Commission File Number __________
As filed with the Securities and Exchange Commission on May 12, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) of
THE SECURITIES EXCHANGE ACT OF 1934
U.S. MOBILE SERVICES, INC.
(Name of Small Business Issuer)
Delaware 52-1959420
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification
Number)
725 Primera Blvd., Suite 200 32746
Lake Mary, Florida -----
(Address of Principal Executive Offices) (Zip Code)
(407) 804-9110
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of this Act
Title of each class Name of exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
We (the "Company" or "U.S. Mobile") are a reseller of prepaid wireless
telephone services, offering customers the ability to manage costs while
enjoying the safety and convenience of cellular telephones. We sell cellular
telephones and resell wireless telephone service on a prepaid basis at retail
outlets throughout the country. Our offices are located at 725 Primera Blvd.,
Suite 200, Lake Mary, Florida 32746, and our telephone number is (407) 804-9110.
The Cellular Telephone Industry Background
Wireless telephone service is the fastest growing segment of the
telecommunications industry. The Cellular Telecommunications Industry
Association estimates that the number of wireless subscribers in the United
States increased from approximately 340,000 in December 1985 to approximately 90
million in December of 1999. The CTIA also estimates that the annual aggregate
service revenues from wireless subscribers grew from approximately $482.4
million in 1987 to approximately $39.6 billion in 1999. The number of U.S. cell
phone users has grown nearly 100 fold during the past 15 years. A number of
factors have contributed to this growth, including:
o the decreasing cost of wireless telephones;
o the increased mobility of the domestic population;
o significant improvements in wireless network infrastructure; and
o greater consumer acceptance of wireless telephones.
As the wireless telephone services market has grown, it appears that
traditional telecommunications companies are finding it more difficult to
maintain profitability. It is estimated that average revenue per cellular
customer is now approximately $40 per month. At the same time, companies are
realizing increasing bad debt expense as customers fail to pay for services
used. These factors have led many wireless companies to require that customers
enter into long-term contracts and are imposing stringent credit requirements,
resulting in the rejection of over 35% of new applicants for cellular phone
service.
The Market Opportunity for Prepaid Cellular Service
Prepaid wireless service allows customers to acquire service without
credit checks, large deposits or long-term contracts that are traditionally
required for post-paid services. A customer generally purchases a cellular phone
and simultaneously purchases access by paying for service in fixed dollar
amounts (e.g. $25 worth of airtime) in advance of using the service. The airtime
is purchased in cash or by approved check or credit card transactions, thereby
eliminating the risk of uncollectible accounts. Each time a customer uses his
cellular phone, the system checks his account to make sure airtime has been
purchased and is available and the account is debited in real time. Once the
account has been depleted, the customer is denied use of the cellular phone for
calls other than to 911 until the account is replenished.
This rapidly changing market has created significant opportunity for
resellers of prepaid wireless telephone services. This segment is expected to
grow from its inception in 1996 to more than 7% of the wireless market by 2001.
Industry analysts expect prepaid wireless telephone service to eventually
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comprise more than 20% of the United States market. There are expected to be
nearly 14 million prepaid wireless subscribers by 2001, generating $10 billion
in airtime revenues.
There are several factors that we believe will fuel the growth of the
prepaid wireless telephone service market, including:
Increasing Number of Credit Challenged Applicants. Many post-paid wireless
service providers have begun to impose strict credit requirements in order to
reduce bad debt expense. This has resulted in over 35% of applicants, or seven
million people, being denied service during the past year due to credit issues.
It is estimated that there are also four million additional consumers who desire
wireless service but who do not apply due to known poor credit ratings. Since no
credit is extended to customers who purchase our prepaid wireless service, we
are able to offer virtually no-risk service to this underserved community.
Increasing Number of Cost Conscious Consumers. Many consumers desire
access to cellular telephones, but are concerned about the long-term contracts,
large deposits and high costs associated with traditional post-paid cellular
service. The fast pace of business today has made it increasingly important for
companies to stay in touch with their employees through cellular telephones,
pagers and other methods. Businesses are concerned, however, that their
employees' unlimited access to cellular telephones will result in significant
expenses that have not been approved or budgeted for. Similarly, many parents
desire to provide a cellular telephone to their children without incurring large
monthly bills. Senior citizens desire a low emergency cell phone without the
expensive long-term commitment. Our prepaid wireless service offers customers
the convenience of a cellular telephone and the practicality of controlling
costs since airtime usage is limited to the amount they are willing to pay.
Increasing Number of Safety Conscious Consumers. In this increasingly
mobile world, many consumers desire to have a cellular telephone for emergency
or limited use only. These consumers have no desire to enter into yearly
contracts with wireless companies that specify a level of usage each month,
whether they use the service or not. Instead, they seek to purchase prepaid
airtime at competitive rates so the cellular telephone is available when needed.
Increasing Demand by Teenagers. Teenage use of cellular phones is expected
to grow dramatically over the next two to three years, with up to 14 million
potential customers. Many teenagers who would not qualify for post-paid cellular
service, have a significant amount of disposable income and can afford to
purchase a phone and prepaid airtime.
Business Strategy
Our goal is to capture a significant share of the market for prepaid
wireless services. The key elements of our strategy to achieve this goal are:
Customer Focus. In order to recover the capital spent on developing their
networks, carriers have typically targeted customers more likely to purchase
multiple telecommunications services. The carriers look for customers who, in
addition to purchasing cellular telephone service, will also use the carrier's
long distance and other broadband services. This approach has resulted in a
large untapped market of customers who desire a lower volume of usage and a
simple service without all the added costs. We intend to focus on reselling our
prepaid cellular telephone services to these individuals.
Customer Retention. Retaining existing customers is of particular concern
in the prepaid cellular phone industry where customers have no contracts and may
discontinue their service simply by not
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purchasing the next airtime card. We believe that our easy to use, competitively
priced service will allow us to retain a significant portion of our customers.
Build Brand Awareness. We intend to increase our brand name recognition
through an aggressive marketing and advertising campaign. We will launch a
significant marketing campaign in 2000.
Competitive Pricing. We have developed a multi-tier pricing structure that
can offer different rates to customers depending on volume of usage. Because we
are a prepaid reseller of cellular service, our rates do not have to cover bad
debt or fraud costs. Also, users of prepaid wireless services are more likely to
use their telephones during off-peak hours, when the carriers charge
significantly less for service. This reduces our average cost per minute of
service and allows us to be more competitive and profitable.
Products and Services
We offer cellular service that uses sophisticated telephone handset
technology. This approach operates independently from the wireless carrier and
is generally used by most resellers of wireless services. The cellular telephone
purchased by the customer includes all the technology required to provide
service. A separate computer system is used to download time to the handset as a
customer pays to replenish minutes of use. This system is significantly less
labor and capital intensive than other systems since it uses technology paid for
when the phone is purchased.
We offer customers a choice of two cellular telephones, a portable and a
mini-phone, at prices currently ranging from $99 to $149. Airtime can be
purchased by the customer in four different denominations, either at one of our
distributor's retail stores, by the phone, or over the Internet. Since the
carriers charge us a monthly access fee for each telephone number in use,
customers generally must purchase an airtime card every 30 days to keep their
phone active. If a customer fails to purchase a card, the system automatically
disconnects their service.
We also offer a unique "Safety Card" that customers can purchase during
times of low usage to keep their phone active. These cards are currently
available for $16.95 and airtime is carried over from one month to the next,
rather than being deleted monthly as is done by most traditional wireless
providers.
We believe our handset based prepaid applications offer our customers the
most competitive service based upon ease of use, speed to market, low cost to
deploy and independence from restrictions placed by the carriers on their
networks. We are able to offer customers features and services that many of our
competitors are unable to provide, including:
o automatic programming;
o automatic recharge of account;
o automatic program update;
o handset security lock; and
o fraud protection.
We believe there are many advantages to our products and services:
o Adaptability. Our systems currently use analog service because of
its broad and consistent availability and the lower initial real
cost of analog cellular telephones. There is also little
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difference in the wholesale price of analog and digital service. Our
system can, however, be easily adapted to any new or existing
technology that lowers our costs.
o Scalability. Our handset based technology can be easily adapted to
increased volume and numbers of users.
o Ease of Use. Our prepaid cellular telephone service is both easy to
activate and operate. New customers receive a simple to understand
"Get Ready Guide" that explains the five easy steps to initiate
service. Customers merely call our automated customer service system
and punch in a few numbers and the phone is available for use. The
entire process takes approximately three minutes and is fully
automated. When a customer needs additional airtime, they simply
purchase a card, either in person, over the phone or on the
Internet, push three keys on their phone and enter a PIN number. The
new airtime is then available in about 60 seconds.
o Proprietary Technology. Our proprietary back office system offers
customers superior customer service while significantly lowering our
operational costs. Our technology is designed along open
architecture lines to permit regular hardware and software upgrades
with minimal disruption and expense. This design allows us to
respond quickly to growth in both volume of calls and number of
customers by adding new computers and improving software.
Contractual Relationships
We resell prepaid cellular service provided by a number of different
national carriers, including
o GTE Wireless
o Ameritech Cellular
o Bell South
o Western Wireless
o Alltel
Based on our contracts with these carriers, and other carriers we expect
to add over the next several months, we are able to provide cellular service to
approximately 85% of the United States population. We are in different stages of
negotiations with approximately 30 additional carriers that can provide us with
coverage of the remaining 15 % of the United States. There can be no assurance
that we will enter into agreements with those carriers although with the rapid
consolidation of wireless carriers, we may only have to deal with a few carriers
in the future.
We purchase cellular airtime from these carriers at wholesale rates, which
rates are generally lower than are otherwise offered to consumers, and then
resell the airtime to our customers at retail rates. We expect to be able to
reduce the wholesale rates we pay in the future, as the volume of usage
increases.
We constantly monitor our contracts with the carriers in all our service
markets, in order to assure that we receive the best rates and service
available. Each market where we provide service has at least two carriers who
provide service to that market.
Sales and Marketing
We employ a number of sales agents and are creating a widespread sales
network to distribute our products. We distribute our products both directly to
retailers and to wholesalers who service a number of
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different retail outlets. These agents currently have existing relationships
with more than 150,000 retail outlets. In order to reach our target customers,
we have developed a marketing plan that places our products in the following
locations:
o Convenience, grocery and drug stores;
o Music and college bookstores;
o Kiosk locations in malls and other seasonal locations; and
o Internet.
Our technology allows retailers to purchase and sell a fully automated
product with a single Universal Product Code that can be sold in all outlets.
This eliminates any logistical issues for the retailer. Our retailers employees
are not required to have any technical expertise. The customer simply purchases
the phone and follows the easy procedures to activate the phone. The retailer's
only additional involvement is to sell the customer a replenishment card for
additional airtime.
Retailers are not required to change or accommodate their store in any
manner to distribute our products. We provide attractive point of purchase
displays to help promote and sell the products and intend to extensively market
and promote our services.
Government Regulation
The Federal Communications Commission regulates interstate communications,
including the wireless telephone service industry. Since our services do not
involve interstate communications, we are not required to and do not hold any
licenses or other authorizations issued by the FCC. However, the wireless
carriers that provide us with airtime are heavily regulated at both the state
and federal levels. Such regulation may decrease the growth in the wireless
telephone industry or impede our ability to offer competitive service to our
customers. At the same time, the Telecommunications Act of 1996, which largely
deregulated the telecommunications industry, may cause changes in the industry,
including the entrance of new competitors and industry consolidation, which in
turn could affect our cost of doing business or otherwise have a material
adverse effect on our business, financial condition and results of operations.
Competition
The wireless telecommunications industry is highly competitive and
constantly evolving. Although we only offer prepaid service, we face competition
for customers from providers of both post-paid and prepaid cellular telephone
service. We expect competition in the prepaid cellular telephone industry to
increase in the future as more traditional telecommunications companies
recognize the untapped market of credit challenged and low usage customers.
We currently or potentially compete with a variety of other companies,
including carriers and resellers of cellular telephone service. Carriers are a
significant source of competition because they have the lowest cost of service
since they own the networks and have the ability to spend significant amounts of
money to attract customers. These competitors include AT&T, Sprint, MCI, GTE,
Bell Atlantic, Ameritech and others. Resellers, such as Shared Technologies
Cellular Inc. and Boston Communications Group, Inc., are also a source of
competition.
We believe that the following are the principal competitive factors in our
market:
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o availability
o ease of use
o competitive pricing; and
o brand awareness.
Employees
As of April 2000, we employed five full-time employees. Our employees are
not represented by labor unions, and we consider our relationship with our
employees to be good. We believe that our success is dependent on our ability to
attract and retain quality personnel in numerous areas, including marketing.
Risk Factors
Our common stock is speculative in nature and involves a high degree of
risk. The risk factors below are not listed in order of importance.
We have incurred a net loss since inception and expect to incur substantial net
losses for the foreseeable future.
Since inception, we have been operating at a loss. We have net operating
losses through December 31, 1999 for financial reporting purposes of
$11,690,700. The net loss of $6,522,970 for the year ended December 31, 1999
primarily relates to losses generated by our previous business method of selling
cellular service on a post-paid basis. We had a working capital deficit of
$3,978,153 as of December 31, 1999. We expect that operating losses and negative
cash flow will continue for the foreseeable future as we must invest in fixed
assets, technology, marketing and operating systems to support our current and
planned operations. We do not know when and if we will achieve sufficient
revenues in relation to expenses to become profitable. Our auditors have
indicated in their opinion that the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern.
Our future profitability depends on generating and sustaining high revenue
growth while maintaining reasonable expense levels. Slower revenue growth than
we anticipate, or operating expenses that exceed our expectations, would harm
our business. If we achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability in the future.
In order to effectuate our business plan, we will require substantial funds and
we may need and be unable to obtain additional capital in the future, and if we
raise additional capital through the sale of equity securities, you may
experience dilution
We cannot assure you that we will be able to achieve our goals without
additional capital or that we will be able to raise additional capital. Even if
additional capital is obtained, we cannot assure you that we will be able to
achieve our goals with additional capital, or that any new capital, if
available, will be on favorable terms. We may need to raise additional capital
in this period if our estimates of revenues, expenses and/or capital
expenditures change or prove inaccurate in order for us to respond to unforeseen
technological or operational hurdles or to take advantage of unanticipated
opportunities. In the event that we raise additional capital through the sale of
our equity securities, dilution may be experienced. We have had to seek private
financing in order to continue its operations. If we are unable to identify
additional sources of capital, we could be required to courtail our activities
or cease operations. As a result of the above, the auditors' report on our
consolidated financial statements appearing at Note 18 includes an emphasis
paragraph indication of our recurring losses for operations raise substantial
doubt about our ability to continue as a group concern.
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We have a short operating history, which makes it difficult for you to evaluate
our business and prospects
We began operations in 1992 as a traditional postpaid cellular telephone
reseller. In 1999 we changed our focus to become a prepaid cellular telephone
reseller. Accordingly, we have a limited operating history upon which you can
evaluate our business and prospects. As our business strategy has changed, our
historical data is of limited value in projecting future operating results. An
investor in our common stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets. These
risks include our:
o evolving business model;
o competition;
o need for increased customer acceptance of prepaid cellular telephone
service;
o need to maintain and expand our customer base;
o need to continue to develop our technology and infrastructure;
o ability to scale our systems and technology to accommodate the
growth of our business; and
o ability to access additional capital when required.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
We are highly dependent on the wireless carriers that provide us with
telecommunications services
We are highly dependent on the wireless carriers that provide us with
cellular airtime, hardware, certain software and the related equipment necessary
to provide our customers with service. Our contracts with these carriers are
generally for one year and can be terminated immediately by the carriers upon
notice. Our contracts with these carriers do not prohibit them from entering
into the prepaid wireless telephone market and competing either directly or
indirectly with us. Any failure by a carrier to provide us with services on a
timely basis could result in delays, which could materially adversely affect our
relationship with our customers. In addition, the loss of one or more of these
carriers could have a material adverse effect on our business, operations,
financial condition and results.
Our success depends on the growth of the wireless telecommunications industry
and customer acceptance of prepaid cellular telephone service
The market for prepaid wireless telephone services is in the early stage
of development and is rapidly evolving. We cannot be certain that consumers will
accept this new form of cellular telephone service. In addition, the development
of a market for our services depends on increased use of cellular telephones.
Although the cellular telephone industry has experienced significant growth in
recent years, there can be no assurance that this growth will continue at
similar rates, or at all. If the market for our services fails to grow, develops
more slowly than expected or becomes saturated with competitors, our business,
financial condition and results of operations could be materially adversely
affected.
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We depend significantly on our computer and communications systems; System
failures could harm our business
We rely heavily on various computer and communications systems to operate
and support our business. Our systems may fail or operate slowly, causing one or
more of the following:
o Unanticipated disruptions in service to our customers;
o Decreased customer service and customer satisfaction;
o Delays in our introduction of new products and services;
o Financial losses; and
o Litigation or other customer claims.
We cannot assure you that we will not experience systems failures from
power, telecommunications or computer hardware failure, acts of God or war,
human error, natural disasters, fire, power loss, sabotage, computer viruses,
software failure, intentional acts of vandalism and similar events. We do not
currently maintain a disaster recovery center for our systems, and in the event
of a system disruption or failure, we do not have any back-up system to provide
services to our customers. Any system failure that causes an interruption in
service or decreases the responsiveness of our service could impair our
reputation, damage our brand name and have a material adverse effect on our
business, financial condition and results of operations.
We are dependent on a sole supplier of telephone handsets
We currently purchase all of our telephone handsets from a single
supplier. We do not have a contract with this supplier, who could terminate our
relationship at any time. In addition, to the extent the supplier does not have
sufficient capacity, is unable to satisfy our requirements on a timely basis or
suffers a financial setback, such an event could materially adversely affect our
business, financial condition and results of operations. Although we believe we
would be able to find a replacement supplier of telephone handsets, there can be
no assurance we would be able to do so on reasonable terms, or at all.
We use computer software and hardware developed internally and by third parties
that may fail or contain defects
Our computer systems use complex hardware and software programs developed
and manufactured by third parties. If the products supplied by these providers
fail or contain product defects, our systems may fail and our customers may
develop an adverse perception of us and cease doing business with us. This could
have a material adverse effect on our business, financial condition and results
of operations. There can be no assurance that errors will not be found in
existing or new hardware and/or software programs used in our technology
infrastructure.
We have no contracts with our customers, who can cease using our services at any
time
Because we are a reseller of prepaid cellular telephone cards, we do not
have any contracts with our customers. After customers purchase our cellular
telephone, they are required to purchase calling cards to continue to use our
services. Customers may choose at any time not to replenish their calling card
and to stop doing business with us. The loss of customers would have a material
adverse effect on our business, financial condition and operating results.
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We operate in a highly regulated industry
As a reseller of prepaid wireless services, our operations are not
directly regulated. However, the wireless telecommunications industry and the
carriers from whom we purchase airtime are heavily regulated at both the federal
and state levels. Such regulation may decrease the growth of the wireless
telephone industry or impede our ability to offer competitive services to our
customers, which could have a material adverse effect on our business, financial
condition and operating results.
In addition, recent legislation deregulating the telecommunications
industry may cause changes in the industry, including the entrance of new
competitors and industry consolidation, which in turn could subject us to
increased pricing pressures, decrease the demand for our services, increase our
cost of doing business or otherwise have a material adverse effect on our
business, financial condition and operating results.
We may not be able to compete successfully against current and future
competitors
The telecommunications industry is rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition in the
prepaid cellular telephone market to intensify in the future because current and
new competitors can enter our market with little difficulty and can offer
prepaid services at a relatively low cost.
