SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 22, 1999
TELETRAC, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 333-35021 48-1172403
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
2131 Faraday Avenue, Carlsbad, California 92008
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (760)931-2644
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events.
As previously announced, Teletrac, Inc. (the "Company"), a wholly
owned subsidiary of Teletrac Holdings, Inc., has been engaged in ongoing efforts
to raise additional capital and has engaged in discussions with the holders of
its 14% Senior Notes due 2007 (the "Notes") concerning a possible restructuring
of the Company's debt. On February 25, 1999, the Company, with the assistance of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), made presentations
to certain holders of the Notes, representing a majority of the outstanding
principal amount of the Notes. In connection with the presentations to the
holders of the Notes, the Company provided certain written materials to those
holders (the "Presentation") who participated in such discussions. A copy of the
Presentation is filed herewith as Exhibit 99.1.
At the presentations, John Sarto, the Company's Chief Executive
Officer, and Alan B. Howe, Vice President of Finance and Corporate Development
of the Company, described the Company's business and provided an overview of the
Company's history and its quarterly operating results during fiscal 1997 and
1998. Mr. Sarto described various reasons, set forth in the Presentation, why
the Company had not achieved better results. He explained the Company's expected
business strategy for the future, as described in the Presentation, and
presented preliminary estimates of the Company's results for the fourth quarter
of 1998 and financial projections prepared by the Company's management. Mr.
Sarto described the Company's present liquidity position and its expected cash
needs in order to continue its business operations, and indicated that, in the
absence of new cash, the Company's ability to continue its operations beyond the
first quarter of 1999 was in question. Messrs. Sarto and Howe recounted recent
efforts of the Company and its financial advisor, DLJ, to attract new investors.
Mr. Sarto indicated that the Company had received very preliminary expressions
of possible interest in making an investment in the Company from several firms.
In that regard, filed herewith as Exhibit 99.2 is a letter received from one of
the stockholders of Teletrac Holdings, Inc. Mr. Sarto indicated that, although
the Company was evaluating the proposal, the proposal was subject to numerous
conditions, including, among other things, that the Company produce additional
investors, which the Company has not to date identified. As previously stated,
there can be no assurance that the Company's efforts to raise additional cash or
to restructure its debt will be successful.
Since the date of the presentations, and subsequent to the preparation
of the Presentation, the Company has entered into a licensing agreement with an
affiliate of Ituran Location and Control, Ltd. ("Ituran"), pursuant to which the
Company has
2
<PAGE>
licensed to Ituran the exclusive rights to the Company's technology in Latin and
South America and certain countries in eastern Europe. In consideration for the
foregoing rights, and as a prepayment of other future royalty payments that
Ituran was obligated to pay in the future, Ituran paid the Company $2.8 million
(which the Company has received) and agreed to make certain future royalty
payments.
In addition, over the last several weeks, the Company has taken
certain actions to reduce its level of expenses and conserve cash, including
reducing the workforce by approximately 25%. The reduction in force comes from
several functional areas, including sales and marketing, engineering, research
and development, customer care and corporate staff. The reductions were designed
to reduce monthly operating losses; however, the Company believes it still has
adequate personnel to maintain the existing customer base and market the
Company's services to potential new customers.
The Company believes the effect of the reductions in workforce will be
to reduce operating expenses beginning in April 1999 by approximately $300,000
per month. However, this action may adversely affect revenues from the levels
projected in the presentations made to the holders of the Notes and the
materials filed herewith as Exhibit 99.1, and the Company will be required to
incur certain one-time charges, including severance. If the Company fails to
secure additional capital or alternate sources of liquidity before the end of
April 1999, the Company's ability to continue its current operations will be in
question.
The Company emphasizes and cautions that the Presentation contained
preliminary financial results for the fourth quarter of fiscal 1998, projections
of future operating results and estimates of valuations, each of which may be
significantly and materially affected by many factors. The preliminary financial
results were not audited and, as such, may differ materially from the actual
reported financial information for the Company's business and results of
operations as of and for its fiscal quarter ended December 31, 1998.
