not affect the Borrower's repayment obligations with respect to
the Loans.
Section 2.10 MANNER OF PAYMENT.
(a) Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loans, commitment fees and any
other amount owed to the Lenders, the Administrative Agent or any of them under
this Agreement or the Notes shall be made not later than 2:00 p.m. (Houston
time) on the date specified for payment under this Agreement to the
Administrative Agent at the Administrative Agent's Office, for the account of
the Lenders, or the Administrative Agent, as the case may be, in Dollars in
immediately available funds. Any payment received by the Administrative Agent
after 2:00 p.m. (Houston time) shall be deemed received on the next Business
Day. Receipt by the Administrative Agent of any payment hereunder at or prior
to 2:00 p.m. (Houston time) on any Business Day shall be deemed to constitute
receipt on such Business Day. In the case of a payment for the account of a
Lender, the Administrative Agent will promptly thereafter (and, if such amount
is received before 2:00 p.m. (Houston time), on the same day) distribute the
amount so received in like funds to such Lender. If the Administrative Agent
shall not have received any payment from the Borrower as and when due, the
Administrative Agent will promptly notify the Lenders accordingly.
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(b) The Borrower agrees to pay principal, interest, fees and all
other Obligations due hereunder, under the Fee Letters, under the Notes, or
under the other Loan Documents without set-off or counterclaim or any deduction
whatsoever.
(c) Prior to the acceleration of the Loans under Section 8.2 hereof,
if some but less than all amounts due from the Borrower are received by the
Administrative Agent with respect to the Obligations, the Administrative Agent
shall distribute such amounts in the following order of priority, all on a pro
rata basis to the Lenders where applicable: (i) to the payment on a pro rata
basis of any fees or expenses then due and payable to the Administrative Agent,
the Lenders, or any of them; (ii) to the payment of interest then due and
payable on the Loans; (iii) to the payment of all other amounts not otherwise
referred to in this Section 2.10(c) then due and payable to the Administrative
Agent or the Lenders, or any of them, hereunder or under the Notes; and (iv) to
the payment of principal then due and payable on the Notes.
(d) Subject to any contrary provisions in the definition of Interest
Period, if any payment under this Agreement or any of the other Loan Documents
is specified to be made on a day which is not a Business Day, it shall be made
on the next Business Day, and such extension of time shall in such case be
included in computing interest and fees, if any, in connection with such
payment.
Section 2.11 REIMBURSEMENT.
(a) Whenever any Lender shall sustain or incur any losses or
out-of-pocket expenses, as described in Section 2.11(b), in connection with
(i) failure by the Borrower to borrow any Eurodollar Advance after having given
notice of its intention to borrow in accordance with Section 2.2 hereof (whether
by reason of the Borrower's election not to proceed or the non-fulfillment of
any of the conditions set forth in Article 3), or (ii) prepayment of any
Eurodollar Advance in whole or in part for any reason (except for reasons
contemplated by Section 10.2 hereof which are applicable only to a single
Lender), the Borrower agrees to pay to such Lender, upon demand, an amount
sufficient to compensate such Lender for all such losses and reasonable
out-of-pocket expenses. Such Lender's good faith determination of the amount of
such losses or out-of-pocket expenses, as set forth in writing and accompanied
by calculations in reasonable detail demonstrating the basis for its demand,
shall be presumptively correct.
(b) Losses and out-of-pocket expenses subject to reimbursement
hereunder shall be (i) any loss incurred by any Lender in connection with the
re-employment of funds prepaid, repaid, not borrowed, or paid, as the case may
be, and the amount of such loss shall be the excess, if any, of (A) the interest
or other cost to such Lender of the deposit or other source of funding used to
make any such Eurodollar Advance for the remainder of its Interest Period, over
(B) the interest earned (or to be earned) by such Lender upon the re-lending or
other redeployment of the amount of such Eurodollar Advance for the remainder of
its putative Interest Period, and (ii) any other expenses incurred by any Lender
or any participant of such Lender permitted hereunder in connection with the
re-employment of funds prepaid, repaid, not borrowed, or paid, as the case may
be.
Section 2.12 PRO RATA TREATMENT.
(a) ADVANCES. Each Advance from the Lenders shall be made pro rata
on the basis of the respective Commitment Ratios of the Lenders.
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(b) PAYMENTS. Except as provided in Section 2.2(e)(iv), Section
2.10(c), Section 8.3, or Article 10 hereof, each payment and prepayment of
principal of the Loans, and each payment of interest on the Loans, shall be made
to the Administrative Agent by the Borrower, and shall be distributed by the
Administrative Agent to the Lenders, on a pro rata basis in respect of their
respective unpaid principal amounts outstanding immediately prior to such
payment or prepayment. If any Lender shall obtain any payment (whether
involuntary, through the exercise of any right of set-off, or otherwise) on
account of the Loans made by it in excess of its ratable share of the Loans
under its Commitment Ratio, such Lender shall forthwith purchase from the other
Lenders such participations in the Loans made by them as shall be necessary to
cause such purchasing Lender to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and each such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 2.12(b) may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
Section 2.13 CAPITAL ADEQUACY. If, after the date hereof, the adoption
of any Applicable Law regarding the capital adequacy of banks or bank holding
companies, or any change in Applicable Law (whether adopted before or after the
Agreement Date) or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender with any
directive issued or adopted after the date hereof regarding capital adequacy
(whether or not having the force of law) of any such governmental authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on any Lender's capital as a consequence of its obligations
hereunder with respect to the Loans and the Commitment to a level below that
which it could have achieved but for such adoption, change or compliance taking
into consideration such Lender's policies with respect to capital adequacy
immediately before such adoption, change or compliance and assuming that such
Lender's capital was fully utilized prior to such adoption, change or compliance
by an amount reasonably deemed by such Lender to be material, then such Lender
shall promptly notify the Borrower of such adoption, compliance, or change.
Upon demand by such Lender made within one hundred eighty (180) days of such
adoption, compliance or change, the Borrower shall promptly pay to such Lender
such additional amounts as shall be sufficient to compensate such Lender for
such reduced return, together with interest on such amount from the date of
demand until payment in full thereof at the Default Rate. A certificate of such
Lender setting forth the amount to be paid to such Lender by the Borrower as a
result of any event referred to in this paragraph and supporting calculations in
reasonable detail shall be presumptively correct.
Section 2.14 LENDER TAX FORMS. On or prior to the first Payment Date
hereunder and on or prior to the first Business Day of each calendar year
thereafter, each Lender which is organized in a jurisdiction other than the
United States or a political subdivision thereof shall provide each of the
Administrative Agent and the Borrower with two (2) properly executed originals
of Form 4224 or Form 1001 (or any successor forms) prescribed by the Internal
Revenue Service or other documents satisfactory to the Borrower and the
Administrative Agent, and properly executed Internal Revenue Service Form W-8 or
Form W-9, as the case may be, certifying (a) as to such Lender's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such Lender hereunder and under the Notes
or (b) that
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<PAGE>
all payments to be made to such Lender hereunder and under the Notes are subject
to such taxes at a rate reduced to zero by an applicable tax treaty. Each such
Lender agrees to provide the Administrative Agent and the Borrower with new
forms prescribed by the Internal Revenue Service upon the expiration or
obsolescence of any previously delivered form, or after the occurrence of any
event requiring a change in the most recent forms delivered by it to the
Administrative Agent and the Borrower.
Section 2.15 REPLACEMENT LENDER. If the Borrower becomes obligated
to pay additional amounts pursuant to any of Section 10.3, 2.13 or Section 2.14
to any Lender, the Borrower may designate a financial institution reasonably
acceptable to the Administrative Agent to replace such Lender by purchasing for
cash and receiving an assignment of such Lender's pro rata share of the
Commitments and the rights of such Lender under the Loan Documents without
recourse to or warranty by, or expense to, such Lender, for a purchase price
equal to the outstanding amounts owed to such Lender.
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
the Lenders to undertake the Commitment and to make the initial Advance
hereunder is subject to the prior fulfillment of each of the following
conditions:
(a) The Administrative Agent shall have received each of the
following, in form and substance reasonably satisfactory to the Administrative
Agent and its counsel:
(i) The loan certificate of the Borrower, in substantially
the form attached hereto as EXHIBIT O, including a certificate of
incumbency with respect to each Authorized Signatory, together with
appropriate attachments which shall include, without limitation, the
following items: (A) a copy of the certificate of incorporation of the
Borrower, certified to be true, complete and correct by the Secretary of
State of Delaware, (B) a copy of the by-laws of the Borrower as in
effect on the Agreement Date, (C) certificates of good standing for the
Borrower issued by the Secretary of State or similar state official for
the States of Delaware, Missouri, California and Illinois, and for each
other state in which the Borrower is required to qualify or has
qualified to do business, (D) a true, complete and correct copy of the
authorizing resolutions of the Borrower, authorizing it to execute,
deliver and perform this Agreement and the other Loan Documents to which
it is a party, and (E) a true, complete and correct copy of any
agreement in effect with respect to the voting rights, ownership
interests, or management of the Borrower;
(ii) Duly executed Subordination Agreement;
(iii) Duly executed Note to the order of each Lender in the
amount of such Lender's pro rata share of the Commitment;
(iv) Duly executed Borrower's Pledge Agreement, together with
any appropriate stock certificates and undated stock powers executed in
blank;
(v) Duly executed Security Agreement;
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<PAGE>
(vi) Lien search results with respect to the Borrower and
each Subsidiary from all appropriate jurisdictions and filing offices;
(vii) Original UCC-1 financing statements, signed by the
Borrower as debtor and naming the Administrative Agent as secured party
to be filed in all appropriate jurisdictions;
(viii) A loan certificate from each Subsidiary of the Borrower,
in substantially the form attached hereto as EXHIBIT P, including a
certificate of incumbency with respect to each officer authorized to
execute Loan Documents on behalf of such Subsidiary, together with
appropriate attachments which shall include, without limitation, the
following items: (A) a copy of the certificate or articles of
incorporation of such Subsidiary, certified to be true, complete and
correct by the Secretary of State from the jurisdiction of incorporation
of such Subsidiary, (B) certificates of good standing for such
Subsidiary issued by the Secretary of State or similar state official
for each state in which such Subsidiary is incorporated or required to
qualify to do business, (C) a true, complete and correct copy of the
By-Laws of such Subsidiary, and (D) a true, complete and correct copy of
the resolutions of such Subsidiary authorizing it to execute, deliver
and perform the Loan Documents to which it is a party;
(ix) A duly executed Subsidiary Security Agreement, executed
and delivered by each Guarantying Subsidiary of the Borrower;
(x) Original UCC-1 financing statements, signed by each
Guarantying Subsidiary, respectively, as debtor, and naming the
Administrative Agent as secured party to be filed in all appropriate
jurisdictions;
(xi) A duly executed Subsidiary Guaranty executed and
delivered by each Guarantying Subsidiary of the Borrower;
(xii) A duly executed Subsidiary Pledge Agreement from any
Guarantying Subsidiary of the Borrower which has one or more corporate
Subsidiaries, together with appropriate stock certificates and undated
stock powers executed in blank;
(xiii) A duly executed Assignment of Intercompany Agreements
from the Borrower with respect to its rights under the Intercompany
Agreements properly acknowledged and agreed to by CellNet California,
and together with appropriate UCC-l financing statement forms and other
appropriate forms of perfection;
(xiv) A duly executed Assignment of Utility Contract from the
Borrower with respect to its rights under the Utility Contract properly
acknowledged and agreed to by Union Electric, and together with
appropriate UCC-l financing statement forms and other appropriate forms
of perfection;
(xv) A certificate executed by the Borrower and Union
Electric in form and substance satisfactory to the Administrative Agent
certifying that the Borrower is not in default under the Union Electric
Contract in any material respect and attaching a true, correct and
complete copy of the Union Electric Contract;
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(xvi) Proof of payment of all title insurance premiums,
documentary stamp or intangible taxes, recording fees and mortgage taxes
payable in connection with the recording of any of the Loan Documents or
the issuance of the title insurance commitments referred to above
(whether due on the Agreement Date or in the future) including such
sums, if any, due in connection with any future Advances;
(xvii) Copies of any existing environmental reviews and audits
with respect to Property owned by the Borrower and other information
pertaining to actual or potential environmental claims as Administrative
Agent may require;
(xviii) Copies of insurance binders or certificates covering the
assets of the Borrower and its Subsidiaries, naming the Administrative
Agent as additional insured or named loss payee, as applicable, and
otherwise meeting the requirements of Section 5.5 hereof;
(xix) Legal opinions of (A) Wilson Sonsini Goodrich & Rosati,
P.C., counsel to the Borrower and the Subsidiaries, regarding, among
other things, the absence of conflict between the Loan Documents
CellNet's high-yield debt documents and instruments including the
Indenture, and (B) Wikinson, Barker, Knauer & Quinn, LLP, FCC counsel to
the Borrower and the Subsidiaries, in each case addressed to each Lender
and the Administrative Agent, and dated as of the Agreement Date, in
substantially the forms attached hereto as EXHIBITS Q AND R,
respectively;
(xx) Duly executed Request for Advance for the initial
Advance of the Loans, which Request for Advance shall include
calculations demonstrating, as of the Agreement Date, and after giving
effect to the funding of the initial Advance hereunder and other
payments being made and effected as of the Agreement Date, the
Borrower's pro forma compliance with Sections 7.10, 7.11, 7.12 and 7.13
hereof;
(xxi) Duly executed Use of Proceeds Letter;
(xxii) Duly executed Certificate of Financial Condition for the
Borrower and its Subsidiaries on a consolidated basis, given by the
chief financial officer of the Borrower which shall include a
certification that no event has occurred which could have a Materially
Adverse Effect since June 30, 1998;
(xxiii) Audited financial statements of the Borrower and its
Subsidiaries on a consolidated basis for the fiscal year ended December
31, 1997, and an unaudited balance sheet and income statement of the
Borrower and its Subsidiaries on a consolidated basis for the fiscal
quarter ended June 30, 1998, demonstrating that CellNet has made an
equity investment in the Borrower in an amount not less than
$62,500,000;
(xxiv) Copies of any pay-off letters, termination statements,
canceled mortgages and the like required by the Administrative Agent in
connection with the satisfaction in full of all pre-existing
Indebtedness for Money Borrowed (except for Permitted Debt and CellNet
Subordinated Debt) of the Borrower and its Subsidiaries, and the
termination of any Liens (other than Permitted Liens) on the assets of
the Borrower or any of its Subsidiaries including Liens securing the
Indebtedness for Money Borrowed being refinanced by the initial Advance;
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(xxv) Comfort Letter from CellNet, in form and substance
satisfactory to the Lenders;
(xxvi) Operating and financial projections of the Borrower
indicating future compliance with all applicable covenants during the
term of this Agreement; and
(xxvii) All such other documents as either the Administrative
Agent or any Lender may reasonably request, certified by an appropriate
governmental official or an Authorized Signatory if so requested.
