SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number O-24742
U.S. Wireless Corporation
(Exact name of Company as specified in its charter)
Delaware 13-3704059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2303 Camino Ramon, Suite 200, San Ramon, California 94583
(Address of principal executive offices) (Zip Code)
(510) 830-8801
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
The Company had no revenues from operations during the fiscal year ended
March 31, 1998.
The aggregate market value of the voting stock (consisting of Common Stock,
par value $.01 per share) held by non-affiliates on March 31, 1998 was
approximately $18,878,566, based upon the average closing bid and asked prices
for such Common Stock on said date ($2.81), as reported by a market maker. On
such date, there were 11,823,331 shares of Company's Common Stock outstanding.
<PAGE>
STATEMENTS CONTAINED IN THIS REPORT WHICH ARE NOT HISTORICAL FACTS MAY BE
CONSIDERED FORWARD LOOKING INFORMATION WITH RESPECT TO PLANS, PROJECTIONS, OR
FUTURE PERFORMANCE OF THE COMPANY AS DEFINED UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
US Wireless Corporation (the "Company") was organized in the State of
Delaware in February 1993. In July 1996, the Company acquired 51% of the
outstanding shares of common stock of each of Mantra Technologies, Inc.
("Mantra") and Labyrinth Communication Technologies Group, Inc. ("Labyrinth"),
both Delaware corporations formed in July and June 1996, respectively, by Dr.
Oliver Hilsenrath. In January 1998 the Company submitted an exchange offer to
the Labyrinth stockholders, who approved the exchange in March 1998, at which
time Labyrinth merged with and into the Company. All references to the Company
include its subsidiary, Mantra.
The Company
The Company designs, develops and markets wireless network
infrastructure products for the emerging wireless location services marketplace.
The Company's products will allow wireless service providers to render
geolocation, or the ability to pinpoint the geographic location of a mobile
telephone subscriber anywhere within a wireless network. The Company's current
focus is to design and develop products targeted at the emerging E-9-1-1
marketplace, a subset of the wireless location services industry. Additionally,
the Company seeks to offer, or provided the technology enabling, value added
services such as E-4-1-1 information services, database management, network
management services, asset/vehicle tracking and a variety of other geolocation
applications.
The Company's products are based on management's extensive experience
in array processing (antenna radio signal processing), as well as the Company's
proprietary Location Radio Fingerprinting (LRF) technology. The Company's
initial product, the RadioCamera(TM), is the first of several products designed
to add functionality to wireless networks by providing geolocation capabilities.
Presently, the Company is engaged in Beta testing of its AMPS version of the
RadioCamera and has begun the development of TDMA and CDMA modifications, which
are scheduled for testing by year end.
History
Prior to the acquisitions of Labyrinth and Mantra in July 1996, the Company
was a holding company and the parent company of Playco Toys & Entertainment
Corp. ("Playco"), a retailer of children's toys and hobby items. In October
1996, the Company filed an amendment to its Certificate of Incorporation
changing its name from American Toys, Inc. to U.S. Wireless Corporation.
Simultaneously with its name change, its trading symbol was changed from "ATOY"
to "USWC." In August 1996, pursuant to the authorization of the Company's Board
of Directors and the consent of its then majority stockholder, the Company
distributed its ownership of Playco to its shareholders, thereby divesting
itself entirely of its ownership interest in Playco
Consolidation of Labyrinth Communication Technologies Group, Inc.
In March 1998 the Company consummated the merger of Labyrinth with and
into the Company, pursuant to its December 1997 stockholders meeting, at which
the stockholders approved a proposal to acquire the remaining 49% of Labyrinth
in exchange for an aggregate of 4,498,200 shares of the Company's Common Stock.
The issuance of the shares is subject to a vesting schedule, as follows: (i) 20%
of the shares issued vest one year from issuance; (ii) an additional 40% vest
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upon the successful completion and operation of the RadioCamera in its first
major market; and (iii) the remaining 40% vest when the Company reaches sales of
$15,000,000. In addition to the above vesting schedule, the management of
Labyrinth is subject to an additional vesting schedule, in accordance with their
employment contracts and restricted share agreements, which were simultaneously
amended in accordance with the exchange offer, whereby the shares underlying
(i)-(iii) above vest at the rate of 1/3 each year.
Wireless Communications Industry Overview
Over the past decade, there has been a rapid growth in the wireless
communication industry, with a proliferation of "cellular" telephones and other
wireless communication devices. Originally associated with a wealthy and elite
segment of the population, these devices are now available to and utilized by a
wide cross section of consumers. This rapid market growth has been stimulated by
increasingly affordable wireless services and handsets, a favorable regulatory
environment, and growing competition among service providers.
The Strategis Group, Inc., a telecommunications consulting firm,
estimated that the number of wireless subscribers in the United States,
including cellular, PCS and ESMR, would increase from approximately 46 million
at the end of 1996 to approximately 102 million by the end of 2000. By the end
of 1997, the number of subscribers in the United States had already reached
approximately 55 million, or 20% of the population.
To accommodate the increased consumer demand for wireless services, the
industry has aggressively continued its buildup of wireless infrastructure, and
commenced in the usage of more efficient standards such as TDMA, CDMA, GSM, ESMR
and PCS. The introduction of these standards into the market has additionally
served as a selling point for manufacturers and service providers in the already
extremely competitive arena of telecommunications.
The competitive environment in telecommunications is increasingly
forcing network providers to differentiate their offerings. As network providers
strive to capture or maintain market share and stimulate usage, it is
anticipated that the service providers, either themselves or through third party
value added service providers, must offer as standard features many valued added
services that were once offered as premium applications. These applications
include emergency E-9-1-1 service, enhanced 4- 1 (caller-location based
information services), asset tracking, vehicle location, data base management
and network management. Once deployed, the Company anticipates that value added
services facilitated by location sensitive applications have the potential to
further expand the market for wireless communications by allowing service
providers to increase revenue-generating traffic on their networks.
Wireless Enhanced 9-1-1 Industry Background
With over 20% of the U.S. population using wireless telephones, the number
of emergency calls from wireless devices to 9-1-1 is dramatically increasing. In
1996, the average daily number of wireless calls to emergency 9-1-1 totaled
approximately 83,000 nationwide. By the turn of the century, this number is
expected to top 130,000 calls per day, approaching the daily number of 9-1-1
calls initiated from traditional wire-line networks.
As the number of wireless telephone calls to PSAPs (Public Safety
Answering Points, i.e. regional emergency call centers) increase dramatically,
PSAPs are reporting an increasing number of challenges that impede their ability
to assist people in emergencies when receiving emergency calls from wireless
handsets. Problems include an increasing volume of calls, as well as response
time for emergency personnel.
When a dispatcher receives an emergency call from a traditional
wire-line telephone, the address and call back number of the calling party are
displayed directly in front of the dispatcher, who merely confirms the
information. The typical time a dispatcher spends confirming the location of a
wire-line call is five to 10 seconds. In contrast, when an emergency operator
receives a wireless call, the location and callback number of the caller is not
immediately available, and PSAP dispatchers regularly spend up to several
minutes on each call, attempting to establish a location. Wireless callers are
often unsure of their exact location, especially at night, or when the trauma of
an accident or emergency has reduced cognizance. The dispatcher must therefore
stay on the line longer. This process can be further complicated if the caller
is moving at the time of the emergency call. When the location cannot be
determined, multiple response units must be dispatched to find the caller.
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Government Regulations
As a result of these and other safety issues, the wireless industry,
the PSAPs and members of the E-9-1-1 community and the FCC began joint efforts
in mid-1994 to solve the technological and policy hurdles in providing location
information for wireless 9-1-1 calls. In June 1996, the FCC issued a Report and
Order in Docket 94-102, formalizing certain performance requirements, and
implementing a schedule for wireless service providers to establish geolocation
capabilities. In so doing, the FCC ordered that the deployment and integration
of wireless E-9-1-1 features and functions be accomplished in two phases:
Phase I.
The first phase requires wireless service providers to report the
callback number and originating cell site and/or sector of a 9-1-1 call to PSAP
operators. The mandate requires that commencing in October 1997, wireless
service providers initiate action to comply with Phase I, and develop the
ability to provide callback numbers and cell or sector origination information
to any qualified PSAP within their coverage zone who requests such information.
The service provider must commence providing such information to qualified
requesting PSAPs within six months of the PSAP's request. Service providers have
commenced the implementation of products in order to meet Phase I of the FCC
mandate, and it appears that carriers are actively proceeding with the Phase I
implementation. Several carriers are implementing their own solutions, while
others are contracting with independent providers to enable this functionality.
The FCC has decreed that service providers not meeting the mandate requirements
will be subject to fines, sanctions and possible loss of operating rights in
terms of access to spectrum.
Phase II.
The second phase requires wireless service providers to pinpoint and
report to the PSAPs the location of all 9-1-1 callers within an accuracy of 125
meters in 67% of all cases, using root mean square techniques. The FCC has
mandated completion of Phase II by October 1, 2001.
The Phase I and Phase II requirements apply only if a PSAP capable of
receiving and utilizing the data associated with the service has formally
requested the service, and a mechanism (legislation) for recovering the costs of
the service is in place. For Phase I, it is required that the wireless service
providers initiate action to comply by October 1997, whereas for Phase II, it is
required that wireless service providers have the ability to provide the
required data by October 1, 2001.
RadioCamera and the LRF Technology Solution
The Company's network systems use the reflected propagation of a
subscriber's radio signals toward the base station in processing calls. Although
the mobile telephone user rarely has a clear line of site to the base station,
the call is successfully carried from the user's handset to the processing base
station by multiple reflections. The signals "bounce" off buildings and other
obstacles which hinder the line of sight from the caller to the base station. In
this manner, an array of reflected signals reaches the base station by indirect
paths. This array of reflections is known by the term "multipath," and alludes
to the multiple paths that transport the signal.
The LRF technology developed by the Company enables wireless networks
to learn the location-related behavior of a subscriber's radio signals, and
correlates this behavior with physical locations in the coverage area. This
local behavior is dependent primarily on the propagation pattern of the radio
signal through multipath rays. Because the RadioCamera technology keys to radio
wave fronts, as opposed to the modulated content of the radio waves, the
Company's management believes that it can quickly develop LRF technology
compatible with all leading analog and digital wireless standards.
<PAGE>
Unlike other location-based technologies being developed, LRF
technology does not require a direct line of sight to the caller from multiple
base stations. As the multipath mechanism which transports the calls from
various locations to a base station is complex, each signal has a unique
signature or "fingerprint," which is particular to a certain location and is
well suited for learning, recording and reusing. The RadioCamera learns these
"fingerprint" patterns and logs them into a reference database, thereby
identifying calls coming from the same location by their similar multipath
fingerprint. Thus, after a certain amount of training, a network equipped with
LRF technology can correlate radio signals with the origin of the call.
The information generated by each RadioCamera is downloaded to
centralized database hubs, which can then route the geolocation information to
PSAPs and other service providers. Thus, the RadioCamera provides a cost
effective and high performance geolocation solution with a unique strength in
the metropolitan areas. Further, the RadioCamera is packaged as a standard rack
mounted unit that integrates into existing wireless network base stations.
Testing and Evaluation
The Company has completed the basic design and development of the
RadioCamera and is presently testing the AMPS version in accordance with testing
and evaluation programs. Additionally, the Company has commenced the development
of TDMA and CDMA modifications for the RadioCamera in order to offer location
services for these standards. Since the initial development of the RadioCamera,
the Company has conducted and continues to conduct extensive lab and field
testing to refine its performance. The Company is currently conducting field
trials within the Western Wireless network in Billings, Montana; within the Bell
Atlantic Mobile wireless network in Baltimore, Maryland; and on two Company
operated test sites in Oakland, California. The RadioCamera currently exceeds
the location determining accuracy required by Phase II of the FCC mandate. To
date, the Company is not aware of any network based systems which have been
successfully tested or are currently being tested in Metropolitan areas.
In July 1997, the Company signed a joint product evaluation agreement
with Western Wireless to test the RadioCamera in urban and suburban environments
within the Western Wireless network in Billings, Montana. The initial testing,
which began in August 1997, has been successful and has continued and expanded
to additional cell sites. The current trial will include an "end to end"
demonstration of the RadioCamera's functionality, from the location of the
caller, to the delivery of the location information at the PSAP.
In December 1997, the Company entered into a testing evaluation
agreement with Bell Atlantic Mobile to integrate the RadioCamera within its
wireless network in Baltimore, Maryland. It is anticipated that these
RadioCameras will be tested with local PSAPs. Initial testing in the Bell
Atlantic Mobile network has been successful.
During the ongoing field trials, the Company has deployed an advanced
version of its RadioCamera software, which includes all the components necessary
to locate a cellular call, from call setup monitoring to tracking the call in
progress. Currently accommodating the analog standard, the most recent version
of the RadioCamera is upgradable to accommodate the additional standards of CDMA
and TDMA. Current goals include the demonstration of fully operational caller
location systems in Baltimore and Billings, demonstrating the performance,
feasibility and functionality of the system.
Services beyond E-9-1-1
By providing geolocation data to wireless service providers, the
Company believes it will enable a variety of value added services. These
include:
Database Management and Services. The Company anticipates maintaining
regional and national RadioCamera hubs which will provide real-time
location-based information for wireless service providers who have purchased
RadioCameras for their networks. The Company plans to charge the service
provider a monthly fee per subscriber for this service.
<PAGE>
Network Management Services. Network management services to be offered
by the Company consist of using subscriber location information processed by the
RadioCamera to assess failures and/or outages in the service provider network.
The RadioCamera eliminates the need for "drive testing" in the coverage zones,
which is one of the current methods for locating network service problems.
Industry sources estimate that wireless service providers currently spend
millions of dollars annually in attempting to maintain their wireless networks.
The Company believes the real-time information obtained from RadioCamera systems
will be well suited to providing wireless service providers with a more
efficient and cost-effective solution to network management, as well as
geographical billing and fraud control.
E-4-1-1. Location-based information may be provided to third party
information centers such as 4-1-1 call centers. The call centers could then
assist mobile telephone subscribers by providing information which is relevant
to the location of the caller. For example, navigation assistance may be
provided to the caller who requests the fastest route to a particular
destination, accounting for traffic conditions. A road-weary traveler may
request a list of the nearest hotels within a particular price range. The
stranded motorist could benefit from directions to the nearest gas station, or
information regarding the nearest towing service, especially one that uses the
same location-based information to find the stranded motorist.
Vehicle Location/Asset Tracking. Location-based information may be provided
to resellers of location services such as the tracking of vehicles or assets in
the field. Presently, commercially operating tracking systems are capable of
locating vehicles/assets within a several mile perimeter. Most systems also
require the addition of independent infrastructure that can cost thousands of
dollars. The Company believes the cost-effectiveness of the RadioCamera system
will allow for more detailed information without significantly changing the
existing infrastructure equipment.
Business Strategy
The Company's business focus and strategy is to address the emerging
marketplace for E-9-1-1 and related value added location-based services. The
Company is in the final stages of beta testing the RadioCamera in preparation
for its commercial deployment. The Company's objectives include obtaining a
significant share of the location-based services market by implementing the
following strategies:
Target RadioCamera systems to wireless service providers and the
PSAP's. The Company plans to focus its primary sales and marketing efforts on
wireless service providers and the PSAP's, the main targets of the FCC mandate.
The Company intends to continue its cooperation with the wireless service
providers and enter into additional pilot testing relationships that will prove
concept and functionality, thereby eliminating commercialization risks
associated with the RadioCamera system.
Eventually, the Company expects to attract customers through both a
direct sales effort and indirect sales channels by offering (i) an integrated
geolocation solution that does not require modification of existing network
infrastructure, (ii) a validated technology that is effective in both suburban
and urban environments and that possesses capabilities which surpass the
requirements set forth by the FCC mandate, (iii) high quality and responsive
customer service, and (iv) competitive pricing. The Company intends to diversify
its potential applications by utilizing alternative operating standards such as
TDMA, GSM and ESMR, and to this end has begun the development of TDMA and CDMA
modifications, which are expected to be tested by the end of the year.
A direct sales approach involves identifying the specific operating
strategy of a wireless service provider, building a RadioCamera integration plan
supported by the unique differentiating elements of the product, performing an
in-network demonstration, and ultimately obtaining a commitment and building a
joint roll-out plan.
<PAGE>
Indirectly distribute RadioCamera systems through collaboration with
network systems integrators. Network systems integrators are companies
contracted by the wireless service providers to design, construct and later
support their networks. The Company is exploring relationships with network
integrators that would design wireless base station infrastructure with the
inclusion of the RadioCamera system.
Develop and maintain strategic relationships with wireless
infrastructure equipment manufacturers and the public safety community. The
wireless communications infrastructure market is comprised of a limited number
of large equipment manufacturers. The Company is engaged in active discussions
with wireless network infrastructure manufacturers to integrate the RadioCamera
within network infrastructure systems. In turn, these systems may be sold to the
wireless service providers as integrated units which provide geolocation
capability. Future plans call for the licensing of software upgrades as they
become available.
Provide superior systems support and rapid deployment. The Company
believes that providing a high level of service and support is a competitive
advantage in developing key customer relationships. The Company intends to
assist wireless service providers in installing, integrating, operating and
maintaining RadioCamera systems by setting up an Integration and Logistic
Support ("ILS") team to offer turnkey services. The Company also intends to take
advantage of the RadioCamera's standardized architecture in helping customers
rapidly implement RadioCamera systems within existing wireless infrastructure
networks. The Company believes that rapid deployment will allow it to become one
of the first significant competitors in the marketplace for wireless location
services. This should enable a level of market penetration which will further
enhance the Company's cost advantage, attract additional customers, and expand
the Company's brand recognition and reputation.