We currently compete with a variety of other companies including wireless
carriers such as AT&T, Sprint and GTE and other resellers such as Shared
Technologies Cellular Inc. and Boston Communications Group, Inc. Many of our
competitors and potential competitors have substantially greater financial,
technical and marketing resources, longer operating histories and greater name
recognition than us. Such competitors may be able to undertake more extensive
marketing and adopt more aggressive pricing policies than we can.
We may not be able to manage our growth effectively
Our ability to implement our business strategy in a new and rapidly
evolving market requires effective planning and management oversight. Our
anticipated future operations will place a significant strain on our management,
personnel, information systems and resources. To manage the expected growth of
our operations and personnel, we will be required to improve our existing
infrastructure and to expand, train and manage our employee base on a timely
basis. We will need to hire and retain highly skilled personnel to manage our
expected growth. Our inability to manage our growth effectively would have a
material adverse effect on our business, results of operations and financial
condition.
The loss of the services of our key personnel, or our failure to attract,
assimilate and retain highly qualified personnel in the future, could seriously
harm our business
Our future success depends, in part, on the continued services of our
senior management and our ability to retain and motivate our other key
employees. The loss of the services of David Gergacz or any other key employee
would have a material adverse effect on our business, results of operations and
financial condition. We have a three-year employment agreement with Mr. Gergacz,
which can be terminated upon Mr. Gergacz's death or disability or for just
cause. We do not currently have key-man life insurance on Mr. Gergacz.
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Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, marketing and
customer service personnel. Competition for such personnel is intense, and we
cannot be certain that we will be able to successfully attract, assimilate or
retain sufficiently qualified personnel. Our inability to do so could have a
material adverse effect on our business, results of operations and financial
condition.
Special cautionary note regarding forward-looking statements
The prospectus contains many forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future operating results or of our financial
condition or state other "forward-looking" information.
We believe that it is important to communicate our future expectations to
our investors. However, management may be unable to accurately predict or
control events in the future. The factors listed in the sections captioned "Risk
Factors" and "Management's Discussion and Analysis or Plan of Operations," as
well as any other cautionary language in this prospectus, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations described in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in the "Risk Factors" section, the "Management's
Discussion and Analysis or Plan of Operations" section and elsewhere in this
prospectus could adversely effect our business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview
Prior to August 1999, we were in the post cellular resale and competitive
local exchange business. Under this mode of business, we sold airtime to
customers and billed them for usage and access fees monthly through a third
party billing servicer. We received subscriber usage from carriers that we in
turn provided to the third party servicer for subscriber invoicing. However,
since tapes of subscriber usage were not transmitted nor delivered to our third
party billing servicer on a timely basis, the third party billing servicer was
unable to send bills to subscribers on a timely basis. As a result, we were
unable to collect for services rendered, yet we owed to providers for services
actually provided.
In 1999, we discontinued this method of selling cellular service. In 2000,
we began to sell pre-paid wireless telephone products and services through a
network of retailers and wholesalers. These new products should minimize our
billing difficulties and bad debt expenses.
We were originally formed in 1992 as a privately held Pennsylvania
corporation. On April 30, 1998, by means of a stock exchange and
recapitalization transaction with United Acquisition II Corporation ("UACQ"), an
inactive Delaware corporation, we received 88.9% of the issue and outstanding
shares of UACQ's common stock in exchange for 100% of our outstanding shares of
common stock. UACQ then changed its name to U.S. Mobile Services, Inc. We now
maintain our principal offices at 725 Primera Blvd., Suite 200, Lake Mary,
Florida 32746.
Results of Operations
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We have net operating losses through December 31, 1999of $11,690,700. Our
net operating loss for year ended December 31, 1999 is approximately $6,522,970.
We have, from time to time, experienced cash flow shortfalls and have been
required to borrow substantial amounts from banks, investors and raise funds
through private placements. During 1998, outside investors loaned us a total of
$3,050,000 in exchange for notes payable at 12% interest per annum and warrants
to purchase common stock at prices ranging from $1.50 to $2.00 per share.
Further, the 1998 loan investors were entitled to convert their loans to common
stock at 50% of their respective warrant price per share. In January 1999,
certain of the then existing shareholders agreed to relinquish 3,808,275 shares
of their common stock to the bridge loan investors in order to extinguish
$2,925,000 of the 1998 bridge loans plus accrued interest. Accordingly, in 1999,
$3,156,600 was converted and is reflected as equity in the accompanying
financial statements. Approximately $125,000 of the bridge loan notes was
payable in 1999. We continue to experience cash flow shortfalls and we will
continue to require additional capital.
On June 4, 1999, we signed a placement agent agreement with an investment
banking firm whereby we engaged an investment banker to act as agent to sell up
to $3,300,000 in a private placement, consisting of 10% convertible promissory
notes on a best efforts basis. Subsequently, we received $2,900,000 from outside
investors in exchange for convertible promissory notes payable at 10% interest
per annum. The notes have conversion rights to convert the notes, at any time,
into common stock at $2.00 per share. Additionally, we have certain debt
repayment obligations in 1999 as follows: (i) First Global; (ii) Annapolis Bank,
(iii) PNC Bank; (iv) Bell Atlantic and (v) MCI Worldcom.
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Comparison of Year Ended December 31, 1999 ("Fiscal 1999") to Year Ended
December 31, 1998 ("Fiscal 1998").
Net sales for Fiscal 1999 were approximately $620,298 as compared to
$2,678,627 for Fiscal 1998. The decrease in sales was attributable to the
discontinued method of selling cellular service on a post-paid basis as
discussed above. Net sales for Fiscal 1998 included approximately $750,000 in
amounts subsequently deemed uncollectible.
Cost of sales for Fiscal 1999 were approximately $1,049,045 (approximately
169% of net sales) as compared to approximately $2,407,553 (approximately 90% of
net sales) for Fiscal 1998. Cost of sales includes phones sold, cost of airtime,
equipment, and marketing expenses. Cost of sales increased from 1999 to 1998 as
a percentage of net sales because during our post-paid method of doing business
we continued to incur debt without collecting revenues for airtime provided to
customers. During 1999, we were unable to consistently bill and collect for such
services rendered resulting in losses for year ended December 31, 1999 and
previous years.
Selling, general and administrative expenses consisting of telephone
costs, development fees, accounting and salaries of officers, increased from
approximately $2,251,990 (approximately 84% of net sales) to approximately
$3,659,091 (approximately 590% of net sales) for Fiscal 1999. Selling, general
and administrative expenses increased in aggregate dollar amounts reflecting an
increase in equipment and systems costs, financing costs and increased
administrative costs related to changing the product structure of the company.
Our net loss for Fiscal 1999 was approximately $6,522,970 as compared to
$5,524,072 for Fiscal 1998 reflecting funds declared uncollectible and as a
result being written off and having no sales during the last half of 1999 while
still incurring substantial debt from past operations.
Interest expense increased from approximately $0 for Fiscal 1998 to
approximately $482,126 during Fiscal 1999, reflecting the increased borrowing by
us to finance the growth of our operations and to finance previous trade
payables.
Liquidity and Capital Resources
At December 31, 1999, had a deficit working capital of approximately
$3,978,153. Our total current assets at December 31, 1999 of approximately
$1,852,235 includes prepaid expenses of approximately $477,027 and inventories
of approximately $522,524. Our inventories consist principally of cellular
telephones and related parts and supplies held at our warehouse for
distribution. The market for cellular telephones and related parts is subject to
the risk of changing consumer trends. In order to be able to promptly fill
orders from retailers, we maintain a significant level of inventory. In the
event that a significant number of particular models or accessories does not
achieve widespread consumer acceptance, we may be required to take significant
price markdowns, which could have a material adverse effect on the business
results of our operations and financial condition. However, we believe that
current reserves adequately reflect our exposure for reduction in the value of
its inventory and does not anticipate any material write-downs of inventory in
the near future.
Our current liabilities as of December 31, 1999, include approximately
$3,249,247 of notes payable. We have also borrowed an aggregate of $2,900,000
from various investors to assist us in financing costs relating to our business.
We have used these loans to fund our continuing operations, to fund increased
inventory and to fund new product development.
13
<PAGE>
At December 31, 1999, our current liabilities also include approximately
$603,976 of accrued expenses and other accounts payable. Our long term debt
includes approximately $2,900,000.
As of December 31, 1999, we have no obligations under employment
agreements and consulting agreements with members of management and our board of
directors.
We leased our prior principal offices in Baltimore, Maryland. We have
since moved to a location in Florida for our management, operations and
distribution operations for which we pay a base annual rent of approximately
$120,000 per year.
Seasonality.
The cellular industry in general produces as much as 30% to 40% of its
annual revenue in the fourth quarter of the year. We expect to experience this
same seasonality.
Inflation.
Our management believes that there has been no significant impact on our
operations as a result of inflation.
ITEM 3. DESCRIPTION OF PROPERTY
Our principal executive offices are located in Lake Mary, Florida, where
we lease approximately 6,700 square feet of space at a current monthly rental of
$9,600. The lease terminates on December 31, 2002, and has an option for
renewal. We expect that our future growth will require us to secure new office
space to adequately house our operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our capital stock as of the date of December 14, 1999
for (i) each person who is known by us to beneficially own more than 5% of any
class of capital stock, (ii) each named executive officer listed in the Summary
Compensation Table, (iii) each director, and (iv) all directors and executive
officers as a group.
14
<PAGE>
Amount and Nature of
Name and Address of Beneficial Ownership
Beneficial Owner (1) of Common Stock
-------------------- ---------------
Number Percent
------ -------
Triton Investments Ltd. 797,957 7.8%
Condor House
19 West Street, P.O. Box N-3881
Nassau, Bahamas
James Harpel 727,333 7.2
237 Park Avenue
Suite 952
New York, NY 10017
SK Limited Partnership 1,138,092 11.2
1688 New Thicket Lane
Steverson, MD 21153
Palmetto, Inc. 531,833 5.3
1-3 Castle Street
British Isles, IM91L1
Ashwood Capital Pension Plan 33,000 .3
711 Fifth Avenue, 14th Floor
New York, New York 10022
Lawrence J. Twill 200,000 2.0
711 Fifth Avenue, 14th Floor
New York, New York 10022
All directors and executive 233,000 2.3
officers as a group (1 person)
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers and directors, and their ages at May 12, 2000, are
as follows:
Name Age Position
---- --- --------
David S. Gergacz(1) 51 Chief Executive Officer and
Chairman of the Board
- ----------
(1) Member of the Compensation and Audit Committee.
15
<PAGE>
Lawrence J. Twill 62 Vice Chairman of the Board
David S. Gergacz has been our Chief Executive Officer since April 2000.
Prior to that, he was Chairman and CEO of Brite Voice Systems, Inc., a leader in
the development of prepaid systems technology for the wireless industry. Mr.
Gergacz has also served as Chief Executive Officer of Cincinnati Bell Telephone,
Boston Technology and Rogers Cantel and he was the President and Chief Operating
Officer of Network Systems at Sprint, where he was responsible for the design of
the telephone network.
Lawrence J. Twill has been a member of our Board of Directors since April
2000. He has been Chairman of Ashwood Capital, a private merchant bank, since
1991. He is one of the founders of Jet Blue Airways, a new air carrier based at
John F. Kennedy International Airport. Previously, Mr. Twill was a Managing
Director of Peers & Co., Inc., a merchant bank and subsidiary of Kemper
Securities, Inc. and the Long Term Credit Bank of Japan. Mr. Twill is a member
of the Board of Directors and Chairman of the Audit Committee of HMG Worldwide,
a marketing and consulting firm, and a member of the Board of Directors of
TeeTimes.com, an Internet based company that books golf tee times.
Directors and Executive Officers
Directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. Our by-laws provide
for a minimum of one and a maximum of seven directors to serve on our board.
Our executive officers are appointed by our board of directors on an
annual basis and serve until the next annual meeting of the board of directors
or until their successors have been duly elected and qualified.
Committees of the Board of Directors
Our board of directors intends to establish two formal committees: an audit
committee and a compensation committee, each of which will consist of David S.
Gergacz, our Chief Executive Officer and two independent outside directors at
the time of their election.
The functions of the audit committee include: (a) recommending for approval
by the board of directors a firm of certified public accountants whose duty it
will be to audit our financial statements for the fiscal year in which they are
appointed, and (b) to monitor the effectiveness of the audit effort, our
internal financial and accounting organization and controls and financial
reporting. The audit committee will also consider various capital and investment
matters.
We intent that our compensation committee will consist of David S. Gergacz
and outside directors upon election. None of our executive officers serve as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
16
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Director Compensation
The compensation committee is responsible for establishing compensation
arrangements for our officers and directors, reviewing benefit plans and
administering our stock option plan.
Directors who are not our employees will receive $5,000 per year for
services rendered as a director and $1,000 for attending each meeting of the
board of directors or one of its committees. In addition, directors will be
reimbursed for their out-of-pocket expenses incurred in connection with
attendance at any meeting of the board of directors or committees. Other than
reimbursement for expenses, directors who are our employees receive no
additional compensation for service as a director. To date, we have not paid any
amounts of any of our directors for acting in such capacity.
Executive Compensation
The following table sets forth the total compensation for services paid to
our former chief executive officer and each other executive officer whose 1999
compensation exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Awards
Other ------
Annual Securities
Name and Principal Position Year Salary ($) Bonus($) Compensation Restricted Underlying
--------------------------- ---- ---------- --------- ------------ Stock Awards Options
------------ -------
<S> <C> <C> <C> <C> <C> <C>
Brian McCormick, 1999 $62,019.23 - -
former Chief $196,132.52(2)
Executive Officer(1)
</TABLE>
(1) Mr. McCormick resigned as Chief Executive Officer on February 8, 2000.
(2) We determined that a loan made to Mr. McCormick was uncollectible and
charged the value of the loan to him as compensation as reported on a 1099.
Option Grants
No options were granted in 1999 to any of the officers named in the above
table.
Employment and Service Agreements
In April 2000, we entered into a three-year employment agreement with
David Gergacz, pursuant to which he will serve on a full time basis as our Chief
Executive Officer. The agreement will provide for an annual base salary of
$300,000. Mr. Gergacz will be entitled to a bonus equal to his annual salary if
we meet certain performance goals and a $650 per month car allowance. The
employment agreement contains standard confidentiality provisions and prohibits
Mr. Gergacz from engaging in a competing business for one year following
termination of his employment.
17
<PAGE>
We entered into a service agreement with Ashwood Capital, Inc. whereby
Ashwood Capital, Inc. will provide the services of Lawrence J. Twill to serve as
our Vice Chairman for a period of three years. Mr. Twill is the sole shareholder
of Ashwood Capital, Inc. The agreement provides for an annual fee of $120,000
subject to annual increases at the discretion of the Board of Directors. Ashwood
Capital, Inc. also received a grant of 1,000,000 shares of our common stock. The
agreement contains a confidentiality provision and a provision prohibiting
Ashwood Capital, Inc. or him from competing with the company for a period of one
year subsequent to the termination of the agreement.
Stock Option and Warrant Agreements
In May 1, 1999, we entered into a Stock Option Agreement with David
Gergacz, pursuant to which he was granted the right to purchase 15% of our total
issued and outstanding common stock. The option expires on the earlier of his
termination or April 30, 2009. One-third of the options was immediately
exercisable while another third vested on November 1, 1999. The remaining third
vests on May 1, 2000. All options become immediately exercisable in the event of
a "change of control" of the Company.
As of December __, 1999, we entered into a Warrant Agreement with Ashwood
Capital Pension Fund ("Ashwood"), of which Lawrence J. Twill, the Vice Chairman
of the Company, is the sole beneficiary pursuant to which Ashwood was granted a
10 year warrant to purchase 2,000,000 fully paid, validly issued and
nonassessable shares of our common stock, par value $.01 per share at a price of
$.50 per share at any time or from time to time during the period from April 1,
2000 until March 31, 2010.
Stock Option Plan
We adopted a Stock Plan in April 2000. The plan will be administered by
the compensation committee of our board of directors or our board of directors,
who will determine, among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of common stock issuable upon the exercise of
the options and the option exercise price. The options may be granted as either
or both of incentive stock options or non-qualified stock options. Up to two (2)
million shares may be issued under this plan. To date, 70,000 options have been
granted under the plan.
In connection with the plan, the exercise price of each incentive stock
option may not be less than 100% of the fair market value of our common stock on
the date of the grant or 110% of fair market value in the case of an employee
holding 10% or more of our outstanding common stock. The aggregate fair market
value of shares of common stock for which incentive stock options granted to any
employee are exercisable for the first time by such employee during any calendar
year, pursuant to all of our, or any related corporation's stock option plan,
may not exceed $100,000. Non-qualified stock options may be granted at a price
determined by our compensation committee, but not at less than 85% of the fair
market value of our common stock. Stock options granted pursuant to our stock
option plan will expire not more than ten years from the date of grant.
The plan is effective for a period of ten years, expiring in 2011. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to us. The plan is
designed to enable our management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the plan may be exercised for up to ten years, require a minimum one year
vesting period, and shall be at the
18
<PAGE>
exercise price all as determined by the compensation committee or our board.
Options are non-transferable except by the laws of descent and distribution or a
change in control of us, as defined in the plan, and are exercisable only by the
participant during his or her lifetime. Change in control includes (a) the sale
of substantially all of our assets and merger or consolidation with another
company, or (b) a majority of the board changes other than by election by the
stockholders pursuant to board solicitation or by vacancies filled by the board
caused by death or resignation of such person.
If a participant ceases affiliation with us by reason of death, permanent
disability or retirement at or after age 70, the option remains exercisable for
one year from such occurrence but not beyond the option's expiration date. Other
types of termination allow the participant three months to exercise, except for
termination for cause which results in immediate termination of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the plan.
The plan may be terminated or amended at any time by our board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the plan may not be
increased without the consent of our stockholders.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1998, our then President borrowed a total of $225,000 from us. In
addition, we made a payment to a bank on behalf of the then President in the
amount of $100,000. Approximately $175,000 of those loans was repaid in October
1998. The loans were non-interest bearing and are due on demand.
Current management has determined that the amounts due from our former
President are uncollectible and have since been written off the receivables.
These amounts were charged to him as compensation.
In the future, we will present all proposed transactions between us and
our officers, directors, 5% shareholders and affiliates to our board of
directors for its consideration and approval. Any such transaction will require
approval by a majority of the directors and such transactions will be on terms
no less favorable than those available to disinterested third parties.
ITEM 8. DESCRIPTION OF SECURITIES
The following description of matters relating to our securities does not
purport to be complete and is qualified by Delaware law and to the provisions of
our certificate of incorporation and bylaws, and the underwriting agreement
between us and the underwriter, copies of all which have been filed with the
Commission as exhibits to the registration statement of which this prospectus is
a part.
General
We are authorized by our certificate of incorporation to issue an
aggregate of 54,450,000 shares of common stock, $.001 par value per share and
1,550,000 shares of blank check preferred stock, 1,100,000 of which are
permanently retired and may not be reissued. There is an aggregate of 10,181,769
shares of our common stock were issued and outstanding. All outstanding shares
of common stock are of the same class and have equal rights and attributes. No
shares of preferred stock are outstanding.
19
<PAGE>
Common Stock
We are authorized to issue 54,450,000 shares of common stock, $.001 par
value per share. Each share of common stock entitles the holder thereof to one
vote on all matters submitted to a vote of the shareholders. Since the holders
of common stock do not have cumulative voting rights, holders of more than 50%
of the outstanding shares can elect all of our directors and approve significant
corporate transactions and holders of the remaining shares by themselves cannot
elect any directors. The holders of our common stock do not have preemptive,
conversion, redemption, subscription or cumulative voting rights. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by our board of directors out of funds legally available therefor. In the event
of our liquidation, dissolution or winding up, holders of common stock will be
entitled to participate equally in net assets subject to the preferences that
may be applicable to any outstanding preferred stock.