Actual future operating results are also subject to vary materially
and substantially from the Company's projections due to various factors, many of
which are beyond the control of the Company, including the following:
(1) the ability of the Company to raise the cash needed to continue
its operations, and to restructure its debt;
(2) the effects of the Company's reduction in personnel and other
cost-cutting actions;
(3) competition and changes in demand for the Company's products and
services;
3
<PAGE>
(4) market conditions and general economic factors affecting the
Company, other firms in its industry and businesses generally;
(5) government regulation of the wireless telecommunications
industry;
(6) technological change;
(7) the impact on the Company's business of the Company's disclosures
to the public regarding its business operations and liquidity
position;
(8) the potential for loss of customers to the Company's competitors
or the nonrenewal of customer contracts with the Company;
(9) the Company's ability to secure financing on terms acceptable to
it to meet the Company's cash requirements, fund its capital
expenditures and execute its business strategy; and
(10) changes in the Company's operating plan or business strategy and
the Company's ability to implement such changes, resulting from
or as a condition to new financing or the restructuring of
existing financial obligations.
Lastly, the Company's future estimates of valuations, as well as any
valuations actually realized, may also vary substantially and materially from
the Company's current expectations as a result of various factors, including
those factors enumerated above.
Information contained in the Presentation and elsewhere in this
Current Report should be regarded as highly preliminary and tentative. The
Presentation and the other information in this Current Report includes certain
statements of opinion, preliminary estimates of financial performance and
projections with respect to the anticipated future performance of the Company
that constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such opinions, estimates and
projections include statements regarding the intent, belief or current
expectations of the Company or its management, primarily with respect to the
future operating performance of the Company. In addition, the Presentation
includes certain financial information relating to the Company's business and
results of operations as of and for its fiscal quarter ended December 31, 1998.
This information reflects what at the time were preliminary estimates only and
as such may differ materially from the actual audited financial information to
be reported in the Company's Form 10-K for the fiscal year ended December 31,
1998.
The projections set forth in the Presentation were prepared by the
Company's management and are qualified by, and subject to, the assumptions set
forth in the Presentation and the other information contained therein and
elsewhere. The
4
<PAGE>
assumptions described therein were those the Company believed were most
significant to the projections; however, not all assumptions used in preparing
the projections have been set forth therein.
The projections are necessarily speculative in nature, and it may be
expected that some or all of the assumptions in the projections will not
materialize or will vary significantly from actual results. The inclusion of
projections, estimates and statements of opinions should not be regarded as a
representation by the Company or its management that these results will actually
be achieved. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events described in the Presentation might not occur and
investors are cautioned not to place undue reliance on them.
5
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits.
Number Description
99.1 Presentation to the
Bondholders of Teletrac,
Inc. dated February 25,
1999.
99.2 Letter dated February 22,
1999 from Alta Communications,
Inc. to Teletrac Holdings, Inc.
6
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
TELETRAC, INC.
By: /s/ Alan B. Howe
Name: Alan B. Howe
Title: Vice President
Date: March 31, 1999
7
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
99.1 Presentation to the
Bondholders of Teletrac,
Inc. dated February 25,
1999.
99.2 Letter dated February 22,
1999 from Alta Communications,
Inc. to Teletrac Holdings, Inc.
Confidential
Presentation to the Bondholders of
TELETRAC
FEBRUARY 25, 1999 AT 5:00 PM EST
Conference Call: (888) 422-7128
Pass Code: 408-562
<PAGE>
TELETRAC
Information contained in this Presentation should be regarded as highly
preliminary and tentative. This Presentation includes certain confidential
statements of opinion, preliminary estimates of financial performance and
projections with respect to the anticipated future performance of the Company
that constitute "forward-looking statements." Such opinions, estimates and
projections include statements regarding the intent, belief or current
expectations of the Company or its management, primarily with respect to the
future operating performance of the Company. In addition, this Presentation
includes certain financial information relating to the Company's business and
results of operations as of and for its fiscal quarter ended December 31, 1998.
This information reflects preliminary estimates only and is currently being
reviewed and audited by the Company's management and its independent auditors.
The information, therefore, remains subject to material revision and
restatement, and no assurances may be given that the Company's audited financial
statements for the fiscal year ended December 31, 1998 will not differ
materially from the data contained in this Presentation.
The projections set forth in this Presentation were prepared by the Company's
management and are qualified by, and subject to, the assumptions set forth in
this Presentation and the other information contained herein and elsewhere. The
assumptions described herein are those the Company believes are most significant
to the projections; however, not all assumptions used in preparing the
projections have been set forth herein. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and may
involve significant business, economic and competitive risks and uncertainties,
and that actual results may differ materially and substantially from those in
the forward-looking statements as a result of various factors, many of which are
beyond the control of the Company, including the following:
(1) competition and changes in demand for the Company's products and services;
(2) market conditions and general economic factors affecting the Company,
other firms in its industry and businesses generally;
(3) government regulation of the wireless telecommunications industry;
(4) technological change;
(5) the impact on the Company's business of the Company's disclosures to the
public regarding its business operations and liquidity position;
(6) the potential for loss of customers to the Company's competitors
or the nonrenewal of customer contracts with
the Company;
(7) the Company's ability to secure financing on terms acceptable to it to
meet the Company's cash requirements, fund its capital expenditures and
execute its business strategy; and
(8) changes in the Company's operating plan or business strategy and the
Company's ability to implement such changes, resulting from or as a
condition to new financing or the restructuring of existing financial
obligations.