Exploit future growth opportunities in the location-based services industry. The
Company believes the emerging marketplace for E-9-1-1 presents substantial
opportunities for growth, and a launching pad to additional value added services
through geolocation. After establishing a strong presence in the domestic
market, the Company intends to selectively enter mature international markets
which seek to offer geolocation capabilities. In addition, the Company is
actively focusing on the emerging market for wireless location services by
developing applications aimed at value added services such as emergency E-9-1-1
service, enhanced 4-1-1, asset tracking, vehicle location, data base management
and network management.
Maintain technological leadership in geolocation technology. The Company
intends to pursue further technological advances through continued investment in
research and development. The Company seeks to maintain its technological lead
by continuing to refine its software to allow for increased geolocation
capabilities such as heightened resolution and improved accuracy and tracking
capabilities. The Company will continue to leverage these technological
advancements into additional location- sensitive markets, as well as other
related commercial applications.
The Company is required to comply with a wide range of state and local
rules and regulations applicable to its business. The ability to adapt the
Company's product lines to comply with the broad current and anticipated
federal, state and local regulatory network is essential, and may be costly.
Failure to comply with such regulations may have an adverse effect on the
Company's operations.
Customer Service, Support and Training
The Company believes the responsiveness and expertise of its service
support organization will be essential to developing and maintaining long-term
relationships with customers who require uninterrupted operation of the
Company's products. To facilitate its customers, the Company intends to develop
an integrated logistics Services "ILS" team to assist wireless service providers
with the installation, integration, operation and maintenance of RadioCamera
systems. Additionally, the ILS team is expected to (i) provide pre- and
post-sales engineering services, (ii) create a technical assistance center,
(iii) provide support and service by telephone, and (iv) offer a variety of
engineering services such as customer application design review, protocol
development, product training, performance testing and field support.
<PAGE>
Research and Development
Management believes the Company's success will depend on its ability to
develop and introduce, in a timely fashion, new products and enhancements to its
existing products. In the past, the Company has made, and intends to continue
making significant investments in product and technological development. The
Company obtains product development input through extensive interaction with
potential customers, as well as through internal monitoring of consumer needs
and careful observation of changes in the marketplace.
The Company is focusing its development efforts on enhancing the
functionality of the RadioCamera. This includes developing methods and products
to allow for the adaptation of the RadioCamera to additional wireless standards,
the development of additional related software applications, and the improvement
of third-party application integration.
The Company believes it is important for the RadioCamera to be available
for all the different wireless standards such as TDMA, CDMA, GSM and ESMR.
Wireless service providers, infrastructure manufacturers and industry entrants
are quickly adapting to offer value added services as their customer bases begin
shifting toward improved formats. The Company has commenced the development a
number of digital cellular and ESMR adaptations for the RadioCamera, which it
expects to expand during 1998 and 1999, including the development of TDMA and
CDMA modifications, which are expected to be completed by year end.
The Company is currently deploying and evaluating commercial prototype
units of the RadioCamera with wireless service providers through its field
trials. To this end, the Company is (i) completing the design, construction and
testing of a manufacturing plan for a commercialized model of the RadioCamera;
(ii) testing in active base stations; (iii) engaging in marketing and developing
relationships and strategic alliances with infrastructure equipment
manufacturers and network systems integrators.
Intellectual Property
The Company believes its most significant asset is its intellectual
property. The Company has filed numerous patent applications and has received a
"notice of allowance" from the Patent and trademark office, as to one of its
principal patents. This essentially means the examiner has approved the claims,
and a patent will be granted.
The Company also relies on a combination of trade secret, copyright and
trademark laws and employee and third-party non-disclosure agreements to protect
its intellectual property. The Company also limits access to and distribution of
proprietary information. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate to prevent
misappropriation of the Company's technology or preclude competitors from
independently developing such technology. Furthermore, there can be no assurance
that in the future, third parties will not assert infringement claims against
the Company or with respect to its products for which the Company has agreed to
indemnify certain of its customers. In the event a third party were successful
in an infringement claim against the Company, the Company may have to pay
substantial royalties or damages, remove that product from the marketplace, or
expend substantial amounts in order to accordingly modify the product, any of
which results could have a material effect on the Company's business, financial
condition and results of operations.
The Company relies on common law trademarks for use of "RadioCamera".
The Company has filed "intent to use" applications to register this trademark in
the United States. The Company has one year from the filing date to file
trademark applications showing use of the trademarks. There can be no assurance
that such trademarks will be registered, or that if registered, they will
adequately be protected against infringement.
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In the event the Company were to become engaged in litigation, either
as a result of a claimed infringement by the Company or as a result of
infringement by a third party on the Company's technology or trademarks, there
can be no assurance that the Company will be able to fund such litigation or, if
able to do so, that it will prevail.
Competition
There are a number of competitors to the Company's products in the
geolocation marketplace. Through its research of the market, the Company has
found that each competitor utilizes one of three technologies: Time Difference
of Arrival ("TDOA"), Angle of Arrival ("AOA") and the Global Positioning System
("GPS"). These competitors can be categorized into two main groups: network
based solutions, and subscriber assisted solutions.
Network based solutions. Network based solutions do not require subscribers
to be equipped with dedicated geolocation equipment; they rely solely on the
network for the geolocation process. Besides the RadioCamera and LRF technology,
TDOA and AOA systems are proposed for this application. Both of the latter
technologies are based on line of sight triangulation, unlike the RadioCamera,
which is a single site radio location system.
Line of sight triangulation requires that an unobstructed line of sight
be available between the subscriber's location and the multiple base stations
involved in the process of triangulation. Due to their reliance on line of
sight, an immediately obvious shortcoming of both the TDOA and AOA systems is
their inability to function well in dense urban environments where the line of
sight is obstructed by high rise buildings, etc. Another drawback to systems
involving triangulation is the reliance upon multiple sites to accomplish the
process of triangulation. For sufficiently accurate results, more than two sites
are required for both AOA and TDOA systems. More sites involved translates into
greater expense for equipment and maintenance at each base station.
Companies such as TruePosition, Inc. and CelLoc, Inc. are developing
TDOA equipment. TDOA is based on measuring the time delay of the wireless signal
between three to four base stations, and transporting these signals to an
aggregation site where the location is computed. TDOA systems can only locate
callers at the setup of the call by utilizing the control channel, or the call
setup channel. The reason for keeping the geolocation session to a minimum when
using TDOA is the potential cost of transmitting consistent signals between
three to four base stations, which can be substantially more expensive than the
cost of processing the cellular call itself.
AOA systems are being developed by companies such as KSI Inc. and
Accucom. AOA systems require the subscriber to maintain direct line of sight
with a minimum of two base stations in order to calculate the angle of arrival
to the base stations, and thus compute their intersection. AOA is based on the
addition of calibrated antenna arrays to cellular base stations. The direction
finding computations used in AOA products are especially sensitive, and
vulnerable in multipath environments. They are thereby likely to perform worse
than TDOA in the presence of reflections. The Company is not aware of any
commercial testing of an AOA system within a wireless network.
Subscriber Assisted Solutions. Subscriber assisted solutions require
mobile telephone subscribers to carry a dedicated piece of equipment in order
for the geolocation process to function. Of all subscriber assisted solutions,
the GPS system is the most significant and well known. Companies such as
Magellan Systems Corporation, Trimble Navigation Ltd. and SnapTrack, Inc. are
developing GPS solutions to be incorporated in vehicles and handsets. The
individual subscribers, as well as the service providers, who supplement the
handset purchase price, would have to pay more for handsets with added dedicated
equipment. Additionally, this would require all handset manufacturers to include
GPS in all handsets manufactured. The Company believes the cost and logistics
involved in equipping tens of millions of wireless subscribers with GPS phones
make GPS an unlikely solution to the 9-1-1 mandate. However, the Company
believes GPS will capture a portion of the market that is agreeable to larger
handsets, high end automobile units and some commercial fleets.
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The Company believes its solution has a competitive advantage over
potential competition for the following reasons:
RadioCamera adapts to the current cellular infrastructure, and does not
require alteration to either the base station infrastructure or subscriber hand
sets.
RadioCamera requires only one base station site to process the caller's
signal.
RadioCamera provides initial location as well as ongoing tracking
capabilities.
RadioCamera thrives both in dense urban environments where line of sight to
base stations is rare, as well as in light rural areas where line of sight to
base stations is common.
RadioCamera meets and surpasses the performance and time to market
requirements of the FCC mandate.
Employees
As of June 30, 1998, the Company employed 37 persons full time, 3 of
which are executive officers. Of these employees, 22 composed the engineering
staff, 9 are lab technicians and field operations personnel, and 6 were in
support functions.
Business of Mantra Technologies, Inc.
General
Mantra Technologies, Inc. ("Mantra") was founded by Dr. Oliver Hillsenrath
in July 1996, as a software development company dedicated to the enhancement of
human computer interaction. Mantra develops and provides advanced website
features and services in the areas of:
User profiling for ad targeting, content targeting and community building
Personalization, to help web sites develop a one-to-one relationship with
their customers
Automated categorization, to help websites reduce editorial effort required
in managing directories
Advanced browsing, providing powerful next-generation forms of navigation
on our customers' websites.
These services are enabled by unique, patent-pending technology that provides
industry-leading precision and recall performance in a small footprint, low
resource requirement package.
Industry Overview
The Information retrieval industry is a rapidly growing industry,
headed by the rise of the Internet. The Internet has become a new mass-media
channel, that exposes tens of millions of people to existing public or private
data-bases, causing the industry to recognize the Internet as the new main
channel for information search and retrieval. The technology the Internet is
based on, both at the networking layer and the information indexing techniques,
has forced the industry to re-design legacy databases and/or their interfaces to
be compatible with the new mass-media channel.
<PAGE>
In contrast to hierarchical or relational databases, the Internet
indexing model was designed to accommodate a chaotic system of resources. On the
Internet new resources are added daily and old ones are removed, all without a
notice and without a supervising body. That means indexing such a system has to
be done both randomly and with enough flexibility to absorb inconsistencies,
false entries and a wide variety of resource types.
The dominant indexing technique for text content utilizes extraction of
the most "important" words out of each text-based resource and then indexes that
resource according to the words extracted. Thus, retrieving the resource demands
that the system be queried with the same words it used to index the resource.
That means a person needs to have some proficiency when trying to find
a resource, and often basic proficiency is not enough. Since the indexing
systems are not linear, there can be many results to a single query - up to
hundreds of thousands of results, which the query issuing person has to filter
before the desired resource is found.
Corporate Overview
Advanced navigation services is an under-explored market. Existing
navigation outsourcers - search/portal players - compete with their outsourcing
"customers" for eyeballs and will not aggressively drive up the site's ad
impressions. The site's internal development efforts are highly constrained by
limited development resources.
Traditional navigation capabilities such as keyword search, manually edited
page layouts and editorial webguides are increasingly insufficient as the amount
and complexity of content grows. We believe this new niche will develop rapidly
as MANTRA makes the services available, and three separate trends continue to
drive demand for our services:
<TABLE>
<CAPTION>
<S> <C>
Trend Increasing demand for:
- --------------------------------------------------------------------------------------------------------------------
1 Growth in the size and complexity of content Better navigation
- --------------------------------------------------------------------------------------------------------------------
2 Increasing competition among content, portal Differentiating services and capabilities
and consumer services and capabilities
- --------------------------------------------------------------------------------------------------------------------
3 Growing number of advanced technologies required Outsourcing of advanced
to produce and maintain a competitive technology components of the site
</TABLE>
The Product
The current product is based on a Context Synthesis Engine that was
designed, developed and patented by Mantra Technologies. The engine is able to
extract areas of interest from a set of one or more documents, initiate an
adaptive search on any indexed database of documents, analyze the results, and
determine their relevance to the set of areas of interest extracted from the
original set of documents. The relevant documents are then categorized according
to topics (areas of interest) and presented to the user.
The engine operates in two ways. The first is a direct interaction
initiated by the user. The second is an autonomous background process to enable
both consumer and site-based applications.
Competition
Competition to Mantra occurs in several forms:
Our customer's internal development teams, who may believe they can provide
advanced navigation without our technologies; and
<PAGE>
Text analysis players, such as Aptex, Sovereign Hill and Autonomy.
Outsourced navigation players such as Excite, Lycos and Yahoo.
ITEM 2. DESCRIPTION OF PROPERTY
On July 1997, the Company entered in to a building lease agreement
("the Lease") with Annabel Investment Company, a California partnership, for the
lease of executive office space at 2303 Camino Ramon, Suite 200, San Ramon,
California 94583. Pursuant to the Lease, the Company maintains approximately
12,000 square feet of executive office space at a total cost of approximately
$250,000 per annum. The Lease, effective for a term of five (5) years, commenced
on December 1997, and continues through January 2002. Simultaneous with the
execution of this Lease, the Company's lease for its prior office facilities at
2694 Bishop Drive was terminated.
The Company also leases two rooftop testing facilities in downtown
Oakland, California, for which it pays on each rental $500 per month. Both
leases are terminable by either party at any time upon notice. In addition, the
Company has an offices within the Western Wireless's and Bell Atlantic
facilities in Billings, Montana, and Annapolis, Maryland, respectively, from
which it coordinates its joint testing efforts. The Company believes these
existing facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available on commercially reasonable
terms as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on its
business.
The Company was a codefendant in an action commenced by a former
landlord of Playco (a former subsidiary of the Company) who alleged that as
guarantor of the respective leases executed between Playco and the landlords,
the Company was obligated under the terms of Playco's leases to the landlords
for Playco's breach of the leases. The action has been settled, whereby Playco
has agreed to pay an aggregate of $147,000 over a period of time. Playco assumed
the costs of the Company's defense in the action and has executed and delivered
to the Company an indemnification agreement, indemnifying the Company in the
event a judgment is rendered against it. In the event that Playco cannot pay
expenses and settlement, or any judgment amount for which it is found liable,
the Company as guarantor would become liable for any amounts unpaid by Playco.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended March 31, 1998, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
On June 24, 1998, the Company held a special meeting of its
stockholders, during which the stockholders authorized an amendment to the
Company's certificate of incorporation, authorizing 1,000,000 shares of
preferred stock, designated as the Series A preferred stock, with such rights
and preferences as to be determined by the corporation's board of directors. The
Company's board of directors and management sought stockholder approval at such
time, as its financing was imminent, and it was essential that management was
able to act in an expeditious manner. See Item 5. Market for Common Equity and
Related Stockholder Matters - 1998 Private Placement."
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the SmallCap Market of the Nasdaq
Stock Market. The following table sets forth representative high and low closing
price for the Common Stock as reported by a market maker for the Company's
Securities during the period from July 1, 1996 through June 30, 1998. Closing
prices and closing bid prices reflect prices between dealers, do not include
resale mark-ups, mark-downs or other fees or commissions, and do not necessarily
represent actual transactions. <TABLE> <CAPTION>
Common Stock
Calendar Period Low High
1996
<S> <C> <C>
07/01/96 - 09/30/96 1 1/2 7
10/01/96 - 12/31/96 3 4 1/2
1997
01/01/97 - 03/31/97 3 1/4 6 3/8
04/01/97 - 06/03/97 2 1/2 4 3/4
07/01/97 - 09/30/97 3 9/16 4 1/8
10/01/97 - 12/31/97 2 3/4 4 13/32
1998
01/01/98 - 03/31/98 2 1/2 3 7/8
04/01/98 - 06/30/98 2 11/32 3 5/8
- -----------------------
</TABLE>
As of May, 1998, there were 73 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 1,400
additional beneficial owners of shares of Common Stock held in street name. As
of June 30, 1998, there were 11,823,331 shares of the Company's Common Stock
outstanding.
1998 Private Placement
In March 1998 the Company commenced an undertaking to raise additional
capital in a private offering through Gerard Klauer Mattison & Co., Inc.
("GKM"), as placement agent. On June 25, 1998 the Company completed a private
offering of its securities, in which the Company raised gross proceeds of
$5,139,312 through the sale of shares of Common Stock and shares of the
Company's Series A Preferred Stock, inclusive of the conversion of $2,500,000 in
debentures, in accordance with their terms. The shares of Series A Preferred
Stock carry a cumulative dividend at the rate of 6% per annum, payable in cash
or shares of Series A Preferred Stock, at the Company's option. Holders of the
Series A Stock have the right to convert each share into shares of Common Stock
at a conversion price of $2.95 per share, at any time, commencing 90 days from
issuance. The shares of Series A Preferred Stock have no voting rights and carry
a liquidation preference of $20.00 per share. The Company may redeem the Series
A Preferred Stock, upon the earlier of three years from issuance or when the
closing price for the Company's Common Stock has been at least $8.00, for any 30
consecutive day period. Included in the private offering was the conversion by
debenture holders of the Company of $2,500,000 principal amount of secured
debentures.
The Company agreed to file a registration statement with the Securities
and Exchange Commission within 60 days of the closing of the offering to
register the shares of Common Stock and shares of Common Stock underlying the
Series A Preferred Stock sold in the offering. Subscription funds received in
the Offering were placed in an escrow account, with Gotham Bank of New York as
the Escrow Agent, until accepted by the Company. On June 24, 1998, the Company's
stockholders approved an amendment to the Company's certificate of incorporation
authorizing 1,000,000 shares of Preferred Stock, subject to the rights and
preferences being determined by the Company's board of directors. The board of
directors authorized the issuance of up to 300,000 shares of the Series A
Preferred Stock.
<PAGE>
The proceeds of the offering are to enable the Corporation to continue
the implementation of its business plan for the development and deployment of
the RadioCamera, and more specifically, to enable the Corporation to produce
several hundred RadioCameras for its expanded testing operations, as well as to
design and develop modifications for the RadioCamera for the different cellular
standards such as CDMA, TDMA, PCS, etc.