(b) The Administrative Agent shall have received evidence
satisfactory to it that the Borrower has obtained all technically compatible FCC
spectrum allocations necessary to operate a wireless data transmission system
for Union Electric and that all Necessary Authorizations, including all
necessary consents to the execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which it is a party and by the
Subsidiaries of the Loan Documents to which they are parties, have been obtained
or made, are in full force and effect and are not subject to any pending or,
threatened reversal or cancellation prior to its stated termination date, and
the Administrative Agent shall have received a certificate of an Authorized
Signatory so stating.
(c) The Administrative Agent shall be satisfied with all terms and
conditions, including any subordination provisions, of all Indebtedness of
CellNet and all pre-existing Indebtedness (including Permitted Debt and CellNet
Subordinated Debt) of the Borrower.
(d) The Lenders, the Administrative Agent, and Paul, Hastings,
Janofsky & Walker LLP, special counsel to the Administrative Agent, shall
receive payment of all reasonable fees and expenses due and payable on the
Agreement Date in respect of the transactions contemplated hereby.
Section 3.2 CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of
the Lenders to make each Advance (including the initial Advance hereunder) is
subject to the fulfillment of each of the following conditions immediately prior
to or contemporaneously with such Advance:
(a) All of the representations and warranties of the Borrower and the
Subsidiaries under this Agreement and the other Loan Documents (including,
without limitation, all representations and warranties with respect to the
Borrower's Subsidiaries), which, pursuant to Section 4.2 hereof, are made at and
as of the time of such Advance, shall be true and correct at such time in all
material respects, both before and after giving effect to the application of the
proceeds of such Advance;
(b) The incumbency of persons authorized by the Borrower to sign
documents shall be as stated in the certificate of incumbency delivered pursuant
to Section 3.1(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Agent and each of the Lenders;
(c) There shall not exist, on the date of the making of the Advance
and after giving effect to the proceeds of the Advance, a Default or an Event of
Default hereunder, and the Administrative Agent shall have received a Request
for Advance signed by an Authorized Signatory so certifying;
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(d) With respect to any Advance relating to any Acquisition,
Investment or the formation of any Subsidiary which is permitted hereunder, the
Administrative Agent and the Lenders shall have received such documents and
instruments relating to such Acquisition, Investment, or formation of a new
Subsidiary as are described in Section 5.13 hereof or otherwise required herein;
(e) The Administrative Agent shall have received a duly executed
Request for Advance which shall include calculations demonstrating compliance
with Sections 7.10, 7.11, 7.12 and 7.13 hereof and certification that since the
last day of the fiscal quarter of the Borrower most recently ended, no event has
occurred which could have a Materially Adverse Effect;
(f) The Administrative Agent shall have received financial statements
of the Borrower demonstrating compliance with Sections 7.8 and 7.9 for the
immediately preceding fiscal quarter; and
(g) The Administrative Agent and each of the Lenders shall have
received all such other certificates, reports, statements, opinions of counsel
or other documents as it may reasonably request.
The Borrower hereby agrees that the delivery of any Request for Advance
hereunder shall be deemed to be the certification of the Authorized Signatory of
the Borrower as to the matters set forth in this Section 3.2.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants, for itself and, as applicable, on behalf of its
Subsidiaries, and for so long as any of the Obligations is outstanding and
unpaid or the Borrower shall have the right to borrow hereunder (whether or not
the conditions to borrowing have been or can be fulfilled), in favor of the
Administrative Agent and each Lender, that:
(a) ORGANIZATION; OWNERSHIP; POWER; QUALIFICATION.
(i) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware.
The Borrower has the corporate power and authority to own or lease and
use its properties and to carry on its business as now being and
hereafter proposed to be conducted. The Borrower is duly qualified and
in good standing and authorized to do business in Missouri, California
and Illinois, and each other jurisdiction in which the conduct of its
business or the ownership or lease of its assets makes such
qualification necessary or prudent.
(ii) Each Subsidiary of the Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
state of its incorporation, and has the corporate power and authority to
own or lease and use its properties and to carry on its business as now
being and hereafter proposed to be conducted. Each of the Borrower's
Subsidiaries is duly qualified, in good standing and authorized to do
business in each
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jurisdiction in which the conduct of its business or the ownership or
lease of its assets makes such qualification or authorization necessary
or prudent.
(b) AUTHORIZATION; ENFORCEABILITY. The Borrower has the corporate
power and has taken all necessary action to authorize it to borrow hereunder, to
execute, deliver and perform this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms, and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by the Borrower and is, and each of the other
Loan Documents which is a contract or an instrument to which the Borrower is
party is, a legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, subject, as to enforcement of
remedies, to the following qualifications: (i) certain equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy at law, (ii) enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction and other
similar laws affecting enforcement of creditors' rights generally (insofar as
any such law relates to the bankruptcy, insolvency or similar event of the
Borrower), and (iii) enforcement may be limited by local rules and regulations
or by FCC rules and regulations, as the case may be.
(c) SUBSIDIARIES; INVESTMENTS; AUTHORIZATION; ENFORCEABILITY. The
Borrower's Subsidiaries and Investments and its direct and indirect ownership
thereof are set forth as of the Agreement Date on SCHEDULE 3 attached hereto,
and the Borrower has the unrestricted right to vote the issued and outstanding
shares of the Subsidiaries shown thereon; such shares of the Subsidiaries have
been duly authorized and issued and are fully paid and nonassessable. Each
Subsidiary of the Borrower has the corporate power and authority, and has taken
all necessary corporate action to authorize it to execute, deliver and perform
each of the Loan Documents to which it is a party in accordance with their
respective terms and to consummate the transactions applicable to such
Subsidiary which are contemplated by this Agreement and by such Loan Documents.
Each of the Loan Documents to which any Subsidiary of the Borrower is party is a
legal, valid and binding obligation of such Subsidiary enforceable against such
Subsidiary in accordance with its terms, subject, as to enforcement of remedies,
to the following qualifications: (i) certain equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy at law, (ii) enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction and other
similar laws affecting enforcement of creditors' rights generally (insofar as
any such law relates to the bankruptcy, insolvency or similar event of the
applicable Subsidiary), and (iii) enforcement may be limited by local rules and
regulations or by FCC rules and regulations, as the case may be.
(d) COMPLIANCE WITH OTHER LOAN DOCUMENTS AND CONTEMPLATED
TRANSACTIONS. The execution, delivery and performance, in accordance with their
respective terms, by the Borrower of this Agreement and the Notes, and by the
Borrower and its Subsidiaries of each of the other Loan Documents to which they
are respectively party, and the consummation of the transactions contemplated
hereby and thereby, do not and will not (i) require any consent or approval,
governmental or otherwise, not already obtained, (ii) violate any Applicable Law
respecting the Borrower or any Subsidiary of the Borrower, (iii) conflict with,
result in a breach of, or constitute a default under the certificate or articles
of incorporation or by-laws, as such documents are amended, of the Borrower or
of any Subsidiary of the Borrower, or under any material indenture, agreement,
or other instrument, to which the Borrower or any of its Subsidiaries is a party
or by which any of them or their respective properties may be bound, (iv)
conflict with, result in a breach of, or constitute a default or violation of,
the terms and conditions of any of the material
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Licenses, (v) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the Borrower
or any of its Subsidiaries, except for Permitted Liens, or (vi) conflict with,
result in a breach of, or constitute a default under the certificate or articles
of incorporation or by-laws, as such documents are amended, of CellNet or any
other parent company of the Borrower, or under any material indenture,
agreement, or other instrument, to which CellNet or any other parent company of
the Borrower is a party or by which any of them or their respective properties
may be bound.
(e) BUSINESS. The Borrower and its Subsidiaries are engaged in the
business of owning, designing, developing, manufacturing, installing, servicing,
managing, marketing, upgrading, operating, and investing in Systems, or
otherwise providing wireless data services and in related or complementary
business activities. The Utility Contract is the legal, valid and binding
obligation of the parties thereto enforceable against each of them in accordance
with their terms.
(f) LICENSES. The Licenses and all IOAs have been duly authorized by
the grantors thereof and are in full force and effect. The Borrower and its
Subsidiaries are in compliance in all material respects with all of the
provisions thereof. The Borrower and its Subsidiaries have secured all material
Necessary Authorizations and all such material Necessary Authorizations are in
full force and effect. Neither any material License nor any material Necessary
Authorization is the subject of any pending or, to the best of the Borrower's
knowledge, threatened revocation by the Public Safety and Private Wireless
Division of the Wireless Telecommunications Bureau of the FCC.
(g) COMPLIANCE WITH LAW. The Borrower and its Subsidiaries are in
compliance with all Applicable Law.
(h) TITLE TO ASSETS. The Borrower has good, legal and marketable
title to, or a valid leasehold interest in, all of its assets. Each of the
Borrower's Subsidiaries has good, legal and marketable title to, or a valid
leasehold interest in, all of its assets. None of such properties or assets
held by the Borrower or any of its Subsidiaries is subject to any Liens, except
for Permitted Liens. Except for financing statements evidencing Permitted
Liens, no financing statement under the Uniform Commercial Code as in effect in
any jurisdiction and no other filing which names the Borrower or any of its
Subsidiaries as debtor or which covers or purports to cover any of the assets of
the Borrower or any of its Subsidiaries is currently effective and on file in
any state or other jurisdiction, and neither the Borrower nor any of its
Subsidiaries has signed any such financing statement or filing or any security
agreement authorizing any secured party thereunder to file any such financing
statement or filing.
(i) LITIGATION. There is no action, suit, revocation, proceeding or
investigation pending or, to the best of the Borrower's knowledge, threatened
against or in any other manner relating adversely to, the Borrower or any of its
Subsidiaries or any of their respective properties, including without limitation
any License or Necessary Authorization, in any court or before any arbitrator of
any kind or before or by any governmental body (including without limitation the
FCC), except as described on SCHEDULE 5 attached hereto as of the Agreement Date
or as subsequently disclosed to the Administrative Agent and the Lenders
pursuant to Section 6.5 hereof; and no such action, suit, proceeding or
investigation could reasonably be expected to have an adverse outcome which (i)
calls into question the validity of this Agreement or any other Loan Document,
(ii) challenges the continued possession and use of any License granted by the
FCC, by the Borrower, any of its Subsidiaries, or any Person in which the
Borrower has, directly
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or indirectly, an Investment and, in any such case, such challenge could result
in a Default pursuant to Section 8.1(n) or Section 8.1(o) hereof, or (iii) could
have a Materially Adverse Effect.
(j) TAXES. All federal, state and other tax returns (including
information returns) of the Borrower and each of its Subsidiaries required by
law to be filed have been duly filed and all federal, state and other taxes,
including, without limitation, withholding taxes, assessments and other
governmental charges or levies required to be paid by the Borrower or any of its
Subsidiaries or imposed upon the Borrower or any of its Subsidiaries or any of
their respective properties, income, profits or assets, which are due and
payable, have been paid, except any such taxes (i) the payment of which the
Borrower or any of its Subsidiaries is diligently contesting in good faith by
appropriate proceedings, (ii) for which adequate reserves have been provided on
the books of the Borrower or the Subsidiary of the Borrower involved, and (iii)
as to which no Lien other than a Permitted Lien has attached and no foreclosure,
distraint, sale or similar proceedings have been commenced. The charges,
accruals and reserves on the books of the Borrower and each of its Subsidiaries
in respect of taxes are, in the reasonable business judgment of the Borrower,
adequate.
(k) FINANCIAL STATEMENTS. The Borrower has furnished or caused to be
furnished to the Administrative Agent and the Lenders its audited financial
statements on a consolidated basis with its Subsidiaries for the fiscal year
ended December 31, 1997, and its unaudited financial statements on a
consolidated basis with its Subsidiaries for the fiscal quarter ended June 30,
1998, which, together with other financial statements furnished to the
Administrative Agent and the Lenders subsequent to the Agreement Date, are
complete and correct in all material respects and present fairly in accordance
with GAAP the financial position of the Borrower and its Subsidiaries on a
consolidated basis on and as at such dates and the results of operations for the
periods then ended, subject, in the case of the quarterly statements, to
year-end audit adjustment and the absence of disclosure typically presented in
footnotes. Neither the Borrower nor any of its Subsidiaries has any material
liabilities, contingent or otherwise, other than as disclosed in the financial
statements referred to in the preceding sentence or as set forth or referred to
in this Agreement, and there are no material unrealized losses of the Borrower
or any of its Subsidiaries and no anticipated material losses of the Borrower or
any of its Subsidiaries other than those which have been disclosed in writing to
the Administrative Agent and the Lenders prior to the Agreement Date and
identified as such.
(l) NO ADVERSE CHANGE. Since September 30, 1998, there has occurred
no event which has had or which could reasonably be expected to have a
Materially Adverse Effect.
(m) ERISA. The Borrower and each of its Subsidiaries and each of
their respective Plans are in compliance in all respects with ERISA and the Code
and neither the Borrower nor any of its Subsidiaries has incurred any
accumulated funding deficiency with respect to any such Plan within the meaning
of ERISA or the Code. The Borrower, each of its Subsidiaries, and each other
ERISA Affiliate have complied with all requirements of Sections 10001 and 10002
of the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law No.
99-272), Section 4980B of the Internal Revenue Code. Neither the Borrower nor
any of its Subsidiaries has made any promises of retirement or other benefits to
employees, except as set forth in their respective Plans. Neither the Borrower
nor any of its Subsidiaries has incurred any material liability to PBGC in
connection with any such Plan. The assets of each such Plan subject to Title IV
of ERISA are sufficient to
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provide the benefits under such Plan. Such assets are also sufficient to
provide all other "benefit liabilities" (as defined in Section 9313(a) of the
Pension Protection Act included in the Omnibus Budget Reconciliation Act of
1987, Pub. L-100-203), Section 4001A(16) of ERISA, due under the Plan upon
termination. No Reportable Event has occurred and is continuing with respect to
any such Plan. No such Plan or trust created thereunder, or party in interest
(as defined in Section 3(14) of ERISA), or any fiduciary (as defined in Section
3(21) of ERISA), has engaged in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) which would subject
such Plan or any other Plan of the Borrower or any of its Subsidiaries, any
trust created thereunder, or any such party in interest or fiduciary, or any
party dealing with any such Plan or any such trust, to the tax or penalty in any
material amount on "prohibited transactions" imposed by Section 502 of ERISA or
Section 4975 of the Code. Neither the Borrower nor any of its Subsidiaries is a
participant in or is obligated to make any payment to a Multiemployer Plan.