The projections are necessarily speculative in nature, and it may be expected
that some or all of the assumptions in the projections will not materialize or
will vary significantly from actual results. The inclusion of projections,
estimates and statements of opinions should not be regarded as a representation
by the Company or its management that these results will actually be achieved.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events described in this Presentation might not occur and
investors are cautioned not to place undue reliance on them.
<PAGE>
AGENDA
1 BACKGROUND
2 NEW STRATEGY
3 LIQUIDITY
<PAGE>
TELETRAC
BACKGROUND
<PAGE>
COMPANY OVERVIEW
o Provider of vehicle location and fleet management solutions to
commercial fleet operators
o Operates in 13 metropolitan markets today
o Provides services to over 88,650 commercial units and over 3,100
commercial customers
o New management leadership
<PAGE>
HISTORY
o AirTouch Teletrac
Established in 1988 to develop land-based 900 MHz radio networks for
wireless location monitoring and related two-way messaging services
Developed proprietary technology and software
Constructed operational systems in six metropolitan markets
o Teletrac, Inc.
Formed by investor group and management to acquire assets of AirTouch
Teletrac in 1996
Placed $58 million of private equity prior to the high yield offering
Investors include: BancBoston; Burr, Egan, Deleage; Eos; GCC; Kingdon; TD
Capital and Associated
o High Yield Offering
Placed $105 million of 14% Senior Notes due 2007
Escrow account to pre-fund interest expense for three years
Approximately $21 million in escrow account today
<PAGE>
COMMERCIAL UNITS IN SERVICE
<TABLE>
<CAPTION>
1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Units 48,240 54,430 61,369 65,930 71,202 77,447 82,125 86,652
Quarterly Growth NA 12.8% 12.7% 7.0% 8.0% 9.0% 6.0% 8.0%
Number of Units is total of VLU's and Messaging Units
</TABLE>
<PAGE>
REVENUES
<TABLE>
<CAPTION>
1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ in millions $4.7 $6.7 $7.3 $6.1 $6.7 $6.8 $7.2 $7.9
Quarterly Growth NA 42.1% 9.6% (16.2%) 8.9% 2.5% 5.4% 9.0%
Amounts are total of Service & Other Revenue plus Equipment and Rental Revenue
</TABLE>
<PAGE>
EBITDA
<TABLE>
<CAPTION>
1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ in millions ($6.1) ($6.0) ($4.9) ($5.2) ($5.3) ($6.5) ($6.5) ($5.9)
</TABLE>
<PAGE>
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ in millions $3.3 $2.4 $2.9 $2.5 $2.6 $4.4 $3.4 $1.8
</TABLE>
<PAGE>
SIX CORE MARKETS RESULTS
<TABLE>
<CAPTION>
1997 1998
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ in millions $4.6 $6.3 $6.6 $5.2 $6.1 $6.1 $6.1 $6.1
Commercial units 48,240 53,948 59,445 62,511 66,443 71,028 74,175 77,396
in service
Growth NA 11.8% 10.2% 5.2% 6.3% 6.9% 4.4% 4.3%
Amounts are total of Service & Other Revenue plus Equipment and Rental Revenue
</TABLE>
<PAGE>
SOURCES & USES DECEMBER 1995 - FEBRUARY 1999
($ in millions)
Sources
- ---------------------------------------------------------------
Common Equity $ 24.9
Preferred Series A 33.0
High-Yield Bonds 105.0
Preferred Series B 10.0
- ---------------------------------------------------------------
Total Sources $172.9
- ---------------------------------------------------------------
Uses
---------------------------------------------------------------------
Acquisition of AirTouch Teletrac $ 2.5
Financing Fees 8.6
Prepaid High Yield Interest (Pledged Securities) 39.9
Market Buildout / Capital Expenditures 30.2
Research & Development 5.4
Refrequency Project 8.8
Inventory Buildup 12.5
Other Working Capital 7.1
Operating Losses 55.9
Cash 2.0
---------------------------------------------------------------------
Total Uses $172.9
---------------------------------------------------------------------
<PAGE>
WHY TELETRAC IS BEHIND PLAN
o Sales process
Difficulty in hiring qualified salespeople
Object-oriented vs. solutions-oriented
Unfocused sales process
o Lack of focus on profitable targeted vertical markets
Value proposition not well understood
o Dependence on proprietary technology
Coverage and data limitations
System design flaw in San Francisco