GKM received $150,000 as a commission on the net proceeds of the offering
and warrants to purchase 220,000 shares of the Company's Common Stock, 110,000
shares at $4.00 per share and 110,000 at $5.00 per share, exercisable for three
and five years, respectively. See "Item 4. Submission of Matters to a Vote of
Security Holders."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company was originally organized in February 1993 as a holding
company to acquire a majority interest in Playco. Historically, through August
15, 1996, the Company's results of operations and financial condition have
related primarily to those of Playco. Effective August 15, 1996, the Company
spun-off its ownership of Playco Common Stock to the Company's stockholders and
recorded a dividend for the net book value of the spin-off. With the July 1996
acquisitions of 51% of Labyrinth and Mantra, the Company changed its business
focus. In March 1998, in accordance with the terms of an exchange offer, the
Company acquired the remaining 49% of Labyrinth, at which time Labyrinth was
merged with and into the Company.
Due to the Company's change in focus, the results of operations for the
year ended March 31, 1998, which primarily reflect the activities of a research
and development company, are not directly comparable to the results of
operations for the year ended March 31, 1997, which reflect the results of
operations from a retailer from April 1996 to July 1996.
Statements contained in this report which are not historical facts may
be considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
Results of Operations:
Year Ended March 31, 1998 as Compared to the Year Ended March 31, 1997
During the years ended March 31, 1998 and 1997, the Company recorded no
revenues from operations, as the Company's products are still under development.
Costs and expenses totaled $4,036,657 for the year ended March 31, 1998
as compared to total costs and expenses of $4,906,576 for the year ended March
31, 1997. The overall decrease in costs and expenses is primarily due to a
decrease in amounts written-off as excess cost over net assets acquired of
$1,773,448 and a decrease in stock based compensation of $692,738. Such
decreases more than offset an increase in research and development costs and
expenses of $1,337,844 and an increase in operating expenses of $320,493.
During the year ended March 31, 1998, the Company recorded a write-off of
$476,552 of the excess of cost over basis of the net assets acquired in
connection with its acquisition of the 49% minority interest of Labyrinth.
During the year ended March 31, 1997, the Company recorded a $2,250,000
write-off of the excess of cost over basis of the net assets acquired in
connection with its original acquisition of the 51% interest in Labyrinth.
Stock based compensation totaled $642,797 for the year ended March 31,
1998 and is comprised of amortization of unearned compensation of $516,480,
$115,744 of compensation expense related to 200,000 common stock options issued
to consultants and compensation expense of $10,572 related to the issuance of
594,000 common stock options to employees. For the year ended March 31, 1997,
the Company recorded stock based compensation of $1,335,535 related to the
issuance of 2,641,500 common stock options to employees and consultants and the
issuance of 151,000 shares of Labyrinth's common stock to employees.
<PAGE>
Research and development costs and expenses for the years ended March
31, 1998 and 1997, were $1,744,215 and $406,371, respectively. Such increase is
directly related to an increase in the number of employees and consultants
retained by the Company to further the development of the RadioCamera.
Furthermore, the increase reflects the fact that the current year contains
twelve months of research and development activity while the prior year contains
activity from July 1997, which was the original acquisition date of the
Company's interest in Labyrinth and Mantra.
Operating expenses increased from $1,051,822 for the year ended March 31,
1997 to $1,372,315 for the year ended March 31, 1998. Such increase was
primarily the result of an increase in the number of Company employees and the
fact that the prior year contains operating activity from July 1997, which was
the original acquisition date of the Company's interest in Labyrinth and Mantra.
For the year ended March 31, 1998, the Company earned interest income
of $199,222 as compared to $137,152 for the year ended March 31, 1997. Although
average cash balances were lower throughout the current year, the increase in
interest income resulted from the fact that cash balances were earning interest
during all twelve months of the current year.
Minority interest in net losses of subsidiaries totaled $844,092 for the
year ended March 31, 1998 and $22,466 for the year ended March 31, 1997. Such
increase is directly related to an increase in the number of employees and
consultants retained by Labyrinth to further the development of RadioCamera.
Furthermore, the increase reflects the fact that the Company acquired its
original interest in Labyrinth and Mantra in July 1997.
During the year ended March 31, 1997, the Company recorded an aggregate
loss from discontinued operations of $1,010,312. Such amount represents losses
from the operations of Playco prior to the spin-off date of August 15, 1996 and
is comprised of net sales of $5,024,338, costs and expenses of $6,409,170 and a
reduction of the loss from the minority interest in Playco's net losses of
$374,520.
During the year ended March 31, 1997, the Company changed its method of
accounting for the minority stockholders' interest in Playco. The Company
changed from one method of accounting which records the total amount of the net
proceeds received from Playco's equity transactions as the minority interest to
a more generally accepted method which reflects the minority interest as a
percentage of the net assets of Playco. The change in accounting for minority
interest is recorded as a cumulative effect of a change in accounting principle
which had the effect of reducing minority interest by $2,413,973, increasing
additional paid in capital by $2,873,408, and increasing the net loss for the
year ended March 31, 1997 by $459,435.
As a result of the above, the Company recorded a net loss of
$3,192,565, or a net loss of $0.37 per share, for the year ended March 31, 1998
compared to a net loss of $6,353,857, or a net loss of $0.85 per share for the
year ended March 31, 1997.
Research and Development - Future Operations
During the year ended March 31, 1998, the Company incurred research and
development expenses of approximately $1.7 million. The Company expects that the
Company will continue its research and development in order to develop a fully
operational location system for deployment and to develop modifications for
additional standards during the next 12 months. The anticipates the deployment
of its first fully operational location system within the next 6 to 12 months,
depending on the needs and requirements of the wireless industry. Therefore, the
Company does not expect to earn any significant revenues from operations for at
least the next 6 to 12 months. As such, management estimates research and
development expenditures for the year ending March 31, 1999 will approximate
$3,000,000. Research and development activities, as well as operating and
marketing expenses, are expected to be financed with funds raised through the
Company's recent private offering.
<PAGE>
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $2,442,781 and
cash and cash equivalents of $2,285,750. Such funds resulted primarily from the
Company's and Labyrinth's July 1996 private placements and the exercise of
common stock options.
Trends Affecting Liquidity, Capital Resources, and Operations
As discussed above, the nature of the Company's operations has changed.
While it once was a holding company for a retailer, and a holding company for
research and development companies for most of the year ended March 31, 1998,
the Company is currently a development stage company that is developing value
added technologies and services for the wireless industries. As such, management
is currently not aware of any trends that may affect its liquidity, capital
resources, and/or operations.
However, the Company's future operations could be adversely affected if the
Company's timetable for the developing, marketing and manufacturing of its
planned products exceeds available capital resources. The primary continuing
expenses associated with the development of the RadioCamera product are expected
to include officer, key employee and consultant salaries. Furthermore,
additional financing may be required to complete product development and begin
product marketing. Management expects the limited resources of the Company, as
well as the required continuation of research, development, and testing for
approximately twelve months, to cause significant strain on the Company's
technical, financial, and other resources.
Inflation and Seasonality
Inflation and seasonality are currently not expected to have a material
effect on the Company's liquidity, capital resources, or operating activities.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in an entity's financial statements. This statement requires an
entity to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in-capital in the
equity section of a statement of financial position. This pronouncement is
effective for fiscal years beginning after December 15, 1997 and the Company
expects to adopt the provision of this statement in fiscal year 1999. Management
does not expect this statement to significantly impact the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires public
enterprises to report financial and descriptive information about their
reportable operating segments, and establishes standards for related disclosures
about product and services, geographic areas, and major customers. This
pronouncement is effective for fiscal years beginning after December 15, 1997
and the Company expects to adopt the provisions of this statement in fiscal year
1999. Management does not expect this statement to significantly impact the
Company's financial statements. Year 2000
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its operations or financial position.
Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer systems or products currently under
development. However, if internal systems do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
the Company's operations. Furthermore, there can be no assurance that another
entity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See attached financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 15, 1996, the Board of Directors of the Company authorized
the Company's Executive Officers to interview and engage a new auditing firm for
the Company. This resolution was enacted in order for the Company to have its
auditors in closer proximity to its executive offices. On October 24, 1996, the
Company dismissed Scarano & Lipton, P.C. as its auditors. The change in
accountants was not due to any discrepancies or disagreements between the
Company and Scarano & Lipton, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. The
former accountants' reports on the Company's financial statements for the years
ended March 31, 1995 and 1996 did not contain any adverse opinions or
disclaimers of opinion; nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
Effective as of November 20, 1996, the Company engaged Haskell & White
LLP Certified Public Accountants as its certifying auditors to audit the
Company's financial statements for the year ended March 31, 1998. In December
1996, the Company engaged Haskell & White LLP to reaudit the Company's financial
statements for the year ended March 31, 1996.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
Executive Officers and Directors
The Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Dr. Oliver Hilsenrath (1), (2) 41 President, Chief Executive
Officer and Director
Dr. Mati Wax 51 Chief Technology Officer
David Klarman 33 Vice President, General
Counsel, Secretary, and Treasurer
Dennis Francis(1), (2) 47 Director
David Tamir(2) 54 Director
Barry West(1) 53 Director
---------------------
</TABLE>
(1) Member of Audit Committee
(2) Member of Compensation Committee
Dr. Oliver Hilsenrath has served as President, Chief Executive Officer and
Director of the Company since July 31, 1996. Since their inceptions, Dr.
Hilsenrath served as President, Chief Executive Officer and sole director of
both Labyrinth and Mantra. Upon th4e Company's merger with Labyrinth Dr.,
Hilsenrath remains President & CEO and a director of the Company. Dr. Hilsenrath
remains the President and sole director of Mantra. Dr. Hilsenrath was a
co-founder and served from 1992 through 1996 as Senior Vice President and
General Manager of Geotek Communications, Inc., an international wireless
carrier with networks in the United States, United Kingdom and Germany. Prior to
that, Dr. Hilsenrath served as Chief Engineer of the secure communications
division of RAFAEL, Israel. Dr. Hilsenrath received his Ph.D. in information
theory from Technion - Polytechnical Institute of Israel and has worked in the
wireless communications industry for 20 years.
Dr. Mati Wax has served as Chief Technology Officer of the Company and
Labyrinth since August 1996. From 1985 to 1996, Dr. Wax served as head of the
Signal Processing Center at RAFAEL. From 1984 through 1985, Dr. Wax was a
visiting scientist with IBM Research Laboratories. Dr. Wax received his Ph.D. in
electrical engineering from Stanford University in 1985. While at Stanford Dr.
Wax founded the smart antenna group and received the fellowship of the IEEE.
David Klarman has served as General Counsel and Secretary of the Company
since September 1996. He was elected Vice President in December 1997 and
Treasurer in June 1998. In September 1996, Mr. Klarman formed Klarman and
Associates, a law firm specializing in corporate and securities law. From July
1994 to August 1996, Mr. Klarman was an associate with Lampert & Lampert, a law
firm specializing in corporate and securities law. From February 1991 to July
1994, Mr. Klarman was an associate with Goldstein, Axelrod & DiGioia, a law firm
specializing in corporate and securities law. Mr. Klarman holds a Juris
Doctorate from Yeshiva University, Benjamin N. Cardozo School of Law and a B.S.
in Finance from the University of Maryland.
<PAGE>
David Tamir has served as a Director of the Company since August 1996.
Since September 1995, Mr. Tamir has also served as General Manager of GeoNet
Israel Limited, a subsidiary of Geotek Communications, Inc. From July 1992 to
September 1995, Mr. Tamir was President of Powerspectrum Technology Limited, a
subsidiary of Geotek Communications, Inc. From 1990 to 1992, Mr. Tamir was a
representative of RAFAEL, Israel. Mr. Tamir holds BS and MS degrees in
Electrical Engineering from Technion - Polytechnical Institute of Israel and an
MBA degree from Hebrew University.
Dennis Francis was elected to the Company's Board in December 1997.
Previously, he served as a consultant to the Company since December 1996,
providing technical support services. Mr. Francis also served for over five
years as Executive Vice President and Chief Technology Officer of Vanguard
Cellular Systems, Inc., a cellular communications service provider. Mr. Francis
is the current chairman of the Nortel Technology Officers Council and has served
on the CTIA Chief Technology Officers Council for four years. Mr. Francis
graduated from the University of Texas at Arlington, Texas with a B.S. in
Industrial Engineering.
Barry West has served as a Director of the Company since May 1998. Since
March 1996 Mr. West has served as Vice President and Chief Technology Officer of
Nextel communications, Inc. Prior to that, Mr. West served in various senior
positions with British Telecom for more than five years, most recently as
Director of Value-Added Services and Corporate Marketing at Cellnet, a cellular
communications subsidiary of British Telecom.
All Directors hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. Vacancies on the Board of
Directors may be filled by the remaining Directors. Officers are elected
annually by, and serve at the discretion of, the Board of Directors.
As permitted under Delaware Corporation Law, the Company's certificate of
incorporation eliminates the personal liability of the Directors to the Company
or any of its shareholders for damages for breaches of their fiduciary duty as
Directors. As a result of the inclusion of such provision, stockholders may be
unable to recover damages against Directors for actions taken by them which
constitute negligence or gross negligence or that are in violation of their
fiduciary duties. The inclusion of this provision in the Company's certificate
of incorporation may reduce the likelihood of derivative litigation against
Directors and other types of shareholder litigation. In addition, the Company
has executed indemnification agreements with all officers and directors
providing indemnification to the fullest extent of the law. Significant
Employees
Abraham Bar has served as Vice President of Hardware Engineering since
October 1996. From 1993 to 1996, Mr. Bar served as an independent consultant in
the areas of hardware and software for companies such as Embedded Systems, Inc.
From 1989 to 1993, Mr. Bar was a co-founder and served as Director of
Applications for Electronics For Imaging, Inc. Mr. Bar has also served as
Engineering Manager for Silvar Lisco Daisy Systems, Inc. and Hardware Designer
and Design Manager for Scitex Corp. He has an MSEE from Technion - Polytechnical
Institute of Israel.
Ravi Rajapakse has served as Vice President of Software Development since
January 1997. From 1992 to December 1996, he served with Ventritex, Inc. as
Engineering Manager of Software Design. From 1987 to 1992, he served as Manager
of Design and Development of Buxco Electronics, Inc. Mr. Rajapakse holds an M.S.
Degree in Computer Engineering from Rensselaer Polytechnic Institute and a B.S.
Degree in Electrical Engineering from the University of Cambridge, Cambridge,
U.K.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Officers, Directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities
to file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission ("SEC"). Officers, Directors, and greater
than ten percent beneficial owners also are required by rules promulgated by the
SEC to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon requests for information of the Company's Officers, Directors,
and greater than ten percent shareholders, during fiscal 1997, the Company has
been informed that all Officers, Directors, or greater than ten percent
shareholders have filed such reports as are required pursuant to Section 16(a).
The Company has no basis to believe that any required filing by any of the above
indicated individuals has not been made.
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid by the Company during the year ended March 31, 1998 and
1997 to each of the named Executive Officers of the Company.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
Name and Principal Options/ Other Annual
Position Year(1) Salary($) Bonus($) SARS Compensation
<S> <C> <C> <C> <C> <C>
Dr. Oliver Hilsenrath 1998 160,000 - - -
President and 1997 106,667(2) - 1,500,000(3) $5,572(4)
Chief Executive Officer
David Klarman 1998 120,000 - - -
Vice President, 1997 70,000 - 150,000(3) -
General Counsel and Secretary
Dr. Mati Wax 1998 100,000 - - -
Chief Technology Officer 1997 66,667 - 100,000(3) -
Abraham Bar 1998 100,000 (5) - 100,000(3) -
Vice President 1997 100,000 - - -
of Hardware
Ravi Rajapakse 1998 100,000 - 100,000(3) -
Vice President 1997 90,000 (6) - -
of Software Design
- -----------------------------
</TABLE>
(1) No compensation was paid to any officer of the Company prior to July
31, 1996.
(2) Reflects the portion of the year worked based on salaries of $160,000,
$120,000, and $100,000 for Dr. Hilsenrath, Mr. Klarman, and Dr. Wax,
respectively.
( 3) Pursuant to their employment agreements, Dr. Hilsenrath, Dr. Wax . Mr.
Klarman, Mr. Bar and Mr. Rajapakse received options to purchase 1,500,000,
100,000, 150,000, 100,000 and 100,000, respectively, shares of Common Stock. See
"Employment and Consulting Agreements."
<PAGE>
( 4) Includes (i) the payment of $509 per month for automobile allowance,
and (ii) the payment of approximately $1,500 per annum for a life insurance and
disability policy for the benefit of Dr. Hilsenrath's beneficiaries. See
"Employment and Consulting Agreements."
(5) Base Salary was increased to $110,000 as of January 1, 1998
(6) Reflects the portion of the year worked for Labyrinth, based on a
salary of $100,000.
<PAGE>
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
====================================================================================================================================
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
In-The-Money Options/SAR's
Unexercised at FY-End ($)
Options/SAR's Exercisable/
Shares Acquired on Exercisable/ Unexercisable (1)
Exercise (#) Value Realized ($) Unexercisable -----------------
------------ ------------ -------------
Name
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dr. Oliver Hilsenrath - - 1,500,000/0 1,215,000/0
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
David Klarman - - 50,000/100,000 40,500/81,000
====================================================================================================================================
Dr. Mati Wax - - 50,000/50,000 40,500/40,500
- ------------------------------------------------------------------------------------------------------------------------------------
Abraham Bar - - 33,333/66,667 10,333/20,667
- ------------------------------------------------------------------------------------------------------------------------------------
Ravi Rajapakse - - 33,333/66,667 0/0
====================================================================================================================================
</TABLE>
(1) Based upon the closing price for the Common Stock on March 31, 1998
($2.81), as reported by a market maker.