Neither the Borrower nor any of its Subsidiaries (1) has had either a complete
withdrawal or a partial withdrawal under Section 4201 et. seq. of ERISA from a
Multiemployer Plan which had "unfunded vested benefits" within the meaning of
Section 4211 of ERISA or (2) has ever received a notice and demand from the plan
sponsor of a Multiemployer Plan under Section 4219(b)(1) of ERISA.
(n) COMPLIANCE WITH REGULATIONS T, U, AND X. Neither the Borrower
nor any Subsidiary of the Borrower is engaged principally in or has as one of
its important activities the business of purchasing or carrying, or extending
credit for the purpose of purchasing or carrying, any margin stock within the
meaning of Regulations T, U, and X of the Board of Governors of the Federal
Reserve System; nor will any proceeds of the Loans be used for such purpose.
(o) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
Neither the Borrower nor any of its Subsidiaries is required to register under
the provisions of the Investment Company Act of 1940, as amended, and neither
the entering into or performance by the Borrower and its Subsidiaries of this
Agreement nor the issuance of the Notes violates any provision of such Act or
requires any consent, approval or authorization of, or registration with, the
Securities and Exchange Commission or any other governmental or public body or
authority pursuant to any provisions of such Act. Neither the Borrower nor any
of its Subsidiaries is a "public utility holding company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
(p) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its
Subsidiaries is required to obtain any consent, approval, authorization, permit
or license which has not already been obtained from, or effect any filing or
registration which has not already been effected with, any federal, state or
local regulatory authority in connection with the execution and delivery of this
Agreement. Neither the Borrower nor any of its Subsidiaries is required to
obtain any consent, approval, authorization, permit or license which has not
already been obtained from, or effect any filing or registration which has not
already been effected with, any federal, state or local regulatory authority in
connection with the performance, in accordance with their respective terms, of
this Agreement or any other Loan Document.
(q) ABSENCE OF DEFAULT. The Borrower and its Subsidiaries are in
compliance in all respects with all of the provisions of their respective
certificates or articles of incorporation and by-laws, or their partnership
agreements, as the case may be, and no event has occurred or failed to occur
which has not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a material default by the Borrower
or any of its Subsidiaries under any material
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indenture, agreement or other instrument, any License, or any judgment, decree
or order to which the Borrower or any of its Subsidiaries is a party or by which
the Borrower or any of its Subsidiaries or any of their respective properties
may be bound or affected. Neither the Borrower nor any of its Subsidiaries is a
party to or bound by any contract or agreement continuing after the Agreement
Date, or bound by any Applicable Law, that could have a Materially Adverse
Effect or result in the loss of any License issued by the FCC.
(r) ACCURACY AND COMPLETENESS OF INFORMATION. All information,
reports, prospectuses and other papers and data relating to the Borrower or any
of its Subsidiaries and furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or the Lenders were, at the time
furnished, true, complete and correct in all material respects to the extent
necessary to give the Administrative Agent and the Lenders true and accurate
knowledge of the subject matter. No fact or situation is currently known to the
Borrower which has had or could reasonably be expected to have a Materially
Adverse Effect.
(s) AGREEMENTS WITH AFFILIATES AND MANAGEMENT AGREEMENTS. Except as
set forth on SCHEDULE 6 attached hereto or as permitted hereunder and disclosed
to the Administrative Agent in writing, neither the Borrower nor any of its
Subsidiaries has (i) any written agreements or binding arrangements of any kind
with any Affiliate, or (ii) any material management or consulting agreements of
any kind.
(t) PAYMENT OF WAGES. The Borrower and each of its Subsidiaries are
in full compliance with the Fair Labor Standards Act, as amended, and the
Borrower and each of its Subsidiaries have paid all minimum and overtime wages
required by law to be paid to their respective employees.
(u) PRIORITY. The Security Interest is a valid and perfected first
priority security interest in the Collateral in favor of the Administrative
Agent, for itself and for the ratable benefit of the Lenders, securing, in
accordance with the terms of the Security Documents, the outstanding
Obligations, and the Collateral is subject to no Liens other than Permitted
Liens. The Liens created by the Security Documents are enforceable as security
for the outstanding Obligations in accordance with their terms with respect to
the Collateral subject, as to enforcement of remedies, to the following
qualifications: (i) certain equitable remedies are discretionary and, in
particular, may not be available where damages are considered an adequate remedy
at law, (ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Borrower, or any Subsidiary), and (iii)
enforcement may be limited by local rules and regulations or by FCC rules and
regulations, as the case may be. Any Mortgage given by the Borrower or any
Subsidiary to the Administrative Agent grants a valid and perfected interest in
the Property owned by the Borrower or such Subsidiary. Any Mortgage secures, in
accordance with its terms, the Notes and the other outstanding Obligations and
such interests will be subject to no Liens that are prior to, on a parity with
or junior to the Lien in favor of the Administrative Agent other than Permitted
Liens and the CellNet Subordinated Debt, and any Mortgage will be enforceable as
security for the outstanding Obligations in accordance with its terms against
the Borrower and all third parties, subject to the following qualifications: (i)
certain equitable remedies are discretionary and, in particular, may not be
available where damages are considered an adequate remedy at law, and (ii)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other
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similar laws affecting enforcement of creditors' rights generally (insofar as
any such law relates to the bankruptcy, insolvency or similar event of the
Borrower or such Subsidiary).
(v) ENVIRONMENTAL MATTERS.
(i) The Borrower and its Subsidiaries are in substantial
compliance with all applicable Environmental Laws, and there is no
condition which could interfere with the continued operation of any of
the Systems in substantial compliance with Environmental Laws, or impair
the financial condition of Borrower or its Subsidiaries.
(ii) Neither the Borrower nor its Subsidiaries has received
from any governmental authority or any other Person any complaint,
notice of violation, alleged violation, investigation or advisory action
or notice of potential liability regarding matters of environmental
protection or permit compliance under applicable Environmental Laws with
regard to the Systems. There has been no pending or, to the Borrower's
knowledge, threatened complaint, notice of violation, alleged violation,
investigation or notice of potential liability under Environmental Laws
with regard to any of the Properties.
(iii) Neither the Borrower nor any of its Subsidiaries have
generated, treated, stored, or disposed of, any Hazardous Materials on
or under any of the Property except in substantial compliance with all
Environmental Laws.
(iv) Neither the Borrower nor any Subsidiary of the Borrower
is a party to any governmental administrative actions or judicial
proceedings pending under any Environmental Law applicable to the
Borrower or any of its Subsidiaries with respect to any of the
Properties, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with
respect to any of the Properties.
(w) INDEBTEDNESS. Except as permitted pursuant to Section 7.1
hereof, neither the Borrower nor any of its Subsidiaries has outstanding, as of
the Agreement Date, and after giving effect to the initial Advance hereunder on
the Agreement Date, any Indebtedness for Money Borrowed.
(x) INVESTMENTS. All Investments of the Borrower and its
Subsidiaries are shown as of the Agreement Date on SCHEDULE 3 attached hereto.
(y) REAL ESTATE. Other than as listed and described on SCHEDULE 4
attached hereto, (i) neither the Borrower nor any of its Subsidiaries owns any
real property, and (ii) no single parcel of such real estate has a fair market
value on the Agreement Date in excess of $100,000.
(z) YEAR 2000. The Borrower believes that its wireless data
communications networks are "Year 2000 Compliant" (that is, able to perform
properly date-sensitive functions for all dates before and after January 1,
2000). The Borrower and its Subsidiaries will require its third party vendors
and suppliers to be Year 2000 Compliant. The Borrower believes that the advent
of the millennium will have no adverse effect on the System.
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made, and shall
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be true and correct, at and as of the Agreement Date and on the date of each
Advance except to the extent expressly applicable only to the Agreement Date or
previously fulfilled in accordance with the terms hereof. All representations
and warranties made under this Agreement shall survive, and not be waived by,
the execution hereof by the Lenders and the Administrative Agent, any
investigation or inquiry by any Lender or the Administrative Agent, or the
making of any Advance under this Agreement.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower shall have the right to borrow hereunder (whether or not the conditions
to borrowing have been or can be fulfilled):
Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. The
Borrower will, and will cause each of its Subsidiaries to:
(a) preserve and maintain its existence, rights, franchises, licenses
and privileges in the state of its organization and in each other state in which
it operates the System, including, without limitation, the Licenses, all IOAs
(in accordance with their respective terms) and all other Necessary
Authorizations; and
(b) qualify and remain qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business makes such qualification or authorization necessary or prudent.
Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW. The Borrower
will, and will cause each of its Subsidiaries to, (a) engage solely in the
business of owning, operating and investing in Systems, or otherwise providing
wireless data services and in related or complementary businesses, and (b)
comply with the requirements of all Applicable Law.
Section 5.3 MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause each of its Subsidiaries to, maintain or cause to be maintained in the
ordinary course of business in good repair, working order and condition
(reasonable wear and tear excepted) all properties used in their respective
businesses (whether owned or held under lease), and from time to time make or
cause to be made all needed and appropriate repairs, renewals, replacements,
additions, betterments and improvements thereto, provided, however, that the
provisions of this Section 5.3 shall not prevent the Borrower or its
Subsidiaries from disposing of obsolete equipment and inventory in the ordinary
course of business.
Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. The Borrower
will, and will cause each of its Subsidiaries to, maintain a system of
accounting established and administered in accordance with GAAP subject, in the
case of quarterly statements, to year-end audit adjustments, keep adequate
records and books of account in which complete entries will be made in
accordance with GAAP and reflecting all transactions required to be reflected by
GAAP and keep accurate and complete records of their respective properties and
assets. The Borrower and its Subsidiaries will maintain a fiscal year ending on
December 31.
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Section 5.5 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to:
(a) Maintain insurance including, but not limited to, business
interruption coverage and public liability coverage insurance from responsible
companies in such amounts and against such risks to the Borrower and each of its
Subsidiaries as is prudent and satisfactory to the Administrative Agent
(including, without limitation, larceny, embezzlement, employee fidelity, and
other criminal misappropriation insurance).
(b) Keep their respective assets insured by responsible companies on
terms and in a manner reasonably acceptable to the Administrative Agent against
loss or damage by fire, theft, burglary, pilferage, loss in transit, explosions
and hazards insured against by extended coverage, in amounts which are prudent
for the wireless or telecommunications service industry, in accordance with
industry standards, and satisfactory to the Administrative Agent, all premiums
thereon to be paid by the Borrower and its Subsidiaries.
(c) Require that each insurance policy for the Borrower and its
Subsidiaries name the Administrative Agent, as agent for the Lenders, as
additional insured or named loss payee, as appropriate, to the extent of the
Obligations, and provide for at least thirty (30) days' prior written notice to
the Administrative Agent of any termination of or proposed cancellation or
nonrenewal of such policy, or material reduction in coverage.
(d) Apply proceeds of insurance for the Borrower and its Subsidiaries
paid to the Administrative Agent at any time no Default or Event of Default
exists hereunder to the repair or replacement of the lost or destroyed property;
otherwise, such proceeds shall be applied to the payment or prepayment of the
Obligations as provided under Section 2.10(c) or Section 8.3 hereof, as
applicable. Any balance thereof remaining after payment in full of the
Obligations shall be paid to the Borrower or as otherwise required by law.
Section 5.6 PAYMENT OF TAXES AND CLAIMS. The Borrower will, and will
cause each of its Subsidiaries to, pay and discharge all taxes, including,
without limitation, withholding taxes, assessments and governmental charges or
levies required to be paid by them or imposed upon them or their income or
profits or upon any properties belonging to them, prior to the date on which
penalties attach thereto, and all lawful claims for labor, materials and
supplies which, if unpaid, could become a Lien or charge upon any of their
properties; except that no such tax, assessment, charge, levy or claim need be
paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale or similar proceedings shall have been commenced.
The Borrower will, and will cause each of its Subsidiaries to, timely file all
information returns required by federal, state or local tax authorities.
Section 5.7 VISITS AND INSPECTIONS. The Borrower will, and will cause
each of its Subsidiaries to, permit representatives of the Administrative Agent
and any of the Lenders to, upon reasonable notice to the Borrower or such
Subsidiary and during normal business hours, (a) visit and inspect the
properties of the Borrower or such Subsidiary, (b) inspect and make extracts
from and copies of their respective books and records, and (c) discuss with
their respective principal officers their respective businesses, assets,
liabilities, financial positions and results of operations. The Borrower and
each of its Subsidiaries will also permit representatives
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of the Administrative Agent and any of the Lenders to discuss with their
respective auditors, subject to Section 11.17 hereof, their respective
businesses, assets, liabilities, financial positions and results of operations.
The Borrower will, and will cause each of its Subsidiaries to, and will use its
best efforts to cause Union Electric to, cooperate with the Administrative Agent
in ensuring, on a regular basis, that the Administrative Agent and any of the
Lenders may visit and inspect the System located on Union Electric's premises.
Section 5.8 PAYMENT OF INDEBTEDNESS; LOANS. Subject to any provisions
regarding subordination as set forth in any Loan Document, the Borrower will,
and will cause each of its Subsidiaries to, pay any and all of their respective
Indebtedness when and as it becomes due, and in any event prior to the
expiration of any grace period, other than amounts diligently disputed in good
faith and for which adequate reserves have been set aside in accordance with
GAAP.
Section 5.9 USE OF PROCEEDS. The Borrower will use the aggregate
proceeds of all Advances under the Commitment (a) to fund the development and
construction of a wireless data transmission system for Union Electric pursuant
to the terms and conditions of the Union Electric Contract, (b) to fund Capital
Expenditures and Acquisitions to the extent permitted herein, (c) to make
Permitted Investments, (d) to make Restricted Payments to the extent permitted
under Section 7.7 hereof, and (e) for working capital and other general
corporate purposes. Except as may be permitted under Section 7.6(a) hereof, no
proceeds of Advances hereunder shall be used for the purchase or carrying or the
extension of credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations T, U, and X of the Board of Governors of the
Federal Reserve System.
Section 5.10 REAL ESTATE. The Borrower will, and will cause its
Subsidiaries to, grant a Mortgage securing the Obligations to the Administrative
Agent, for itself and for the ratable benefit of the Lenders, in form and
substance satisfactory to the Administrative Agent, covering each parcel of real
estate having a fair market value, exclusive of equipment, in excess of $100,000
acquired by the Borrower or any of its Subsidiaries after the Agreement Date.
The Borrower will, and will cause its Subsidiaries to, deliver to the
Administrative Agent all documentation, including opinions of counsel and
policies of title insurance, which in the opinion of the Administrative Agent is
appropriate with each such grant, including any Phase I environmental audit
requested by the Administrative Agent or any Lender.