Interference issues in Los Angeles at 927.75 - 928 MHz
o Software limitations
Inability to easily integrate into customers' legacy systems
o Organization unfocused
Organization not structured properly
Failed to anticipate the required level of customer support of new client
base
o Supplier delays
Inability to get infrastructure equipment in timely fashion
Delayed market openings on East Coast
o Failure of consumer market to develop
Knowledge of consumer market too limited
o Unfocused product and service development effort
Product mix
<PAGE>
NEW STRATEGY
<PAGE>
JOHN SARTO'S LEADERSHIP
o In April 1998, John Sarto joined Teletrac as Chief Executive Officer
o John Sarto has over 27 years of domestic and international experience in
the transportation and wireless communications industries
Most recently, he was President of the OmniTRACS division of Qualcomm,
which provides integrated data and location services for long-haul fleets
During his three year tenure at OmniTRACS, Sarto helped double worldwide
mobile communication units
Prior to OmniTRACS, he served in various management, sales and customer
service positions at two freight transportation companies (Overnite
Transportation and Carolina Freight)
o Focus on targeted vertical markets
Dynamically dispatched fleets
o Reorganized Company around sales and customer care
Strategic marketing approach and new distribution channels
"Best in class" customer intimate model
Reduction in customer turnover
o New sales process
Solutions-oriented approach to customer
Hire, train and provide incentives to "right" salespeople
Sales productivity tools
o Building strategic partnerships
Cadence, AT&T Wireless and Bell Atlantic Mobile
o Solidified open architecture strategy
Launching in February 1999 with CDPD/GPS
Allows new markets to be opened faster and cheaper with more offerings for
the customer
Launched open platform software with Fleet Director Enterprise Edition
<PAGE>
OPEN ARCHITECTURE
Open Architecture
- ------------------------------------------------------------------------
o Built on standard protocol
- Internet
- Windows NT
o Easy adaptability to new, more cost effective customer solutions
o Integration of our network to others' networks and platforms
- Networks: CDPD, LEO, Packet CDMA
- Content: Sabre, NTE
o Able to open new markets faster, cheaper, with more functionality to
customer
o Take advantage of new technologies more readily
o Co-development with industry leaders
- AT&T and Microsoft value chain initiative
Proprietary System
- -----------------------------------------------------------------------
o Built on inflexible protocols
- Teletrac RF
- DOS
o Little adaptability because of sole dependence on own RF technology
o Closed system, difficult to integrate
o $2 - $3 million in capital to open new markets
o Maintain R&D to support and maintain network
o "Go it alone"
<PAGE>
OPENTRAC OVERVIEW AND STATUS
OPENTRAC NETWORK OVERVIEW
|-- 902-928 -- Original VLU
| MHz
|
|
|
|
Fleet Director ------------ OPENTRAC WIRELESS |-- AMPS -- CDPD Network +
NETWORKS | CELLULAR GPS = OMU
| BAND
|
|
|
|-- LEO/GEO -- Satellite
ETC. Based
Units
The purpose of the OpenTrac project is to position Teletrac
as the Premier "Technology Neutral" Wireless Service Provider
<PAGE>
TELETRAC TODAY
o Increased total commercial units in service by 63% from 54,430 to 88,652
o Increased monthly average service revenue per unit by 11% from $16.13 to
$17.84
o Los Angeles and Houston markets are EBITDA positive
Chicago, Detroit, Dallas and Miami expected to be EBITDA positive in 1999
o Completed construction of Teletrac networks in San Francisco, New York and
Washington DC/ Baltimore
Launched service in New York market with approximately 920 units sold
These new markets will drive unit growth in 1999
o Launching open architecture strategy
Hardware:
First stage uses CDPD backbone coupled with differential GPS
CDPD covers over 1,000 cities and towns, 130 MSAs and 50 RSAs
Teletrac focused on top 23 MSAs with initial launches in Boston,
Philadelphia and Phoenix/Tucson
Network service being finalized with AT&T and Bell Atlantic Mobile
Software:
Fleet Director Enterprise Edition launching February 22, 1999
