<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997
REGISTRATION NO. 333-35017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TELETRAC HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4812 43-1789886
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
------------------------
2323 GRAND STREET, SUITE 1100, KANSAS CITY, MO 64108
(816) 474-0055
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
KAREN C. WIEDEMANN, ESQ.
REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10111
(212) 841-5700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Warrants to Purchase Shares of
Class A Common Stock.......... 105,000 $67.05 $7,040,250 $2,133.41
Class A Common Stock.......... 56,437 (2) -- -- No separate fee
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Shares of Common Stock issuable upon exercise of outstanding Warrants.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional indeterminate number
of shares of Common Stock as may be issued pursuant the antidilution
provisions of the Warrants.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TELETRAC HOLDINGS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT CAPTION OR LOCATION
ITEM AND CAPTION IN PROSPECTUS
- -------------------------------------------------------------------- ------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front and Outside Back Pages
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges....................................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds.......................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.......................... Outside Front Cover Page; Underwriting
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Not Applicable
8. Plan of Distribution..................................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered............... Description of Capital Stock
10. Interests of Named Experts and Counsel................... Legal Matters; Experts
11. Information with Respect to the Registrant
(a) Description of Business.......................... Prospectus Summary; The Company; Management's
Discussion and Analysis of Results of Operation
and Financial Condition; Business
(b) Description of Property.......................... Business
(c) Legal Proceedings................................ Business
(d) Market Price of and Dividends on Registrant's
Common Equity and Related Stockholder Matters...... Outside Front Cover Page; Dividend Policy;
Capitalization; Description of Capital Stock
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Selected Consolidated Financial Data
(g) Supplementary Financial Information Supplementary Financial Information
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations................ Management's Discussion and Analysis of Results
of Operations and Financial Condition
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Not Applicable
(j) Quantatitive and Qualitative Disclosures about
Market Risk........................................ Not Applicable
(k) Directors, Executive Officers, Promoters and
Control Persons.................................... Management; Principal Stockholders
(l) Executive Compensation........................... Management
(m) Security Ownership of Certain Beneficial Owners
and Management..................................... Management; Principal Stockholders
(n) Certain Relationships and Related Transactions... Management; Principal Stockholders; Certain
Transactions
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
TELETRAC HOLDINGS, INC.
105,000 WARRANTS TO PURCHASE CLASS A COMMON STOCK
CLASS A COMMON STOCK
ISSUABLE UPON EXERCISE OF WARRANTS
---------------------
This Prospectus relates to (i) the public offering from time to time by
certain selling securityholders (the "Selling Security Holders") of 105,000
warrants (the "Warrants") to purchase an aggregate 56,437 shares (as such number
may be adjusted from time to time in accordance with the terms of the Warrants,
the "Warrant Shares") of Class A Common Stock, $.01 par value ("Common Stock"),
of Teletrac Holdings, Inc. ("Holdings"), (ii) the public sale from time to time
of the Warrant Shares by the Selling Security Holders and (iii) the issuance and
sale by the Company of the Warrant Shares to transferees of the Selling Security
Holders upon exercise of the Warrants by such transferees.
The Warrant Shares being offered by Holdings and the Selling Security
Holders are issuable upon the exercise of the Warrants, which were sold in
connection with the offering (the "Units Offering") of 105,000 units (the
"Units") consisting of $105,000,000 aggregate principal amount of 14% Senior
Notes due 2007 (the "Notes") of Teletrac, Inc., a wholly-owned subsidiary of
Holdings ("Teletrac" or the "Company"), and 105,000 Warrants. Each Unit
consisted of $1,000 principal amount of Notes and one Warrant.
All of the Warrants being offered hereby will be sold by the Selling
Security Holders. See "Selling Stockholders." Neither Holdings nor Teletrac will
receive any of the proceeds from such sale. The Warrants became exercisable on
November 5, 1997 (the "Separation Date"). Unless exercised, the Warrants will
automatically expire on August 1, 2007. Holdings will receive the proceeds of
any exercise of the Warrants. Each Warrant, when exercised, will entitle the
holder to receive 0.537495 shares of Common Stock at an exercise price of $.01
per share. The number of shares of Common Stock purchasable upon the exercise of
the Warrants and payment of the exercise price is subject to adjustment upon the
occurrence of certain events. The exercise of the Warrants will be subject to
compliance with applicable Federal and state securities laws and the
Communications Act of 1934, as amended. See "Description of Warrants."
The Selling Security Holders, directly or through agents, dealers or
underwriters to be designated from time to time, may sell the Warrants and the
Warrant Shares from time to time in the over-the-counter market, on a securities
exchange on which the Warrants or the Common Stock are then listed, in
negotiated transactions or otherwise, at prices and on terms to be determined at
the time of sale. At the time a particular offer of the Warrants or the Warrant
Shares is made, if required, a Prospectus Supplement will be distributed that
will set forth the number of Warrants or Warrant Shares being offered and the
terms of the offering, including the name or names of any agents, dealers or
underwriters, the purchase price paid by any underwriter, any discounts or
commissions and the proposed public offering price. The aggregate proceeds to
the Selling Security Holders from the sale of the Warrants or Warrant Shares
will be the purchase price of the securities sold less the aggregate agents'
commissions and underwriters' discounts, if any, and other expenses of issuance
and distribution not borne by Holdings. The Selling Security Holders and any
broker-dealers, agents or underwriters that participate with the Selling
Security Holders in the distribution of any Warrants or Warrant Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commission received by them and any
profit on the resale of the securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
All costs (other than commission expenses and brokerage fees, if any)
incurred in connection with the registration and distribution of the Warrant
Shares and the Warrants are being borne by Holdings and the Company. Commission
expenses and brokerage fees in respect of the Warrants and the Warrant Shares
are payable by the Selling Security Holders.
Holdings is filing the Registration Statement of which this Prospectus is a
part to fulfill in part its obligations under the Warrant Agreement (as defined
herein).
The Warrant Shares and the Warrants are referred to collectively herein as
the "Securities." There is no active market for the Securities, and there can be
no assurance that an active trading market will develop. Prospective investors
in the Securities should be aware that they may be required to bear the
financial risks of such investment for an indefinite period of time.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Date of this Prospectus is November 19, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Information................................................................ 2
Summary of the Prospectus............................................................. 4
Risk Factors.......................................................................... 10
The Company........................................................................... 18
Use of Proceeds....................................................................... 18
Capitalization........................................................................ 19
Selected Financial Data............................................................... 20
Supplemental Financial Data...........................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 29
Management............................................................................ 47
Securities Ownership.................................................................. 53
Certain Relationships and Related Transactions........................................ 56
Description of Certain Indebtedness................................................... 60
Selling Security Holders.............................................................. 61
Description of the Warrants........................................................... 61
Description of Holdings Capital Stock................................................. 63
Certain Federal Income Tax Considerations............................................. 66
Plan of Distribution.................................................................. 67
Legal Matters......................................................................... 68
Independent Auditors.................................................................. 68
Index to Financial Statements......................................................... F-1
</TABLE>
ADDITIONAL INFORMATION
Holdings has filed with the SEC a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the
Securities being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. The Registration Statement
and the exhibits and schedules thereto may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the SEC located at 7 World
Trade Center, New York, New York 10048 and at Northwestern Atrium Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a web site that contains reports, proxy statements and
other information regarding registrants, including Holdings, that file such
information electronically with the Commission. The address of the Commission's
web site is http:// www.sec.gov.
As a result of the filing of the Registration Statement with the SEC,
Holdings will become subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will be required to file periodic reports and other information with
the SEC. Holding's obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Securities are held of
record by fewer than 300 holders at the beginning of any fiscal year of
Holdings, other than the fiscal year in which such registration statement or
registered exchange offer for the New Notes becomes effective. However, the
Warrant Agreement dated August 6, 1997 (the "Warrant Agreement") between
Holdings and Norwest Bank Minnesota, National Association, as warrant agent (the
"Warrant Agent"), provides that Holdings must file with the Commission and
provide the holders of Warrants with copies of annual reports and other
information, documents and reports specified in Sections 13 and 15(d) of the
Exchange Act as long as the Warrants are outstanding.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOLDINGS OR THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION TO SUCH PERSON. THE DELIVERY OF THIS PROSPECTUS, AND
ANY SALE MADE HEREUNDER, SHALL NOT UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
Certain market data used throughout this Prospectus were obtained from
industry and government sources. Holdings has not independently verified this
market data and makes no representations as to its accuracy.
------------------------
The following trademarks owned by the Company are used in this Prospectus:
Fleet Director-Registered Trademark-, Fleet Reporter-TM-,
OZZ-Registered Trademark-, Winfleet-TM- and Teletracer-TM-.
3
<PAGE>
SUMMARY OF THE PROSPECTUS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO, AND THE FINANCIAL PROJECTIONS
INCLUDED ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "TELETRAC" AND THE "COMPANY" INCLUDE
HOLDINGS AND TELETRAC, INC., ITS WHOLLY OWNED SUBSIDIARY, TOGETHER WITH EACH OR
THEIR PREDECESSORS AND SUBSIDIARIES. SEE "GLOSSARY" FOR DEFINITIONS OF CERTAIN
TERMS USED IN THIS PROSPECTUS.
THE COMPANY
Teletrac is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable real-
time method of locating vehicles in selected metropolitan areas. The Company's
system is designed to enable customers to better manage their mobile workforce,
provide security for their property and personnel and communicate more
effectively with mobile workers.
As of December 31, 1996, the Company operated in six metropolitan markets:
Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company commenced
operations in Orlando in March 1997 and plans to begin providing vehicle
location and fleet management services in eight additional markets by the end of
1998, giving the Company operations in 15 of the largest metropolitan
statistical areas ("MSAs") in the United States, including New York and Boston.
As of September 30, 1997, the Company served over 2,000 commercial fleet
accounts, more than any other provider of fleet vehicle location services, and
had 61,369 location and messaging units in service with commercial fleet
customers, including Emery Air Freight, Inc., Tele-Communications, Inc., Budget
Rent-a-Car Corporation, Brinks Incorporated and the Dallas Independent School
District. In its Miami and Los Angeles markets, the Company also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers. As of September 30, 1997, the Company had 10,176
consumer units in service.
An investor group led by management formed the Company in August 1995 to
acquire the assets of AirTouch Teletrac (as defined below). AirTouch Teletrac
was established to develop land-based 900 MHz radio networks for wireless
location monitoring and related two-way wireless messaging services. AirTouch
Teletrac developed the technology and software for such networks and constructed
operational systems in six metropolitan markets. The Company acquired the assets
of AirTouch Teletrac in January 1996 (the "Acquisition"). To date, the Company
has placed approximately $58 million in private equity capital. Investors in
such private equity include BancBoston Ventures, Inc.; Burr, Egan, Deleage
Funds; Eos Partners; GCC Investments, Inc.; Kingdon Capital; Toronto Dominion
Capital (U.S.A.), Inc.; and TruePosition, Inc. (formerly Associated RT, Inc.).
COMMERCIAL FLEET MANAGEMENT
Market studies indicate that there are approximately 7.6 million total
commercial fleet vehicles in the 15 markets in which the Company operates or
plans to operate. The Company believes that there is substantial demand for
cost-effective communications services that offer both reliable location
tracking and two-way wireless messaging in metropolitan areas. The Company's
products can be used either alone or in conjunction with other communications
technologies. The Company believes that the majority of its target customers'
vehicles are currently equipped with wireless communications devices that do not
provide automatic location features, such as two-way radio, specialized mobile
radio ("SMR"), pagers and cellular devices. The Company's products and services
allow commercial fleet operators to (i) increase driver productivity and fleet
efficiency, (ii) improve customer service, (iii) limit unauthorized vehicle use,
and (iv) reduce driver overtime. The Company's customers include metropolitan
commercial fleets (such as trade service providers, delivery services, bus and
taxi fleets, ambulance companies, telecommunications
4
<PAGE>
companies, utility companies, municipal government vehicles and law enforcement
agencies) and long-haul trucking fleets when operating within metropolitan
markets.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
require the installation of a vehicle location unit ("VLU") in each vehicle. The
VLU is a radio transceiver that receives and transmits signals used to determine
a vehicle's location. In addition to the VLU, commercial fleet customers
generally purchase software or location services from the Company. The Company's
primary software product for commercial fleet operators is Fleet
Director-Registered Trademark-, a proprietary software application that provides
real-time 24-hour-a-day vehicle location through a digitized map displayed on
the customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark- can be complemented with the
Company's messaging units, which allow two-way messaging between the fleet
dispatcher and drivers directly from the Fleet Director-Registered Trademark-
screen. The Company also offers Fleet Reporter-TM-, a lower cost alternative to
Fleet Director-Registered Trademark- that provides fleet operators with daily
printed reports of vehicle locations and access to real-time location
information through OZZ-Registered Trademark-, a telephone-operated information
system. In the second half of 1997, the Company intends to introduce
Winfleet-TM-, a Microsoft Windows-Registered Trademark--based application based
on Fleet Director-Registered Trademark- that will not require a dedicated
computer.
The Company believes that its wireless location and related two-way
messaging technology can serve its customers more reliably and more
cost-effectively than competing systems, including those which rely on global
positioning satellite ("GPS") technology combined with other forms of wireless
communication. The Company's location technology, which consists of proprietary
software and land-based transmitters and receivers that are licensed to operate
in the 904-909.75 and 927.75-928 MHz bandwidth, operates reliably in a high-rise
urban setting. GPS-based systems, on the other hand, can lose accuracy in areas
where high-rise buildings or other large structures obstruct the signal between
the satellite and the vehicle. To provide location services for fleet
management, GPS-based systems must also be coupled with a wireless communication
system that transmits location information to the fleet operator. The other
forms of wireless communication used in conjunction with GPS technology, such as
cellular and SMR, generally make the incremental cost of determining and
transmitting a vehicle's location to a fleet operator more expensive than the
Company's technology.
The Company derives its revenues from (i) monthly service fees and (ii)
equipment sales, including sales of VLUs, messaging units and fleet management
software. Once the Company's system is installed in a customer's fleet, the
Company benefits from recurring monthly service fees with minimal additional
selling or other expenses. The total number of the Company's commercial VLUs and
messaging units in service increased from 35,465 as of December 31, 1995 to
43,156 as of December 31, 1996 and to 61,369 as of September 30, 1997.
CONSUMER VEHICLE SERVICES
In its Miami and Los Angeles markets, the Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers. The Company's service locates and tracks stolen vehicles
in real-time and its equipment can be integrated with a vehicle's alarm system
and/or ignition so that it is automatically activated if the vehicle is stolen.
The Company's service also allows a subscriber to initiate vehicle location in
other emergency or roadside assistance situations or remotely unlock the vehicle
doors through the OZZ-Registered Trademark- system.
In 1995, prior to the Acquisition, the Company's predecessor ceased to
actively market its consumer vehicle services. The Company has continued
providing consumer service as a legacy of the business acquired from AirTouch
Teletrac but has not launched any new marketing efforts. While the Company
intends to focus on its commercial business, it is currently exploring various
potential strategies for marketing and distributing its products to consumers,
including through strategic partnerships or third-
5
<PAGE>
party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
BUSINESS STRATEGY
The Company's objective is to enhance its position as the leading national
provider of vehicle location and fleet management services in metropolitan areas
by exploiting its proprietary technology and systems. The key elements of the
Company's strategy are:
INCREASE MARKET PENETRATION. In its six original markets, the Company is
rapidly building a trained sales force to market its products and services to
operators of commercial fleets. Prior to the Acquisition, AirTouch Teletrac
terminated all of its active sales and marketing efforts. Since the Acquisition,
the Company has hired approximately 90 direct sales representatives to service
its six original metropolitan markets and the Company believes that it will more
effectively exploit opportunities in its existing markets as its sales force
gains experience. The Company believes it requires a modest penetration of its
target markets to achieve its business plan.
EXPAND GEOGRAPHIC COVERAGE AREAS. In 1996, the Company began constructing
the network infrastructure to expand its coverage from six to 15 metropolitan
markets. In March 1997, the Company introduced commercial fleet services in
Orlando, and the Company expects to introduce commercial fleet services in two
additional markets by the end of 1997 and a further six markets by the end of
1998. In connection with the roll-out of its commercial fleet services, the
Company plans to add over 150 new sales representatives in its new markets by
2001. The Company also holds Federal Communications Commission licenses in 11
additional markets, but the Company expects that it would have to obtain
additional licenses in certain of such 11 markets before it could commence
commercial operations.
CAPITALIZE ON LOW-COST SERVICE. The Company believes that its proprietary
location solutions permit lower cost operation than most competing technologies,
which generally require more expensive hardware, more expensive airtime, or
both. With the Company's technology, the incremental cost of locating a vehicle
and transmitting its location to the fleet operator is nominal, which permits
the Company to provide services for a relatively low monthly fee. This price
structure permits customers to locate all their vehicles simultaneously and
frequently throughout the day (typically, every 15 minutes), which the Company
believes substantially improves the customer's ability to increase fleet
efficiency and monitor driver compliance.
EXTEND PRODUCT OFFERINGS. The Company believes that its ability to expand
and maintain its customer base depends on its continued marketing of
highly-functional, low-cost and user-friendly solutions for fleet management.
The Company plans to offer the first generation of Winfleet-TM-, a
Windows-Registered Trademark--based solution, in the second half of 1997 and has
commenced development of a second generation product. The Company is also
exploring technological improvements that would expand the Company's messaging
capabilities to include additional services such as free text return messaging,
wireless e-mail, fax, database queries, credit card verification and inventory
management.
EXPLOIT NEW BUSINESS OPPORTUNITIES. In conjunction with certain strategic
suppliers, the Company is currently developing a portable miniaturized device
that would permit personal location through the Company's existing networks. In
addition, the Company has discussed joint arrangements with several companies
providing vehicle location coverage in rural locations, which arrangements would
provide cost-effective and reliable coverage nationwide, and has explored other
approaches to providing service to customers operating outside of covered
metropolitan areas.
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Securities Subject to the 105,000 Warrants to purchase initially up to 56,437
Offering........................ shares of Common Stock.
<S> <C>
Shares of Common Stock initially issuable upon exercise
of the Warrants plus such indeterminate amount of Common
Stock as may be issued pursuant to the anti-dilution
provisions of the Warrants.
WARRANTS:
Total Number of Warrants.......... 105,000 Warrants, which when exercised would entitle the
holders thereof to acquire an aggregate of 56,437
Warrant Shares, representing 10% of the Class A Common
Stock on a fully diluted basis, as of the consummation
of the Offering. See "Description of Warrants" and
"Description of Holdings Capital Stock." The Warrants
will be issued pursuant to a Warrant Agreement (as
defined herein).
Exercise.......................... Each Warrant will entitle the holder thereof to purchase
.537495 Warrant Shares at an exercise price of $.01 per
share, subject to adjustment under certain
circumstances. The number of shares of Class A Common
Stock for which a Warrant is exercisable is subject to
adjustment upon the occurrence of certain events as
provided in the Warrant Agreement. See "Description of
Warrants."
Duration.......................... The Warrants will be exercisable at any time on or after
the Separation Date and prior to 5:00 p.m., New York
City time, on August 1, 2007. The exercise of the
Warrants will be subject to compliance with applicable
federal and state securities laws and the Communications
Act of 1934, as amended (the "Communications Act"). See
"Description of Warrants" and "Risk
Factors--Requirements for Exercising Warrants."
Warrant Agent..................... Norwest Bank Minnesota, National Association
</TABLE>
RISK FACTORS
Prospective purchasers of the Notes should consider carefully all of the
information contained in this Prospectus before making an investment in the
Notes. In particular, prospective purchasers should consider the factors set
forth under "Risk Factors."
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
Set forth below is selected historical financial and operating data of
Holdings and its predecessors. Certain of such historical financial and
operating data have been derived from the audited consolidated financial
statements of Holdings and its predecessors as of and for the periods noted. The
financial information of Holdings as of and for the nine months ended September
30, 1996 and 1997 is unaudited and is derived from the unaudited consolidated
financial statements of Holdings which include all adjustments management
considers necessary for a fair presentation of Holdings' financial position and
results of operations in accordance with generally accepted accounting
principles, subject to normal recurring year-end adjustments. The results for
the nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997. The data
contained in the following table should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and Holdings' and its predecessors' audited consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994(1) 1995(1) 1996(2) 1996(2) 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 15,336 $ 13,244 $ 15,957 $ 10,330 $ 18,688
Operating loss.......................................... (24,473) (36,114) (13,854) (8,358) (18,799)
Net loss................................................ (39,824) (57,380) (13,792) (8,307) (20,077)
OTHER DATA:
EBITDA(3)............................................... $ (19,255) $ (14,753) $ (11,260) $ (6,797) $ (17,045)
Commercial units in service at end of period............ 30,283 35,465 43,156 40,589 61,639
Consumer units in service at end of period.............. 10,618 13,814 11,717 11,741 10,176
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
------------------
<S> <C>
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 53,733
Restricted cash and investments(4)........................................................ 42,042
Total assets.............................................................................. 138,276
Long-term debt(5)......................................................................... 100,103
Redeemable preferred stock................................................................ 37,053
Stockholders' deficit..................................................................... (9,640)
</TABLE>
- ------------------------
(1) Represents financial and operating data of AirTouch Teletrac for the year
ended December 31, 1994 and for the period January 1, 1995 through December
28, 1995, the date on which AirTouch Teletrac was dissolved.
(2) Teletrac, Inc. acquired the assets of the business on January 17, 1996, the
effective date of the Acquisition. From December 29, 1995 to January 16,
1996, the business was operated by AirTouch Services, successor to AirTouch
Teletrac. The results of operations of AirTouch Services for such period
were not material and are not included herein.
(3) EBITDA consists of operating income (loss) before interest, taxes,
depreciation and amortization. EBITDA also excludes refrequencing costs
accrued in the fiscal years ended December 31, 1995 and 1996 and an asset
impairment charge taken in the fiscal year ended December 31, 1995. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-- Background" and "Business--Regulation--Frequency Conversion."
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to incur and service debt. EBITDA, however, is not a
measure determined in accordance with generally accepted accounting
principles ("GAAP") and should not be considered in isolation or as a
substitute for or an alternative to net income (loss), cash flow from
operating activities or other income or cash flow data prepared in
accordance with GAAP or as a measure of a company's operating performance or
liquidity.
(4) Includes the aggregate principal amount of the Pledged Securities, estimated
at approximately $39.9 million. See "Description of Notes--Security."
(5) Holdings received gross proceeds from the Units Offering of $105 million.
The estimated value of the Warrants ($7.0 million) has been reflected as
both a debt discount and an element of additional paid-in capital. However,
the actual aggregate principal amount of the Notes is $105 million.
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING
THE SECURITIES OFFERED HEREBY.
This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
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. Prospective Holders of the Warrants and the Warrant
Shares are cautioned that any such forward-looking statements are not guarantees
of future performance and may involve risks and uncertainties, and that actual
results may differ from those in the forward-looking statements as a result of
various factors, many of which are beyond the control of the Company. The
information set forth below and the information under the heading "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
identify important factors that could cause such differences (the "Cautionary
Statements"). All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. The Company does not
intend to update any of its forward-looking statements.
NET LOSSES AND NEGATIVE EBITDA
The Company and its predecessors have had losses in each year of their
operations, including net losses of $39.8 million, $57.4 million and $13.8
million for the fiscal years ended December 31, 1994, 1995, and 1996,
respectively. For the nine months ended September 30, 1996 and 1997, the Company
had losses of $8.3 million and $20.1 million, respectively. In addition, the
Company had an EBITDA deficiency (excluding refrequencing costs and asset
impairment) of $19.3 million, $14.8 million and $11.3 million for such years and
$6.8 million and $17.0 million for such nine-month periods. The Company also
expects that operating and net losses and negative EBITDA will increase as the
Company completes its market build-out and that, under its current business
plan, operating and net losses and negative EBITDA will continue at least
through year-end 1998. As of September 30, 1997, the Company had a stockholders'
deficit of approximately $9.6 million and an accumulated deficit of
approximately $38.7 million.
SUBSTANTIAL LEVERAGE
As of September 30, 1997, the Company's total outstanding long-term
indebtedness was approximately $100 million (which excludes the portion of the
Units Offering allocated to the Warrants) and its total long-term
indebtedness-to-total capitalization ratio would have been 0.74 to 1.0.
See "Description of Certain Indebtedness." Substantial borrowings under the
Credit Facility (as defined herein) would have the effect of increasing the
Company's total long-term indebtedness-to-total capitalization ratio, resulting
in a more highly leveraged company than existed prior to the Units Offering. As
of September 30, 1997, no borrowings had been made under the Credit Facility.
The ability of the Company to meet its debt service requirements will depend
upon achieving significant and sustained growth in cash flow. However, the
Company's ability to generate such cash flow is subject to a number of risks and
contingencies. Included among these risks are the possibility that the Company
may not complete its planned geographic expansion on a timely basis, that the
Company's software products or vehicle location system could experience
performance problems or that utilization could be lower than anticipated.
Accordingly, there can be no assurance as to whether the Company will at any
time have sufficient resources to meet all of its debt service obligations as
they become due.
The Company's current and future debt service requirements could have
important consequences to holders of the Warrants and the Warrant Shares,
including the following: (i) the Company's ability to obtain additional
financing for future working capital needs or financing for acquisitions or
other purposes will be limited; (ii) a substantial portion of the Company's cash
flow from operations will be dedicated to
9
<PAGE>
the payment of principal and interest on its indebtedness, thereby reducing
funds available for operations; and (iii) the Company may be more vulnerable to
adverse economic conditions than less leveraged competitors and, thus, its
ability to withstand competitive pressures may be limited. The discretion of the
Company's management with respect to certain business matters will be limited by
covenants contained in the indenture relating to the Notes (the "Indenture") and
future debt instruments. Among other things, the covenants contained in the
Indenture restrict, condition or prohibit the Company from incurring additional
indebtedness, creating liens on its assets, making certain asset dispositions,
conducting certain other business and entering into transactions with affiliates
and other related persons. There can be no assurance that the Company's leverage
and such restrictions will not materially and adversely affect the Company's
ability to finance its future operations or capital needs or to engage in other
business activities. Moreover, a failure to comply with the obligations
contained in the Indenture or any agreements with respect to additional
financing could result in an event of default under such agreements, which could
permit acceleration of the related debt and acceleration of debt under future
debt agreements that may contain cross-acceleration or cross-default provisions.
See "Description of Certain Indebtedness--Notes."
RISKS OF EXPANSION AND MANAGEMENT OF GROWTH
The Company is currently operating in seven markets across the United States
and intends to commence commercial operations in an additional two markets in
1997 and six additional markets in 1998. The Company also holds Federal
Communications Commission ("FCC") licenses in 11 additional markets, for a total
of 26 markets, but the Company expects that it would have to obtain additional
licenses in certain of such 11 markets before it could commence commercial
operations. In the future, the Company may acquire FCC licenses to operate in
additional markets. Depending on the development of the Company's business plan,
the geographic scope of the Company's operations may continue to expand rapidly
for the next several years. A portion of the net proceeds of the Units Offering
will be applied to expand the Company's current operations. There can be no
assurance as to whether, when, or on what terms the Company will be able to
construct its additional networks or that the construction will prove beneficial
to it. If the Company encounters delays or difficulties in a particular market,
it may redirect its expansion to one or more other markets. The Company may
encounter delays in the construction of its networks, including delays caused by
weather and late delivery or installation of equipment. In addition, the Company
will be subject to challenges inherent to companies experiencing rapid growth.
The Company's ability to market its products on a larger scale while maintaining
competitive pricing and customer service will depend on its ability to implement
and continually expand its operational systems and to recruit, train, manage and
motivate both current and new employees. There can be no assurance that the
Company will be able to effectively expand its operations or manage its expanded
operations. Failure to successfully expand its operations and effectively manage
the growth of the Company could have a material adverse effect on the Company's
business.
POTENTIAL FUTURE CAPITAL NEEDS
Based upon its current operating plan, the Company anticipates that the net
proceeds to the Company from the Units Offering, together with its existing cash
balances and cash flow from operations, will be sufficient to meet the Company's
cash requirements for the foreseeable future. However, the Company's long-term
capital requirements will depend upon numerous factors, including the size and
success of the Company's marketing, sales and customer support efforts, the
demand for the Company's products and services, the pace of the Company's
expansion to new markets, the need for funds to participate and prevail in any
competitive-bidding auctions that the FCC may hold for licenses in any of the
markets in which the Company currently operates or in any of the markets which
the Company wishes to enter, the impact of regulatory requirements (such as the
required conversion of VLUs to a new FCC-mandated frequency band plan), the
scope of the Company's product development efforts and the continuing growth of
the Company's industry. To the extent that the funds generated by the Units
Offering, together with existing resources and any future earnings or borrowings
under credit facilities, are insufficient to fund the
10
<PAGE>
Company's activities, the Company may need to raise additional funds through
public or private financings. The issuance of additional equity, and the
incurrence of additional indebtedness, by the Company is subject, under certain
circumstances, to the prior approval of the holders of Holdings' Preferred
Stock, which may affect the Company's ability to raise capital in the future.
See "Description of Holdings Capital Stock--Series A Convertible Redeemable
Participating Preferred Stock" and "Certain Relationships and Related
Transactions." No assurance can be given that additional financing will be
available or that, if available, it will be obtained on terms favorable to the
Company. If adequate funds are not available, the Company may have to reduce or
eliminate expenditures for product development, the marketing of its services
and its market build-out, which would have a material adverse effect on the
Company's business.
RELIANCE ON SOLE SUPPLIER
The Company purchases its VLUs and Base Station Units ("BSUs") from Tadiran
Telematics, Ltd. ("Tadiran"), a leading Israeli technology supplier and a
wholly-owned subsidiary of Tadiran Limited, a publicly traded Israeli company, a
majority of the stock of which is owned by Koor Industries Ltd. The Company's
ability to develop, construct and implement its networks and products on
schedule may be adversely affected by Tadiran's development, manufacturing and
delivery capabilities. While a limited number of other suppliers are available
for these products, management believes that it would take at least a year
before a new supplier could reach full production of these products. There can
be no assurance that alternate suppliers of the Company's equipment and products
will be available in the future or that such suppliers, if available, would be
able to manufacture such equipment and products at an acceptable price. The loss
of Tadiran as a supplier or the inability of another supplier to supply such
equipment would have a material adverse effect on the Company's business.
GOVERNMENT REGULATION
The Company and the wireless telecommunications industry are subject to
federal, state and local regulation with respect to licensing, service
standards, land use and tower site location and other matters. The Company's
operations are subject to recently adopted rules of the FCC that have not been
significantly interpreted by the FCC and that remain subject to reconsideration.
Several parties, including the Company, have requested that the FCC reconsider
various aspects of the newly-adopted rules governing Location and Monitoring
Service ("LMS"). In some cases, the reconsideration requests, if granted by the
FCC, could have a material adverse effect on the Company's business. There can
be no assurance that governmental authorities will not propose or adopt
legislation or regulations that would have a material adverse effect on the
Company's business. Under existing FCC regulations, operating licenses are
issued for five-year terms, subject to renewal by application upon expiration of
their initial terms. Renewal is not automatic, although current FCC regulations
provide that renewal applications may be denied only for specific causes. There
can be no assurance that the Company will continue to hold its operating
licenses in the future.
FACTORS AFFECTING GRANDFATHERED SYSTEMS
FCC rules regulating LMS, adopted in 1995 and modified in March 1996 and
September 1997, established that LMS licenses would be granted on a geographic
basis. At the time that it adopted the new rules governing LMS, the FCC ceased
to accept applications for authorizations for new LMS transmitters. LMS licenses
granted prior to the 1995 rules, including those under which the Company
operates its systems, were granted for individual transmitter sites. In its 1995
rules, the FCC established procedures for the "grandfathering" of those LMS
systems that were in operation or authorized as of February 3, 1995. In order to
retain authorization for grandfathered systems that were authorized by the FCC
but not yet constructed as of February 3, 1995, however, each such grandfathered
system must have been built to the capability of locating a vehicle and
otherwise in compliance with the 1995 rules (as modified) by a deadline
11
<PAGE>
date that was ultimately extended to January 1, 1997. The Company completed
construction of multilateration LMS stations in 26 markets prior to the January
1, 1997 deadline, submitted modification applications and associated waivers to
reflect minor parameter variations, and obtained special temporary authority
from the FCC to operate the newly constructed stations. The Company recently
discovered additional minor parameter variations and has submitted additional
modification applications and requests for special temporary authority relating
to the operation of those facilities. There can be no assurance that the FCC
will grant such applications or requests. The Company believes that it has met
all requirements of the FCC to retain the grandfathered multilateration LMS
systems it has constructed. The FCC's rules, however, contain no provision for
receiving a formal declaration from the FCC that the Company has met all of the
requirements for a grandfathered LMS licensee.
In addition, the FCC has further required that all LMS systems must conform
the LMS transmitters that had been constructed and that were in operation on
February 3, 1995 to the new LMS frequency band plan by April 1, 1998, the date
on which authority to operate on the previous LMS frequencies will expire. While
the Company already has constructed facilities in all of its markets to comply
with the new band plan and is currently converting the VLUs owned by its current
customers to the new band, there can be no assurance that the Company's systems
constructed prior to February 3, 1995 will comply with the new LMS spectrum band
plan by April 1, 1998. Non-multilateration LMS systems that were operating on
segments of the frequency band that the FCC allocated for multilateration LMS
use in 1995 were grandfathered until April 1, 1998. This means that
multilateration LMS systems such as the Company's may be required to share their
frequencies with non-multilateration systems until next April. See
"Business--Regulation-- Construction and Operation of Grandfathered Systems."
FCC rules also provide that additional licenses to operate an LMS system in
the markets in which a grandfathered system operates may be allocated by
auction. The Company intends to participate in future auctions of LMS spectrum,
including in those markets in which it has a grandfathered system. Management
expects that such auctions will occur in early 1998, and the Company may require
additional funds to participate in such auctions. See "Use of Proceeds" and
"Business--Regulation--LMS Spectrum Auctions." In the event that the Company
does not submit the winning bid in a market in which it operates a grandfathered
system, it will have to cooperate with the winning bidder and will be precluded
from further expanding such grandfathered system. There can be no assurance that
in any such auction the Company will acquire a license to operate its system in
each market in which it currently holds grandfathered licenses, or that its
failure to do so would not require the Company to modify its existing technology
to avoid interference with the winning bidder or otherwise delay or increase the
cost of its planned market build-out. See "Business--Regulation--LMS Spectrum
Auctions." In addition, if the Company acquires licenses in the auction, it
would be obligated under present rules to build out the systems for those
markets under deadlines set by the FCC.
FOREIGN OWNERSHIP
The FCC has not declared whether multilateration LMS will be classified as a
private mobile radio service (PMRS) or as a commercial mobile radio service
(CMRS), but has proposed to classify LMS providers on a case-by-case basis. If
the Company's services were reclassified as CMRS rather than as PMRS, the
Company, which holds its FCC authorizations through a wholly-owned subsidiary,
Teletrac License, Inc., would be subject to the foreign ownership restrictions
under the Communications Act that apply to the parent corporations of CMRS
licensees. Under this restriction, non-U.S. persons would not be permitted to
hold, directly or indirectly, in the aggregate, more than 25% of the ownership
or 25% of the voting rights in the Company, absent a waiver or determination by
the FCC that a higher level of foreign ownership would be in the public
interest. Although, as of October 15, 1997, the Company was controlled by U.S.
citizens, non-U.S. persons held slightly more than 25% of the ownership of the
Company. If the FCC were to reclassify its multilateration LMS as CMRS at a time
when the Company's level of foreign ownership or foreign voting rights exceeded
25%, the Company would be required to obtain a public
12
<PAGE>
interest determination from the FCC approving its level of foreign ownership or
to restructure its ownership to meet the 25% benchmark. See
"Busienss--Regulation--Foreign Ownership."