Preferred Stock
Our certificate of incorporation authorizes the issuance of up to
1,550,000 shares of blank check preferred stock, 1,100,000 of which are
permanently retired. The rights, privileges and preferences of the preferred
stock may be designated by our board of directors from time to time.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of our stockholders. These shares may
have rights which are senior to our common stock. Preferred stock may be issued
in the future in connection with acquisitions, finances, or such other matters
as our board of directors deems to be appropriate. In the event that any shares
of preferred stock shall be issued, a certificate of designation, setting forth
the series of preferred stock and the relative rights, privileges and
designations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of preferred stock is that our board of
directors alone may authorize the issuance of preferred stock which could have
the effect of making more difficult or discouraging an attempt to obtain control
of us by means of a merger, tender, proxy contest or other means.
20
<PAGE>
Limitation on Liability
Our certificate of incorporation and bylaws provide for the elimination,
to the extent permitted by Delaware law, of personal liability of our directors
for monetary damages for breach of fiduciary duty as directors. Our bylaws also
provide for mandatory indemnification of directors, officers and employees.
We intend to obtain a directors and officers insurance and company
reimbursement policy. We intend that the policy will insure directors and
officers against unindemnified losses arising from certain wrongful acts in
their capacities and would reimburse us for such losses for which we have
lawfully indemnified the directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be provided to our directors, officers and controlling persons, we have
been advised that in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Warrants and Options
Warrants and options to purchase 3,618,840 shares of common stock at
prices ranging from $ .01 per share to $1.50 per share are currently
outstanding. These warrants and options are owned by David Gergacz, Laurence J.
Twill, Ashwood Capital Pension Fund,, David Barger, Bruce Raben, Joseph Bianco,
Robert Weingarte, Leon Wagner, Bruce Sholk, Palmetto, Inc. and Half Moon, Inc..
These warrants contain standard anti-dilution protection.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Dinsmore & Shohl,
LLP.
21
<PAGE>
PART II
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Price quotations for our common stock were posted, through May 3, 2000, on
the OTC Bulletin Board and were so listed since April 20, 1998. Our common stock
ceased being listed on the OTC Bulletin Board on May 3, 2000 as a result of the
implementation of the Bulletin Board's requirement that we have our common stock
registered under the Exchange Act of 1934. Upon the effectiveness of this
filing, the Company intends to seek to have its common stock listed again for
trading on the OTC Bulletin Board. We can give no assurance that we will satisfy
the initial listing requirements for the OTC Bulletin Board of that this filing
can be effective with any period of time.
(a) Market Price.
Since April 30, 1998, market makers have been able to post price
quotations for our common stock on the Over the Counter Bulletin Board. The
historical prices for our common stock on the OTC Bulletin Board are as follows
(calendar quarters):
High Low
---- ---
First Quarter 1999 5.6250 0.1250
Second Quarter 1999 4.0000 1.7500
Third Quarter 1999 2.2500 1.5000
Fourth Quarter 1999 3.5000 2.0000
First Quarter 2000 (Until 3/31/2000) 3.18750 1.9375
The Securities and Exchange Commission (the "Commission") adopted Rule
15g-9, which established the definition of a "penny stock," for purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
persons; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stock in both public offering and in
secondary trading, and about commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
22
<PAGE>
For the initial listing in the NASDAQ SmallCap Market (TM), a company must
have net tangible assets of $4 million or market capitalization of $50 million
or a net income (in the latest fiscal year or two of the last fiscal years) of
$750,000, a public float of $1,000,000 shares with a market value of $5 million.
The minimum bid price must be $4.00 and there must be three market makers. In
addition, there must be 300 stockholders holding 100 shares or more, and the
company must have an operating history of at least one year or a market
capitalization of $50 million. For continued listing in the NASDAQ SmallCap
Market (TM), a company must have net tangible assets of $2 million or market
capitalization of $35 million or a net income (in the latest fiscal year or two
of the last fiscal years) of $500,000, a public float of 500,000 shares with a
market value of $1 million. The minimum bid price must be $1.00 and there must
be two market makers. In addition, there must be 300 stockholders holding 100
shares or more. We can give no assurances that we will qualify our securities
for listing on NASDAQ or some other national exchange, or be able to maintain
the maintenance criteria necessary to insure continued listing. Our failure to
qualify our securities or to meet the relevant maintenance criteria after such
qualification in the future may result in the discontinuance of the inclusion of
our securities on a national exchange. In such events, trading, if any, in our
securities may then continue in the non-NASDAQ over-the-counter market. As a
result, a stockholder may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of our securities.
(b) Holders.
There are approximately 83 holders of our common stock. During 1998,
outside investors loaned us a total of $3,050,000 in exchange for notes payable
at 12% interest per annum and warrants to purchase common stock at prices
ranging from $1.50 to $2.00 per share. Further, the 1998 loan investors were
entitled to convert their loans to common stock at 50% of their respective
warrant price per share. In January 1999, certain of the then existing
shareholders agreed to relinquish 3,808,275 shares of their common stock to the
bridge loan investors in order to extinguish $2,925,000 of the 1998 bridge loans
plus accrued interest. On June 4, 1999, we signed a placement agent agreement
with an investment banking firm whereby we engaged an investment banker to act
as agent to sell up to $3,300,000 in a private placement, consisting of 10%
convertible promissory notes on a best efforts basis. Subsequently, we received
$2,900,000 from outside investors in exchange for convertible promissory notes
payable at 10% interest per annum. The notes have conversion rights to convert
the notes, at any time, into common stock at $2.00 per share. All of the issued
and outstanding shares of the common stock were issued in accordance with
exemptions from registration afforded by Sections 3(b) or 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"). Dividends. We have not paid any
dividends to date, and have no plans to do so in the immediate future.
ITEM 2. LEGAL PROCEEDINGS
We are not involved in any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Company within the past three years.
23
<PAGE>
<TABLE>
<CAPTION>
Nature of Class of Aggregate Price
Transaction and Date Purchasers Securities Sold Offering Price Per Share
-------------------- ---------- --------------- -------------- ---------
<S> <C> <C> <C> <C>
Private placement Accredited 10% Convertible $3,300,000 $2.00
pursuant to Investors Promissory Conversion
private placement Notes, Price
agreement in June Convertible
1999 into shares of
Common Stock
</TABLE>
We relied on Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder for each issuance. No underwriters were involved nor any commissions
paid in connection with any of the above transactions.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation, limits the liability of directors to the
maximum extent permitted by Delaware law. Our By-Laws provide that we shall
indemnify our directors and executive officers and may indemnify other officers,
employees, agents and other agents to the fullest extent permitted by law. Our
By-Laws also permits us to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether the By-Laws would permit indemnification.
24
<PAGE>
PART F/S
AUDITED FINANCIAL STATEMENTS
25
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Amendment of Certificate of Incorporation of
United Acquisition II Corp.
3.2 By-Laws
4.1* Specimen Common Stock Certificate
5* Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C.
10.1 Employment Agreement with David Gergacz
10.2* Service Agreement with Ashwood Capital, Inc.
10.3 Form of 2000 Stock Option Plan
10.4 Stock Option Agreement with David Gergacz
10.5* Warrant Agreement with Ashwood Capital, Inc.
10.6 Form of Lock-Up Agreement
23.1 Consent of PRA & Company
24 Power of Attorney
27 Financial Data Schedule
- ---------------------------------
* To be filed by amendment.
26
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. MOBILE SERVICES, INC.
By: /s/ David Gergacz
-----------------------------
David Gergacz
Chief Executive Officer
In accordance with requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
/s/ David Gergacz Chairman of the Board May 12, 2000
- -----------------------------
David Gergacz
/s/ Lawrence J. Twill Vice Chairman of the May 12, 2000
- ----------------------------- Board
Lawrence J. Twill
27
<PAGE>
[Pascale Razzino Alexanderson LOGO]
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT AUDITORS
DECEMBER 31, 1999 and 1998
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
PAGE
----
Report of Independent Auditors
- U.S. Mobile Services, Inc. 1
Consolidated Balance Sheets of U.S. Mobile Services, Inc.
and Subsidiary as of December 31, 1999 and 1998
- Assets 2
- Liabilities and Stockholders' (Deficit) 3
Consolidated Statements of Operations of U.S. Mobile
Services, Inc. and Subsidiary for the years ended
December 31, 1999 and 1998 4
Consolidated Statement of Stockholders' (Deficit)
of U.S. Mobile Services, Inc. and Subsidiary
- For the year ended December 31, 1999 5
- For the year ended December 31, 1998 6
Consolidated Statements of Cash Flows of U.S. Mobile
Services, Inc. and Subsidiary for the years ended
December 31, 1999 and 1998 7-9
Notes to Consolidated Financial Statements 10-23
<PAGE>
[Pascale Razzino Alexanderson Letterhead]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
U.S. Mobile Services, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Mobile
Services, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' (deficit) and
cash flows for the years then ended. These consolidated 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 provided a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the consolidated financial position of U.S.
Mobile Services, Inc. and Subsidiary as of December 31, 1999 and 1998 and the
results of their consolidated operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 18 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 18. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Garden City, New York
February 24, 2000
(except for Notes 17 and 19
which are as of March 15, 2000)
1
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 and 1998
1999 1998
---- ----
ASSETS
Current assets:
Cash in banks $ 117,894 $ 34,337
Accounts receivable-net of allowance
for doubtful accounts of $103,500
in 1998 34,144 19,807
Inventory 522,524 228,414
Prepaid interest - net 200,644 --
Prepaid expenses and other assets 477,029 208,214
---------- ----------
Total current assets 1,352,235 490,772
---------- ----------
Property and Equipment- at cost, less accumulated
depreciation and amortization of $32,566 in 1999
and $10,682 in 1998 245,782 3,478
---------- ----------
Other assets:
Restricted cash 200,000 --
Security deposits 33,499 11,059
---------- ----------
233,499 11,059
---------- ----------
Total assets $1,831,516 $ 505,309
========== ==========
The accompanying notes are an integral part of these statements.
2
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable-trade $ 1,202,262 $ 1,669,029
Accrued expenses and other 603,976 328,885
Accrued interest payable 274,903 212,468
Notes payable 3,249,247 1,839,747
------------ ------------
Total current liabilities 5,330,388 4,050,129
------------ ------------
Convertible notes payable 2,900,000 2,925,000
------------ ------------
Total liabilities 8,230,388 6,975,129
------------ ------------
Commitments and contingencies (Note 15)
Stockholders'(deficit):
Preferred stock, undesignated (450,000
shares authorized, none issued) -- --
Common stock ($.001 par value per share; 54,450,000
shares authorized, 10,181,769 and 9,096,861 shares
issued and outstanding as of December 31, 1999 and
1998, respectively) 10,182 9,097
Paid-in capital 8,674,828 2,231,619
Accumulated (deficit) (15,083,882) (8,560,912)
Officer loan receivable - net -- (149,624)
------------ ------------
Total stockholders'(deficit) (6,398,872) (6,469,820)
------------ ------------
Total liabilities and stockholders' (deficit) $ 1,831,516 $ 505,309
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 620,298 $ 2,678,627
Less cost of sales 1,049,045 2,407,553
----------- -----------
Gross profit (loss) (428,747) 271,074
Operating expenses:
Selling, general and administrative 3,659,091 2,251,990
Consulting fees 1,274,230 50,000
Professional fees 210,034 141,090
Bad debt expense 61,354 2,793,900
----------- -----------
Total operating expenses 5,204,709 5,236,980
----------- -----------
(Loss) from operations (5,633,456) (4,965,906)
----------- -----------
Other income and (expense)
Interest income 11,965 240
Interest expense (379,926) (330,143)
Investment banking fees (482,126) --
(Loss) on investment -- (15,000)
(Loss) on abandonment (56,360) (218,160)
Other income 16,933 4,897
----------- -----------
Net other income and (expense) (889,514) (558,166)
----------- -----------
Net (loss) before income taxes (6,522,970) (5,524,072)
----------- -----------
Income taxes -- --
----------- -----------
Net (loss) $(6,522,970) $(5,524,072)
=========== ===========
Basic net (loss) per share $ (.67) $ (.61)
=========== ===========
Weighted average number of shares outstanding 9,718,971 9,096,861
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Officer
Common Stock Additional Loan
$.001 Par Value Paid-in Accumulated Receivable
Shares Amount Capital (Deficit) Net Total .
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance - January 1, 1999 9,096,861 $ 9,097 $ 2,231,619 $ (8,560,912) $ (149,624) $ (6,469,820)
Contributions of capital -- -- 9,056 -- -- 9,056
Issuance of common stock for
investment banking fees 794,908 795 645,068 -- -- 645,863
Issuance of prepaid interest shares
to promissory note holders 290,000 290 579,710 -- -- 580,000
Transactions related to option and
warrant activity -- -- 2,052,775 -- -- 2,052,775
Issuance of common stock 5,267,408 5,267 3,156,600 -- -- 3,161,867
Surrender of common stock by
stockholders (5,267,408) (5,267) -- -- -- (5,267)
Officer loan receivable written off -- -- -- -- 149,624 149,624
Net (loss) for the year ended
December 31, 1999 -- -- -- (6,522,970) -- (6,522,970)
------------ ------------ ------------ ------------ ------------ ------------
Closing balance - December 31, 1999 10,181,769 $ 10,182 $ 8,674,828 $(15,083,882) $ -- $ (6,398,872
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Officer
Common Stock Additional Loan
No Par Value Paid-in Accumulated Receivable
Shares Amount Capital (Deficit) Net Total .
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance - January 1, 1998 180 $ 2,500 $ 2,240,788 $(3,036,840) $ -- $ (793,552)
Shares exchanged in connection
with Share Exchange Agreement (180) (2,500) 2,500 -- -- --
Shares issued pursuant to share
exchange agreement 8,060,000 8,060 (8,060) -- -- --
Shares of pre-exchange stockholders 1,003,861 1,004 (1,004) -- -- --
Contributions of capital - net -- -- 290,428 -- -- 290,428
Costs incurred re: share exchange -- -- (326,000) -- -- (326,000)
Issuance of Common Stock to Fidelity
Business Systems 33,000 33 32,967 -- -- 33,000
Officer loan receivable -- -- -- -- (149,624) (149,624)
Net (loss) for the year ended
December 31, 1998 -- -- -- (5,524,072) -- (5,524,072)
---------- ----------- ----------- ----------- ----------- -----------
Closing balance - December 31, 1998 9,096,861 $ 9,097 $ 2,231,619 $(8,560,912) $ (149,624) $(6,469,820)
========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES
Net (loss) $(6,522,970) $(5,524,072)
ADJUSTMENTS TO RECONCILE NET (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES
Issuance of prepaid interest shares 580,000 --
Issuance of common stock for services 645,863 33,000
Option and warrant activity 2,052,775 --
Loss on abandonment 56,360 218,160
Depreciation & amortization 33,683 56,265
Allowance for doubtful accounts (103,500) (796,500)
(Increase) Decrease-Assets
Accounts receivable 89,163 2,931,966
Inventory (294,110) (228,414)
Prepaid interest (200,644) --
Prepaid expenses and other assets (268,815) (199,381)
Restricted cash (200,000) --
Increase (Decrease)-Liabilities
Accounts payable - trade (466,767) 22,582
Accrued expenses and other 275,091 (421,033)
Accrued interest payable 62,435 212,468
----------- -----------
Total Adjustments 2,261,534 1,829,113
----------- -----------
Net cash (used) by operating activities (4,261,436) (3,694,959)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (332,347) (193,728)
Security deposits (33,499) --
Reduction in security deposits due to
forfeiture of rent 11,059 --
----------- -----------
Net cash (used) by investing activities (354,787) (193,728)
----------- -----------
Sub total $(4,616,223) $(3,888,687)
----------- -----------
The accompanying notes are an integral part of these statements.
7
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Balance Forward $(4,616,223) $(3,888,687)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible promissory notes 2,900,000 1,305,136
Officer loan receivable - net 149,624 (149,624)
Bridge loan notes payable 231,600 3,050,000
Reduction of short term debt (150,000) (246,916)
Issuance of notes payable 1,559,500 --
Net costs incurred in connection
with share exchange agreement -- (326,000)
Contributions of capital 9,056 290,428
----------- -----------
Net cash provided by financing activities 4,699,780 3,923,024
----------- -----------
Net increase (decrease) in cash in banks 83,557 34,337
Cash in banks-beginning of year 34,337 --
----------- -----------
Cash in banks-end of year $ 117,894 $ 34,337
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year
Interest expense $ -- $ 320,088
=========== ===========
Income taxes $ -- $ --
=========== ===========
Non Cash Investing and Financing Activities
On April 30, 1998, U.S. Mobile exchanged 100% of its common stock for 88.9% of
United Acquisition II Corp in a transaction equivalent to a reverse acquisition
and recapitalization. See Note 7.
On May 1, 1998, the company issued 33,000 shares of common stock to Fidelity
Business Systems in settlement of certain claims. The shares were valued at $1
per share and $33,000 was charged to expense during 1998.
The accompanying notes are an integral part of these statements.
8
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Non Cash Investing and Financing Activities (continued)
During 1999, U.S. Mobile issued 794,908 options to purchase common stock of the
company at $1 per share in connection with consulting and investment banking
activities. The options were valued at $615,463 for financial statement
purposes.
During 1999, U.S. Mobile issued 30,400 options to purchase common stock of the
company, at $2 per share for consulting fees. The options were valued at $30,400
for financial statement purposes.
During 1999, U.S. Mobile issued 200,000 options to purchase common stock of the
company at $1 per share in connection with letter of credit guarantees. For
financial statement purposes, the options were valued at $107,000.
The accompanying notes are an integral part of these statements.
9
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - General
On April 30, 1998, U.S. Mobile Services, Inc., a Pennsylvania corporation
(hereinafter referred to as "old U.S. Mobile"), was acquired through a share
exchange and recapitalization, by United Acquisition II Corporation (UACQ) a
Delaware corporation, a non-operating public shell corporation in a reverse
acquisition. Old U.S. Mobile received 88.9% of the issued and outstanding shares
of UACQ's common stock in exchange for 100% of the outstanding shares of old
U.S. Mobile's common stock and, therefore, became a wholly owned subsidiary of
UACQ. UACQ's legal name was then changed to U.S. Mobile Services, Inc. (U.S.
Mobile). The acquisition is considered to be a capital transaction, in substance
equivalent to the issuance of stock by old U.S. Mobile for the net monetary
assets of UACQ, accompanied by a re-capitalization of old U.S. Mobile.
(B) - Nature of Business
Prior to August 1999, U.S. Mobile was in the post-paid cellular resale and
competitive local exchange telephone business. Subsequently, the company changed
its mode of business to selling pre-paid wireless telephone products and
services to the public. Corporate headquarters and distribution facilities are
located in Lake Mary, Florida. Services are provided throughout the continental
United States.
(C) - Basis of Presentation
The accompanying consolidated balance sheets and related consolidated statements
of operations, stockholders' (deficit) and cash flows includes the accounts of
old U.S. Mobile for the period from January 1, 1998 to April 30, 1998 and the
operations of U.S. Mobile (UACQ) for the year ended December 31, 1999 and for
the period from May 1, 1998 to December 31, 1998.
Significant intercompany transactions and balances have been eliminated.
(D) - Basic Net (Loss) per Common Share
Basic net (loss) per common share was computed on the basis of the weighted
average number of common shares outstanding during each year presented.