Uses Windows NT Platform for easier integration
Opens visibility of Teletrac throughout customer's organization
o Raised additional $10 million of equity in October 1998
<PAGE>
TELETRAC'S TARGET MARKET: VALUE MAXIMIZATION
VALUE
------------------->
High | |
| |
| |
| HL / LC | HL / LC ^
| | |
LOCATION | "Fixed Routes" | "Dynamically" | VALUE
|i.e., Waste Collection |Dispatched Fleets" |
|---------------------------------------------|
| LL / LC | LL / HC |
| | |
| "Asset Monitoring" | "White Collar |
|i.e., Rental Car and |Mobile Professional"|
| Consumer |i.e., Home Health |
| | Care Professional |
| | |
Low |---------------------------------------------|
Low COMMUNICATION High
<PAGE>
TELETRAC WILL FOCUS ON LOCAL FLEETS THAT ARE DYNAMICALLY DISPATCHED
Commercial Fleet Vertical Markets
Commercial Fleets operating
in a metro area that are
dynamically dispatched
|
|-----------------|----------------|--------------|------------------|
| | | On-Demand |
Municipals Utilities Services Transportation Distribution
| | | | |
| | | | |
SIC Code SIC Code SIC Code SIC Code SIC Code
91XX 95XX 73XX 41XX 50XX
92XX 48XX 17XX 42XX 51XX
49XX 75XX
76XX
<PAGE>
THE COMMERCIAL FLEET MARKET
U.S. Commercial Market Size
- ---------------------------------------------------------------
Total Commercial Fleet Vehicles: 27.0 million
Metropolitan-based Vehicles: 21.0 million
- ---------------------------------------------------------------
Teletrac target markets
<TABLE>
<CAPTION>
On-Demand
Municipals/Utilities Service Transport Distribution Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Fleet Companies (13 existing 6,680 32,361 15,616 21,145 75,802
markets)
Estimated Fleet Companies (10 new 6,000 29,000 14,000 19,000 68,000
markets)
Estimated Total Vehicles - 23 cities 595,960 674,971 621,936 843,045 2,735,912
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE OPPORTUNITY
o Large installed customer base with over 3,100 commercial accounts
representing over 88,650 units
o Vast market opportunity
o Strong market knowledge
o John Sarto as CEO
<PAGE>
FOURTH QUARTER 1998 RESULTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Installs 10,271 Highest gross install quarter
Net Gain 6,435 Highest net gain quarter
Churn 1.4% Stable
Ending Commercial Units 88,652 34% year over year growth
Service Revenues $5.1 million Increase of approximately $489,000 over 3rd quarter
EBITDA- Consolidated ($5.9) million Improvement of approximately $654,000 over 3rd quarter
EBITDA- Core Six Markets ($0.2) million Improvement of approximately $322,000 over 3rd quarter
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL PROJECTIONS
o Based on management case
<TABLE>
<CAPTION>
Management Case
1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Markets 13 19 21 21 21
Units in Service
Location and Data Transfer Units 83,724 126,948 180,657 234,046 289,341
Messaging Units 47,558 79,637 118,190 156,469 194,115
- --------------------------------------------------------------------------------------------------------------------
Total Units 131,282 206,585 298,847 390,515 483,456
Growth 48.1% 57.4% 44.7% 30.7% 23.8%
Churn Rate
Location and Data Transfer Units 1.6% 1.4% 1.3% 1.2% 1.1%
Messaging Units 1.3 1.3 1.2 1.2 1.1
Average Service Revenue per Unit
Location and Data Transfer Units $24.00 $25.75 $27.00 $28.24 $29.11
Messaging Units 8.65 10.18 11.61 12.27 12.94
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL PROJECTIONS (CONT'D)
o Based on management case
o Assumes no restructuring
<TABLE>
<CAPTION>
Management Case
1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $45.7 $75.2 $106.8 $135.4 $167.4
Growth 59.8% 64.4% 42.1% 26.8% 23.7%
EBITDA (17.9) (7.0) 12.3 34.2 59.0
CapEx (3.9) (3.9) (4.2) (4.2) (4.2)
Working Capital 4.9 1.3 (0.6) (0.6) (0.6)
Interest Expense(1) 15.4 16.8 17.3 18.2 17.1
Free Cash Flow(2) (16.9) (9.6) 7.5 29.4 54.2
Cash/(Deficit)(3) (13.2) (25.5) (36.4) (25.2) 11.9
Net Debt(4) 120.6 131.7 141.4 130.2 93.1
EBITDA-CapEx/Interest NM NM 0.5x 1.7x 3.2x
Net Debt/EBITDA NM NM 11.5 3.8 1.6
- --------------------------------------------------------------------------------------------------
(1) Assumes the Company borrows cash needs at approximately 9.5%.