RADIO FREQUENCY INTERFERENCE
The FCC allocated radio frequencies to multilateration LMS on a secondary
basis. This means that LMS operations cannot cause interference to, and may be
required to accept interference from, users of those same or adjacent
frequencies in the Industrial, Scientific, and Medical radio service and in the
Federal government's radiolocation service. In addition, under Part 15 of the
FCC's rules, certain unlicensed radio devices (such as spread spectrum devices
used for local area networks) operate on the same or adjacent frequencies as LMS
systems. Although multilateration LMS systems generally have priority in the use
of their frequencies over such Part 15 devices, the FCC's rules provide a
"safe-harbor" for the operation of Part 15 devices in LMS spectrum. If a Part 15
device is operated in a manner that satisfies those safe-harbor requirements
(which are designed to avoid or minimize the risk of interference to LMS
services), an LMS system that nonetheless suffers interference from such a Part
15 device may have no recourse other than to negotiate with the Part 15 user on
methods for eliminating or reducing the interference. See
"Business--Regulation--Technical Requirements."
The Company's location and communication technology operates through radio
signals, which may experience interference from radio signals on adjacent
frequencies. Interference can reduce system effectiveness. So long as other
users comply with the regulations applicable to their devices or services, the
Company may have no legal recourse even if it experiences significant
interference from other radio signals. In developing or expanding a system in a
metropolitan market, the Company tests for interference and generally expects
that a certain amount of system modification will be required to minimize
interference. There can be no assurance that the Company will not encounter
significant interference with its systems in some or all of its new markets,
which could impair the functioning of its system in such markets and/or increase
the cost of subscriber equipment or system build-out.
In certain portions of its Los Angeles market area, the Company has
experienced interference from paging networks operating on frequencies adjacent
to the new LMS frequency band. Such interference has impaired service to certain
customers, although it has not materially affected the Company's operating
results in Los Angeles. Such interference would be minimized by the installation
of additional transmitters or by enhancement of the filtering capabilities of
the VLU. The Company has applied for waivers to permit the installation of
additional transmitters in Los Angeles and other markets, but there can be no
assurance that the Company will obtain such waivers and the Company's request
for such waivers has been opposed in filings by other parties. Tadiran has also
developed and is testing an enhanced filter in the VLU that is expected to
reduce interference from out-of-band transmissions, but there can be no
assurance that the filter will be effective in the field or will be available at
acceptable cost. In testing its system in San Francisco, the Company has
experienced interference from Part 15 devices at several of its receiver
installations. The Company believes that such interference is primarily caused
by devices that do not comply with the safe-harbor provisions for Part 15
devices operating in the LMS spectrum. There can be no assurance that such
interference can be minimized in a timely manner, or that interference would not
be experienced in other existing or new markets. There can be no assurance, if
such interference is the result of devices not in compliance with safe-harbor
provisions, that the interference can be minimized in a timely manner.
NETWORK BUILD-OUT
The Company is engineering and designing its own network of transmitters and
receivers. While the Company has secured transmitter sites for each of its
licensed transmitters and has constructed all such
13
<PAGE>
transmitters in compliance with FCC regulations, there can be no assurance that
the Company will be able to secure leases for the receiver sites necessary to
construct and operate its networks within its budgeted time frames and costs.
Part of this process involves identification of the optimal number of sites to
receive signals necessary to deliver the Company's location and associated
messaging services. In this identification process, known as radio frequency
("RF") propagation analysis, engineers utilize computer software programs to
analyze terrain, topography, building penetration, population concentrations and
other factors. Once sites are identified in the network design process, the
Company must secure leases for the sites upon which it will install antennae,
receivers and other infrastructure equipment. The site acquisition process
requires the negotiation of site leases and verification by the Company that the
site owner has obtained the necessary governmental approvals and permits. The
location and development of sites that are considered desirable from the
perspective of maximizing signal coverage and penetration has become more
difficult, due in part to the saturation of such sites by other wireless service
providers. In addition to site identification and acquisition, the construction
of the Company's networks will require equipment installation and systems
testing. Each stage involves various risks and contingencies, many of which are
not within the control of the Company and any of which could adversely affect
the implementation of the Company's proposed networks.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is facing increasing competition in the vehicle location and
fleet management industries. The Company faces competition for its services from
companies using GPS technology, as well as cellular, SMR and paging technology.
In addition, a variety of wireless two-way communication technologies are under
development and could result in increased competition for the Company. Certain
of the Company's competitors are larger and have substantially greater financial
and research and development resources and more extensive marketing and selling
organizations than the Company. There can be no assurance that additional
competitors will not enter markets that the Company plans to serve or that the
Company will be able to withstand the competition. Moreover, changes in
technology could lower the cost of competitive services to a level where the
Company's services would become less competitive or where the Company would need
to reduce its service prices in order to remain competitive, which could have a
material adverse effect on the Company's business. See "Business--Competition."
CONTROL BY CURRENT STOCKHOLDERS
TruePosition, Inc. (a subsidiary of Associated Group, Inc.), Toronto
Dominion Capital (U.S.A.), Inc., Chestnut Hill Wireless, Inc. (a subsidiary of
GCC Investments, Inc.), Banc-Boston Ventures Inc., Eos Partners SBIC, L.P.,
Kingdon Associates and its affiliates, James A. Queen and certain funds
associated with Burr, Egan, Deleage & Co. and Alta Communications, Inc., through
their ownership of the Common Stock and Preferred Stock of Holdings and their
agreements with other stockholders, are able to control the election of
Holdings' Board of Directors and generally are able to direct the affairs of
Holdings. Pursuant to certain agreements among them, certain of such principal
stockholders of Holdings have the right to require the other stockholders to
elect directors designated by such principal stockholders to the Board of
Directors of Holdings. In addition, the Certificate of Incorporation of Holdings
and certain agreements among Holdings and its principal stockholders require the
approval of a majority or supermajority, as the case may be, of the holders of
Common Stock or Preferred Stock, voting in some instances as a single class and
in some instances as separate classes, to take certain specified actions. In
addition, the principal stockholders of Holdings have preemptive rights with
respect to certain issuances of securities by Holdings which permit them to
purchase securities of Holdings at the same price and on the same terms as
Holdings may offer to third parties, in an amount sufficient to maintain their
respective voting and equity interests in Holdings. All of the current
stockholders entitled to such preemptive rights have waived such rights with
respect to the Warrants offered hereby and the related Warrant Shares. Holders
of the Warrants and the Warrant Shares will not be entitled to the same voting
and preemptive rights. See "Certain Relationships and Related Transactions" and
"Description of Holdings Capital Stock."
14
<PAGE>
NO DIVIDENDS
Holdings does not expect to pay any cash dividends for the foreseeable
future. Holdings has entered into agreements with the holders of its Preferred
Stock that limit its ability to declare and pay dividends on its Common Stock.
The holders of the Warrants will not have the right to receive any dividends so
long as their Warrants are unexercised. After the exercise of their Warrants,
the holders of the Warrant Shares will have the same right to receive dividends
as the other holders of Common Stock of Holdings. Any future dividends will
depend on the earnings, if any, of the Company, its financial requirements and
other factors. The Indenture contains restrictions against the payment of
dividends and the Credit Facility contains similar restrictions. The holders of
Series A Preferred are entitled to receive cumulative, compounding dividends at
a rate per annum of 15%, payable when and as declared by the Board of Directors
and, in any event, upon redemption of the Series A Preferred Stock or any
liquidation of Holdings. In addition, the holders of the Series A Preferred are
entitled to receive dividends at the same rate as dividends paid with respect to
the Common Stock, on an as-converted basis. In the event of a special dividend
declared in connection with a spinoff or sale of a separate business unit of
Holdings, the holders of the Series A Preferred would also be entitled to a
preference. See "Description of Holdings Capital Stock."
REQUIREMENTS FOR EXERCISING WARRANTS
The exercise of the Warrants will be subject to applicable federal and state
securities laws and to compliance with the Communications Act if the exercise of
the Warrants would result in a change of control or in foreign ownership or
foreign voting rights exceeding the then-approved limits. Holders of Warrants
will be able to exercise their Warrants only if a registration statement
relating to the shares of Class A Common Stock underlying the Warrants is then
in effect, or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and such shares of Class A Common Stock are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of the Warrants reside. The
Company will be unable to issue shares of Class A Common Stock to those persons
desiring to exercise their Warrants if a registration statement covering the
shares of Class A Common Stock issuable upon the exercise of the Warrants is not
effective (unless the sale and issuance of shares of Class A Common Stock upon
the exercise of such Warrants is exempt from the registration requirements of
the Securities Act) or if such shares of Class A Common Stock are not qualified
or exempt from qualification in the states in which the holders of the Warrants
reside. See "Description of Warrants." If the FCC were to classify
multilateration LMS as commercial mobile radio service at a time when Holdings'
level of foreign ownership or foreign voting rights exceeded 25%, which it
currently does, the Company would be required to obtain a public interest
determination from the FCC approving its level of foreign ownership or to
restructure its ownership to meet the 25% benchmark. Any exercise of Warrants
that would result in foreign ownership or voting rights exceeding the
then-approved limits would require an additional public interest determination
from the FCC. There can be no assurance that the FCC would find that an increase
in such foreign ownership or foreign voting rights would be in the public
interest. The failure to secure a public interest determination from the FCC may
preclude the exercise of some or all of the Warrants. In the event that
multilateration LMS service is classified as CMRS, the exercise of the Warrants
by non-United States citizens in a manner which would cause the foreign
ownership or foreign voting rights to exceed the then-approved limits is
prohibited prior to the receipt of the FCC's approval of such exercise. See
"Business Regulation--Foreign Ownership."
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small group of key executive
officers, the loss of any of whom could have a material adverse effect on the
Company's business. The Company believes that its continued success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel.
15
<PAGE>
PROPRIETARY RIGHTS AND PATENTS; CERTAIN PENDING LITIGATION
The Company's success will depend in part upon its ability to protect the
confidentiality of its proprietary technology. The Company currently holds no
material patents and generally seeks to protect its software products and trade
secrets by requiring that its consultants, employees and others with access to
its trade secrets sign nondisclosure and confidentiality agreements. Management
believes that these actions provide appropriate legal protection for the
Company's intellectual property rights in its software products, but there can
be no assurance that such measures will be sufficient. There also can be no
assurance that others will not independently develop similar technologies,
duplicate the Company's technologies or design around aspects of any
technologies developed by the Company. See "Business-- Product Protection."
AirTouch Teletrac brought an action before the United States Patent and
Trademark Trial and Appeal Board against T.A.B. Systems ("TAB") opposing TAB's
registration of the mark "Teletrak." The Trademark Trial and Appeal Board
granted AirTouch Teletrac's motion for summary judgment, but summary judgment
was reversed by the U.S. Court of Appeals for the Federal Circuit. Under the
terms of the Asset Purchase Agreement between AirTouch Teletrac and the Company,
AirTouch Teletrac must pay the costs of any litigation relating to this matter
and must indemnify the Company against any losses relating thereto. AirTouch
Teletrac has notified the Company that it intends to continue to litigate this
matter on its own behalf, as well as on behalf of the Company, and that it will
bear the cost of such litigation. There can be no assurance that AirTouch
Teletrac will be successful in such litigation or will honor its indemnification
obligations (including any costs or losses relating to a change of name, if
required).
DEPENDENCE ON NETWORK OPERATIONS
The Company's operations are dependent upon its ability to protect its
computer and network equipment against damage that may be caused by equipment
failure, fire, weather, earthquakes, power loss or similar events. There can be
no assurance that such events would not disable one or more of the Company's
networks. Because each metropolitan area has its own network control center,
damage to any network control center would disrupt service for the entire
metropolitan area serviced by such control center. Any significant damage to any
one of the Company's networks could have a material adverse effect on the
Company's business. The Company is currently enhancing its location monitoring
system hardware and software to enable it to reduce its number of network
control centers from one in each metropolitan market to three of four regional
network control centers. If such improvements are made, damage to any network
control center would disrupt service for several metropolitan markets serviced
by such control center.
ABSENCE OF A PUBLIC MARKET
There is currently no market for the Warrants or the Common Stock of
Holdings. Holdings does not currently intend to list the Warrants or its Common
Stock on any national securities exchange or to seek the admission thereof to
trading in the Nasdaq National Market. There can be no assurance that an active
trading market for any of the Securities will develop, or if one does develop,
that it will be sustained. Accordingly, no assurance can be made as to the
liquidity of the trading market for the Securities. If any of the Warrants are
traded after their initial issuance, they may trade at a discount from $67.05,
the portion of the initial offering price of the Units attributable to the
Warrants, depending on prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and the
financial condition and performance of Holdings. Prospective investors in the
Securities should be aware that they may be required to bear the financial risks
of such investment for an indefinite period of time. See "Description of Notes,"
"Description of Warrants" and "Notice to Investors."
16
<PAGE>
THE COMPANY
An investor group led by management formed Teletrac, Inc. in August 1995 to
acquire the assets of AirTouch Teletrac. AirTouch Teletrac was established in
1988 to develop land-based 900 MHz radio networks for wireless location
monitoring and related two-way wireless messaging services. Over an eight year
period, AirTouch Teletrac developed the technology and software for such
networks and constructed operational systems in six metropolitan markets.
Teletrac, Inc. acquired the assets of AirTouch Teletrac on January 17, 1996.
The current management of Teletrac has had significant experience in the
wireless communications industry. James A. Queen, the Company's Chief Executive
Officer, together with several members of the Company's current management,
founded and managed Premiere Page, Inc. ("Premiere Page"), a paging company with
operations in Alabama, Illinois and surrounding markets. Premiere Page was
established in 1988, completed an initial public offering of its stock in 1993,
and in 1994 was merged into another paging company, forming the fifth largest
paging company in the nation at the time, based on units in service.
To create a holding company structure, Holdings, Teletrac and all of the
stockholders of Teletrac entered into an Exchange Agreement. Under the terms of
such Exchange Agreement, all of Teletrac's stockholders exchanged their shares
of Common Stock and Preferred Stock of Teletrac for substantially similar shares
of the Common Stock and Preferred Stock of Holdings (the "Exchange"). See
"Certain Relationships and Related Transactions--Exchange Agreement." As a
result of the Exchange, Holdings owns all the outstanding capital stock of
Teletrac, which constitutes its sole asset.
The principal executive offices of Teletrac and Holdings are located at 2323
Grand Street, Suite 1100, Kansas City, Missouri 64108, and its telephone number
is (816) 474-0055.
USE OF PROCEEDS
The maximum gross proceeds to Holdings from the exercise of the Warrants and
the issuance of the Common Stock offered hereby (assuming all Warrants are
exercised at the current exercise price of $.01 per share of Common Stock) would
be $564.37. Holdings intends to use the proceeds of any exercise of the Warrants
for working capital and general corporate purposes. Holdings will not receive
any proceeds from the sale of the Warrants offered hereby, and all such proceeds
will be received by or on behalf of the Selling Security Holders. See "Selling
Security Holders."
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Holdings
and its subsidiaries as of September 30, 1997, and as adjusted to give effect to
the Units Offering. The table should be read in conjunction with the audited
consolidated financial statements of Holdings and its predecessors and the
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
<S> <C>
(UNAUDITED)
-----------------------
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................................................ $ 53,733
----------
----------
Restricted cash and investments(1)....................................................... 42,042
----------
----------
Long-term debt:
Long-term leases payable............................................................... $ 2,026
Notes(2)............................................................................... 98,077
----------
Total long-term debt................................................................. 100,103
Series A Redeemable Preferred Stock, $.01 par value, 190,477 shares authorized and
190,476.19 shares issued and outstanding............................................... 37,053
Undesignated Preferred Stock, $.01 par value, 190,477 shares authorized and none issued
and outstanding........................................................................ --
Stockholders' equity (deficit):
Class A Common Stock, $.01 par value, 1,000,000 shares authorized and 249,000 shares
issued and outstanding............................................................... 2
Class B Common Stock, $.01 par value, 70,000 shares authorized and none issued and
outstanding.......................................................................... --
Warrants(3).............................................................................. 7,039
Additional paid-in capital............................................................... 22,023
Accumulated deficit...................................................................... (38,705)
----------
Stockholders' deficit................................................................ (9,640)
----------
Total capitalization................................................................. $ 127,515
----------
----------
</TABLE>
- ------------------------
(1) Includes the aggregate principal amount of the Pledged Securities,
approximately $39.9 million. See "Description of Notes--Security."
(2) Holdings received gross proceeds from the Units Offering of $105 million.
The estimated value of the Warrants ($7.0 million) has been reflected as
both a debt discount and an element of additional paid-in capital. However,
the actual aggregate principal amount of the Notes is $105 million.
(3) Represents the portion of the issue price for the Units attributable to the
fair market value of the Warrants. Such amount has been recognized as a
discount on the Notes and will be amortized over the term of the Notes.
18
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Set forth below are selected historical financial and operating data of
Holdings and its predecessors. Certain of such historical financial and
operating data have been derived from the audited consolidated financial
statements of Holdings and its predecessors as of and for the periods noted. The
financial information of Holdings as of and for the nine months ended September
30, 1996 and 1997 is unaudited and is derived from the unaudited consolidated
financial statements of Holdings which include all adjustments management
considers necessary for a fair presentation of Holdings' financial position and
results of operations in accordance with generally accepted accounting
principles subject to normal recurring year-end adjustments. The results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997. The data
contained in the following table should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and Holdings' and its predecessors' audited consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSORS(1) HOLDINGS
---------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------------- ---------------------
<CAPTION>
1992 1993 1994 1995 1996(2) 1996(2) 1997
---------- ---------- ---------- ---------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT UNIT DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:............................. $ 6,805 $ 11,550 $ 15,336 $ 13,244 $ 15,957 $ 10,330 $ 18,688
Operating Expenses
Cost of revenues.................... 7,212 5,748 6,357 4,323 7,031 3,735 9,036
Research & development costs........ -- -- -- -- -- -- 2,873
Selling, general and
administrative.................... 44,336 40,272 28,234 23,674 20,186 13,392 23,823
Refrequencing costs(3).............. -- -- -- 5,936 1,340 677 --
Depreciation and amortization....... 3,844 5,155 5,218 4,458 1,254 884 1,754
Asset impairment(4)................. -- -- -- 10,967 -- -- --
---------- ---------- ---------- ---------- ---------- --------- ----------
Total operating expenses.............. 55,392 51,175 39,809 49,358 29,811 18,688 37,486
---------- ---------- ---------- ---------- ---------- --------- ----------
Operating Loss........................ (48,587) (39,625) (24,473) (36,114) (13,854) (8,358) (18,795)
Interest Expense.................... (7,154) (10,318) (15,610) (21,239) (109) (33) (2,535)
Other............................... (166) 16 259 (27) 171 87 1,251
---------- ---------- ---------- ---------- ---------- --------- ----------
Net Loss.............................. $ (55,907) $ (49,927) $ (39,824) $ (57,380) $ (13,792) $ (8,307) $ (20,077)
---------- ---------- ---------- ---------- ---------- --------- ----------
---------- ---------- ---------- ---------- ---------- --------- ----------
Other Data:
EBITDA(5)............................. $ (44,743) $ (34,470) $ (19,225) $ (14,753) $ (11,260) $ (6,797) $ (17,044)
Deficiency of earnings to fixed
charges (6)......................... 55,907 49,927 39,824 57,380 14,132 8,307 23,790
Commercial units in service at end of
period.............................. 9,426 23,903 30,283 35,465 43,156 40,589 61,369
Consumer units in service at end of
period.............................. 4,367 6,688 10,618 13,814 11,717 11,741 10,176
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- 1997
1992 1993 1994 1995 1996 (UNAUDITED)
--------- ---------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents:................... $ 3,253 $ 1,586 $ 546 $ 27,639 $ 53,733
Restricted cash and investments.............. -- -- -- -- 1,256 42,042
Total assets................................. 42,968 37,392 28,852 11,137 53,713 138,276
Long-term debt............................... 129,250 170,653 203,285 226,101 1,615 100,103
Redeemable preferred stock................... -- -- -- -- 33,340 37,053
Partners'/Stockholders' equity (deficit)..... (94,786) (144,713) (184,038) (241,418) 7,111 (9,640)
</TABLE>
- ------------------------
(1) Represents financial and operating data of PacTel Teletrac for the years
ended December 31, 1992 and 1993 and AirTouch Teletrac for the year ended
December 31, 1994 and for the period January 1, 1995 through December 28,
1995, the date on which AirTouch Teletrac was dissolved.
(2) Teletrac, Inc. acquired the assets of the business on January 17, 1996, the
effective date of the Acquisition. From December 29, 1995 to January 16,
1996, the business was operated by AirTouch Services, successor to AirTouch
Teletrac. The results of operations of AirTouch Services for such period
were not material and are not included herein.
(3) Refrequencing costs are certain costs accrued in connection with the
conversion of vehicle location units to a new frequency band plan mandated
by the FCC. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Background" and
"Business--Regulation--Frequency Conversion."
(4) Asset impairment for 1995 resulted from the Acquisition, in which the assets
of AirTouch Teletrac were sold for approximately $11.0 million less than the
historical book value of such assets recorded by AirTouch Teletrac. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Background."
(5) EBITDA consists of operating income (losses) before interest, taxes,
depreciation and amortization. EBITDA excludes the accrued refrequencing
costs and asset impairment charge described above. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. EBITDA, however, is not a measure determined in
accordance with GAAP and should not be considered in isolation or as a
substitute for or an alternative to net income (loss), cash flow from
operating activities or other income or cash flow data prepared in
accordance with GAAP or as a measure of a company's operating performance or
liquidity.
(6) For purposes of calculation, earnings consist of Holdings' loss before
income taxes and fixed charges. Fixed charges consist of gross interest
expense plus the portion of rental expense under operating leases which has
been deemed by Holdings to be representative of interest factor. The
deficiency of earnings to fixed charges represents the additional earnings
required to bring the ratio of earnings to fixed charges to 1.00.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF THE COMPANY AND ITS PREDECESSORS AND
"SELECTED FINANCIAL AND OPERATING DATA" APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. SEE "RISK FACTORS."
BACKGROUND
AIRTOUCH TELETRAC OPERATIONS. The Company's vehicle location business was
established in 1988 by PacTel Teletrac, a California partnership whose majority
partner was a wholly-owned subsidiary of Pacific Telesis Group. The partnership
changed its name to AirTouch Teletrac in connection with the spin-off by Pacific
Telesis Group of its wireless operations to AirTouch Communications, Inc.
AirTouch Teletrac was established to develop land-based 900 MHz radio networks
for wireless location monitoring and two-way wireless messaging services. Over
an eight-year period, AirTouch Teletrac developed the technology and software
for such networks, obtained FCC licenses and constructed operational systems in
six metropolitan markets. In addition, AirTouch Teletrac developed the Company's
proprietary software and other products and built a sales and marketing
organization in the six metropolitan markets in which it had operational
networks. Development costs and operating losses were primarily funded through
the issuance of convertible debt of the partnership to the majority partner, a
subsidiary of AirTouch Communications, Inc.
In 1995, AirTouch Teletrac determined to sell its business and, in
connection with that decision, substantially curtailed its marketing efforts.
FORMATION OF THE COMPANY. Teletrac was formed in August 1995 to acquire the
assets of the AirTouch Teletrac business. From its inception in August 1995
through December 31, 1995 the Company's expenses were nominal and the Company
had no revenues.
ACQUISITION OF ASSETS OF AIRTOUCH TELETRAC. On January 17, 1996, the
Company acquired the assets of AirTouch Teletrac in the Acquisition. In
connection with the Acquisition, the Company assumed certain liabilities of
AirTouch Teletrac, but did not assume its long-term debt. The Company accounted
for the Acquisition as a purchase and allocated the purchase price to the assets
purchased and the liabilities assumed. As a result of the sale of the assets for
less than book value, an asset impairment charge of approximately $11.0 million
was recorded by AirTouch Teletrac in 1995.
CHANGES IN BUSINESS STRATEGY. Management has significantly changed the
Company's business strategy since the Acquisition. The primary change has been
to shift the focus of the Company from engineering and product development to
sales and marketing. During 1995, in anticipation of the sale of its business,
AirTouch Teletrac substantially curtailed its marketing efforts. The Company
began increasing sales and marketing activity immediately upon completing the
Acquisition in order to increase market penetration and restore revenue growth.
To date, management has focused the Company's sales efforts exclusively on sales
of commercial fleet equipment and services. The Company has continued providing
consumer service and has allowed dealer arrangements in place at the Acquisition
to continue, but has not launched any new marketing efforts. The Company is
currently exploring various potential strategies for marketing and distributing
its products to consumers, including through strategic partnerships or
third-party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
In addition, over the next 18 months, the Company expects to continue
expanding its operations beyond the six markets operating at the time of the
Acquisition. As of December 31, 1996, the Company operated in six metropolitan
markets: Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company
commenced operations in Orlando in March 1997 and plans to initiate commercial
fleet service in San Francisco and San Diego before the end of 1997 and a
further six markets (Washington, D.C./ Baltimore, New York, Boston,
Philadelphia, Indianapolis and Columbus) before the end of 1998. The
21
<PAGE>
Company made capital expenditures and incurred expenses in 1996 and the first
six months of 1997 in connection with network build-out in these markets. The
Company also incurred expenses in connection with the network build-out required
to grandfather its FCC licenses in 11 other metropolitan markets in which it may
commence offering commercial fleet services in the future. See
"Business--Regulation-- Construction and Operation of Grandfathered Systems."
REFREQUENCING COSTS. The FCC has required all LMS systems that were
constructed and in operation as of February 3, 1995 to conform their
already-constructed facilities to a new LMS frequency band plan. The frequency
conversion must be completed by April 1, 1998, the date on which authority to
operate on the previous LMS frequencies will expire. The Company has begun an
active program of converting installed VLUs to operate within the new frequency
band plan. The Company anticipates that the frequency conversion process for its
existing markets will be completed prior to the April 1, 1998 deadline. The
Company estimates that the total cost of such conversion will be approximately
$7.2 million. Approximately $5.9 million of such estimated cost was accrued in
1995 to account for VLUs installed prior to the Acquisition, and the remainder
was accrued in 1996 to account for VLUs installed after the Acquisition that
operated on the old frequency. New markets are being opened with equipment that
conforms to the new band plan requirements and all VLUs sold after December 31,
1996 operate on the new frequency. See "Business--Regulation--Frequency
Conversion."
OPERATING LOSSES. The Company has experienced significant operating and net
losses and negative EBITDA in connection with the build-out of its networks and
the operation of its business, and expects to continue to experience operating
and net losses and negative EBITDA until such time as it develops a
revenue-generating customer base sufficient to fund its operating expenses. See
"Risk Factors--Net Losses and Negative EBITDA." The Company expects to build its
customer base over time by (i) increasing the number of markets in which it
operates from six, as of December 31, 1996, to 15 by the end of 1998 and (ii)
increasing its market penetration by building a larger and more productive sales
force. The Company anticipates that revenues will increase in 1997. The
Company's operations in Los Angeles are currently generating positive EBITDA
(excluding corporate overhead). The Company's management expects several
additional markets to begin generating positive EBITDA (excluding corporate
overhead) by the end of 1997 and the Company as a whole to achieve positive
EBITDA in 1999. However, the Company also expects that operating and net losses
and negative EBITDA will increase as the Company completes its market build-out
and that, under its current business plan, operating and net losses and negative
EBITDA will continue at least through the end of fiscal 1998. See "--Liquidity
and Capital Resources" and "Projected Financial Information."
FINANCIAL STATEMENT PRESENTATION. The audited consolidated financial
statements of Teletrac, Inc. for 1996 include the period prior to the
Acquisition, from January 1, 1996 through January 16, 1996. During such period,
Teletrac, Inc. had no revenues and nominal expenses. No information with respect
to the operations of the fleet management and vehicle location business by
AirTouch Teletrac during such period is included in the financial statements of
Teletrac, Inc.
COMPONENTS OF REVENUES. The Company's revenues are generated from two
primary sources: monthly service fees from customers and the sale of equipment
and software to customers. Commercial customers are charged flat monthly service
fees for vehicle location and related communication services and consumer
customers are charged flat monthly service fees for vehicle location services.
The Company sells VLUs, messaging terminals, personal computers and its
proprietary software to commercial fleet customers, and sells VLUs to consumer
customers. See "Business--Commercial Fleet Management" and "Business--Consumer
Vehicle Services." For the year ended December 31, 1996 and the six months ended
June 30, 1997, service revenues represented approximately 55.9% and 50.8% of
total revenues, respectively, and revenues from equipment sales represented the
remaining 44.1% and 49.2%, respectively. The Company expects that, as it builds
its customer base by expanding into new markets and increasing penetration of
its existing markets, the percentage of its revenues generated by equipment
sales will
22
<PAGE>
initially increase. Over time, as the monthly service fee base grows, the
Company expects that revenues from equipment sales will decrease, and service
revenues will increase, as a percentage of total revenues.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES. Total revenues for the nine months ended September 30, 1997 were
$18.7 million, compared to $10.3 million for the nine months ended September 30
1996, an increase of 82%.
Equipment revenues increased to $9.6 million for the nine months ended
September 30, 1997 from $3.9 million for the nine months ended September 30,
1996, an increase of 146%, principally due to an increase in gross commercial
installations to 23,371 units for the nine months ended September 30, 1997 from
9,170 units for the nine months ended September 30, 1996.
Service revenues increased to $9.1 million for nine months ended September
30, 1997 from $6.5 million for nine months ended September 30, 1996, an increase
of 40%, primarily due to an increase in the number of commercial units in
service, to 61,369 at September 30, 1997 from 40,589 at September 30, 1996.
Also, the average commercial service revenue per unit increased to $16.93 in
September 1997 from $15.55 in September 1996.
COST OF REVENUES. Costs of revenues includes the cost of equipment and the
direct cost of providing service (network telephone, billing, roadside
assistance and bad debt expense). Cost of revenues increased to $9.0 million for
the nine months ended September 30, 1997 from $3.7 million for the nine months
ended September 30, 1996 primarily as a result of the higher number of new units
sold. In addition, the Company incurred $0.7 million for the nine months ended
September 30, 1997 on telephone costs associated with installing and maintaining
its networks in markets that are not yet opened.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $13.3 million, to $26.7 million for the
nine months ended September 30, 1997 from $13.4 million for the nine months
ended September 30, 1996. The increase was primarily related to increased sales
personnel for the commercial operations, the funding of new product development
and increased support for the growth of the customer base. The Company expensed
$2.9 million in the nine months ended September 30, 1997 that primarily relates
to research and development for its new IBSU.
REFREQUENCING COSTS. Refrequencing costs were not accrued for the nine
months ended September 30, 1997 since all units placed in service in 1997 are
operating on the new frequency.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased for
the nine months ended September 30, 1997 to $1.8 million from $0.9 million for
the nine months ended September 30, 1996, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $18.8
million for the nine months ended September 30, 1997, as compared to $8.4
million for the nine months ended September 30, 1996, for the reasons discussed
above.
NET LOSS. For the reasons discussed above, net loss increased to $20.1
million for nine months ended September 30, 1997 from $8.3 million for nine
months ended September 30, 1996. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995.
REVENUES. Total revenues increased to $16.0 million for 1996 from $13.2
million for 1995, an increase of 21.2%.
23
<PAGE>
Equipment revenues increased to $7.0 million for 1996 from $4.0 million for
1995, an increase of 75.0%, principally due to an increase in the Company's
sales efforts. Commercial equipment sales increased to $6.9 million for 1996
from $2.6 million for 1995, and the number of gross commercial units added
during 1996 increased to approximately 14,500 units from approximately 8,500
units for 1995. Consumer equipment sales declined to $152,000 for 1996 from $1.4
million for 1995 as a result of the Company's decision not to recommence the
marketing of consumer services during the year.
Service revenues increased to $8.9 million for 1996 from $8.6 million for
1995, an increase of 3.5%, primarily due to an increase in the number of
commercial units in service, to 43,156 at December 31, 1996 from 35,465 at
December 28, 1995. The increase in commercial fleet service revenues was
partially offset by a decline in consumer vehicle service revenues for the
reasons discussed above.
COST OF REVENUES. Cost of revenues increased to $7.0 million for 1996 from
$4.3 million for 1995, primarily as a result of the higher number of new units
sold and the larger customer base. In addition, the Company incurred costs
associated with building and maintaining its networks in markets that are not
yet opened.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined by $3.5 million, to $20.2 million for 1996 from
$23.7 million for 1995. Selling, general and administrative expenses also
decreased as a percentage of revenues, from 179% for 1995 to 127% for 1996. The
decline was primarily due to $3.2 million in severance and retention payment
expenses incurred by AirTouch Teletrac for 1995 and to decreases in overhead and
administrative costs.
REFREQUENCING COSTS. Refrequencing costs accrued for 1996 were $1.3
million, compared to $5.9 million accrued for 1995. The 1996 accrual reflects
the estimated cost of conversion of VLUs placed in service after the
Acquisition. The 1995 accrual reflects the estimated cost of conversion of VLUs
in service with customers at the time of the Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization declined by
$3.2 million to $1.3 million for 1996 from $4.5 million for 1995, primarily due
to the lower book value recorded by the Company for the assets acquired in the
Acquisition as compared to the historical cost recorded by AirTouch Teletrac.
The Company expects depreciation to increase for 1997 as assets acquired in
connection with the Company's planned market expansion, which are currently
classified as construction in progress, are placed in service during the year.
ASSET IMPAIRMENT. Because the purchase price paid for the assets of
AirTouch Teletrac was $11.0 million less than the historical cost of such assets
recorded by AirTouch Teletrac, AirTouch Teletrac recorded an asset impairment of
$11.0 million for 1995.
OPERATING LOSSES. Operating losses incurred by the Company were $13.9
million for 1996, compared to $36.1 million for 1995, a reduction of 61%, for
the reasons discussed above.
EBITDA. EBITDA, which excludes refrequencing costs and asset impairment,
was $(11.3) million for 1996 and $(14.8) million for 1995, an improvement of
24%, for the reasons discussed above.
INTEREST EXPENSE. Interest expense was $108,600 for 1996, compared to $21.2
million for 1995. This decline reflects the fact that the Company did not assume
the approximately $226.1 million of long-term debt of AirTouch Teletrac. The
Company's interest expense for 1996 related to $2.0 million of long-term lease
commitments.
NET LOSS. For the reasons discussed above, net loss decreased to $13.8
million for 1996 from $57.4 million for 1995.
24
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994.
REVENUES. Total revenues decreased to $13.2 million for 1995 from $15.3
million for 1994.
Equipment revenues declined to $4.0 million for 1995 from $5.8 million for
1994. As a result of the reduction in sales force implemented by AirTouch
Teletrac in 1995, the gross number of units sold declined to approximately
14,700 for 1995 from approximately 17,700 for 1994.
Service revenues increased to $8.6 million for 1995 from $7.4 million for
1994, an increase of 16.2%. The increase in service revenues is primarily
attributable to the increase in units in service to 49,279 at December 31, 1995
from 40,901 at December 31, 1994.
Revenues for 1995 and 1994 also included $681,000 and $2.1 million,
respectively, of revenues attributable to an engineering consulting contract
between AirTouch Teletrac and Ituran Location and Control Ltd., an Israeli
licensee ("Ituran"), relating to the construction in Israel of a network similar
to the Company's. Construction began in 1994 and was completed in 1995.