Section 5.11 INDEMNITY. The Borrower, for itself and on behalf of each
of its Guarantying Subsidiaries agrees, jointly and severally, to indemnify and
hold harmless each Lender and the Administrative Agent and each of their
respective Affiliates, employees, agents, representatives, officers and
directors (any of the foregoing shall be an "Indemnitee") from and against any
and all claims, liabilities, losses, damages, actions, reasonable attorneys'
fees and expenses (as such fees and expenses are incurred) and demands by any
party, including the costs of investigating and defending such claims, (a)
resulting from any breach or alleged breach by the Borrower or any Subsidiary of
the Borrower of any representation, warranty, or covenant made hereunder or
under any other Loan Document; (b) arising out of or in connection with (i) the
Commitment or the administration of the Loans or otherwise under this Agreement
or any other Loan Document (including the taking of Collateral for the
Obligations), including the use of the proceeds of Loans hereunder in any
fashion or the performance of their respective obligations under the Loan
Documents by the Borrower or any of its
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Subsidiaries, (ii) allegations of any participation by the Lenders or the
Administrative Agent, or any of them, in the affairs of the Borrower or any of
its Subsidiaries, or allegations that any of them has any joint liability with
the Borrower or any of its Subsidiaries for any reason, or (iii) any claims
against the Lenders or the Administrative Agent, or any of them, by any
shareholder, partner, or other investor in or lender to the Borrower or any
Subsidiary, by any brokers or finders or investment advisers or investment
bankers retained by the Borrower or by any Affiliates of Borrower, arising out
of the Commitment or otherwise under this Agreement or any other Loan Document;
or (c) in connection with taxes (other than income taxes and other than tax
liability resulting from the failure by any Lender to comply with the provisions
of Section 2.14 hereof), fees, and other charges payable as a result of making
the Loans, or the execution, delivery, and enforcement of this Agreement, the
Security Documents, the other Loan Documents, and any amendments thereto or
waivers of any of the provisions thereof; unless the Person seeking
indemnification hereunder is determined in such case to have acted with gross
negligence or willful misconduct, in any case by a final, non-appealable
judicial order. The obligations of the Borrower and the Subsidiaries under this
Section 5.11 are in addition to, and shall not otherwise limit, any liabilities
which the Borrower or any Subsidiary might otherwise have in connection with any
warranties or similar obligations of the Borrower or such Subsidiary in any
other agreement or instrument or for any other reason.
Section 5.12 INTEREST RATE HEDGING. Within ninety (90) days from the
Agreement Date and from the funding of any additional Advance requested by the
Borrower representing a new borrowing, the Borrower shall have entered into one
or more Interest Hedge Agreements which result in the fixing of a limit on the
Borrower's interest obligations at interest rates and other terms (such terms to
include consideration of the creditworthiness of the other party to the proposed
Interest Hedge Agreement) reasonably acceptable to the Administrative Agent with
respect to the Loans on an aggregate of not less than thirty-three percent (33%)
of the then outstanding principal amount of Total Debt. Such Interest Hedge
Agreements shall provide interest rate protection for at least one (1) year from
the date of such Interest Hedge Agreement or Agreements. All obligations of the
Borrower to the Administrative Agent, the Lenders, or any of them, or any
Affiliate of any of them, pursuant to any Interest Hedge Agreement, shall be
deemed to be part of the Obligations.
Section 5.13 COVENANTS REGARDING FORMATION OF SUBSIDIARIES AND THE
MAKING OF INVESTMENTS AND ACQUISITIONS. At the time of any Acquisition of a
Guarantying Subsidiary permitted hereunder by the Borrower or any Subsidiary, or
the formation of any new Guarantying Subsidiary of the Borrower or any of its
Subsidiaries which is permitted under this Agreement, the Borrower will, and
will cause its Subsidiaries, as appropriate, to (a) provide to the
Administrative Agent an executed supplement to the Subsidiary Security Agreement
for such new Subsidiary, in substantially the form of the supplement to
EXHIBIT M-1 attached hereto, together with appropriate UCC-1 financing
statements, as well as an executed supplement to the Subsidiary Guaranty for
such new Guarantying Subsidiary, in substantially the form of the supplement to
EXHIBIT K attached hereto, which shall constitute both Security Documents and
Loan Documents for purposes of this Agreement, as well as a loan certificate for
such new Guarantying Subsidiary, substantially in the form of EXHIBIT P attached
hereto, together with appropriate attachments; (b) pledge to the Administrative
Agent all of the stock (or other instruments or securities evidencing ownership)
of such Subsidiary or Person which is acquired, formed or beneficially owned by
the Borrower or any of the Borrower's Subsidiaries, as the case may be, as
additional Collateral for the Obligations to be held by the Administrative Agent
in accordance with the terms of the Borrower's Pledge Agreement, a supplement to
the Subsidiary Pledge Agreement, a supplement to the Assignment of Intercompany
Agreements, or a supplement to the Assignment of Utility Contract, and execute
and deliver to the Administrative Agent all such documentation for such pledge
as, in the reasonable opinion of the Administrative
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<PAGE>
Agent, is appropriate; and (c) provide all other documentation, including one or
more opinions of counsel satisfactory to the Administrative Agent which in the
opinion of the Administrative Agent is appropriate with respect to such
Acquisition or the formation of such Guarantying Subsidiary. At the time of any
Acquisition of any new Subsidiary permitted hereunder by the Borrower or any
Subsidiary, or the formation of any new Subsidiary of the Borrower or any of its
Subsidiaries, which new Subsidiary is, in either such case, a Non-Guarantying
Subsidiary, the Borrower shall provide to the Administrative Agent copies of
agreements and documents executed and delivered by such Subsidiary and the
Borrower, and collaterally assigned to the Administrative Agent by the Borrower,
and otherwise corresponding to all of the agreement's documents described in
clauses (a) through (c) of this subsection, including, without limitation, an
executed supplement to the Non-Guarantying Subsidiary Security Agreement for
such new Non-Guarantying Subsidiary, in substantially the form of the supplement
to EXHIBIT M-2 attached hereto. Investments made by the Borrower or any of its
Guarantying Subsidiaries after the Agreement Date shall also be treated as
additional Collateral and shall be subject to the provisions of appropriate
Security Documents. Any document, agreement or instrument executed or issued
pursuant to this Section 5.13 shall be a "Loan Document" for purposes of this
Agreement.
Section 5.14 PAYMENT OF WAGES. The Borrower and each of its
Subsidiaries shall at all times comply, in all material respects, with the
requirements of the Fair Labor Standards Act, as amended, including, without
limitation, the provisions of such Act relating to the payment of minimum and
overtime wages as the same may become due from time to time.
Section 5.15 COMPLIANCE WITH CONTRACTS. The Borrower and each of its
Subsidiaries shall at all times comply with the terms and conditions of the
Utility Contract.
Section 5.16 YEAR 2000 PROBLEM. The Borrower shall furnish or cause to
be furnished to each Lender and the Administrative Agent, promptly upon creation
thereof, copies of any review or assessment of the System in connection with, or
plan for the Borrower or any of its Subsidiaries relating to, the Year 2000
Problem.
ARTICLE 6
INFORMATION COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow hereunder (whether or not the conditions to
borrowing have been or can be fulfilled), the Borrower will furnish or cause to
be furnished to each Lender and the Administrative Agent, at their respective
offices:
Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. Within
forty-five (45) days after the last day of each quarter of each fiscal year of
the Borrower, unaudited balance sheets of the Borrower on a consolidated and
consolidating basis with its Subsidiaries, as at the end of such quarter and as
of the end of the preceding fiscal year, and the related statements of
operations and the related statements of cash flows of the Borrower on a
consolidated and consolidating basis with its Subsidiaries, for such quarter and
for the elapsed portion of the year ended with the last day of such quarter,
which shall set forth in comparative form such figures as at the end of and for
such quarter and the appropriate prior period and shall be certified by the
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<PAGE>
chief financial officer of the Borrower, to be, in his or her opinion, complete
and correct in all material respects and to present fairly, in accordance with
GAAP (except as to the exclusion of certain Subsidiaries which should be
consolidated with the Borrower under GAAP), the financial position of the
Borrower on a consolidated and consolidating basis with its Subsidiaries, as at
the end of such period and the results of operations for such period, and for
the elapsed portion of the year ended with the last day of such period, subject
only to normal year-end adjustments and the absence of footnotes.
Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION. Within one
hundred and twenty (120) days after the end of each fiscal year of the Borrower,
the audited consolidated and consolidating balance sheet of CellNet and its
Subsidiaries as of the end of such fiscal year and the related audited
consolidated and consolidating statements of operations for such fiscal year
and, to the extent available, for the previous two (2) fiscal years, the related
audited consolidated and consolidating statements of changes in shareholders'
equity for such fiscal year and, to the extent available, for the previous two
(2) fiscal years, and related audited consolidated and consolidating statements
of cash flows of such fiscal year and, to the extent available, for the previous
two (2) fiscal years, which shall be accompanied by an opinion of independent
certified public accountants of recognized national standing reasonably
acceptable to the Administrative Agent, together with a statement of such
accountants that in connection with their audit, nothing came to their attention
that caused them to believe that the Borrower was not in compliance with the
terms, covenants, provisions or conditions of Article 7 hereof.
Section 6.3 PERFORMANCE CERTIFICATES. At the time the financial
statements are furnished pursuant to Sections 6.1 and 6.2 hereof, the
Performance Certificate:
(a) setting forth as at the end of such quarterly period or fiscal
year, as the case may be, the arithmetical calculations required to establish
(i) the Applicable Margin pursuant to Section 2.3(f) hereof, and (ii) whether or
not the Borrower was in compliance with the requirements of Sections 7.10, 7.11,
7.12 and 7.13 hereof;
(b) setting forth on a consolidated basis for the Borrower and its
Subsidiaries, for each such fiscal quarter or fiscal year, as the case may be,
(i) a summary of monthly revenues and (ii) (A) the number of Active Meters at
the beginning of such period, (B) the number of new Active Meters added or
deactivated during such period and (C) the number of Active Meters at the end of
such period;
(c) stating that, to the best of his or her knowledge, no Default or
Event of Default has occurred as at the end of such quarterly period or year, as
the case may be, or, if a Default or an Event of Default has occurred,
disclosing each such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by the Borrower
with respect to such Default or Event of Default; and
(d) setting forth, as of the end of such fiscal quarter or year, a
list of any IOAs pursuant to which the Borrower or any of its Subsidiaries is
then providing cellular telephone or other wireless telecommunications services.
40
<PAGE>
Section 6.4 COPIES OF OTHER REPORTS.
(a) Promptly upon receipt thereof, copies of all material reports, if
any, submitted to the Borrower by the Borrower's independent public accountants
regarding the Borrower, including, without limitation, any management report
prepared in connection with the annual audit referred to in Section 6.2.
(b) Promptly upon receipt thereof, copies of any material adverse
notice or report regarding any License held by the Borrower or any Subsidiary
from the FCC.
(c) In connection with any proposed Acquisition by the Borrower or
any Subsidiary and promptly upon each request, such data, certificates, reports,
statements, opinions of counsel prepared for the Administrative Agent and the
Lenders, or any of them, documents or further information regarding the
business, assets, liabilities, financial position, projections, results of
operations, or Year 2000 issues described in Sections 4.1(z) and 5.16 hereof, of
the Borrower or any of its Subsidiaries as the Administrative Agent or any
Lender may reasonably request.
(d) Annually, one or more certificates of insurance indicating that
the requirements of Section 5.5 hereof remain satisfied for such fiscal year.
(e) Annually, and in no event later than the 120th day of each year,
a copy of the Borrower's annual budget for itself and its Subsidiaries for such
fiscal year.
(f) Promptly after the filing thereof, copies of all material
reports, proxies, forms or other documents required to be filed or submitted by
CellNet to the Securities and Exchange Commission or other federal or state
securities law enforcement agency or commission, without exhibits thereto unless
requested.
Section 6.5 NOTICE OF LITIGATION AND OTHER MATTERS. Notice specifying
the nature and status of any of the following events, promptly, but in any event
not later than five (5) Business Days after any officer the Borrower becomes
aware of the occurrence of any of the following events:
(a) the commencement of any proceeding or investigation by or before
any governmental body and any action or proceeding in any court or before any
arbitrator against, or to the extent known to the Borrower, in any other way
relating materially adversely to the Borrower or any Subsidiary of the Borrower
or any of their respective properties, assets or businesses or any License;
(b) any event having a Materially Adverse Effect;
(c) any Default or the occurrence or non-occurrence of any event (i)
which constitutes, or which with the passage of time or giving of notice or both
would constitute a material default by the Borrower or any Subsidiary of the
Borrower under the Utility Contract or other material agreement other than this
Agreement to which the Borrower or any Subsidiary of the Borrower is a party or
by which any material portion of their respective properties may be bound, or
(ii) which could reasonably be expected to have a Materially Adverse Effect,
giving in each case the details thereof and specifying the action proposed to be
taken with respect thereto;
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<PAGE>
(d) the receipt by the Borrower or any of its Subsidiaries of a
notice of default from (i) Union Electric relating to the Union Electric
Contract or (ii) any other utility company relating to any other utility
contract;
(e) the occurrence of any Reportable Event or a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) with respect to any Plan of the Borrower or any of its Subsidiaries,
or any of their ERISA Affiliates, or the institution or threatened institution
by PBGC of proceedings under ERISA to terminate or to partially terminate any
such Plan, or the termination or partial termination of any such Plan, or the
commencement or threatened commencement of any litigation regarding any such
Plan or naming it or the trustee of any such Plan with respect to such Plan; and
(f) the occurrence of any event subsequent to the Agreement Date
which, if such event had occurred prior to the Agreement Date, would have
constituted an exception to the representation and warranty in Section 4.1(m) of
this Agreement.
ARTICLE 7
NEGATIVE COVENANTS
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow from the Lenders hereunder (whether or not the
conditions to borrowing have been or can be fulfilled):
Section 7.1 INDEBTEDNESS OF THE BORROWER AND ITS SUBSIDIARIES.
The Borrower shall not, and shall cause each of its Subsidiaries not to,
create, assume, incur or otherwise become or remain obligated in respect of, or
permit to be outstanding, any Indebtedness except:
(a) The Obligations;
(b) Current accounts payable, accrued expenses, customer advance
payments and other current liabilities (other than for money borrowed) incurred
in the ordinary course of business;
(c) CellNet Subordinated Debt;
(d) An amount not to exceed $500,000 in the aggregate at any time
outstanding consisting of (i) Capitalized Lease Obligations, and (ii)
Indebtedness secured by purchase money security interests described in
subparagraph (g)(ii) of the definition of Permitted Liens set forth in Article 1
hereof;
(e) Other unsecured Indebtedness, including without duplication any
Guaranties of the Borrower or any Subsidiary not otherwise permitted pursuant to
clauses (a) through (d) of Section 7.5, in an amount not to exceed $2,000,000 in
the aggregate at any time outstanding; and
(f) Indebtedness under Interest Hedge Agreements entered into in
satisfaction of the Borrower's obligations under Section 5.12 hereof.