(2) Free Cash Flow equals EBITDA plus CapEx plus Working Capital.
(3) Cash represents unrestricted cash minus revolver borrowings. Assumes no
access to escrow account.
(4) Excludes cash from escrow account.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LIQUIDITY
- --------------------------------------------------------------------------------
<PAGE>
CAPITALIZATION
($ in millions)
As of
December 31, 1998
- ---------------------------------------------------------------
Cash $6.0
Restricted Investments 28.7(1)
- ---------------------------------------------------------------
Senior Secured Credit Facility (2) -
14% Senior Notes due 2007 105.0
Capital Leases and other LT Debt 4.0
- ---------------------------------------------------------------
Total Debt 109.0
- ---------------------------------------------------------------
Preferred Stock 60.2
Common Stock 11.3
Accumulated Deficit (94.4)
- ---------------------------------------------------------------
Total Stockholders' Equity (83.1)
- ---------------------------------------------------------------
Total Capitalization $86.1
- ---------------------------------------------------------------
(1) Pro forma for February 1st interest payment, Restricted Investments
approximates $21 million.
(2) At December 31, 1998, the Company was not in compliance with certain
covenants under its $30 million revolving credit facilities with Banque
Paribas and Fleet National Bank. The covenant non-compliance was waived
and the Company had made no draws against the revolvers through that date.
In December, the Company cancelled its credit facilities.
<PAGE>
NEAR-TERM LIQUIDITY
($ in millions)
December
1998 January February March April
- --------------------------------------------------------------------------------
Cash $6.0 $3.3 $1.3 $0.4 -
- --------------------------------------------------------------------------------
<PAGE>
CAPITAL REQUIREMENT
<TABLE>
<CAPTION>
($ in millions)
1999-2000 1999-2001
1999 2000 Cumulative 2001 Cumulative
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA ($17.9) ($7.0) ($24.9) 12.3 ($12.6)
CapEx (3.9) (3.9) (7.8) (4.2) (12.0)
Working Capital 4.9 1.3 6.2 (0.6) 5.6
- ------------------------------------------------------------------------------------------------------------------------------------
Free Cash Flow ($16.9) ($9.6) ($26.5) 7.5 ($19.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense(1) (0.7) (2.0) (2.7) (17.3) (20.0)
Cash at 12/31/98 $6.0 $6.0
Net Cash Requirement including Interest Expense ($23.2) ($33.0)
Net Cash Requirement excluding Interest Expense ($20.5) ($13.0)
- ------------------------------------------------------------------------------------------------------------------------------------
o Teletrac requires approximately $21 million of capital to fund operating
losses, capital expenditures and working capital until positive cash flow
o The Company requires additional capital to service debt or must restructure
its debt
(1) Assumes the Company borrows cash needs at approximately 9.5%.
</TABLE>
<PAGE>
CAPITAL RAISING ALTERNATIVES
o Senior credit facility
o Existing equityholders
o International licensing arrangement
o Distressed investors
o New private "equity" investors
o Sale of Company/strategic investments
<PAGE>
TELETRAC'S ESTIMATED ASSET VALUE
Teletrac's Estimated Asset Value Based on PricewaterhouseCoopers' Study(1)
($ in millions)
<TABLE>
<CAPTION>
Projected Book Estimated
Value as of Liquidation
March 31, 1999 Estimated % Value
(Unaudited) Realization (Unaudited)
- -----------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C>
Accounts Receivable $4.8 19.0% $0.9
Inventory 10.7 4.0 0.5
Prepaid Expenses 1.5 58.0 0.9
Property & Equipment 32.4 13.0 4.3
Licenses & Other Assets 6.1 16.0 1.0
- -----------------------------------------------------------------------------------------------
Total Assets $55.5 13.7% $7.6
Interest Income 0.6
- -----------------------------------------------------------------------------------------------
Total Proceeds $8.2
Less: Costs Associated with
Liquidation: $3.1
Net Estimated Liquidation Proceeds
$5.1
- -----------------------------------------------------------------------------------------------
(1) Based on analysis by PricewaterhouseCoopers. Excludes restricted
investments (escrow) account.
</TABLE>
Alta
Communications
One Post Office Square, Suite 3800, Boston, MA 02109
Tel 617.482.8020 Fax 617.482.1944
One Embarcadero Center, Suite 4050, San Francisco, CA 94111
Tel 415.362.4022 Fax 415.362.6178
February 22, 1999
Teletrac Holdings, Inc.