COST OF REVENUES. Cost of revenues declined to $4.3 million for 1995 from
$6.4 million for 1994. As indicated above, equipment sales decreased for 1995 as
compared to 1994, which led to a decrease in equipment costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined by $4.5 million, to $23.7 million for 1995 from
$28.2 million for 1994. During 1995, AirTouch Teletrac's management made the
decision to sell its assets, at which point AirTouch Teletrac began to reduce
its expenses. The number of employees was reduced from 197 at December 31, 1994
to 117 at December 31, 1995. Reductions were also made in certain administrative
expenses.
REFREQUENCING COSTS. Refrequencing costs accrued for 1995 are the estimated
costs for the conversion of VLUs in service with customers at the time of the
Acquisition. Because the change in frequency was mandated by a 1995 order of the
FCC, there was no expense recorded in 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
declined to $4.5 million for 1995 from $5.2 million for 1994. This decline was
due to a reduction in the aggregate value of the Company's plant, property and
equipment as certain assets became fully depreciated and additional assets were
not acquired.
OPERATING LOSSES. AirTouch Teletrac incurred operating losses of $36.1
million for 1995, compared to $24.5 million for 1994, for the reasons discussed
above.
EBITDA. EBITDA, which excludes refrequencing costs and asset impairment,
was $(14.8) million for 1995 and $(19.3) million for 1994, for the reasons
discussed above.
INTEREST EXPENSE. Interest expense increased to $21.2 million for 1995 from
$15.6 million for 1994 due to the increase in AirTouch Teletrac's long-term debt
to $226.1 million for 1995 from $203.3 million for 1994.
NET LOSS. Net loss increased to $57.4 million for 1995 from $39.8 million
for 1994, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has required a substantial investment of capital in order to
fund the Acquisition, its subsequent operating losses and the build-out of its
networks in new markets. During 1996, the Company used $16.2 million of cash in
its operating activities, $7.1 million for purchases of property, plant and
equipment and $2.1 million to acquire the assets of AirTouch Teletrac. For the
six months ended June 30, 1997, the Company used $16.5 million of cash for
operating activities and $5.9 million for purchases of
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<PAGE>
property, plant and equipment. These cash outflows were financed through private
equity placements of common and preferred stock. From November 14, 1995 through
December 6, 1996, the Company issued and sold 244,000 shares of its Class A
Common Stock for an aggregate purchase price of $24.4 million pursuant to the
terms of a Stock Purchase Agreement, dated November 14, 1995, among the Company
and certain investors. From March 29, 1996 through December 6, 1996, the Company
issued and sold 5,000 shares of its Class A Common Stock for an aggregate
purchase price of $500,000 pursuant to a Subscription Agreement, dated March 29,
1996, among the Company and certain other investors. On December 6, 1996, the
Company issued and sold 190,476.19 shares of its Series A Redeemable Convertible
Participating Preferred Stock for an aggregate purchase price of $33.0 million
pursuant to the terms of a Stock Purchase Agreement, dated December 6, 1996,
among the Company and certain investors. At June 30, 1997, the Company had
working capital of $5.3 million and restricted cash of $1.8 million.
On August 6, 1997, the Company sold 105,000 Units, consisting of an
aggregate $105,000,000 of its 14% Senior Notes due 2007 and 105,000 Warrants, to
Donaldson, Lufkin and Jenrette Securities Corporation and TD Securities (USA)
Inc. for an aggregate purchase price (net of discounts and commissions) of
$101,325,000. The Company has purchased $39.9 million of government securities
(the "Pledged Securities") which it has pledged to Norwest Bank, National
Association as Collateral Agent to secure the payment of the first six
semi-annual payments of interest on the Notes. The Company intends to use the
net proceeds of such Units Offering (i) to fund expenditures for the continued
construction, development and roll-out of its networks and services, including
site construction, marketing costs and the purchase of system hardware and (ii)
for general corporate purposes, including the funding of operating losses,
working capital requirements and the possible acquisition of additional radio
spectrum in metropolitan markets.
As indicated above, capital expenditures were $7.1 million for 1996 and $5.9
million for the first six months of 1997, primarily for the build-out of the
Company's networks in new markets. The Company currently expects that its
aggregate capital expenditures (excluding the acquisition of spectrum rights)
will be $14.8 million for 1997 and an aggregate $17 million for both 1998 and
1999 combined. These capital expenditures will consist primarily of costs
associated with the opening of new markets in 1997 and 1998. In addition, the
Company's capital expenditure plans also include network design and development,
the maintenance of existing markets and other capital improvements.
CREDIT FACILITY
On September 18, 1997, Teletrac, Inc. entered into a bank credit facility
(the "Credit Facility") pursuant to which Banque Paribas, Fleet National Bank
and certain other banks (the "Banks") have agreed to provide the Company a five
and one-half year $30 million secured revolving line of credit. The loans under
the Credit Facility are, at the election of the Company, domestic loans or
Eurodollar loans. During the first year of the facility, loans bear interest (i)
in the case of domestic loans, at 2.50% per annum plus a reference rate (which
is the prime rate) and (ii) in the case of Eurodollar loans, at 3.50% per annum
plus a reference Eurodollar loan rate. For the remaining term of the facility,
the applicable margin rates may be increased or decreased quarterly depending
upon the Company's debt to operating cash flow ratio.
The maximum aggregate commitment of the Banks under the Credit Facility is
reduced each quarter, beginning December 31, 1999, until all amounts borrowed
thereunder are paid in full on March 31, 2003. All amounts outstanding in excess
of the commitment as so reduced must be paid by the Company in full. The
aggregate commitment of the Banks under the Credit Facility will be reduced by a
total of $6.0 million over the four quarters ended September 30, 2000, by a
total of $9.0 million over each of the four quarters ended September 30, 2001
and 2002, and by a total of $6.0 million over the two quarters ended March 31,
2003.
The Credit Facility will contain restrictive covenants that, among other
things, impose limitations on the Company and its subsidiaries with respect to
(i) the incurrence and maintenance of indebtedness,
26
<PAGE>
including guarantees, (ii) the incurrence, creation or maintenance of liens,
(iii) the making of dividends and certain payments, (iv) transactions with
affiliates, (v) the disposition of assets, (vi) the types of acquisitions that
can be made and the amount which can be invested in acquisitions, (vii) the
amount of rental payments that can be incurred, and (viii) consolidations and
mergers. The Credit Facility also provides for events of default customary in
facilities of its type.
AGREEMENTS WITH TADIRAN
The Company has entered into a contract with Tadiran to purchase 200,000
VLUs between October 1996 and October 1998. The agreement permits the Company to
effectively double the period of time in which it takes delivery of VLUs and to
cancel its order at any time, subject to payment of a nominal fee per VLU not
purchased and certain other expenses. In addition, the Company has funded
approximately $2.0 million of research and development costs with Tadiran
related to the Integrated Base Station Unit ("IBSU"), and expects to fund an
additional $2.5 million in the future on this project. See "Business-- Network
and Subscriber Equipment." Although the Company does not have any other material
commitments to fund research and development, such expenditures may occur from
time to time. See "Business-- Network and Subscriber Equipment."
CAPITAL NEEDS FOR NETWORK BUILD-OUT
During 1996 and the first nine months of 1997, the Company experienced
significant operating and net losses and negative EBITDA in connection with the
build-out of its networks and the operation of its business. Management
anticipates that such losses and negative EBITDA will continue for the remaining
portion of 1997 and for 1998 as the Company implements its growth strategy. The
Company's Los Angeles operations are currently generating positive EBITDA
(excluding corporate overhead). Management believes that the Company as a whole
will achieve positive EBITDA in 1999 and positive net income in 2000. However,
due to the high level of risk in the Company's industry and in its current
growth strategy, the risk that the Company will not be able to complete its
market build-out on time and within budget, and other risks identified elsewhere
herein, there can be no assurance that such results will be realized. See "Risk
Factors" and "Projected Financial Information."
FCC rules currently provide that additional licenses to operate LMS systems,
including licenses to operate additional LMS systems in the markets in which the
Company operates, may be allocated by auction. The Company intends to
participate in future auctions of LMS spectrum, including in those markets in
which it currently operates. Management expects that such auctions will occur in
early 1998, and the Company may require additional funds to participate in such
auctions. See "Risk Factors," "Use of Proceeds" and "Business--Regulation--LMS
Spectrum Auctions."
Based on its current operating plan, which includes the expansion of the
Company's operations to 15 markets, management anticipates that the net proceeds
to the Company from the Units Offering, together with its existing cash balances
and cash flow from operations, will be sufficient to build out its operations in
the new markets planned to open in 1997 and 1998 and meet its other cash
requirements for at least the next 18 to 24 months. However, the Company
believes that it may have opportunities to expand its business significantly and
that access to capital would enable it to expand more quickly and effectively.
See "Risk Factors--Risks of Expansion and Management of Growth." If the
assumptions underlying the current operating plan are not met, or if the Company
expands its operations beyond the 15 planned markets, the Company would need
additional capital. There can be no assurance that additional financing would be
available or that, if available, it would be obtained on terms favorable to the
Company. See "Risk Factors--Potential Future Capital Needs."
27
<PAGE>
BUSINESS
Teletrac is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable real-
time method of locating vehicles in selected metropolitan areas. The Company's
system is designed to enable customers to better manage their mobile workforce,
provide security for their property and personnel and communicate more
effectively with mobile workers.
As of December 31, 1996, the Company operated in six metropolitan markets:
Los Angeles, Miami, Chicago, Detroit, Dallas and Houston. The Company commenced
operations in Orlando in March 1997 and plans to begin providing vehicle
location and fleet management services in eight additional markets by the end of
1998, giving the Company operations in 15 of the largest MSAs in the United
States, including New York and Boston. As of September 30, 1997, the Company
served over 2,000 commercial fleet accounts, more than any other provider of
fleet vehicle location services, and had 61,369 units in service with commercial
customers. In its Miami and Los Angeles markets, the Company also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers. As of September 30, 1997, the Company had 10,176
consumer units in service.
Market studies indicate that there are approximately 7.6 million total
commercial fleet vehicles in the 15 markets in which the Company operates or
plans to operate. The Company believes that there is substantial demand for
cost-effective communications services that offer both reliable location
tracking and two-way wireless messaging in metropolitan areas. The Company's
products can be used either alone or in conjunction with other communications
technologies. The Company believes that the majority of its target customers'
vehicles are currently equipped with wireless communications devices that do not
provide automatic location features, such as two-way radio, specialized mobile
radio ("SMR"), pagers and cellular devices. The Company's products and services
allow commercial fleet operators to (i) increase driver productivity and fleet
efficiency, (ii) improve customer service, (iii) limit unauthorized vehicle use,
and (iv) reduce driver overtime. The Company's customers include metropolitan
commercial fleets (such as trade service providers, delivery services, bus and
taxi fleets, ambulance companies, telecommunications companies, utility
companies, municipal government vehicles and law enforcement agencies) and
long-haul trucking fleets when operating within metropolitan markets.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
involve the installation of a VLU in each vehicle. The VLU is a radio
transceiver that receives and transmits signals used to determine a vehicle's
location. In addition to the VLU, commercial fleet customers generally purchase
software or location services from the Company. The Company's primary product
for commercial fleets is Fleet Director-Registered Trademark-, a proprietary
software application that permits simultaneous location of all fleet vehicles on
a real-time 24-hour-a-day basis through a digitized map displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark- can be complemented with the
Company's messaging units, which allow two-way messaging between the fleet
dispatcher and drivers directly from the Fleet Director-Registered Trademark-
screen. The Company also offers Fleet Reporter-TM-, a lower cost alternative to
Fleet Director-Registered Trademark- that provides fleet operators with daily
printed reports of vehicle locations and access to real-time location
information through OZZ-Registered Trademark-, a telephone-operated information
system. In the second half of 1997, the Company intends to introduce
Winfleet-TM-, a Microsoft Windows-Registered Trademark--based application based
on Fleet Director-Registered Trademark- that will not require a dedicated
computer.
The Company believes that its wireless location and two-way messaging
technology can serve its customers more reliably and more cost-effectively than
competing systems, including those which rely on GPS technology combined with
other forms of wireless communication. The Company's location technology, which
consists of proprietary software and land-based transmitters and receivers that
are licensed to operate in the 904-909.75 and 927.75-928 MHz bandwidth, operates
reliably in a high-rise urban setting.
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<PAGE>
GPS-based systems, on the other hand, can lose accuracy in areas where high-rise
buildings or other large structures obstruct the signal between the satellite
and the vehicle. Unlike the Company's technology, GPS-based location systems
must be coupled with a wireless communication system to transmit location
information to a fleet operator. The other forms of wireless communication used
in conjunction with GPS technology, such as cellular and SMR, generally make the
incremental cost of determining and transmitting a vehicle's location to a fleet
operator more expensive than the Company's technology.
In its Miami and Los Angeles markets, the Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers. The Company's service locates and tracks stolen vehicles
in real time and its equipment can be integrated with a vehicle's alarm system
and/or ignition so that it is automatically activated if the vehicle is stolen.
The Company's service also allows a subscriber to initiate vehicle location in
other emergency or roadside assistance situations.
In 1995, prior to the Acquisition, the Company's predecessor ceased to
actively market its consumer vehicle services. The Company has continued
providing consumer service as a legacy of the business acquired from AirTouch
Teletrac but has not launched any new marketing efforts. While the Company
intends to focus on its commercial business, it is currently exploring various
potential strategies for marketing and distributing its products to consumers,
including through strategic partnerships or third-party reseller arrangements,
and expects to begin expanding its consumer operations in late 1997 or early
1998.
BUSINESS STRATEGY
The Company's objective is to enhance its position as the leading national
provider of vehicle location and fleet management services in metropolitan areas
by exploiting its proprietary technology and systems. The key elements of the
Company's strategy are:
INCREASE MARKET PENETRATION. In its six original markets, the Company is
rapidly building a trained sales force to market its products and services to
operators of commercial fleets. Prior to the Acquisition, AirTouch Teletrac
terminated all of its active sales and marketing efforts. Since the Acquisition,
the Company hired approximately 90 direct sales representatives to service its
six original metropolitan markets and the Company believes that it will more
effectively exploit opportunities in its existing markets as its sales force
gains experience. See "Commercial Fleet Management--Sales, Marketing and
Customer Service." The Company believes it requires a modest penetration of its
target markets to achieve its business plan.
EXPAND GEOGRAPHIC COVERAGE AREAS. In 1996, the Company began constructing
the network infrastructure to expand its coverage from six to 15 metropolitan
markets. In March 1997, the Company introduced commercial fleet services in
Orlando, and the Company expects to introduce commercial fleet services in two
additional U.S. markets by the end of 1997 and a further six markets by the end
of 1998. The Company expects to begin offering commercial fleet service in San
Francisco and San Diego in the third quarter of 1997, and in the remaining
markets during 1998. Management believes that, in addition to providing services
to local fleet operators in its new markets, the planned geographic expansion
will make the Company's services more appealing to regional and national
customers that have fleets in several metropolitan areas. In connection with the
roll-out of its commercial fleet services, the Company plans to add over 150 new
sales representatives in its new markets by 2001. The Company also holds FCC
licenses in 11 additional markets, but the Company expects that it would have to
obtain additional licenses in certain of such 11 markets before it could
commence commercial operations.
CAPITALIZE ON LOW-COST SERVICE. The Company believes that its proprietary
location solutions permit lower cost operation than most competing technologies,
which generally require more expensive hardware, more expensive airtime, or
both. With the Company's technology, the incremental cost of locating a vehicle
and transmitting its location to the fleet operator is nominal, which permits
the Company to provide
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<PAGE>
services for a relatively low monthly fee. This price structure permits
customers to locate their vehicles frequently throughout the day (typically,
every 15 minutes), which the Company believes substantially improves the
customer's ability to increase fleet efficiency and monitor driver compliance.
The Company believes that the low cost of its products and services also enables
its customers to quickly recover the cost of their purchase by reducing overtime
costs and increasing fleet efficiency. The Company intends to pursue a larger
market share by emphasizing its cost advantage and rapid return on investment.
EXTEND PRODUCT OFFERINGS. The Company believes that its ability to expand
and maintain its customer base depends on its continued marketing of low-cost
and user-friendly solutions for fleet management. The Company plans to offer the
first generation of Winfleet-TM-, a Windows-Registered Trademark--based
solution, in the second half of 1997. The first generation product is a
simplified version of Fleet Director-Registered Trademark- that does not require
a dedicated computer. The second generation of Winfleet-TM- is being designed
with an open client server architecture to permit it to operate on a variety of
hardware platforms and to be integrated with the customer's other management
information systems to serve the needs of customers with more sophisticated
information needs and capabilities. The Company is also developing an Internet
version of its fleet management software. In addition, the Company is exploring
technological improvements that would expand the Company's messaging
capabilities to include additional services such as free text return messaging,
wireless e-mail, fax, database queries, credit card verification and inventory
management.
EXPLOIT NEW BUSINESS OPPORTUNITIES. The Company is considering entering
into a number of strategic alliances and partnerships to develop and offer new
products. In conjunction with certain strategic suppliers, the Company is
currently developing a portable miniaturized device that would permit personal
location through the Company's vehicle location networks. The Company also
licenses its technology to Ituran, which provides location information and
wireless messaging services in Israel, and is pursuing additional opportunities
to license its technology abroad. In addition, the Company has discussed joint
arrangements with several companies providing vehicle location coverage in rural
locations. The Company has developed, and is currently testing, a prototype
hybrid device that combines a VLU for use in covered metropolitan areas and a
GPS location device and a cellular modem that can operate on a cellular digital
packet data ("CDPD") network and/or a traditional cellular system for use
outside the Company's system coverage areas. Such a device could permit
customers to locate vehicles between covered markets (such as Los Angeles and
San Francisco) on long-haul routes or in other areas where the Company does not
currently operate.
COMMERCIAL FLEET MANAGEMENT
TARGET MARKETS
The Company believes that there is substantial demand in metropolitan
markets for cost-effective communications services that offer both reliable
location tracking and two-way wireless messaging for metropolitan fleets and for
long-haul fleets when operating within metropolitan areas. Commercial fleet
operators need a location and messaging solution that can accurately locate
vehicles in urban settings in order to (i) increase driver productivity and
fleet efficiency, (ii) improve customer service, (iii) limit unauthorized
vehicle use, and (iv) reduce driver overtime. Commercial fleet operators also
demand security systems for fleet drivers, vehicles and cargo.
The Company's commercial fleet services provide reliable, low-cost location
information, two-way messaging and fleet management services in real time. The
Company markets its fleet management products both to metropolitan fleets and
long-haul trucking fleets, which may desire to optimize driver efficiency in
metropolitan areas because of the impact on customer service and overall fleet
productivity. The Company believes that urban commercial fleets represent the
largest market for its products. Market studies indicate that there are
approximately 7.6 million total commercial fleet vehicles in the 15 markets in
which the Company currently operates or plans to operate.
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<PAGE>
Many metropolitan commercial fleet operators have not employed location
information or messaging services because of the lack of low-cost, reliable
location and messaging alternatives. Two-way voice services (such as cellular,
SMR and two-way radio) cost significantly more to provide a similar level of
location services and rely on the driver to report vehicle location. Although
these two-way voice services may also be integrated with GPS-based technologies
to provide location information, these integrated solutions can be unreliable in
a high-rise urban setting and generally require more expensive equipment and/or
higher service fees for a level of service comparable to the Company's. A
significant number of metropolitan fleet vehicles utilize lower-cost one-way
paging services, but such services lack both location tracking and two-way
messaging capabilities. Management believes its commercial fleet service
generates demonstrable cost benefits and efficiency gains for its metropolitan
fleet customers.
The Company believes that its cost-effective network allows it to provide
more comprehensive fleet management services than are available at a competitive
price using another technology. To provide effective fleet monitoring and
management services in an urban or suburban environment, fleet operators need to
frequently update the location of their vehicles. The Company's commercial fleet
customers typically locate every vehicle simultaneously every 15 minutes
throughout the day and send messages to the drivers as needed. Competitive
systems, which rely on more expensive cellular or SMR communications coupled
with a GPS system, generally do not offer a similar level of service at a
similar price. The Company believes that less frequent location information
reduces the effectiveness of fleet management in metropolitan markets.
Due to the diversity of metropolitan commercial fleets, the Company's
customer base ranges from independent plumbers with one or two vehicles to large
municipal bus and ambulance fleets and national delivery companies. The
Company's range of products allows it to provide a fleet management solution to
meet each segment of this market. However, the Company has recently determined
to target marketing and sales efforts primarily at fleets of at least ten
vehicles, which it believes it can service more cost-effectively than smaller
fleets. The Company believes that the expansion of its networks to its new
metropolitan markets will allow it to attract nationwide customers with fleet
operations in a number of metropolitan markets. Among the Company's current
customers are Emery Air Freight, Inc., Budget Rent-a-Car Corporation, Brinks
Incorporated (security transportation), Roto Rooter Corp., Tele-Communications,
Inc., department stores such as Target, and the Dallas Independent School
District.
PRODUCTS AND SERVICES
The Company offers its customers a range of fleet management, communications
and security products. All of the Company's products rely on its networks of
radio transmitters and receivers. Each customer must equip its vehicles with a
VLU in order to use the location and communication features of the Company's
products.
FLEET MANAGEMENT. The Company's fleet management software products and
services are designed to address the needs of a wide range of customers. The
Company believes that software solutions that must be customized to the needs of
individual fleet customers are too expensive and time-consuming to be sold
effectively to any but the largest fleets. By emphasizing its off-the-shelf,
user-friendly software, the Company believes it can attract a wide range of
customers, many of whom would otherwise use less sophisticated communication and
management systems, if any.
FLEET DIRECTOR-Registered Trademark- is a proprietary software application
that provides fleet customers accurate fleet vehicle location through the
customer's detailed digitized map of a metropolitan area displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director-Registered Trademark-displays the position of all
VLU-equipped vehicles at periodic intervals determined by the customer
(typically every 15 minutes), at the time of each communication with a vehicle
and otherwise as specified by the customer. Customers can adjust the level of
map detail through a zoom in/zoom out feature, allowing a customer to
simultaneously view the location of all fleet vehicles or to focus in on a
single vehicle. Fleet operators can
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<PAGE>
establish "zones of compliance" around their customers' locations, their
drivers' homes, or other locations to detect whether vehicles enter or leave
specific areas. Fleet Director-Registered Trademark- also produces reports that
detail a driver's route and the time of each stop and provides documentation for
customers who require verification of deliveries. Such reports are produced on
screen in real-time and can be faxed or electronically transmitted daily to the
customer by the Company. Real-time location reports can also be saved on the
customer's computer to be retrieved and reviewed on-screen or printed at a later
time.
Fleet Director-Registered Trademark- can also act as a platform from which
the customer can use the Company's two-way communications products (discussed
below) to send and receive messages to and from drivers. Customers can type
messages directly to drivers from the computer on which Fleet
Director-Registered Trademark- operates and send the messages to a single
vehicle, several vehicles or the entire fleet.
Fleet Director-Registered Trademark- operates in a DOS environment on a
dedicated personal computer located in the customer's office. The customer may
maintain a dedicated line to the Company's local network control center to
continually track vehicles and communicate with drivers. Alternatively, the
Fleet Director-Registered Trademark- system may connect with the Company's
system only as needed.
The Company had approximately 1,800 Fleet Director-Registered Trademark-
customer accounts as of June 30, 1997, constituting 90% of its commercial
service customer accounts.
Fleet Reporter-TM- is a lower cost alternative service to Fleet
Director-Registered Trademark- that provides customers with daily hard-copy
reporting of vehicle locations and OZZ-Registered Trademark- mobile information,
but does not require the customer to use a computer. The Company's local network
will periodically (typically every 15 minutes) locate each vehicle in a fleet
and send the Fleet Reporter-TM- customer a daily fax detailing the location of
each vehicle throughout the day. The customer can compare the report to each
driver's time card or delivery log for compliance purposes, or otherwise use
such data to manage its fleet more efficiently. Each customer who subscribes to
Fleet Reporter-TM- can also use the OZZ-Registered Trademark- mobile information
service (discussed below) to locate specific vehicles in real-time using a
telephone, and has access to all of the security features of the Company's
system. Fleet Reporter-TM- does not require the customer to have a computer and
does not provide customers with a communications system. The Company had
approximately 200 Fleet Reporter-TM- customer accounts at June 30, 1997,
constituting 10% of its commercial service customer accounts. WINFLEET-TM- is
the first generation of a Microsoft Windows-Registered Trademark--based software
system that the Company is currently developing. The first generation product,
which would not require a dedicated computer, is a simplified version of Fleet
Director-Registered Trademark-. The second generation of Winfleet-TM- is being
designed with an open client server architecture to permit it to operate on a
variety of hardware platforms and to be integrated with the customer's other
management information systems (such as billing, accounting and human
resources), allowing the customer to use location information to measure and
improve productivity in the field. The Company plans to introduce first
generation Winfleet-TM- to customers in the second half of 1997.
INTERNET SERVICES are currently being developed by the Company to allow
customers to monitor vehicle locations on a detailed map in real-time, but would
not allow communications between a customer and its drivers. This product would
be a lower cost alternative similar to Fleet Reporter-TM-, but would be marketed
to customers with existing computer and Internet capabilities. The Company plans
to introduce an Internet-based product in 1997.
COMMUNICATIONS. The Company offers two communication systems to its Fleet
Director-Registered Trademark- customers. The Mobile Data Terminal ("MDT") is
the Company's more advanced two-way messaging system. It allows for alphanumeric
communications from the fleet operator to its drivers and up to thirty-five pre-
programmed messages from the drivers to the fleet operator. The Status Messaging
Terminal ("SMT") is a low-cost alternative to the MDT. The SMT allows for four
pre-programmed messages which may be sent from the customer to the drivers and
eight pre-programmed messages which may be sent from the drivers to the
customer. The MDT and the SMT are both small terminals typically mounted on the
fleet vehicle's dashboard and are connected to the VLU.
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<PAGE>
Both the MDT and the SMT automatically provide customers with an electronic
"receipt" when the message is received and therefore do not rely on drivers for
vehicle locations or message delivery. As a result, the Company's system
provides more reliable location information and messages than many competing
technologies. The Company's communication applications generally have lower
service costs than conventional real-time, two-way communication services, such
as cellular, SMR and ESMR services. In 1996, the Company sold approximately
3,200 MDTs and approximately 1,300 SMTs, and approximately 30% of all new units
sold to commercial customers in 1996 were SMTs or MDTs. In the first six months
of 1997, the Company sold approximately 3,900 MDTs and approximately 2,300 SMTs,
and approximately 40% of all new units sold to commercial customers in the
period were SMTs or MDTs.
Upon installation of the IBSU currently under development by Tadiran, the
Company's system will support two-way free text alphanumeric messaging between
the customer and its drivers. In order to offer two-way free text alphanumeric
messaging, however, the Company will also need to develop a new messaging unit
capable of composing free text alphanumeric messages. See "--Network and
Subscriber Equipment".
The following chart sets forth the list price of the Company's commercial
fleet equipment, software and services:
<TABLE>
<CAPTION>
LIST PRICE FOR MONTHLY SERVICE
FUNCTION PRODUCT EQUIPMENT FEE
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Vehicle Location (required Vehicle Location Unit (VLU) $595 per vehicle $25 per vehicle
for all customers)
Fleet Management Fleet $2,695 for Fleet None
Director-Registered Trademark- Director-Registered Trademark-
Software
Fleet Reporter-TM- None $4 per vehicle
Communications Mobile Data Terminal (MDT) $300 per vehicle $14 per vehicle
Status Messaging Terminal $150 per vehicle $4 per vehicle
(SMT)
</TABLE>
SECURITY SERVICES. The Company offers its commercial fleet customers
several vehicle security and driver safety options that operate through the
Company's location networks. A VLU can be connected directly to a vehicle's
alarm system, triggering the Company's security system when the alarm is set
off, or connected to an alarm button either located in the vehicle or carried
remotely by the driver. Customers with Fleet Director-Registered Trademark- may
also establish a "zone of compliance" that activates the Company's security
system when vehicles leave the zone. When the security system is activated, a
signal is sent by the VLU to the Company's local network system which
automatically alerts the customer through Fleet Director-Registered Trademark-.
If the customer does not respond, or if the customer subscribes to Fleet
Reporter-TM-, the Company will telephone the customer directly. If the customer
believes that the vehicle has been stolen or a driver is in danger, the Company
will work directly with the local law enforcement authorities to track the
location of the vehicle in real-time. Many customers also attach VLUs directly
to valuable cargo or to expensive equipment such as construction equipment. The
Company believes it has developed excellent relations with local law enforcement
officials due to the past performance of the Company's location system, and that
such relations contribute to its ability to quickly recover stolen vehicles and
equipment.
SALES AND MARKETING; CUSTOMER SERVICE
The Company uses a direct sales force to sell its commercial vehicle
location and fleet management services, and has a sales force located in each
market where it operates. The Company's sales efforts rely
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on sales managers who supervise the sales activities of sales representatives,
contact and negotiate with larger potential customers, and have authority to
negotiate prices within defined parameters. Sales commissions generally are
directly linked to the number of units a sales person sells.
Following a review conducted by outside consultants, the Company is refining
its sales and marketing efforts in certain respects. To reduce the incremental
cost of sales and customer service, sales representatives are now focusing
marketing and sales efforts primarily on fleets of at least ten vehicles. The
Company has also established a telemarketing staff to help target customers for
potential sales calls and, in a pilot program in its Chicago market, is
developing a customer service staff separate from the sales force to improve
customer support while allowing the sales force to focus efforts exclusively on
selling. In the Company's other markets, sales representatives continue to
participate in ongoing customer service. The Company expects that it will
significantly increase its sales force as it expands into new markets and offer
new services. As of September 30, 1997, the Company's direct sales force
consisted of approximately 85 employees and the Company expects that, as it
expands into new markets, the sales force will grow to approximately 130
employees by the end of 1997 and to approximately 200 employees by the end of
1998.
The Company's advertising and marketing efforts are generally directed to
local and regional markets and its strategy has focused on print advertising in
industry journals, direct mail, videos, telemarketing, industry trade shows and
on-site marketing promotions and demonstrations.
CONSUMER VEHICLE SERVICES
The Company is currently focusing on its core business of commercial fleet
management. As a legacy of the business acquired from AirTouch Teletrac, the
Company has continued providing consumer service (now sold under the name
Teletracer-TM-) and has allowed dealer arrangements in place at the time of the
Acquisition to continue, but has not launched any new marketing efforts. The
Company is exploring various potential strategies for marketing and distributing
its products to consumers, including through strategic partnerships or
third-party reseller arrangements, and expects to begin expanding its consumer
operations in late 1997 or early 1998.
TARGET MARKET
The demand for vehicle security products and services has grown as consumers
have become increasingly concerned with vehicle theft. The consumer vehicle
security industry encompasses a number of security products and services,
including mechanical theft-prevention devices such as The
Club-Registered Trademark-, installed automated vehicle alarms and vehicle
recovery services such as LoJack-Registered Trademark-.
The vehicle security industry has developed rapidly since the late 1970s, as
motor vehicle theft increased dramatically. According to industry sources, an
estimated 22% of all new automobiles (or approximately 2.26 million new
automobiles in 1994) and 62% of luxury vehicles purchased in the United States
are equipped with an electronic car alarm. Vehicle theft and the demand for
vehicle security are particularly high in the metropolitan centers and
surrounding suburbs serviced by the Company.
PRODUCTS AND SERVICES
The Company's proprietary location technology and VLU equipment can be used
for consumer applications without modification. A VLU is installed in a
consumer's vehicle and is generally connected to a security alarm and/or
integrated with the vehicle's internal ignition system. By connecting the unit
to a vehicle security alarm, vehicle recovery service can be initiated
automatically. If the vehicle alarm is triggered, the unit emits an emergency
locate signal, notifying the Company's control center of a potential vehicle
theft. Each regional control center is staffed twenty-four hours a day, seven
days a week with Company employees who contact local law enforcement authorities
and direct them to the location of the stolen vehicle. The Company currently
distributes its consumer product and services through auto dealers, electronic
retailers and other distributors.
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The Company's ability to offer automated, reliable and real-time service
differentiates its stolen vehicle recovery service from other available
services. The VLU provides automatic vehicle tracking at the time of theft. This
is in contrast to other vehicle recovery services, such as
LoJack-Registered Trademark-, that require a subscriber to report a vehicle
stolen in order to begin the tracking process. As a result, over the past two
years, of the approximately 214 Teletracer-TM--equipped vehicles that have been
stolen to date in Los Angeles and Miami, approximately 75% were recovered within
two hours of theft and approximately 90% were recovered overall.
The Company also offers a proprietary telephone-operated mobile information
service called OZZ-Registered Trademark-. This service allows its subscribers
telephone access to a computer that will locate a subscriber's vehicle in
real-time and report its location for compliance, security and convenience
purposes. The subscriber calls the Teletrac OZZ-Registered Trademark- telephone
number, enters a personal identification number for the vehicle to be located
and within seconds receives an automated voice response indicating the location
of the vehicle at that time. In addition to providing the customer with the
location of the vehicle, OZZ-Registered Trademark- is a "mobile yellow pages"
that provides the customer the location of nearby prominent businesses or
landmarks from a menu of choices. The customer can call
OZZ-Registered Trademark- and obtain information such as the location of the
nearest fast food restaurant, automatic teller machine, gas station, hospital,
police station, or interstate on-ramp. Teletrac offers
OZZ-Registered Trademark-to both consumer and commercial customers. The
OZZ-Registered Trademark- service can also be used to remotely instruct the VLU
to lock/unlock the doors of the vehicle. The firm that has contracted to provide
roadside assistance service for the Company estimates that 25% of roadside
assistance calls are for keys locked in the vehicle.
All of the Company's consumer customers can also telephone the Company's
call-in Roadside Assistance Program, through which the Company will have a tow
truck sent to the caller's location. Under its Automated Roadside Assistance
Program, offered to its customers at a higher monthly fee, the Company can
direct a tow truck directly to a subscribing customer's location when the
customer presses a roadside assistance button installed in his or her vehicle.
Monthly consumer service fees and equipment sales accounted for $2.5
million, or 16%, of the Company's revenues for 1996 and $1.7 million, or 9%, of
the Company's revenues for the first nine months of 1997. The Company had 10,176
consumer VLUs in operation as of September 30, 1997.
POTENTIAL DISTRIBUTION STRATEGIES
AirTouch Teletrac distributed its consumer vehicle recovery system through
indirect channels such as car dealerships and electronics retailers. Before the
Acquisition, AirTouch Teletrac had scaled back its consumer sales efforts.
Current management stopped actively supporting consumer selling efforts in order
to concentrate its sales efforts on commercial markets. The Company is currently
exploring a variety of possible marketing and distribution strategies for a
consumer service, primarily focusing on third-party reseller arrangements or
strategic partnerships with businesses such as home security companies, alarm
companies and large regional auto dealerships. The Company believes such
third-party arrangements would require less overhead than previous distribution
efforts and could permit more cost-effective consumer operations.
TECHNOLOGY
The Company has developed a proprietary, accurate and reliable spread
spectrum-based wireless network architecture that provides for both location
determination and two-way messaging. The Company's low-cost wireless network
architecture permits cost-effective and accurate location and messaging services
in metropolitan areas. The Company's networks use multilateration-based
techniques and land-based receivers for position determination, avoiding the
"line-of-sight" problems that may arise for satellite-based systems in urban
areas where tall buildings can block a satellite's view of a vehicle. The
Company believes that its land-based multilateration techniques are uniquely
appropriate for precise
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location determination in urban settings and that it can accurately locate a
vehicle equipped with its equipment in real-time within a range of less than
one-half of an average city block (approximately 150 feet).