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<PAGE>
Section 7.2 LIMITATION ON LIENS. The Borrower shall not, and shall
cause each of its Subsidiaries not to, create, assume, incur or permit to exist
or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its properties or assets, whether now owned or
hereafter acquired, except for Permitted Liens.
Section 7.3 AMENDMENT AND WAIVER. The Borrower shall not, and shall
cause each of its Subsidiaries not to enter into any amendment of, or agree to
or accept or consent to any waiver of any of the material provisions of (a) its
articles or certificate of incorporation in any fashion which would adversely
effect the position of the Lenders, (b) the Utility Contract, or (c) the
Intercompany Agreements.
Section 7.4 LIQUIDATION, MERGER, DISPOSITION OF ASSETS.
(a) DISPOSITION OF ASSETS. The Borrower shall not, and shall cause
each of its Subsidiaries not to, at any time sell, lease, abandon, or otherwise
dispose of any of its or their assets other than:
(i) the sale of immaterial amounts of assets at the fair
market value thereof in the ordinary course of business of the Borrower
and its Subsidiaries;
(ii) the sale of disposal of obsolete equipment;
(iii) the sale or exchange of assets, in the ordinary course
of business, in exchange for comparable substitute or replacement
assets;
(iv) the sale of assets subject to purchase money or
capitalized lease financing otherwise permitted hereunder; or
(v) the sale of other assets (including any System and
ownership interests in Subsidiaries of the Borrower) provided that (x)
all Net Proceeds therefrom are applied as provided in Section 2.8(b)
hereof, (y) no Default then exists or would be caused thereby, and
(z) all Lenders give their prior written consent to such sale or other
disposition.
At the time of any such sale pursuant to clause (v) above (a "Permitted Asset
Sale"), the Borrower shall provide the Administrative Agent and the Lenders with
projections assuming the consummation of the Permitted Asset Sale and
demonstrating pro forma compliance with Sections 7.8, 7.9, 7.10, 7.11, 7.12 and
7.13 hereof for the remaining term of this Agreement.
(b) LIQUIDATION OR MERGER. The Borrower shall not, and shall cause
each of its Subsidiaries not to, at any time liquidate or dissolve itself (or
suffer any liquidation or dissolution) or otherwise wind up, or enter into any
merger, provided that if no Default then exists or would be caused thereby, the
following such transactions are permitted: (i) a merger among the Borrower and
one or more Subsidiaries, provided the Borrower is the surviving Person; (ii) a
merger between or among two or more Subsidiaries; (iii) an Acquisition permitted
hereunder effected by a merger in which the Borrower or a Subsidiary of the
Borrower is the surviving Person; and (iv) a liquidation or dissolution of one
or more Subsidiaries into its or their parent entity (provided the Borrower or
one of its Subsidiaries is such parent entity).
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<PAGE>
Section 7.5 LIMITATION ON GUARANTIES. The Borrower shall not, and
shall cause each of its Subsidiaries not to, at any time Guaranty, assume, be
obligated with respect to, or permit to be outstanding any Guaranty of, any
obligation of any other Person other than (a) a guaranty by endorsement of
negotiable instruments for collection in the ordinary course of business,
(b) obligations under agreements of the Borrower or any of its Subsidiaries
entered into in connection with leases of real property or the acquisition of
services, supplies and equipment in the ordinary course of business of the
Borrower or any of its Subsidiaries, (c) Guaranties permitted by Section 7.1(e)
hereof, or (d) as may be contained in any Loan Document.
Section 7.6 INVESTMENTS AND ACQUISITIONS. The Borrower shall not, and
shall cause each of its Subsidiaries not to, make any loan or advance, or make
any Investment or otherwise acquire for consideration evidences of Indebtedness,
capital stock or other securities of any Person, or make any Acquisition, except
that, so long as no Default then exists or would be caused thereby:
(a) The Borrower and its Subsidiaries may, directly or through a
brokerage account, purchase (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 of
America 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 of America or any
state thereof or the District of Columbia or any U.S. 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); and
(b) The Borrower and its Subsidiaries may make distributions to
CellNet California as part of the California Investment if (i) the Borrower
shall have certified to the Administrative Agent and the Lenders that (x) such
distribution shall not cause or result in a Default or an Event of Default
hereunder, and (y) no default or event of default under any of the Intercompany
Agreements then exists or will be caused thereby, (ii) copies of all executed
Intercompany Agreements have been sent to the Administrative Agent, and a duly
executed Assignment of Intercompany Agreements has been sent to the
Administrative Agent, pursuant to the latter of which all rights of the Borrower
in the Intercompany Agreements shall be assigned to the Administrative Agent for
the benefit of the Lenders, and (iii) the amount of CellNet's equity investment
in CellNet California shall at all times equal or exceed the sum of the
aggregate amount of the California Investment, PLUS $15,000,000.
Section 7.7 RESTRICTED PAYMENTS AND PURCHASES. The Borrower shall not,
and shall cause each of its Subsidiaries not to, directly or indirectly declare
or make any Restricted Payment or Restricted Purchase (other than to the extent
permitted in Section 7.6(b) hereof) except that so long as no Default hereunder
then exists or would be caused thereby:
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(a) So long as the Leverage Ratio is below 5.00, on or after each
date specified for mandatory reduction of the Commitment pursuant to Section
2.8(a) hereof, the Borrower may pay dividends or repay CellNet Subordinated
Debt, provided that (i) the Borrower shall have prepaid the Loans from its
Excess Cash Flow for the preceding four (4) fiscal quarter period in the amount
required by Section 2.8(a) hereof, (ii) the amount of such dividends and
distributions paid and made on or after such date for such period shall not
exceed the amount required to be prepaid on the Loans by the Borrower pursuant
to Section 2.8(a) hereof (the "Remaining Excess Cash Flow"), and (iii) the
Borrower shall provide the Lenders with a certificate, signed by the chief
financial officer of the Borrower, demonstrating pro forma compliance with the
terms of this Section 7.7, after giving effect to such dividend payments or
repayments of CellNet Subordinated Debt;
(b) So long as the Leverage Ratio is below 5.00, the Borrower may pay
cash management fees to CellNet in an amount not to exceed, in any fiscal year,
five percent (5%) of the Borrower's annual gross revenues for the preceding
fiscal year; and
(c) The Borrower may make distributions to CellNet to repay CellNet
Subordinated Debt in an amount not to exceed $10,000,000 in the aggregate if the
Borrower shall have delivered to the Administrative Agent, a compliance
certificate for any fiscal quarter in 1999, demonstrating (i) that the
Borrower's Leverage Ratio has not exceeded 8:50 to 1:00 during such quarter, and
(ii) pro forma compliance with Sections 7.8, 7.9, 7.10, 7.11, 7.12 and 7.13
hereof, after giving effect to such distributions.
Section 7.8 MINIMUM REVENUE. During the Implementation Phase, the
Borrower shall not permit its gross revenue as of the end of any fiscal quarter
times four (4) to be less than the amounts set forth below for such quarter:
<TABLE>
<CAPTION>
QUARTER ENDING AMOUNT
-------------- ------
<S> <C>
September 30, 1998 $5,100,000
December 31, 1998 $5,600,000
March 31, 1999 $6,800,000
June 30, 1999 $8,400,000
September 30, 1999 $10,450,000
December 31, 1999 $12,250,000
</TABLE>
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<PAGE>
Section 7.9 MINIMUM OPERATING CASH FLOW. During the Implementation Phase,
the Borrower shall not permit its Operating Cash Flow as of the end of any
fiscal quarter times four (4) to be less than the amounts set forth below for
such quarter:
<TABLE>
<CAPTION>
QUARTER ENDING AMOUNT
-------------- ------
<S> <C>
September 30, 1998 $759,000
December 31, 1998 $1,000,000
March 31, 1999 $2,100,000
June 30, 1999 $2,950,000
September 30, 1999 $4,050,000
December 31, 1999 $4,800,000
</TABLE>
Section 7.10 CAPITAL EXPENDITURES. The Borrower shall not make or incur,
in the aggregate, any Capital Expenditures, during a calendar year, in excess of
the amounts set forth below for the periods indicated:
<TABLE>
<CAPTION>
CALENDAR YEAR AMOUNT
------------- ------
<S> <C>
1998 $37,500,000
1999 $17,500,000
2000 through 2003 $3,000,000
2004 and thereafter $2,000,000 per annum
</TABLE>
PROVIDED, HOWEVER, that the Borrower may make Capital Expenditures in excess of
the amounts listed above to the extent such Capital Expenditures are funded by
CellNet Subordinated Debt invested in the Borrower after the Agreement Date. Up
to twenty-five percent (25%) of any year's Capital Expenditures limit which is
unused for Capital Expenditures in such year may be carried forward to the next
year; PROVIDED, HOWEVER, that any amounts used for Capital Expenditures which
are funded by CellNet Subordinated Debt as provided in the preceding clause
shall not increase the unused Capital Expenditures amount for purposes of this
carryforward provision.
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Section 7.11 LEVERAGE RATIO. After the Implementation Phase, the Borrower
shall not at any time permit the Leverage Ratio to exceed the ratio set forth
below during the periods indicated:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Agreement Date through December 30, 1999 N/A
December 31, 1999 through and including June 29, 2000 8.50:1
June 30, 2000 through and including December 30, 2000 8.00:1
December 31, 2000 through and including June 29, 2001 7.50:1
June 30, 2001 through and including March 30, 2002 6.25:1
March 31, 2002 through and including March 30, 2003 5.50:1
March 31, 2003 and thereafter 4.00:1
</TABLE>
Section 7.12 PRO FORMA DEBT SERVICE RATIO. After the Implementation
Phase, the Borrower shall not permit as of the end of any fiscal quarter the
ratio of Annualized Operating Cash Flow to Pro Forma Debt Service to be less
than (a) 1.20:1 for the fiscal quarters ending during the period from December
31, 1999 through December 30, 2003 and (b) 1.30:1 for any fiscal quarter ending
on or after December 31, 2003.
Section 7.13 INTEREST COVERAGE RATIO. After the Implementation Phase, the
Borrower shall not as of the end of any fiscal quarter permit the ratio of
(i) Annualized Operating Cash Flow to (ii) Cash Interest Expense for the four
(4) fiscal quarter period then ended, to be less than the ratio set forth below
for such quarter:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
Agreement Date through December 30, 1999 N/A
December 31, 1999 through December 30, 2001 1.50:1
December 31, 2001 through December 30, 2003 2.00:1
December 31, 2003 and thereafter 2.50:1
</TABLE>
Section 7.14 AFFILIATE TRANSACTIONS. Except as specifically provided
herein (including, without limitation, Section 7.7 hereof) and as may be
described on SCHEDULE 6 attached hereto, and except for fees and compensation
payable to officers and directors within customary parameters, the Borrower
shall not, and shall cause each of its Subsidiaries not to, at any time engage
in any transaction with an Affiliate (except for transactions between or among
the Borrower and its Subsidiaries), or make an assignment or other transfer of
any of its properties or assets to any Affiliate, on terms less advantageous to
the Borrower or such Subsidiary than would be the case if such transaction had
been effected with a non-Affiliate.
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Section 7.15 REAL ESTATE. Neither the Borrower nor any of its
Subsidiaries shall purchase or become obligated to purchase any single parcel of
real estate having a purchase price in excess of $100,000 except in compliance
with Section 5.10 hereof.
Section 7.16 ERISA LIABILITIES. The Borrower shall not, and shall
cause each of its Subsidiaries not to (i) permit the assets of any of their
respective Plans to be less than the amount necessary to provide all accrued
benefits under such Plans on an ongoing basis, or (ii) enter into any
Multiemployer Plan.
ARTICLE 8
DEFAULT
Section 8.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) (i) Any representation or warranty made under this Agreement or
any other Loan Document shall prove to be incorrect or misleading when made or
deemed to be made pursuant to Section 4.2 hereof, or (ii) any legal opinion
given in connection with this Agreement shall be revoked or withdrawn after its
issuance;
(b) (i) The Borrower shall default in the payment of any interest,
fees or other amounts payable to the Lenders, the Administrative Agent, or any
of them, when due, and such Default shall not be cured by payment in full within
three (3) Business Days, or (ii) the Borrower shall default in the payment of
any principal amount of the Notes;
(c) The Borrower shall default in the performance or observance of
any agreement or covenant contained in Sections 5.12, 5.13, 5.14 or 5.15;
Sections 6.1, 6.2 or 6.3; or any Section in Article 7, other than Sections 7.8,
7.9 and 7.11.
(d) The Borrower shall default in the performance or observance of
any agreement or covenant contained in Section 7.11 hereof; PROVIDED, that if
the Borrower, within fifteen (15) days from the date the financial statements
are delivered to the Administrative Agent pursuant to Sections 6.1 and 6.2
hereof, by using the proceeds from its issuance of CellNet Subordinated Debt,
reduces the amount of Total Debt then outstanding as of the relevant calculation
date to an amount such that a Default would not occur under Section 7.11, no
Default or Event of Default shall be deemed to have occurred; PROVIDED FURTHER,
the Borrower may not use the right to prevent a Default under Section 7.11 as
set forth in the preceding clause in more than one (1) consecutive quarter or on
more than three (3) occasions in total.
(e) The Borrower shall fail to meet one of the Performance Tests
applicable to any fiscal quarter (i) at the end of the fiscal quarter in which
such Performance Test is applicable, and (ii) in the subsequent fiscal quarter.