<PAGE>
Employment and Consulting Agreements
In April 1997, the Company amended the five year employment agreement
it entered into originally with Dr. Hilsenrath in July 1996. Pursuant to the
terms of the agreement as amended, Dr. Hilsenrath is Chief Executive Officer and
President of the Company and was the President and sole Director of both
Labyrinth and Mantra. Dr. Hilsenrath remains the President and sole director of
Mantra. The agreement, as amended, provides for an annual salary of $160,000 and
increases of 15% per annum for each year remaining in the original five year
term. Upon execution, the Company granted Dr. Hilsenrath an option to purchase
1,500,000 shares of Common Stock at an exercise price of $2.00 per share. The
Company provides Dr. Hilsenrath with an automobile allowance. In addition, the
Company shall maintain during the full term hereof and at its sole cost and
expense, a life insurance policy on Dr. Hilsenrath in the face amount of
$1,000,000 payable to his designee. This policy shall include provisions for the
payment of up to 18 months of salary to Dr. Hilsenrath in the event that he is
disabled. Upon the conclusion of this agreement, all right, title and interest
in the policy shall be transferred to Dr. Hilsenrath, and he shall be
responsible for any premiums due after such transfer. The agreement restricts
Dr. Hilsenrath from competing with the Company for a period of two years after
the termination of his employment. The agreement provides for severance
compensation to be paid to Dr. Hilsenrath if his employment with the Company is
terminated or if there is a decrease in his responsibilities or duties following
a change in control of the Company. The severance compensation shall be made in
one payment equal to three times the aggregate annual compensation paid to Dr.
Hilsenrath during the preceding calendar year. In the event the Company wishes
to obtain Key Man life insurance on the life of Dr. Hilsenrath, he agrees to
cooperate with the Company in completing any applications necessary to obtain
such insurance and in promptly submitting to such physical examinations and
furnishing such information as any proposed insurance carrier may request.
In August 1996, the Company entered into a three year employment
agreement with Mr. Klarman, pursuant to which Mr. Klarman receives a salary of
$120,000 per annum and was granted an option to purchase 150,000 shares of
Common Stock at an exercise price of $2.00 per share, subject to a three year
vesting schedule. The employment agreement provides that Mr. Klarman will be
General Counsel and Secretary of the Company. The agreement also acknowledges
that Mr. Klarman shall have the right to represent non-competing companies
during the term of the agreement.
In July 1996, Dr. Mati Wax entered into a three year employment
agreement with the Company, pursuant to which Dr. Wax serves as Chief Technology
Officer and receives a salary of $100,000 per annum, the option to purchase
100,000 shares of Common Stock at an exercise price of $2.00 per share, subject
to a three year vesting schedule. As of January 1998 the Company and Dr. Wax
amended the employment agreement in accordance with the Company's merger with
Labyrinth. The amended employment agreement provides for the exchange his 50,000
restricted shares of Labyrinth's common stock for 459,000 shares of the
Company's Common Stock, subject to a vesting schedule. Additionally, the amended
agreement provides for the extension of the agreement on a yearly basis until
the shares have vested. See "Business - Consolidation of Labyrinth Communication
Technologies Group, Inc."
In July 1996, the Company entered into three year consulting agreements
with Ryburn Limited and Crossgar Limited, wherein said companies agreed to
render services in introducing the Company to potential customers and
facilitating relationships with such companies in the United States and the
Middle East, initiating strategic alliances and joint ventures, and providing
investment and business consulting and advisory services to the Company,
including the location, evaluation, structuring and financing of business
activities. The only compensation given for the services rendered by the
consultants is the five year options to purchase 1,000,000 and 200,000 shares of
Common Stock at $2.00 per share, granted by the Company to Ryburn Limited and
Crossgar Limited, respectively.
<PAGE>
In December 1996, the Company entered into a three year consulting
agreement with Dennis Francis, Vice President of Vanguard Cellular Financial
Corp., to provide technical assistance in the development of the Company's
products. Mr. Francis received a five year option to purchase 50,000 shares of
Common Stock at $4.00 per share.
In January 1997, Ravi Rajapaske entered into a three year employment
agreement with Labyrinth. The agreement was amended in January 1998, in
accordance with the merger of Labyrinth with and into the Company, pursuant to
which the agreement was transferred to the Company and Mr. Rajapakse became Vice
President of Software Design. Mr. Rajapakse receives a salary of $100,000 per
annum, and was granted an option to purchase 100,000 shares of Common Stock at
an exercise price of $4.00 per share, subject to a three year vesting schedule.
The amended employment agreement provides for the exchange of his 20,000
restricted shares of Labyrinth's common stock for 183,600 shares of the
Company's Common Stock, subject to a vesting schedule. Additionally, the amended
agreement provides for the extension of the agreement on a yearly basis until
the shares have vested. See "Business - Consolidation of Labyrinth Communication
Technologies Group, Inc."
In October 1996, Abraham Bar entered into a three year employment
agreement with Labyrinth. The agreement was amended in January 1998, in
accordance with the merger of Labyrinth with and into the Company, pursuant to
which the agreement was transferred to the Company and Mr. Bar became Vice
President of Hardware Design. Mr. Bar receives a salary of $110,000 per annum,
and was granted an option to purchase 100,000 shares of Common Stock at an
exercise price of $2.50 per share, subject to a three year vesting schedule. The
amended employment agreement provides for the exchange his 25,000 restricted
shares of Labyrinth's common stock for 229,500 shares of the Company's Common
Stock, subject to a vesting schedule. Additionally, the amended agreement
provides for the extension of the agreement on a yearly basis until the shares
have vested. See "Business - Consolidation of Labyrinth Communication
Technologies Group, Inc."
In January 1997, the Company entered into a three year consulting
agreement with Spencer Corporation, wherein said company agreed to render
services in Europe to facilitate relationships with potential customers and
initiate strategic alliances and to provide investment and business consulting
and advisory services to the Company, including the location, evaluation,
structuring and financing of business activities. The only compensation given
for the services rendered by the consultant is a five year option to purchase
100,000 shares of Common Stock at $2.50 per share.
On August 12, 1997, the Company entered into a two year consulting
agreement with DAEHO Merchandising Inc., Seoul, Korea, whereby DAEHO was
retained to perform consulting services including (i) introducing, initiating,
and engaging in the process of facilitating relationships with potential
customers and strategic partners and (ii) initiating and coordinating a
manufacturing effort for the RadioCamera in Asia. As compensation for the
services rendered, DAEHO will receive a commission, in cash or in kind, based on
any consummated transactions as referred to in (i) above, and 3% of the actual
price paid by the Company for the manufacture of each RadioCamera purchased by
the Company in accordance with (ii) above.
Senior Management Incentive Plan
In December 1997, the Board of Directors and the stockholders of the
Company adopted the Senior Management Incentive Plan (the "Management Plan").
The Management Plan provides for the issuance of up to an aggregate of 500,000
shares of Common Stock upon exercise of stock options and other rights to
Executive Officers, key employees and consultants to the Company.
The adoption of the Management Plan was prompted by the desire to provide
the Board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding Executive
Officers, key employees and consultants who render significant services to the
Company. Pursuant to the Management Plan, the Board of Directors intends to
offer to such persons equity ownership in the Company through the grant of stock
options and other rights, to enable the Company to attract and retain qualified
personnel without unnecessarily depleting the Company's cash reserves. The
Management Plan is designed to augment the Company's existing compensation
programs and is intended to enable the Company to offer a personal interest in
the Company's growth and success through awards of either shares of Common Stock
or rights to acquire shares of Common Stock.
<PAGE>
The Management Plan is intended to attract and retain key executive
management personnel whose performance is expected to have a substantial impact
on the Company's long-term profit and growth potential by encouraging and
assisting those persons to acquire equity in the Company. A total of 500,000
shares of Common Stock will be reserved for issuance under the Management Plan.
It is anticipated that awards made under the Management Plan will be subject to
three-year vesting periods, although the vesting periods are subject to the
discretion of the Administrator.
Unless otherwise indicated, the Management Plan is administered by the
compensation committee of the Board of Directors. (The Board or such committee
shall be referred to in the following description as the "Administrator."). In
accordance therewith, all issuance under the Management Plan will be approved by
such committee. Subject to the specific provisions of the Management Plan, the
Administrator will have the discretion to determine the recipients of the
awards, the nature of the awards to be granted, the dates such awards will be
granted, the terms and conditions of awards and the interpretation of the
Management Plan, except that any award granted to any employee of the Company
who is also a Director of the Company shall also be subject, in the event the
persons serving as members of the Administrator of the Management Plan at the
time such award is proposed to be granted do not satisfy the requirements
regarding the participation of "disinterested persons" set forth in Rule 16b-3
("Rule 16b ") promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the approval of an auxiliary committee consisting of
not less than two individuals who are considered "disinterested persons" as
defined under Rule 16b-3. As of the date hereof, the Company has not yet
determined who will serve on such auxiliary committee, if one is required. The
Management Plan generally provides that, unless the Administrator determines
otherwise, each option or right granted under a plan shall become exercisable in
full upon certain "change of control" events as described in the Management
Plan, or subject to any right or option granted under the Management Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
such plans and the classes, number of shares and price per share of stock
subject to outstanding rights or options. The Management Plan may be amended by
action of the Board of Directors, except that any amendment which would increase
the total number of shares subject to such plan, extend the duration of such
plan, materially increase the benefits accruing to participants under such plan,
or would change the category of persons who can be eligible for awards under
such plan, must be approved by the affirmative vote of a majority of
stockholders entitled to vote. The Management Plan permits awards to be made
thereunder until November 2004.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stocks options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights) and restricted
stock purchase agreements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of June 30, 1998 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) known by the Corporation to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group. At that date,
11,823,331 shares of Common Stock were outstanding.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Name and Address Amount and Nature of % of outstanding
of Beneficial Owner Beneficial Ownership (1) shares owned (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Oliver Hilsenrath (3)
c/o U.S. Wireless Corp. 5,732,880(1) 43.0%
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
David Tamir (4)
c/o U.S. Wireless Corp. 33,334 *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Barry West (5)
c/o U.S. Wireless Corp. -- *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Dennis Francis (6)
c/o U.S. Wireless Corp. 50,000 *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
- --------------------------------------------------------------------------------------------------------------------------
Janvrin Holdings Limited(7)
Jardine House 918,000 7.8%
1 Wesley Street
St. Helier, Jersey
JE4 8UD
- --------------------------------------------------------------------------------------------------------------------------
Officers and Directors as a group
(4 persons) (1) - (6) 6,788,316 57.0%
- --------------------------------------------------------------------------------------------------------------------------
-------------------
</TABLE>
*Less than 1%.
(1) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them within 60 days, whether by the exercise of
options or warrants, are deemed outstanding in determining the number of shares
beneficially owned by such person or group
(2) The "Percentage Beneficially Owned" is calculated by dividing the
"Number of Shares Beneficially Owned" by the sum of (i) the total outstanding
shares of Common Stock of the Corporation, and (ii) the number of shares of
Common Stock that such person has the right to acquire within 60 days, whether
by exercise of options or warrants. The "Percentage Beneficially Owned" does not
reflect shares beneficially owned by virtue of the right of any person, other
than the person named and affiliates of the person, to acquire them within 60
days, whether by exercise of options or warrants.
(footnotes continued from previous page)
(3) Includes 1,500,000 shares of Common Stock, issuable upon the exercise
of an option granted pursuant to Dr. Hilsenrath's employment agreement and
1,982,880 shares issued in connection with the merger with Labyrinth
Communication Technologies Group, Inc., subject to a vesting schedule. See
"Certain Relations and Related Transactions."
<PAGE>
(4) Includes shares issuable upon the exercise of options currently vested
and exercisable, equal to 1/3 of the options granted. The options vest at 1/3
intervals per year.
(5) Does not include 100,000 shares issuable upon the grant of an option
which option vested at the rate of 1/3 per annum, no portion of which has
vested.
(6) Represents shares issuable upon the exercise of options currently
vested and exercisable.
(7) Includes 1,830,000 shares which have vested and 734,400 shares subject
to a vesting schedule in connection with the merger with Labyrinth Communication
Technologies Group, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
In June 1996, the Corporation's Board of Directors, pursuant to the
consent of the then majority stockholder of the Corporation, distributed the
shares of common stock of Playco held by the Corporation ("the spin-off
distribution"). In addition, the Corporation, as majority stockholder of Playco,
prior to, but in contemplation of the spin-off distribution, authorized the
conversion of Playco's Series D Preferred Stock owned by the Corporation into
1,157,028 shares of Playco's common stock. This conversion was based on the
average closing bid price ($1.21) of Playco's shares for the 90 day period from
March 1, 1996 to May 31, 1996.
Merger of Labyrinth
In March 1998 the Corporation consummated the merger of its 51% owned
subsidiary, Labyrinth Communication Technologies Group, Inc. ("Labyrinth"), into
the Corporation. In December 1997, the stockholders of the Corporation approved
a proposal to acquire the remaining 49% of Labyrinth in exchange for an
aggregate of 4,498,200 shares of the Corporation's Common Stock, subject to a
vesting schedule, as follows: (i) 20% of the shares issued shall vest one year
from issuance; (ii) an additional 40% shall vest upon the successful completion
and operation of the RadioCamera in its first major market; and (iii) the
remaining 40% shall vest when the Corporation reaches sales of $15,000,000. In
addition to the above vesting schedule, the management of Labyrinth is subject
to an additional vesting schedule, in accordance with their employment
contracts, whereby the shares underlying (i)-(iii) above vest at the rate of 1/3
each year.
See "Executive Compensation-Employment and Consulting Agreements" for a
discussion of the compensation arrangements the Company has with its Executive
Officers and consultants.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
All exhibits to this Form 10-KSB, except those designated with an
asterisk (*) which are filed herewith, have previously been filed with the
Commission, as referenced, and pursuant to 17 C.F.R. Section 230.411 are
incorporated by reference herein.
<TABLE>
<CAPTION>
<S> <C>
2.1 - Stock Purchase Agreement Among the Company, Labyrinth Communications Technologies Group, Inc., dated
July 10, 1996 (incorporated by reference to the
indicated exhibit in the Company's Form 8-K dated
July 11, 1996).
2.2 - Stock Purchase Agreement Among the Company, Mantra Technologies, Inc., and by reference to the indicated
exhibit in the Company's Form 8-K dated July 11, 1996).
3.1 - Certificate of Incorporation of the Company filed February 12, 1993. (incorporated by reference to the
indicated exhibit in the Company's SB-2 Registration Statement File No. 33-68306-NY )
3.2 - Amended and Restated Certificate of Incorporation of the Company filed on August 25, 1993. (incorporated
by reference to the indicated exhibit in the Company's SB-2 Registration Statement File No.
33-68306-NY)
3.4 - By-Laws of the Company. (incorporated by reference to the indicated exhibit in the Company's SB-2
Registration Statement File No. 33-68306-NY)
3.5 - Specimen Common Stock Certificate.
3.6* - Form of Series A Preferred Stock.
3.7* - Amended Certificate of Incorporation dated June 25, 1998.
4.7 - Form of Option from Stockholders of Mantra Technologies, Inc., dated July 10, 1996 (incorporated by
reference to the indicated exhibit in the Company's Form 8-K dated July 11, 1996).
10.41 - The 1993 Stock Option Plan (incorporated by reference to the indicated exhibit in the Company's SB-2
Registration Statement File No. 33-68306-NY)
10.74 - Form of Employment Agreement with Dr. Oliver Hilsenrath (incorporated by reference to the indicated
exhibit in the Company's Form 8-K dated July 11, 1996).
10.75 - Form of Stockholders Agreement for Labyrinth (incorporated by reference to the indicated exhibit in the
Company's Form 8-K dated July 11, 1996).
10.76 - S & S Engineering agreement. (incorporated by reference to the indicated exhibit in the Company's Form
10-KSB filed for the year ended March 31, 1997).
10.77 - Amended Employment Agreement with Dr. Oliver Hilsenrath. (incorporated by reference to the indicated
exhibit in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.78 - Employment Agreement with David Klarman (incorporated by reference to the indicated exhibit in the
Company's Form 10-KSB filed for the year ended March 31, 1997).
10.79 - Employment Agreement with Dr. Mati Wax. (incorporated by reference to the indicated exhibit in the
Company's Form 10-KSB filed for the year ended March 31, 1997).
10.79(a)* - Amended Employment Agreement with Dr. Mati Wax.
10.81 - Consulting Agreement with Dennis Frances. (incorporated by reference to the indicated exhibit in
the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.82 - Consulting Agreement with Spencer Corporation. (incorporated by reference to the indicated exhibit in the
Company's Form 10-KSB filed for the year ended March 31, 1997).
10.83 - Consulting Agreement with Ryburn Limited. (incorporated by reference to the indicated exhibit in the
Company's Form 10-KSB filed for the year ended March 31, 1997).
10.84 - Consulting Agreement with Crossgar Limited. (incorporated by reference to the indicated exhibit in the
Company's Form 10-KSB filed for the year ended March 31, 1997).
10.85 - Consulting Agreement with Pelican Investments Limited. (incorporated by reference to the indicated
exhibit in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.86 - Consulting Agreement with DAEHO Merchandising, Inc. (incorporated by reference to the indicated exhibit
in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.87* - Amended Employment Agreement with Ravi Rajapakse
10.88* - Amended Employment Agreement with Abraham Bar
27.01* - Financial Data Schedule.
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 9th day of July, 1998.
U.S. WIRELESS CORPORATION
By: \s\ Dr. Oliver Hilsenrath
Dr. Oliver Hilsenrath
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company, in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
\s\ Dr. Oliver Hilsenrath Chief Executive Officer July 9, 1998
Dr. Oliver Hilsenrath President and Director Dated
\s\ David Tamir Director July 9, 1998
David Tamir Dated
\s\ Dennis Francis Director July 9, 1998
Dennis Francis Dated
\s\ Barry West Director July 9, 1998
Barry West Dated
</TABLE>
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants F - 2
Consolidated Balance Sheets F - 3
Consolidated Statements of Operations F - 4
Consolidated Statements of Stockholders' Equity F - 6
Consolidated Statements of Cash Flows F - 8
Notes to Consolidated Financial Statements F - 12
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Wireless Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of U.S.