2131 Faraday Avenue
Carlsbad, CA 92008
Gentlemen:
The undersigned, on behalf of Alta Communications VII, L.P. (the
"Investor," and collectively with any other Investor subscribing to such an
investment in Teletrac Holdings, Inc. (the "Company"), pursuant to the terms and
conditions set forth in Exhibit A hereto and this letter, the "Investors") is
pleased to confirm its interest in participating in an offering (the "Offering")
of up to $20 million in the Company's 10% Convertible Subordinated Notes due
2004 (the "Notes"). Subject to the terms and conditions set forth herein and in
Exhibit A hereto, the undersigned would commit to purchase Notes with an
aggregate principal balance of $5 million. This letter supersedes all
communications, negotiations, agreements and understandings with respect to the
Offering and any letters relating to the proposed Offering or any other
financing prior to the date hereof between and/or among the Investor, or any
other Investor, the Company and any of their respective agents or affiliates.
The terms of the Notes are set forth on Exhibit A hereto. In addition
to the terms set forth in Exhibit A hereto, the Investor's offer to purchase
Notes in the Offering is also conditioned upon (i) the satisfactory completion
of business and legal due diligence and financial review and analysis of the
Offering and the Company, and obtaining all necessary internal approvals by the
Investor, (ii) the negotiation and execution of subordination or similar
agreements by and among the Company and its current bondholders and preferred
stockholders pursuant to which such bondholders and preferred stockholders would
agree to subordinate their securities and claims to the prior payment in full of
(a) the Notes and the preferred equity securities into which the Notes are
convertible, and (b) any new senior indebtedness incurred by the Company, (iii)
the negotiation of definitive documentation consistent with the terms of this
letter and otherwise satisfactory to the Investors, (iv) obtaining aggregate
subscriptions for Notes with an aggregate principal balance of at least $20
million, including a subscription for Notes with an aggregate principal balance
of at least $5 million from an independent institutional investor reasonably
acceptable to the Investor, in each case, on the terms and conditions set forth
herein and in Exhibit A hereto, (v) obtaining all necessary waivers, consents
and approvals of existing stockholders and debtholders of the Company and
conforming amendments to existing stockholder and debtholder agreements, (vi)
<PAGE>
Teletrac Holdings, Inc.
February 22, 1999
Page 2
the release, waiver and/or cure of any defaults or claims under the existing
stockholder and bondholder agreements, and (vii) the absence of any material
adverse change.
By the return of an executed copy of this letter to the Investor, the
Company agrees to proceed in good faith toward definitive legal documents
consistent with the terms hereof.
Further, by accepting this letter, the Company acknowledges and agrees
that (i) it will pay all legal fees and expenses incurred by the Investor in
connection with the transactions contemplated hereby as such fees and expenses
are incurred by the Investor, whether or not such transactions are consummated,
(ii) it shall not have any claim against the Investor or any of its affiliates
for consequential or special damages if the transactions contemplated hereby are
not consummated, and (iii) entering into this letter with the Investor and the
transactions contemplated hereby do not and will not violate or conflict with
any obligations or commitments that the Company may have with any third parties.
The undersigned is available to meet with the Company, the existing
stockholders of the Company and the bondholders to discuss the terms of the
Offering.
<PAGE>
Teletrac Holdings, Inc.
February 22, 1999
Page 3
If you are in agreement with this letter, please so indicate by
signing on the agreed and accepted line below and returning it to the
undersigned by no later than March 3, 1999. If not accepted by the Company by
such time, the Investor's offer hereunder will expire.
INVESTOR:
ALTA COMMUNICATIONS, INC., as agent
on behalf of Alta Communications VII, L.P.
By: /s/Robert F. Benbow
Name: Robert F. Benbow
Title: General Partner
AGREED AND ACCEPTED:
TELETRAC HOLDINGS, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
Issuer: Teletrac Holdings, Inc., a Delaware corporation
(the "Company")
Securities: $20 million of 10% Convertible Subordinated Notes
due 2004 (the "Notes")
Closing: The Company will hold a closing of the offering on
or about March 30, 1999 (the date of the closing
is hereinafter referred to as the "Closing Date").
Maturity: The Notes will mature and all principal payments
and all accrued and unpaid interest shall be due
and payable in full on March 30, 2004 (unless
sooner prepaid as set forth below).