In order to locate a subscriber vehicle, the Company's local network
broadcasts a "paging" transmission (the "Forward Link") simultaneously from each
transmitter on the network. The Forward Link is used to transmit both location
commands and alphanumeric messages to the VLU. Each subscriber's vehicle is
equipped with a VLU, a videocassette-sized "transceiver" unit which responds to
the location command of the Forward Link by emitting a response signal (the
"Reverse Link"). The Reverse Link is received by at least four nearby BSU's
which calculate both the time of transmission of the Forward Link and the time
of arrival of the Reverse Link and relay this data, via wireline telephone
networks, to the Network Control Center ("NCC"), the local network's data
processing center. The NCC uses the Company's proprietary network software to
calculate the location of the VLU from the information received by the BSUs. The
NCC consists of the Company's radio-frequency control equipment,
telecommunication access connection computers, proprietary software and the
Company's customer database. The NCC is staffed twenty-four hours a day, seven
days a week by operators who are responsible for location monitoring, system
support and customer service. The NCC instantaneously relays the location
information to a subscriber's Fleet Director-Registered Trademark- software
application or OZZ-Registered Trademark- call-in request (via automated
response) and stores all location information for daily reports to Fleet
Reporter-TM- and Fleet Director-Registered Trademark- subscribers.
The Company's customers can also use the Forward Link to transmit
alphanumeric messages from their centralized dispatch office to their fleet
vehicles and the Reverse Link to transmit more limited messages from vehicles to
the centralized dispatch office. The network system can transmit alphanumeric
messages at a transmission speed of 2,400 bits per second. While the Company's
current networks' capacity is more than sufficient to support its existing
services, the Company's networks may be reconfigured in the future to permit
increased transmission speed and messaging and location capacity. For example,
the messaging capability of the Reverse Link is currently limited by the BSU,
which does not permit alphanumeric messaging. The Company is, however,
developing an advanced version of the BSU, the IBSU, which will permit
alphanumeric messaging through the Reverse Link. See "--Network and Subscriber
Equipment."
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TELETRAC NETWORK
The following diagram illustrates the sequence of events that occur when a
customer utilizes the Company's vehicle location and messaging network:
[Schematic chart illustrating the operation of Teletrac's Network.]
NETWORK AND SUBSCRIBER EQUIPMENT
The Company has established a strategic relationship with Tadiran for the
development and supply of several network components, including the VLUs and
BSUs. Tadiran is an Israeli technology company and defense contractor which
specializes in the development and production of communications equipment and
products and is a leading manufacturer of location equipment. Tadiran and the
Company are currently developing a miniaturized version of the VLU for use as a
portable location device. As part of such development, the Company and Tadiran
are also developing a simpler and lower cost VLU.
The Company currently acquires its BSUs exclusively from Tadiran and is
working with Tadiran to develop an upgrade for the BSU, the IBSU, which will
offer significant advantages over current BSUs. The IBSU is expected to
integrate a number of enhanced features, including multichannel capability, and
will permit the Company to use its spectrum more efficiently, increase its
overall network capacity, reduce site operating and build-out costs and permit
longer alphanumeric messages. The Company expects to begin the installation of
the IBSU in its current and planned markets in the second quarter of 1998. There
can be
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no assurance that the Company and Tadiran will successfully develop the IBSU or
that, if they do, it will be introduced on the current schedule. See "Risk
Factors--Reliance on Sole Supplier."
The Company's network also includes a number of components that are used in
the wireless messaging industry. The Company purchases standard transmitters
from Glenayre Technologies, Inc. and Motorola, Inc. The transmitters, which are
similar to transmitters used in one-way paging networks, transmit the Forward
Link in a manner similar to a paging network. Much of the Company's
communications equipment, its antennas and many other components of its networks
are also available through a number of existing suppliers of wireless messaging
equipment.
As part of ongoing capital improvements, the Company is working on several
enhancements of its operating systems. The Company is enhancing its location
monitoring system hardware and software to improve the operating networks'
functionality and generate overall network operating savings. The planned
network enhancements include a nationwide database to provide vehicle roaming
capabilities between markets. Additionally, the Company's network enhancements
will enable it to reduce its number of NCCs from one in each metropolitan market
to three to four regional NCCs.
COMPETITION
The Company currently faces competition for each type of service it offers.
The Company expects that in the future it will face competition from new
technologies as well as from existing products. Certain of the Company's
competitors are larger and have substantially greater financial and research and
development resources and more extensive marketing and selling organizations
than the Company. There can be no assurance that additional competitors will not
enter markets that the Company already serves or plans to serve or that the
Company will be able to withstand such competition. Moreover, changes in
technology could lower the cost of competitive services to a level where the
Company's services would become less competitive or where the Company would need
to reduce its service prices in order to remain competitive, which could have a
material adverse effect on the Company's business. See "Risk
Factors--Competition and Technological Change."
COMMERCIAL VEHICLE MARKET
The Company knows of three basic classes of products that offer commercial
location and messaging capabilities competitive with the Company's products: (i)
GPS, private satellite and Loran-C systems, (ii) LMS systems and (iii)
traditional wireless communication.
GPS, PRIVATE SATELLITE AND LORAN-C SYSTEMS. GPS, certain private satellite
networks and Loran-C can provide location information, and when paired with a
communications system, may provide a system competitive with the Company's
products. GPS systems receive signals from NAVSTAR satellites, U.S.
government-funded satellites used for position location. GPS systems and certain
private satellite systems use satellite ranging techniques to measure a GPS
device's distance relative to a group of satellites in space. Typically, a GPS
device must be in "sight" of several satellites to receive adequate transmission
data for the determination of relative location on earth. The Loran-C system
uses land-based transmitting stations to send a low-frequency radio signal which
is used by a vehicle to calculate its position relative to the location of other
Loran-C transmitters. Satellite and Loran-C systems are generally not as
effective as LMS networks such as the Company's in metropolitan areas. Because
GPS and other satellite services require "line of sight" to the orbiting
satellite, dense metropolitan areas, parking garages, tunnels or other covered
areas can impact the system's effectiveness and reliability. Loran-C systems
also frequently have difficulty penetrating "metropolitan canyons" and therefore
may provide inaccurate position readings in urban areas.
In most GPS, private satellite and Loran-C vehicle location systems,
vehicle-mounted equipment gathers location data and transmits it by a wireless
communication system to a dispatch center. There are a
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number of wireless systems that can be linked to a satellite system or a Loran-C
system to transmit location information to a dispatch center:
- CELLULAR AND PCS COMMUNICATION SYSTEMS-- Cellular and PCS systems can
provide local or nationwide networks to transmit location information to a
dispatcher. However, cellular and PCS operators generally price their
airtime at price levels that do not allow for frequent location
information transmittals by vehicles equipped with GPS, private satellite
or Loran-C systems to dispatchers on a cost-basis competitive with the
Company. Most vehicle location systems that link a satellite or Loran-C
location system with a cellular or PCS communication system, such as
HighwayMaster, are best-suited for long-haul trucking fleets. In addition,
in certain U.S. markets, some cellular operators have added a data service
over their existing cellular infrastructure that can improve the cost and
delivery of location information over existing cellular networks. The data
service, called CDPD, is an overlay of a packet switched data service on a
traditional cellular system. CDPD is available in approximately 80
metropolitan markets throughout the U.S., including all the markets, other
than Los Angeles, in which the Company is currently operating or plans to
operate.
- SMR/ESMR-- SMR has traditionally been used to serve the needs of local
dispatch services, such as taxis and couriers, which typically broadcast
short messages to a large number of units. Several SMR operators are
constructing Enhanced Specialized Mobile Radio ("ESMR") digital systems
that offer mobile telephone services. Some SMR and ESMR providers are
beginning to integrate GPS with their systems to determine location and
transmit the location information back to the subscriber via the SMR or
ESMR communications network. An ESMR system with GPS location features has
been developed by Geotek Communications, Inc. Geotek is offering an
automatic vehicle location service using its own dedicated ESMR network to
transmit location information. As of June 30, 1997, Geotek was available
in nine metropolitan markets in the U.S. In certain markets, Geotek has
developed a fleet management program incorporating GPS location
information, which is being marketed with monthly service fees compatible
with the Company's standard pricing.
- SATELLITE-BASED COMMUNICATIONS-- Satellite-based communication is
accomplished through transmission of a signal from a vehicle-based
transmitter to a satellite, which automatically retransmits the signal to
a dispatcher. Such systems provide seamless nationwide service for
transmitting location information, but do not currently transmit location
data at a cost competitive with the Company's system. Vehicle location
products with satellite-based communications are currently offered by
Orbcomm Global, L.P. and Qualcomm, Inc.
- DEDICATED WIRELESS NETWORKS-- ARDIS and RAM are dedicated wireless two-way
data networks that also can be used to transmit location information
through integration with GPS. ARDIS is owned by Motorola and RAM is owned
by a joint venture between RAM Broadcasting Corp. and BellSouth. Both
wireless providers cover primarily metropolitan markets. ARDIS covers
approximately the top 400 markets in the United States, and RAM reports
coverage in approximately the top 100 markets (in both cases, including
all the markets in which the Company currently operates or plans to
operate).
LMS SYSTEMS. The Company knows of other companies that are developing
competitive LMS location and messaging systems. Pinpoint Communications Inc.,
METS Inc./MobileVision, L.P. and Comtrak Inc. each have developed technologies
that use LMS spectrum to provide both location information and messaging. Such
alternative LMS systems are also land-based wireless systems suited for
providing accurate and cost-effective service in metropolitan areas. Current LMS
operators and prospective LMS operators may also benefit from an FCC auction of
three frequency bands, including the band on which the Company's system
operates, for LMS purposes. The Company believes that to date it is the only
company that has established a commercially operational LMS network in the U.S.
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TRADITIONAL WIRELESS COMMUNICATION. Many fleet managers use existing SMR,
ESMR, two-way radio, cellular or paging systems to communicate with vehicles and
obtain their location. Such systems are less reliable than the Company's
products, however, because they rely exclusively on drivers to accurately
identify their location.
CONSUMER VEHICLE MARKET
LOJACK-REGISTERED TRADEMARK-. The Company's principal competitor to date in
the consumer vehicle market has been LoJack-Registered Trademark-. The
LoJack-Registered Trademark- system is based on a VHF transponder (essentially a
homing device) with a range of approximately two miles. The
LoJack-Registered Trademark- vehicle recovery system requires a customer to
report a stolen vehicle to LoJack-Registered Trademark- in order to initiate the
location process. Once a stolen vehicle report is received,
LoJack-Registered Trademark- personnel activate the transponder unit located in
the stolen vehicle by transmitting a signal across the area in which the vehicle
was stolen. Police equipped with LoJack-Registered Trademark- equipment track
the signal from the stolen vehicle by the strength of the signal. The
LoJack-Registered Trademark- system is not an automatic, real-time, screen-based
tracking system, and it does not provide the service features of the Company's
OZZ-Registered Trademark- and roadside assistance products.
GPS/CELLULAR SYSTEMS. Several companies have begun to link GPS location
technology with cellular communications to create emergency location systems for
consumer vehicles. Carcop-Registered Trademark-, Onstar-TM- and Lincoln
Rescu-TM- all rely on this technology to provide emergency roadside assistance
and/or stolen car recovery. Such systems, because they are based on GPS locating
technology, can be less effective in metropolitan areas where most auto thefts
occur.
THEFT DETERRENTS. A number of products are currently sold for vehicle theft
deterrence. Consumer products range from The Club-Registered Trademark- to
automatic alarm systems. While such systems do not provide the location
information or range of services of the Company's consumer products, they are
often available at a significantly lower cost.
PRODUCT PROTECTION
The Company currently has no material patents and generally seeks to protect
its proprietary network software, software products and trade secrets by
requiring that its consultants, employees and others with access to such
software and trade secrets sign nondisclosure and confidentiality agreements.
Management believes that these actions provide appropriate legal protection for
the Company's intellectual property rights in its software and products.
Furthermore, management believes that the competitive position of the Company
depends primarily on the technical competence and creative ability of its
personnel and that its business is not materially dependent on patents,
copyright protection or trademarks. See "Risk Factors-- Proprietary Rights and
Patents."
MIS, ADMINISTRATIVE AND BILLING SYSTEMS
During 1996, the Company centralized all of its accounting, payables,
billing and management information systems in its corporate headquarters in
Kansas City, Missouri, and based its nationwide inventory and order fulfillment
operations at its Los Angeles office. The Company recently converted to a new
billing system which centralizes customer billing to one location, yet allows
the local offices the flexibility to handle customer data input and inquiry,
thus allowing for quicker and more efficient response for sales and customer
service. The Company has also implemented a wide-area network architecture to
provide quick and easy communication and transfer of data among all employees of
the Company.
REGULATION
The construction, operation and acquisition of radio-based systems in the
LMS industry in the U.S. are subject to regulation by the FCC under the
Communications Act. Multilateration LMS is a service operating under new FCC
rules. As such, the LMS rules have not been subject to any significant
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interpretation by the FCC in written decisions and remain subject to further
reconsideration. Several parties, including the Company, requested that the FCC
reconsider various aspects of the newly-adopted rules governing LMS. In some
cases, the reconsideration requests, if granted by the FCC, could have a
material adverse effect on the Company's business. In September 1997, the FCC
rejected most of the reconsideration requests and reaffirmed its existing rules,
but the decision remains subject to further reconsideration. As a pioneer in
this new service, the Company may operate under rules with significant
ambiguities. The application of largely uninterpreted rules in situations that
the Company may encounter will present matters of first impression to the FCC's
staff. The Company cannot predict how changes to or interpretations of these
rules may affect its operations or its business plans.
The FCC regulates LMS services pursuant to rules adopted in a February 1995
LMS Order and modified in a March 1996 LMS Reconsideration Order and in a
September 1997 LMS Clarification Order. The February 1995 LMS Order, the March
1996 LMS Reconsideration Order, and the September 1997 LMS Clarification Order
are hereinafter together referred to as the "LMS Order."
CONSTRUCTION AND OPERATION OF GRANDFATHERED SYSTEMS
The FCC's 1995 LMS Order established that LMS licenses would be granted in
the future on a geographic basis. LMS licenses granted prior to the 1995 rules,
including those under which the Company operates its system, were granted for
individual transmitter sites. The FCC announced that no further applications for
authorizations for new multilateration LMS transmitter sites will be accepted,
pending its development of rules and procedures for auctioning the LMS spectrum.
In its 1995 rules, the FCC established procedures for the "grandfathering" of
LMS systems that were in operation or authorized as of February 3, 1995. In
order to maintain grandfathered status, the Company was required, among other
things, to complete its construction of licensed transmitter sites by January 1,
1997, to a level where each system would be capable of locating a vehicle and
otherwise in compliance with the 1995 rules (as modified). By December 31, 1996,
the Company had constructed LMS systems capable of locating a vehicle in 26
markets, including the six markets in which the Company had systems operating
prior to the adoption of the LMS Order.
The grandfathered authorizations issued to the Company allow the operation
of multilateration LMS base stations at particular sites specified in the
authorization. Under present rules, the FCC will not authorize the relocation of
a base station to a site more than two kilometers from an initially authorized
site. To the extent that a previously authorized base site becomes unavailable
or is no longer suitable because of potential interference from nearby radio
facilities, the two-kilometer restriction will limit the ability of the Company
to find optimal alternative sites and, in some instances, could require that the
Company abandon the opportunity to construct or operate a previously authorized
site, or require that the Company accept diminished performance from some sites.
In a few instances, the Company has obtained waivers from the FCC to permit the
relocation of a transmitter site to a location more than two kilometers from the
original site. Due to minor variations in certain parameters for sites noted
during construction, the Company has submitted applications to the FCC for
correction or modification of its authorizations for such sites. At the
Company's request, the FCC granted special temporary authority for the operation
of those sites pending the processing of the applications, which the Company
anticipates will be processed in the normal course. The Company recently
discovered additional minor parameter violations and has submitted modification
applications and requests for special temporary authority relating to the
operation of these facilities.
To prevent grandfathered LMS licensees from expanding coverage into
auctionable territory, current FCC rules do not permit those licensees to
construct additional LMS transmitters. Consequently, grandfathered licensees are
prevented from adding supplemental, or "fill-in," transmitters in locations
where it is discovered that, due to terrain or other obstructions, gaps in
service coverage exists. The Company filed requests for the FCC to change and/or
waive those rules to allow grandfathered LMS licensees to construct "fill-in"
transmitters where the aggregate service territory boundaries are not
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increased. The inability of the Company to use "fill-in" transmitters could
create less than optimal signal coverage and penetration in certain of the
Company's markets. In the 1997 Clarification Order, the FCC declined to adopt a
general rule allowing fill-in transmitters, but said that it would accept
applications for fill-in transmitters on a case-by-case basis, so long as the
coverage footprint was not increased, a standard which the Company believes its
pending waiver request would meet. There is no assurance that the Company's
request for waivers to use "fill-in" transmitters will be granted, and it has
been opposed in filings by other parties. There is also no assurance that the
petitions for reconsideration of the FCC's rules for multilateration LMS that
were filed by parties advocating changes that could have a material adverse
effect on the Company's business, though not granted in the 1997 Clarification
Order, will not be granted in whole or in part by the FCC after final review.
FREQUENCY CONVERSION
Grandfathered multilateration LMS systems that were constructed and in
operation as of February 3, 1995, must conform their already-constructed
facilities to a new radio frequency band plan established by the LMS Order. To
comply, the Company is required to change the frequency on which the Forward
Link operates and modify system equipment accordingly. The frequency conversion
must be complete by April 1, 1998, the date on which the authority to operate on
the previous LMS frequencies will expire. Although the frequency conversion only
affects the Company's Forward Link, transition of the Company's operating
facilities to the new band plan will require the modification of both
transmitting and subscriber equipment. The Company constructed transmission
equipment in 1996 that modified the frequency on which the Forward Link operates
in all of its existing markets. The Company's Forward Link in the existing
markets now operates on both the old and the new frequencies, but the Company
still must convert its existing customers' VLUs to conform to the new spectrum
band plan. The Company has begun an active program of converting its existing
customers' VLUs to operate within the new spectrum band plan. The Company
anticipates that the frequency conversion process for existing markets will be
completed prior to the April 1, 1998 deadline. The Company estimates that the
total cost of such conversion will be approximately $7.2 million. There can be
no assurance that the Company will complete its frequency conversion by April 1,
1998 or that the cost to the Company will not exceed $7.2 million. In addition,
non-multilateration LMS systems that were operating on segments of the frequency
band that the FCC allocated for multilateration LMS use in 1995 were
grandfathered until April 1, 1998. This means that multilateration LMS systems
may be required to share their frequencies with such non-multilateration LMS
systems until April 1998.
LMS SPECTRUM AUCTION
In the LMS Order, the FCC concluded that it would award the remaining
spectrum for multilateration LMS through competitive bidding in an auction, a
procedure that the FCC is using for other wireless communications services. The
FCC intends to auction one license in each of three spectrum bands allotted for
multilateration LMS on an "Economic Areas" (EAs) basis. There are 172 EAs
covering the continental United States. The FCC dropped its plans in the
September 1997 LMS Clarification Order to license spectrum using the larger
Major Trading Area geographic basis. Procedures for the LMS auctions that
generally conform with previously proposed generic competitive bidding rules
were proposed in the LMS Clarification Order, and the FCC has requested public
comment on the proposed rules for the multilateration LMS auction. Members of
the FCC staff have told the Company that they expect such auctions to be held in
early 1998, although the schedule for such auctions has been subject to repeated
delays. The Company expects to participate in the auction process and to bid on
specific licenses to acquire the additional spectrum necessary to establish
coverage in major metropolitan areas nationwide. The extent of funding that may
be needed by the Company for a successful outcome in these auctions is not yet
known by the Company. The Company understands that the FCC will expect
cooperative arrangements for sharing between grandfathered licensees and the
eventual EA licensees resulting from the auction. To the extent that the Company
does not submit the winning bid for a license in an EA in which it operates a
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grandfathered system, the Company would be permitted to continue operating its
grandfathered facilities in that EA, but it would be precluded from expanding
its coverage area within such EA.
PERMISSIBLE USE RESTRICTIONS AND INTERCONNECTION
In the LMS Order, the FCC stated that it did not intend that LMS be used for
"general messaging purposes." The FCC did modify the existing permissible use
definition, however, so as to authorize multilateration LMS systems to transmit
status and instructional messages, either voice or non-voice, so long as they
are related to the location or monitoring functions of the system. This
restriction precludes the Company from offering messaging services other than as
part of its location and monitoring services.
The LMS Order also expanded the permissible use definition to include
location of non-vehicular traffic by multilateration LMS systems whose primary
operations involve location of vehicles. The requirement that an LMS system's
primary operations be location of vehicular traffic may preclude the Company
from having a majority of customers who have subscribed to non-vehicular
location or monitoring services, such as personal location services, and may be
interpreted to impose other restrictions on non-vehicular location and
monitoring services.
In addition, the FCC order requires that interconnection to the public
switched telephone network be on a "store and forward" basis. This requirement
limits the Company's ability to offer real-time voice communications services,
except with respect to emergency communications. LMS customers may engage in
delayed voice or data messaging over the telephone system. The FCC set a
thirty-second delay as the "safe harbor" for store-and-forward interconnection,
but acknowledged that other approaches may also be acceptable depending upon the
configuration of the system.
FOREIGN OWNERSHIP
The FCC has not declared whether multilateration LMS will be classified as a
private mobile radio service (PMRS) or as a commercial mobile radio service
(CMRS), but has proposed to classify LMS providers on a case-by-case basis. This
implies that the greater the level and nature of interconnection with the public
switched telephone network offered by the LMS provider, the more likely the
provider would be classified as CMRS. Because multilateration LMS is offered on
a for-profit basis and can be connected with the public switched telephone
network, however, the Company believes that it is likely that the FCC will
classify multilateration LMS as CMRS. If the Company's services were
reclassified as CMRS rather than as PMRS, the Company, which holds its FCC
authorizations through a wholly-owned subsidiary, Teletrac License, Inc., would
be subject to the foreign ownership restrictions under the Communications Act
that apply to the parent corporations of CMRS licensees. Under this restriction,
non-U.S. persons would not be permitted to hold, directly or indirectly, in the
aggregate, more than 25% of the ownership or 25% of the voting rights in the
Company, absent a waiver or determination by the FCC that a higher level of
foreign ownership would be in the public interest.
Although the Company is controlled by U.S. citizens, non-U.S. persons
currently hold slightly more than 25% of the ownership of the Company. If the
FCC were to reclassify its multilateration LMS as CMRS at a time when the
Company's level of foreign ownership or foreign voting rights exceeded 25%, the
Company would be required to obtain a public interest determination from the FCC
approving its level of foreign ownership or to restructure its ownership to meet
the 25% benchmark. The FCC recently instituted a rule making proceeding to
develop rules to implement the World Trade Organization ("WTO") agreements
scheduled to become effective January 1, 1998. It is anticipated that the WTO
agreements and the FCC's implementing rules will open additional opportunities
for foreign investment in U.S. entities that control CMRS licensees. However, it
is not clear that any relief granted as a result of the FCC's implementation of
the WTO agreements would necessarily exempt the Company from the requirement to
secure a public interest determination from the FCC approving its level of
foreign ownership or to restructure its ownership to meet the 25% benchmark if
the FCC should reclassify its service as CMRS.
43
<PAGE>
TECHNICAL REQUIREMENTS
Multilateration LMS systems must use equipment that is "type-accepted" by
the FCC. Under the type-acceptance procedure, the FCC confirms that the model of
equipment proposed for use in a particular radio service conforms to the
technical requirements for the service as specified in the FCC's rules. All
equipment used by the Company that is required to be type-accepted has been
type-accepted.
Multilateration LMS systems operate on frequencies that have been allocated
to LMS by the FCC on a secondary basis. This means that LMS operations cannot
cause interference to, and may be required to accept interference from, users of
those same or adjacent frequencies in the Industrial, Scientific, and Medical
radio service and in the Federal government's radiolocation service. In
addition, under Part 15 of the FCC's rules, certain unlicensed radio devices
(such as spread spectrum devices used for local area networks) operate on the
same or adjacent frequencies as LMS systems. Although multilateration LMS
systems generally have priority in the use of their frequencies over such Part
15 devices, the FCC's rules provide a "safe harbor" for the operation of Part 15
devices in LMS spectrum. If a Part 15 device is operated in a manner that
satisfies those safe harbor requirements (which were designed to avoid or
minimize the risk of interference to LMS services), an LMS system that
nonetheless suffers interference from such a Part 15 device may have no recourse
other than to negotiate with the Part 15 user on methods for eliminating or
reducing the interference. In addition, as a condition of the LMS license, the
FCC has stated that operators of new LMS systems must perform testing to
demonstrate that the system does not cause unacceptable interference to Part 15
devices. To date, the FCC has specifically declined to specify the nature of
such testing and how they might be used to determine whether the multilateration
LMS system is causing unacceptable interference to Part 15 devices. The FCC has
indicated that the purpose of the testing is to insure that multilateration LMS
licensees take efforts to minimize interference to existing Part 15 devices when
designing and constructing their systems; Part 15 devices remain secondary to
multilateration LMS operations. An association of entities operating Part 15
devices has asked that the Company engage in cooperative testing in certain of
the markets in which the Company is operating to ascertain the existence of any
potential for interference, and the Company has expressed its willingness to
cooperate in a testing program.
CURRENT FCC APPLICATIONS AND PROCEEDINGS
PENDING APPLICATIONS. The Company has pending before the FCC a request for
waiver to permit the addition of fill-in transmitter sites within the present
coverage area of its grandfathered facilities. In addition, the Company has
pending before the FCC various site-specific applications (together with related
waivers and request for special temporary authority) for minor corrections of
operating parameters and for the relocation of sites within the two kilometer
relocation restriction because of site unavailability and other causes. It is
anticipated that the Company will have other such applications from time to time
in the ordinary course of business.
RECONSIDERATION PROCEEDINGS FOR THE LMS RULES. The FCC released its
September 1997 LMS Clarification Order which clarified and modified various
issues relating to the provision of LMS and grandfathered operation. Interested
parties may seek further reconsideration of the order.
OTHER PROCEEDINGS. Other proceedings pending from time to time at the FCC
may affect the business and operations of the Company. These proceedings
include, but are not limited to, (i) pending proceedings to modify rules for low
power transmitters operating under Part 15 of the FCC's rules that also operate
in the 902-928 MHz frequency band in which the Company operates its LMS systems;
(ii) changes in spectrum allotments and usage restrictions that may permit the
operation of terrestrial location-related services in other bands; (iii) changes
in FCC rules and policies governing interconnection with the switched telephone
network; (iv) the anticipated institution of rule making proceedings to develop
the rules and policies that will govern the auction of the LMS spectrum; (v)
changes in the general licensing rules and policies of the FCC affecting LMS
applications; and (vi) changes in FCC regulatory policies generally
44
<PAGE>
governing the CMRS services (which would affect the Company, to the extent that
the FCC classified multilateration LMS as CMRS).
The Company cannot predict when the FCC will act on any of these matters or
what effect such action may have on its business.
LEGAL PROCEEDINGS
Prior to the Acquisition, PacTel Teletrac (predecessor to AirTouch Teletrac)
brought an action before the United States Patent and Trademark Trial and Appeal
Board against T.A.B. Systems ("TAB") opposing TAB's registration of the mark
"Teletrak." The Trademark Trial and Appeal Board granted PacTel Teletrac's
motion for summary judgment, but summary judgment was reversed by the U.S. Court
of Appeals for the Federal Circuit. Under the terms of the Asset Purchase
Agreement between AirTouch Teletrac and the Company, AirTouch Teletrac must pay
the costs of any litigation relating to this matter and must indemnify the
Company against any losses relating thereto. AirTouch Teletrac has notified the
Company that it intends to continue to litigate this matter on its own behalf as
well as on behalf of the Company, and that it will bear the cost of such
litigation. There can be no assurance that AirTouch Teletrac will be successful
in such litigation or that AirTouch Teletrac will honor its indemnification
obligations (including any costs or losses relating to a change of name, if
required as a result of the litigation).
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. The Company is not currently a party to any
proceeding which, in management's opinion, is likely to have a material adverse
effect on the Company's business.
EMPLOYEES
On September 30, 1997, the Company had 309 employees. Substantially all of
the Company's employees are full-time. The Company's employees are not unionized
and the Company believes that its relations with its employees are good.
FACILITIES AND EQUIPMENT
The Company currently leases approximately 12,800 square feet of office
space in Kansas City, Missouri for its headquarters facility for a term expiring
in 2002. As of September 1997, the Company leased approximately 28,000 square
feet in Garden Grove, California for a term expiring in 2002, as well as office
space in Rolling Meadows, Illinois; Farmington Hills, Michigan; Arlington,
Texas; Fort Lauderdale, Florida; Houston, Texas; Orlando, Florida; San
Francisco, California; and San Diego, California.
As of September 30, 1997, the Company had approximately 415 site and tower
leases for the operation of its transmitters and other equipment on commercial
broadcast towers and at other fixed sites. The Company believes that in general
the terms of its leases are competitive based on market conditions. The Company
believes its facilities are suitable and adequate for its purposes. The Company
relocates its transmission and receiver sites from time to time and does not
anticipate any material problems in obtaining and retaining site and tower
leases in the future.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James A. Queen....................................... 46 Chairman of the Board, Chief Executive Officer and
Director
Lawrence P. Jennings................................. 42 Vice President of Operations
Alan B. Howe......................................... 36 Vice President of Finance and Corporate Development
Steven D. Scheiwe.................................... 36 General Counsel and Secretary
James E. Seng........................................ 52 Vice President of Engineering
Sanford Anstey....................................... 50 Director
Robert Benbow........................................ 60 Director
David J. Berkman..................................... 34 Director
Michael A. Greeley................................... 33 Director
Michael Markbreiter.................................. 34 Director
Marc H. Michel....................................... 36 Director
Brian A. Rich........................................ 36 Director
</TABLE>
Each Director of the Company has been elected pursuant to the terms of the
Stockholders' Agreement. See "Certain Relationships and Related
Transactions--Stockholders' Agreement."
Each Director of the Company is also a Director of Holdings. Mr. Queen is
also Chairman of the Board and Chief Executive Officer of Holdings. Mr. Howe and
Mr. Scheiwe are also Vice Presidents of Holdings and are the Treasurer and
Secretary of Holdings, respectively.
JAMES A. QUEEN has been Chairman of the Board, Chief Executive Officer and
Director of the Company since November 1995. From February through November
1995, Mr. Queen was Chief Executive Officer of Pentapage Inc. ("Pentapage"), a
company formed by Messrs. Queen, Jennings and Scheiwe to pursue business
opportunities in the communications industry. Pentapage was dissolved in
connection with the initial capitalization of the Company. Mr. Queen served as
Chairman of the Board and Chief Executive Officer of Premiere Page from its
inception in 1988 through December 1994.
LAWRENCE P. JENNINGS has been Vice President of Operations of the Company
since November 1995. From February through November 1995, Mr. Jennings was a
Vice President of Pentapage. Mr. Jennings served as Vice President of Operations
of Premiere Page from July 1992 through December 1994. Prior to joining Premiere
Page, Mr. Jennings was General Manager for Centel Cellular/United Telespectrum,
Inc. in Charleston, South Carolina.
ALAN B. HOWE has been Vice President of Finance and Corporate Development of
the Company since November 1995. From April through November 1995, Mr. Howe was
Chief Financial Officer of Pentapage. Mr. Howe served as a Director of Corporate
Development for Sprint Corp. as well as in various finance positions within
Sprint Corp.'s Wireless Task Force and Corporate Treasury Group. Mr. Howe's last
position at Sprint Corp. was with WirelessCo, L.P., the PCS joint venture among
Sprint Corp., Tele-Communications, Inc., Comcast Corporation and Cox
Communications, Inc.
STEVEN D. SCHEIWE has been General Counsel and Secretary of the Company
since November 1995. From February through November 1995, Mr. Scheiwe was a Vice
President of Pentapage. Mr. Scheiwe had served as General Counsel and Secretary
to Premiere Page and its predecessor companies from their inception in 1988.
JAMES E. SENG has been Vice President of Engineering of the Company since
February 1996. Prior to joining the Company, Mr. Seng was President of Project
Group 2000, an engineering consulting firm. From 1990 to 1994, Mr. Seng was Vice
President of Engineering at Premiere Page.
SANFORD ANSTEY has been a Director of the Company since December 6, 1996.
Mr. Anstey is Managing Director of BancBoston Capital, BancBoston's private
equity investing subsidiary, and is head of the firm's
46
<PAGE>
media and communications investments team. Mr. Anstey has been employed by
BancBoston Capital since 1988 and is currently a member of the Advisory Board of
Baring Communications Equity, the Board of Directors of Six Flags Entertainment
and the Board of Advisors of Prime Enterprises.
ROBERT BENBOW has been a Director of the Company since November 1995. Mr.
Benbow has been a Vice President of Burr, Egan, Deleage & Co. and a General
Partner in certain funds affiliated with Burr, Egan, Deleage & Co. since 1990.
Mr. Benbow serves as a director of ST Enterprises, a local exchange company;
Golden Sky Systems, Inc.; Incom Communications Corp.; and Brooks Fiber
Properties, Inc. Mr. Benbow also served as a director of U.S. One Communications
Corp., which filed for bankruptcy in 1997, after Mr. Benbow had resigned from
the Board of Directors thereof.
DAVID J. BERKMAN has been a Director of the Company since November 1995.
Since 1994, Mr. Berkman has served as Executive Vice President and a member of
the Board of Directors of The Associated Group, Inc. For the prior fifteen
years, Mr. Berkman was employed by a Associated Communications Corporation, the
predecessor of the Associated Group, Inc., most recently as a Vice President.
Mr. Berkman is currently Vice Chairman of the Board of Portatel del Sureste,
Mexico and Associated Communications, L.L.C. Mr. Berkman is a former member of
the Board of Directors, and a former member of the Executive Committee, of the
Cellular Telephone Industry Association.
MICHAEL A. GREELEY has been a Director of the Company since December 6,
1996. Mr. Greeley is the Senior Vice President of GCC Investments, the
investment arm of GC Companies, which operates General Cinema Theatres.
Additionally, Mr. Greeley serves as the Senior Investment Officer of GC
Companies, Inc. From June 1989 to June 1994, Mr. Greeley was a Vice President of
Wasserstein Perella & Co., Inc. Mr. Greeley is currently a director of Global
TeleSystems, Inc. and Crescent Communications.
MICHAEL MARKBREITER has been a Director of the Company since its formation
in November 1995. Mr. Markbreiter has been a portfolio manager at Kingdon
Capital Management Corp. for private equity investments since August 1995. Mr.
Markbreiter co-founded Ram Investment Corp., a venture capital company, from
March 1994 through March 1995, and had previously been a portfolio manager for
Asia at Kingdon Capital Management Corp. from February 1993 through January
1994.
MARC H. MICHEL has been a Director of the Company since its formation in
November 1995. Mr. Michel is currently a General Partner of Eos Partners SBIC,
L.P. and a Managing Director of Eos Partners, L.P. Prior to joining Eos in 1994,
Mr. Michel was a Vice President of Merrill Lynch Interfunding Inc., a subsidiary
of Merrill Lynch & Co. Mr. Michel is a director of a number of companies,
including Intervest Holdings.