10
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(E) - Cash and Cash Equivalents
U.S. Mobile considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(F) - Inventory
Inventory consists principally of cellular telephones and related parts and
supplies stated at the lower-of-cost or market, determined on a first-in,
first-out basis.
(G) - Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives. Accelerated methods of depreciation are followed
for tax purposes and the straight-line method is used for financial reporting
purposes. Furniture and fixtures and other equipment are generally depreciated
over periods ranging from two to seven years.
(H) - Income Taxes
Prior to the share exchange described in Note 1, old U.S. Mobile Services, Inc.
and its stockholders elected to be taxed in accordance with the provisions of
Subchapter S of the Internal Revenue Code under which the corporation is
generally not subject to federal and certain state taxes. Rather, the tax
liabilities are passed through directly to the stockholders who are responsible
for their share of the allowable items of income and expense.
As of the date of the share exchange on April 30, 1998, old U.S. Mobile
relinquished its S Corporation status and is now consolidated with U.S. Mobile
and is being taxed under Subchapter C whereby the corporation is responsible for
its own taxes.
Taxes are provided on all revenue and expense items included in the Statements
of Operations, regardless of the period in which such items are recognized for
income tax purposes, except for items representing a permanent difference
between accounting income and taxable income.
11
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(I) - Revenue Recognition
U.S. Mobile recognizes revenue at the time services are provided or cellular
telephones and prepaid telephone cards are sold to its customers.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent 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.
Note 2 - Income Taxes
Prior to May 1, 1998, the stockholders of old U.S. Mobile elected to be taxed
under Subchapter S of the Internal Revenue Code. Because of the conduit nature
of this status, the company received no tax benefits from losses generated
during the period ended April 30, 1998. Had such benefits been available to the
company they would have approximated $71,500 for the period ended April 30, 1998
in the form of tax carryovers and would have been subject to a valuation
allowance due to management's valuation of the likelihood of realization.
Effective May 1, 1998, U.S. Mobile relinquished it's S Corporation status due to
the increased number of shareholders and accounts for income taxes on the
liability method, as provided by Statement of Financial Accounting Standards
109, Accounting for Income Taxes.
The income tax benefit was composed of the following components:
1999 1998
---- ----
Current - Federal $(2,098,300) $(1,996,200)
State (324,800) (309,000)
----------- -----------
Total Current (2,423,100) (2,305,200)
Deferred- Federal 33,400 257,300
State 5,200 39,800
----------- -----------
Total Deferred 38,600 297,100
----------- -----------
Total $(2,384,500) $(2,008,100)
=========== ===========
12
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 2 - Income Taxes (continued)
The income tax benefit reconciled to the tax computed at the statutory Federal
rate is as follows:
<TABLE>
<CAPTION>
1999 1998 .
---------------- -----------------
<S> <C> <C> <C> <C>
Tax benefit at Statutory Rate $(2,174,900) 34.0% $(1,924,500) 34.0%
State income tax benefit
net of federal tax (211,100) 3.3 (186,800) 3.3
Non deductible expenses
and other 1,500 -- 31,700 .6
Tax benefit related to
S Corp period -- -- 71,500 1.2
----------- ------ ----------- ------
Total $(2,384,500) (37.3%) $(2,008,100) (35.5%)
=========== ====== =========== ======
</TABLE>
Differing methods of reporting income for tax purposes as compared to financial
reporting purposes resulted in a net deferred income tax provision of
approximately $38,600 and $297,100 for the years ended December 31, 1999 and
1998 respectively.
Deferred tax assets and liabilities consist of the following:
1999 1998 .
----------- ------------
Long-Term Deferred Tax Assets
Allowance for doubtful accounts $ -- $ 103,500
Capital loss carryovers 15,000 15,000
Net operating loss carryovers 11,690,700 5,856,100
----------- ------------
11,705,700 5,974,600
Less: valuation allowance (11,705,700) (5,974,600)
------------ ------------
$ -- $ -- .
=========== ============
Deferred tax liabilities $ -- $ -- .
=========== ============
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization. Management has concluded that no
income tax benefit should be provided in the Statements of Operations since no
future benefit can be assumed.
As required by SFAS 109, deferred taxes are provided based upon the tax rate at
which the items of income and expense are expected to be settled in U.S.
Mobile's tax return.
13
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Note 2 - Income Taxes (continued)
U.S. Mobile has net operating losses through December 31, 1999 for financial
reporting purposes amounting to $11,690,700. These losses will be available to
offset future income for financial reporting purposes expiring in 2019. The
company also has a capital loss carryover amounting to $15,000 which will be
available to offset future capital gains.
NOTE 3 - Notes Payable 1999 1998 .
- ---------------------- ---- -------
Bridge loan notes payable (A ) $ 125,000 $3,050,000
Convertible promissory notes payable
with interest at 10% per annum (B) 2,900,000 --
Notes payable - letter of credit, non-
interest bearing, issued with warrants
to purchase common stock 200,000 --
Note payable to First Global due on
demand with interest at 12% per annum
secured by all assets of U.S. Mobile 1,698,636 1,305,136
Note payable to Annapolis Bank under
a line of credit due on demand with
interest currently at 10.25% per annum 260,519 260,519
Loan payable to PNC Bank due on demand
with interest currently at 8.75%
secured by all assets of U.S. Mobile 149,092 149,092
Note payable to Bell Atlantic - non-interest
bearing, due in installments of $50,000
beginning January, 2000 450,000 --
Note payable to MCI Worldcom - interest
at 16% per annum due in installments of
$50,000 beginning January, 2000 366,000 -- .
---------- ----------
Total 6,149,247 4,764,747
Less current maturities 3,249,247 1,839,747
---------- ----------
Long-term portion $2,900,000 $2,925,000
========== ==========
14
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - Notes Payable (continued)
Interest expense for the above loans amounted to $359,926 and $330,143 for the
years ended December 31, 1999 and 1998, respectively.
The carrying value of the Company's borrowings approximate their fair values.
(A) - Bridge Loans
During 1998, outside investors (the "bridge loan investors") loaned the company
a total of $3,050,000 in exchange for notes payable at 12% interest per annum
and warrants to purchase common stock at prices ranging from $1.50 to $2.00 per
share. Further, the 1998 bridge loan investors were entitled to convert their
loans to common stock at 50% of their respective warrant price per share. In
January 1999, certain of the then existing shareholders agreed to relinquish
3,808,275 shares of their common stock to the bridge loan investors in order to
extinguish $2,925,000 of the 1998 bridge loans plus accrued interest.
Accordingly, in 1999, $3,156,600 was converted and is reflected as equity in the
accompanying financial statements.
(B) - Convertible Promissory Notes
On June 4, 1999, U.S. Mobile signed a placement agent agreement with an
investment banking firm wherby the company engaged the investment banker to act
as agent to sell up to $3,300,000 in a private placement, consisting of 10%
convertible promissory notes of the company on a best efforts basis.
Subsequently, the company received $2,900,000 from outside investors in exchange
for convertible promissory notes payable at 10% interest per annum. The notes
have conversion rights to convert the notes, at any time, into common stock of
the Company at $2.00 per share. If for 20 consecutive trading day periods the
common stock of the Company is equal to or greater than $5.00 per share, the
notes will automatically convert into common stock of the company at $2.00 per
share. If for any 20 consecutive trading day periods the common stock of the
company is equal to or less than $2.00 per share, the notes will automatically
convert into common stock of the Company at a discount of 20% to the average
closing bid price of the Company's common stock for the 5 days immediately
preceding the date of conversion.
15
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 3 - Notes Payable (continued)
(B) - Convertible Promissory Notes
In the event that the common stock of the Company trades at or less than $2.00
per share for 20 consecutive trading days, the Company has 30 additional days to
redeem the notes at the face amounts. The note agreements called for the
noteholders to receive the first year's interest in the form of company stock
with a stated value of $1 per share on a prepaid basis. Accordingly, the company
issued 290,000 shares of stock valued at $2.00 per share for financial statement
purposes to these noteholders. The company recorded $290,000 of prepaid interest
and $290,000 of interest expense related to these prepaid interest shares.
Prepaid interest of $89,356 has been amortized for the year ended December 31,
1999.
NOTE 4 - Property and Equipment
Property and other equipment consists of the following as of December 31, 1999
and 1998:
1999 1998
-------- --------
Equipment $208,548 $ 11,610
Furniture & fixtures 55,181 --
Leasehold improvements 14,619 2,550
-------- --------
Sub total 278,348 14,160
Less: Accumulated depreciation 32,566 10,682
-------- --------
Total $245,782 $ 3,478
======== ========
During 1998, U.S. Mobile relocated its offices from Annapolis Junction, Maryland
to Hanover, Maryland. In July 1999 the company then relocated its offices to
Lake Mary, Florida. As a result of these relocations, the company was forced to
abandon certain furniture & fixtures and leasehold improvements with a net book
value of $102,074. Further, computer hardware and software with a book value of
$59,152 was abandoned and the company decided to terminate the development of
its website and wrote off development costs amounting to $113,294. The total
loss on the abandonment and the termination amounted to $274,520 of which
$56,360 was recorded in 1999 and $218,160 in 1998.
Depreciation and amortization expense amounted to $33,683 and $56,265 for the
years ended December 31, 1999 and 1998, respectively and is included in general
and administrative expenses. The fair market value of fixed assets approximates
book value.
16
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 5 - Related Party Transactions
In April 1998, the then President and stockholder of U.S. Mobile borrowed a
total of $225,000 from U.S. Mobile. In addition, the company made a payment to a
bank on behalf of the President in the amount of $100,000. The President repaid
approximately $175,000 of those loans in October 1998.
The loans were non-interest bearing, due on demand, and in 1998 were reflected
as a deduction from stockholders' deficit in the accompanying financial
statements. During the year-end December 31, 1999, management determined that
the amounts due from the former president and stockholder were uncollectible and
wrote off the receivable. The $149,624 was charged to compensation expense in
the accompanying financial statements.
NOTE 6 - Retirement Plan
Effective January 1, 1998, old U.S. Mobile established a pension plan for
eligible employees under section 401(k) of the Internal Revenue Code. Under the
terms of the plan, U.S. Mobile, at the discretion of its Board of Directors, may
match employee contributions to a maximum of 50%. The company has an overall
matching limitation of 8% of total participant's compensation.
There were no employee contributions in 1999. Employee contributions to the plan
amounted to $27,065 for the year ended December 31, 1998. U.S. Mobile did not
match employee contributions during the year ended December 31, 1999 or 1998.
NOTE 7 - Share Exchange Agreement/Reverse Merger-United Acquisition II Corp.
On April 15, 1998, United Acquisitions II Corporation (UACQ), entered into a
share exchange agreement with the shareholders of old U.S. Mobile Services under
which UACQ received 100% of the issued and outstanding shares of old U.S. Mobile
in exchange for 88.87 percent of the shares of UACQ. Co-incident with the
signing of the agreement, UACQ declared a one for twenty-five reverse split of
its common shares. After giving effect to the reverse split and the issuance of
the exchange shares, UACQ had 9,063,861 post reverse split common shares
outstanding as well as warrants to purchase 1,165,000 post reverse split shares
at $1 per share. UACQ subsequently changed its name to U.S Mobile Services, Inc.
The exchange and reverse merger has been accounted for as a capital transaction
equivalent to the issuance of stock for the net assets of UACQ. The net assets
of UACQ were recorded at their fair market values at April 30, 1998, the date of
the stock exchange agreement. No goodwill was recorded in this transaction.
17
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 8 - Concentration of Credit Risk - Cash
U.S. Mobile maintains its cash balances in more than one financial institution.
At times, the balances may exceed federally insured limits of $100,000. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash on deposit. The fair market value
of these financial instruments approximates cost.
NOTE 9 - Pro-Forma Supplemental Information
The following pro-forma information is presented to reflect the results of
operations for the year 1998 as though UACQ (U.S. Mobile) and old U.S. Mobile
had exchanged stock at the beginning of the year.
Unaudited ProForma Combined
Condensed
Statement of Consolidated Results of Operations
(000's omitted, except per share amounts)
1998
Revenues $ 2,679
Net (loss) $(6,311)
Basic net (loss)
per share $ (.69)
18
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 10 - Stock Options and Warrants
During the year 1999, certain consultants and guarantors were issued stock
options and warrants to purchase approximately 1,809,000 shares of Common Stock
in return for services rendered.
On May 1, 1999, the company entered in to a Stock Option Agreement with its
present Chairman. The agreements granted the Chairman the right and option to
initially purchase 1,747,253 shares of U.S. Mobile's Common Stock at $.01 per
share. The number of shares subject to option will be adjusted so that the
chairman's options constitute 15% of U.S. Mobile's issued and outstanding Common
Stock. The options vested one-third immediately upon signing of the Stock Option
Agreement, one-third on November 1, 1999 and on May 1, 2000 the final one-third
vests.
For financial statement purposes, U.S Mobile accrued $1,123,400 of compensation
expense for the year ended December 31, 1999, which is included in selling,
general and administrative expenses in the accompanying financial statements.
The value of the option shares ($.75) was determined using the "Black-Scholes"
model, which took in to account such factors as the volatility of the stock
price, the exercise price, expected dividends, and the condition of the Company.
Stock option and warrant transactions for the year ended December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Options Avg. price Warrants Avg. price
------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Securities outstanding 1/1/99 -- 0.00 952,500 1.03
Securities granted 3,310,340 .26 246,000 .91
Securities exercised -- 0.00 (801,000) 1.00
Securities cancelled -- 0.00 (89,000) 1.00
--------- ---- --------- ----
Securities outstanding 12/31/99 3,310,340 .26 308,500 1.03
========= ==== ========= ====
</TABLE>
Stock option and warrant transactions for the year ended December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Options Avg. price Warrants Avg. price
------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Securities outstanding 4/28/98 -- 0.00 -- 0.00
Securities granted -- 0.00 952,500 1.03
Securities exercised -- 0.00 -- 0.00
Securities cancelled -- 0.00 -- 0.00
----- ------ ------- -----
Securities outstanding 12/31/98 -- 0.00 952,500 1.03
===== ====== ======= =====
</TABLE>
19
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 11 - Economic Dependency
U.S. Mobile's customers consist primarily of retail individuals. No one customer
represented greater than 10% of the company's total revenues for the years ended
December 31, 1999 and 1998.
Revenues from old U.S. Mobile's five and ten largest customers were not
significant when compared to total revenues for the year ended December 31,
1998.
NOTE 12 - Accounts Receivable-Bad Debt Expense
Prior to August 1999, U.S. Mobile was in the post paid cellular resale and
competitive local exchange service (CLEC) businesses. Under this mode of
business, the company sold airtime to customers and billed them for usage and
access fees monthly through a 3rd party billing servicer U.S. Mobile received
tapes of subscriber usage from the carriers, which it turned over to the 3rd
party billing servicer for subscriber invoicing. The process did not work as it
was supposed to because a) the tapes were not transmitted to the billing
servicer on time, b) the company did not supply the 3rd party billing servicer
with updated subscriber information on a timely basis, and c) the billing
servicer did not invoice subscribers on a timely basis.
After experiencing significant billing and collection problems, U.S. Mobile
negotiated with a local exchange billing company ("LEC billing company") to
process its subscriber billing. The LEC billing company represented that it
could bill cellular airtime and access charges on the local exchange carriers
own customer invoices because of its arrangement with the local exchange
carriers. In addition, it represented that it could include past due invoices.
Subsequently, the LEC billing company notified U.S. Mobile that it could not
carry out the arrangement with the local exchange carrier and could not include
U.S. Mobile's subscriber billing on the local exchange carrier's invoices. As a
result, the LEC billing company billed the subscribers directly for airtime
usage only. U.S. Mobile billed its subscribers for access charges. Many
customers became confused and were not satisfied with receiving two late bills
and, thinking that they were duplicate bills, refused to pay any of the
invoices.
The LEC billing company lagged for months in providing U.S. Mobile with reports
and U.S. Mobile was unable to determine which subscribers had paid and which had
not. Therefore, the company could not deactivate services with respect to
subscriber lines.
20
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 12 - Accounts Receivable-Bad Debt Expense (continued)
Based on the above experiences with billing and collections, management
evaluated its accounts receivable at December 31, 1999 and 1998 and determined
that $61,354 in 1999 and $2,793,900 in 1998 of net past due accounts receivable
were uncollectible and should be written off. These are included in operating
expenses.
NOTE 13 - Stock Transactions and Changes in Capital Structure
Effective April 30, 1998, U.S. Mobile underwent a change in its capital
structure whereby it is authorized to issue 54,450,000 shares of common stock
and 450,000 shares of undesignated preferred stock. In connection with this
change in the capital structure of the company, a stock split was declared by
the Board of Directors, whereby 1 share of the company's common stock was
exchanged for each 25 shares of common stock held.
Note 14 - Fair Value of Financial Instruments
Estimated fair values of U.S. Mobile's financial instruments are as follows:
1999 1998 .
------------ -----------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Cash and short-term
investments $ 117,894 $ 317,894 $ 34,337 $ 34,337
Long-term debt 2,900,000 2,900,000 2,925,000 2,925,000
The carrying amount approximates fair value of cash and short-term instruments.
The fair value of long-term debt is based on current rates at which U.S. Mobile
could borrow funds with similar remaining maturities.
21
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 15 - Commitments and Contingencies
U.S. Mobile leased its Maryland facility until June 1999 at which time it
relocated its corporate offices to Lake Mary, Florida.
Commencing August 1, 1999, U.S. Mobile entered into a lease for 6,700 rentable
square feet for its Florida corporate offices. The lease calls for initial
monthly payments of $9,600 (beginning in month three) for a period of 38 months
exclusive of escalations. Minimum rental payments under such a lease follows for
the years ending December 31:
2000 $116,600
2001 121,600
2002 94,100
---------
Total minimum future payments required $ 332,300
=========
Rent expense for the period ended December 31, 1999 and 1998 amounted to
$130,659 and $71,543 respectively and is included in administrative expenses.
NOTE 16 - Advertising
U.S. Mobile incurred $19,079 and $76,161 of advertising costs in 1999 and 1998,
respectively. All advertising costs are charged to expense as incurred.
NOTE 17 - Restricted Cash
During 1999, an investor loaned the company $200,000 on a non-interest bearing
basis to support letters of credit U.S. Mobile issued to certain major vendors.
The investor received warrants to purchase Common Stock to compensate him for
the risk assumed. During March, 2000 the Company repaid the $200,000 to this
investor.
22
<PAGE>
U.S. MOBILE SERVICES, INC. AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NOTE 18 - Going Concern Considerations
U.S. Mobile has sustained recurring losses in years ended December 31, 1999 and
1998 and has a net capital deficiency. The Company was able to operate by
raising $2,900,000 in 1999 through a private placement offering, and has had
individuals put up letters of credit totaling $400,000. In addition,
approximately $3,156,000 of bridge-loan debt was converted to Common Stock
thereby eliminating any debt repayment requirements and accrued interest on that
debt. Further, in 1999 the Company was successful in renegotiating two
significant vendor payables and reducing the amounts due to these
telecommunications companies.
The Company has developed plans to mitigate the affects of its going concern
issues. (See subsequent events footnote number 19). For example, the Company is
presently undergoing efforts to complete a letter of intent with an underwriter
which would, if successful, provide for $2,000,000 of interim financing. Also, a
potential public offering of $20,000,000 is being discussed with an underwriter.
However, without immediate committed funds in the very near term, there exists
substantial doubt about U.S. Mobile's ability to continue as a going concern.
NOTE 19 - Subsequent Events
In February, 2000, U.S. Mobile received additional debt financing in the amount
of $300,000. In addition, it is currently negotiating a letter of intent with an
underwriter for $2,000,000 of interim financing and a possible public offering
of Common Stock.