Wireless Corporation and Subsidiaries (the "Company") as of March 31, 1998 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
HASKELL & WHITE LLP
Certified Public Accountants
Newport Beach, California
June 5, 1998, except for Note 11 which is as of June 25, 1998
F - 2
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31,
1998 1997
--------------- ----------
Current assets
<S> <C> <C>
Cash and cash equivalents .................................................................... $ 2,285,750 $ 5,328,781
Other current assets ......................................................................... -- 3,500
Total current assets ..................................................................... 2,285,750 5,332,281
Equipment, improvements and fixtures, net ......................................................... 399,896 281,211
Other assets ...................................................................................... 25,035 4,667
------------ ------------
Total assets ............................................................................. $ 2,710,681 $ 5,618,159
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
1998 1997
------------ ------------
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses ........................................................ $ 252,708 $ 140,550
Obligations under capital leases, current .................................................... 15,192 25,238
------------ ------------
Total current liabilities ................................................................ 267,900 165,788
Obligations under capital leases, noncurrent ...................................................... 39,118 45,427
------------ ------------
Total liabilities ........................................................................ 307,018 211,215
------------ ------------
Minority interest in subsidiaries ................................................................. 195,305 1,529,534
------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity
Common stock, $.01 par value, 40,000,000 shares authorized, 11,823,444 and
10,031,250 shares issued and outstanding, respectively; 3,715,421 of
which are subject to vesting at March 31, 1998 (Note 4) ........................................ 118,234 100,312
Additional paid-in capital ................................................................... 19,912,890 20,493,262
Unearned compensation ........................................................................ (761,438) (1,277,918)
Stock subscription receivable ................................................................ -- (1,569,483)
Accumulated deficit .......................................................................... (17,061,328) (13,868,763)
------------ ------------
Total stockholders' equity ............................................................... 2,208,358 3,877,410
------------ ------------
Total liabilities and stockholders' equity ............................................... $ 2,710,681 $ 5,618,159
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net sales ................................................ $ -- $ --
----------- -----------
Cost and expenses
Research and development, including write-off of
excess of cost over net assets acquired ......... 2,220,767 2,656,371
Operating expenses .................................. 1,372,315 1,051,822
Stock based compensation ............................ 642,797 1,335,535
Interest income ..................................... (199,222) (137,152)
----------- -----------
Total costs and expenses ........................ 4,036,657 4,906,576
----------- -----------
Loss before minority interest in net losses of continuing subsidiaries, income
tax (expense) benefit, discontinued operations and cumulative effect of a
change in accounting principle ...................... (4,036,657) (4,906,576)
Minority interest in net losses of continuing subsidiaries 844,092 22,466
----------- -----------
Loss before income tax (expense) benefit,
discontinued operations and cumulative
effect of a change in accounting principle .......... (3,192,565) (4,884,110)
Income tax (expense) benefit ............................. -- --
Loss before discontinued operations and
cumulative effect of a change in accounting principle (3,192,565) (4,884,110)
----------- -----------
Discontinued operations (Note 2)
Loss from operations of Playco prior to spin-off .... -- (725,380)
Loss on disposal of Playco .......................... -- (284,932)
Total discontinued operations ................... -- (1,010,312)
Loss before cumulative effect of change in accounting
principle ........................................... (3,192,565) (5,894,422)
Cumulative effect of a change in accounting principle .... -- (459,435)
----------- -----------
Net loss ................................................. $(3,192,565) $(6,353,857)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ----------
Basic and diluted loss per common equivalent share
Loss before discontinued operations and
<S> <C> <C>
cumulative effect of a change in accounting principle $ (0.37) $ (0.66)
Discontinued operations ............................. -- (0.13)
Cumulative effect of a change in accounting principle -- (0.06)
----------------- -----------
Net loss per common equivalent share ................ $ (0.37) $ (0.85)
================= =============
Weighted average number of common shares outstanding 8,580,354 7,443,419
================= =============
Pro forma amounts assuming the new minority
interest accounting method is applied retroactively
Net loss ............................................ $ (3,192,565)$ (5,894,422)
================= =============
Basic and diluted loss per common share ............. $ (0.37) $ (0.79)
================= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-in Unearned Subscription Accumulated Stockholders'
Shares Amount Capital Compensation Receivable Deficit Equity
------------ ---------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1996 ......... 893,995 $ 8,940 $ 6,751,290 $ -- $ -- $(6,750,859) $ 9,371
Spin-off of Playco as dividend .... -- -- -- -- -- (731,964) (731,964)
Cancellation of stock
subscription receivable
and accrued interest ............. (68,750) (688) (549,312) -- -- (32,083) (582,083)
Issuance of common stock
options for compensation ......... -- -- 2,009,453 (1,277,918) -- -- 731,535
Exercise of common stock options .. 3,250,000 32,500 3,959,983 -- -- -- 3,992,483
Private placement of
common stock, net of
offering costs of $42,000 ........ 600,000 6,000 1,452,000 -- -- -- 1,458,000
Common stock issued for acquisition 2,250,000 22,500 2,227,500 -- -- -- 2,250,000
Stock subscription receivable ..... 3,106,005 31,060 1,768,940 -- (1,569,483) -- 230,517
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For The Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-in Unearned Subscription Accumulated Stockholders'
Shares Amount Capital Compensation Receivable Deficit Equity
------------ -------------- ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative effect of a change
in accounting principle ... -- -- 2,873,408 -- -- -- 2,873,408
Net loss for the year ended
March 31, 1997 ............ -- -- -- -- -- (6,353,857) (6,353,857)
Balances, March 31, 1997 .... 10,031,250 100,312 20,493,262 (1,277,918) (1,569,483) (13,868,763) 3,877,410
Reacquisition of common
stock upon return of MCII
shares .................... (2,706,006) (27,060) (1,542,423) -- 1,569,483 -- --
Amortization of unearned
compensation .............. -- -- -- 516,480 -- -- 516,480
Issuance of common stock
options for compensation .. -- -- 126,316 -- -- -- 126,316
Acquisition of minority
interest (Note 4) ......... 4,498,200 44,982 835,735 -- -- -- 880,717
Net loss for the year ended
March 31, 1998 ............ -- -- -- -- -- (3,192,565) (3,192,565)
Balances, March 31, 1998 .... 11,823,444 $ 118,234 $19,912,890 $(761,438) $ -- $(17,061,328) $ 2,208,358
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1998 1997
------------ ----------
Cash flows from operating activities
<S> <C> <C>
Net loss ..................................................... $(3,192,565) $(6,353,857)
Adjustments to reconcile net loss to net cash used for operating
activities:
Cumulative effect of a change in accounting principle .... -- 459,435
Loss on discontinued operations .......................... -- 1,010,312
Depreciation and amortization ............................ 231,150 25,023
Write-off of excess of cost over net assets acquired ..... 476,552 2,250,000
Minority interest in net losses of continuing subsidiaries (844,092) (22,466)
Amortization of unearned compensation .................... 516,480 --
Issuance of common stock for compensation and
services ............................................... -- 604,000
Issuance of common stock options for compensation
and services ........................................... 126,316 731,535
Write-down of stock subscription receivable .............. -- 230,517
Increase (decrease) from change in assets and liabilities:
Other current assets ................................... 3,500 (3,500)
Deposits and other assets .............................. (20,368) (4,667)
Accounts payable and accrued expenses .................. 112,158 140,550
Other .................................................. (85,972) --
Decrease in net assets of discontinued
operations .......................................... -- (1,404,294)
Net cash used for operating activities ........... (2,676,841) (2,337,412)
----------- -----------
Cash flows from investing activities
Equipment, improvements and fixtures acquired ................ (339,465) (229,027)
Equipment, improvements and fixtures acquired
by discontinued operations ................................. -- (159,193)
Net cash used for investing activities .......... (339,465) (388,220)
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
Cash flows from financing activities
<S> <C>
Principal repayments on obligations under capital leases .... (26,725) --
Repayment to stockholders ................................... -- (381,430)
Proceeds from issuance of common stock ...................... -- 6,398,483
Net cash provided by financing activities of discontinued
operations ................................................ -- 1,962,179
Net cash (used) provided by financing activities (26,725) 7,979,232
----------- -----------
Net (decrease) increase in cash .................................. (3,043,031) 5,253,600
Cash and cash equivalents at beginning of year ................... 5,328,781 75,181
----------- -----------
Cash and cash equivalents at end of year ......................... $ 2,285,750 $ 5,328,781
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ............................................... $ -- $ 166,453
Income taxes paid ........................................... $ -- $ --
Schedule of non-cash investing and financing activities:
</TABLE>
As discussed in Note 4, the Company acquired the 49% minority interest in
Labyrinth Communications Technology Group, Inc. during fiscal 1998. In
connection with the acquisition, the Company issued 782,779 vested shares of
common stock. An additional 3,715,421 shares of common stock are held in escrow
pending vesting requirements. During the year ended March 31, 1998, the Company
issued 594,000 stock options to employees and 200,000 stock options to
consultants. In connection with these issuances, the Company recorded
compensation expense of $10,572 and $115,744, respectively. During the years
ended March 31, 1998 and 1997, the Company entered into capital leases for
equipment that totaled $10,370 and $70,665, respectively.
See accompanying notes to consolidated financial statements.
F - 9
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1998 and 1997
Schedule of non-cash investing and financing activities (continued):
As discussed in Note 10, the Company exchanged 3,106,005 shares of its
common stock for 400,000 shares of Multimedia Concepts International, Inc.'s
common stock. During the fiscal year 1998, the Company negotiated the return of
2,706,006 shares of its common stock in exchange for the return of the 400,000
shares of Multimedia Concepts International, Inc. common stock. In connection
these transactions, the Company recorded a stock subscription receivable in the
amount of $1,569,483 as of March 31, 1997 and an expense of $230,517 in fiscal
1997.
During the year ended March 31, 1997, the Company issued options to
purchase an aggregate of 2,641,500 shares of common stock to employees. In
connection with these issuances, the Company recorded compensation expense of
$271,535 and unearned compensation of $1,277,918 in fiscal year 1997. During
fiscal year ended March 31, 1998, the Company amortized $516,480 of unearned
compensation.
As discussed in Note 1, the Company spun-off its shares of Playco in August
1996. This non-cash event had the following effects on the Company's financial
statements:
Decrease in accounts receivable ..................... $ 286,793
Decrease in merchandise inventories ................. 8,002,320
Decrease in other current assets .................... 152,801
Decrease in equipment, improvements and fixtures, net 1,793,833
Decrease in deferred financing costs ................ 393,699
Decrease in deposits and other assets ............... 57,285
Decrease in accounts payable and accrued expenses ... (4,683,291)
Decrease in notes payable ........................... (4,868,884)
Decrease in deferred rent liability ................. (177,112)
Decrease in minority interest ....................... 358,520
Decrease in preferred stock ......................... (584,000)
Net equity of Playco ................................ (731,964)
As discussed in Note 1, in connection with the Company's original
acquisition of a 51% interest in Labyrinth Communications Technologies Group,
Inc., the Company issued 2,250,000 shares of common stock during the year ended
March 31, 1997.
See accompanying notes to consolidated financial statements.
F - 10
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1998 and 1997
Schedule of non-cash investing and financing activities:
During the year ended March 31, 1997, the Company issued 1,550,000 common
stock options to consultants. In connection with these issuances, the Company
recorded compensation expense of $460,000.
During the year ended March 31, 1997, the Company canceled a $550,000 stock
subscription receivable and $32,083 of related accrued interest.
See accompanying notes to consolidated financial statements.
F - 11
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended March 31, 1998 and 1997
1. Organization
U.S. Wireless Corporation, (the "Company") was incorporated in the
State of Delaware on February 12, 1993. On July 31, 1996, the Company
consummated a stock purchase agreement and acquired 51% of the
outstanding shares of common stock of Labyrinth Communications
Technologies Group, Inc. ("Labyrinth"), whereby 20% of the shares were
acquired for $2,000,000 from Labyrinth and an additional 31% was
acquired from the principle stockholder of Labyrinth for 2,250,000
shares of the Company's common stock. Upon consummation of this
acquisition, the founding shareholder of Labyrinth, Dr. Oliver
Hilsenrath, was appointed the Company's President and Chief Executive
Officer. Labyrinth is a development stage company engaged in the
research and development of wireless communications hardware and
software technology (Note 4).
On July 31, 1996, the Company also consummated an agreement and
acquired 51% of the outstanding common stock of Mantra Technologies,
Inc. ("Mantra") and an option to acquire the remaining 49% of the
outstanding shares of common stock for an aggregate purchase price of
$500,000. Pursuant to the terms of the agreement, the Company has the
right to acquire the remaining 49% of the outstanding shares of common
stock in exchange for an aggregate 1,000,000 shares of the Company's
common stock. In order for the Company to exercise its options, the
closing bid price of its common stock must have been at least $5.00 for
the 30 trading days prior to the date of exercise. Mantra is a
development stage company which is engaged in the development of an
advanced user modification for the Internet and other databases.
Prior to the acquisitions of Labyrinth and Mantra, the Company, which
was formerly known as American Toys, Inc., was the majority stockholder
of Playco Toys & Entertainment Corp. ("Playco"), a California-based toy
retailer. On June 1, 1996, the then majority stockholder of the
Company, United Textiles & Toys Corporation, formerly known as Mister
Jay Fashions International Inc. ("Mister Jay"), a publicly-held
Delaware Corporation, authorized and consented to the spin-off of the
shares of common stock of Playco owned by the Company to the
stockholders of the Company as of the record date of August 15, 1996.
Additionally, the Company, as majority stockholder of Playco,
authorized the conversion of its 1 share of Series D preferred stock
owned into 1,157,028 shares of Playco's common stock, based on the
average closing bid price ($1.21) of Playco's shares for the period
from March 1, 1996 to May 31, 1996.
Pursuant to a special meeting of the shareholders on May 31,
1996, the Company effected, as of April 17, 1996, a one-for-four
reverse stock split. The consolidated financial statements give
retroactive effect for this one-for-four reverse stock split.
F-12
<PAGE>
2. Summary of Significant Accounting Policies
a) Consolidated financial statements
The consolidated financial statements for the year ended March
31, 1998, include the accounts of the Company, Labyrinth and Mantra. The
consolidated financial statements for the year ended March 31, 1997, include the
accounts of the Company, Labyrinth, Mantra, and Playco through the spin-off date
of August 15, 1996. All significant intercompany balances and transactions have
been eliminated in consolidation.
b) Discontinued operations
The spin-off of Playco has been accounted for as a
discontinued operation and, accordingly, its operating results have been
segregated and reported as discontinued operations in the accompanying
consolidated statements of operations and cash flows for the year ended March
31, 1997. There are no net assets related to Playco included in the accompanying
consolidated balance sheet as of, or since, March 31, 1997.
Summary information related to the discontinued operations of
Playco for the year ended March 31, 1997 is as follows:
Net sales ................................. $ 5,024,338
Costs and expenses ........................ 6,170,999
Interest expense .......................... 238,171
Net loss before minority interest in losses (1,384,832)
Minority interest in losses ............... 374,520
Loss from discontinued operations ......... $(1,010,312)
===========
c) Cash and cash equivalents
The Company considers all highly liquid investments purchased
with a maturity of three months or less on the date of acquisition to be cash
equivalents.
d) Equipment, improvements and fixtures
Equipment, improvements and fixtures are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets, which is two to five years. Maintenance and repairs are charged
to operations as incurred.
2. Summary of Significant Accounting Policies (continued)
e) Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for federal and state income tax reporting purposes.
f) Accounting for employee stock options
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." In conformity with the
provisions of SFAS No. 123, the Company has determined that it will not change
to the fair value method presented by SFAS No. 123 and will continue to follow
Accounting Principle Board Opinion No. 25 for measurement and recognition of
employee stock-based transactions. The Company adopted the "disclosure only"
requirements of SFAS No. 123 in fiscal year 1997.
<PAGE>
g) Software development costs
Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, "Accounting for the Cost of Computer Software to
Be Sold, Leased or Otherwise Marketed." The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors such as anticipated future revenues, estimated economic
life and changes in software and hardware technologies. No software development
costs have been capitalized during either of the years ended March 31, 1998 and
1997.
h) Net loss per share
During the three-month period ended December 31, 1997, the Company adopted
the provisions of SFAS No. 128, "Earnings Per Share," which requires the
disclosure of "basic" and "diluted" earnings (loss) per share. Basic earnings
(loss)
2. Summary of Significant Accounting Policies (continued)
per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during each period. Diluted earning (loss)
per share is similar to basic earnings (loss) per share except that the weighted
average number of common shares outstanding is increased to reflect the dilutive
effect of potential common shares, such as those issuable upon the exercise of
stock or warrants and the conversion of preferred stock, as if they had been
issued.
The financial statements for the year ended March 31, 1997 have been
restated to reflect the effects of SFAS No. 128. However, for both of the years
ended March 31, 1998 and 1997, there is no difference between basic and diluted
loss per common share as the effects of the exercise of common stock options and
the issuance of any contingent shares related to the acquisition of the minority
interest of Labyrinth are anti-dilutive given the net loss recorded for both
years.
i) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses, and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual amounts could differ from those estimates.
j) Concentration of credit risk
As of March 31, 1998 and 1997, the Company had amounts on deposit with a
financial institution that exceeded the federally insured limit by $1,519,478
and $3,047,096, respectively.
k) Recent accounting pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in an entity's financial statements. This statement requires an entity to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. This pronouncement is effective
for fiscal years beginning after December 15, 1997 and the Company expects to
adopt the provision of this statement in fiscal year 1999. Management does not
expect this statement to significantly impact the Company's financial
statements.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement requires public
enterprises to report financial and descriptive information about their
reportable operating segments and establishes standards for related disclosures
about product and services, geographic areas, and major customers. This
pronouncement is effective for fiscal years beginning after December 15, 1997
and the Company expects to adopt the provisions of this statement in fiscal year
1999. Management does not expect this statement to significantly impact the
Company's financial statements.