(f) The Borrower shall default in the performance or observance of
any other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1,
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and such default shall not be cured within a period of thirty (30) days from the
date of occurrence of such default;
(g) There shall occur any default in the performance or observance of
any agreement or covenant or breach of any representation or warranty contained
in any of the Loan Documents (other than this Agreement or as otherwise provided
in this Section 8.1) by the Borrower, any of its Subsidiaries, or any other
obligor thereunder, which shall not be cured within a period of thirty (30) days
from the date of occurrence of such default;
(h) There shall be entered and remain unstayed a decree or order for
relief in respect of the Borrower, any of its Subsidiaries or Union Electric
under Title 11 of the United States Code as now constituted or hereafter
amended, or any other applicable Federal or state bankruptcy law or other
similar law, or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar official of the Borrower, any of its Subsidiaries or of
Union Electric, or of any substantial part of their respective properties, or
ordering the winding-up or liquidation of the affairs of the Borrower, any of
its Subsidiaries or Union Electric; or an involuntary petition shall be filed
against the Borrower, any of its Subsidiaries or Union Electric and a temporary
stay entered, and (i) such petition and stay shall not be diligently contested,
or (ii) such petition and stay shall continue undismissed for a period of
forty-five (45) consecutive days;
(i) The Borrower, any of its Subsidiaries or Union Electric shall
file a petition, answer or consent seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
Federal or state bankruptcy law or other similar law, or the Borrower, any of
its Subsidiaries or Union Electric shall consent to the institution of
proceedings thereunder or to the filing of any such petition or shall seek or
consent to the appointment or taking of possession of a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Borrower, any of its Subsidiaries or Union Electric, or of any substantial part
of their respective properties, or the Borrower, any of its Subsidiaries or
Union Electric shall fail generally to pay their respective debts as they become
due, or the Borrower, any of its Subsidiaries or Union Electric shall take any
action in furtherance of any such action;
(j) A judgment shall be entered by any court against the Borrower or
any of its Subsidiaries for the payment of money which exceeds singly or in the
aggregate with other such judgments, $1,000,000, or a warrant of attachment or
execution or similar process shall be issued or levied against property of the
Borrower or any of its Subsidiaries which, together with all other such property
of the Borrower or any of its Subsidiaries subject to other such process,
exceeds in value $1,000,000 in the aggregate;
(k) There shall be at any time any "accumulated funding deficiency,"
as defined in ERISA or in Section 412 of the Code, with respect to any Plan
maintained by the Borrower or any of its Subsidiaries, or to which the Borrower
or any of its Subsidiaries has any liabilities, or any trust created thereunder;
or a trustee shall be appointed by a United States District Court to administer
any such Plan; or PBGC shall institute proceedings to terminate any such Plan;
or the Borrower or any of its Subsidiaries shall incur any liability to PBGC in
connection with the termination of any such Plan; or any Plan or trust created
under any Plan of the Borrower or any of its Subsidiaries shall engage in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) which would subject any such Plan, any trust created
thereunder, any trustee or administrator thereof, or any party dealing with any
such Plan or trust to the tax or penalty in any material amount on "prohibited
transactions" imposed by Section 502
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of ERISA or Section 4975 of the Code and, in each case, such event or condition,
together with other such events or conditions, if any, would subject the
Borrower or its Subsidiaries to any tax, liability or penalty in excess of
$1,000,000;
(l) Any event shall occur which has a Materially Adverse Effect;
(m) There shall occur (i) any default under any Indebtedness of the
Borrower or any of its Subsidiaries in an aggregate principal amount exceeding
$1,000,000, (ii) any default under any Interest Hedge Agreement having a
notional principal amount of $1,000,000 or more, or (iii) any default under the
Union Electric Contract;
(n) The FCC shall deliver to the Borrower or any of its Subsidiaries
an order to show cause why an order of revocation should not be issued based
upon any alleged attribution of alien ownership (within the meaning of 47 U.S.C.
Section 310(b) and any interpretation of the FCC thereunder) to the Borrower or
any of its Subsidiaries and such order shall not have been rescinded within
sixty (60) days after such delivery, with respect to any License;
(o) One or more Licenses shall be terminated or revoked such that the
Borrower and its Subsidiaries are no longer able to operate any System or any
portion thereof and retain the revenue received therefrom or any such License
shall fail to be renewed at the stated expiration thereof such that the Borrower
and its Subsidiaries are no longer able to operate the related System or any
portion thereof and retain the revenue received therefrom, except in the event
that the termination or revocation is with respect to any License that is not
material;
(p) Any Security Document or any Note or any other material Loan
Document or any material provision thereof shall at any time and for any reason
be declared by a court of competent jurisdiction, to be null and void, or a
proceeding shall be commenced by the Borrower or any of its Subsidiaries, or by
any governmental authority having jurisdiction over the Borrower or any of its
Subsidiaries, seeking to establish the invalidity or unenforceability thereof
(exclusive of questions of interpretation of any provision thereof), or the
Borrower or any of its Subsidiaries shall deny that it has any liability or
obligation for the payment of principal or interest or other obligations
purported to be created under any Loan Document;
(q) Any Security Document shall for any reason fail or cease to
create a valid and first-priority Lien on or Security Interest in any portion of
the Collateral purported to be covered thereby, subject to any Permitted Lien,
or any such Lien or Security Interest shall cease to be perfected; or
(r) (i) Union Electric shall purchase the Borrower's wireless data
transmission system pursuant to the terms of the Union Electric Contract, or
(ii) the Borrower shall cease to be a wholly-owned Subsidiary of CellNet.
Section 8.2 REMEDIES.
(a) If an Event of Default specified in Section 8.1 (other than an
Event of Default under Section 8.1(h) or Section 8.1(i)) shall have occurred and
shall be continuing, the Administrative Agent, at the request of the Majority
Lenders, shall formally declare that an Event of Default has occurred and (i)
terminate the Commitment and (ii) declare the principal of and interest on the
Loans and the Notes and all other amounts owed to the Lenders and the
Administrative Agent
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under this Agreement and the Notes and any other Obligations to be forthwith due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything in this Agreement or in the Notes or
any other Loan Document to the contrary notwithstanding, and the Commitment
shall thereupon forthwith terminate and all such amounts shall be immediately
due and payable.
(b) Upon the occurrence and continuance of an Event of Default
specified in Section 8.1(h) or Section 8.1(i), all principal, interest and other
amounts due hereunder and under the Notes, and all other Obligations, shall
thereupon and concurrently therewith become due and payable and the Commitment
shall forthwith terminate and the principal amount of the Loans outstanding
hereunder shall bear interest at the Default Rate, all without any action by the
Administrative Agent, the Lenders or the Majority Lenders or any of them and
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or in the other Loan Documents
to the contrary notwithstanding.
(c) Upon acceleration of the Notes, as provided in subsection (a) or
(b) of this Section 8.2, the Administrative Agent and the Lenders shall have all
of the post-default rights granted to them, or any of them, under the Loan
Documents and under Applicable Law.
(d) Upon acceleration of the Notes, as provided in subsection (a) or
(b) of this Section 8.2, the Administrative Agent, upon request of the Majority
Lenders, shall have the right to the appointment of a receiver for the
properties and assets of the Borrower and its Subsidiaries, both to operate and
to sell such properties and assets, and the Borrower, for itself and on behalf
of its Subsidiaries, hereby consents to such right and such appointment and
hereby waives any objection the Borrower or any Subsidiary may have thereto or
the right to have a bond or other security posted by the Administrative Agent on
behalf of the Lenders, in connection therewith. The rights of the
Administrative Agent under this Section 8.2(d) shall be subject to its prior
compliance with the Communications Act and the FCC rules and policies
promulgated thereunder to the extent applicable to the exercise of such rights.
(e) The rights and remedies of the Administrative Agent and the
Lenders hereunder shall be cumulative and not exclusive.
Section 8.3 PAYMENTS SUBSEQUENT TO DECLARATION OF EVENT OF DEFAULT.
Subsequent to the acceleration of the Loans under Section 8.2 hereof, payments
and prepayments under this Agreement made to any of the Administrative Agent,
the Lenders or otherwise received by any of such Persons (from realization on
Collateral for the Obligations or otherwise) shall be paid over to the
Administrative Agent (if necessary) and distributed by the Administrative Agent
as follows: FIRST, to the reasonable costs and expenses, if any, incurred in
connection with the collection of such payment or prepayment including, without
limitation, any reasonable costs incurred by the Administrative Agent in
connection with the sale or disposition of any Collateral for the Obligations;
SECOND, to the Lenders and the Administrative Agent for any fees hereunder or
under any of the other Loan Documents then due and payable; THIRD, to the
Lenders pro rata on the basis of their respective unpaid principal amounts
(except as provided in Section 2.2(e)), to the payment of any unpaid interest
which may have accrued on the Obligations; FOURTH, to the Lenders pro rata until
all Advances have been paid in full (and, for purposes of this clause,
obligations under Interest Hedge Agreements with the Lenders or any of them
shall be deemed to be Advances and shall be paid on a pro rata basis with the
Advances); FIFTH, to the Lenders pro rata on the basis of their respective
unpaid amounts, to the payment of any other unpaid
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Obligations; SIXTH, to damages incurred by the Administrative Agent or any
Lender by reason of any breach hereof or of any other Loan Document; and
SEVENTH, upon satisfaction in full of all Obligations, to the Borrower or as
otherwise required by law. Notwithstanding the foregoing, each Lender may
allocate amounts received by it pursuant to this Section 8.3 in its discretion
to the various Obligations held by it.
ARTICLE 9
THE ADMINISTRATIVE AGENT
Section 9.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints and authorizes, and hereby agrees that it will require any
transferee of any of its interest in its Loan and in its Note irrevocably to
appoint and authorize, the Administrative Agent to take such actions as its
agent on its behalf and to exercise such powers hereunder and under the Security
Documents as are delegated by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. Neither the Administrative Agent
nor any of its respective directors, officers, employees or agents shall be
liable for any action taken or omitted to be taken by it or them hereunder or in
connection herewith, except for its or their own gross negligence or willful
misconduct.
Section 9.2 INTEREST HOLDERS. The Administrative Agent may treat each
Lender, or the Person designated in the last notice filed with the
Administrative Agent, whether under Section 11.1, Section 11.5, or otherwise
hereunder, as the holder of all of the interests of such Lender in its Loan and
in its Note until written notice of transfer, signed by such Lender (or the
Person designated in the last notice filed with the Administrative Agent) and by
the Person designated in such written notice of transfer, in form and substance
satisfactory to the Administrative Agent, shall have been filed with the
Administrative Agent.
Section 9.3 CONSULTATION WITH COUNSEL. The Administrative Agent may
consult with Paul, Hastings, Janofsky & Walker LLP, Atlanta, Georgia, special
counsel to the Administrative Agent, or with other legal counsel selected by it
with due care and shall not be liable for any action taken or suffered by it in
good faith in consultation with the Majority Lenders and in reasonable reliance
on such consultations.
Section 9.4 DOCUMENTS. The Administrative Agent shall be under no duty
to examine, inquire into, or pass upon the validity, effectiveness or
genuineness of this Agreement, any Note, any other Loan Document, or any other
instrument, document or communication furnished pursuant hereto or in connection
herewith, and the Administrative Agent shall be entitled to assume (absent
knowledge to the contrary) that they are valid, effective and genuine, have been
signed or sent by the proper parties and are what they purport to be.
Section 9.5 ADMINISTRATIVE AGENT AND AFFILIATES. With respect to the
Commitment and its Loan, Toronto Dominion (Texas), Inc. and its Affiliates shall
have the same rights and powers hereunder and under the other Loan Documents as
any other Lender, and the Administrative Agent and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower, any of its Subsidiaries or any Affiliates of, or Persons doing
business with, the Borrower, as if they were not affiliated with the
Administrative Agent and without any obligation to account therefor.
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Section 9.6 RESPONSIBILITY OF THE ADMINISTRATIVE AGENT. The duties and
obligations of the Administrative Agent under this Agreement and the Security
Documents are only those expressly set forth in this Agreement and the Security
Documents. The Administrative Agent shall be entitled to assume that no Default
has occurred and is continuing unless it has actual knowledge, or has been
notified by the Borrower, of such fact, or has been notified by a Lender in
writing that such Lender considers that a Default has occurred and is
continuing, and such Lender shall specify in detail the nature thereof in
writing. The Administrative Agent shall not be liable hereunder for any action
taken or omitted to be taken except for its own gross negligence or willful
misconduct. The Administrative Agent shall provide promptly each Lender with
copies of such documents received from the Borrower as such Lender may
reasonably request.
Section 9.7 SECURITY DOCUMENTS. The Administrative Agent, as
collateral agent hereunder and under the Security Documents, is hereby
authorized to act on behalf of the Lenders, in its own capacity and through
other agents and sub-agents appointed by it with due care, under the Security
Documents, provided that the Administrative Agent shall not agree to the release
of any Collateral, or any property encumbered by any mortgage, pledge or
security interests except in compliance with Section 11.12 hereof. In
connection with its role as secured party with respect to the Collateral
hereunder, the Administrative Agent shall act as collateral agent, for itself
and for the ratable benefit of the Lenders, and such role as administrative
agent shall be disclosed on all appropriate accounts, certificates, filings,
mortgages, and other Collateral documentation.
Section 9.8 ACTION BY THE ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to use its discretion
with respect to exercising or refraining from exercising any rights which may be
vested in it by, and with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, this Agreement,
unless the Administrative Agent shall have been instructed by the Majority
Lenders to exercise or refrain from exercising such rights or to take or refrain
from taking such action; provided that the Administrative Agent shall not
exercise any rights under Section 8.2(a) of this Agreement except upon the
request of the Majority Lenders or all the Lenders, where expressly required by
this Agreement. The Administrative Agent shall incur no liability under or in
respect of this Agreement with respect to anything which it may do or refrain
from doing in the reasonable exercise of its judgment or which may seem to it to
be necessary or desirable in the circumstances for the protection of the
interests of the Lenders, except for its gross negligence or willful misconduct,
or conduct in breach of this Agreement as determined by a final, non-appealable
order of a court having jurisdiction over the subject matter.
(b) The Administrative Agent shall not be liable to the Lenders or to
any Lender in acting or refraining from acting under this Agreement or any other
Loan Document in accordance with the instructions of the Majority Lenders or of
all the Lenders, where expressly required by this Agreement, and any action
taken or failure to act pursuant to such instructions shall be binding on all
Lenders.
Section 9.9 NOTICE OF DEFAULT OR EVENT OF DEFAULT. In the event that
the Administrative Agent or any Lender shall acquire actual knowledge, or shall
have been notified, of any Default (other than through a notice by one party
hereto to all other parties), the Administrative Agent or such Lender shall
promptly notify the Administrative Agent, and the Administrative Agent shall
take such action and assert such rights under this Agreement as the Majority
Lenders or of all the Lenders, where expressly required by this Agreement, shall
request in writing, and the
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Administrative Agent shall not be subject to any liability by reason of its
acting pursuant to any such request. If the Majority Lenders shall fail to
request the Administrative Agent to take action or to assert rights under this
Agreement in respect of any Default within ten (10) days after their receipt of
the notice of any Default from the Administrative Agent or any Lender, or shall
request inconsistent action with respect to such Default, the Administrative
Agent may, but shall not be required to, take such action and assert such rights
(other than rights under Article 8 hereof) as it deems in its discretion to be
advisable for the protection of the Lenders, except that, if the Majority
Lenders have instructed the Administrative Agent not to take such action or
assert such right, in no event shall the Administrative Agent act contrary to
such instructions.
Section 9.10 RESPONSIBILITY DISCLAIMED. The Administrative Agent shall
not be under any liability or responsibility whatsoever as Administrative Agent:
(a) To the Borrower or any other Person as a consequence of any
failure or delay in performance by or any breach by, any Lender or Lenders of
any of its or their obligations under this Agreement;
(b) To any Lender or Lenders, as a consequence of any failure or
delay in performance by, or any breach by, (i) the Borrower of any of its
obligations under this Agreement or the Notes or any other Loan Document, or
(ii) any Subsidiary of the Borrower or any other obligor under any other Loan
Document; or
(c) To any Lender or Lenders, for any statements, representations or
warranties in this Agreement, or any other document contemplated by this
Agreement or any other Loan Document, or any information provided pursuant to
this Agreement, any other Loan Document, or any other document contemplated by
this Agreement, or for the validity, effectiveness, enforceability or
sufficiency of this Agreement, the Notes, any other Loan Document, or any other
document contemplated by this Agreement.