On February 29, 2000, the Company signed a sales agent agreement with an
unrelated corporation. The sales agent agreement calls for payments to the agent
of $3 per unit with respect to the sale of prepaid cellular phones to
subscribers and 5% of revenue collected with respect to the sale of airtime
recharge cards. As a prerequisite to the agent receiving any commissions, the
agent was obligated to procure a retail distribution channel which it has
procured.
23
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNITED ACQUISITION II CORP.
------------------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
------------------------------------------------
The undersigned being the President of United Acquisition II Corp. (the
"Corporation"), a corporation existing under the laws of the State of Delaware
hereby certify as follows:
FIRST: That the Certificate of Incorporation, as amended, of said
corporation has been amended as follows:
1. By striking out a whole of Article FIRST thereof as it now exists
and inserting in lieu thereof a new Article FIRST to read in its entirety as
follows:
FIRST: The name of the corporation is U.S. MOBILE SERVICES,
INC.
SECOND: That the Certificate of Incorporation, as amended, of said
corporation has been amended as follows:
1. The Certificate of Incorporation is hereby amended to effect a
reverse split of the Corporations outstanding Common Stock in the ratio of one
share for every twenty-five shares outstanding. The Corporation currently holds
54,450,000 authorized shares of Common Stock with a par value of $.001. of which
25,046,506 shares are issued and outstanding. Under the new structure, the
Corporation will have 54,450,000 authorized shares
<PAGE>
with a par value of $.001, of which 1,001,860 shares are issued and outstanding.
The number of authorized shares shall not change.
THIRD: That such amendment has been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware ("G.L.C.") by obtaining the written consent of the holders of the
majority of the stock of United Acquisition II Corp. entitled to vote at a
meeting of stockholders pursuant to Section 228 of the G.L.C.
IN WITNESS WHEREOF, we, the undersigned, have executed and subscribed this
certificate this 21st day of April, 1998.
/s/ Robert Martire
----------------------------
Robert Martire, President
ATTEST:
/s/ Robert Martire
- -------------------------
Robert Martire, Secretary
EXHIBIT 3.2
B Y L A W S
0 F
U.S. MOBILE SERVICES, INC.
(a Delaware corporation)
ARTICLE I
----------
OFFICES AND FISCAL YEAR
Section 1.01. REGISTERED OFFICE. The registered office of the
corporation shall be designated in the Certificate of Incorporation until
otherwise established by an amendment of the articles or by the board of
directors and a record of such change is filed with the department of State in
the manner provided by law.
Section 1.02. OTHER OFFICE. The corporation may also have offices at such
other places within or without Delaware as the board of directors may from time
to time appoint or the business of the corporation may require.
Section 1.03. FISCAL YEAR. The fiscal year of the corporation shall begin
the 1st day of January in each year.
ARTICLE II
NOTICE - WAIVERS - MEETINGS GENERALLY
Section 2.01. MANNER OF GIVING NOTICE.
(a) General Rule. Whenever written notice is required to be given to
any person under the provisions of the Business Corporation Law or by the
Articles or these bylaws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answer back
received) or courier service, charges prepaid, or by telecopier, to the address
(or to the telex, TWX, telecopier or telephone number) of the person appearing
on the books of the corporation or, in the case of directors, supplied by the
directors to the corporation for the purpose of notice. If the notice is sent by
mail, telegraph or courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
<PAGE>
telegraph office or courier service for delivery to that person or, in the case
of telex or TWX, when dispatched or, 1 the case of telecopier, when received. A
notice of meeting shall specify the place, day and hour of the meeting and any
other information required by any other provision of the Business Corporation
Law, the Articles or these bylaws.
(b) Adjourned Shareholder Meetings. When a meeting of Stockholders
is adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other than
by announcement at the meeting at which the adjournments taken, unless the board
fixes a new record date for the adjourned meeting.
Section 2.02. NOTICE OF MEETINGS OF BOARD OF DIRECTORS. Notice of a
regular meeting of the board OF DIRECTORS-need-not be-given. Notice of
every-special-meeting of the board of directors shall be given to each director
by telephone or in writing at least 24 hours (in the case of notice by
telephone, telex, TWX or telecopier) or 72 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail)~before the time at which the meeting is to be held. Every
such notice shall state the time and I place of the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board need be specified in a notice of a meeting.
Section 2.03. NOTICE OF MEETINGS OF STOCKHOLDERS.
(a) General Rule. Written notice of every meeting of the
Stockholders shall be given by, or at the direction of, the secretary to each
shareholder of record entitled to vote at the meeting at least:
(1) ten days prior to the day named for a meeting called to
consider any fundamental transaction (relating to fundamental changes);
(2) five days prior to the day named for the meeting in any
other case.
If the secretary neglects or refuses to give notice of a meeting, the person or
persons calling the meeting may do so. In the case of a special meeting of
Stockholders, the notice shall specify the general nature of the business to be
transacted.
(b) Notice of Action by Stockholders on Bylaws. In the case of a
meeting of Stockholders that has as one its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included
<PAGE>
in, or enclosed with, the notice a copy of the proposed amendment or a summary
of the changes to be effected thereby.
Section 2.04. WAIVER OF NOTICE.
(a) Written Waiver. Whenever any written notice is required to be
given under the provisions of the Business Corporation Law, the Articles or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of the notice. Except as otherwise required
by this subsection, neither the business to be transacted at, nor the purpose
of, a meeting need be specified in the waiver of notice of the meeting. In the
case of a special meeting of Stockholders, the waiver of notice shall specify
the general nature of the business to be transacted.
(b) Waiver by Attendance. Attendance of a person at any meeting
shall constitute a waiver of notice of the meeting except where a person attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 2.05. MODIFICATION OF PROPOSAL CONTAINED IN NOTICE. Whenever
the language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business Corporation
Law or the Articles or these bylaws, the meeting considering the resolution may
without further notice adopt it with such clarifying or other amendments as do
not enlarge its original purpose.
Section 2.06. EXCEPTION TO REQUIREMENT OF NOTICE.
(a) General Rule. Whenever any notice or communication is required
to be given to any person under the provisions of the Business Corporation Law
or by the Articles or these bylaws or by the terms of any agreement or other
instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required.
(b) Stockholders Without Forwarding Addresses. Notice or other
communications need not be sent to any shareholder with whom the corporation has
been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the corporation with a current address. Whenever the
shareholder provides the corporation with a current address, the corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other Stockholders.
Section 2.07. USE OF CONFERENCE TELEPHONE AND SIMILAR
<PAGE>
EQUIPMENT. One or more persons may participate in a meeting of the board of
directors or the Stockholders of the corporation by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.
ARTICLE III
----------
Stockholders
Section 3.01. PLACE OF MEETING. All meetings of the Stockholders of
the corporation shall be held at the registered office of the corporation unless
another place is designated by the board of directors in the notice of a
meeting.
Section 3.02. ANNUAL MEETING. The board of directors may fix the
date and time of the annual meeting of the Stockholders, but if no such date and
time is fixed by the board, the meeting for any calendar year shall be held on
the second Tuesday in may in such year, if not a legal holiday under the laws of
Delaware, and, if a legal holiday, then on the next succeeding business day, not
a Saturday, at 2 o'clock P.M., and at said meeting the Stockholders then
entitled to vote shall elect directors and shall transact such other business as
may properly be brought before the meeting. If the annual meeting shall not have
been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter.
Section 3.03. SPECIAL MEETINGS.
(a) Call of Special Meetings. Special meetings of the
Stockholders may be called at any time:
(1) by the board of directors; or
(2) unless otherwise provided in the Articles, by
Stockholders entitled to cast at least 20% of the vote that all Stockholders are
entitled to cast at the particular meeting.
(b) Fixing of Time for Meeting. At any time, upon written
request of any person who has called a special meeting, it-shall be the duty of
the secretary to fix the 4
<PAGE>
time of the meeting which shall be held not more than 60 days after the receipt
of the request. If the secretary neglects or refuses to fix a time of the
meeting, the person or persons calling the meeting may do so.
Section 3.04. QUORUM AND ADJOURNMENT.
(a) General Rule. A meeting of Stockholders of the corporation
duly called shall not be organized for the transaction of business unless a
quorum is present. The presence of Stockholders entitled to cast at least
fifty-one percent (51%) of the votes that all Stockholders are entitled to cast
on a particular matter to be acted upon at the meeting shall constitute a quorum
for the purposes of consideration and action on the matter.
(b) Withdrawal of a Quorum. The Stockholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough Stockholders to leave less than a quorum.
(c) Adjournment for Lack of Quorum. If a meeting cannot be
organized because a quorum has not attended, those present may, except as
provided in the Business Corporation Law, adjourn the meeting to such time and
place as they may determine.
(d) Adjournments Generally. Any meeting at which directors are
to be elected shall be adjourned only from day to day, or for such longer
periods not exceeding 15 days each as the Stockholders present and entitled to
vote shall direct, until the directors have been elected. Any other regular or
special meeting may be adjourned for such period as the Stockholders present and
entitled to vote shall direct.
(e) Electing Directors at Adjourned Meeting Those Stockholders
entitled to vote who attend a meeting called for the election of directors that
has been previously adjourned for lack of a quorum, although less than a quorum
as fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.
(f) Other Action in Absence of Quorum. Those Stockholders
entitled to vote who attend a meeting of Stockholders that has been previously
adjourned for one or more periods aggregating at least 15 days because of an
absence of a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those Stockholders
who attend the adjourned meeting shall nevertheless constitute a quorum for the
purpose of acting upon the matter.
Section 3.05. ACTION BY Stockholders. Except as otherwise provided in the
Business Corporation Law or the Articles or these bylaws, whenever any corporate
action is to be taken by vote of the Stockholders of the corporation, it shall
be
<PAGE>
authorized by a majority of the votes cast at a duly organized meeting of
Stockholders by the holders of shares entitled to vote thereon.
Section 3.06. ORGANIZATION. At every meeting of the Stockholders,
the chairman of the board, if there be one, or, in the case of vacancy in office
or absence of the chairman of the board, one of the following officers present
in the order stated shall act as chairman of the meeting: the vice chairman of
the board, if there be one, the president, the vice presidents in their order of
rank and seniority, or a person chosen by vote of the Stockholders present. The
secretary or, in the absence of the secretary, an assistant secretary, or in the
absence of both the secretary and assistant secretaries, a person appointed by
the chairman of the meeting, shall act as secretary.
Section 3.07. VOTING RIGHTS OF Stockholders. Unless otherwise
provided in the Articles, every shareholder of the corporation shall be entitled
to one vote for every share standing in the name of the shareholder on the books
of the corporation.
Section 3.08. VOTING AND OTHER ACTION BY PROXY.,
(a) General Rule.
(1) Every shareholder entitled to Vote at a
meeting of Stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person to act for the
shareholder by proxy.
(2) The presence of, or vote or other action at a
meeting of Stockholders, or the expression of, consent or dissent to corporate
action in writing, by a proxy of a shareholder shall constitute the presence of,
or vote or action by, or written consent or dissent of the shareholder.
(3) Where two or more proxies of a shareholder are
present, the corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the vote cast by a
majority of them and, if a majority of the proxies cannot agree whether the
shares represented shall be voted or upon the manner of voting the shares, the
voting of the shares shall be divided equally among those persons.
(b) Minimum Requirements. Every proxy shall be executed in writing
by the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the corporation. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until written notice thereof has been given to the secretary of the
corporation. An unrevoked proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of
<PAGE>
the maker unless, before the vote is counted or the authority is exercised,
written notice of the death or incapacity is given to the secretary of the
corporation.
Section 3.09. VOTING BY FIDUCIARIES AND PLEDGEES. Shares of the
corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee forth benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee,-but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
Section 3.10. VOTING BY JOINT HOLDERS OF SHARES.
(a) General Rule. Where shares of the corporation are
held-jointly or as tenants in common by two, or more persons, as fiduciaries or
otherwise:
(1) if only one or more of such persons is present
in person or by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a quorum and
the corporation shall accept as the vote of all the shares the vote cast by a
joint owner or a majority of them; and
(2) if the persons are equally divided upon
whether the shares held by them shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among the persons
without prejudice to the rights of the joint owners or the beneficial owners
thereof among themselves.
(b) Exception. If there has been filed with the secretary of
the corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote the
shares but only in accordance therewith.
Section 3.11. VOTING BY CORPORATIONS
(a) Voting by Corporate Stockholders. Any corporation that is
a shareholder of this corporation may vote by any of its officers or agents, or
by proxy appointed by any officer or agent, unless some other person, by
resolution of the board of directors of the other corporation or provision of
its articles or bylaws, a copy of which resolution or provision certified to be
correct by one of its officers has been filed with the secretary of this
corporation, is appointed its general or special proxy in which case that person
shall be entitled to vote the shares.
<PAGE>
(b) Controlled Shares. Shares of this corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
board of directors of this corporation, as such, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
Section 3.12. DETERMINATION OF Stockholders OF RECORD.
(a) Fixing Record Date. The board of directors may fix a time
prior to the date of any meeting of Stockholders as a record date for the
determination of the Stockholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of Stockholders. Only
Stockholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the corporation after any record date
fixed as provided in this subsection. The board of directors may similarly fix a
record date for the determination of Stockholders of record for any other
purpose. When a determination of Stockholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the board fixes a new record date for
the adjourned meeting.
(b) Determination When a Record Date is Not Fixed. If a record
date is not fixed:
(1) The record date for determining Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall be at the
close of business on the
<PAGE>
date next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day immediately preceding the day on which the
meeting is held.
(2) The record date for determining Stockholders
entitled to express consent or dissent to corporate action in writing without a
meeting, when prior action by the board of directors is not necessary, shall be
the close of business on the day on which the first written consent or dissent
is filed with the secretary of the corporation.
(3) The record date for determining Stockholders
for any other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
Section 3.13. VOTING LISTS.
(a) General Rule. The officer or agent having charge of the
transfer books for shares of the corporation shall make a complete list of the
Stockholders entitled to vote at any meeting of Stockholders, arranged in
alphabetical order, with the address of and of the number of shares held by
each. The list shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
(b) Effect of List. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list. The original share register or transfer book, or a duplicate
thereof kept in this Commonwealth, shall be prima facie evidence as to who are
the Stockholders entitled to examine the list or share register or transfer book
or to vote at any meeting of Stockholders.,
Section 3.14. JUDGES OF ELECTION.
(a) Appointment. In advance of any meeting of Stockholders of
the corporation, the board of directors may appoint judges of election, who need
not be Stockholders, to act at the meeting or any adjournment thereof. If judges
of election are not so appointed, the presiding officer of the meeting may, and
on the request of any shareholder shall, appoint judges of election at the
meeting. The number of judges shall be one or three. A person who is a candidate
for office to be filled at the meeting shall not act as a judge.
<PAGE>
(b) Vacancies. In case any person appointed as a judge fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
made by the board of directors in advance of the convening of the meeting or at
the meeting by the presiding officer thereof.
(c) Duties. The judges of election shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to
conduct the election or vote with fairness to all Stockholders. The judges of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
(d) Report. On request of the presiding officer of the
meeting, or of any shareholder, the judge shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
Section 3.15. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
(a) Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the Stockholders or of a class of
Stockholders may be taken without a meeting if, prior or subsequent to the
action, a consent or consents thereto by all of the Stockholders who would be
entitled to vote at a meeting for such purpose shall be filed with the secretary
of the corporation.
(b) Partial Written Consent. Any action required or permitted
to be taken at a meeting of the Stockholders or of a class of Stockholders may
be taken without a meeting upon the written consent of Stockholders who would
have been entitled to cast the minimum number of votes that would be necessary
to authorize the action at a meeting at which all Stockholders entitled to vote
thereon were present and voting. The consents shall be filed with the secretary
of the corporation. The action shall not become effective until after at least
ten days' written notice of the action has been given to each shareholder
entitled to vote thereon who has not consented thereto.
<PAGE>
Section 3.16. MINORS AS SECURITY HOLDERS. The corporation may treat
a minor who holds shares or obligations of the corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of Stockholders or the transfer
agent of the corporation or, in the case of payments or distributions on
obligations, the treasurer or paying officer or agent has received written
notice that the holder is a minor.
ARTICLE IV
----------
BOARD OF DIRECTORS
Section 4.01. POWERS; STANDARD OF CARE.
(a) General Rule. Unless otherwise provided by statute all
powers vested by law in the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of the board of directors.
(b) Standard of Care; Justifiable Reliance. A director shall
stand in a fiduciary relationship to the corporation and shall perform his or
her duties as a director, including duties as a member of any committee of the
board upon which the director may serve, in good faith, in a manner the director
reasonably believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his or her duties,
a director shall be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following:
(1) One or more officers or employees of the
corporation whom the director reasonably believes to be reliable and competent
in the matters presented.
(2) Counsel, public accountants or other persons
as to matters which the director reasonably believes to be within the
professional or expert competence of such person.
(3) A committee of the board upon which the
director does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director reasonably
believes to merit confidence.
A director shall not be considered to be acting in good faith if the director
has
<PAGE>
knowledge concerning the matter in question that would cause his or her reliance
to be unwarranted.
(c) Consideration of Factors. In discharging the duties of
their respective positions, the board of directors, committees of the board and
individual directors may, in considering the best interests of the corporation,
consider-the effects of any action upon employees, upon suppliers and customers
of the corporation and upon communities in which offices or other establishments
of the corporation are located, and all other pertinent factors. The
consideration of those factors shall not constitute a violation of subsection
(b).
(d) Presumption. Absent breach of fiduciary duty, lack of good
faith or self-dealing, actions taken as a director or any failure to take any
action shall be presumed to be in the best interests of the corporation.
(e) Notation of Dissent. A director who is present at a
meeting of the board of directors, or of a committee of the board, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his or her dissent is entered in the minutes of the
meeting or unless the director files a written dissent to the action with the
secretary of the meeting before the adjournment thereof or transmits the dissent
in writing to the secretary or the corporation immediately after the adjournment
of the meeting. The right to dissent shall not apply to a director who voted in
favor of the action. Nothing in this section shall bar a director from asserting
that minutes of the meeting incorrectly omitted his or her dissent if, promptly
upon receipt of a copy of such minutes, the director notifies the secretary in
writing, of the asserted omission or inaccuracy.
Section 4.02. QUALIFICATION AND SELECTION OF DIRECTORS.
(a) Qualifications. Each director of the corporation shall be
a natural person of full age who need not be a resident of Delaware or a
shareholder of the corporation.
(b) Election of Directors. Except as otherwise provided in
these bylaws, directors of the corporation shall be elected by the Stockholders.
In elections for directors, voting need not be by ballot, except upon demand
made by a shareholder entitled to vote at the election and before the voting
begins. The candidates receiving the highest number of votes from each class or
group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the class or group of classes shall be
elected. If at any meeting of Stockholders, directors of more than one class are
to be elected, each class of directors shall be elected in a separate election.
(c) Cumulative Voting. Except as otherwise provided in the
Articles, in each election of directors every shareholder entitled to vote shall
have the right to multiply the number of votes to which the shareholder may be
entitled by the total
<PAGE>
number of directors to be elected in the same election by the holders of the
class or classes of shares of which his or her shares are a part and the
Stockholders may cast the whole number of his or her votes for one candidate or
may distribute them among two or more candidates.
Section 4.03. NUMBER AND TERM OF OFFICE.
(a) Number. The board of directors shall consist of such
number of directors, not less than one nor more than seven, as may be determined
from time to time by resolution of the board of directors.