3. Change In Accounting Principle
During the first quarter of the year ended March 31, 1997, the Company
changed its method of accounting for the minority shareholders interest in
Playco. The Company changed from one method of accounting which records the
total amount of the net proceeds received from Playco's equity transactions as
the minority interest to a more generally accepted method which reflects the
minority interest as a percentage of the net assets of Playco. The change in
accounting for minority interest is recorded as a cumulative effect of a change
in accounting principle, which had the effect of reducing minority interest by
$2,413,973, increasing additional paid-in-capital by $2,873,408 and increasing
the net loss for the year ended March 31, 1997 by $459,435. The consolidated
financial statements have not been restated to reflect this accounting change;
however, pro forma information, as if the change were made retroactively, is
shown on the consolidated statement of operations.
4. Acquisition of Minority Interest
In January 1998, the Company submitted Exchange Offer Agreements (the
"Exchange Offer") to the stockholders representing the 49% minority interest in
Labyrinth. Pursuant to the terms of the Exchange Offer, the Company exchanged
4,498,200 shares of its common stock for 490,000 shares of common stock of
Labyrinth. The Exchange Offer provides that the shares of the Company's common
stock are subject to the following vesting schedule:
(i) 20% of shares vest one year from issuance.
(ii) 40% of shares shall vest upon successful completion and operation of
Labyrinth's primary product in a major market.
(iii) 40% of the shares shall vest when the Company achieves cumulative
sales of $15 million.
In accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 16, and interpretations thereof, this acquisition of minority
interest has been accounted for using the purchase method of accounting. As of
March 31, 1998, 782,779 shares of the
4. Acquisition of Minority Interest (Continued)
Company's common stock have vested, as defined by the Exchange Offer, and
have been issued to the former Labyrinth stockholders. The remaining 3,715,421
shares of the Company's common stock provided for in the Exchange Offer have not
yet vested and are currently held in escrow until vested. Shares of the
Company's common stock that do not vest shall be cancelled and returned to the
Company's treasury as unissued common stock.
In connection with the acquisition described above, the Company expensed
$476,552 during the year ended March 31, 1998 as the cost over basis of net
assets acquired which has been characterized as purchase research and
development costs given the on-going research and development activities of
Labyrinth. Such was determined as the amount by which the fair value of the
Company's common stock vested and issued to Labyrinth stockholders, determined
by management to be $996,460, exceeded the minority interest in the net equity
of Labyrinth on the date of acquisition of $519,908.
When and if events (ii) and (iii) detailed in the vesting schedule above
occur and additional shares of the Company's common stock become vested and are
issued to the former Labyrinth stockholders, the Company will record additional
noncash charges to earnings equal to the fair value of such shares on the date
of their release, which may have the effect of significantly increasing the
Company's net loss or reducing or eliminating earnings, if any, at such time.
5. Equipment, Improvements and Fixtures
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended March 31, 1998 and 1997
Equipment, improvements and fixtures, net are comprised of the
following at March 31:
1998 1997
--------- ----------
Furniture, fixtures and equipment ............ $ 649,544 $ 299,692
Less accumulated depreciation and amortization (249,648) (18,481)
--------- ---------
$ 399,896 $ 281,211
========= =========
Equipment, improvements and fixtures include equipment under capital leases
of $81,035 and $70,665 and accumulated amortization of $24,419 and none as of
March 31, 1998 and 1997, respectively.
F-13
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended March 31, 1998 and 1997
6. Income Taxes
The reconciliation of income taxes computed at the federal statutory tax
rate to income tax expense at the effective income tax rate is as follows: 1998
1997
Federal statutory income tax (benefit) rate (34.0)% (34.0)% Increases
(decreases) resulting from:
Non-deductible expenses .............. 5.4 6.7
Net change in valuation allowance .... 28.6 27.3
---- ----
Effective income tax benefit rate ......... -% -%
The income tax effects of significant items comprising the Company's net
deferred income tax assets and liabilities as of March 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------
<S> <C> <C>
Depreciation and amortization ........................ $ (12,990) $ (15,639)
Net operating loss carryforwards ..................... 1,475,163 1,192,326
Unearned compensation ................................ 343,344 542,479
Valuation allowance .................................. (1,805,517) (1,719,166)
----------- -----------
Long-term portion of deferred tax assets (liabilities) $ -- $-
=========== ===========
</TABLE>
At March 31, 1998 and 1997, the deferred tax assets and liabilities result
from the Company, Labyrinth and Mantra. The Company has federal and state NOLs
at March 31, 1998 approximating $3,900,000 and $2,593,000, respectively. The
federal NOL carryforwards expire between the years 2009 and 2012. The state NOL
carryforwards expire in the year 2002. Utilization of a portion of the NOLs may
be limited on Section 382 of the Internal Revenue Code due to ownership changes.
At March 31, 1998 and 1997, a 100% valuation allowance has been provided to
reduce the Company's net deferred tax assets for the amount by which the
deferred tax asset related to NOLs exceeded the net deferred tax liability
resulting from all other temporary differences. The Company has provided the
allowance since management could not determine that it was "more likely than
not" that the benefits of the deferred tax assets would be realized.
The Company, Labyrinth and Mantra currently file separate income tax
returns. However, a short-year, consolidated income tax return for the Company
and Labyrinth will be filed in the current year to reflect the purchase of the
minority interest in Labyrinth (Note 4).
7. Stockholders' Equity
a) Sale of shares
During July 1996, the Company commenced and completed a private placement
of its common stock, whereby it offered and sold 600,000 shares of its common
stock. The gross proceeds received from the sale were $1,500,000.
Simultaneously, Labyrinth consummated a private placement of its common stock
whereby it sold 79,000 shares for aggregate gross proceeds of $948,000.
<PAGE>
In July 1996, pursuant to a Form S-8 Registration Statement filed with the
SEC, the Company registered 3,250,000 shares of common stock underlying options
held by the Company's former President. All shares except 1,000,000 have a
restrictive legend. The 3,250,000 options were exercised by the former President
between July 1996 and December 1996 for an aggregate of $3,992,483. On June 16,
1997, the Company filed an amendment to the S-8 registration deregistering the
resale of the remaining 2,250,000 shares.
b) Cancellation of stock subscription receivable
On October 27, 1995, Mister Jay exercised its right pursuant to the terms
of a special warrant and purchased 275,000 pre-split common shares at $2.00 per
share and issued a twelve month promissory note for $550,000 bearing interest at
8% per annum. The note accrued interest totaling $32,083 and the related shares
of common stock were canceled by mutual agreement in July 1996.
8. Stock Options
During the years ended March 31, 1998 and 1997, the Company issued common
stock options to its employees and to various consultants performing services
for the Company. Options granted to employees generally vest over three years,
expire five years from the date of grant and have exercise prices ranging from
$2 to $5 per share. Options granted to consultants generally vest immediately,
expire five years from the date of grant and have exercise prices ranging from
$2 to $4.25 per share. The number of options issued and outstanding at March 31,
1998 are as follows:
Options outstanding, beginning of period 4,073,500
Granted ................................ 794,000
Canceled ............................... (118,500)
Exercised .............................. --
Options outstanding, end of period ..... 4,754,000
Options exercisable, end of period ..... 2,593,986
8. Stock Options (continued)
The difference between the exercise price and the fair market value of the
options issued to employees on the dates of grant is accounted for as unearned
compensation and amortized to expense over the related vesting period. During
fiscal 1997, $1,549,453 of unearned compensation was recorded, of which $271,535
was amortized to expense as of March 31, 1997. During the year ended March 31,
1998, amortization of unearned compensation amounted to $516,480.
Compensation expense associated with stock options issued to consultants is
measured based on the estimated fair value of services received by the Company
or the fair value of the stock option issued by the Company, whichever is more
reliably measurable. During fiscal 1998 and 1997, $115,744 and $460,000,
respectively, of compensation expense was recorded in connection with these
stock options.
As discussed in Note 2.f, the Company follows Accounting Principle Board
Opinion No. 25 for measurement and recognition of employee stock-based
transactions. Had the Company elected to adopt the measurement and recognition
provisions of SFAS No. 123, the Company would have incurred an additional
$1,945,114 and $751,226 in related compensation expenses during the years ended
March 31, 1998 and 1997, respectively. The pro forma net loss under the
provisions of SFAS No. 123 is $(5,137,679) and $(7,105,083) and the pro forma
basic and diluted net loss per common share is $(0.67) and $(0.95) for the year
ended March 31, 1998 and 1997, respectively.
<PAGE>
The pro-forma information provided above was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
1998 1997
----- -------
Expected life (in years) 5.00 5.00
Risk free interest rate 6.50% 7.00%
Volatility ............. 99.00% 175.00%
Dividend yield ......... 0.00% 0.00%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. Because the Company's options have characteristics
significantly different from those of trading options, management believes that
the existing pricing models do not necessarily provide a reliable single measure
of the fair value of its options. In December 1997, the Company adopted the
Senior Management Incentive Plan (the "Pl "). The Plan provides for the issuance
of up to an aggregate of 500,000 shares of the Company's common stock upon
exercise of stock options and other rights to officers, key employees and
consultants. Awards made pursuant to the Plan will generally vest over three
year periods. As of March 31, 1998, no stock options or other rights have been
issued under the Plan.
9. Commitments and Contingencies
a) Operating lease
The Company leases office facilities in San Ramon, California under a
non-cancelable operating lease. The lease requires minimum monthly payments of
$20,368 and expires in January 2003. At March 31, 1998, aggregate future minimum
lease payments due under this lease are as follows:
March 31,
1999 $ 244,416
2000 244,416
2001 244,416
2002 244,416
2003 183,312
----------------
Total minimum lease payments $ 1,160,976
Rent expense was $153,393 and $75,173, respectively, for the years ended
March 31, 1998 and 1997.
b) Capital leases
The Company leases various equipment under non-cancelable capital leases.
Minimum monthly rental payments on capital leases range from $88 to $2,011 and
the related leases expire at various dates through August 2001. At March 31,
1998, aggregate future minimum lease payments due under capital leases are as
follows:
March 31,
1999 $ 34,486
2000 31,451
2001 2,714
68,651
Less amounts representing interest (14,341)
----------------
Total future minimum lease payments, net 54,310
Less current portion due within one year (15,192)
----------------
Noncurrent portion of obligation
under capital leases $ 39,118
===============
<PAGE>
9. Commitments and Contingencies (continued)
(c) Year 2000
The Company does not believe that the impact of the year 2000 computer
issue will have a significant impact on its operations or financial position.
Furthermore, the Company does not believe that it will be required to
significantly modify its internal computer systems or products currently under
development. However, if internal systems do not correctly recognize date
information when the year changes to 2000, there could be adverse impact on the
Company's operations. Furthermore, there can be no assurance that another
equity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.
10. Related Party Transactions
a) Employment agreements
The Company has a five-year employment agreement with its President that
provides for an annual salary of $160,000 and annual increases of 15% per annum.
Upon execution of this agreement, the President was granted an option to
purchase 1,500,000 shares of the Company's common stock for $2.00 per share. No
such options were exercised as of March 31, 1998. The agreement provides for a
two year non-compete period upon termination of the President's employment and
provides for severance compensation in the amount of three times the aggregate
annual compensation paid to the President during the preceding calendar year.
The Company's President is also the President and sole director of Mantra.
The Company also has three-year employment agreements with its General
Counsel, Chief Technology Officer, Vice President of Hardware Engineering and
Vice President of Software Development. Such agreements provide for individual
minimum annual salaries that range between $100,000 and $120,000 and provide for
an aggregate of 450,000 options to purchase shares of the Company's common stock
at $2.00 to $2.50 per share. The options vest over three-year periods and have
five-year lives. As of March 31, 1998, no options have been exercised.
On June 1, 1996, the Company's former President entered into a five-year
employment agreement. Pursuant to the employment agreement, the former President
shall not receive any monetary compensation during the term. As consideration,
the Company's former President was granted stock options to purchase 1,000,000
shares of common stock at $1.00 per share for five years and 2,250,000 shares of
common stock at $1.33 per share exercisable until December 31, 1996. As
discussed in Note 7.a) all such options were exercised during the year ended
March 31, 1997.
10. Related Party Transactions (continued)
b) Investment in Multimedia Concepts International, Inc.
On June 28, 1996, European Venture Corp. ("EVC"), an affiliate of the
Company's former President, entered into an option to acquire 3,106,005 shares
of the Company's common stock for $1,800,000 or for 400,000 shares of common
stock of Multimedia Concepts International, Inc. ("MCII"). During July 1996, EVC
exercised its option and acquired 3,106,005 shares in exchange for 400,000
shares of common stock of MCII.
During the year ended March 31, 1998, EVC returned 2,706,006 of the
Company's shares and the Company returned all of the MCII shares due to a
decline in the value of the MCII shares. Accordingly, as of March 31, 1997, the
Company recorded a stock subscription receivable in the amount of $1,569,483 in
connection with the return of 2,706,006 shares of its common stock.
Additionally, the Company expensed $230,517 in fiscal 1997 for the shares of
common stock that were not returned.
<PAGE>
11. Subsequent Events
a) Convertible Secured Debentures
In May 1998, the Company issued $2,500,000 in convertible secured
debentures. The debentures were due to mature on the earlier of (i) August 21,
1998, subject to two automatic thirty day extensions, (ii) upon consummation of
an offering (as defined) or (iii) an incurred event of default as defined. The
debentures do not accrue interest except, in the event the second 30-day
extension described above occurs, the debentures shall accrue interest at the
rate of 6% per annum. Such interest, if any, is payable at maturity. The Company
may prepay all or a portion of the outstanding principal and interest amounts at
any time. The debentures are collateralized by substantially all of the
Company's assets. Upon maturity as reflected in (i) or (ii) the debentures
automatically convert into either shares of the Company's Common Stock or such
other security as the Company issues in its private offering, at the option of
the holder. In the event the offering is not consummated the principal amount
and accrued interest, if any, on the debentures convert into shares of common
stock.
In the event the Company does not commence an offering (as defined) prior
to maturity, the debentures shall automatically convert into shares of the
Company's common stock at the ratio of $2.60 per share.
In accordance with the Company's private offering, the debentures are to be
converted into shares of the Company's common stock. See Note 11.b).
b) Private Placement
On June 24, 1998, the Company's stockholders approved an
amendment to the Company's certificate of incorporation authorizing 1,000,000
shares of Preferred Stock, subject to the rights and preferences being
determined by the Company's board of directors. The board of directors
authorized the issuance of up to 300,000 shares of the Series A Preferred Stock.
On June 25, 1998 the Company completed a private offering of its
securities, in which the Company raised gross proceeds $5,139,312 through the
sale of shares of common stock and shares of the Company's Series A Preferred
Stock, inclusive of the conversion of the debentures. The shares of Series A
Preferred Stock carry a cumulative dividend at the rate of 6% per annum, payable
in cash or shares of Series A Preferred Stock, at the Company's option. Holders
of the Series A Stock have the right to convert each share into shares of common
stock at a conversion price of $2.95 per share, at any time, commencing 90 days
from issuance. The shares of Series A Preferred Stock have no voting rights and
carry a liquidation preference of $20.00 per share. The Company may redeem the
Series A Preferred Stock, upon the earlier of three years from issuance or when
the closing price for the Company's common stock has been at least $8.00, for
any 30 consecutive day period. Included in the private offering was the
conversion by debenture holders of the Company of $2,500,000 principal amount of
secured debentures.
The Company agreed to file a registration statement with the Securities and
Exchange Commission within 60 days of the closing of the offering to register
the shares of common stock and shares of common stock underlying the Series A
Preferred Stock sold in the offering.
The placement agent received a $150,000 as a commission on the net proceeds
of the offering and warrants to purchase 220,000 shares of the Company's Common
Stock, 110,000 shares at $4.00 per share and 110,000 at $5.00 per share,
exercisable for three and five years, respectively.
F-14
Exhibit 3.6
Form of Series A Preferred Stock Certificate
SERIES A PREFERRED STOCK
$.001 PAR VALUE
CERTIFICATE FOR SHARES
U.S. Wireless Corporation
(A Delaware Corporation)
WHEREAS, U.S. Wireless Corporation (the "Company"), is authorized to issue
an aggregate of 1,000,0000 shares of Preferred Stock, par value $.01 per share,
which may be issued in classes or in series, and whose respective rights,
designations and preferences may be designated from time to time by a
Certificate of Designation by the Board of Directors of U.S. Wireless
Corporation; and
WHEREAS, the Board of Directors of U.S. Wireless Corporation have
designated 300,000 shares of Preferred Stock as the "Series A Preferred Stock",
pursuant to the Certificate of Incorporation as filed by the Company and as
Amended, which sets forth the rights, preferences and limitations of such Series
A Preferred Stock.
NOW, THEREFORE, this certifies that __________________, is the owner of
_____________________ (___________) Shares of the Series A Preferred Stock of
U.S. Wireless Corporation, which Preferred Shares are fully paid and
non-assessable.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this __th day of ___________, 199_.
David S. Klarman Dr. Oliver Hilsenrath
Secretary President
(Corporate Seal)
***Restrictive Legend***
The Securities represented by this
certificate have not been registered
under the Securities Act of 1933, as
amended (the AAct@), or the
Securities laws of any state
securities commission or agency, and
may not be transferred, sold pledged,
hypothecated or disposed of in any
manner unless they are registered
under such Act and the securities
laws of any applicable jurisdiction
or unless pursuant to an exemption
therefrom.
<PAGE>
STOCK POWER
The following abbreviation, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ................Custodian.......
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
UT TEN - as joint tenants with right Act......................................
of survivorship and not as (State)
tenants in common
</TABLE>
Additional abbreviation may also be used though not in above list.
For value received,..............................hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
+---------------+
+---------------+
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
Shares of the stock represented by the attached Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said Limited Partnership Interests on the books of
the within-named Limited Partnership with full power of substitution in the
premises.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
Dated:
SIGNATURE
SIGNATURE GUARANTEED
Exhibit 3.7
Amended Certificate of Incorporation dated June 25, 1998.