BRIAN A. RICH has been a Director of the Company since its formation in
November 1995. Mr. Rich is Managing Director of Toronto Dominion Capital
(U.S.A.), Inc., Toronto Dominion Bank's U.S. merchant bank. Prior to this
position, Mr. Rich had been an investment banker in Toronto Dominion's
Communications Finance Group since 1991.
The Company's former Chief Financial Officer resigned in June 1997. During
the search for a replacement, Alan B. Howe, the Company's Vice President of
Finance and Corporate Development, is acting Chief Financial Officer of the
Company.
The executive officers of the Company are elected by the Board of Directors
and serve at its discretion.
All directors are elected annually and hold office until the next annual
meeting of stockholders and until their successors are duly elected and
qualified. Directors do not receive an annual retainer or meeting attendance
fees. However, the Company reimburses non-management directors for expenses
incurred in attending meetings of the Board of Directors.
During 1996, the Board of Directors of the Company held eight meetings. The
only standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The current members of the Audit Committee are
Messrs. Benbow, Greeley and Michel. The Audit Committee periodically consults
with the Company's management and independent public accountants on financial
matters, including the Company's internal financial controls and procedures. The
Audit Committee held one meeting in 1996. The current members of the
Compensation Committee are Messrs. Anstey, Berkman and Rich. The Compensation
Committee approves compensation arrangements for the Company's executive
officers and administers the Company's stock option plans. The Compensation
Committee held two meetings in 1996.
47
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information as to the
Chief Executive Officer and the four other highest paid executive officers of
the Company for the fiscal year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------ UNDERLYING
NAME AND OTHER ANNUAL OPTIONS
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION (#)
- ---------------------------------------------- --------- ----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
James A. Queen
Chairman of the Board
Chief Executive Officer..................... 1996 201,000 38,000 -- 24,671
James E. Seng
Vice President of Engineering............... 1996 87,500 18,500 -- 1,699
Lawrence P. Jennings
Vice President of Operations................ 1996 158,000 29,000 -- 3,876
Alan B. Howe
Vice President of Finance and Corporate
Development................................. 1996 106,000 19,000 -- 1,699
Steven D. Scheiwe
General Counsel and Secretary............... 1996 117,000 21,000 -- 4,442
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION (1) ($)
- ---------------------------------------------- ---------------
<S> <C>
James A. Queen
Chairman of the Board
Chief Executive Officer..................... 1,000
James E. Seng
Vice President of Engineering............... 1,000
Lawrence P. Jennings
Vice President of Operations................ 1,000
Alan B. Howe
Vice President of Finance and Corporate
Development................................. 1,000
Steven D. Scheiwe
General Counsel and Secretary............... 1,000
</TABLE>
- ------------------------
(1) Amounts shown for each officer consist of amounts accrued by the Company for
contribution to the Company's 401(k) Savings Plan that are allocable to such
officer.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options to the named executive officers during the fiscal year ended
December 31, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
- ------------------------------------------------------------------------------------- REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------
NAME GRANTED(1) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------ ---------- ------------ ------------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
James A. Queen................ 8,224 57.3% 100 2003 464,000 1,724,000
8,224 125
8,223 150
James E. Seng................. 567 3.9% 100 2003 32,000 119,000
566 125
566 150
Lawrence P. Jennings.......... 1,292 9.0% 100 2003 73,000 271,000
1,292 125
1,292 150
Alan B. Howe.................. 567 3.9% 100 2003 32,000 119,000
566 125
566 150
Steven D. Scheiwe............. 1,481 10.3% 100 2003 84,000 310,000
1,481 125
1,480 150
</TABLE>
- ------------------------
(1) See "--Stock Option Plans."
48
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number of options exercised and the value
realized upon exercise by the named executive officers during the fiscal year
ended December 31, 1996 and the value of outstanding options held by such
executive officers as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS
NUMBER OF SHARES YEAR AT FISCAL YEAR END
ACQUIRED ON EXERCISE END EXERCISABLE/ EXERCISABLE/
NAME OF OPTIONS VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- -------------------------------- ------------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
James A. Queens................. -- -- 0/24,671 0/$ 1,190,400
James E. Seng................... -- -- 0/1,699 0/$ 82,000
Lawrence P. Jennings............ -- -- 0/3,876 0/$ 187,000
Alan B. Howe.................... -- -- 0/1,699 0/$ 82,000
Steven D. Scheiwe............... -- -- 0/4,442 0/$ 214,400
</TABLE>
- ------------------------
(1) Assumes a price per share of $173.25, the price per share of the Preferred
Stock sold on December 6, 1996.
EMPLOYMENT AGREEMENTS
In November 1995, the Company and Mr. Queen entered into an agreement
pursuant to which Mr. Queen agreed to serve as the Chief Executive Officer of
the Company through December 31, 1998. Under the agreement, Mr. Queen is paid
compensation of $200,000 per year (plus the cost of health insurance) and is
eligible to receive a bonus of up to 25% of his base salary at the discretion of
the Board of Directors. In addition, in 1996 Mr. Queen was granted options to
purchase 24,671 shares of Class A Common Stock at prices ranging from $100 to
$150 per share. One-third of the options granted vest on each of the following
three one-year anniversaries of the date of grant. The agreement also includes a
confidentiality provision and a non-compete provision.
In January 1996, the Company and Mr. Scheiwe entered into an agreement
pursuant to which Mr. Scheiwe agreed to serve as the General Counsel and
Secretary of the Company through December 31, 1998. Under the agreement, Mr.
Scheiwe is paid compensation of $114,200 per year (plus the cost of health
insurance) and is eligible to receive a bonus of up to 20% of his base salary at
the discretion of the Board of Directors. In addition, in 1996 Mr. Scheiwe was
granted options to purchase 4,442 shares of Class A Common Stock at prices
ranging from $100 to $150 per share. One-third of the options granted vest on
each of the following three one-year anniversaries of the date of grant. The
agreement also includes a confidentiality provision and a non-compete provision.
In January 1996, the Company and Mr. Jennings entered into an agreement
pursuant to which Mr. Jennings agreed to serve as the Vice President of
Operations of the Company through December 31, 1998. Under the agreement, Mr.
Jennings is paid compensation of $154,000 per year (plus the cost of health
insurance) and is eligible to receive a bonus of up to 20% of his base salary at
the discretion of the Board of Directors. In addition, in 1996 Mr. Jennings was
granted options to purchase 3,876 shares of Common Stock at prices ranging from
$100 to $150 per share. One-third of the options granted vest on each of the
following three one-year anniversaries of the date of grant. The agreement also
includes a confidentiality provision and a non-compete provision.
STOCK OPTION PLANS
In November 1995, the Company adopted a Stock Option Plan (the "1995 Stock
Plan") which provides for the granting of options to purchase up to 43,060
shares of Class A Common Stock to qualified employees of the Company, all of
which were granted by November 1996. Under the terms of Option Agreements
between the Company and each of Messrs. Queen, Seng, Jennings, Howe and Scheiwe
to date, the Company has granted each of them the right to purchase from the
Company up to 24,671; 1,699; 3,876; 1,699; and 4,442 shares of Class A Common
Stock, respectively, under the terms of the 1995 Stock Plan. In each case,
one-third of the shares may be purchased at an option price of $100 per share,
one-third
49
<PAGE>
may be purchased at $125 per share, and the final one-third may be purchased at
$150 per share. One-third of the options granted vest on each of the following
three one-year anniversaries of the date of grant. The Company also has Option
Agreements with certain other employees with similar terms under which it has
granted options to purchase an additional 4,599 shares of Class A Common Stock
pursuant to the 1995 Stock Plan.
In November 1996, the Company adopted the Teletrac, Inc. and its
Subsidiaries 1996 Stock Option and Restricted Stock Purchase Plan (the "1996
Stock Plan") so as to promote the interests of the Company and its stockholders
by providing an opportunity to selected employees, officers and directors of the
Company or any subsidiary thereof to purchase Class A Common Stock of the
Company. The 1996 Stock Plan provides for the granting of non-qualified stock
options and/or incentive stock options ("ISOs") to acquire Class A Common Stock
of the Company and/or by the granting of rights to purchase Class A Common Stock
of the Company subject to certain restrictions ("Restricted Stock").
The 1996 Stock Plan is administered by the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee"). The
Compensation Committee, upon the approval of the Board of Directors, has the
discretion under the Plan (i) to select the employees who will be granted an
option or right to purchase Class A Common Stock of the Company; (ii) to
designate whether the options will be granted as ISOs or as non-qualified stock
options; (iii) to establish the number of shares of Class A Common Stock of the
Company that may be issued under each option or right; (iv) to determine the
time and the conditions subject to which options may be exercised in whole or in
part; (v) to determine the form of consideration that may be used to purchase
shares of Class A Common Stock of the Company issued upon exercise of an option
or right; (vi) to impose restrictions and/or conditions upon shares of Class A
Common Stock of the Company acquired upon exercise of an option or right; (vii)
to determine the circumstances under which shares of Class A Common Stock of the
Company acquired upon exercise of any option or right may be subject to
repurchase by the Company; (viii) to determine the circumstances under which
shares acquired upon exercise of an option or right may be sold or transferred;
(ix) to establish a vesting provision for any option relating to the time, or
circumstance, when the option may be exercised by a participant; and (x) to
accelerate the time when outstanding options may be exercised.
The Company is currently authorized to issue up to 25,397 shares of Class A
Common Stock under the 1996 Stock Plan. As of September 30, 1997, options to
purchase 1,250 shares of Class A Common Stock were outstanding under the 1996
Stock Plan, all of which were ISOs. Of such options granted, one-third of the
shares may be purchased at an option price of $175.00 per share, one-third may
be purchased at $218.75 per share, and the final one-third may be purchased at
$262.50 per share. None of the named officers has received stock options under
the 1996 Stock Plan. The Company has not issued any Restricted Stock under the
Plan.
In connection with the creation of a holding company structure for the
Company, the 1995 Stock Plan and the 1996 Stock Plan were assumed by Holdings
and all of the outstanding options granted under such Plans were converted to
options to purchase shares of the Class A Common Stock of Holdings on identical
terms and conditions.
401(K) PLAN
The Company maintains a 401(k) Savings Plan for its full-time employees
which permits employee contributions up to 15% of annual compensation to the
plan on a pre-tax basis. In addition, the Company may make a matching
contribution of up to 50% of each participating employee's annual compensation,
not to exceed $1,000, before taxes. The Company may also make additional
discretionary contributions to the Plan in any plan year up to the annual 401(k)
plan contribution limits as defined in the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan is administered by the Compensation Committee.
For the plan year ended December 31, 1996, the Company has accrued an
aggregate of $121,000 for contributions to the Plan in 1997, of which $1000 was
accrued on behalf of each of Messrs. Queen, Seng, Jennings, Howe and Scheiwe,
and all of which has been contributed.
50
<PAGE>
SECURITIES OWNERSHIP
Holdings owns all the issued and outstanding capital stock of Teletrac. The
following table sets forth certain information regarding the beneficial
ownership of Holdings' Class A Common Stock and Preferred Stock as of the
Closing by (i) certain stockholders or groups of related stockholders who,
individually or as a group, are the beneficial owners of 5% or more of any class
of Holdings Common Stock, (ii) the executive officers and directors of Holdings
and (iii) the executive officers and directors of Holdings as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A COMMON STOCK(1)
PREFERRED STOCK
------------------------- -------------------------
<CAPTION>
NUMBER OF PERCENT NUMBER OF PERCENT
NAME(2) SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------------------------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Burr, Egan, Deleage Funds(3)...................................... 73,088.02 28.0% 23,088.02 12.2%
c/o Burr, Egan Deleage & Co.
One Post Office Square
Boston, MA 02109
Alta Communications Funds(4)...................................... 23,088.01 8.5 23,088.01 12.1
c/o Alta Communications, Inc.
One Embarcadero Center,
Suite 4050
San Francisco, CA 94111
Kingdon Associates, L.P........................................... 13,398.99 5.3 5,898.99 3.1
Kingdon Partners, L.P............................................. 13,435.06 5.4 935.06 *
M. Kingdon Offshore NV............................................ 52,025.97 19.2 22,025.97 11.6
52 West 57th Street
New York, NY 10019
Toronto Dominion Capital (U.S.A.), Inc............................ 55,772.01 21.9 5,772.01 3.0
31 West 52nd Street
20th Floor
New York, NY 10019
TruePosition, Inc................................................. 55,772.01 21.9 5,772.01 3.0
3 Bala Plaza East
Suite 502
Bala Cynwyd, PA 19004
Eos Partners SBIC, L.P............................................ 34,772.01 13.6 5,772.01 3.0
320 Park Avenue
22nd Floor
New York, NY 10022
BancBoston Ventures Inc........................................... 34,632.03 12.2 34,632.03 18.2
100 Federal Street
Boston, MA 02110
Chestnut Hill Wireless, Inc....................................... 40,404.04 14.0 40,404.04 21.2
1300 Boylston Street
Chestnut Hill, MA 02167
</TABLE>
51
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------------------
CLASS A COMMON STOCK(1)
PREFERRED STOCK
------------------------- -------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
NAME(2) SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------------------------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
James A. Queen(5)................................................. 18,023.00 7.2 0 0
Steven D. Scheiwe(5).............................................. 3,135.00 * 0 0
Lawrence P. Jennings(5)........................................... 2,351.00 * 0 0
James E. Seng(5).................................................. 404.00 * 0 0
Alan B. Howe(5)................................................... 404.00 * 0 0
Sanford Anstey(6)................................................. 34,632.03 13.9 34,632.03 18.2
Robert Benbow(7).................................................. 96,176.03 32.6 46,176.03 15.2
David J. Berkman(8)............................................... 55,772.01 22.4 5,772.01 3.0
Michael A. Greeley(9)............................................. 40,404.04 16.2 40,404.04 21.2
Michael Markbreiter(10)........................................... 78,860.02 31.7 28,860.02 15.2
Marc H. Michel(11)................................................ 34,772.01 14.0 5,772.01 3.0
Brian A. Rich(12)................................................. 55,772.01 22.4 5,772.01 3.0
All executives officers and directors as a group (14 323,394.12 76.2 167,388.15 63.6
persons)(13)....................................................
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes all shares issuable upon conversion of the Preferred Stock.
(2) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table. The shares listed include shares of Class A Common Stock that may
be acquired upon exercise of presently exercisable options, or options that
will become exercisable within 60 days from the date hereof.
(3) Includes (i) 18,525, shares of Common Stock and 8,554.11 shares of Preferred
Stock owned by Alta Subordinated Debt Partners III, L.P., (ii) 31,145 shares
of Common Stock and 14,381.53 shares of Preferred Stock owned by Alta V
Limited Partnership and (iii) 330 shares of Common Stock and 152.38 shares
of Preferred Stock owned by Customs House Partners. Alta Subordinated Debt
Partners III, L.P., Alta V Limited Partnership and Customs House Partners
are part of an affiliated group of investment funds referred to,
collectively, as the Burr, Egan, Deleage Funds. The general partner of Alta
Subordinated Debt Partners III, L.P. is Alta Subordinated Debt Management
III, L.P. The general partner of Alta V Limited Partnership is Alta V
Management Partners, L.P. Each of Alta Subordinated Debt Management III,
L.P. and Alta V Management Partners, L.P. exercises sole voting and
investment power with respect to all of the shares held of record by the
investment fund for which it serves as general partner. Burr, Egan, Deleage
& Co., directly or indirectly, provides investment advisory services to each
of the investment funds comprising the Burr, Egan, Deleage Funds. Certain of
the principals of Burr, Egan, Deleage & Co. are partners in Alta
Subordinated Debt Management III, L.P. and Alta V Management Partners, L.P.
and, as such, may be deemed to have or share voting or investment power with
respect to the shares held by the investment fund for which such entity
serves as general partner. The principals of Burr, Egan, Deleage & Co.
disclaim beneficial ownership of all of such shares except to the extent of
their proportionate pecuniary interests therein. Certain principals of Burr,
Egan, Deleage & Co. are general partners of Customs House Partners and may
be deemed to share voting and investment power with respect to the shares
held of record by Customs House Partners. Such principals of Burr, Egan,
Deleage & Co. disclaim beneficial ownership of all of such shares except to
the extent of their proportionate pecuniary interests therein. In addition,
certain principals of Burr, Egan, Deleage & Co. are affiliated with Alta
Communications, Inc.
52
<PAGE>
(4) Includes (i) 22,574.16 shares of Preferred Stock owned by Alta
Communications VI, L.P. and (ii) 513,85 shares of Preferred Stock owned by
Alta Comm S by S, L.L.C. Alta Communications VI, L.P. and Alta Comm S by S
are part of an affiliated group of investment funds referred to,
collectively, as the Alta Communications Funds. The general partner of Alta
Communications VI, L.P. is Alta Communications VI Management Partners, L.P.
Alta Communications VI Management Partners, L.P., exercises sole voting and
investment power with respect to all of the shares held of record by Alta
Communications VI, L.P. Alta Communications, Inc. provides investment
advisory services to each of the funds comprising the Alta Communications
Funds. Certain of the principals of Alta Communications, Inc. are partners
of Alta Communications VI Management Partners, L.P. and as such may be
deemed to have or share voting or investment power with respect to the
shares held by Alta Communications VI, L.P. The principals of Alta
Communications, Inc. disclaim beneficial ownership of all of such shares
except to the extent of their proportionate pecuniary interests therein.
Certain principals of Alta Communications, Inc. are members of Alta Comm S
by S and may be deemed to share voting and investment power with respect to
the shares held of record by Alta Comm S by S. Such principals of Alta
Communications, Inc. disclaim beneficial ownership of such shares except to
the extent of their proportionate pecuniary interests therein. In addition,
certain principals of Alta Communications, Inc. are affiliated with Burr,
Egan, Deleage & Co.
(5) Includes options to purchase shares of Common Stock that are presently
exercisable, or that will become exercisable within 60 days from the date
hereof.
(6) Mr. Anstey may be deemed to beneficially own the shares of capital stock
owned by BancBoston Ventures. Mr. Anstey disclaims beneficial ownership of
such shares.
(7) Mr. Benbow is a general partner of Alta Subordinated Debt Management III,
L.P., Alta V Management Partners, L.P. and Alta Communications VI Management
Partners, L.P. As a general partner of these funds, he may be deemed to
share voting and investment power with respect to the shares of Common Stock
and Preferred Stock owned by the investment funds for which these funds
serve as general partner. Mr. Benbow disclaims beneficial ownership to such
shares except to the extent of his proportionate pecuniary interests
therein. In addition, Mr. Benbow disclaims all beneficial ownership to all
the shares held by Customs House Partners and Alta Comm S by S, L.L.C.
(8) Mr. Berkman may be deemed to beneficially own the shares of capital stock
owned by TruePosition, Inc., a subsidiary of the Associated Group, Inc. Mr.
Berkman disclaims beneficial ownership of such shares.
(9) Mr. Greeley may be deemed to beneficially own the shares of capital stock
owned by Chestnut Hill Wireless, Inc., a subsidiary of GCC Investments, Inc.
Mr. Greeley disclaims beneficial ownership of such shares.
(10) Mr. Markbreiter may be deemed to beneficially own the shares of capital
stock owned by Kingdon Associates, L.P., Kingdon Partners, L.P. and M.
Kingdon Offshore NV. Mr. Markbreiter disclaims beneficial ownership of such
shares.
(11) Mr. Michel may be deemed to beneficially own the shares of capital stock
owned by Eos Partners SBIC, Inc. Mr. Michel disclaims beneficial ownership
of such shares.
(12) Mr. Rich may be deemed to beneficially own the shares of capital stock
owned by Toronto Dominion Capital (U.S.A.), Inc. Mr. Rich disclaims
beneficial ownership of such shares.
(13) Includes shares held by (i) BancBoston Ventures Inc. that may be deemed to
be beneficially owned by Mr. Anstey, (ii) TruePosition, Inc. that may be
deemed to be beneficially owned by Mr. Berkman, (iii) Chestnut Hill
Wireless, Inc. that may be deemed to be beneficially owned by Mr. Greeley,
(iv) Kingdon Associates, L.P., Kingdon Partners, L.P. and M. Kingdon
Offshore NV that may be deemed to be beneficially owned by Mr. Markbreiter,
(v) Eos Partners SBIC, L.P. that may be deemed to be beneficially owned by
Mr. Michel and (vi) Toronto Dominion Capital (U.S.A.), Inc. that may be
deemed to be beneficially owned by Mr. Rich. Does not include shares held by
Alta Subordinated Debt Partners III, L.P., Alta V Limited Partnership,
Customs House Partners, Alta Communications VI, L.P. and Alta Comm S by S
that may be deemed to be beneficially owned by Mr. Benbow.
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PREFERRED STOCK PURCHASE AGREEMENT
In December 1996, the Company sold 190,476.19 shares of Series A Redeemable
Convertible Participating Preferred Stock to Alta Subordinated Debt Partners,
L.P., Alta V Limited Partnership, Customs House Partners, Alta Communications
VI, L.P., Alta Comm S by S, LLC, Kingdon Associates, L.P., Kingdon Partners
L.P., M. Kingdon Offshore NV, Toronto Dominion Capital (U.S.A.), Inc.,
Associated RT, Inc. (the predecessor of TruePosition, Inc.), Eos Partners SBIC,
L.P., BancBoston Ventures Inc., Northwood Ventures, Chestnut Hill Wireless,
Inc., Westbury Capital Partners, L.P., Boston Capital Ventures III, L.P., High
Point Keller Limited Partnership, R.B. Keller and Richard B. Keller II (the
"Preferred Investors") pursuant to a Stock Purchase Agreement (the "Preferred
Stock Purchase Agreement") dated December 6, 1996 for an aggregate purchase
price of $33.0 million. The Preferred Stock Purchase Agreement was amended and
assigned by the Company to, and assumed by, Holdings pursuant to the terms of
the Exchange Agreement discussed below.
In the Preferred Stock Purchase Agreement assumed by Holdings, Holdings made
certain covenants to the Preferred Investors which survive until such time as
all of the shares of Preferred Stock have either been redeemed or converted to
shares of Common Stock. Such covenants include, among others, a covenant by
Holdings not to declare or pay any dividends or make any distributions of cash,
property or securities of Holdings with respect to any shares of its capital
stock, or directly or indirectly redeem, purchase, or otherwise acquire for
consideration any shares of its capital stock, except as expressly provided in
the Preferred Stock Purchase Agreement or Holdings' Certificate of Incorporation
and except for repurchases of Common Stock at cost by Holdings under employee
stock plans and programs. Holdings also covenanted that, until February 1, 2008
it will not, and will not permit any subsidiary to, without the consent of the
holders of a majority of the outstanding shares of Preferred Stock: (i) issue
any shares of its capital stock senior to or on parity with the Preferred Stock
with respect to dividends, conversions, liquidation, redemptions or special
voting rights, (ii) create, incur, assume, become liable for, or permit to exist
any indebtedness for borrowed money, capital leases, or other similar
commitments or obligations which, for any one such borrowing or series of
related borrowings, is in excess of $250,000, except under the Indenture or the
Credit Facility or as permitted by the Indenture as in effect on the Closing
Date or by the Credit Facility as in effect on the date of execution and
delivery of definitive documentation with respect thereto or indebtedness
incurred to refinance any of the same; PROVIDED, that any such refinancing
indebtedness (a) shall not have an original principal amount exceeding the sum
of the aggregate principal amount of indebtedness refinanced thereby, plus
accrued interest and any applicable premiums, penalties, fees and costs payable
in respect of the indebtedness refinanced thereby, plus out-of-pocket expenses
payable as a result of such refinancing; and (b) having a maturity later than
February 1, 2008 shall not by its terms expressly restrict payments due to the
holders of the Series A Preferred Stock in connection with redemption of such
shares at the option of such holders on or after February 1, 2008 (any such
refinancing indebtedness being hereinafter called "Refinancing Indebtedness"),
(iii) grant or permit to exist any material liens, security interests or
encumbrances on any of Holdings' assets or properties, except under the
Indenture or the Credit Facility or as permitted by the terms of the Indenture
or the Credit Facility (including, without limitation, under any Refinancing
Indebtedness), (iv) enter into any agreement with any party which by its terms
restricts the payments due to the holders of the Preferred Stock as set forth in
Holdings' Certificate of Incorporation, except under the Indenture or the Credit
Facility or as permitted by the Indenture or the Credit Facility (including,
without limitation, under any Refinancing Indebtedness), or (v) authorize any
merger or consolidation of Holdings with or into any other corporation,
partnership or entity (with the result that less than a majority of the
outstanding voting power of the surviving corporation is held by persons who
were stockholders of Holdings immediately prior to such event) or permit the
sale of all or any material portion of the capital stock or assets of Holdings
(other than sales in the ordinary course of business and consistent with past
practices). Holdings also covenanted to the Preferred Investors that it will
not, without the consent of the holders of 66 2/3% of the outstanding shares of
Preferred Stock, authorize or permit the voluntary bankruptcy, reorganization,
liquidation, dissolution or winding up of Holdings. Furthermore, Holdings
covenanted not to make any amendment to its Certificate of Incorporation or
By-laws (a) so as to adversely affect the rights of the holders of the Preferred
Stock with respect to
54
<PAGE>
dividends, liquidation preferences or redemption without the consent of 80% of
the outstanding shares of Preferred Stock, or (b) that adversely affects any
other preference, powers, rights or privileges of holders of the Preferred Stock
without the consent of holders of at least 66 2/3% in interest of the Preferred
Stock. Holdings also covenanted that it would not make any expenditures for
fixed or capital assets, or any commitments for such expenditures, in excess of
$1.0 million for a single or series or related expenditures without the prior
approval of the Board of Directors. Following February 1, 2008, if any shares of
Preferred Stock remain outstanding, the amendments to the Preferred Stock
Purchase Agreement effected by the Exchange Agreement will be of no further
force and effect, and certain of the covenants discussed above will be modified.
In addition, Holdings made certain affirmative covenants to the Preferred
Investors pursuant to the terms of the Preferred Stock Purchase Agreement. Such
covenants include covenants to provide the Preferred Investors with the
financial statements and budget forecasts of Holdings, to pay all taxes owed by
Holdings, to comply with applicable laws and regulations, and to keep its
property insured by financially sound and reputable insurers.
Certain of the Preferred Investors are Small Business Investment Companies
(each an "SBIC") licensed by the Small Business Administration pursuant to 13
C.F.R. Parts 107 and 121 (the "SBIC Regulations"). In the event that, prior to
December 7, 1997, Holdings changes its principal business activity to an
ineligible business activity (within the meaning of the SBIC Regulations),
Holdings will be required to repurchase each share of Preferred Stock held by an
SBIC at the purchase price under the Preferred Stock Purchase Agreement plus all
accrued and unpaid dividends thereon.
STOCKHOLDERS' AGREEMENT
The Company and the current holders of its issued and outstanding capital
stock (the "Stockholders") have entered into a Stockholders' Agreement, dated as
of December 6, 1996 (the "Stockholders' Agreement"). The Stockholders' Agreement
was amended and assigned by the Company to Holdings pursuant to the terms of the
Exchange Agreement described below.
Under the terms of the Stockholders' Agreement, the Stockholders have
certain rights of last refusal and co-sale rights with respect to sales of
Common Stock and/or Preferred Stock of Holdings by other Stockholders. In
addition, the Stockholders' Agreement creates drag-along obligations in the
event that the holders of specified percentages of Common Stock and Preferred
Stock agree to (i) sell or otherwise dispose of the assets of Holdings or a
majority of its capital stock to a non-affiliate of Holdings or certain
Stockholders or (ii) merge Holdings with or into a non-affiliate of Holdings or
certain Stockholders.
Under the Stockholders' Agreement, Holdings also granted the Stockholders
preemptive rights to purchase their pro rata portion of the issuance by Holdings
of (i) shares of capital stock of Holdings, (ii) securities convertible into or
exchangeable for capital stock of Holdings, or (iii) options, warrants or rights
carrying any rights to purchase capital stock of Holdings, all except in
connection with an acquisition or joint venture with a non-affiliate, an
issuance under a Holdings stock option plan, or certain other issuances. The
Stockholders have waived all such preemptive rights with respect to the issuance
of the Warrants (and underlying shares) and certain additional warrants
(including any underlying shares) issued (or which the Company has committed to
issue) at any time within 90 days of the Closing Date.
The Stockholders' Agreement has fixed the number of directors of the Board
of Directors of Holdings at eight and will require each of the Stockholders to
vote their shares of Preferred Stock and/or Common Stock for the election to the
Board of Directors of: one individual nominated by certain members of
management, one individual nominated by Burr, Egan, Deleage & Co. and its
affiliates, one individual nominated by Eos Partners SBIC, L.P., one individual
nominated by Kingdon Associates, L.P. and its affiliates, one individual
nominated by TruePosition, Inc. and one individual nominated by Toronto Dominion
Capital (U.S.A.), Inc. In addition, the Stockholders who are holders of
Preferred Stock further agreed to vote their shares of Preferred Stock for the
election to the Board of Directors, as representatives of the holders of
Preferred Stock, one individual nominated by BancBoston Ventures Inc. and one
individual nominated by GCC Investments, Inc. As soon as practicable after the
effective date of the registration statement filed with the Commission in
connection with the Exchange Offer, the number of
55
<PAGE>
directors shall be increased to nine and each of the Stockholders will be
required to vote its shares of Common Stock and/or Preferred Stock to elect to
the Board of Directors an outside nominee selected by a majority of the Board of
Directors.
The consent of a majority of the holders of Holdings' Common Stock and
Preferred Stock, voting as a single class, is required under the Stockholders'
Agreement for Holdings to: (i) authorize or issue any equity security senior to
or on parity with the Preferred Stock, (ii) incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any new or additional
indebtedness or liability except as permitted by the Preferred Stock Purchase
Agreement, as amended, (iii) redeem, purchase or otherwise acquire for value any
shares of Common Stock or of any class of capital stock of Holdings or any of
its outstanding options, warrants or convertible or exchangeable securities,
except for repurchases of Common Stock at cost by Holdings under employee stock
plans and programs, (iv) enter into any transaction or agreement with any
officer, director or shareholder of Holdings, or any wholly or partially owned
subsidiary of Holdings, or any other affiliate of Holdings, except transactions
that are on terms no less favorable than would be available in an arms-length
transaction and that are approved by the Audit Committee, (v) authorize any
merger or consolidation of Holdings with or into any other corporation,
partnership or entity (with the result that less than a majority of the
outstanding voting power of the surviving corporation is held by persons who
were stockholders of Holdings immediately prior to such event) or permit the
sale of all or any material portion of the capital stock or assets of Holdings
(other than sales in the ordinary course of business and consistent with past
practices), or (vi) increase or decrease the total number of authorized shares
of Preferred Stock.
The consent of both the holders of a majority of the issued and outstanding
shares of Common Stock and Preferred Stock voting together as a single class,
and the holders of 66 2/3% of the issued and outstanding shares of Preferred
Stock, is required for Holdings to permit or authorize the voluntary
reorganization, liquidation, dissolution or winding up of Holdings. Furthermore,
Holdings is not permitted to amend its Certificate of Incorporation or By-laws
(a) so as to adversely affect the rights of the holders of the Preferred Stock
with respect to dividends, liquidation preferences or redemption without the
consent of the holders of a majority of the issued and outstanding shares of
Common Stock and Preferred Stock, voting together as a single class, and the
consent of the holders of 80% of the outstanding shares of Preferred Stock, or
(b) so as to adversely affect any other preference, powers, rights or privileges
of holders of the Preferred Stock without the consent of holders of a majority
of the issued and outstanding shares of Common Stock and Preferred Stock, voting
together as a single class, and the consent of the holders of at least 66 2/3%
of the outstanding shares of Preferred Stock.
The rights and obligations of Holdings and the Stockholders pursuant to the
Stockholders' Agreement will remain in effect until the earlier of the sale of
the Company and certain qualified public offerings of the Company's Common
Stock.
REGISTRATION RIGHTS AGREEMENT
The Company and the Stockholders have also entered into an Amended and
Restated Registration Rights Agreement, dated December 6, 1996 (the
"Registration Agreement"). The Registration Agreement was amended and assigned
by the Company to Holdings pursuant to the terms of the Exchange Agreement
described below.
Under the Registration Agreement, the Holdings has agreed, subject to
certain conditions, to effect up to three demand registrations of the Common
Stock held by the Stockholders for a sale to the public under applicable federal
and state securities laws. In addition, the Stockholders have certain
"piggy-back" registration rights and rights to registration on Form S-3. In
consideration for such registration rights, under the Registration Agreement the
Stockholders have agreed not to sell or otherwise dispose of shares of Holdings'
Common Stock for seven days prior to and 180 days following any initial public
offering by Holdings without the prior written approval of the underwriter for
such offering. The addition of any new holders of Holdings' securities as
parties to the Registration Agreement will require the approval of 75% of
existing holders of Common Stock (or securities exchangeable therefor or
convertible thereto). The approval of the holders of a majority of the shares of
Holdings' capital stock will be required under the Registration Agreement in
order
56
<PAGE>
for Holdings to grant registration rights to any other person that are superior
to the registration rights contained in the Registration Agreement. The
Registration Agreement will terminate as to any party thereto (other than
Holdings) after an initial public offering of Holdings' securities at such time
as such party holds less than one percent of Holdings' outstanding Common Stock.
The Stockholders have waived all such registration rights with respect to any
registration of the Notes or Warrants.
EXCHANGE AGREEMENT
The Company, Holdings and the Stockholders have entered into an Exchange
Agreement establishing the holding company structure. Under the terms of the
Exchange Agreement, each of the Stockholders has exchanged their shares of
Company Common Stock and Preferred Stock for substantially similar shares of
Holdings Common Stock and Preferred Stock. The Exchange Agreement also assigned
the Preferred Stock Purchase Agreement, the Stockholders' Agreement and the
Registration Agreement from the Company to Holdings and released the Company
from any liabilities thereunder arising after the date of assignment. Certain
provisions of the Stockholders' Agreement, the Registration Agreement and the
Preferred Stock Purchase Agreement will also be amended to facilitate the Units
Offering, as described above. Under the Exchange Agreement, each Stockholder has
also subordinated the payment of any amount due to such Stockholder, and all
other rights and claims of such Stockholder, arising under the Exchange
Agreement, the Preferred Stock Purchase Agreement, the Stockholders' Agreement
or the Registration Agreement to the indebtedness of the Company under or
relating to the Notes or otherwise arising under the Indenture or the Credit
Facility.
Under the terms of the Exchange Agreement, Holdings has filed an amendment
to its Certificate of Incorporation. Such amendment extends to February 1, 2008
the date on which the holders of a majority in interest of the Series A
Preferred Stock may require Holdings to redeem all of the outstanding shares of
Series A Preferred Stock. In addition, such amendment includes certain
provisions requiring the affirmative vote of the holders of a majority of the
shares of Preferred Stock, voting as a single class on an as-converted basis,
for Holdings to: (i) authorize or issue, or obligate itself to issue, any equity
security senior to or on parity with the Series A Preferred Stock, (ii) incur,
create, assume, become or be liable in any manner with respect to any new or
additional indebtedness or liability, except under the Indenture or the Credit
Facility, or as permitted by the Indenture as in effect on the Closing Date or
the Credit Facility as in effect on the date of execution and delivery of a
definitive agreement with respect thereto and Refinancing Indebtedness, (iii)
redeem, purchase or otherwise acquire for value any shares of Common Stock or of
any class of capital stock of Holdings, or any of its outstanding options,
warrants or convertible or exchangeable securities, except for repurchases of
shares of Common Stock at cost by Holdings under employee stock plans and
programs, (iv) enter into any transaction or agreement with any officer,
director or stockholder of Holdings, or any wholly or partially owned subsidiary
of Holdings, or any other affiliate of Holdings, except in an arms-length
transaction approved by the Audit Committee, (v) authorize any merger or
consolidation of Holdings with or into any other corporation, partnership or
entity (with the result that less than a majority of the outstanding voting
power of the surviving corporation is held by persons who were stockholders of
Holdings immediately prior to such event) or permit the sale of all or any
material portion of the capital stock or assets of Holdings (other than sales in
the ordinary course of business and consistent with past practices), or (vi)
increase or decrease the total number of authorized shares of Preferred Stock.