(b) Term of Office. Each director shall hold office until the
expiration of the term for which he or she was elected and until a successor has
been selected and qualified or until his or her earlier death, resignation or
removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
(c) Resignation. Any director may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation.
Section 4.04. VACANCIES.
(a) General Rule. Vacancies in the board of directors,
including vacancies resulting from an increase in the number of directors, may
be filled by a majority vote of the remaining members of the board though less
than a quorum, or by a sole remaining director, and each person so selected
shall be a director to serve for the balance of the unexpired term, and until a
successor has been selected and qualified or until his or her earlier death,
resignation or removal.
(b) Action by Resigned Directors. When one or more directors
resign from the board effective at a future date, the directors then in office,
including those who have so resigned, shall have power by the applicable vote to
fill the vacancies, the vote thereon to take effect when the resignations become
effective. Section 4.05. REMOVAL OF DIRECTORS.
(a) Removal by the Stockholders. The entire board of
directors, or any class of the board, or any individual director may be removed
from office without assigning any cause by the vote of stockholders, or of the
holders of a class or series of shares entitled to elect directors, or the class
of directors. In case so removed, new directors may be elected at the same
meeting. The board of directors may be removed at any time with or without cause
by the unanimous vote or consent of Stockholders entitled to vote thereon.
(b) Removal by the Board. The board of directors may declare
<PAGE>
vacant the office of a director who has been judicially declared of unsound mind
or who has been convicted of an offense punishable by imprisonment for a term of
more than one year or if, within 60 days after notice of his or her selection,
the director does not accept the office either in writing or by attending a
meeting of the board of directors.
(c) Removal of Directors Elected by Cumulative Voting. An
individual director shall not be removed (unless the entire board or class of
the board is removed) if sufficient votes are cast against the resolution for
his removal which, if cumulatively voted at an annual or other regular election
of directors, would be sufficient to elect one or more directors to the board or
to the class.
Section 4.06. PLACE OF MEETINGS. Meetings of the board or directors
may be held at such place within or without Delaware as the board of directors
may from time to time appoint or as may be designated in the notice of the
meeting.
Section 4.07. ORGANIZATION OF MEETINGS. At every meeting of the
board of directors, the chairman of the board, if there be one, or, in the case
of a vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated shall act as chairman of the
meeting: the vice chairman of the board, if there be one, the president, the
vice presidents in their order of rank and seniority, or a person chosen by a
majority of the directors present. The secretary or, in the absence of the
secretary, an assistant secretary, or, in the absence of the secretary and the
assistant secretaries, any person appointed by the chairman of the meeting,
shall act as secretary.
Section 4.08. REGULAR MEETINGS. Regular meetings of the board of
directors shall be held at such time and place as shall be designated from time
to time by resolution of the board of directors.
Section 4.09. SPECIAL MEETINGS. Special meetings of the board of
directors shall be held whenever called by the chairman or by two or more
members of the board of directors.
Section 4.10. QUORUM OF AND ACTION BY DIRECTORS.
(a) General Rule. A majority of the directors in office of the
corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the board of
directors.
(b) Action by Written Consent. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if, prior or subsequent to the action, a consent or consents thereto by
all of the directors in office is filed with the secretary of the corporation.
<PAGE>
Section 4.11. EXECUTIVE AND OTHER COMMITTEES.
(a) Establishment and Powers. The board of directors may, by
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of one or more directors of the corporation. Any
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to
the following:
(1) The submission to Stockholders of any action
requiring approval of Stockholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the
board of directors.
(3) The adoption, amendment or repeal of these
bylaws.
(4) The amendment or repeal of any resolution of
the board that by its terms is amendable or repealable only by the board.
(5) Action on matters committed by a resolution of
the board of directors to another committee of the board.
(b) Alternate Committee Members. The board may designate one
or more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee or for the
purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member.
(c) Term. Each committee of the board shall serve at the
pleasure of the board.
(d) Committee Procedures. The term board of directors, or
board, when used in any provision of these bylaws relating to the organization
or procedures of or the manner of taking action by the board of directors, shall
be construed to include and refer to any executive or other committee of the
board.
Section 4.12. COMPENSATION. The board of directors shall have the
authority to fix compensation of directors for their services as directors and a
director may be a salaried officer of the corporation.
ARTICLE V
<PAGE>
----------
OFFICERS
Section 5.01. OFFICERS GENERALLY.
(a) Number, Qualification and Designation. The officers of the
corporation shall be a president, a secretary, a treasurer, and such other
officers as may be elected in accordance with the provisions of Section 5.03.
officers may, but need not be, directors or Stockholders of the corporation. The
president and secretary shall be natural persons of full age. The treasurer may
be a corporation, but if a natural person, shall be of full age. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the corporation. Any
number of offices may be held by the same person.
<PAGE>
(b) Resignations. Any officer may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as may be
specified in the notice of resignation.
(c) Bonding. The corporation may secure the fidelity of any or
all of its officers by bond or otherwise.
(d) Standard of Care. Except as otherwise provided in the
Articles, an officer shall perform his or her duties as an officer in good
faith, in a manner he or she reasonably believes to be in the best interests of
the corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his or her duties shall not be liable by
reason of having been an officer of the corporation.
Section 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation, except-those elected by delegated authority pursuant to Section
5.03, shall be elected annually by the board of directors, and each such officer
shall hold office for a term of one year and until a successor has been selected
and qualified or until his or her earlier death, resignation or removal.
Section 5.03. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine. The board of directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof and to
prescribe the authority and duties of such subordinate officers, committees,
employees, or other agents.
Section 5.04. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent of the
corporation may be removed by the board of directors with or without cause. The
removal shall be without prejudice to the contract rights, if any, of any person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 5.05. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, shall be filled by
the board of directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03, as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 5.06. AUTHORITY. All officers of the corporation, as between
<PAGE>
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolution or orders of the board of directors or in the absence of controlling
provisions in the resolutions or orders of the board of directors, as may be
determined by or pursuant to these bylaws.
Section 5.07. THE CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The
chairman of the board, or in the absence of the chairman, the vice chairman of
the board, shall preside at all meetings of the Stockholders and of the board of
directors and shall perform such other duties as may from time to time be
requested by the board of directors.
Section 5.08. THE PRESIDENT. The president shall be the chief
executive officer of the corporation and shall have general supervision over the
business and operations of the corporation, subject however, to the control of
the board of directors. The president shall sign, execute, and acknowledge, in
the name of the corporation, deeds, mortgages, contracts or other instruments
authorized by the board of directors, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors, or by
these bylaws, to some other officer or agent of the corporation; and, in
general, shall perform all duties incident to the office of president and such
other duties as from time to time may be assigned by the board of directors.
Section
5.09. THE SECRETARY. The secretary or an assistant secretary shall
attend all meetings of the Stockholders and of the board of directors and shall
record all votes of the Stockholders and of the directors and the minutes of the
meetings of the Stockholders and of the board of directors and of committees of
the board in a book or books to be kept for that purpose; shall see that notices
are given and records and reports properly kept and filed by the corporation as
required by law; shall be the custodian of the seal of the corporation and see
that it is affixed to all documents to be executed on behalf of the corporation
under its seal; and, in general, shall perform all duties incident to the office
of secretary, and such other duties as may from time to time be assigned by the
board of directors or the president.
Section 5.10. THE TREASURER. The treasurer or an assistant treasurer
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer and the financial condition of the
corporation; and, in general, shall discharge such other duties as may from time
to time be assigned by the board of directors or the president.
Section 5.11. SALARIES. The-salaries-of-the officers elected by the
board of directors shall be fixed from time to time by the board of directors or
by such officer
<PAGE>
as may be designated by resolution of the board. The salaries or other
compensation of any other officers, employees and other agents shall be fixed
from time to time by the officer or committee to which the power to ' elect such
officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the corporation.
ARTICLE VI
----------
CERTIFICATES OF STOCK, TRANSFER, ETC.
Section 6.01. SHARE CERTIFICATES. Certificates for shares of the
corporation shall be in such form as approved by the board of directors, and
shall stat ' e that the corporation is incorporated under the laws of Delaware,
the name of the person to whom issued, and the number and class of shares and
the designation of the series (if any) that the certificate represents. The
share register or transfer books and blank share certificates shall be kept by
the secretary or by any transfer agent or registrar designated by the board of
directors for that purpose.
Section 6.02. ISSUANCE. The share certificates of the corporation
shall be numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be signed by the president or a vice
president; but where such certificate is signed by a transfer agent or a
registrar the signature of any corporate officer upon such certificate may be a
facsimile, engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share shall have ceased to be such
officer because of death, resignation or otherwise, before the certificate is
issued, it may be issued with the same effect as if the officer had not ceased
to be such at the date of its issue. The provisions of this Section 6.02 shall
be subject to any inconsistent or contrary agreement at the time between the
corporation and any transfer agent or registrar.
Section 6.03. TRANSFER. Transfers of shares shall be made on the
share register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing.
Section 6.04. RECORD HOLDER OF SHARES. The corporation shall be
entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person.
Section 6.05. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder
of any shares of the corporation may notify the corporation of any loss,
<PAGE>
destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction and, if the
board of directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
----------
LIMITATION OF DIRECTORS LIABILITY;
INDEMNIFICATION
Section 7.01. LIMITATION OF LIABILITY. To the fullest extent
permitted by the Business Corporation Law of the State of Delaware, a director
of the corporation shall not be personally liable to the corporation, its
Stockholders or others for monetary damages for any action taken or any failure
to take any action unless the director has breached or failed to perform the
duties of his or her office, as set forth in the Business Corporation Law, and
such breach or failure constitutes self-dealing, willful misconduct or
recklessness. The provisions of this Section 7.01 shall not apply with respect
to the responsibility or liability of a director under any criminal statute or
the liability of a director for the payment of taxes pursuant to local, state or
federal law.
Section 7.02. INDEMNIFICATION.
(a) Indemnification. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director, officer (including assistant officers), employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding;
provided, however, that no indemnification shall be made in any case where the
act or failure to act giving rise to the claim for indemnification is determined
by a court to have constituted willful misconduct or recklessness.
(b) Advance of Expenses. Expenses (including attorneys' fees)
incurred in defending a civil or criminal action, suit, or proceeding shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall be ultimately
determined that he or she is not entitled to be indemnified by the corporation
as authorized in this Section 7.02.
<PAGE>
(c) Indemnification Not Exclusive. The indemnification and
advancement of expenses provided by this Section 7.02 shall not be deemed
exclusive of any other right to which persons seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
Stockholders or disinterested directors, or otherwise, both as to actions in
such persons' official capacity and as to their actions in another capacity
while holding office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such persons.
(d) Insurance; Contracts, Security. The corporation may
purchase and maintain insurance on behalf of any person, may enter into
contracts of indemnification with any person and may create a fund of any nature
which may, but need not be, under the control of a trustee for the benefit of
any person and may otherwise secure in any manner, its obligations with respect
to indemnification and advancement of expenses, whether arising under this
Section 7.02 or otherwise, whether or not the corporation would have the power
to indemnify such person against such liability under the provisions of this
Section 7.02.
Section 7.03. AMENDMENT, ETC. Notwithstanding anything herein
contained to the contrary, this Article VII may not be amended or repealed, and
a provision inconsistent herewith may not be adopted, except by the affirmative
vote of 66 2/3% of the members of the entire Board of Directors or by the
affirmative vote of Stockholders of the corporation entitled to cast at least
80% of the votes which all Stockholders of the corporation are then entitled to
cast, except that, if the Delaware Business Corporation Law is amended or any
other statute is enacted so as to decrease the exposure of directors to
liability or increase the indemnification rights available to directors,
officers or others, then this Article VII and any other provisions of these
bylaws inconsistent with such decreased exposure or increased indemnification
rights shall be amended, automatically and without any further action on the
part of Stockholders or directors, to reflect such reduced exposure or increased
indemnification rights, unless such legislation expressly requires otherwise.
All rights under this Article VII shall be deemed a contract between the
corporation and the indemnified party pursuant to which the corporation and each
indemnified party intend to be legally bound. Any repeal or modification of this
Article VII by the Stockholders of the corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the corporation or any right to indemnification from the corporation
with respect to any action or failure to take any action occurring prior to the
time of such repeal or modification.
Section 7.04. SEVERABILITY. If, for any reason, any provision of
this Article VII shall be held invalid, such invalidity shall not affect any
other provision not held so invalid, and each such other provision shall, to the
full extent consistent with law, continue in full force and effect. If any
provision of this Article VII shall be held invalid in part, such invalidity
shall in no way affect the remainder of such provision, and the remainder of
such provision, together with all other provisions of this Article VII
<PAGE>
shall, to the full extent consistent with law, continue in full force and
effect.
ARTICLE VIII
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MISCELLANEOUS
Section 8.01. SEAL. The corporation seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
Corporate Seal, Delaware.
Section 8.02. CHECKS. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors or any person authorized by resolution of the board or directors may
from time to time designate.
Section 8.03. CONTRACTS.
(a) General Rule. Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
Stockholders, the board of directors may authorize any officer-or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments. Any note,
mortgage, evidence of indebtedness, contract or other document, or any
assignment or endorsement thereof, executed or entered into between the
corporation and any other person, when signed by one or more officers or agents
having actual or apparent authority to sign it, or by the president or vice
president and secretary or assistant secretary or treasurer or assistant
treasurer of the corporation, shall be held to have been properly executed for
and in behalf of the corporation, without prejudice to the rights of the
corporation against any person who shall have executed the instrument in excess
of his or her actual authority.
Section 8.04. INTERESTED DIRECTORS OR OFFICERS; QUORUM.
(a) General Rule. A contract or transaction between the
corporation and one or more of its directors or officers or between the
corporation and another corporation, partnership, joint venture, trust or other
enterprise in' which one or more of its directors or officers are directors or
officers, or have a financial or other interest, shall not be void or voidable
solely for that reason, or solely because the director or officer is present at
or participates in the meeting of the board of directors that authorizes the
contract or transaction, or solely because --his, her or their votes are counted
for that purpose, if:
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(1) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though the
disinterested directors are less than a quorum;
(2) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Stockholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
Stockholders; or
(3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified by the board
of directors or the Stockholders.
(b) Quorum. Common or interested directors may be counted in
d-determining the presence of a quorum at a meeting of the board which
authorizes a contract or transaction specified in subsection (a).
Section 8.05. DEPOSITS. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon' checks signed by
such one or more officers or employees as the board of directors shall from time
to time determine.
Section 8.06. CORPORATE RECORDS.
(a) Required Records. The corporation shall keep complete and
accurate books and records of account, minutes of the proceedings of the
incorporators, Stockholders and directors and a share register giving the names,
and addresses of all Stockholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
corporation in Delaware or at its principal place of business wherever situated
or at the office of its registrar or transfer agent. Any books, minutes or other
records may be in written form or any other form capable of being converted into
written form within a reasonable time.
(b) Right of Inspection. Every shareholder shall, upon written
verified demand stating the purpose thereof, have a right to examine, in person
or by agent or attorney, during the usual hours for business for any proper
purpose, the share register, books and records of account, and records of the
proceedings of the incorporators, Stockholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other-agent to so act on behalf
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of the shareholder. The demand shall be directed to the corporation at its
registered office in Delaware or at its principal place of business wherever
situated.
Section 8.07. FINANCIAL REPORTS. Unless otherwise agreed between the
corporation and a shareholder, the corporation shall furnish to its Stockholders
annual financial statements, including at least a balance sheet as of the end of
each-fiscal year and a statement of income and expenses for the fiscal year. The
financial statements shall be prepared on the basis of generally accepted
accounting principals, if the corporation prepares financial statements for the
fiscal year on that basis for any purpose, and may be consolidated statements of
the corporation and one or more of its subsidiaries. The financial statements
shall be mailed by the corporation to each of its Stockholders entitled thereto
within 120 days after the close of each fiscal year and, after the mailing and
upon written request, shall be mailed by the corporation to any shareholder or
beneficial owner entitled thereto to whom a copy of the most recent annual
financial statements has not previously been mailed. Statements that are audited
or reviewed by a public accountant shall be accompanied by the report of the
accountant; in other cases, each copy shall be accompanied by a statement of the
person in charge of the financial records of the corporation:
(1) Stating his reasonable belief as to whether or not the
financial statements were prepared in accordance with generally accepted
accounting principles and, if not, describing the basis of presentation.
(2) Describing any material respects in which the financial
statements were not prepared on a basis consistent with those prepared for the
previous year.
Section 8.08. AMENDMENT OF BYLAWS. These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the Stockholders
at any duly organized annual or special meeting of Stockholders, or (ii) with '
respect to those matters that are not by statute committed expressly to the
Stockholders and regardless of whether the Stockholders have previously adopted
or approved the bylaw being amended or repealed, by vote of a majority of the
board of directors of the corporation in office at any regular or special
meeting of directors. Any change in these bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change. See Section
2.03(b) (relating to notice or action by Stockholders on bylaws).
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
WITH
DAVID S. GERGACZ
This Agreement, effective as of April 17, 2000, by and between U.S. Mobile
Services, Inc., a Delaware Corporation having a place of business at 725 Primera
Blvd., Suite 200, Lake Mary, Florida (the "Corporation"), and David Gergacz, an
individual residing at 264 Snowfields Run, Heathrow, Florida (the "Employee").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Employee as Chairman of its
Board of Directors and Chief Executive Officer to perform work for the
Corporation. The Employee desires to be employed by the Corporation pursuant to
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing as well as the mutual
promises and covenants herein contained, it is hereby agreed as follows:
1. EMPLOYMENT; DUTIES
(a) The Corporation engages and employs the Employee, and the Employee
hereby accepts engagement and employment, as Chairman of the Corporation's Board
of Directors and Chief Executive Officer for the Corporation, and Employee
hereby accepts such retention by the Corporation, to undertake such services as
the Corporation shall reasonably request in connection with the Corporation's
business.
(b) The Employee shall perform his duties hereunder from the Corporation's
offices in Lake Mary, Florida.
(c) The Employee shall devote such of his time and efforts as he shall
deem necessary to properly discharge his duties and responsibilities under this
Agreement.
2. TERM
The Employee's employment hereunder shall be for a term commencing on
April 17, 2000 and continuing through April 16, 2003, unless sooner terminated
as hereinafter provided. If Employee remains as an Employee subsequent to the
term mentioned above, said employment would be under a new agreement to be
negotiated at that time. Such agreement to provide terms equal to or better than
this Agreement.
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3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of the
Corporation, the Corporation shall pay the Employee a base salary ("Base
Salary") of $300,000 per year, and at least $350,000 per year for the second 12
months of payments, and such equal or greater amount subsequently as may be
determined by the Board of Directors, payable in equal installments on a
bi-monthly basis in arrears. The Corporation shall withhold all applicable
federal, state and local taxes, social security and worker's compensation
contributions and such other amounts as may be required by law or agreed upon by
the parties with respect to the compensation payable to the Employee pursuant to
this section 3 (a) hereof.
(b) Employee received non-qualified stock options to purchase 1,747,253
shares of capital stock of the Company at $.01 per share as a consultant. The
aforementioned stock options allowed the Employee to acquire a 15% equity
position in the Company. The non qualified stock options vested as follows:
1/3 on May 1 1999;
1/3 on November 1, 1999;
1/3 on May 1, 2000.
Mr. Gergacz's 15% equity position was protected from dilution under the previous
agreement until the company raised approximately $20 Million in a public
offering. This provision will remain in effect as a part of this agreement. The
additional options issued to offset any dilution up to and until the public
offering is completed, will vest immediately.
In consideration for this agreement the remaining 1/3 of the shares to be vested
on May 1, 2000 will now vest as of the date of this agreement.