Section 9.11 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower) pro rata
according to their respective Commitment Ratios, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including reasonable fees and expenses of experts, agents,
consultants and counsel), or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of its role as Administrative Agent
under this Agreement, any other Loan Document, or any other document
contemplated by this Agreement or any action taken or omitted by the
Administrative Agent under this Agreement, any other Loan Document, or any other
document contemplated by this Agreement in its role as Administrative Agent,
except that no Lender shall be liable to the Administrative Agent for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements resulting from the gross
negligence or willful misconduct of the Administrative Agent as determined by a
final, non-appealable order of a court having jurisdiction over the subject
matter.
Section 9.12 CREDIT DECISION. Each Lender represents and warrants to
each other Lender and to the Administrative Agent that:
(a) In making its decision to enter into this Agreement and to make
its Advances it has independently taken whatever steps it considers necessary to
evaluate the financial condition and
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affairs of the Borrower and its Subsidiaries and that it has made an independent
credit judgment, and that it has not relied upon the Administrative Agent or any
other Lender, or information provided by the Administrative Agent (other than
information provided to the Administrative Agent by the Borrower and forwarded
by the Administrative Agent to the Lenders); and
(b) So long as any portion of the Obligations remains outstanding, it
will continue to make its own independent evaluation of the financial condition
and affairs of the Borrower.
Section 9.13 SUCCESSOR ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving written notice
thereof to the Lenders and the Borrower. Upon any such resignation, the
Majority Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the
Majority Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Administrative Agent gives notice of resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be any Lender or a commercial bank
organized under the laws of the United States of America or any political
subdivision thereof which has combined capital and reserves in excess of
$250,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges, duties and obligations of the retiring Administrative Agent and the
retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article shall continue
in effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as the Administrative Agent. The resignation of the
Administrative Agent may not take effect until a successor Administrative Agent
is appointed.
Section 9.14 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its respective duties under the Loan Documents by or through
agents or attorneys selected by it using reasonable care, and shall be entitled
to advice of counsel concerning all matters pertaining to such duties.
Section 9.15 ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM. The
Administrative Agent may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Administrative Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Administrative Agent, its agents,
financial advisors and counsel) and the Lenders allowed in any judicial
proceedings relative to the Borrower, or any of its creditors or property, and
shall be entitled and empowered to collect, receive and distribute any monies,
securities or other property payable or deliverable on any such claims, and any
custodian in any such judicial proceedings is hereby authorized by each Lender
to make such payments to the Administrative Agent and, in the event that the
Administrative Agent shall consent to the making of such payments directly to
the Lenders, to pay to the Administrative Agent any amount due to the
Administrative Agent for the reasonable compensation, expenses, disbursements
and advances of the Administrative Agent, its agents, financial advisors and
counsel, and any other amounts due the Administrative Agent under Section 11.2
hereof. Nothing contained in this Agreement or the other Loan Documents shall
be deemed to authorize the Administrative Agent to authorize or consent to or
accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition
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affecting the Notes or the rights of any holder thereof, or to authorize the
Administrative Agent to vote in respect of the claim of any Lender in any such
proceeding.
ARTICLE 10
CHANGE IN CIRCUMSTANCES
AFFECTING EURODOLLAR ADVANCES
Section 10.1 EURODOLLAR BASIS DETERMINATION INADEQUATE OR UNFAIR. If
with respect to any proposed Eurodollar Advance for any Interest Period, the
Administrative Agent determines after consultation with the Lenders that
deposits in Dollars (in the applicable amount) are not being offered to each of
the Lenders in the relevant market for such Interest Period, the Administrative
Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Administrative Agent notifies the Borrower that the
circumstances giving rise to such situation no longer exist, the obligations of
any affected Lender to make such type of Eurodollar Advances shall be suspended.
Section 10.2 ILLEGALITY. If after the date hereof, the adoption of any
Applicable Law, or any change in any Applicable Law (whether adopted before or
after the Agreement Date), or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
with any directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall make it unlawful or
impossible for any Lender to make, maintain or fund either or both types of
Eurodollar Advances, such Lender shall so notify the Administrative Agent, and
the Administrative Agent shall forthwith give notice thereof to the other
Lenders and the Borrower. Upon receipt of such notice, notwithstanding anything
contained in Article 2 hereof, the Borrower shall repay in full the then
outstanding principal amount of each affected Eurodollar Advance of such Lender,
together with accrued interest thereon and any reimbursement required under
Section 2.11 hereof, on either (a) the last day of the then current Interest
Period applicable to such affected Eurodollar Advances if such Lender may
lawfully continue to maintain and fund such Eurodollar Advances to such day or
(b) immediately if such Lender may not lawfully continue to fund and maintain
such affected Eurodollar Advances to such day. Concurrently with repaying each
affected Eurodollar Advance of such Lender, notwithstanding anything contained
in Article 2 or Article 3 hereof, the Borrower may borrow a Base Rate Advance
(or the other type of Eurodollar Advance, if available) from such Lender, and
such Lender shall make such Advance, if so requested, in an amount such that the
outstanding principal amount of the Note held by such Lender shall equal the
outstanding principal amount of such Note immediately prior to such repayment.
Section 10.3 INCREASED COSTS.
(a) If after the date hereof, any Lender becomes aware of the
adoption of any Applicable Law, or any change in any Applicable Law (whether
adopted before or after the Agreement Date), or any interpretation or change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof or compliance by any Lender with any directive (whether or not having
the force of law) of any such authority, central bank or comparable agency, and
any such adoption, change or interpretation:
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(i) shall subject any Lender to any tax, duty or other charge
with respect to its obligation to make Eurodollar Advances, or its
Eurodollar Advances, or shall change the basis of taxation of payments
to any Lender of the principal of or interest on its Eurodollar Advances
or in respect of any other amounts due under this Agreement, in respect
of its Eurodollar Advances or its obligation to make Eurodollar Advances
(except for changes in the rate or method of calculation of tax on the
overall net income of such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System, but excluding any included in an applicable
Eurodollar Reserve Percentage or Domestic Reserve Percentage), special
deposit, capital adequacy, assessment or other requirement or condition
against assets of, deposits with or for the account of, or commitments
or credit extended by, any Lender or shall impose on any Lender or the
London interbank borrowing market or the New York certificate of deposit
market any other condition affecting its obligation to make Eurodollar
Advances or its Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to such Lender of
making or maintaining any such Eurodollar Advances, or to reduce the amount of
any sum received or receivable by such Lender under this Agreement or under its
Note with respect thereto, then within one hundred eighty (180) days of such
increase, such Lender may demand and within five (5) days after demand by such
Lender, the Borrower agrees to pay to such Lender, such additional amount or
amounts as will compensate such Lender for such increased costs. Each Lender
will promptly notify the Borrower and the Administrative Agent of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section 10.3
(b) Any Lender claiming compensation under this Section 10.3 shall
provide the Borrower with a written certificate setting forth the additional
amount or amounts to be paid to it hereunder and calculations therefor in
reasonable detail. Such certificate shall be presumptively correct, absent
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods. If any Lender demands compensation under
this Section 10.3, the Borrower may at any time, upon at least five (5) Business
Days' prior notice to such Lender, prepay in full the then outstanding affected
Eurodollar Advances of such Lender, together with accrued interest thereon to
the date of prepayment, along with any reimbursement required under Section 2.11
hereof. Concurrently with prepaying such Eurodollar Advances, the Borrower may
borrow a Base Rate Advance from such Lender, and such Lender shall, if so
requested, make such Advance in an amount such that the outstanding principal
amount of the Note held by such Lender shall equal the outstanding principal
amount of such Note immediately prior to such prepayment.
Section 10.4 EFFECT ON OTHER ADVANCES. If notice has been given
pursuant to Section 10.1, 10.2 or 10.3 suspending the obligation of any Lender
to make Eurodollar Advances, or requiring Eurodollar Advances of any Lender to
be repaid or prepaid, then, unless and until such Lender notifies the Borrower
that the circumstances giving rise to such repayment no longer apply, all
Advances which would otherwise be made by such Lender as Eurodollar Advances
shall, at the option of the Borrower, be made instead as Base Rate Advances.
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ARTICLE 11
MISCELLANEOUS
Section 11.1 NOTICES.
(a) Unless otherwise specifically provided herein, all notices and
other communications under this Agreement shall be in writing and shall be
deemed to have been given three (3) days after deposit in the mail, designated
as certified mail, return receipt requested, postage-prepaid, or one (1) day
after being entrusted to a reputable commercial overnight delivery service, or
when sent by telecopy addressed to the party to which such notice is directed at
its address determined as provided in this Section 11.1, except that notices
under Article 2 shall be effective only upon receipt. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, to it at:
CellNet Data Services (SL), Inc.
125 Shoreway Road
San Carlos, California 94070
Attn: Paul Manca
Telecopier: (415) 592-6858
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Meredith S. Jackson, Esq.
Telecopier: (415) 493-6811
(ii) If to the Administrative Agent, to it at:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Manager, Agency
Telecopier: (713) 951-9921
with a copy to:
The Toronto-Dominion Bank
USA Division
31 West 52nd Street
New York, NY 10019-6101
Attn: Managing Director, Communications Finance
Telecopier: (212) 262-1928
58
<PAGE>
and to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, Suite 2400
Atlanta, Georgia 30308-2222
Attn: Kevin Conboy, Esq.
Telecopier: (404) 815-2424
(iii) If to the Lenders, to them at the addresses set forth
beside their names on SCHEDULE 1.
Copies shall be provided to Persons other than parties hereto only in the case
of notices under Article 8 hereof.
(b) Any party hereto may change the address to which notices shall be
directed under this Section 11.1 by giving ten (10) days' written notice of such
change to the other parties.
Section 11.2 EXPENSES. The Borrower will promptly pay, or reimburse:
(a) all reasonable out-of-pocket expenses of the Administrative Agent
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, and the transactions contemplated
hereunder and thereunder and the making of the initial Advance hereunder
(whether or not such Advance is made), including, but not limited to, the fees
and disbursements of Paul, Hastings, Janofsky & Walker LLP, special counsel for
the Administrative Agent and its Affiliates;
(b) all reasonable out-of-pocket expenses of the Administrative Agent
in connection with the administration of the transactions contemplated in this
Agreement or the other Loan Documents, the restructuring and "work out" of such
transactions, and the preparation, negotiation, execution and delivery of any
waiver, amendment or consent by the Administrative Agent and the Lenders
relating to this Agreement or the other Loan Documents, including, but not
limited to, the fees and disbursements of any experts, agents or consultants and
of special counsel for the Administrative Agent; and
(c) all out-of-pocket costs and expenses of the Administrative Agent
and each Lender of obtaining performance under this Agreement or the other Loan
Documents and all out-of-pocket costs and expenses of collection of the
Administrative Agent and each Lender if an Event of Default occurs in the
payment of the Notes, which in each case shall include reasonable fees and
out-of-pocket expenses of counsel for the Administrative Agent and each Lender.
Section 11.3 WAIVERS. The rights and remedies of the Administrative
Agent and the Lenders under this Agreement and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies which they would
otherwise have. No failure or delay by the Administrative Agent or the Lenders,
or any of them, in exercising any right, shall operate as a waiver of such
right. The Administrative Agent and the Lenders expressly reserve the right to
require strict compliance with the terms of this Agreement in connection with
any future funding of a request for an Advance. In the event the Lenders decide
to fund an Advance at a time when the Borrower is not in strict compliance with
the terms of this Agreement, such decision by the Lenders shall not be deemed to
constitute an undertaking by the Lenders to fund any further
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Advances or preclude the Lenders and the Administrative Agent from exercising
any rights available under the Loan Documents or at law or equity. Any waiver
or indulgence granted by the Administrative Agent, the Lenders or the Majority
Lenders shall not constitute a modification of this Agreement, except to the
extent expressly provided in such waiver or indulgence, or constitute a course
of dealing at variance with the terms of this Agreement such as to require
further notice of their intent to require strict adherence to the terms of this
Agreement in the future.
Section 11.4 SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of an Event of Default and during the continuation thereof,
the Administrative Agent and the Lenders are hereby authorized by the Borrower
at any time or from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, Indebtedness evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Indebtedness
at any time held or owing by any Lender or the Administrative Agent to or for
the credit or the account of the Borrower or any of its Subsidiaries against and
on account of the Obligations which are then due and payable irrespective of
whether (a) any Lender or the Administrative Agent shall have made any demand
hereunder or (b) the Administrative Agent shall have declared the principal of
and interest on the Loans and other amounts due hereunder to be due and payable
as permitted by Section 8.2 and although such Obligations or any of them, shall
be contingent or unmatured. Upon direction by the Administrative Agent with the
consent of the Majority Lenders, each Lender holding deposits of the Borrower or
any of its Subsidiaries shall exercise its set-off rights as so directed.
Section 11.5 ASSIGNMENT.
(a) The Borrower may not assign or transfer any of its rights nor
delegate any of its obligations hereunder or under the Notes without the prior
written consent of each Lender.
(b) Each of the Lenders may at any time enter into participation or
assignment agreements with one or more other Lenders or other Persons pursuant
to which each Lender may sell participations in or assign its interests under
this Agreement and the other Loan Documents, provided, that unless otherwise
agreed to by the Borrower and the Administrative Agent, (i) all assignments and
participations (other than assignments and participations described in clause
(ii) hereof) shall be in minimum principal amounts of Five Million Dollars
($5,000,000), (ii) each Lender may sell assignments and participations of up to
one hundred percent (100%) of its interests hereunder to (A) one or more
affiliates of such Lender, (B) any other Lender, or (C) any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank, provided, that no such assignment described in clause (C) shall relieve
such Lender from its obligations hereunder, and (iii) all assignments (other
than assignments described in clause (ii) hereof) and participations hereunder
shall be subject to the following additional terms and conditions:
(i) No assignment shall be sold without the prior
written consent of the Administrative Agent and (so long as no Event of
Default exists hereunder) the prior written consent(s) of the Borrower,
which consents shall not be unreasonably withheld or delayed.
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<PAGE>
(ii) Any Person purchasing a participation or an
assignment of the Loans from any Lender shall be required to represent
and warrant that its purchase shall not constitute a "prohibited
transaction" (as defined in Section 4.1(m) hereof).