In addition, the consent of the holders of 66 2/3% of the issued and outstanding
shares of Preferred Stock is required for Holdings to permit or authorize the
voluntary reorganization, liquidation, dissolution or winding up of Holdings.
Furthermore, Holdings is not permitted to amend its Certificate of Incorporation
or By-laws (a) so as to adversely affect the rights of the holders of the
Preferred Stock with respect to dividends, liquidation preferences or redemption
without the consent of 80% of the outstanding shares of Preferred Stock, or (b)
so as to adversely affect any other preference, powers, rights or privileges of
holders of the Preferred Stock without the consent of holders of at least
66 2/3% of the outstanding shares of Preferred Stock.
57
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the agreements governing the outstanding long-term
indebtedness of the Company and its subsidiaries does not purport to be complete
and is qualified in its entirety by reference to the various agreements
described herein.
14% SENIOR NOTES DUE 2007
On August 6, 1997, Teletrac issued an aggregate $105,000,000 of its 14%
Senior Notes due 2007 pursuant to the Indenture. The Notes mature on August 1,
2007. Interest on the Notes accrues at the rate of 14% per annum and is payable
semi-annually in arrears on February 1 and August 1 of each year, commencing on
February 1, 1998. The Notes represent senior, unsecured obligations of the
Company, rank pari passu in right of payment with all existing and future senior
indebtedness of the Company and rank senior in right of payment to all existing
and future subordinated indebtedness of the Company.
The Company has purchased certain Pledged Securities, representing funds
sufficient to pay the first six semi-annual interest payments on the Notes
(estimated at approximately $39.9 million), as security for repayment of the
first six interest payments on the Notes. The Pledged Securities will be held by
Norwest Bank Minnesota, National Association as Collateral Agent under a Pledge
Agreement pending disbursement.
The Notes will not be redeemable prior to August 1, 2002. Thereafter, the
Notes will be redeemable at the option of the Company, in whole or in part, at
redemption prices set forth in the Indenture. Notwithstanding the foregoing,
prior to August 1, 2000, the Company may redeem outstanding Notes with the net
proceeds of one or more sales of capital stock of the Company or Holdings to one
or more persons at a redemption price equal to 114% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date;
provided that not less than $68.3 million aggregate principal amount of Notes
remain outstanding immediately after any such redemption; and such redemption
shall occur within 30 days after the date of the closing of such sale of capital
stock. Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of the Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase.
The Indenture contains certain covenants that limit the ability of the
Company and certain of its subsidiaries to, among other things, incur additional
indebtedness, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, make certain other restricted payments,
create certain liens, enter into certain transactions with affiliates, sell
assets, issue or sell equity interests or enter into certain mergers and
consolidations.
CREDIT FACILITY
On September 18, 1997, Teletrac, Inc. entered into a bank credit facility
(the "Credit Facility") pursuant to which Banque Paribas, Fleet National Bank
and certain other banks (the "Banks") have agreed to provide the Company a five
and one-half-year $30 million secured revolving line of credit.
The loans under the Credit Facility are, at the election of the Company,
domestic loans or Eurodollar loans. During the first year of the facility, loans
bear interest (i) in the case of domestic loans, at 2.50% per annum plus a
reference rate (which is the prime rate) and (ii) in the case of Eurodollar
loans, at 3.50% per annum plus a reference Eurodollar loan rate. For the
remaining term of the facility, the applicable margin rates may be increased or
decreased quarterly depending upon the Company's debt to operating cash flow
ratio. The applicable margins may range between 1.00% and 2.50% for domestic
loans and 2.00% and 3.50% for Eurodollar loans. The Company will also be
required to pay a commitment fee for all unused committed amounts under the
facility. During the period from November 15, 1997 through February 14, 1998,
the commitment fee will be 0.50% per annum, and the commitment rate may be
increased or
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decreased thereafter, and may range between 0.375% and 0.50%, depending upon the
Company's debt to operating cash flow ratio.
The maximum aggregate commitment of the Banks under the Credit Facility is
reduced each quarter, beginning December 31, 1999, until all amounts borrowed
thereunder are paid in full on March 31, 2003. All amounts outstanding in excess
of the commitment as so reduced must be paid by the Company in full. The
aggregate commitment of the Banks under the Credit Facility will be reduced by a
total of $6.0 million over the four quarters ended September 30, 2000, by a
total of $9.0 million over each of the four quarters ended September 30, 2001
and 2002, and by a total of $6.0 million over the two quarters ended March 31,
2003.
The Credit Facility contains restrictive covenants that, among other things,
impose limitations on the Company and its subsidiaries with respect to (i) the
incurrence and maintenance of indebtedness, including guarantees, (ii) the
incurrence, creation or maintenance of liens, (iii) the making of dividends and
certain payments, (iv) transactions with affiliates, (v) the disposition of
assets, (vi) the types of acquisitions that can be made and the amount which can
be invested in acquisitions, (vii) the amount of rental payments that can be
incurred, and (viii) consolidations and mergers.
The obligations of the Company under the Credit Facility are secured by a
first priority security interest in and a lien upon all of the assets of the
Company. Furthermore, the obligations of the Company have been fully guaranteed
by Teletrac Holdings, Inc., which has secured such guarantee with a pledge of
all of the capital stock of Teletrac, Inc.
The Credit Facility provides for events of default customary in facilities
of its type, including, among others: (i) failure by the Company to make
payments thereunder when due, (ii) failure by the Company or any subsidiary to
perform or observe covenants, (iii) breach of representations or warranties in
any material respect when made, (iv) failure by the Company or any of its
subsidiaries to make payments or observe covenants in respect of certain
indebtedness, (v) change of ownership or control, (vi) bankruptcy, insolvency or
similar events with respect to Holdings or any of its subsidiaries, (vii)
judgments in excess of certain threshold amounts with respect to the Company or
any of its subsidiaries which remain unsatisfied or unstayed for a certain
period of time, (viii) ERISA defaults with respect to the Company or any of its
subsidiaries, and (ix) impairment of loan documentation or security.
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SELLING SECURITY HOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information with respect to the Warrants owned by the Selling Security Holders
that are being offered pursuant to this Prospectus. As of the date hereof, none
of the Selling Security Holders owns any of the Warrant Shares offered hereby.
<TABLE>
<CAPTION>
WARRANTS WARRANTS
BENEFICIALLY PERCENT WARRANTS BENEFICIALLY PERCENT
OWNED PRIOR TO OF BEING OWNED AFTER AFTER
NAME THE OFFERING CLASS OFFERED THE OFFERING OFFERING
- ------------------------------------------------- -------------- --------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
The Bank of New York............................. 22,020 21% 22,020 -- 0%
Bear, Stearns Securities Corp.................... 2,750 2.6% 2,750 -- 0%
The Bank of New York/Toronto Dominion Securities
Inc............................................ 10,500 10.0% 10,500 -- 0%
Boston Safe Deposit and Trust Company............ 1,050 1.0% 1,050 -- 0%
Brown Brothers Harriman & Co..................... 3,500 3.3% 3,500 -- 0%
Chase Manhattan Bank............................. 24,230 23.1% 24,230 -- 0%
Corestates Bank, N.A............................. 500 0.5% 500 -- 0%
Bank of America Personal Trust................... 4,000 3.8% 4,000 -- 0%
Firstar Trust Company............................ 2,000 1.9% 2,000 -- 0%
Goldman, Sachs & Co.............................. 4,250 4.1% 4,250 -- 0%
Investors Bank & Trust........................... 5,550 5.3% 5,550 -- 0%
Norwest Bank Colorado, National Association...... 250 0.2% 250 -- 0%
Northern Trust Company........................... 500 0.5% 500 -- 0%
SSB--Custodian................................... 23,500 22.4% 23,500 -- 0%
Wachovia Bank of North Carolina, N.A............. 250 0.2% 250 -- 0%
First Bank National Association.................. 150 0.1% 150 -- 0%
-- --
------- --------- -----------
Total............................................ 105,000 100.0% 105,000 -- 0%
-- --
-- --
------- --------- -----------
------- --------- -----------
</TABLE>
DESCRIPTION OF WARRANTS
The Warrants have been issued pursuant to a Warrant Agreement, dated August
6, 1997 (the "Warrant Agreement"), between Holdings and Norwest Bank of
Minnesota, N.A., as Warrant Agent (the "Warrant Agent"). The following summary
of certain provisions of the Warrant Agreement does not purport to be complete
and is qualified in its entirety by reference to the provisions of the Warrant
Agreement including the definitions therein of certain terms used below. A copy
of the Warrant Agreement will be made available to Warrantholders and
prospective purchasers of the Warrants upon request.
GENERAL
Each Warrant, when exercised, entitles the registered holder thereof to
receive .537495 fully paid and nonassessable shares of Class A Common Stock at
an exercise price of $.01 per share (the "Exercise Price"). The number of
Warrant Shares is subject to adjustment in the certain cases referred to below.
The Warrants entitle the holders thereof to purchase in the aggregate 56,437
Warrant Shares, or approximately 10% of the Class A Common Stock on a fully
diluted basis, subject to adjustment as described herein. The Warrants will be
exercisable at any time on or after the Separation Date and prior to 5:00 p.m.,
New York City, time on August 1, 2007. The exercise of the Warrants will be
subject to applicable federal and state securities laws and to compliance with
the Communications Act if the exercise of the Warrants would result in a change
of control or in foreign ownership or foreign voting rights exceeding the
then-approved limits. See "Risk Factors--Requirements for Exercising Warrants."
The Warrants may be exercised by surrendering to Holdings the warrant
certificates evidencing the Warrants to be exercised with the accompanying form
of election to purchase properly completed and executed, together with payment
of the Exercise Price. Payment of the Exercise Price may be made in the
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form of cash or by certified or official bank check payable to the order of
Holdings. Upon surrender of the warrant certificate and payment of the Exercise
Price, Holdings will deliver or cause to be delivered, to or upon the written
order of such holder, stock certificates representing the number of whole shares
of Class A Common Stock to which the holder is entitled. If less than all of the
Warrants evidenced by a warrant certificate are to be exercised, a new warrant
certificate will be issued for the remaining number of Warrants.
No fractional shares of Class A Common Stock will be issued upon exercise of
the Warrants. Holdings will arrange to have paid to the holder of the Warrant at
the time of exercise an amount in cash equal to the current market value of any
such fractional shares of Class A Common Stock less a corresponding fraction of
the Exercise Price.
The holders of the Warrants have no right (i) to vote on matters submitted
to the stockholders of Holdings, (ii) to receive notice of any meeting of
stockholders of Holdings and (iii) to receive dividends. The holders of the
Warrants are not entitled to share in the assets of Holdings in the event of
liquidation, dissolution or the winding up of Holdings. In the event a
bankruptcy or reorganization is commenced by or against Holdings, a bankruptcy
court may hold that unexercised Warrants are executory contracts which may be
subject to rejection by Holdings with approval of the bankruptcy court, and the
holders of the Warrants may, even if sufficient funds are available, receive
nothing or a lesser amount as a result of any such bankruptcy case than they
would be entitled to if they had exercised their Warrants prior to the
commencement of any such case.
In the event of a taxable distribution to holders of shares of Class A
Common Stock that results in an adjustment to the number of shares of Class A
Common Stock or other consideration for which a Warrant may be exercised, the
holders of the Warrants may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend. See "Certain Tax Considerations-- Tax Consequences to U.S.
Persons--Warrants; Warrant Shares." The number of shares of Class A Common Stock
purchasable upon exercise of the Warrants will be subject to adjustment in
certain events including: (i) the payment by Holdings of dividends and other
distributions on its shares of Class A Common Stock in shares of Class A Common
Stock, (ii) subdivisions, combinations and reclassifications of the shares of
Class A Common Stock, (iii) the issuance to all holders of shares of Class A
Common Stock of rights, options or warrants entitling them to subscribe for
shares of Class A Common Stock or securities convertible into, or exchangeable
or exercisable for, shares of Class A Common Stock within sixty (60) days after
the record date for such issuance of rights, options or warrants at an offering
price (or with an initial conversion, exchange or exercise price) which is less
than the current market price per share (as defined in the Warrant Agreement) of
shares of Class A Common Stock, (iv) the distribution to holders of shares of
Class A Common Stock of any of Holdings's assets (including cash), debt
securities, preferred stock or any rights or warrants to purchase any such
securities (excluding those rights and warrants referred to in clause (iii)
above), (v) the issuance of shares of Class A Common Stock for a consideration
per share less than the then current market price per share (excluding
securities issued in transactions referred to in clauses (i) through (iv)
above), (vi) the issuance of securities convertible into or exchangeable for
shares of Class A Common Stock for a conversion or exchange price plus
consideration received upon issuance less than the then current market price per
share of Common Stock (excluding securities issued in transactions referred to
in clauses (iii) and (iv) above) and (vii) certain other events that could have
the effect of depriving holders of the Warrants of the benefit of all or a
portion of the purchase rights evidenced by the Warrants; provided, however,
that no adjustment will be required upon conversion of the Series A Preferred or
upon issuance of shares pursuant to employee stock option plans. In addition,
Holdings is required under the Warrant Agreement to adjust the number of shares
of Class A Common Stock purchasable upon exercise of the Warrants in the event
of any issuance or any commitment to issue (with respect to such commitment, the
adjustment will occur on the actual date of issuance), at any time within 90
days of the closing of the Units Offering, of Class A Common Stock or rights,
options or warrants to subscribe therefor to any
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person; any such adjustment shall be intended to preserve the relative ownership
interest in Holdings of the holders of such Warrants as of the closing of the
Units Offering.
In the case of certain consolidations or mergers of Holdings, or the sale of
all or substantially all of the assets of Holdings to another corporation, each
Warrant will thereafter be exercisable for the right to receive the kind and
amount of shares of stock or other securities or property to which such holder
would have been entitled as a result of such consolidation, merger or sale had
the Warrants been exercised immediately prior thereto.
AMENDMENT
From time to time, Holdings and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants will require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
Warrants held by Holdings or any of its Affiliates). The consent of each holder
of the Warrants affected will be required for any amendment pursuant to which
the Exercise Price would be increased or the number of shares of Class A Common
Stock purchasable upon exercise of Warrants would be decreased (other than
pursuant to adjustments provided in the Warrant Agreement).
REGISTRATION RIGHTS
Holdings is required under the Warrant Agreement to file and use its best
efforts to cause one or more shelf registration statements to be filed by
September 5, 1997 and to be effective on or within 90 days thereof (the "Warrant
Shelf Registration Statements") on the appropriate form covering the Warrants
and the issuance of the shares of Class A Common Stock upon the exercise of
Warrants and to keep such registration statements effective until 30 days after
the Expiration Date or, in the case of the registration statement covering the
Warrants, for two years or until such earlier date as Warrants held by
non-affiliates of the Company are tradeable without restriction under Rule
144(k). During any consecutive 365-day period, Holdings shall have the right to
suspend availability of the Warrant Shelf Registration Statements for up to two
30 consecutive day periods, except for the consecutive 30-day period immediately
prior to the Expiration Date, if Holdings's Board of Directors determines in the
exercise of its reasonable judgment that there is a valid business purpose for
such suspension. Holders of Warrants will be able to exercise the Warrants only
if a registration statement relating to the shares of Class A Common Stock
underlying the Warrants is then in effect or if the exercise of such Warrants is
exempt from the registration requirements of the Securities Act and only if such
securities are qualified for sale or exempt from the registration requirements
of the Securities Act and only if such securities are qualified for sale or
exempt from qualifications under the applicable securities laws of the states in
which the various holders of the Warrants reside. Holdings will be unable to
issue shares of Class A Common Stock to those persons desiring to exercise their
Warrants if a registration statement covering the securities issuable upon the
exercise of the Warrants is not effective (unless the sale and issue of shares
upon the exercise of such Warrant is exempt from the registration requirements
of the Securities Act) or if such securities are not qualified or exempt from
qualification in the states in which the holders of the Warrants reside. If
Holdings does not comply with these obligations as set forth in the Warrant
Agreement it will be required to pay liquidated damages to holders of Warrants
or Warrant Shares under certain circumstances.
Each holder of Warrants that sells such Warrants pursuant to a Warrant Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provisions of the Warrant Agreement which are applicable to such holder
(including certain indemnification obligations). In addition, each holder of
Warrants will be required to deliver information to be used in connection with
such Warrant Shelf
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Registration Statement in order to have its Warrants included in such Warrant
Shelf Registration Statement.
DESCRIPTION OF HOLDINGS CAPITAL STOCK
The authorized capital stock of Holdings consists of (i) 1,000,000 shares of
Class A Common Stock, of which 249,000 shares are outstanding, 57,071 are
reserved for issuance upon exercise of the Warrants, 190,477 are reserved for
issuance upon conversion of the Preferred Stock, 68,997 shares are reserved for
issuance upon the exercise of outstanding options under the Stock Plan, (ii)
70,000 shares of Class B Common Stock (together with the Class A Common Stock,
the "Common Stock"), none of which are outstanding, (iii) 190,477 shares of
Series A Redeemable Convertible Participating Preferred Stock (the "Series A
Preferred"), 190,476.19 of which are outstanding, and (iv) 190,477 shares of one
or more series of undesignated preferred stock (together with the Series A
Preferred, the "Preferred Stock"), all of which are reserved for issuance upon
automatic conversion of the Series A Preferred under certain circumstances, as
provided in Holdings' Certificate of Incorporation.
The holders of Holdings' Common Stock and Preferred Stock have certain
voting and other rights, and certain obligations, pursuant to the Preferred
Stock Purchase Agreement, the Stockholders' Agreement, and the Registration
Agreement, as amended and assigned to Holdings pursuant to the Exchange
Agreement. See "Certain Relationships and Related Transactions."
COMMON STOCK
The holders of the Class A Common Stock are entitled to one vote per share
on all matters on which stockholders are entitled to vote. The holders of the
Class B Common Stock have the same rights as the holders of Class A Common
Stock, but are not entitled to vote except in limited situations in which they
are allowed to vote as a separate class. Subject to the rights and preferences
of any holder of Preferred Stock that is or may be issued, the holders of Common
Stock are entitled to receive such dividends as may be declared by the Board of
Directors, and to receive, pro rata, the assets of Holdings upon liquidation
after distribution of such amounts to holders of Preferred Stock as are required
by the terms of such stock. Holdings has entered into agreements with the
holders of its Preferred Stock that limit the ability of Holdings to declare and
pay dividends on its Common Stock. It is anticipated that earnings, if any,
which might be generated from operations of Holdings will be used to finance the
growth of Holdings and that cash dividends will not be paid to holders of Common
Stock for the foreseeable future.
PREFERRED STOCK
The following summary sets forth certain information concerning each series
of the Preferred Stock that is currently outstanding.
SERIES A CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK
Holdings has authorized 190,477 shares of Series A Preferred, of which
190,476.19 shares are issued prior and outstanding.
The holders of Series A Preferred are entitled to receive cumulative,
compounding dividends at a rate per annum of 15%, payable when and as declared
by the Board of Directors and, in any event, upon redemption of the Series A
Preferred Stock or any liquidation of Holdings. In addition, the holders of the
Series A Preferred shall be entitled to receive dividends at the same rate as
dividends paid with respect to the Common Stock, on an as-converted basis. In
the event Holdings declares a special dividend with respect to all or any
portion of the net proceeds received in connection with the spinoff or sale of
assets of Holdings that constitute a separate business unit, such dividend shall
be first paid in the ratio of 1.7325 to 1.00 on each share of the Preferred
Stock and the Common Stock, respectively, until such time as an aggregate of
$173.25 shall have been paid on each share of Preferred Stock, and thereafter
such special
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dividend shall be paid ratably among the shares of Preferred Stock and Common
Stock, on an as-converted basis.
In the event of any liquidation, dissolution or winding up of Holdings, the
holders of the Series A Preferred will be entitled to receive, pro rata with
holders of any other series of Preferred Stock, the greater of (i) $190.86 (as
adjusted) plus accrued and unpaid dividends (the "Liquidation Amount") and (ii)
an amount equal to the ratable share of the assets and funds available for
distribution to the holders of the Common Stock, on an as-converted basis. For
the purposes of such distributions, a liquidation event is defined to include a
merger or consolidation of Holdings, a sale of all or substantially all of
Holdings' assets, or a sale of a majority of the Holdings' outstanding capital
stock to a non-affiliate, unless the holders of 66 2/3% of the outstanding
shares of Preferred Stock elect (on an as-converted basis) to receive, upon such
merger, consolidation or sale, the amount such holders would have received had
they converted their shares of Preferred Stock to Common Stock immediately prior
to such event.
Each share of Series A Preferred may be converted at any time, at the
holder's option, into such number of fully paid and non-assessable shares of
Common Stock as is determined by dividing (i) $173.25 by (ii) $173.25, adjusted
to reflect certain antidilution protections (as so adjusted, the "Conversion
Price"). In addition, each share of Series A Preferred will automatically be
converted on the same basis upon (a) the closing of an underwritten public
offering of Holdings' Common Stock pursuant to an effective registration
statement under the Securities Act at an offering price not less than $354.38
per share (subject to adjustment) and resulting in gross proceeds of at least
$30.0 million or (b) upon any underwritten public offering of Holdings' Common
Stock pursuant to an effective registration statement with the written election
of the holders of not less than 66 2/3% of the outstanding Preferred Stock.
At any time on or after February 1, 2008, at the election of the holders of
a majority of the outstanding Preferred Stock (on an as-converted basis),
Holdings shall redeem each share of Series A Preferred for the greater of (i)
the Liquidation Amount and (ii) the fair market value of a share of Series A
Preferred.
Under the terms of the Certificate of Incorporation, the holders of shares
of Series A Preferred, voting as a class, are entitled to elect one director of
Holdings. In addition to any voting rights provided by law, the holders of
shares of Series A Preferred are entitled to vote on all matters voted on by
holders of the Common Stock, voting together as a single class, at all meetings
of the stockholders of Holdings. With respect to any such vote, each share of
Series A Preferred shall entitle the holder thereof to cast a number of votes
equal to the number of votes which could be cast in such vote by a holder of the
shares of Series A Preferred if such shares had been converted into Common Stock
on the record date of such vote. In addition, the affirmative vote of the
holders of a majority of the shares of Preferred Stock, voting as a single class
on an as-converted basis, is required for Holdings to: (i) authorize or issue,
or obligate itself to issue, any equity security senior to or on parity with the
Series A Preferred Stock, (ii) incur, create, assume, become or be liable in any
manner with respect to any new or additional indebtedness or liability, except
under the Indenture or the Credit Facility or as permitted by the Indenture or
the Credit Facility or Refinancing Indebtedness, (iii) redeem, purchase or
otherwise acquire for value any shares of Common Stock or of any class of
capital stock of Holdings or any of its outstanding options, warrants or
convertible or exchangeable securities, except for repurchases of shares of
Common Stock at cost by Holdings under employee stock plans and programs, (iv)
enter into any transaction or agreement with any officer, director or
stockholder of Holdings or any wholly or partially owned subsidiary of Holdings,
or any other affiliate of Holdings, except in an arms-length transaction
approved by the Audit Committee, (v) authorize any merger or consolidation of
Holdings with or into any other corporation, partnership or entity (with the
result that less than a majority of the outstanding voting power of the
surviving corporation is held by persons who were stockholders of Holdings
immediately prior to such event) or permit the sale of all or any material
portion of the capital stock or assets of Holdings (other than sales in the
ordinary course of business and consistent with past practices), or (vi)
increase or decrease the total number of authorized shares of Preferred Stock.
In addition, the consent of the holders of 66 2/3% of the issued and outstanding
shares of Preferred Stock is required for Holdings to permit or authorize the
voluntary reorganization,
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liquidation, dissolution or winding up of Holdings. Furthermore, Holdings may
not amend its Certificate of Incorporation or By-laws (a) so as to adversely
affect the rights of the holders of the Preferred Stock with respect to
dividends, liquidation preferences or redemption without the consent of 80% of
the outstanding shares of Preferred Stock, or (b) so as to adversely affect any
other preference, powers, rights or privileges of holders of the Preferred Stock
without the consent of holders of at least 66 2/3% of the outstanding shares of
Preferred Stock.
In the event that Holdings issues new securities and any holder of Series A
Preferred Stock does not exercise such holder's preemptive rights provided for
in the Stockholders' Agreement with respect to such new securities, the shares
of Series A Preferred Stock held by such person will not be entitled to
antidilution adjustments to the Conversion Price. Instead, each share of Series
A Preferred held by such person shall be converted to a share of a new series of
Preferred Stock as described below under
"--Undesignated Preferred Stock."
UNDESIGNATED PREFERRED STOCK
Holdings has authorized 190,477 shares of Undesignated Preferred Stock, none
of which are currently outstanding. One or more series of Preferred Stock may be
issued from time to time (each such series, "New Preferred") in the event that
Holdings issues new securities and any holder of Series A Preferred Stock does
not exercise such holder's preemptive rights provided for in the Stockholders'
Agreement with respect to such new securities. Each share of Series A Preferred
held by such person shall be converted to a share of New Preferred. The New
Preferred will be identical in all respects to the Series A Preferred except
that (i) the Conversion Price of the New Preferred shall be equal to the
Conversion Price of the Series A Preferred Stock immediately prior to such event
and (ii) the New Preferred will not have the antidilution protections of the
Series A Preferred.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material federal income tax
considerations that may be relevant to persons acquiring, holding or disposing
of the Warrants. This summary does not purport to address specific tax
consequences that may be relevant to certain persons (including, for example,
foreign persons, financial institutions, broker-dealers, insurance companies,
tax-exempt organizations, S corporations and persons subject to alternative
minimum tax).
The discussion is based on the current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable treasury regulations
(including proposed treasury regulations), judicial authority and administrative
rulings and practice. Any such authorities are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the Warrants.
Further, there can be no assurance that the Internal Revenue Service (the "IRS")
will not take a contrary view, and no rulings from the IRS have been or will be
sought.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE SPECIFIC TO THEM, AS WELL AS
WITH RESPECT TO ANY STATE, LOCAL OR FOREIGN TAX CONSIDERATIONS IN ACQUIRING,
HOLDING OR DISPOSING OF THE WARRANTS.
SALE OF THE WARRANTS
Generally, a holder of the Warrants will recognize gain or loss upon the
sale or exchange of the Warrants in an amount equal to the difference between
the amount realized on the sale and the holder's adjusted tax basis for the
Warrants. The adjusted tax basis of the Warrants for holders will generally be
equal to the purchase price paid for such Warrants (adjusted as described below
under "Adjustments under the Warrants"). Under section 1234 of the Code, gain or
loss attributable to the sale or exchange of an
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option to buy or sell property is considered gain from the sale or exchange of
property that has the same character as the property to which the option
relates. Because the Warrants relate to Common Stock, gains or losses
attributable to the sale or exchange of the Warrants will generally constitute
capital gains and losses if the Common Stock would be a capital asset in the
hands of the Warrant holder. Such capital gains and losses will be long term if
the Warrants have been held for more than one year.
EXERCISE OF THE WARRANTS
The exercise of a Warrant will not result in a taxable event to the holder
of the Warrant (except with respect to cash, if any, paid by the Company in lieu
of the issuance of fractional shares of Common Stock). The holder's basis in the
shares of Common Stock received upon exercise of a Warrant will be equal to the
sum of (a) such holder's basis in the Warrant and (b) the cash paid by the
holder upon exercise of the Warrant. The holding period for capital gain and
loss purposes for the shares of Common Stock acquired upon exercise of a Warrant
will not include the period during which the Warrant was held. If any cash is
received in lieu of fractional shares, the holder will recognize gain or loss,
and the character and amount of gain or loss will be determined as if the holder
had received such fractional shares and then immediately sold such fractional
shares back to the Company for cash.
EXPIRATION OF THE WARRANTS
Upon the expiration of an unexercised Warrant, the holder will recognize a
loss equal to the adjusted tax basis of the Warrant in the hands of the holder.
Under section 1234 of the Code, the character of the loss realized upon the
failure to exercise an option is determined based on the character of the
property to which the option relates. Because the Warrants relate to Common
Stock, a loss realized upon expiration of a Warrant will generally be a capital
loss if the Common Stock would be a capital asset in the hands of the Warrant
holder. Such capital loss will be long term if the Warrant has been held for
more than one year.
ADJUSTMENTS UNDER THE WARRANTS
Pursuant to the terms of the Warrants, the number of shares that may be
purchased upon exercise of the Warrants is subject to adjustment from time to
time upon the occurrence of certain events. Under section 305 of the Code, a
change in conversion ratio or any transaction having a similar effect on the
interest of a Warrant holder may be treated as a distribution with respect to
any Warrant holder whose proportionate interest in the earnings and profits of
the Company is increased by such change or transaction. Thus, under certain
future circumstances which may or may not occur, such an adjustment pursuant to
the terms of the Warrants may be treated as a taxable distribution to the
Warrant holders to the extent of the Company's current or accumulated earnings
and profits, without regard to whether the Warrant holders receive any cash or
other property. If the Warrant holders receive such a taxable distribution their
tax bases in the Warrants will be increased by an amount equal to the taxable
distribution.
THE RULES WITH RESPECT TO ADJUSTMENTS ARE COMPLEX AND WARRANT HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS IN THE EVENT OF AN ADJUSTMENT.
BACKUP WITHHOLDING
A holder of a Warrant may be subject to backup withholding at the rate of
31% with respect to gross proceeds upon sale or exchange of a Warrant unless
such holder (a) is a corporation or other exempt recipient, and, when required,
demonstrates this fact or (b) provides, when required, a correct taxpayer
identification number, certifies that backup withholding is not in effect and
otherwise complies with applicable requirements of the backup withholding rules.
Furthermore, a holder of a Warrant that does not provide its correct taxpayer
identification number when required may be subject to penalties imposed by the
IRS. Backup withholding is not an additional tax; any amounts so withheld are
creditable against the holder's federal income tax liability, if any.
66
<PAGE>
PLAN OF DISTRIBUTION
The Warrant Shares offered by the Company and the Selling Security Holders
hereby are issuable upon exercise of the outstanding Warrants. No underwriter
has been or will be engaged by the Company in connection with the offering of
the Warrant Shares. The exercise price of the Warrants was determined through
negotiation between the Company and the Initial Purchasers under of the Unit
offering, and should not be assumed to bear any relationship to the Company's
asset value, net worth or other established criteria of valuation.
The Warrants and the Warrant Shares may be sold from time to time to
purchasers directly by the Selling Security Holders. Alternatively, the Selling
Security Holders may from time to time offer such securities through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of the securities for whom they may act as agents.
The Selling Security Holders and any underwriters, dealers or agents that
participate in the distribution of the Warrants or the Warrant Shares may be
deemed to be "underwriters" under the Securities Act, and any profit on the sale
of such securities by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the Warrants or the Warrant Shares is
made, if required, a Prospectus Supplement will be distributed which will set
forth the number of Warrants or Warrant Shares being offered and the terms of
the offering, including the name or names of any underwriters, dealers or
agents, the purchase price paid by any underwriter for Warrants or Warrant
Shares purchased from the Selling Security Holders, any discounts, commissions
and other items constituting compensation from the Selling Security Holders and
any discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
The Warrants and the Warrant Shares offered hereby may be sold from time to
time in one or more transactions at a fixed offering price, which may be
changed, at varying prices determined at the time of sale, or at negotiated
prices. Such prices will be determined by the Selling Security Holders or by
agreement between the Selling Security Holders and any underwriters or dealers,
and the criteria used by them to establish price are likely to include
subjective factors.
In order to comply with the applicable securities laws of certain states, if
any, the Warrant Shares and the Warrants may only be sold through registered or
licensed brokers or dealers in those states. In addition, in certain states such
securities may not be offered or sold unless they have been registered or
qualified for sale in such states or an exemption from such registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of securities may not simultaneously bid for or
purchase securities of the same class for a period of two business days prior to
the commencement of such distribution. In addition and without limiting the
foregoing, the Selling Security Holders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-6 and 10b-7, in connection with transactions in the
Warrants and the Common Stock during the effectiveness of the Registration
Statement of which this Prospectus forms a part. All the foregoing may affect
the marketability of the Warrant Shares and the Warrants.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New York. Reboul,
MacMurray, Hewitt, Maynard & Kristol owns an aggregate 458 shares of Class A
Common Stock of Holdings, constituting less than 1% of the outstanding shares of
Class A Common Stock of Holdings.
67
<PAGE>
INDEPENDENT AUDITORS
The consolidated balance sheets of AirTouch Teletrac General Partnership as
of December 28, 1995 and Teletrac Holdings, Inc. as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity (partners'
capital/deficiency) and cash flows for the years then ended included in this
Prospectus and elsewhere in this Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent auditors, and are included herein in reliance upon the
authority of such firm as experts in giving said report.
The consolidated balance sheet of AirTouch Teletrac General Partnership as
of December 31, 1994 and the related consolidated statements of operations,
partners' capital/deficiency and cash flows for the year then ended included in
this Prospectus and elsewhere in this Registration Statement have been audited
by Coopers & Lybrand LLP, independent auditors.
68
<PAGE>
GLOSSARY
ACQUISITION--the purchase of the assets of AirTouch Teletrac by the Company
on January 17, 1996.
AIRTOUCH TELETRAC--AirTouch Teletrac, a California general partnership, its
predecessor, PacTel Teletrac, and its successor, AirTouch Services.
RPU--Average revenue per subscriber unit per month.
BSU--Base Station Unit, a wireless transmission receiver which records the
Reverse Link communications from a VLU.
CMRS--Commercial Mobile Radio Service, a FCC classification of wireless
telecommunications services.
COMMON STOCK--Class A Common Stock, par value $.01 per share, and Class B
Common Stock, par value $.01 per share, of the Company.
COMPANY--Teletrac, Inc., its predecessors and its subsidiary, Teletrac
License, Inc.
COMMUNICATIONS ACT--The Communications Act of 1934, as amended.
ESMR--Enhanced Specialized Mobile Radio, an advanced, digital version of
Specialized Mobile Radio ("SMR").
FCC--The Federal Communications Commission.
FLEET DIRECTOR-REGISTERED TRADEMARK---A product of the Company that allows
fleet customers to track the real-time location of fleet vehicles and
communicate with those vehicles. Fleet Director-Registered Trademark- can be
combined with a Mobile Data Terminal ("MDT") or a Status Messaging Terminal
("SMT") to provide two-way communication between a customer and its drivers.
FLEET REPORTER-TM---A lower cost alternative to Fleet
Director-Registered Trademark-, Fleet Reporter-TM- is a service offered by the
Company to provide daily vehicle location reports to customers.
FORWARD LINK--A wireless digital radio transmission, emitted simultaneously
from each transmitter on the Company's network, which transmits location
commands and/or messages to a VLU.
GPS--The Global Positioning Satellite system, which uses U.S.
government-funded satellites to provide location information.
IBSU--Integrated Base Station Unit, an advanced version of the BSU receiver,
currently under development, which will permit multichannel capability and
free-text alphanumeric messaging.
LMS--Location and Monitoring Services.
LORAN-C--A system that uses land-based transmitting stations emitting
low-frequency radio signals to provide location information.