(c) As additional consideration for this agreement Mr. Gergacz will
receive non-qualified stock options to purchase 1,000,000 shares of capital
stock of the Company at $.01 per share. Such options to vest as of the date of
this agreement.
(d) In the event of a change of control, any unvested options held by Mr.
Gergacz shall vest immediately. For purposes hereof, "change of control" shall
mean the consummation by USM of a merger with another entity, or the sale of 50%
or more of the assets of the then outstanding shares of USM's capital stock
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(e) The Corporation shall reimburse the Employee for all normal, usual and
necessary expenses incurred by the Employee in furtherance of the business and
affairs of the Corporation against receipt by the Corporation of appropriate
vouchers or other proof of the Employee's expenditures and otherwise in
accordance with such Expense Reimbursement Policy as may from time to time be
adopted by the Board of Directors of the Corporation.
(f) The Employee shall accrue paid vacation at the rate of twenty (20)
business days per annum.
(g) The Corporation shall provide to the Employee and his spouse and
dependents, at the Corporation's expense, benefits of the type generally
available to the executives of similar companies, including but not limited to,
medical, life, dental, and disability insurance.
(h) The Corporation shall provide to the Employee a monthly car allowance
not to exceed six hundred and fifty dollars ($650.00) per month. The Corporation
shall also provide reimbursement for gasoline, repairs and insurance with
respect to Employee's vehicle.
(i) The expense reimbursements and benefits mentioned in paragraphs 3 (c),
3(d), 3(e) and 3(f) above shall begin on the date of this Agreement.
(j) The Employee will be entitled to participate in an annual bonus
program that will be initially targeted at 100% of his annual compensation based
on criteria established in a separate bonus plan. The employee will also be
entitled to participate in any stock option plan administered by the company.
4. RERESENTATIONS AND WARRANTIES BY THE EMPLOYEE AND CORPORATION
The employee hereby represents and warrants to the Corporation as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by the Employee of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or conflict
with or constitute a default under (whether immediately, upon the giving of
notice or lapse of time or both) any prior employment agreement, contract, or
other instrument to which the Employee is a party or by which he is bound.
(b) The Employee has the full right, power and legal capacity to enter and
deliver this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the Employee enforceable against him in accordance with its terms. No approvals
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or consents of any persons or entities are required for the Employee to execute
and deliver the Agreement or perform his duties and other obligations hereunder.
The Corporation hereby represents and warrants to the Employee as follows:
(a) The Corporation is duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all requisite corporate
power and authority to own its properties and conduct its business in the manner
presently contemplated.
(b) The Corporation has full power and authority to enter into this
Agreement and to incur and perform its obligations hereunder.
(c) The execution, delivery and performance by the Corporation of this
Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of the
Corporation, or any agreement or instrument or by-laws of the Corporation.
(d) The Corporation does not now contemplate and will not in the future
require the performance by the Employee of acts that would conflict with his
obligations to any former employer or under applicable law.
(e) The Corporation will indemnify Employee with respect to his personal
liability for acts performed on behalf of the Corporation. This shall
specifically include indemnification for all prior liability or acts of the
company prior to his employment.
5. CONFIDENTIAL INFORMATION
(a) The Employee agrees that during the course of his employment or at any
time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets and
other confidential and proprietary business information of the Corporation or
any of its clients. The Employee agrees: (i) not to use any such information for
himself or others; (ii) not to take any such material or reproductions thereof
from the Corporation's facilities at any time during his employment by the
Corporation, except as required in the Employee's duties to the Corporation. The
Employee agrees immediately to return all such material and reproductions
thereof in his possession to the Corporation upon request and in any event upon
termination of employment.
(b) Except with prior written authorization by the Corporation, the
Employee agrees not to disclose or publish any of the confidential, technical or
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business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation of confidence, at any time
during or after his employment with the Corporation.
(c) Specifically excluded from this provision, is the intellectual
property the employee brought to the company to develop its computer operating
systems. Such intellectual property will remain the sole property of the
employee.
6. COVENANT NOT TO COMPETE
The Employee hereby agrees not to compete with the Corporation while
employed by the Corporation as well as its lawful successors and assigns. The
term "not to compete" as used herein shall mean that the Employee shall not
directly or indirectly engage in a business or other activity associated with
prepaid wireless services;
Further, the Employee agrees not to compete for a period of one (1) year from
the date of termination of this Agreement in any market in which the Corporation
is then conducting business. In the event of any breach of this paragraph, the
Company shall be entitled to full injunctive relief without the need to post
bond, which rights shall be cumulative with and not necessarily successive or
exclusive of any other legal rights, that the Corporation may have.
7. TERMINATION
(a) The Employee's employment hereunder began on April 17, 2000 and shall
continue for the period set forth in Section 2 hereof unless sooner terminated
upon the first to occur of the following events:
(i) The death of the Employee or the disability of the Employee, as
defined below;
(ii) Termination of the Employee by the Board of Directors of
Corporation for just cause. Any of the following actions by the Employee shall
constitute just cause for termination:
(a) Material breach by the Employee of Section 5 or section 6
of this Agreement;
(b) Material breach by the Employee of any provision of this
Agreement other than Section 5 or section 6 which is not cured by the Employee
within thirty (30) days following written notice thereof from the Corporation;
(c) Any action by the Employee to intentionally harm the
Corporation;
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(d) Conviction of Employee of a felony involving crimes of
falsehood or moral turpitude.
(e) Willful act of fraud or malfeasance by Employee with
respect to the Corporation.
(iii) Termination by the Employee for just cause. Any of the
following actions or omissions by the Corporation shall constitute just cause:
(a) Material breach by the Corporation of any provision of
this Agreement which is not cured by the Corporation within fifteen (15) days
following written notice thereof from the Employee; or
(b) Any action by the Corporation to intentionally harm the
Employee.
(b) Upon termination pursuant to subparagraph (i) or (ii) of paragraph (a)
above, the Employee shall not be entitled to receive any additional compensation
for the term of the Agreement.
(c) Upon termination by the Corporation for any reason other than the
reasons set forth in subparagraph (i) or (ii) of paragraph (a) above or an
election by the Corporation not to renew this Agreement, or upon termination by
the Employee for any reason set forth in subparagraph (iii) of paragraph (a)
above, then the Corporation shall continue to pay the Employee, as the
Employee's sole damages for such termination, the Base Salary and previous
year's cash bonus that would have accrued for a period of twelve (12) months
following termination (hereinafter the "Severance Period"). In addition, the
Employee shall be entitled to all health and other benefits described in
paragraphs 3(d) and 3(e) above until the earlier of (i) the end of the Severance
Period or (ii) the date on which the Employee became entitled to health and
other benefits provided by a new employer. Employee will have six months to
exercise all vested options to purchase capital stock of the Company.
(d) The Employee shall have no duty to mitigate the Corporation's
obligations hereunder by seeking any other employment or consulting arrangements
during the Severance Period. If during the Severance Period the Employee becomes
entitled to health and other benefits provided by a new employer or contractor
at such new employer or contractor's expense, the Employee agrees to inform the
Corporation promptly of such entitlement and to cooperate with the Corporation
in terminating the Employee's coverage under the Corporation's benefit plan.
(e) For purposes of this Agreement, the "disability" of the Employee shall
be deemed to have occurred if, as a result of any injury, sickness or physical
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condition, the Employee is unable to perform his duties hereunder (excluding any
accrued vacation), for a period of thirty (90) days during any calendar year.
8. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: when delivered personally against
receipt therefore; one (1) day after being sent by Federal Express or similar
overnight delivery; or three (3) days after being mailed registered or certified
mail, postage prepaid, return receipt requested, or one (1) day after being sent
telecopier (with mechanical telecopier confirmation of receipt), to either party
at the address set forth above, or to such other address as such party shall
give by notice hereunder to the other party.
9. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, the remaining conditions and provisions or portions thereof
shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provision shall be deemed
dependent upon any other covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and any previous agreement relating to Employee's
Employment by the Corporation are hereby considered null and void and of no
further force and effect, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
11. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns, and
upon the Employee and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Employee's obligations
hereunder may not be transferred or assigned by the Employee.
12. NON-WAIVER
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
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conditions and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed
by such party.
13. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Florida without regard to the
principles of conflict of laws.
14. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
15. ATTORNEYS FEES, COSTS
In the event a party breaches this Agreement, the breaching party shall
pay all costs and attorneys' fees incurred by the other party in connection with
such breach, whether or not any litigation is commenced.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
U.S. MOBILE SERVICES, INC. (Corporation)
/s/ David Gergacz
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Employee
/s/ David Gergacz
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EXHIBIT 10.3
U.S. MOBILE SERVICES, INC.
FORM
OF
2000 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the U.S. Mobile Services, Inc. Stock Option Plan (the
"Plan") is to provide an additional incentive to Eligible Persons and Employees
(as defined in Section 2) of U.S. Mobile Services, Inc. (the "Company") and its
subsidiaries, to aid in attracting and retaining Eligible Persons and Employees
of outstanding ability, and to align their interests with those of shareholders.
SECTION 2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations thereunder, as it or they have been amended from time to time.
"Committee" shall mean the full Board, Compensation Committee of the Board
or such other committee as may be designated by the Board. If less than the full
Board, the Committee shall consist of two or more members of the Board who are
not eligible to participate in the Plan, and who otherwise are "non-employee
directors" under Rule 16b-3.
"Date of Exercise" shall mean the earlier of the date on which written
notice of exercise, together with payment in full, is received at the office of
the Secretary of the Company or the date on which such notice and payment are
mailed to the Secretary of the Company at its principal office by certified or
registered mail.
"Eligible Person" shall mean any person or entity that is an agent,
consultant, director, independent contractor, strategic alliance partner, or
supplier of the Company. An Eligible Person shall not be awarded Incentive Stock
Options. An Eligible Person who is a director but not an Employee shall not be
awarded Stock Options.
"Employee" shall mean any common law employee or any officer of the
Company or any of its Subsidiaries. For the purposes of any provision of this
Plan relating to Incentive Stock Options, the term "Employee" is limited to any
employee (as that term is defined under Code Section 3401(c)) or officer of the
Company or any of its Subsidiaries.
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"Fair Market Value" of the Stock shall mean, for all purposes of the Plan
unless otherwise provided (i) the mean between the high and low sales prices of
the Stock as reported on the National Market System or Small Cap Market of the
National Association of Securities Dealers, Inc., Automated Quotation System, or
any similar system of automated dissemination of quotations of securities prices
then in common use, if so quoted, or (ii) if not quoted as described in clause
(i), the mean between the high bid and low asked quotations for the Stock as
reported by a the National Quotation Bureau Incorporated or such other source as
the Committee determines, or (iii) if the Stock is listed or admitted for
trading on any national securities exchange, the mean between the high and low
sales price, or the closing bid price if no sale occurred, of the Stock on the
principal securities exchange on which the Stock is listed. In the event that
the method for determining the Fair Market Value of the Stock provided for above
shall either be not applicable or not be practical, in the opinion of the
Committee, then the Fair Market Value shall be determined by such other
reasonable method as the Committee, in its discretion, selects and applies.
"Grantee" shall mean an Eligible Person or Employee granted a Stock
Option.
"Granting Date" shall mean the date on which the Committee authorizes the
issuance of a Stock Option for a specified number of shares of Stock to a
specified Eligible Person or Employee.
"Incentive Stock Option" shall mean a Stock Option granted under the Plan
which is properly qualified under the provisions of Section 422 of the Code.
"Nonstatutory Stock Option" shall mean a Stock Option granted within the
Plan which is not an Incentive Stock Option or otherwise qualified under similar
tax provisions.
"Progressive Stock Options" shall mean either Incentive Stock Options or
Nonstatutory Stock Options granted pursuant to Section 5(j) of this Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
or any rule in replacement thereof.
"Stock" shall mean the Common Stock, par value $.001 per share, of the
Company.
"Stock Option" shall mean an Incentive Stock Option or Nonstatutory Stock
Option granted pursuant to the Plan to purchase shares of Stock.
"Subsidiary" shall mean any subsidiary corporation as defined in Section
424(f) of the Code.
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SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN
Subject to adjustment pursuant to Section 8, 2,000,000 shares of Stock
shall be reserved for issuance upon the exercise of Stock Options granted
pursuant to this Plan. Shares delivered under the Plan may be authorized and
unissued shares or issued shares held by the Company in its treasury. If any
Stock Options expire or terminate without having been exercised, the shares of
Stock covered by such Stock Option shall become available again for the grant of
Stock Options hereunder.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have the exclusive authority
and discretion to construe and interpret the Plan, prescribe, amend and rescind
rules and regulations relating to it, determine the terms and provisions of
Stock Option grants, resolve all questions of fact and law in the administration
and operation of the Plan, and make all other determinations necessary or
appropriate in the administration and operation of the Plan.
(b) It is intended that the Plan and any transaction hereunder meet all of
the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect and as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or other applicable laws, such provision or transaction
shall be construed or deemed amended to conform to Rule 16b-3 or such other
applicable laws or otherwise shall be deemed to be null and void, in each case
to the extent permitted by law and determined by the Committee.
(c) Any controversy or claim arising out of or related to this Plan shall
be determined unilaterally by and at the exclusive discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) All Eligible Persons and Employees are eligible to receive Stock
Options in accordance with the terms of this Plan.
(b) The option price of each share of Stock subject to an Incentive Stock
Option shall be at least 100% of the Fair Market Value of a share of the Stock
on the Granting Date.
(c) The option price of each share of Stock subject to a Nonstatutory
Stock Option shall be 100% of the Fair Market Value of a share of the Stock on
the Granting Date, or such other price either greater than or less than the Fair
Market Value (but in no event less than the par value of the Stock) as the
Committee determines appropriate to the purposes of the Plan and to the
Company's total compensation program.
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(d) The Committee shall determine and designate from time to time those
Eligible Persons and Employees who are to be granted Stock Options and whether
the particular Stock Options are to be Incentive Stock Options or Nonstatutory
Stock Options, and shall also specify the number of shares covered by and the
option price per share of each Stock Option. Each Stock Option granted under the
Plan shall be clearly identified as to its status as a Nonstatutory Stock Option
or an Incentive Stock Option. The Committee shall also determine the date and
dates when each Stock Option becomes exercisable and any event that accelerates
the date or dates when the Stock Option becomes exercisable or that results in
the cancellation of the Stock Option; provided, however, that if an Employee's
written contract with the Company specifies the date or dates the Stock Option
becomes exercisable, or the acceleration or cancellation thereof, the written
contract controls.
(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000.
(f) A Stock Option shall be exercisable during such period or periods and
in such installments as shall be fixed by the Committee at the time the Stock
Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten years from the Granting Date.
(g) The Committee shall have the authority to grant both transferable
Stock Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to provide for transferability. Each
nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and distribution or, except in the case of Incentive Stock
Options, pursuant to a "qualified domestic relations order" as defined by the
Code, and is exercisable, during the Grantee's lifetime, only by the Grantee.
Each transferable Stock Option may provide for such limitations on
transferability and exercisability as the Committee may designate at the time a
Stock Option is granted or is otherwise amended to provide for transferability.
(h) Stock Options may be granted to an Eligible Person or an Employee who
has previously received Stock Options or other options whether such prior Stock
Options or other options are still outstanding, have previously been exercised
or surrendered in whole or in part, or are cancelled in connection with the
issuance of new Stock Options.
(i) Without in any way limiting the authority of the Committee to make
grants of Stock Options under the Plan, and in order to induce Eligible Persons
and Employees to retain ownership of Stock, the Committee may include within any
agreement reflecting a Stock Option a provision entitling the Grantee of such a
Stock Option to a further Stock Option (a "Progressive Stock Option") if the
Grantee exercises such Stock Option evidenced by such agreement, in whole or in
part, by surrendering other shares of Stock in accordance with this Plan and the
terms and conditions of such agreement. Any such Progressive Stock Option may be
for a number of shares of Stock equal to the number of surrendered shares, shall
become exerciseable no sooner
4
<PAGE>
than six months after the Granting Date of the Stock Option or such longer
period as the Committee may establish, shall have an option price per share
equal to one hundred percent (100%) of the Fair Market Value of a share of Stock
on the Granting Date of the Progressive Stock Option, and shall be subject to
such other terms and conditions as the Committee may determine.
(j) Notwithstanding the foregoing, the option price of an Incentive Stock
Option in the case of a Grantee who owns more than ten (10%) percent of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair
Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five years
after the Granting Date.
SECTION 6. EXERCISE OF STOCK OPTIONS
(a) Except as provided in Section 7, no Incentive Stock Option may be
exercised at any time unless the Grantee is an Eligible Person or an Employee on
the Date of Exercise and has been an Eligible Person or an Employee at all times
during the period beginning on the Granting Date and ending on the day 3 months
before the date of such exercise.
(b) The Grantee shall pay the option price in full on the Date of Exercise
of a Stock Option in cash, by check, or by delivery of full shares of Stock of
the Company, duly endorsed for transfer to the Company with signature
guaranteed, by any combination thereof or by such other mode of payment as the
Committee may approve, including payment through a broker in accordance with
procedures permitted by rules and regulations of the Federal Reserve Board.
Stock will be accepted at its Fair Market Value on the Date of Exercise.
(c) Subject to the approval of the Committee, or of such person to whom
the Committee may delegate such authority ("its designee"), and subject further
to the applicable regulations of any governmental authority, the Company may
loan to the Grantee a sum equal to an amount which is not in excess of 100% of
the purchase price of the shares of Stock acquired upon exercise of a Stock
Option, such loan to be evidenced by the execution and delivery of a promissory
note. Interest shall be paid on the unpaid balance of the promissory note at
such times and at such rate as shall be determined by the Committee or its
designee. Such promissory note shall be secured by the pledge to the Company of
shares of Stock having an aggregate purchase price on the date of purchase equal
to or greater than the amount of such note. A Grantee shall have, as to such
pledged shares of Stock, all rights of ownership including the right to vote
such shares of Stock and to receive dividends paid on such shares of Stock,
subject to the security interest of the Company. Such shares of Stock shall not
be released by the Company from the pledge unless the proportionate amount of
the note secured thereby has been repaid to the Company; provided, however that
shares of Stock subject to a pledge may be used to pay all or part of the
purchase price of any other option granted hereunder or under any other stock
incentive plan of the Company under the terms of which the purchase price of an
option may be paid by the surrender of shares of Stock, subject to the terms and
conditions of this Plan relating to the surrender of shares of Stock in payment
of the exercise price of an option. In such event,
5
<PAGE>
that number of the newly purchased shares of Stock equal to the shares of Stock
previously pledged shall be immediately pledged as substitute security for the
pre-existing debt of the Grantee to the Company, and thereupon shall be subject
to the provisions hereof relating to pledged shares of Stock. All notes executed
hereunder shall be payable at such times and in such amounts and shall contain
such other terms as shall be specified by the Committee or its designee or
stated in the option agreement; provided, however, that such terms shall conform
to requirements contained in any applicable regulations which are issued by any
governmental authority.