Interest Rate: The Notes will bear interest at a rate of 10% per
annum (compounding annually). All interest
payable under the Notes will be deferred and shall
accrue. All interest shall accrue with respect to
the outstanding principal of the Notes and all
unpaid deferred interest to the date of repayment.
Subordination of Existing
Notes: The obligation of the purchasers of the Notes to
purchase the Notes in the Offering is expressly
conditioned on the negotiation and execution of
subordination or similar agreements among the
Company and the holders of the Company's existing
14% Senior Notes due 2007 (the "Existing Notes")
and the Company's preferred stockholders, pursuant
to which such holders of the Existing Notes and
the preferred stockholders would agree to
subordinate their securities and claims to the
prior payment in full of (i) the Notes and the
preferred equity securities into which the Notes
are convertible, and (ii) any senior indebtedness
incurred by the Company. The Company may make
interest payments on the Existing Notes provided
that the Company has sufficient cash flow to make
such payments and the Existing Notes have not been
accelerated.
Required Percentage: Except as otherwise specified, any consent, waiver
or approval required of the holders of the Notes
may be given by holders of Notes with an aggregate
outstanding principal amount equal to at least a
majority of the aggregate outstanding principal
amount of all of the Notes.
Events of Default: Standard events of default.
<PAGE>
Covenants: Standard affirmative and negative covenants.
Redemption: The Notes may not be redeemed in whole or in part
without the consent of the holders of Notes with
an aggretate outstanding principal amount equal to
at least 66 2/3% of the aggregate outstanding
principal amount of all of the Notes.
The Company shall offer to repurchase the Notes in
the event of a change-in-control or following
certain asset sales or sales of securities.
Conversion: The holders of the Notes will have the right to
convert the Notes, at the option of the holder and
at any time, into shares of preferred equity
securities representing _% [to be determined] of
the deemed enterprise value of the Company (such
deemed enterprise value shall be determined with
the Senior Indebtedness but without any reduction
for any payment or claims of the Existing Notes or
the Company's existing preferred stock). The
preferred equity securities will rank senior to
all of the current classes of capital stock of the
Company as to redemptions, dividends and the
distribution of assets on liquidation, dissolution
and winding up of the Company.
Each Note will be automatically converted (i) upon
the closing of an underwritten initial public
offering of Common Stock which (a) provides not
less than $30 million of gross proceeds to the
Company, (b) is at a pre-money equity valuation of
at least $180 million, and (c) results in the full
redemption of the Redeemable Preferred Stock (a
"Qualified Public Offering"), or (ii) in
connection with an underwritten initial public
offering that does not meet the foregoing targets
if the holders of Notes with an aggregate
outstanding principal amount equal to at least
66 2/3% of the aggregate outstanding principal
amount of all of the Notes consent to such
conversion.
Right of First Offer: Each holder of Notes will be offered the right to
participate pro rata in any future equity
financings (excluding (i) issuances in which no
affiliate of the Company is participating as a
buyer and which are made in connection with
acquisitions, joint ventures and strategic
partnerships with other operating entities, and
(ii) issuances pursuant to compensation plans
which have been approved by the Board of
Directors) prior to an initial public offering in
accordance with its as-converted, fully-diluted
ownership percentage of the Company.
<PAGE>
Anti-Dilution Provisions: The conversion rate with respect to the Notes is
subject to appropriate adjustments in the event of
(i) any subdivision or combination of the Common
Stock or (ii) any payment by the Company of a
stock dividend to holders of Common Stock. The
conversion rate for the Notes will also be
adjusted by using a weighted-average formula with
respect to other further issuances by the Company
of equity securities.
Purchase Agreement: The investment shall be made pursuant to a Note
Purchase Agreement acceptable to the purchasers of
the Notes in their sole discretion which shall
contain, among other things, customary
representations and warranties by the Company,
customary covenants of the Company, investment
representations by the investors, and appropriate
conditions to closing.
Expenses: Reasonable fees and expenses of the purchasers of
the Notes (including all legal fees and expenses
incurred on or before the date hereof in
connection with a proposed investment in preferred
stock of the Company, and the legal fees and
expenses of one law firm representing the
purchasers of the Notes from and after the date
hereof) will be paid by the Company as such fees
and expenses are incurred by the purchasers of the
Notes. The Company shall reimburse the purchasers
of the Notes for all reasonable out-of-pocket
expenses incurred prior to the Closing in
connection with the proposed investment as such
expenses are incurred by the purchasers of the
Notes. The Company shall also reimburse the
purchasers of the Notes for all such reasonable
out-of-pocket expenses incurred after the Closing
in connection with attendance at meetings of the
Board of Directors.