MDT--Mobile Data Terminal, the Company's more advanced two-way messaging
system, is a small terminal, connected to the VLU, and typically mounted on a
vehicle's dashboard.
MSA--Metropolitan Statistical Area, as defined in the 1993 Rand-McNally
Commercial Atlas.
MTA--Major Trading Area, as defined in the 1993 Rand-McNally Commercial
Atlas.
MULTILATERATION--a technique that locates a transceiver by measuring its
distance from a number of known locations.
NCC--the local Network Control Center located in each metropolitan market,
which consists of RF control equipment, telecommunications access connection
computers and the Company's data base. The
69
<PAGE>
NCC uses algorithms and multilateration techniques to determine the location of
VLUs and relays the information to the subscriber.
OZZ-REGISTERED TRADEMARK---A product of the Company marketed to both
consumer and commercial customers, which provides a telephone-operated mobile
information service. In addition, OZZ-Registered Trademark- provides a "mobile
yellow pages," informing the customer of the prominent businesses or landmarks
near a vehicle's location.
PCS--A type of wireless telephone system that uses light-weight, inexpensive
handheld sets and communicates via low power antennas.
PMRS--Private Mobile Radio Service, a FCC classification of wireless
telecommunications services.
PREFERRED STOCK--The Series A Redeemable Convertible Participating Preferred
Stock, par value $.01 per share, of the Company or Holdings, as applicable, and
one or more series of undesignated preferred stock, par value $.01 per share, of
the Company or Holdings, as applicable, which has been reserved for issuance
upon automatic conversion of the Series A Preferred Stock as provided in the
Certificate of Incorporation.
REVERSE LINK--A response signal, providing location and messaging
information, emitted from a VLU after the receipt of a Forward Link.
SMR--Specialized Mobile Radio, a two-way wireless voice communications
system.
SMT--Status Messaging Terminal, the Company's lower cost two-way messaging
system offered as an alternative to the MDT, is a small terminal, connected to
the VLU and typically mounted on a vehicle's dashboard.
TADIRAN--Tadiran Telematics, Ltd., a leading Israeli technology supplier and
a wholly-owned subsidiary of Tadiran Limited, a publicly traded Israeli company
a majority of the stock of which is owned by Koor Industries Ltd.
TELETRACER-TM---The name under which the Company markets its consumer
product.
VLU--Vehicle Location Unit, a "transceiver" unit which receives location
commands and messages, transmits response signals to the base stations
indicating its location and initiates preprogrammed messages.
WINFLEET-TM---A product currently under development by the Company, expected
to be introduced in the second half of 1997. Winfleet-TM- is a Microsoft
Windows-Registered Trademark--based application similar to Fleet
Director-Registered Trademark-, but which does not require a dedicated computer.
70
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TELETRAC HOLDINGS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
Condensed Consolidated Balance Sheet as of September 30, 1997 (unaudited).................................. F-2
Condensed Consolidated Statements of Operations for the six months ended September 30, 1996 and 1997
(unaudited).............................................................................................. F-4
Condensed Consolidated Statement of Cash Flows for the six months ended September 30, 1996 and 1997
(unaudited).............................................................................................. F-5
Consolidated Statement of Stockholder's Equity (Deficit)................................................... F-6
Notes to Condensed Consolidated Financial Statements....................................................... F-7
FISCAL YEAR 1996
Report of Arthur Andersen LLP, Independent Auditors........................................................ F-9
Consolidated Balance Sheet as of December 31, 1996......................................................... F-10
Consolidated Statement of Operations for the year December 31, 1996........................................ F-11
Consolidated Statement of Stockholder Equity for the year ended December 31, 1996.......................... F-12
Consolidated Statement of Cash Flows for the year ended December 31, 1996.................................. F-13
Notes to Consolidated Financial Statements................................................................. F-14
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
FISCAL YEAR 1995
Report of Arthur Andersen LLP, Independent Auditors........................................................ F-20
Balance Sheet as of December 28, 1995...................................................................... F-21
Statement of Operations for the period from January 1, 1995 through December 28, 1995...................... F-22
Statement of Cash Flows for the period from January 1, 1995 through December 28, 1995...................... F-23
Notes to Financial Statements.............................................................................. F-24
FISCAL YEAR 1994
Report of Coopers & Lybrand LLP, Independent Auditors...................................................... F-29
Balance Sheet as of December 31, 1994...................................................................... F-30
Statement of Operations for the year ended December 31, 1994............................................... F-31
Statement of Partners' Deficit............................................................................. F-32
Statement of Cash Flows for the year ended December 31, 1994............................................... F-33
Notes to Financial Statements.............................................................................. F-34
</TABLE>
F-1
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 27,639,168 $ 53,733,172
Accounts receivable, net................................................... 2,504,173 5,034,407
Inventories (note 3)....................................................... 2,782,932 3,338,475
Prepaid expenses and other................................................. 2,113,076 3,830,477
----------------- ------------------
Total current assets................................................... 35,039,349 65,936,531
----------------- ------------------
RESTRICTED CASH............................................................ 1,256,285 1,756,327
RESTRICTED INVESTMENTS..................................................... -- 40,285,811
PROPERTY AND EQUIPMENT, net of depreciation................................ 16,845,801 24,567,356
LICENSES AND OTHER, net of amortization.................................... 571,899 5,729,494
----------------- ------------------
Total assets........................................................... $ 53,713,334 $ 138,275,519
----------------- ------------------
----------------- ------------------
</TABLE>
F-2
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................... $ 1,900,168 $ 1,057,135
Current portion of long-term obligations................................... 1,382,340 491,007
Interest payable on senior notes........................................... -- 2,245,833
Accrued expenses........................................................... 664,675 1,618,081
Unearned revenue and contracts............................................. 250,053 1,126,427
Refrequency liability...................................................... 7,234,158 3,807,876
Other current liabilities.................................................. 216,008 413,338
----------------- ------------------
Total current liabilities.............................................. 11,647,402 10,759,697
----------------- ------------------
SENIOR NOTES, 14% due 8/1/2007 (note 2).................................... -- 98,077,379
OTHER LONG-TERM OBLIGATIONS................................................ 1,615,344 2,025,942
PREFERRED STOCK, redeemable cumulative, 15% dividend, 190,477 shares
authorized and 190,476.19 shares issued and outstanding.................. 33,340,000 37,052,500
PREFERRED STOCK, undesignated, 190,477 shares authorized, none issued or
outstanding.............................................................. -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, $.01 par value, 1,000,000 shares authorized and
249,000 issued and outstanding......................................... 2,490 2,490
Common stock, Class B, $.01 par value, 70,000 shares authorized and none
issued or outstanding.................................................. -- --
Warrants, 105,000 units to purchase 57,071 shares of Class A common stock
outstanding.............................................................. -- 7,039,954
Paid-in-capital.......................................................... 22,024,094 22,022,656
Accumulated deficit...................................................... (14,915,996) (38,705,099)
----------------- ------------------
Total stockholders' deficit............................................ 7,110,589 (9,639,999)
----------------- ------------------
Total liabilities and stockholders' deficit............................ $ 53,713,334 $ 138,275,519
----------------- ------------------
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
F-3
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------- -------------- ------------- -------------
OPERATING REVENUES.................................. $ 10,329,584 $ 18,687,936 $ 4,388,534 $ 7,318,012
Cost of revenues.................................. 3,735,357 9,036,378 1,977,942 3,834,315
Selling and advertising........................... 3,538,524 8,872,007 1,708,122 2,661,294
General and administrative........................ 9,853,082 14,951,434 3,619,346 4,915,253
Research & development costs...................... -- 2,873,084 -- 833,038
Refrequency costs................................. 677,114 -- 271,474 --
Depreciation and amortization..................... 883,763 1,754,243 340,333 755,008
------------- -------------- ------------- -------------
Loss from operations............................ (8,358,256) (18,799,210) (3,528,683) (5,680,896)
OTHER EXPENSE (INCOME):
Interest expense.................................. 33,461 2,527,979 23,387 2,441,545
Interest and other income......................... (86,546) (1,250,586) (12,070) (845,800)
------------- -------------- ------------- -------------
Loss before income taxes........................ (8,307,171) (20,076,603) (3,540,000) (7,276,641)
PROVISION FOR INCOME TAXES.......................... -- -- -- --
------------- -------------- ------------- -------------
NET LOSS............................................ $ (8,307,171) $ (20,076,603) $ (3,540,000) (7,276,641)
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
F-4
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
<S> <C> <C>
1996 1997
------------- --------------
OPERATING ACTIVITIES:
Net Loss......................................................................... $ (8,307,171) $ (20,076,603)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization.................................................. 883,763 1,754,243
Accretion of discount on senior notes.......................................... -- 117,333
Changes in working capital and other assets and liabilities, net of acquisition
and refrequency.............................................................. (2,463,131) (3,610,634)
Restricted cash................................................................ (722,114) (500,042)
Refrequency liability.......................................................... 677,113 (3,426,282)
Accrued interest on senior notes............................................... -- 2,245,833
------------- --------------
Total Adjustments............................................................ (1,624,369) (3,419,549)
------------- --------------
Cash used in operating activities............................................ (9,931,540) (23,496,152)
------------- --------------
INVESTING ACTIVITIES:
Acquisition of property and equipment............................................ (6,460,339) (8,854,274)
Acquisition of other intangible assets........................................... -- (62,002)
Acquisition of Airtouch Teletrac................................................. (2,098,875) (1,000,000)
------------- --------------
Cash used in investing activities............................................ (8,559,214) (9,916,276)
------------- --------------
FINANCING ACTIVITIES:
Issuance of common stock, net.................................................... 18,838,627 --
Proceeds from issuance of senior notes and warrants, net......................... -- 100,607,766
Restricted investments........................................................... (40,285,811)
Cost of credit facility.......................................................... -- (815,523)
------------- --------------
Cash provided by financing activities........................................ 18,838,627 59,506,432
NET CHANGE IN CASH................................................................. 347,873 26,094,004
CASH AND CASH EQUIVALENTS, beginning of period..................................... 310,564 27,639,168
------------- --------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 658,437 $ 53,733,172
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
F-5
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- PAID-IN ACCUMULATED
CLASS A CLASS B WARRANTS CAPITAL DEFICIT
--------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996....................... $ 2,490 $ -- $ -- $ 22,024,094 $ (14,915,996)
Issuance of warrants related to senior debt.... -- -- 7,039,954 -- --
Cost of issuance of preferred stock............ -- -- -- (1,438)
Net loss....................................... -- -- -- -- (20,076,603)
Preferred stock dividends...................... -- -- -- -- (3,712,500)
BALANCE, September 30, 1997...................... $ 2,490 $ -- $ 7,039,954 $ 22,022,656 $ (38,705,099)
--------- --------- ------------ ------------- --------------
--------- --------- ------------ ------------- --------------
</TABLE>
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
F-6
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION.
The condensed consolidated interim financial statements of Teletrac
Holdings, Inc. and subsidiary ("Teletrac" or the "Company") included herein have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission") and
reflect all adjustments that are, in the opinion of management, necessary to
fairly present the financial position, results of operations, and cash flows for
the interim periods. Teletrac Holdings, Inc. and Teletrac, Inc. completed an
exchange agreement on August 6, 1997, whereby stockholders of Teletrac, Inc.
exchanged common and preferred stock of Teletrac, Inc. for common and preferred
stock of Teletrac Holdings, Inc. This transaction was accounted for as a
combining of interests under common control, similar to a pooling of interests.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. Management believes that the disclosures made are adequate to make
the information presented not misleading. The results for interim periods are
not necessarily indicative of the results for the full year. The interim
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Registration Statement on Form S-1.
NOTE 2 -- LONG-TERM DEBT
In August 1997, the Company issued $105.0 million of 14% Senior Notes due
August 1, 2007 ("the Notes"). Gross proceeds of the Notes were approximately
$61.4 million in unrestricted funds and $39.9 million in restricted funding
allocated for the first three years of interest payments on the Notes. The Notes
were issued with 105,000 detachable warrants (the "Warrants"). Each Warrant
entitles the holder to purchase .537495 shares (collectively, the "Warrant
Shares") of the Company's Class A Common Stock at an exercise price of $.01 per
share, currently representing 10% of the Class A Common Stock on a fully diluted
basis. The Warrants have been valued at $7.04 million. The discount of $7.04
million is being accreted over the life of the Notes. The Company has recorded
in other assets approximately $4.4 million of deferred financing costs which are
being amortized over the life of the Notes. The Notes accrue interest until
maturity at a rate of 14% per annum. Interest on the Notes will be payable
semi-annually in arrears on February 1 and August 1 of each year, commencing on
February 1, 1998.
In September 1997, the Company entered into an agreement to establish
revolving credit facilities (the "Revolvers") in the aggregate principal amount
of $30.0 million expiring on March 31, 2003. Pursuant to this agreement, the
Company issued 5,707 warrants to purchase one share each of the Company Class A
Common Stock at an exercise price of $202 per share. The Company has recorded in
other assets approximately $816,000 of deferred financing costs which are being
amortized over the life of the Revolvers. The Revolvers have a .500% commitment
fee rate based on the total principal amount, paid quarterly. To date, the
Company has made no draws against the Revolvers.
In September 1997, the Company increased the Warrant Shares of the Senior
Notes to purchase an additional 634 shares of Class A Common Stock. The
additional Warrant Shares were issued subject to the Senior Note agreement
having allocated 10% of Class A Common Stock, on a fully diluted basis, to the
holders of the Notes. The need to issue the additional shares arose from the
issuance of Warrants to the participating banks involved in the Revolvers
agreement.
F-7
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- INVENTORIES
Inventories consisted of the following at December 31, 1996 and September
30, 1997 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Vehicle Location Units................................. $ 2,087,976 $ 1,680,010
Messaging Units........................................ 356,528 844,065
Computers & Software................................... 84,377 354,485
Other Inventory........................................ 254,051 459,915
----------------- ------------------
Total Inventory.................................... $ 2,782,932 $ 3,338,475
----------------- ------------------
----------------- ------------------
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted
of the following at December 31, 1996 and September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
System Equipment....................................... $ 4,986,898 $ 10,136,267
Automobiles............................................ 89,545 363,700
Furniture & Fixtures................................... 761,937 1,394,643
Computer Equipment..................................... 2,411,855 3,358,260
Leasehold Improvements................................. 42,539 215,444
Construction in Progress............................... 9,774,693 11,972,271
----------------- ------------------
Total Property & Equipment............................. $ 18,067,467 $ 27,440,585
----------------- ------------------
Accumulated Depreciation............................... $ (1,221,666) $ (2,873,229)
----------------- ------------------
Net Property & Equipment............................... $ 16,845,801 $ 24,567,356
----------------- ------------------
----------------- ------------------
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Teletrac Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Teletrac
Holdings, Inc. (a Delaware corporation) and subsidiaries, as of December 31,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Teletrac Holdings, Inc., and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
August 6, 1997
F-9
<PAGE>
TELETRAC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $27,639,168
Accounts receivable- less allowances of $460,000............................. 2,504,173
Inventory- less reserves of $155,642......................................... 2,782,932
Prepaid expenses and other current assets.................................... 2,113,076
----------
Total current assets..................................................... 35,039,349
RESTRICTED CASH................................................................ 1,256,285
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,221,666.......... 16,845,801
LICENSES AND OTHER, net of accumulated amortization of $38,355................. 571,899
----------
Total assets............................................................. $53,713,334
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $1,547,566
Accrued expenses............................................................. 1,483,338
Notes payable................................................................ 1,001,015
Current portion of leases payable............................................ 381,325
Refrequencing liability...................................................... 7,234,158
----------
Total current liabilities................................................ 11,647,402
----------
LONG-TERM LEASES PAYABLE....................................................... 1,615,344
PREFERRED STOCK, undesignated, 190,477 shares authorized, none issued or
outstanding.................................................................. --
PREFERRED STOCK, redeemable cumulative, 15% dividend, 190,477 shares authorized
and 190,476.19 shares issued and outstanding................................. 33,340,000
STOCKHOLDERS' EQUITY:
Common stock, Class A, $0.01 par value, 507,934 shares authorized and 249,000
issued and outstanding..................................................... 2,490
Common stock, Class B, $0.01 par value, 70,000 shares authorized and none
issued or outstanding...................................................... --
Paid-in capital.............................................................. 22,024,094
Accumulated deficit.......................................................... (14,915,996)
----------
Total stockholders' equity................................................. 7,110,588
----------
Total liabilities and stockholders' equity................................. $53,713,334
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-10
<PAGE>
TELETRAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING REVENUES............................................................. $15,956,984
OPERATING EXPENSES:
Cost of revenues............................................................. 7,030,847
Selling, general and administrative.......................................... 14,035,038
Engineering.................................................................. 5,149,488
Research and development..................................................... 1,001,000
Refrequencing costs.......................................................... 1,340,315
Depreciation and amortization................................................ 1,254,049
-----------
Loss from operations..................................................... (13,853,753)
-----------
OTHER EXPENSE (INCOME):
Interest expense............................................................. 108,600
Interest income.............................................................. (170,884)
-----------
Total other income....................................................... (62,284)
-----------
Loss before income taxes................................................. (13,791,469)
INCOME TAXES................................................................... --
-----------
NET LOSS....................................................................... $(13,791,469)
-----------
-----------
WEIGHTED AVERAGE SHARES OUTSTANDING............................................ 206,549
-----------
-----------
NET LOSS PER SHARE............................................................. $ (66.77)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-11
<PAGE>
TELETRAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID-IN ACCUMULATED
CLASS A CLASS B CAPITAL DEFICIT
--------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995..................................... $ 190 $ 37 $ 2,267,025 $ (784,527)
Issuance of common stock....................................... 1,980 283 21,634,814 --
Conversion of Class B common to Class A common................. 320 (320) -- --
Cost of issuance of preferred stock............................ -- -- (1,877,745) --
Net loss....................................................... -- -- -- (13,791,469)
Preferred stock dividends...................................... -- -- -- (340,000)
--------- --- ------------- --------------
BALANCE, December 31, 1996..................................... $ 2,490 $ -- $ 22,024,094 $ (14,915,996)
--------- --- ------------- --------------
--------- --- ------------- --------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-12
<PAGE>
TELETRAC HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss..................................................................... $(13,791,469)
Adjustments to reconcile net loss to cash used in operating activities--
Depreciation and amortization.............................................. 1,254,049
Changes in working capital and other assets and liabilities, net of
acquisition--
Receivables.............................................................. (1,668,164)
Restricted cash.......................................................... 66,904
Inventory................................................................ (2,674,519)
Prepaids and other....................................................... (1,448,858)
Accounts payable and accrued expenses.................................... 2,084,258
Deferred revenue......................................................... (745,221)
Refrequencing liability.................................................. 1,298,088
Other liabilities........................................................ (609,872)
-----------
Cash used in operating activities...................................... (16,234,804)
-----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net.............................. (7,097,173)
Acquisition of AirTouch Teletrac............................................. (2,098,875)
-----------
Cash used in investing activities...................................... (9,196,048)
-----------
FINANCING ACTIVITIES:
Issuance of common stock, net................................................ 21,637,077
Issuance of preferred stock, net............................................. 31,122,255
-----------
Cash provided by financing activities.................................. 52,759,332
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................................... 27,328,480
CASH AND CASH EQUIVALENTS, beginning of year................................... 310,688
-----------
CASH AND CASH EQUIVALENTS, end of year......................................... $27,639,168
-----------
-----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest....................................... $ 107,549
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BUSINESS ACTIVITIES:
The accompanying consolidated financial statements include the accounts of
Teletrac Holdings, Inc. ("Holdings") and its subsidiaries (collectively, the
"Company"). To create the holding company, Holdings, Teletrac, Inc. and all of
the stockholders of Teletrac, Inc. entered into an exchange agreement whereby
all of Teletrac, Inc.'s stockholders exchanged their shares of the common stock
and preferred stock of Teletrac, Inc. for substantially similar shares of the
common stock and preferred stock of Holdings. This transaction was completed
August 6, 1997, and has been accounted for as a combination of interests under
common control, similar to a pooling of interests. All significant intercompany
accounts have been eliminated. The Company is licensed by the Federal
Communications Commission (FCC) to construct and operate radio location networks
for the purpose of locating, tracking and communicating with commercial fleet
and consumer vehicles as a result of its acquisition of AirTouch Teletrac (see
Note 2). The Company has operating networks in six U.S. cities, Chicago, Dallas,
Detroit, Houston, Los Angeles and Miami, and has site specific licenses in
approximately 20 additional cities. The networks consist of antennas,
transmission and receiving equipment, customer-owned vehicle locating units
(VLUs) that receive and transmit signals, and operating centers that interpret
and relay the transmissions.
SIGNIFICANT RISKS AND UNCERTAINTIES
The Company and its predecessors have incurred losses in each year of
operations. The Company expects to continue to incur net losses as it pursues
plans to expand its operating networks, product offerings and customer base.
There can be no assurance that the Company will be profitable in the future.
The Company is facing increased competition for its services. Certain of the
Company's competitors are larger and have substantially greater financial,
research and development and sales and marketing capabilities. Additionally,
there can be no assurance additional competitors will not enter markets that the
Company serves or plans to serve and that the Company will be able to withstand
the competition. Moreover, changes in technology could lower the cost of
competitive services to a level where the Company's services would be less
competitive, which could have a material adverse effect on the Company's
business and the ability to realize its assets.
2. PURCHASE OF AIRTOUCH TELETRAC:
On January 17, 1996, the Company purchased the assets of AirTouch Teletrac, a
California general partnership, from AirTouch Services, for $3,099,000 in cash,
and the assumption of certain liabilities and working capital as defined. An
amount of $2,099,000 was paid at closing, with $1,000,000 due one year from the
date of closing. Funds necessary for the closing were provided by the current
common stockholders of the Company through sales of common stock. The allocation
of purchase price was made
F-14
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
first to the current assets and liabilities and assumed liabilities, and the
remainder to the long-term assets in proportion to the fair values of the
assets, as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS AND
LIABILITIES
ACQUIRED
JANUARY 17,
1996
---------------
<S> <C>
Working capital............................................................. $ 217
Property and equipment...................................................... 8,218
Licenses.................................................................... 600
Refrequencing liability..................................................... (5,936)
-------
Total..................................................................... $ 3,099
-------
-------
</TABLE>
3. ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company services the commercial market for use in fleet management and the
consumer market for individual vehicle tracking. The commercial systems include
VLUs, computer hardware, and vehicle tracking software. The sales of commercial
systems are recognized upon shipment of the system, and the commercial service
fee revenues are recognized monthly as the services are provided.
The VLUs for the consumer market are sold along with monthly service contracts.
Service revenues for the consumer market may be paid in advance and are
recognized monthly as earned. Unearned service fees are recorded as deferred
revenue and included in accrued expenses in the accompanying balance sheet.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be temporary cash investments
with an original maturity of three months or less.
INVENTORIES
Inventories consist of VLUs, computer systems and other receiving and
transmitting equipment held for sale. Inventory is stated at the lower of cost
or market using the first-in, first-out method of valuation.
F-15
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
COST USEFUL LIVES
--------- ---------------
<S> <C> <C>
System equipment...................................................... $ 4,832 7
Computers and office equipment........................................ 2,412 3
Furniture and fixtures................................................ 578 7
Other................................................................. 471 3-7
Construction in progress.............................................. 9,774
---------
Property and equipment................................................ 18,067
Less- Accumulated depreciation........................................ 1,221
---------
Net property and equipment............................................ $ 16,846
---------
---------
</TABLE>
Repairs, maintenance and renewal of minor items are charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
their remaining useful lives. Leasehold improvements are amortized using the
straight-line method over the lesser of the estimated useful life of the asset
or the remaining term of the underlying lease.
LICENSES
Licenses, as acquired from AirTouch Services, represent a long-term intangible
asset that allows FCC authorization to broadcast at designated frequencies. They
are amortized using the straight-line method over 15 years. FCC license terms
are for 5-year periods with unlimited options to renew for subsequent 5-year
periods.
INCOME TAXES
The Company is a C corporation for federal income tax purposes. Deferred tax
assets or liabilities are computed based on the difference between the financial
statement and income tax basis of assets and liabilities applying tax
regulations existing at the end of the reporting period. The Company has fully
reserved its deferred tax asset, principally the net operating loss carryforward
generated, as of December 31, 1996.
EARNINGS (LOSS) PER SHARE
Earnings (Loss) per share are computed on the basis of the weighted average
number of common shares outstanding during the period. Additionally, the
warrants issued in connection with the offering of senior notes due 2007 and
warrants to purchase common shares, completed on August 6, 1997, have been
considered outstanding since January 1, 1996.
4. STOCKHOLDERS' EQUITY:
The Company's Restated Certificate of Incorporation, dated December 4, 1996,
provides for 958,888 authorized shares of capital stock, consisting of 507,934
shares of authorized Class A common stock at $0.01 par value per share, 70,000
shares of authorized Class B common stock at $0.01 par value per share, 190,477
shares of authorized Series A Redeemable Convertible Participating preferred
stock at $0.01 par value per share, and 190,477 shares of authorized
undesignated preferred stock at $0.01 par value per share.
F-16
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
COMMON STOCK
The Class A common stock and Class B common stock are substantially identical in
all respects and entitle the holders to the same rights, preferences and
privileges. However, owners of Class B common stock have no right to vote on any
matters to be voted on by the Company's stockholders except as a separate class
on any proposed merger or consolidation of the Company, or any recapitalization
or reorganization in which shares of Class B common stock would receive
treatment different from or be exchanged for consideration different on a per
share basis from the consideration received with respect to or in exchange for
shares of Class A common stock. Owners of Class B common stock, upon the
occurrence of certain conversion events, have the right to exchange equivalent
shares of their Class B common stock for shares of Class A common stock. In
December 1996 all then outstanding Class B common stock was converted into Class
A common stock.
PREFERRED STOCK
During December 1996, 190,476.19 shares of $0.01 par value Series A Redeemable
Convertible Participating preferred stock were issued for net cash proceeds of
$31,122,255. They entitle holders to receive cumulative, compounding dividends
at the rate of 15 percent per annum. Dividends accrue on a daily basis from the
issuance date and are payable as declared by the board of directors. As of
December 31, 1996, $340,000 was accrued for dividends. Holders are entitled to
voting rights, preference on liquidation, voluntary equal share conversion into
common stock at a defined conversion price, and automatic equal share conversion
into common stock after either a qualified public stock offering or a certain
non-qualified public stock offering as defined. Additionally, on or after
December 4, 2001, at the election of the holders of a majority of the
outstanding preferred stock, the Company is obligated to redeem the preferred
stock at a cash price equal to the liquidation preference amount of $173.25 per
share plus cumulative unpaid dividends. From and after December 4, 2003 the
redemption price will be equal to the greater of the liquidation preference
amount or the fair market value of the preferred stock.
STOCK OPTIONS
The Company has two stock option plans, the 1995 Stock Option Plan (the 1995
Plan) and the 1996 Stock Option Plan (the 1996 Plan). The Company accounts for
these plans in accordance with Accounting Principles Board Opinion No. 25 under
which no compensation cost has been recognized in 1996. Had compensation cost
been recognized in accordance with Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock Based Compensation," the Company's
operating loss would have been increased by $506,000 for the year ended 1996.
The plans permit grants of nonqualified, and incentive stock options. The
Company has reserved 43,060 and 25,083 shares of its common stock under the 1995
Plan and the 1996 Plan, respectively. Under the 1995 Plan the exercise prices
and vesting periods of the options are as follows:
<TABLE>
<CAPTION>
DATE PRICE VESTING AMOUNT
- -------------------------------------------------------------- --------- ----------------------
<S> <C> <C>
One year after grant.......................................... $ 100 One-third of grant
Two years after grant......................................... 125 One-third of grant
Three years after grant....................................... 150 One-third of grant
</TABLE>
During 1996, 43,060 options were granted under the 1995 Plan at a weighted
average price of $125. The weighted average fair value of the options issued
during 1996 was $119. No options were canceled or exercised during 1996. During
1996, 510 options were forfeited. The options outstanding at December 31,
F-17
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
1996, have a weighted average remaining contract life of approximately seven
years and none were exercisable as of December 31, 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the 1996 grants: risk-free interest rate from 5.48 to 6.87
percent; an expected option life of 7 years; and no expected dividend yields.
Options granted under the 1996 Plan must have exercise prices equal to the fair
market value as determined by the board of directors, and the term of the
options shall not exceed ten years from grant date. No shares under the 1996
Plan have been granted.
5. CAPITAL LEASES:
The Company holds leases on telephony and frequency receiving and transmitting
equipment for periods greater than one year. Minimum payments under such capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1997............................................................ $ 381 $ 187 $ 568
1998............................................................ 403 147 550
1999............................................................ 446 104 550
2000............................................................ 494 56 550
Thereafter...................................................... 273 10 283
----------- ----- ---------
$ 1,997 $ 504 $ 2,501
----------- ----- ---------
----------- ----- ---------
</TABLE>
6. REFREQUENCING LIABILITY:
In 1995 the FCC issued an order which requires the Company to relocate its
existing operating frequency from a portion of the 925 MHz band to a portion of
the 927 MHz band. As a result, the Company has recorded a liability, including
$5,936,000 assumed in the acquisition, for the cost of implementing the order so
that the Company can continue to deliver its contractual service obligation to
its customers. The cost recorded during 1996 of $1,340,000 represents the
estimated costs to comply with this obligation for all customers added to
service during 1996.
7. EMPLOYEE BENEFIT PLANS:
The Company sponsors a defined contribution profit sharing 401(k) plan which
covers all full-time employees. The benefits of this plan are based on years of
service, the employee's compensation, employee contributions and earnings of
plan assets. The Company's funding policy is to contribute an amount equal to
$0.50 for every dollar contributed by the employees up to $1,000 annually. The
Company has accrued $121,000 during 1996.
8. INCOME TAXES:
Deferred income taxes are provided for temporary differences between the
financial accounting basis and tax basis of assets and liabilities and temporary
differences in reporting income and expense.
The Company has net operating losses (NOLs) which it can carryforward up to 15
years to reduce taxable income in the future. The Company's NOLs and Alternative
Minimum Tax (AMT) NOLs total approximately $13,300,000 and $12,700,000,
respectively. The NOLs and AMT NOLs may be utilized through 2011. The Company
has fully reserved these deferred tax assets and has provided no income tax
benefit related thereto.
F-18
<PAGE>
TELETRAC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The components of net deferred tax assets (liabilities) are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
<S> <C> <C> <C>
CURRENT NONCURRENT TOTAL
--------- ----------- ---------
Deferred tax asset-NOL......................................................... $ -- $ 5,040
Allowance for doubtful accounts................................................ 175 --
Start-up costs, capitalized for income tax purposes, net....................... -- 279
Other.......................................................................... 88 --
Deferred tax liabilities....................................................... (32) (26)
--------- -----------
Net deferred tax assets........................................................ $ 231 $ 5,293 $ 5,524
--------- -----------
--------- -----------
Tax asset reserve.............................................................. (5,524)
---------
---------
Net deferred taxes............................................................. $ --
---------
---------
</TABLE>
The Company's utilization of its NOLs many be limited in the future due to its
issuance of preferred stock and the IRS regulations pertaining to change in
control.
9. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office space and antenna sites for periods
greater than one year. Minimum payments under such operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 2,399
1998................................................................ 2,353
1999................................................................ 1,844
2000................................................................ 1,265
Thereafter.......................................................... 841
---------
$ 8,702
---------
---------
</TABLE>
The Company purchases all of its VLU's from a single foreign supplier, and has
entered into a commitment with the supplier to purchase 200,000 units beginning
October 1996, through October 1998. The agreement allows the Company to extend
this period until November 2000 and has a provision to buy-out of the commitment
at a nominal fee. As of December 31, 1996, the remaining purchase commitment is
approximately $35,700,000, including $1,500,000 which has been prepaid by the
Company. Related to this commitment, at December 31, 1996, the Company
maintained a $1,750,000 irrevocable letter of credit to support the purchase of
the VLU's, of which $1,250,000 is funded and is recorded as restricted cash in
the accompanying balance sheet. Additionally, the Company has committed to
acquire other equipment and fund certain research and development activities of
approximately $2,900,000 and $3,500,000, respectively.
The Company is party to certain litigation and claims arising in the normal
course of business. In the opinion of management, the amount of liability
arising from these lawsuits would not be material to the financial position or
results of operations of the Company.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Teletrac, Inc:
We have audited the accompanying balance sheet of AirTouch Teletrac General
Partnership as of December 28, 1995, and the related statements of operations
and changes in partners' deficit and cash flows for the period from January 1,
1995, to December 28, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AirTouch Teletrac General
Partnership as of December 28, 1995, and the results of its operations and its
cash flows for the period from January 1, 1995, to December 28, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
May 1, 1996
F-20
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
BALANCE SHEET
DECEMBER 28, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash......................................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $290,094...... 1,804,213
Inventory.................................................................... 501,915
Other current assets......................................................... 394,916
-----------
Total current assets....................................................... 2,701,044
PROPERTY, PLANT AND EQUIPMENT, net............................................. 7,836,070
INTANGIBLE ASSETS, net......................................................... 600,000
-----------
Total assets............................................................... $11,137,114
-----------
-----------
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable--Trade...................................................... $ 183,875
Due to affiliates............................................................ 15,995,945
Accrued salaries and benefits................................................ 2,910,760
Other current liabilities.................................................... 1,203,747
-----------
Total current liabilities.................................................. 20,294,327
REFREQUENCING LIABILITY........................................................ 5,936,070
CONVERTIBLE DEBT............................................................... 226,100,585
OTHER NON-CURRENT LIABILITIES.................................................. 224,088
-----------
Total liabilities.......................................................... 252,555,070
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
PARTNERS' DEFICIT.............................................................. (241,417,956)
-----------
Total liabilities and partners' deficit.................................... $11,137,114
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 28, 1995
<TABLE>
<S> <C>
REVENUES...................................................................... $ 13,244,367
OPERATING EXPENSES:
Cost of products sold....................................................... 4,322,710
Selling, general and administrative......................................... 23,673,935
Depreciation and amortization............................................... 4,458,454
Asset impairment............................................................ 10,966,716
Refrequencing costs......................................................... 5,936,070
------------
Loss from operations.................................................... (36,113,518)
OTHER EXPENSES:
Interest expense............................................................ 21,239,650
Other, net.................................................................. 26,988
------------
Net loss................................................................ (57,380,156)
PARTNERS' DEFICIT:
Balance, December 31, 1994.................................................. (184,037,800)
------------
Balance, December 28, 1995.................................................. $(241,417,956)
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO DECEMBER 28, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss..................................................................... $(57,380,156)
Adjustments to reconcile net loss to net cash used for operating activities--
Depreciation and amortization.............................................. 4,458,454
Asset impairment........................................................... 10,966,716
Refrequencing costs........................................................ 5,936,070
Changes in operating assets and liabilities--
Accounts receivable, net................................................. 633,387
Inventory................................................................ 1,046,485
Other current assets..................................................... (45,916)
Accounts payable--Trade.................................................. (461,118)
Due to affiliates........................................................ 11,150,645
Increase in other liabilities.............................................. 165,371
-----------
Net cash used for operating activities................................. (23,530,062)
-----------
INVESTING ACTIVITIES:
Retirements of property, plant and equipment, net............................ 110,160
-----------
Net cash provided by investing activities.............................. 110,160
-----------
FINANCING ACTIVITIES:
Proceeds from convertible debt............................................... 22,905,585
Other........................................................................ (31,483)
-----------
Net cash provided by financing activities.............................. 22,874,102
-----------
NET DECREASE IN CASH........................................................... (545,800)
CASH, December 31, 1994........................................................ 545,800
-----------
CASH, December 28, 1995........................................................ $ --
-----------
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest to affiliate.......................................... $ 9,763,242
Cash paid for income taxes................................................... --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1995
1. ORGANIZATION AND NATURE OF BUSINESS:
NATURE OF OPERATIONS
AirTouch Teletrac General Partnership (the Partnership) was formed on December
16, 1987, under the laws of the State of California. The Partnership has been
licensed by the Federal Communications Commission (FCC) to construct and operate
radio location networks. During 1995 the Partnership operated in six U.S. cities
as follows: Chicago, Dallas, Detroit, Houston, Los Angeles and Miami.