SECTION 7. TERMINATION OF EMPLOYMENT
Except as otherwise provided by the Committee at the time the Stock Option
is granted or any amendment thereto, and except as otherwise provided in an
Eligible Person's or an Employee's written contract with the Company, if a
Grantee who was an Employee at the time of grant, and ceases to be an Employee
then:
(a) if termination of employment is voluntary or involuntary without
cause, the Grantee may exercise each Stock Option held by the Grantee within
three months after such termination (but not after the expiration date of the
Stock Option) to the extent of the number of shares subject to the Stock Option
which are exercisable pursuant to its terms at the date of termination;
(b) if termination is for cause, all Stock Options held by the Grantee
shall be cancelled as of the date of termination. For purposes of this Plan,
"cause" means cause as defined in an Eligible Person's or an Employee's written
contract with the Company, or in the absence of a written contract that contains
a definition of cause, as determined by the Company;
(c) subject to the provisions of Section 7(d), if termination is (i) by
reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company or any
Subsidiary, or (ii) by reason of disability each Stock Option held by the
Grantee may be exercised by the Grantee at any time (but not after the
expiration date of the Stock Option) (within one year of termination in the case
of Incentive Stock Options) to the extent of the number of shares subject to the
Stock Option which were exercisable pursuant to its terms at the date of
termination. For purposes of this Plan, "disability" means disability as defined
in an Eligible Person's or an Employee's written contract with the Company, or
in the absence of a written contract that contains a definition of disability,
the definition of disability in any disability insurance policy maintained by
the Company at the time of such disability, or in the absence of such
definition, as determined by the Company;
(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period equal to the lesser of three years
after death or the expiration date of the Stock Option to the extent of the
total number
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<PAGE>
of shares subject to the Stock Option which were exercisable pursuant to its
terms at the date of termination; or
(e) if the Grantee should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 7(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
year after death (but not after the expiration date of the Stock Option) to the
extent of the number of shares subject to the Stock Option which were
exercisable pursuant to its terms at the date of termination.
SECTION 8. ADJUSTMENTS
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Committee in the number and kind of shares that may be
granted in the aggregate and to individuals under the Plan, the number and kind
of shares subject to each outstanding Stock Option and the option prices.
SECTION 9. CHANGE OF CONTROL
In granting a Stock Option, and subject to an Eligible Person's or an
Employee's written contract with the Company, the Committee shall determine
whether a Stock Option becomes immediately exercisable upon a change in control.
For purposes of this Agreement, a change in control means any of the following
events: (a) the consummation of a sale of all or substantially all of the
Company's assets in one or a series of related transactions to a person or
entity or persons or entities each of whom is not an Affiliate of the Company
prior to such sale; (b) the consummation of a sale (whether by merger,
consolidation or otherwise) of all the capital stock of the Company for stock,
cash or other property or a combination thereof in one or a series of related
transactions to a person or entity or persons or entities not a shareholder of
the Company prior to such sale; (c) a combination of clauses (a) and (b); or (d)
a combination of (b) and a sale of assets of the Company. For purposes of this
Section 9, "affiliate" means any business entity controlling, controlled by, or
under common control with the Company.
SECTION 10. GENERAL PROVISIONS
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee approves.
(b) The granting of a Stock Option in any year shall not give the Grantee
any right to similar grants in future years or any right to be retained in the
employ of the Company or any Subsidiary or interfere in any way with the right
of the Company or such Subsidiary to terminate an Employee's employment at any
time.
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<PAGE>
(c) The Company may deduct from any payment or distribution under the Plan
any federal, state or local taxes of any kind required by law to be withheld
with respect to such payments or to take such other action as may be necessary
to satisfy all obligations for the payment of such taxes. In case distributions
are made in shares of Stock, the Company shall have the right to retain the
value of sufficient shares of Stock to equal the amount of tax to be withheld
for such distributions or require a recipient to pay the Company for any such
taxes required to be withheld on such terms and conditions prescribed by the
Committee.
(d) No Grantee shall have any of the rights of a shareholder by reason of
a Stock Option until it is exercised.
(e) This Plan shall be construed and enforced in accordance with the laws
of the State of Delaware (without regard to the legislative or judicial conflict
of laws rules of any state), except to the extent superseded by federal law.
SECTION 11. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on April __, 2011 and no Stock Option shall
be granted hereunder after that date, provided that the Board may terminate the
Plan at any time prior thereto.
(b) The Board may amend the Plan at any time without notice, provided
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted (except as contemplated by the provisions of Section 8), (ii) materially
increase the benefits accruing to participants under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan.
(c) No termination or amendment of the Plan may, without the consent of a
Grantee to whom a Stock Option theretofore has been granted, adversely affect
the rights of such Grantee under such Stock Option.
SECTION 12. EFFECTIVE DATE
The Plan shall become effective as of the date it is approved by the
Company's stockholders.
8
<PAGE>
U.S. MOBILE SERVICES, INC. STOCK OPTION PLAN
Nonstatutory Stock Option Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the President of the Company.
2. Option Price. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionee must deliver
written notice of exercise to the President of the Company specifying the number
of shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery, as the Committee may at the time of
exercise approve. Promptly following such notice, the Company will deliver to
the Optionee a certificate representing the number of shares with respect to
which the Option is being exercised.
5. Rights as a Stockholder or Employee. The Optionee shall not have any
rights in respect of shares as to which the Option has not been exercised and
payment made as provided above. The Optionee shall not have any rights to
continued employment by the Company or any Subsidiary by virtue of the grant of
this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
of certain corporate transactions affecting the Company's outstanding Common
Stock, the Committee shall equitably adjust the number and kind of shares
subject to this Option and the exercise price hereunder. If such transaction
involves a consolidation or merger of the Company with another entity, the sale
or exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Committee may upon written notice to the Optionee provide that this Option shall
terminate on a date not less than 20 days after the date of such notice unless
theretofore exercised. In connection with such notice, the Committee may in its
discretion accelerate or waive any deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
Optionee otherwise than by will or the laws of descent and distribution or
pursuant to a "qualified domestic relations order" as defined in the Code and is
exercisable, during the Optionee's lifetime, only by Optionee. Any attempted
assignment,, transfer, pledge, hypothecation or other disposition other than in
accordance with the terms set forth herein and in the Plan shall be void and of
no effect.
8. Compliance with Securities Laws. It shall be a condition to the
Optionee's right to purchase shares of Common Stock hereunder that the Company
may, in its discretion, require (a) that the shares of Common Stock reserved for
issue upon the exercise of this Option have been duly listed, upon official
notice of issuance, upon any national securities exchange or automated quotation
system on which the Company's Common Stock may then be listed or quoted, (b)
that either (i) a registration statement under the Securities Act of 1933 with
respect to the shares is in effect, or (ii) in the opinion of counsel for the
Company, the proposed purchase shall be exempt from registration under that Act
and the Optionee shall have made such undertakings and agreements with the
Company as the Company may reasonably require, and (c) that such other steps, if
any, as counsel for the Company shall consider necessary to comply with any law
applicable to the issue of such shares by the Company has been taken by the
Company or the Optionee, or both. The certificates representing the shares
purchased under this Option may contain such legends as counsel for the Company
considers necessary to comply with any applicable law.
9. Payment of Taxes. The Optionee shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionee. In the Committee's discretion, such
tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Subsidiaries may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Optionee.
<PAGE>
2000 NSO - Shares
U.S. MOBILE SERVICES, INC.
2000 Stock Option Plan
Nonstatutory Stock Option Certificate
U.S. Mobile Services, Inc. (the "Company"), a Delaware corporation, hereby
grants to the person named below an option to purchase shares of Common Stock,
par value $.001 per share, of the Company (the "Option") under and subject to
the Company's 2000 Stock Option Plan (the "Plan") exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionee:
Address:
Social Security No:.
Number of Shares:
Option Price:
Date of Grant: ________, 2000
Exercisability Schedule
After ______________, 20__ as to ____ shares,
After ______________, 20__ as to _____ additional shares
After ______________, 20__ as to _____ additional shares
Expiration Date:
Special Provisions Regarding Rights if Optionee Ceases to be an Eligible Person
or Employee: None
Other Special Provisions:
The Option shall not be treated as an Incentive Stock Option under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
U.S. MOBILE SERVICES, INC.
Dated:_______________ By: _____________________________________
Name:
Title:
ACCEPTED:
____________________________
[Name of Optionee]
<PAGE>
2000 ISO -1 _________ Shares
U.S. MOBILE SERVICES, INC.
2000 Stock Option Plan
Incentive Stock Option Certificate
U.S. Mobile Services, Inc. (the "Company"), a Delaware corporation, hereby
grants to the person named below an option to purchase shares of Common Stock,
par value $.001 per share, of the Company (the "Option") under and subject to
the Company's 2000 Stock Option Plan (the "Plan") exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionee:
Address:
Social Security No.:
Number of Shares:
Option Price: $
Date of Grant:
Exercisability Schedule
After [date] as to _________ shares,
Expiration Date:
Special Provisions Regarding Rights
if Optionee Ceases to be an Eligible Person or Employee:
Other Special Provisions:
Although this Option is intended to be treated as an Incentive Stock
Option under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company does not and cannot guaranty or warranty that the Option
will be so treated. Certain acts of the Optionee such as disposing of the Stock
issued pursuant to this Option prior to the expiration of the holding periods
required under Code Section 422 will prevent this Option from being treated as
an Incentive Stock Option.
By acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
U.S. MOBILE SERVICES, INC.
Dated:___________ By: __________________________________________
Name:
Title:
ACCEPTED:
_______________________________
[Name of Optionee]
<PAGE>
U.S. MOBILE SERVICES, INC. 2000 STOCK OPTION PLAN
Incentive Stock Option Terms and Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the President of the Company.
2. Option Price. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionee must deliver
written notice of exercise to the President of the Company specifying the number
of shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery, as the Committee may at the time of
exercise approve. Promptly following such notice, the Company will deliver to
the Optionee a certificate representing the number of shares with respect to
which the Option is being exercised.
5. Rights as a Stockholder or Employee. The Optionee shall not have any
rights in respect of shares as to which the Option has not been exercised and
payment made as provided above. The Optionee shall not have any rights to
continued employment by the Company or any Subsidiary by virtue of the grant of
this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
of certain corporate transactions affecting the Company's outstanding Common
Stock, the Committee shall equitably adjust the number and kind of shares
subject to this Option and the exercise price hereunder. If such transaction
involves a consolidation or merger of the Company with another entity, the sale
or exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Committee may upon written notice to the Optionee provide that this Option shall
terminate on a date not less than 20 days after the date of such notice unless
theretofore exercised. In connection with such notice, the Committee may in its
discretion accelerate or waive any deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
Optionee otherwise than by will or the laws of descent and distribution and is
exercisable, during the Optionee's lifetime, only by Optionee. Any attempted
assignment,, transfer, pledge, hypothecation or other disposition other than in
accordance with the terms set forth herein and in the Plan shall be void and of
no effect.
8. Compliance with Securities Laws. It shall be a condition to the
Optionee's right to purchase shares of Common Stock hereunder that the Company
may, in its discretion, require (a) that the shares of Common Stock reserved for
issue upon the exercise of this Option have been duly listed, upon official
notice of issuance, upon any national securities exchange or automated quotation
system on which the Company's Common Stock may then be listed or quoted, (b)
that either (i) a registration statement under the Securities Act of 1933 with
respect to the shares is in effect, or (ii) in the opinion of counsel for the
Company, the proposed purchase shall be exempt from registration under that Act
and the Optionee shall have made such undertakings and agreements with the
Company as the Company may reasonably require, and (c) that such other steps, if
any, as counsel for the Company shall consider necessary to comply with any law
applicable to the issue of such shares by the Company has been taken by the
Company or the Optionee, or both. The certificates representing the shares
purchased under this Option may contain such legends as counsel for the Company
considers necessary to comply with any applicable law.
9. Payment of Taxes. The Optionee shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionee. In the Committee's discretion, such
tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Subsidiaries may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Optionee.
EXHIBIT 10.4
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is effective as of the 1st
day of May, 1999, by and between David Gergacz, an individual residing at 221
New Gate Loop, Heathrow, FL 32746 ("Gergacz"), and U.S. Mobile Services, Inc., a
Delaware corporation with its principal place of business at 7455-T New Ridge
Road, Hanover, MD 21076 ("USM").
W I T N E S S E T H:
WHEREAS, Gergacz entered into an Employment Agreement dated May 1, 1999
with USM pursuant to which Gergacz is to be employed by USM as its Chairman and
Chief Executive Officer and which, among other provisions, specified the
issuance of this nonqualified stock option agreement,
NOW, THEREFORE, and in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, USM and Gergacz hereby agree as
follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, USM hereby grants Gergacz the right and option (the "Option") to
purchase from USM the number of shares of USM Common Stock described in the
remainder of this paragraph (the "Shares") at the price of $.01 cash per share.
Initially, the Shares shall consist of 1,475,790 shares of USM Common Stock,
which number constitutes 15% of USM's total issued and outstanding Common Stock
as of the date of this Agreement. To the extent USM issues additional shares of
its Common Stock (or securities convertible into Common Stock), until such time
as USM has received a total of $6,000,000 of additional equity capital through
the sale of such Common Stock (or securities convertible into Common Stock), the
number of Shares subject to this Option shall be increased by an amount equal to
10% of the total number of shares of Common Stock issued (or issuable upon
conversion of other securities) in connection with USM's receipt of such
$6,000,000 of additional equity capital.
2. Option Period; Vesting. The term of this Option shall commence on
the date first above written and expire on the earlier of at midnight on the
date that Gergacz's employment with USM terminates or at midnight on April 30,
2009 (the "Option Period"). This Option shall be immediately exercisable as to
one-third of the shares of USM Common Stock constituting the Shares. On November
1, 1999, the Option shall become exercisable as to an additional one-third of
the Shares. On May 1, 2000, the Option shall become exercisable as to the final
one-third of the Shares. The Option shall not be exercisable as to any Shares
after the expiration of the Option Period.
3. Exercise of Option. Gergacz may exercise the Option from time to
time, in whole or in part (subject to the vesting provisions in Section 2
above), by giving USM written notice thereof, signed by Gergacz, prior to the
expiration of the Option Period. Upon USM's
<PAGE>
receipt of such a written notice of Gergacz's election to exercise the Option,
Gergacz shall pay USM the exercise price as specified in Section 1 hereof in
cash. Simultaneously with Gergacz's payment of the exercise price, USM will
issue the requisite number of Shares to Gergacz. Once Gergacz has exercised this
Option fully, this Agreement shall become null and void and Gergacz shall have
no further right to acquire any Shares of USM pursuant to this Agreement.
4. Change of Control. In the event of a Change of Control as defined
below, this Option shall become immediately exercisable as to all Shares
notwithstanding the vesting schedule set forth above. For purposes of this
Agreement, the term "Change of Control" means any merger, consolidation, stock
purchase or any other transaction or series of related transactions involving
USM or any of its stockholders as a result of which any person or group of
persons (within the meaning of Section 13(d) of the Securities Exchange Act of
1934 and the rules promulgated thereunder) who are not as of the date hereof
stockholders of USM, come to possess at least a majority (in excess of 50%) of
the voting power of the outstanding capital stock of USM.
5. Tax and Securities Laws. This Option is a nonqualified option for
tax purposes, which status involves various federal and state income tax
consequences which Gergacz understands and agrees to accept. The Shares, when
issued upon exercise of this Option, will constitute restricted securities
within the meaning of the Securities Act of 1933, and as such will be subject to
restrictions and limitations on transferability, with which Gergacz is familiar
and to which he agrees. The certificates representing such Shares will bear an
appropriate legend to such effect. USM shall file a registration statement
covering the Shares (so that they will not constitute restricted securities
following exercise of the Option) as soon as possible after the date USM becomes
a reporting company under the Securities Exchange Act of 1934 and is eligible to
use registration statement Form S-8. Gergacz hereby represents and warrants that
he is sophisticated as to financial matters and that he is an "accredited
investor" within the meaning of the rules promulgated under the Securities Act
of 1933.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors and assigns;
provided that Gergacz's rights and obligations hereunder may not be assigned
without prior written consent of USM.
7. Notices. All notices provided for herein shall be deemed to have
been duly given if and when deposited in the United States mail with proper
first class postage affixed, properly addressed to the party for whom intended
and at the party's address as listed above or when personally delivered to such
party.
8. Entire Agreement. It is expressly agreed by and between the
parties hereto as a material consideration for the execution of this Agreement
that there are and were no verbal or written representations, understandings,
stipulations, agreements or promises pertaining to the subject matter of this
Agreement not incorporated in writing herein. This Agreement nor any of the
provisions herein contained can be modified, terminated, superseded, waived or
extended except by an appropriate written instrument executed by the parties
hereto.
2
<PAGE>
9. Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Maryland.
10. Severability. Each Section of this Agreement shall be deemed
severable and if for any reason any Section or Subsection hereof is invalid or
contrary to any existing or future law, such invalidity shall not affect the
applicability or validity of any such other provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/ David Gergacz
--------------------------------------
David Gergacz
U.S. MOBILE SERVICES, INC.
By: /s/ David Gergacz
-----------------------------------
Its: Chief Executive Officer
----------------------------------
3
EXHIBIT 10.6
FORM OF LOCK-UP AGREEMENT
____________ __, 2000
U.S. Mobile Services, Inc.
725 Primera Blvd., Suite 200
Lake Mary, Florida 32746
Ladies and Gentlemen:
In order to induce certain investors to participate in a proposed private
placement (the "Offering") of shares of common stock, $0.001 par value per share
(the "Common Stock") of U.S. Mobile Services, Inc, a Delaware corporation (the
"Company"), the undersigned hereby agrees that, subject to the exception set
forth below, for a period of six (6) months from the closing of the Offering,
the undersigned will not directly or indirectly, issue, offer to sell, sell,
grant an option for the sale of, assign, transfer, pledge, hypothecate,
distribute or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the rules and regulations under the Securities Act of 1933, as
amended or otherwise) or dispose of any beneficial interest therein without the
prior written consent of the Company. The undersigned understands and
acknowledges that in connection with the above, the Company shall deliver
instructions to its transfer agent authorizing it to place appropriate stop
transfer orders on the Company's ledgers. Notwithstanding the above, it is
agreed that during each calendar month during the six month period, the
undersigned may sell an amount of Common Stock equal to 5% of the total amount
owned by the undersigned.
Very truly yours,
By: ______________________________
Name:
EXHIBIT 23.1
Consent of Certified Public Accountants
To Whom It May Concern:
Pascale, Razzino, Alexanderson & Co., PLLC, Certified Public Accountants,
hereby consents to the inclusion of the financial statements and our Report of
Independent Certified Public Accountants of U.S. Mobile Services, Inc. and
Subsidiary as of and for the year ended December 31, 1999.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints David Gergacz his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all registration statements including amendments, if
any, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registration statement on Form 10-SB, including amendments
thereto, has been signed by the following persons in the capacities and on the
dates stated.
Signature Title Date
/s/ David Gergacz
- ---------------------
David Gergacz Chairman, Director May __, 2000
/s/ Lawrence J. Twill
- ---------------------
Lawrence J. Twill Vice Chairman, Director May __, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S. MOBILE
SERVICES, INC. AUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 117,894
<SECURITIES> 0
<RECEIVABLES> 34,144
<ALLOWANCES> 0
<INVENTORY> 522,524
<CURRENT-ASSETS> 1,352,235
<PP&E> 278,348
<DEPRECIATION> (32,566)
<TOTAL-ASSETS> 1,831,516
<CURRENT-LIABILITIES> 5,330,388
<BONDS> 0
0
0
<COMMON> 10,182
<OTHER-SE> (6,409,054)
<TOTAL-LIABILITY-AND-EQUITY> 1,831,516
<SALES> 620,298
<TOTAL-REVENUES> 620,298
<CGS> 1,049,045
<TOTAL-COSTS> 5,204,709
<OTHER-EXPENSES> 509,588
<LOSS-PROVISION> 61,354
<INTEREST-EXPENSE> 379,926
<INCOME-PRETAX> (6,522,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,522,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,522,970)
<EPS-BASIC> (.067)
<EPS-DILUTED> (.067)
</TABLE>