Certificate of Amendment of
Certificate of Incorporation of
U.S. Wireless Corporation
Under Section 242 of the Delaware Corporation Law:
The Undersigned, for the purpose of amending the Certificate of
Incorporation of U.S. Wireless Corporation, does hereby certify and set forth:
FIRST: The name of the Corporation is: U.S. WIRELESS CORPORATION
SECOND: The Certificate of Incorporation was filed by the Department of
State on 12th day of February, 1993.
THIRD: The amendment to the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is to amend the provisions of "Article
Fourth," to increase the authorized capital of the Corporation so that, as
amended, said Article shall read as follows:
" FOURTH: Capital Stock
(A) Authorized Capital Stock. The total number of shares of all classes of
stock which this Corporation shall have authority to issue is FORTY-ONE MILLION
(41,000,000) shares, consisting of FORTY MILLION (40,000,000) shares of Common
Stock, par value $.01 per share (hereinafter, the "Common Stock"), and ONE
MILLION (1,000,000) shares of preferred stock, par value $.01 per share
(hereinafter, the "Preferred Stock"), of which 300,000 shares shall be
designated as the "Series A Preferred Stock", the relative rights, preferences,
and limitations of which are as set forth in subparagraph (C) of this Article
FOURTH.
(B) Preferred Stock - Undesignated.
(i) Shares of Preferred Stock may be issued from time to time in one or
more series and/or class as may from time to time be determined by the Board of
Directors. Each series and/or class shall be distinctly designated. The relative
rights, preferences and limitations of shares of undesignated Preferred Stock as
provided for in this Article FOURTH.
(ii) Undesignated Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may from time to time be determined
by the Board of Directors. Each series shall be distinctly designated. All
shares of any one series of the Preferred Stock shall be alike in every
particular event except that there may be different dates from which dividends
thereon, if any, shall be cumulative, if made cumulative. The powers,
preferences and relative, participating, optional and other rights of each
series, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. Subject
to the provisions of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by resolution or
resolutions adopted prior to the issuance of any shares of each particular
series of Preferred Stock, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications, limitations
and restrictions thereof, if any, of such series, including, but without
limiting the generality of the foregoing, the following:
(a) the distinctive designation of and the number of shares of Preferred
Stock which shall constitute the series, which number may be increased (except
as otherwise fixed by the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time by action of the
Board of Directors;
<PAGE>
(b) the rate and times at which, and the terms and conditions upon which,
dividends, if any, on shares of the series shall be paid, the extent of
preferences or relation, if any, of such dividends to the dividends payable on
any other class or classes of stock of this corporation, or on any series of
Preferred Stock or of any other class or classes of stock of this corporation,
and whether such dividends shall be cumulative or non-cumulative;
(c) the right, if any, of the holders of shares of the series to convert
the same into, or exchange the same for, shares of any other class or classes of
stock of this corporation, or of any series of Preferred Stock of this
corporation, and the terms and conditions of such conversion or exchange;
(d) whether shares of the series shall be subject to redemption, and the
redemption price or prices including, without limitation, a redemption price or
prices payable in shares of the Common Stock and the time or times at which, and
the terms and conditions upon which, shares of the series may be redeemed;
(e) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of this corporation;
(f) the terms of the sinking fund or redemption or purchase account, if
any, to be provided for shares of the series; and
(g) the voting powers, if any, of the holders of shares of the series which
may, without limiting the generality of the foregoing, include (1) the right to
more or less than one vote per share on any or all matters voted upon by the
stockholders and (2) the right to vote, as a series by itself or together with
other series of Preferred Stock or together with all series of Preferred Stock
as a class, upon such matters, under such circumstances and upon such conditions
as the Board of Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of Preferred Stock or
together with all series of Preferred Stock as a class, to elect one or more
directors of this corporation, or to elect a majority of the members of the
Board, under such circumstances and upon such conditions as the Board may
determine.
(C) Series A Preferred Stock.
(i) Designation. The designation of this series of Preferred Stock, par
value $0.01 per share, shall be the "Series A Preferred Stock." The number of
shares of Series A Preferred Stock authorized hereby shall be 300,000 shares.
(ii) Rank. The Series A Preferred Stock shall, with respect to rights on
liquidation, winding up, and dissolution, rank (a) junior to any other Senior
Securities established by the Board of Directors and, if required by Section
(vii), approved by the affirmative vote of the holders of a majority of the
shares of the Series A Preferred Stock, the terms of which shall specifically
provide that such series shall rank prior to the Series A Preferred Stock; (b)
on a parity with any other Parity Securities established by the Board of
Directors, the terms of which shall specifically provide that such series shall
rank on a parity with the Series A Preferred Stock; and (c) prior to any other
Junior Securities of the Corporation.
(iii) Dividends.
(a) The holders of the shares of the Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative dividends at
$1.20 per share. Cumulative dividends are payable quarterly, on each of
September 30, December 31, March 31 and June 30, commencing September 30, 1998
(the "Series A Dividend Payment Dates"), in preference to dividends on the
Junior Securities. Such dividend shall be paid to the holder of record by the
close of business on the date thirty business days after the Series A Dividend
Payment Dates, which dividend may be paid in cash or in kind, in shares of
Series A Preferred Stock, at the discretion of the Corporation. If paid in kind,
the number of shares issuable shall be rounded to the nearest share, there being
no obligation of the Company to make any cash payments. Each of such dividends
shall be fully cumulative and shall accrue (whether or not declared), without
interest, from the date such dividends are payable as herein provided.
<PAGE>
(b) If at any time the Corporation shall have failed to pay full dividends
which have accrued (whether or not declared) on any Senior Securities, no
dividend shall be declared by the Board of Directors or paid or set apart for
payment by the Corporation on the shares of the Series A Preferred Stock or any
other Parity Securities unless, prior to or concurrently with such declaration,
payment, or setting apart for payment, all accrued and unpaid dividends on all
outstanding shares of Senior Securities shall have been or are declared and paid
or set apart for payment, without interest. No dividends shall be declared or
paid or set apart for payment on any Parity or Junior securities for any period
unless full cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for such
payment on the Series A Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of such full cumulative
dividends. If any dividends are not paid in full, as aforesaid, upon the shares
of the Series A Preferred Stock and any other Parity Securities, the Corporation
distribute the dividend pro rata so that the amount of dividends declared per
share on the Series A Preferred Stock and such other Parity Securities shall in
all cases bear to each other the same ratio that accrued dividends per share on
the Series A Preferred Stock and such other Parity securities bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series A Preferred Stock or
any other Parity Securities which may be in arrears.
(c) Holders of the shares of the Series A Preferred Stock shall be entitled
to receive the dividends provided for in paragraph (iii)(a) hereof in preference
to and in priority over any dividends of other Parity Securities and any other
Junior Securities.
(d) Subject to the foregoing provisions of this Section (iii) the Board of
Directors may declare, and the Corporation may pay or set apart for payment
dividends and other distributions on any of the Junior Securities and may
purchase or otherwise redeem any of the Junior Securities or any warrants,
rights, or options exercisable for or convertible into any of the Junior
Securities, and the holders of shares of the Series A Preferred Stock shall not
be entitled to share therein.
(iv) Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the affairs of the Corporation, the holders of the shares of
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders an
amount in cash equal to $20.00 per share for each share outstanding, before any
payment shall be made or any assets distributed to the holders of any of the
Junior Securities, provided, however, that the holders of the outstanding shares
of the Series A Preferred Stock shall not be entitled to receive such
liquidation payment until the liquidation payments on all outstanding shares of
Senior Securities, if any, shall have been paid in full. If the assets of the
Corporation are not sufficient to pay in full the liquidation payments payable
to the holders of the outstanding shares of the Series A Preferred Stock or any
other Parity Securities, then the holders of all such shares shall share ratably
in such distribution of assets in accordance with the amount which would be
payable on such distribution if the amounts to which the holders of the
outstanding shares of Series A Preferred Stock and the holders of outstanding
shares of such other Parity Securities are entitled were paid in full.
(b) For the purposes of this Article FOURTH, neither the voluntary sale,
conveyance, lease, exchange, nor transfer (for cash, shares of stock,
securities, or their consideration) of all or substantially all of the property
or assets of the Corporation or the consolidation or merger of the Corporation
with one or more other corporations shall be deemed to be a liquidation,
dissolution, or winding up, voluntary or involuntary, unless such voluntary
sale, conveyance, lease, exchange, or transfer shall be in connection with a
dissolution or winding up of the business of the Corporation.
<PAGE>
(v) Redemption.
(a) Notice. The Corporation may, at any time, upon the earlier of (i) three
years from issuance and (ii) when after the closing price for the Corporation's
Common Stock has been $8.00 for any consecutive thirty day period, redeem all of
the issued and outstanding shares of the Series A Preferred Stock for a per
share price of $20.00 (the "Redemption Price"), plus accrued but unpaid
dividends, upon the terms set forth below. If the Corporation desires to redeem
the Series A Preferred Stock, it shall deliver 20 days notice (the "Redemption
Notice") by regular mail to each holder of record of the Series A Preferred
Stock at the address of each holder as it appears on the books of the
Corporation and will additionally publish a Notice of Redemption in the Wall
Street Journal. Dividends shall cease accruing on the date of the Redemption
Notice.
(b) Delivery of Certificates and Payment. On or before the twentieth day
after the date of the Redemption Notice (the "Period"), each holder of the
Series A Preferred Stock shall deliver to the secretary of the Corporation at
its principal office his certificate for the Series A Preferred Stock, duly
endorsed in blank (or accompanied by proper instruments of transfer). Upon such
surrender the holder thereof shall be entitled to receive payment of the
Redemption Price for each share of the Series A Preferred Stock so surrendered.
The Corporation shall make such payment within five days after the later of (i)
the date on which the holder delivered such certificates or (ii) the last day of
the Period.
(vi) Conversion.
(a) Subject to, and upon compliance with, the provisions of this Section
(vi), the holder of a share of Series A Preferred Stock designated shall have
the right, at such holder's option, at any time commencing 90 days from
issuance, to convert such share in to fully paid and non-assessable shares of
Common Stock of the Corporation, at a conversion price of 2.956 per share of
Common Stock. The number of shares issuable shall be rounded to the nearest
whole share, there being no obligation of the Company to make any cash payments.
(b) (1) In order to exercise the conversion privilege, the holders of each
share of Series A Preferred Stock to be converted shall surrender the
certificates representing such shares at the office of the Corporation or its
transfer agent for the Series A Preferred Stock, as may be appointed for such
purpose by the Corporation, with the Notice of Election to Convert on the back
of said certificate completed and signed. Unless the shares of Common Stock
issuable on conversion are to be issued in the same name in which such share of
Series A Preferred Stock is registered, each share surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax.
(2) As promptly as practicable after the surrender of the certificates for
shares of Series A Preferred Stock as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with the provisions of
this Section (iv).
(3) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice shall have
been received by the Corporation as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby at such time on such
date, unless the stock transfer books of the Corporation shall be closed on that
date, in which event such person or persons shall be deemed to have become such
holder or holders of record at the close of business on the next succeeding day
on which such stock transfer books are open and such notice is received by the
Corporation. All shares of Common Stock delivered upon conversion of the Series
A Preferred Stock will upon delivery be duly and validly issued and fully paid
and non-assessable, free of all liens and charges and not subject to any
preemptive rights.
<PAGE>
(c) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held in
its treasury, or both, for the purposes of effecting conversions of the Series A
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all outstanding shares of Series A Preferred Stock not theretofore
converted. For purposes of this subsection (d), the number of shares of Common
Stock which shall be deliverable upon the conversion of all outstanding shares
of Series A Preferred Stock shall be computed as if at the time of computation
all such outstanding shares were held by a single holder.
(vii) Voting Rights. The holders of record of shares of the Series A
Preferred Stock shall not be entitled to any voting rights except as hereinafter
provided in this Section (vii)(a) or as otherwise provided by law.
(a) So long as any shares of the Series A Preferred Stock are outstanding,
the Corporation will not, without the affirmative vote or consent of the holders
of at least a majority of the outstanding shares of the Series A Preferred
Stock, voting as a class, vote to amend the Corporation's Certificate of
Incorporation to (i) increase or decrease the aggregate number of authorized
shares of the Series A Preferred Stock; (ii) increase or decrease the par value
of the Series A Preferred Stock; or (iii) alter the preferences, powers, or
rights of the Series A Preferred Stock so as to affect them adversely, except
that the Corporation may issue a Senior Security.
(b) In exercising the voting rights set forth in this Section (vii), each
share of Series A Preferred Stock shall have one vote per share.
(D) Common Stock.
(i) After the requirements with respect to voting rights on
Preferred Stock (fixed in accordance with provisions of this Article FOURTH), if
any, shall have been met and after this corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums as sinking
funds or redemption or purchase accounts (fixed in accordance with the
provisions of paragraph (C) of this Article FOURTH) and subject further to any
other conditions which may be fixed in accordance with the provisions of this
Article FOURTH, then but not otherwise, the holders of Common Stock shall be
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors.
(ii) In the event of voluntary or involuntary liquidation, distribution or
sale of assets, dissolution or winding-up of this corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets of this
corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, ratably in proportion to the number of shares of
the Common Stock held by each.
(iii) Except as otherwise be required by law, this Certificate of
Incorporation or the provisions of the resolution or resolutions as may be
adopted by the Board of Directors pursuant to this Article FOURTH, each holder
of Common Stock shall have one vote in respect of each share of Common Stock
held by such holder on each matter voted upon by the stockholders."
FOURTH: The amendment to the Articles of Incorporation of the Corporation
set forth above was adopted at a Special Meeting of the Corporation's
stockholders on the 24th day of June, 1998.
IN WITNESS WHEROF, the undersigned President of this Corporation has
executed this Certificate of Amendment on this 24th day of June, 1998.
U.S. WIRELESS CORPORATION
By: Dr. Oliver Hilsenrath, President
Exhibit 10.79(a)
Amended Employment Agreement with Dr. Mati Wax
AMENDED EMPLOYMENT AGREEMENT
As of the 12th day of January 1998, the employment agreement (the
"Employment Agreement") dated the 7th day of July 1996 ("Employment Date"), by
and between Dr. Mati Wax, residing at 120 Reflections Drive, San Ramon,
California 94583 (hereinafter referred to as the "Employee") and Labyrinth
Communication Technologies Group, Inc. ("Labyrinth") is hereby amended. All
capitalized terms herein refer to their defined meaning as defined in the
Employment Agreement, except as may be specifically defined herein.
W I T N E S S E T H :
WHEREAS, the Company has undertaken the process of merging (the
"Merger") Labyrinth together with and into U.S. Wireless Corporation (the
"Company"), the parent company of Labyrinth, in accordance with a share exchange
offer presented to the shareholders of Labyrinth whereby the Company will be the
sole surviving company; and
WHEREAS, as Labyrinth shall cease to exist, Employee shall become an
employee of the Company and in accordance therewith shall exchange his shares of
common stock of Labyrinth for shares of Common Stock of the Company, subject to
a vesting schedule, in accordance with the amended restricted share agreement
referenced herein; and
WHEREAS, the Employee and the Company desire to continue Employee's
employment with the Company as Chief Technology Officer, and in accordance
therewith amends his Employment Agreement, as described herein, which amendment
shall supersede all prior agreements between the Company, its subsidiaries,
and/or predecessors, and the Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby retains Employee as Chief Technology Officer of the Company, and
the Employee hereby agrees to continue his employment. In this capacity,
Employee will report directly to the Chief Executive Officer and President of
the Company.
ARTICLE II
DUTIES AND ACKNOWLEDGMENTS
(A) The Employee shall, during the term of his employment with the Company,
and subject to the direction and control of the Company's Board of Directors,
perform such duties and functions related to his position as he may be called
upon to perform by the Company's Board of Directors during the term of this
Agreement.
(B) The Employee agrees to devote 100% of his normal business time, or such
less amount of his business time as shall be agreed upon by the Company and the
Employee, to the Company. Employee shall use his best efforts in the performance
of his duties for the Company and in rendering such services for any subsidiary
corporations of the Company.
(C) The Employee shall perform, in conjunction with the Company's Senior
Management, to the best of his ability, the following services and duties for
the Company and its subsidiary corporations (by way of example, and not by way
of limitation): (i) Those duties attendant to the position with the Company for
which he is hired;
<PAGE>
(ii) Development of the Company's RadioCamera and advanced radio
front-end technology; and
(iii) Formulation of the Company's business plans with respect to
his area of operations, subject to the direction of the Board of
Directors.
(D) Employee acknowledges that all Intellectual Property (as defined
herein) developed or co-developed by the Employee during the Employee's tenure
with the Company shall be the sole and absolute property of the Company.
Employee agrees to facilitate and coordinate, to the best of his ability, the
safeguarding of all Intellectual Property which is developed or co-developed
during Employee's tenure with the Company. Employee, on behalf and at the
request of the Company shall detail all Intellectual Property developed or
co-developed, so that the Company may file the appropriate patents or other
filings in order to protect the Company's ownership rights in such properties.
Employee shall execute and deliver assignments of all rights and interest in any
Intellectual Property developed or co-developed during Employee's tenure with
the Company, for the Company's records and as needed for filing with any
federal, state, city, local, or foreign government agency or authority.
(E) Employee represents that he shall comply with all federal, state and
local securities laws and shall have prepared and filed with the appropriate
agencies all required filings in a timely and efficient manner. Employee further
agrees to abide by the rules and regulations of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the Employment Date, the Company has and shall continue
to pay to the Employee a salary at the rate of $100,000 per annum, during the
term of this Agreement. Salary shall be paid in equal monthly installments or
pursuant to such regular pay periods as are adopted by the Company (the "Base
Salary"). After the initial three year term this salary shall be negotiated
between the Company and the Employee.