(iii) The Borrower, the Lenders, and the Administrative
Agent agree that assignments permitted hereunder (including the
assignment of any Advance or portion thereof) may be made with all
voting rights, and shall be made pursuant to an Assignment and
Assumption Agreement in substantially the form attached hereto as
EXHIBIT S. An administrative fee of $3,500 shall be payable to the
Administrative Agent by the assigning Lender at the time of any
assignment hereunder.
(iv) No assignment, participation or other transfer of
any rights hereunder or under the Notes shall be effected that would
result in any interest requiring registration under the Securities Act
of 1933, as amended, or qualification under any state securities law.
(v) Each Lender agrees that (x) no participation
agreement shall confer any rights under this Agreement or any other Loan
Document to any purchaser thereof, (y) no Person to which a
participation is issued shall have any right to exercise or enforce any
rights under this Agreement or under any other Loan Document, and (z)
any participation agreement permitted hereunder shall (a) (subject to
clause (vi) of this Section 11.5(b)) expressly provide that the issuer
thereof will at all times retain the right to vote or take any other
actions with respect to its interests hereunder for the full Commitment
Ratio assigned to such issuing Lender hereunder, both before and after
the occurrence of any Default, and (b) contain an express
representation by the participant that it is purchasing such
participation for its own account and not as agent or trustee for any
Plan or trust.
(vi) The participation may also provide that the
issuing Lender will not, without the consent of the participant, agree
to any modification, amendment or waiver of this Agreement which would
otherwise require unanimous consent of all of the Lenders.
(vii) The amount, terms and conditions of any
participations or assignments shall be as set forth in the participation
or assignment agreement between the issuing or assigning Lender and the
Person purchasing such participation or assignment, except as provided
in the Assignment and Assumption Agreement, and neither the Borrower,
the Administrative Agent, nor any other Lender shall have any
responsibility or obligations with respect thereto, or to any Person to
whom such participation or assignment may be issued.
(viii) No such assignment may be made to any Lender or
other financial institution (x) with respect to which a receiver or
conservator (including, without limitation, the Federal Deposit
Insurance Corporation, the Resolution Trust Company or the Office of
Thrift Supervision) has been appointed or (y) that is not "adequately
capitalized" (as such term is defined in Section 131(b)(1)(B) of the
Federal Deposit Insurance Corporation Improvement Act as in effect on
the Agreement Date.
(c) Except specifically set forth in Section 11.5(b) hereof, nothing
in this Agreement or the Notes, expressed or implied, is intended to or shall
confer on any Person other than the respective parties hereto and thereto and
their successors and assignees permitted hereunder and
61
<PAGE>
thereunder any benefit or any legal or equitable right, remedy or other claim
under this Agreement or the Notes.
Section 11.6 ACCOUNTING PRINCIPLES. Except as set forth in the
following sentence, references in this Agreement to GAAP shall be to such
principles as in effect from time to time, and all accounting terms used herein
without definition shall be used as defined under GAAP. All references to
Operating Cash Flow, Total Debt, Debt Service, and other such terms shall be
deemed to refer to such items of the Borrower and its Subsidiaries on a
consolidated basis, consistently applied, unless otherwise indicated herein.
Section 11.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
such separate counterparts shall together constitute but one and the same
instrument.
Section 11.8 GOVERNING LAW. This Agreement and the Notes shall be
construed in accordance with and governed by the internal laws of the State of
New York applicable to agreements made and to be performed in New York. If any
action or proceeding shall be brought by the Administrative Agent or any Lender
in order to enforce any right or remedy under this Agreement or under any Note,
the Borrower hereby consents and will, and the Borrower will cause each
Subsidiary to, submit to the jurisdiction of any state or federal court of
competent jurisdiction sitting within the area comprising the Southern District
of New York on the date of this Agreement. The Borrower, for itself and on
behalf of its Subsidiaries, hereby agrees that service of the summons and
complaint and all other process which may be served in any such suit, action or
proceeding may be effected by mailing by registered mail a copy of such process
to the offices of the Borrower at the address given in Section 11.1 hereof and
that personal service of process shall not be required. Nothing herein shall be
construed to prohibit service of process by any other method permitted by law or
the bringing of any suit, action or proceeding in any other jurisdiction. The
Borrower agrees that final judgment in such suit, action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by Applicable Law.
Section 11.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.10 INTEREST.
(a) In no event shall the amount of interest due or payable hereunder
or under the Notes exceed the maximum rate of interest allowed by Applicable
Law, and in the event any such payment is inadvertently made by the Borrower or
inadvertently received by any Lender, then such excess sum shall be credited as
a payment of principal, unless the Borrower shall notify the Administrative
Agent or such Lender in writing that it elects to have such excess returned
forthwith. It is the express intent hereof that the Borrower not pay and the
Lenders not receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may legally be paid by the Borrower under Applicable
Law.
(b) Notwithstanding the use by the Lenders of the Base Rate, the
Federal Funds Rate, and the Eurodollar Rate as reference rates for the
determination of interest on the Loans, the Lenders
62
<PAGE>
shall be under no obligation to obtain funds from any particular source in order
to charge interest to the Borrower at interest rates related to such reference
rates.
Section 11.11 TABLE OF CONTENTS AND HEADINGS. The Table of Contents
and the headings of the various subdivisions used in this Agreement are for
convenience only and shall not in any way modify or amend any of the terms or
provisions hereof, nor be used in connection with the interpretation of any
provision hereof.
Section 11.12 AMENDMENT AND WAIVER. Neither this Agreement nor any
other Loan Document nor any term hereof or thereof may be amended orally, nor
may any provision hereof or thereof be waived orally but only by an instrument
in writing signed by (or, in the case of Security Documents executed by the
Administrative Agent for itself and on behalf of the Lenders, signed by the
Administrative Agent and approved by) the Majority Lenders and, in the case of
an amendment, by the Borrower, except that in the event of (a) any increase in
the amount of the Commitment (other than the issuance of additional loans under
the Additional Facility Commitment as provided herein), (b) any delay or
extension in the terms of repayment of the Loans provided in Section 2.7 hereof,
(c) any reduction in principal, interest or fees due hereunder or postponement
of the payment thereof, (d) any release of any Collateral for the Loans other
than in connection with a sale or disposition otherwise permitted hereunder, or
any failure to take Collateral to which the Lenders are otherwise entitled to
hereunder, (e) any waiver of any Default due to the failure by the Borrower to
pay any sum due to any of the Lenders hereunder, (f) any release of any Guaranty
of all or any portion of the Obligations, except in connection with a merger,
sale or other disposition otherwise permitted hereunder, or (g) any amendment of
this Section 11.12, or of the definition of Majority Lenders, or of any portion
of Sections 2.10, 2.12, 5.11 or Article 10 as they relate to the relative
priority of payment among the Obligations, or any other provision of this
Agreement or any of the other Loan Documents specifically requiring the consent
or approval of each of the Lenders, any amendment or waiver or consent may be
made only by an instrument in writing signed by (or, in the case of Security
Documents executed by the Administrative Agent for itself and on behalf of the
Lenders, signed by the Administrative Agent and approved by) each of the Lenders
and, in the case of an amendment, by the Borrower. Any amendment to any
provision hereunder governing the rights, obligations, or liabilities of the
Administrative Agent in its capacity as such, may be made only by an instrument
in writing signed by the Administrative Agent and by each of the Lenders.
Section 11.13 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement and the other documents described or contemplated herein
embody the entire agreement and understanding among the parties hereto and
thereto and supersede all prior agreements and understandings relating to the
subject matter hereof and thereof.
Section 11.14 OTHER RELATIONSHIPS. No relationship created hereunder
or under any other Loan Document shall in any way affect the ability of the
Administrative Agent or its Affiliates and each Lender or its respective
Affiliates to enter into or maintain business relationships with the Borrower or
any of its Affiliates beyond the relationships specifically contemplated by this
Agreement and the other Loan Documents.
Section 11.15 DIRECTLY OR INDIRECTLY. If any provision in this
Agreement refers to any action taken or to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person, whether or not
expressly specified in such provision.
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<PAGE>
Section 11.16 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS. All
covenants, agreements, statements, representations and warranties made herein or
in any certificate delivered pursuant hereto (a) shall be deemed to have been
relied upon by the Administrative Agent and each of the Lenders notwithstanding
any investigation heretofore or hereafter made by them, and (b) shall survive
the execution and delivery of the Notes and shall continue in full force and
effect so long as any Note is outstanding and unpaid. Any right to
indemnification hereunder, including, without limitation, rights pursuant to
Sections 2.11, 2.13, 5.11, 10.3 and 11.2 hereof, shall survive the termination
of this Agreement and the payment and performance of all other Obligations.
Section 11.17 CONFIDENTIALITY. Each Lender agrees to protect the
confidentiality of confidential information regarding the Borrower and its
Subsidiaries, to prevent unauthorized disclosures, to take reasonable steps
necessary to ensure that the information is received only by those who have a
need to know, and to hold all non-public, proprietary or confidential
information (which has been identified as such by the Borrower) obtained
pursuant to this Agreement in accordance with its customary procedures for
handling confidential information of this nature and in accordance with safe and
sound banking practices; however, the Lenders may make disclosure of any such
information to their examiners, outside auditors, and counsel in connection with
this Agreement or as reasonably required by any proposed syndicate member or any
proposed transferee or participant in connection with the contemplated transfer
of any Note or participation therein so long as such Person agrees to be bound
by this Section 11.17 or as required or requested by any governmental authority
or representative thereof or in connection with the enforcement hereof or of any
Loan Document or related document or pursuant to legal process or with respect
to any litigation between or among the Borrower and any of the Lenders. In no
event shall any Lender be obligated or required to return any materials
furnished to it by the Borrower. The foregoing provisions shall not apply to a
Lender with respect to information that (i) is or becomes generally available to
the public (other than through such Lender), (ii) is already in the possession
of such Lender on a nonconfidential basis, (iii) comes into the possession of
such Lender from a Person other than the Borrower or an Affiliate of the
Borrower in a manner not known to such Lender to involve a breach of a duty of
confidentiality owing to the Borrower, or (iv) must be disclosed as required by
law, any court of competent jurisdiction, or bank regulator.
ARTICLE 12
WAIVER OF JURY TRIAL
Section 12.1 WAIVER OF JURY TRIAL. THE BORROWER, FOR ITSELF AND ON
BEHALF OF ITS SUBSIDIARIES, AND THE ADMINISTRATIVE AGENT AND EACH OF THE
LENDERS, HEREBY AGREE TO WAIVE AND HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY IN
ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER, ANY
OF THE BORROWER'S SUBSIDIARIES, ANY OF THE LENDERS, OR THE ADMINISTRATIVE AGENT,
OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS, IS A PARTY, AS TO ALL MATTERS
AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, ANY OF THE
NOTES OR THE OTHER LOAN DOCUMENTS.
64
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
65
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first appearing above.
BORROWER: CELLNET DATA SERVICES (SL), INC.
By:________________________________
Title:_____________________________
ADMINISTRATIVE
AGENT: TORONTO DOMINION (TEXAS), INC.
By:________________________________
Title:_____________________________
LEAD ARRANGER AND
SYNDICATION AGENT: TD SECURITIES (USA), INC.
By:________________________________
Title:_____________________________
LENDERS: TORONTO DOMINION (TEXAS), INC.
By:________________________________
Title:_____________________________
THE BANK OF NEW YORK
By:________________________________
Title:_____________________________
<PAGE>
FIRST HAWAIIAN BANK
By:________________________
Title:_____________________
<PAGE>
CO-AGENT: THE BANK OF NEW YORK
By:________________________
Title:_____________________
<PAGE>
EXHIBIT 10.24
PROMISSORY NOTE
$_________ San Carlos, CA
________, 1998
FOR VALUE RECEIVED, the undersigned, , promises to pay to
CellNet Data Systems, Inc., a Delaware Corporation (the "Company"), on order,
the principal sum of ________ Dollars and no Cents ($_______), together with
interest on the unpaid principal hereof from the date hereof at the rate of Five
and One-Half percent (5.50%) per annum.
Principal and interest shall be due and payable on the earlier of (a) two
(2) years from the date hereof, or (b) as soon as the undersigned may sell,
consistent with the Company's policies regarding sales by affiliates (as that
term is defined pursuant to Rule 144(a)(1) of the Securities Act of 1933), a
sufficient number of shares of the Company's Common Stock to repay this loan,
including interest, at a market price of not less than $14.00 per share. Should
the undersigned fail to make full payment of any installment of principal or
interest for a period of 10 days or more after the due date thereof, or in the
event that the undersigned's employment with the Company is terminated for any
reason, or no reason, with or without cause, the whole unpaid balance on this
Note of principal and interest shall become immediately due at the option of the
holder of this Note. Payments of principal and interest shall be made in lawful
money of the United States of America. The undersigned may at any time prepay
all or any portion of the principal or interest owing hereunder.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
The holder of this Note shall have full recourse against the undersigned in
the event of default.
The holder of this Note hereby waives presentment, demand for performance,
notice of non-performance, protest, notice of protest and notice of dishonor.
No delay on the part of the Company in exercising any right hereunder shall
operate as a waiver of such right or any other right. This Note is being
delivered in and shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of laws provisions thereof.
________________________
<PAGE>
EXHIBIT 21.1
DOMESTIC SUBSIDIARIES--CELLNET
BCN Data Systems, L.L.C. (Delaware)
CellNet Data Retrofit Services, Inc. (Delaware)
CellNet Data Services, Inc. (Delaware)
CellNet Data Services (AZ), Inc. (Delaware)
CellNet Data Services (CA), Inc. (Delaware)
CellNet Data Services (IS), Inc. (Delaware)
CellNet Data Services (KC), Inc. (Delaware)
CellNet Data Services (ME), Inc. (Delaware)
CellNet Data Services (MSP), Inc. (Delaware)
CellNet Data Services (NH), Inc. (Delaware)
CellNet Data Services (PA), Inc. (Delaware)
CellNet Data Services (SE), Inc. (Delaware)
CellNet Data Services (SF), Inc. (Delaware)
CellNet Data Services (SL), Inc. (Delaware)
CellNet Data Services (TX), Inc. (Delaware)
CellNet Funding, LLC (Delaware)
CN Frequency (IS), 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 Holdings (TX), Inc. (Delaware)
CN Partners (TX), L.P. (Texas)
CN WAN Corp. (Delaware)
FOREIGN SUBSIDIARIES--CELLNET
BCN Data Systems Limited (England/Wales)
<PAGE>
EXHIBIT 23.1
[LOGO]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-50851 on Form S-3 and Registration Statement Nos. 333-16399 and 333-56137 on
Form S-8 of CellNet Data Systems, Inc. of our report dated February 2, 1999,
appearing in this Annual Report on Form 10-K of CellNet Data Systems, Inc. for
the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 16, 1999
85 CELLNET
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<SECURITIES> 50,728
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