The set up of the location network is capital intensive, and the Partnership has
been dependent upon the financial support of its majority partner, Location
Technologies Inc. (LTI), and its parent, AirTouch Communications.
The principal operation consists of tracking vehicles through signals sent by
Vehicle Location Units (VLUs) placed in a vehicle and received by a base unit.
The system processes the signals and provides the location and movement of a
vehicle on an electronic map grid display.
OWNERSHIP
During 1995 certain of the partners, North American Teletrac and International
Teletrac Services, sold all ownership interests in the Partnership to AirTouch
Services (ATS) and LTI. LTI also transferred two percent of its ownership
interest in the Partnership to ATS during 1995. Prior to the dissolution of the
Partnership on December 28, 1995, the partners' ownership interests were as
follows:
<TABLE>
<S> <C>
Location Technologies, Inc., a wholly owned subsidiary of AirTouch
Services............................................................ 73%
AirTouch Services, a wholly owned subsidiary of AirTouch
Communications...................................................... 27%
</TABLE>
On December 28, 1995, LTI merged with ATS, thereby dissolving the Partnership by
operation of law. Accordingly, the accompanying financial statements are as of
December 28, 1995, and for the period from January 1, 1995, to December 28,
1995. No material transactions or events of the business occurred between
December 28, 1995, and December 31, 1995.
SUBSEQUENT SALE OF ASSETS
On January 17, 1996, ATS sold substantially all of the assets previously owned
by the Partnership to Teletrac, Inc., a Delaware corporation, for $2,500,000,
the assumption of the refrequencing liability, and an adjustment for working
capital, as defined. An amount of $1,500,000 was paid in cash at closing, with
$1,000,000 due on the earlier of one year from the date of closing or the date
on which the order issued by the FCC addressing emission mask standards for
multilateration vehicle location systems shall have become final.
As a result of the subsequent sale, management determined that the net
realizable value of the long- term assets (property, plant, equipment and
intangible assets) was less than net book value. The impairment of property,
plant and equipment, FCC licenses, and goodwill of $2,249,000, $2,610,000, and
$6,108,000, respectively, was recorded in the 1995 statement of operations.
F-24
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Partnership serviced the commercial market for use in fleet management and
the consumer market for individual vehicle tracking. The commercial systems
include VLUs, computer hardware, and vehicle tracking software. The sales of
commercial systems are recognized upon shipment of the system, and the
commercial service fee revenues are recognized monthly as the services are
provided based on the number of VLUs in the fleet.
The VLUs for the consumer market were manufactured by third parties and were
sold to consumers through unrelated retailers. The Company's service contracts
to individual consumers were initiated by the retailers. Service revenues for
the consumer market may be paid in advance and are recognized monthly as earned.
Unearned service fees are recorded as deferred revenue and included in other
current liabilities in the accompanying balance sheet.
INVENTORIES
Inventories consist of VLUs, computer systems and related components. Inventory
is stated at the lower of cost or market using the first-in, first-out method of
valuation.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were recorded at cost. Subsequent to 1995
substantially all of the Partnership's assets were sold (Note 1). As a result,
property, plant and equipment were determined to be impaired and were recorded
at their net realizable values as of December 28, 1995. Property, plant and
equipment includes the following:
<TABLE>
<S> <C>
Equipment...................................................... $22,896,113
Office furniture and equipment................................. 1,276,205
Vehicles....................................................... 349,296
Leasehold improvements......................................... 190,085
-----------
24,711,699
Less- Accumulated depreciation and amortization................ (16,875,629)
-----------
Net property, plant and equipment........................ $ 7,836,070
-----------
-----------
</TABLE>
F-25
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
Repairs, maintenance and renewal of minor items were charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
their remaining useful lives. Depreciation is recorded using the straight-line
method over the applicable estimated useful lives as follows:
<TABLE>
<S> <C>
Equipment......................................................... 3-7 years
Office furniture and equipment.................................... 5 years
Vehicles.......................................................... 3 years
</TABLE>
Leasehold improvements were amortized using the straight-line method over the
lesser of the estimated useful life of the asset or the remaining terms of the
underlying lease.
INTANGIBLE ASSETS
Intangible assets represent the cost of acquiring FCC licenses as well as
goodwill resulting from an acquisition of a previous network partner. Both FCC
licenses and goodwill were amortized using the straight-line method over 20
years. FCC license terms are for a five-year period with unlimited options to
renew for subsequent five-year periods. As discussed above, subsequent to 1995
substantially all of the Partnership's assets were sold (Note 1). As a result,
the intangible assets were determined to be impaired and were recorded at their
net realizable values as of December 28, 1995. The goodwill previously recorded
was fully impaired and the FCC licenses were written down to $600,000.
PARTNERSHIP INCOME ALLOCATION
Partnership profits and losses were allocated based on the partners' percentage
ownership interest in the Partnership during the year.
INCOME TAXES
No provision has been made for federal or state income taxes since such taxes,
if any, are the responsibility of the individual partners.
3. RELATED-PARTY TRANSACTIONS:
CONVERTIBLE DEBT
The Partnership had convertible debt payable to LTI. Interest on the debt was at
prime plus 2 percent on the outstanding debt balance. Included in the due to
affiliate balance at December 28, 1995, is interest payable of approximately
$15,900,000.
The debt was collateralized by the equipment, inventory, accounts receivable,
and all proceeds and products of the Partnership. The debt was not assumed by
the new owners (Note 1).
The outstanding principal balance could have been converted into shares of
AirTouch Teletrac stock if the Partnership would have elected to undertake an
initial public offering. In conjunction with the merger of ATS and LTI,
discussed in Note 1, the debt was eliminated.
F-26
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
INSURANCE
The Partnership was covered under an insurance policy held by an affiliate.
Insurance expense passed through by this affiliate for the period from January
1, 1995, to December 28, 1995, was $244,000.
4. EMPLOYEE BENEFITS:
EMPLOYEE INCENTIVE PLANS
The Partnership maintained a short-term incentive plan (STIP) for certain
employees which was based on the achievement of certain performance measures and
targets. Costs related to the STIP of approximately $673,000 have been recorded
in the 1995 statement of operations.
The Partnership also maintained an Equity Incentive Plan (EI Plan) for certain
key employees. Under the EI Plan the Partnership was authorized to grant stock
appreciation rights (SARs) to the key employees which are exercisable over a
specified period of time based on the price of the AirTouch Communications
stock. Cost of approximately $211,000 is included in the 1995 statement of
operations.
SEVERANCE AND STAY-ON PROGRAM
As a result of a planned downsizing of the Partnership's operations and the
subsequent sale of the assets, the Partnership severed its employment
relationships with substantially all of its employees during 1995 and through
early 1996. The severance program provided for severance payments to be made to
employees in accordance with a formula that considers years of service and
salary. Severance payments were made when the employment relationships were
severed, which in certain instances occurred in 1996. All costs related to the
severance program, which totaled approximately $2,400,000, have been recorded in
the 1995 statement of operations.
In addition to the severance program, certain employees were provided an added
incentive to continue working for the Partnership after the sale was announced
to provide closure and transition of the Partnership's activities (Stay-On
Plan). Generally, those eligible employees were paid 25% of their monthly salary
times the number of months worked subsequent to June 1, 1995, with partial
months being credited as full months. Costs related to the Stay-On Plan which
relate to services provided in 1995 were approximately $804,000.
5. COMMITMENTS AND CONTINGENCIES:
SIGNIFICANT SUPPLIER AGREEMENTS
The Partnership entered into several purchase agreements with a foreign
supplier, the Partnership's sole supplier of VLUs, whereby VLUs would be
supplied at a set price, provided prepayments were made to finance the
production of the units. At December 28, 1995, the total open commitments under
these agreements were approximately $1,900,000.
The Partnership entered into an agreement with a software company to develop and
update the mapping software utilized in all of the Partnership's operating
locations to track vehicles. In 1995 the Partnership paid a fee of $325,000 for
the service which expired in January 1996.
F-27
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 28, 1995
The Partnership also had various other purchase commitments outstanding at
year-end of approximately $1,185,000.
Substantially all significant supplier agreements were assumed by or
renegotiated by Teletrac, Inc.
LEASES
The Partnership leased various facilities under noncancellable operating leases
expiring through 2000. Most of the leases were either assumed by or subleased to
Teletrac, Inc.
Total rental expense under all operating leases was $2,027,000 for the period
from January 1, 1995, to December 28, 1995.
OTHER
The Partnership was party to a dispute regarding the registration of the
trademark "Teletrac" by an unrelated party. No accrual has been made in the
accompanying financial statements for this contingency since management is
unable to establish the likelihood of loss, if any, which may be incurred.
The Partnership was a party to various other lawsuits arising in the ordinary
course of business. In the opinion of management, based on a review of such
litigation with legal counsel, any losses resulting from these actions are not
expected to materially impact the financial position or results of operations of
the Partnership.
6. REFREQUENCING COSTS:
In 1995 the FCC issued an order which required the Partnership to relocate its
existing operating frequency from a portion of the 925 MHz band to a portion of
the 927 MHz band. As a result, the Partnership has recorded a liability and a
related expense for the cost of implementing the order in order to continue
delivering the Partnership's contractual service obligation to its customers.
The cost recorded of $5,936,070 represents the estimated cost to comply with
this obligation to customers at December 28, 1995.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
AirTouch Teletrac General Partnership
We have audited the accompanying balance sheet of AirTouch Teletrac General
Partnership
(the "Partnership") as of December 31, 1994, and the related statements of
operations, partners' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Partnership is currently in negotiations for the sale of substantially
all of the Partnership's assets and assumption of certain liabilities. See Note
11.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AirTouch Teletrac General
Partnership as of December 31, 1994, and results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going-concern. As discussed in Note 2, the
Partnership has incurred net losses and negative cash flows from operations. In
addition, the Partnership is highly leveraged and has relied substantially on
continued financial support from its general partner, which is a wholly-owned
subsidiary of AirTouch Communications. As discussed in Note 2, this financial
support may not continue. These factors raise substantial doubt about the
Partnership's ability to continue as a going-concern. Plans in regard to these
matters are also described in Note 2 as well as Note 11. The financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
COOPERS & LYBRAND LLP
Newport Beach, California
February 3, 1995, except for
Note 11, as to which the
date is September 8, 1995
F-29
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 545,800
Accounts receivable, less allowance for doubtful accounts of $479,700........ 2,437,600
Inventory, net of reserve of $154,200........................................ 1,548,400
Other current assets......................................................... 349,000
-----------
Total current assets....................................................... 4,880,800
Property, plant and equipment, net........................................... 14,017,400
Intangible assets, net....................................................... 9,954,000
-----------
Total assets............................................................... $28,852,200
-----------
-----------
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable--trade...................................................... $ 791,000
Due to affiliates............................................................ 4,845,300
Accrued salaries and benefits................................................ 2,467,000
Other current liabilities.................................................... 1,501,500
-----------
Total current liabilities.................................................. 9,604,800
Net indebtedness to ITS...................................................... 49,500,000
Convertible debt............................................................. 153,695,000
Capital leases, net of current portion....................................... 82,800
Loan payable................................................................. 7,400
-----------
Total liabilities.......................................................... 212,890,000
Commitments and contingencies (Notes 7 and 10)............................... --
Partners' deficit............................................................ (184,037,800)
-----------
Total liabilities and partners' deficit.................................... $28,852,200
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues....................................................................... $15,336,000
Operating expenses:
Cost of revenues............................................................. 6,356,800
Selling and advertising...................................................... 1,814,100
Salaries and benefits........................................................ 14,747,700
General and administration................................................... 11,672,300
Depreciation and administration.............................................. 5,218,200
-----------
Loss from operations....................................................... (24,473,100)
Other expense (income):
Interest expense............................................................. 15,610,100
Interest income..............................................................
Other........................................................................ (258,700)
-----------
Net loss................................................................... ($39,824,500)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Balance, December 31, 1993.................................................... ($144,713,300)
Capital contribution.......................................................... 500,000
Net loss for the year......................................................... (39,824,500)
------------
Balance, December 31, 1994.................................................... ($184,037,800)
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
CASH FROM (USED FOR) OPERATING ACTIVITIES:
Net loss..................................................................... ($39,824,500)
Adjustments to reconcile net loss for items current not affecting operating
cash flows:
Depreciation and amortization.............................................. 5,218,200
Loss on disposal of fixed assets........................................... 1,263,200
Changes in operating assets and liabilities:
Accounts receivable, net................................................. 701,000
Inventory, net........................................................... 47,900
Other current assets..................................................... 1,128,200
Accounts payable--trade.................................................. (750,800)
Due to affiliates........................................................ 1,598,800
Accrued salaries and benefits............................................ (2,405,700)
Other current liabilities................................................ (289,600)
-----------
Cash used for operating activities....................................... (33,313,300)
-----------
CASH USED FOR INVESTING ACTIVITIES:
Additions to property, plant and equipment................................... (858,600)
-----------
Cash used for investing activities....................................... (858,600)
-----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from convertible debt............................................... 32,695,000
Partner capital contributions................................................ 500,000
Loan repayment............................................................... (9,300)
Payment on capital lease obligation.......................................... (53,500)
-----------
Cash provided by financing activities.................................... 33,132,200
-----------
Change in cash........................................................... (1,039,700)
Beginning cash............................................................... 1,585,500
-----------
Ending cash.................................................................. $ 545,800
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
AirTouch Teletrac General Partnership (the "Partnership") was formed on
December 16, 1987 under the laws of the State of California. The Partnership has
been licensed by the Federal Communications Commission ("FCC") to construct and
operate radio location networks in 127 U.S. cities. Since its inception, the
Partnership was subcontracting the operations of the network to International
Teletrac Systems, Inc. ("ITS"), a wholly-owned subsidiary of North American
Teletrac ("NAT"), an affiliate, under an operating and supply agreement.
Effective March 31, 1992, the Partnership exercised its option to acquire
substantially all operations, assets, and liabilities (except certain debt--see
Note 6) of ITS (the "Acquisition").
Prior to October 1991, the Partnership was precluded by a judicial consent
decree from, among other things, having an investment in, or participating in
the management of, ITS or obtaining any information about ITS not available to
the general public. However, the Partnership purchased an option to acquire ITS
and guaranteed ITS' debt (Note 6) thereby assuming most of ITS' business risk.
Accordingly, the acquired assets, liabilities, and results of operations of ITS
have been consolidated in the Partnership's financial statements for all periods
presented herein.
At the time of exercise of the option, the Partnership recorded goodwill of
$6,913,800 which approximates the cash paid to ITS. During 1993, an additional
$603,500 was paid on behalf of ITS and, accordingly, has been recorded as
goodwill.
In consideration for its contribution of certain assets and liabilities, ITS
was allocated a 24% partnership interest which was transferred from NAT's
original interest. Accordingly, at December 31, 1994, the partners' ownership
interests are as follows:
<TABLE>
<S> <C>
Location Technologies, Inc. ("LTI"), a wholly-owned subsidiary of
AirTouch Communications............................................ 51%
North American Teletrac ("NAT")...................................... 25%
International Teletrac Systems, Inc. ("ITS"), a wholly-owned
subsidiary of NAT.................................................. 24%
</TABLE>
Prior to April 1, 1994, LTI was a wholly-owned subsidiary of PacTel
Corporation, which in turn was 86.1% owned by Pacific Telesis Group. On April 1,
1994, the Wireless Division of Pacific Telesis Group spun off and formed a
separate company operating as AirTouch Communications.
At December 31, 1994, the Partnership operated in six cities. The set up of
the location network is capital intensive, and the Partnership is currently
dependent upon the financial support of its majority partner, LTI and its
parent, AirTouch Communications.
Vehicles are tracked through signals sent by Vehicle Location Units ("VLUs")
placed in the vehicle and received by base stations which have been
strategically installed throughout the coverage area. The signals are processed
by the base stations and sent by telephone to the master station. The system
then determines the location of the vehicle and movement on an electronic map
grid display. The master station can relay the tracking information to the
commercial fleet dispatcher or law enforcement agencies.
2. MANAGEMENT'S PLANS:
The Partnership's financial statements have been prepared on a going-concern
basis which contemplates the realization of assets and a liquidation of
liabilities in the ordinary course of business. The
F-34
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. MANAGEMENT'S PLANS: (CONTINUED)
Partnership has incurred substantial net losses and negative cash flows from
operations. In addition, the Partnership has a working capital deficiency and is
highly leveraged.
To date, substantially all of the cash to fund the operations of the
Partnership had been provided by its affiliate, LTI, in the form of convertible
debt. This financial support may not continue.
There is a pending sale to sell substantially all of the Partnership's
assets to a third party who will also assume certain of the Partnership's
liabilities. See discussion of this pending sale in Note 11.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
The Partnership services the commercial market for use in fleet management
and the consumer market for individual vehicle tracking. The commercial systems
include VLUs, computer hardware, and vehicle tracking software. The sales of
commercial systems are recognized upon shipment of the system, and the
commercial service fee revenues are recognized monthly based on the number of
VLUs in the fleet.
The VLUs for the consumer market are manufactured by third parties and are
sold to consumers through unrelated retailers. The Company's service contracts
to individual consumers are initiated by the retailers. Service revenues for the
consumer market are usually paid in advance and are recognized monthly as
earned. Unearned service fees are recorded as deferred revenue and included in
other current liabilities in the accompanying balance sheets.
INVENTORIES:
Inventories consist of VLUs and computer systems for commercial customers
and are stated at the lower of cost or market using the first-in, first-out
method of valuation. The Company has $140,600 of inventory on consignment with
third parties at December 31, 1994.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, are depreciated using the
straight-line method over their estimated useful lives, which are generally as
follows:
<TABLE>
<S> <C>
Equipment......................................................... 3-7 years
Office furniture and equipment.................................... 5 years
Vehicles.......................................................... 3 years
</TABLE>
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated useful life of the asset or the remaining terms of the
underlying lease.
Repairs, maintenance, and renewal of minor items are charged to expense as
incurred. Major renewals and improvements are capitalized and depreciated over
the remaining useful lives of the assets.
INTANGIBLE ASSETS:
Intangible assets represent the cost of acquiring FCC licenses as well as
goodwill resulting from the Acquisition. Both FCC licenses and goodwill are
amortized using the straight-line method over twenty
F-35
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
years. The Partnership periodically reviews these intangible assets to determine
if its carrying costs will be recovered from future operations and, accordingly,
a reduction in carrying value should be recorded. No such reductions have
occurred to date.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
ADVERTISING:
Advertising costs are expensed as incurred.
PARTNERSHIP INCOME:
Subsequent to the Acquisition, Partnership's profits and losses are
allocated based on the partners' percentage ownership interest in the
Partnership.
INCOME TAXES:
No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.
STATEMENT OF CASH FLOWS:
The Company prepares its statement of cash flows using the indirect method
as prescribed by Statement of Financial Accounting Standards No. 95. The Company
considers all investment instruments at date of purchase with maturities of less
than three months to be cash equivalents. The Partnership paid $13,780,500 in
interest in 1994. (See Note 6 for interest paid on convertible debt.) In 1994,
the Partnership did not enter into any capital lease obligations for new
equipment.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1994 consist of the following:
<TABLE>
<S> <C>
Equipment...................................................... $22,958,400
Office furniture and equipment................................. 1,262,400
Vehicles....................................................... 385,100
Leasehold improvements......................................... 175,400
----------
24,781,300
Less, accumulated depreciation and amortization................ 10,763,900
----------
$14,017,400
----------
----------
</TABLE>
F-36
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets at December 31, 1994 consist of the following:
<TABLE>
<S> <C>
FCC licenses.................................................... $4,719,300
Goodwill........................................................ 7,517,300
---------
12,236,600
Less, accumulated depreciation and amortization................. 2,282,600
---------
$9,954,000
---------
---------
</TABLE>
FCC licenses represent the cost of acquiring these licenses and are
amortized over a period of 20 years. FCC license term is for a 5-year period
with unlimited options to renew for subsequent 5-year periods.
Goodwill results from the application of the purchase method of accounting
with respect to the Acquisition.
6. RELATED PARTY TRANSACTIONS:
NET INDEBTEDNESS TO ITS:
The net indebtedness at December 31, 1994 represents the following:
<TABLE>
<S> <C>
Preferred capital account...................................... $69,700,000
Note receivable from ITS....................................... (20,200,000)
-----------
$49,500,000
-----------
-----------
</TABLE>
Pursuant to the Acquisition, ITS has a "Preferred Capital Account" on which
the Partnership is required to make quarterly payments to ITS at prime plus 3%.
The Preferred Capital Account has all the debt features associated with the ITS
outstanding debt ($49,500,000--see next paragraph) and a $20,200,000 note
payable to the Partnership. These two debt instruments were not part of the
Acquisition and therefore not assumed by the Partnership. However, the note
receivable from ITS was reclassified and netted against the Preferred Capital
Account to reflect the substance of this transaction. The note receivable bears
interest at prime plus 3% (11.5% at December 31, 1994) and matures May 1998.
Subsequent to year-end, the Partnership intends to assign its preferred capital
account of $49,500,000 and ITS' equity in the Partnership to AirTouch Services,
an affiliate. In addition, the Partnership intends to assign the preferred
capital account of $20,200,000 and the related note receivable to LTI.
The Partnership guarantees the outstanding debt of ITS. The guaranteed debt
outstanding balance at December 31, 1994 was $49,500,000. Of this amount,
$9,500,000 is due no later than December 20, 1995, and the remaining balance is
due no later than January 31, 1996. The outstanding debt of ITS is held by
AirTouch Services, a wholly-owned subsidiary of AirTouch Communications.
CONVERTIBLE DEBT:
The Partnership has convertible debt payable to LTI. The Partnership pays
interest quarterly at prime plus 2% on the outstanding debt balance. Included in
the due to affiliate balance at December 31, 1994 is
F-37
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
interest payable of $3,879,800. Interest paid to the affiliate for the year
ended December 31, 1994 was $13,862,600. The principal balance is due when the
debt matures as follows:
<TABLE>
<S> <C>
1998.......................................................... $37,500,000
1999.......................................................... 52,600,000
2000.......................................................... 63,595,000
-----------
$153,695,000
-----------
-----------
</TABLE>
The debt is collateralized by the equipment, inventory, accounts receivable,
and all proceeds and products of the Partnership.
The outstanding debt's principal may be converted into shares of AirTouch
Teletrac stock if the Partnership elects to undertake an initial public
offering. After conversion, LTI and its affiliates' aggregate stock ownership
cannot exceed 70% of the total outstanding shares. However, subsequent to
year-end, the intent is that the debt will be held by AirTouch Services due to a
proposed merger of LTI and AirTouch Services, with AirTouch Services as the
surviving entity.
DEPENDENCE ON AFFILIATE:
Substantially all of the cash to fund the operations of the Partnership has
been provided by its affiliate, LTI, in the form of convertible debt.
INSURANCE:
The Partnership is covered under an insurance policy held by an affiliate.
Insurance expense passed through by this affiliate for the year ended December
31, 1994 was $57,600.
7. COMMITMENTS:
SIGNIFICANT SUPPLIER AGREEMENTS:
On July 30, 1991 and July 1, 1993, ITS and AirTouch Teletrac entered into
several purchase agreements with a foreign supplier whereby VLUs would be
supplied at a set price, provided ITS made prepayments to finance the production
of the units. At December 31, 1994, the total open commitments under these
agreements amounted to $3,725,300.
MAINTENANCE AGREEMENT:
Effective January 1, 1991, ITS entered into a 5-year agreement with the
aforementioned supplier whereby the supplier will perform maintenance and repair
on all base stations purchased by ITS from that supplier. At December 31, 1994,
the total remaining commitment on this agreement is approximately $241,000.
ROYALTIES:
ITS entered into an agreement with a software company to develop the mapping
software utilized in all the Partnership's operating locations to track
vehicles.
F-38
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS: (CONTINUED)
The Partnership pays a royalty fee for each copy of mapping software sold to
an end user (corporate customer).
In addition, beginning January 1, 1993, the Partnership has guaranteed to
pay an operational fee of $1,500 per month for each metropolitan area on line
for updates to the mapping software. At December 31, 1994, there were 6 cities
on line and the resulting minimum operational fee commitment amounts to $4,500
for 1995.
For commercial customers using the mapping software (tracking their own
vehicles), the Partnership pays a monthly fee per vehicle.
The above agreement had an original expiration date of January 14, 1995.
This agreement has been amended, which extends the term of the agreement for one
year through January 14, 1996 under the original terms and conditions of the
original agreement except for the payment terms which have been revised to a
flat fee of $325,000 payable in four equal installments during the term of the
agreement.
Total operational fees and royalties for the year ended December 31, 1994
amounted to approximately $256,125.
LEASES:
The Partnership leases various facilities under noncancellable operating
leases expiring through 1997. The Company is responsible for maintenance,
repairs, taxes, and insurance on these operating leases.
Future minimum rental payments required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1995............................................................ $ 921,200
1996............................................................ 665,700
1997............................................................ 147,200
---------
$1,734,100
---------
---------
</TABLE>
Total rental expense under all operating leases was $2,443,600 for the year
ended December 31, 1994.
8. EMPLOYEE BENEFIT PLAN:
On December 1, 1993, the Partnership revised the profit sharing plan which
qualifies as a cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code. Under this plan, eligible participating employees may elect to
contribute up to 25% of their monthly salaries. The Partnership contributes to
the plan on behalf of the participating employee an amount equal to 25% of
employee contributions to a maximum of $2,000 per employee per calendar year.
Participants are at all times fully vested in their contributions and in the
Partnership's contributions according to the following schedule:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
2........................................................................... 30%
3........................................................................... 50%
4........................................................................... 75%
5........................................................................... 100%
</TABLE>
F-39
<PAGE>
AIRTOUCH TELETRAC GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLAN: (CONTINUED)
The Partnership's contributions to the plan for the year ended December 31,
1994 amounted to approximately $201,400.
9. MAJOR SUPPLIER:
The Partnership purchases substantially all of its equipment from one
supplier.
10. CONTINGENCIES:
The Partnership is a party to various lawsuits arising in the ordinary
course of business. In the opinion of management, based on a review of such
litigation with legal counsel, any losses resulting from these actions are not
expected to materially impact the financial condition of the Partnership.
11. SUBSEQUENT EVENT (UNAUDITED):
Under an Asset Purchase Agreement, drafted in August of 1995, between
AirTouch Services and a third party, there is a pending sale of substantially
all of the Partnership's assets and assumption of certain liabilities. The
purchase price for the above is estimated to be $5,000,000. In addition, if
certain events occur relating to FCC actions prior to Buyer capital or
contractual commitment, it is estimated that an additional sum of $6,800,000
will be paid in two equal installments without interest on the first and second
anniversaries of the closing date or the date on which such FCC action is
issued, whichever is later.
If the sale is consummated under its terms as drafted, the Partnership may
incur significant losses. Such loss, assuming a $5,000,000 purchase price, is
estimated to be approximately $25,000,000.
F-40
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+ 3.1 Certificate of Incorporation, dated July 15, 1997.
+ 3.2 Certificate of Amendment of Certificate of Incorporation, dated July 30,
1997.
+ 3.3 By-laws, adopted as of July 30, 1997.
+ 4.1 Warrant Agreement, dated August 6, 1997, between the Registrant and
Norwest Bank Minnesota, National Association, as Warrant Agent.
+ 4.2 Indenture between Teletrac, Inc. and Norwest Bank Minnesota, National
Assocation, as Trustee, dated August 6, 1997.
+ 5 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol.
+10.1 VLU Production Agreement, dated as of September 6, 1996, between Tadiran,
Ltd. and Teletrac, Inc.*
+10.2 Amendment to VLU Production Agreement, dated as of May 28, 1997, between
Tadiran, Ltd. and Teletrac, Inc.*
+10.3 Mobile Data Terminal Purchase Agreement, dated as of February 8, 1996,
between Micronet, Inc. and Teletrac, Inc.*
+10.4 Amendment to Mobile Data Terminal Purchase Agreement, dated September 16,
1996, between Micronet, Inc. and Teletrac, Inc.*
+10.5 Value Added Reseller License Agreement, dated June 3, 1997, between Etak,
Inc. and Teletrac, Inc.*
+10.6 Pledge Agreement, dated August 6, 1997, between Teletrac, Inc. and Norwest
Bank Minnesota, National Association, as Collateral Agent.
+10.7 Stock Purchase Agreement, dated as of December 6, 1996, by and among
Teletrac, Inc. and certain Investors named therein.
+10.8 Stockholders' Agreement, dated as of December 6, 1996, by and among
Teletrac, Inc. and certain Stockholders named therein.
+10.9 Amended and Restated Registration Rights Agreement, dated as of December
6, 1996, by and among the Company and certain Stockholders named
therein.
+10.10 Exchange Agreement, dated as of July 31, 1997, among Teletrac, Inc.,
Teletrac Holdings, Inc. and certain Stockholders named therein.
+10.11 Credit Agreement, dated as of September 18, 1997, among Teletrac, Inc.,
Banque Paribas, as Administrative Agent, and Fleet National Bank, as
Documentation Agent.
+10.12 Unlimited Guaranty, dated September 18, 1997, by Teletrac Holdings, Inc.
to and with Fleet National Bank, as Agent.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+10.13 Security and Pledge Agreement, dated September 18, 1997, by and between
Teletrac, Inc. and Fleet National Bank, as Agent.
+10.14 Securities Pledge Agreement, dated as of September 18, 1997, by and
between Teletrac Holdings, Inc. and Fleet National Bank, as Agent.
+10.15 Equity Holder Agreement, dated as of September 18, 1997, among Banque
Paribas, Fleet National Bank and Teletrac, Holdings, Inc.
+21.1 Subsidiaries of Registrant
+23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (included in their
opinion filed as Exhibit 5)
23.2 Consent of Arthur Anderson LLP
23.3 Consent of Coopers & Lybrand LLP
+24.1 Power of Attorney of the Board of Directors (included in the Signature
Page)
</TABLE>
- ------------------------
* Certain information in this Exhibit is deleted pursuant to a request with
the Securities and Exchange Commission for confidential treatment.
+ Previously Filed.
(b) Financial Statement Schedules
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the Registrant or
notes thereto.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on November 14, 1997.
TELETRAC HOLDINGS, INC.
/s/ JAMES A. QUEEN
---------------------------------------------
James A. Queen
Chairman of the Board of Directors,
Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman Of The Board,
/s/ JAMES A. QUEEN Chief Executive Officer
- ------------------------------ and Director (Principal November 14, 1997
James A. Queen Executive Officer)
Vice President of Finance
/s/ ALAN B. HOWE and Corporate Development
- ------------------------------ (Principal Financial November 14, 1997
Alan B. Howe Officer)
/s/ CHARLES SCHEIWE
- ------------------------------ Controller (principal November 14, 1997
Charles Scheiwe Accounting Officer)
- ------------------------------ Director November 14, 1997
Sanford Anstey
*
- ------------------------------ Director November 14, 1997
Robert Benbow
*
- ------------------------------ Director November 14, 1997
David J. Berkman
*
- ------------------------------ Director November 14, 1997
Michael A. Greeley
II-3
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
*
- ------------------------------ Director November 14, 1997
Michael Markbreiter
*
- ------------------------------ Director November 14, 1997
Marc H. Michel
- ------------------------------ Director November 14, 1997
Brian A. Rich
/s/ ALAN B. HOWE
- ------------------------------ November 14, 1997
*Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
+3.1 Certificate of Incorporation, dated July 30, 1997.
+3.2 Certificate of Amendment of Certificate of Incorporation, dated June 30, 1997.
+3.3 By-laws, adopted as of July 30, 1997.
+4.1 Warrant Agreement, dated August 6, 1997, between the Registrant and Norwest Bank Minnesota, National
Association, as Warrant Agent.
+4.2 Indenture between Teletrac, Inc. and Norwest Bank Minnesota, National Association, as Trustee, dated
August 6, 1997.
+5 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol.
+10.1 VLU Production Agreement, dated as of September 6, 1996, between Tadiran, Ltd. and Telectrac, Inc.*
+10.2 Amendment to VLU Production Agreement, dated as of May 28, 1997, between Tadiran, Ltd. and Teletrac,
Inc.*
+10.3 Mobile Data Terminal Purchase Agreement, dated as of February 8, 1996, between Micronet, Inc. and
Teletrac, Inc.*
+10.4 Amendment to Mobile Data Terminal Purchase Agreement, dated September 16, 1996, between Micronet,
Inc. and Teletrac, Inc.*
+10.5 Value Added Reseller License Agreement, dated June 3, 1997, between Etak, Inc. and Teletrac, Inc.*
+10.6 Pledge Agreement, dated August 6, 1997, between Teletrac, Inc. and Norwest Bank Minnesota, National
Association, as Collateral Agent.
+10.7 Stock Purchase Agreement, dated as of December 6, 1996, by and among Teletrac, Inc. and certain
Investors named therein.
+10.8 Stockholders' Agreement, dated as of December 6, 1996, by and among Teletrac, Inc. and certain
Stockholders named therein.
+10.9 Amended and Restated Registration Rights Agreement, dated as of December 6, 1996, by and among the
Company and certain Stockholders named therein.
+10.10 Exchange Agreement, dated as of July 31, 1997, among Teletrac, Inc., Teletrac Holdings, Inc. and
certain Stockholders named therein.
+10.11 Credit Agreement, dated as of September 18, 1997, among Teletrac, Inc., Banque Paribas, as
Administrative Agent, and Fleet National Bank, as Documentation Agent.
+10.12 Unlimited Guaranty, dated September 18, 1997, by Teletrac Holdings, Inc. to and with Fleet National
Bank, as Agent.
+10.13 Security and Pledge Agreement, dated September 18, 1997, by and between Teletrac, Inc. and Fleet
National Bank, as Agent.
+10.14 Securities Pledge Agreement, dated as of September 18, 1997, by and between Teletrac Holdings, Inc.
and Fleet National Bank, as Agent.
+10.15 Equity Holder Agreement, dated as of September 18, 1997, among Banque Paribas, Fleet National Bank
and Teletrac, Holdings, Inc.
+21.1 Subsidiaries of Registrant
+23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (included in their opinion filed as Exhibit
5)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Coopers & Lyrand LLP
+24.1 Power of Attorney of the Board of Directors (included in the Signature Page)
</TABLE>
- ------------------------
* Certain information in this Exhibit is deleted pursuant to a request with the
Securities and Exchange Commission for confidential treatment.
+ Previously Filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
Registration Statement (File No. 333-35017) on Form S-1.
Kansas City, Missouri, /s/ Arthur Andersen LLP
November 14, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Teletrac Holdings,
Inc. on Form S-1 (File No. 333-35017) of our report dated February 3, 1995,
except for Note 11, as to which the date is September 8, 1995, on our audit of
the financial statements of AirTouch Teletrac General Partnership as of and for
the year ended December 31, 1994. We also consent to the reference to our firm
under the caption "Experts".
Coopers & Lybrand
Newport Beach, California
November 14, 1997