(B) The Company shall deduct from Employee's compensation all federal,
state, and local taxes which it may now or may hereafter be required to deduct.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; and (ii) Employee shall be reimbursed by the Company upon
presentation of appropriate vouchers for all business expenses incurred by the
Employee on behalf of the Company.
(B) In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
(C) For each year of the term hereof, Employee shall be entitled to fifteen
(15) days paid vacation.
(D) Commencing July 1, 1998, Employee shall receive from the Company living
and travel allowances for the term of his employment with the Company. The
Company shall pay to the Employee an annual stipend for living expenses of
$13,000, to be paid on a quarterly basis at the rate of $3,250 per quarter. In
addition, the Company provide the Employee a travel allowance of $7,000 per
annum, to be paid on a quarterly basis at the rate of $1,750 per quarter.
<PAGE>
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of his
employment hereunder, except when acting on behalf of and with the authorization
of the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances, proposed and current
services and pricing, and any information relating to the Company's business
(collectively referred to as the "Proprietary Information"). For the purposes of
this Agreement, trade secrets and confidential information shall mean
information disclosed to the Employee or known by him as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning the Company=s Intellectual Property,
business, finances, methods, operations, marketing information, pricing, and
information relating to proposed expansion of the Company or the Company's
business plans. The Employee acknowledges that trade secrets and other items of
confidential information, as they may exist from time to time, are valuable and
unique assets of the Company, and that disclosure of any such information would
cause substantial injury to the Company. The foregoing is intended to be
confirmatory of the common laws of the states of California and Delaware
relating to trade secrets and confidential information. AIntellectual Property"
means (a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all re-issuances,
continuations, continuations in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
ARTICLE VI
RESTRICTIVE COVENANTS
(A) In the event of the Employee's termination with the Company, whether
voluntarily or for cause, Employee agrees that he will not, for a period of four
years following such termination, directly enter into or become associated with
or engage in any other business (whether as a partner, officer, director,
shareholder, employee, consultant, or otherwise), which business is a direct or
indirect competitor of the Company, or any current or future subsidiary,
associate, affiliate or joint venture partner, which is a direct or indirect
competitor of the Company, or any subsidiary or Parent company.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable, or in the alternative, such judicially substituted term may be
substituted therefor.
(C) Employee agrees that during the term of this Restrictive Covenant, he
will not, directly or indirectly, (a) contact, induce, or influence any
customers or clients, joint venture partners, employee, consultant, associate or
affiliate of the Company or its or their successors with respect to the
Company=s proposed business as described in (A) above or for any reason
whatsoever, without the written consent of the Company, signed by two executive
officers; (b) request or advise any customers, clients, joint venture partners,
suppliers, manufacturers, employees, consultants, associates or affiliates of
the Company or its or their successors, who may contact or attempt to contact
the Employee to withdraw, curtail, or cancel such parties' business with the
Company or its successors; (c) disclose to any other persons or corporations the
names or addresses of any of the customers, clients, joint venture partners,
suppliers, manufacturers, wireless services providers, employees, consultants,
associates, or affiliates of the Company or its or their successors; or (d)
induce or encourage any employee to terminate his relationship with the Company.
<PAGE>
ARTICLE VII
TERM
This Agreement shall be for an initial term of three years commencing on
the Employment Date, subject to automatic extension, as provided herein, unless
sooner terminated pursuant to the terms of Article VIII. After the initial term,
this Agreement shall automatically renew for additional periods of one year,
until such time as either Employee resigns, the shares referenced in Article IX
have fully vested, or Employee is terminated in accordance with Article VIII.
ARTICLE VIII
TERMINATION AND EFFECT THEREOF
(A) The Company may terminate this Agreement:
(i) Upon the death of Employee during the term hereof, except
that the Employee's legal representatives, successors, assigns, and
heirs shall have those rights and interests as otherwise provided in
this Agreement, including the right to receive accrued but unpaid
bonus compensation, if any.
(ii) Upon written notice from the Company to the Employee, if
Employee becomes totally disabled and as a result of such total
disability, has been prevented from and unable to perform all of his
duties hereunder for a period of four (4) consecutive months.
(iii) If the Employee engages in fraud, misappropriation of
Company funds, or gross negligence in the performance of his duties.
(iv) The Company shall have the right to terminate Employee's
employment hereunder for cause. For purposes of this Agreement,
"cause" means (a) a breach of the covenants herein, (b) failure to
perform his duties in a professional and competent manner; (c) failure
by Employee to substantially perform his duties or obligations
hereunder; (d) Employee engaging in misconduct which is materially
injurious to the Company; (e) Employee engaging in any act that in any
way has a direct, substantial, and adverse effect on the Company's
reputation; (f) Employee committing a crime of moral turpitude; (g)
Employee's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction of a crime
constituting a felony.
(B) Upon termination of this Agreement:
(i) Pursuant to subarticles (A)(i), (iii), and (iv) of this
Article VIII, Employee's employment hereunder and all compensation and
benefits payable by the Company hereunder shall be immediately
terminated. In addition, all options shall be terminated and all
shares of Common Stock issued pursuant to Article IX, which have not
vested in accordance with the restricted share agreement, shall be
returned to the Company's treasury. All vested shares shall be
delivered to the Employee or his estate, as the case may be. Employee
or his estate, as the case may be, shall be entitled to receive any
payments under any applicable life or disability insurance plans, if
any are in effect at the time of termination. Such payments, if any,
shall be made at the time and in accordance with the terms and
conditions of such plans.
(ii) Pursuant to subarticle (A)(ii), Employee's employment
hereunder shall terminate, all vested options shall continue to be
exercisable for a period of six months thereafter and all non vested
options shall terminate. In addition, all shares of Common Stock
issued pursuant to Article IX, which have not vested in accordance
with the restricted share agreement, shall be returned to the
Company's treasury. All vested shares shall be delivered to the
<PAGE>
Employee or his estate, as the case may be. (iii) In the event that
the employment is terminated for any reason except as listed in this
Article VIII, the Employee shall have the right to receive his salary
for the period from the date of his termination until the end of the
initial term of the agreement as described in Article VII. In
addition, all shares of Common Stock issued pursuant to Article IX,
which have not vested in accordance with the restricted share
agreement, shall be returned to the Company's treasury. All vested
shares shall be delivered to the Employee or his estate, as the case
may be.
ARTICLE IX
STOCK OPTIONS AND EXCHANGE OF LABYRINTH SHARES
FOR SHARES OF COMMON STOCK OF THE COMPANY
(A) As an inducement to Employee to enter into the Employment Agreement,
the Company granted to Employee options to purchase shares of the Company's
Common Stock, $.001 par value per share, upon and subject to the terms and
conditions of an option agreement. Employee is hereby granted options to
purchase 100,000 shares of the Company's Common Stock, vesting at the rate of
1/3 per year commencing July 7, 1997. The options shall be exercisable on the
dates of vesting and continuing until July 6, 2001. The exercise price of the
options shall be equal to $2.00 per share. The foregoing options are not
intended to qualify as incentive stock options. The options provided for herein
are not transferable by Employee and shall be exercisable only by Employee or by
his legal representative or executor.
(B) Labyrinth issued 50,000 shares of its Common Stock on the Employment
Date, subject to the terms and conditions of a restricted share agreement, which
agreement details a vesting schedule of 1/3 of the shares vesting each year, for
the three year initial term of the Employment Agreement. Subject to the
consummation of the Merger, the Company shall issue 459,000 shares of its Common
Stock in exchange for the 50,000 shares of Labyrinth, subject to the terms and
conditions of an amended restricted share agreement dated as of this date.
ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XI
ARBITRATION
Any dispute arising out of the interpretation, application, and/or
performance of this Agreement with the sole exception of any claim, breach, or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a single arbitrator in the City of San Ramon, the
State of California in accordance with the rules of the American Arbitration
Association. The arbitrator shall be selected by the Association and shall be an
attorney at law experienced in the field of corporate law. Any judgment upon any
arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XII
SEVERABILITY
If any provision of this Agreement shall be held invalid and unenforceable,
the remainder of this Agreement shall remain in full force and effect. If any
provision is held invalid or unenforceable with respect to particular
circumstances, it shall remain in full force and effect in all other
circumstances.
<PAGE>
ARTICLE XIII
NOTICE
All notices required to be given under the terms of this Agreement shall be
in writing and shall be deemed to have been duly given only if delivered to the
addressee in person or mailed by certified mail, return receipt requested, to
the address as included in the Company's records or to any such other address as
the party to receive the notice shall advise by due notice given in accordance
with this paragraph.
ARTICLE XIV
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XV
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
This Agreement and each Option Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of such State without
giving effect to the rules of said State governing the conflicts of laws.
ARTICLE XVII
JURISDICTION
Any or all actions or proceedings which may be brought by the Company or
Employee under this Agreement shall be brought in courts having a situs within
the State of California, and Employee hereby consents to the jurisdiction of any
local, state, or federal court located within the State of California, except in
those proceedings specifically referenced in Article XI herein.
ARTICLE XVIII
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto. No
change, addition, or amendment shall be made hereto except by written agreement
signed by the parties hereto.
ARTICLE XIX
CONSTRUCTION
The parties intend for the provisions of Articles V and VI of this
agreement to be construed, interpreted, and enforced to the maximum extent
permitted by law. The parties acknowledge and agree that they have both
participated in the preparation of this Agreement, and the Agreement shall not
be construed or interpreted against either party on the basis that it was
prepared by such other party. In the event that any provision of Articles V or
VI, or any part thereof, shall be determined by any court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any
reason, such provision shall be revised and/or interpreted to make it
enforceable to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
U.S. WIRELESS CORPORATION EMPLOYEE
By: Dr. Oliver Hilsenrath
Chief Executive Officer Dr. Mati Wax
Exhibit 10.88
Amended Employment Agreement with Ravi Rajapakse
AMENDED EMPLOYMENT AGREEMENT
As of the 12th day of January 1998, the employment agreement (the
"Employment Agreement") dated the 10th day of January 1997 ("Employment Date"),
by and between Ravi Rajapakse, residing at 1448 Pine Street, #304, San
Francisco, California (hereinafter referred to as the "Employee") and Labyrinth
Communication Technologies Group, Inc. ("Labyrinth") is hereby amended. All
capitalized terms herein refer to their defined meaning as defined in the
Employment Agreement, except as may be specifically defined herein.
W I T N E S S E T H :
WHEREAS, the Company has undertaken the process of merging (the
"Merger") Labyrinth together with and into U.S. Wireless Corporation (the
"Company"), the parent company of Labyrinth, in accordance with a share exchange
offer presented to the shareholders of Labyrinth whereby the Company will be the
sole surviving company; and
WHEREAS, as Labyrinth shall cease to exist, Employee shall become an
employee of the Company and in accordance therewith shall exchange his shares of
common stock of Labyrinth for shares of Common Stock of the Company, subject to
a vesting schedule, in accordance with the amended restricted share agreement
referenced herein; and
WHEREAS, the Employee and the Company desire to continue Employee's
employment with the Company as Vice President - Software, and in accordance
therewith amends his Employment Agreement, as described herein, which amendment
shall supersede all prior agreements between the Company, its subsidiaries,
and/or predecessors, and the Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby retains Employee as Vice President - Software of the Company, and
the Employee hereby agrees to continue his employment. In this capacity,
Employee will report directly to the Chief Executive Officer and President of
the Company.
ARTICLE II
DUTIES AND ACKNOWLEDGMENTS
(A) The Employee shall, during the term of his employment with the Company,
and subject to the direction and control of the Company's Board of Directors,
perform such duties and functions related to his position as he may be called
upon to perform by the Company's Board of Directors during the term of this
Agreement.
(B) The Employee agrees to devote 100% of his normal business time, or such
less amount of his business time as shall be agreed upon by the Company and the
Employee, to the Company. Employee shall use his best efforts in the performance
of his duties for the Company and in rendering such services for any subsidiary
corporations of the Company.
(C) The Employee shall perform, in conjunction with the Company's
Management, to the best of his ability, the following services and duties for
the Company and its subsidiary corporations (by way of example, and not by way
of limitation):
<PAGE>
(i) Those duties attendant to the position with the Company for
which he is hired;
(ii) Development of and implementation of the Company's software
system design, inclusive of the algorithm development and embedded
software implementation for the radio front-end technology; and
(iii) Formulation of the Company's business plans with respect to
his area of operations, subject to the direction of the Board of
Directors.
(D) Employee acknowledges that all Intellectual Property (as defined
herein) developed or co-developed by the Employee during the Employee's tenure
with the Company shall be the sole and absolute property of the Company.
Employee agrees to facilitate and coordinate, to the best of his ability, the
safeguarding of all Intellectual Property which is developed or co-developed
during Employee's tenure with the Company. Employee, on behalf and at the
request of the Company shall detail all Intellectual Property developed or
co-developed, so that the Company may file the appropriate patents or other
filings in order to protect the Company's ownership rights in such properties.
Employee shall execute and deliver assignments of all rights and interest in any
Intellectual Property developed or co-developed during Employee's tenure with
the Company, for the Company's records and as needed for filing with any
federal, state, city, local, or foreign government agency or authority.
(E) Employee represents that he shall comply with all federal, state and
local securities laws and shall have prepared and filed with the appropriate
agencies all required filings in a timely and efficient manner. Employee further
agrees to abide by the rules and regulations of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the Employment Date, the Company has and shall continue
to pay to the Employee a salary at the rate of $100,000 per annum, during the
term of this Agreement. Salary shall be paid in equal monthly installments or
pursuant to such regular pay periods as are adopted by the Company (the "Base
Salary").
(B) The Company shall deduct from Employee's compensation all federal,
state, and local taxes which it may now or may hereafter be required to deduct.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; and (ii) Employee shall be reimbursed by the Company upon
presentation of appropriate vouchers for all business expenses incurred by the
Employee on behalf of the Company.
(B) In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
(C) For each year of the term hereof, Employee shall be entitled to fifteen
(15) days paid vacation.
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of his
employment hereunder, except when acting on behalf of and with the authorization
of the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
<PAGE>
information concerning the Company's business, finances, proposed and current
services and pricing, and any information relating to the Company's business
(collectively referred to as the "Proprietary Information"). For the purposes of
this Agreement, trade secrets and confidential information shall mean
information disclosed to the Employee or known by him as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning the Company's Intellectual Property,
business, finances, methods, operations, marketing information, pricing, and
information relating to proposed expansion of the Company or the Company's
business plans. The Employee acknowledges that trade secrets and other items of
confidential information, as they may exist from time to time, are valuable and
unique assets of the Company, and that disclosure of any such information would
cause substantial injury to the Company. The foregoing is intended to be
confirmatory of the common laws of the states of California and Delaware
relating to trade secrets and confidential information. "Intellectual Property"
means (a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all re-issuances,
continuations, continuations in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
ARTICLE VI
RESTRICTIVE COVENANTS
(A) In the event of the Employee's termination with the Company, whether
voluntarily or for cause, Employee agrees that he will not, for a period of four
years following such termination, directly enter into or become associated with
or engage in any other business (whether as a partner, officer, director,
shareholder, employee, consultant, or otherwise), which business is a direct or
indirect competitor of the Company, or any current or future subsidiary,
associate, affiliate or joint venture partner, which is a direct or indirect
competitor of the Company, or any subsidiary or Parent company.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable, or in the alternative, such judicially substituted term may be
substituted therefor.
(C) Employee agrees that during the term of this Restrictive Covenant, he
will not, directly or indirectly, (a) contact, induce, or influence any
customers or clients, joint venture partners, employee, consultant, associate or
affiliate of the Company or its or their successors with respect to the Company'
proposed business as described in (A) above or for any reason whatsoever,
without the written consent of the Company, signed by two executive officers;
(b) request or advise any customers, clients, joint venture partners, suppliers,
manufacturers, employees, consultants, associates or affiliates of the Company
or its or their successors, who may contact or attempt to contact the Employee
to withdraw, curtail, or cancel such parties' business with the Company or its
successors; (c) disclose to any other persons or corporations the names or
addresses of any of the customers, clients, joint venture partners, suppliers,
manufacturers, wireless services providers, employees, consultants, associates,
or affiliates of the Company or its or their successors; or (d) induce or
encourage any employee to terminate his relationship with the Company. ARTICLE
VII TERM
<PAGE>
This Agreement shall be for an initial term of three years commencing
on the Employment Date, subject to automatic extension, as provided herein,
unless sooner terminated pursuant to the terms of Article VIII. After the
initial term, this Agreement shall automatically renew for additional periods of
one year, until such time as either Employee resigns, the shares referenced in
Article IX have fully vested, or Employee is terminated in accordance with
Article VIII.
ARTICLE VIII
TERMINATION AND EFFECT THEREOF
(A) The Company may terminate this Agreement:
(i) Upon the death of Employee during the term hereof, except
that the Employee's legal representatives, successors, assigns, and
heirs shall have those rights and interests as otherwise provided in
this Agreement, including the right to receive accrued but unpaid
bonus compensation, if any.
(ii) Upon written notice from the Company to the Employee, if
Employee becomes totally disabled and as a result of such total
disability, has been prevented from and unable to perform all of his
duties hereunder for a period of four (4) consecutive months.
(iii) If the Employee engages in fraud, misappropriation of
Company funds, or gross negligence in the performance of his duties.
(iv) The Company shall have the right to terminate Employee's
employment hereunder for cause. For purposes of this Agreement,
"cause" means (a) a breach of the covenants herein, (b) failure to
perform his duties in a professional and competent manner; (c) failure
by Employee to substantially perform his duties or obligations
hereunder; (d) Employee engaging in misconduct which is materially
injurious to the Company; (e) Employee engaging in any act that in any
way has a direct, substantial, and adverse effect on the Company's
reputation; (f) Employee committing a crime of moral turpitude; (g)
Employee's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction of a crime
constituting a felony.
(B) Upon termination of this Agreement:
(i) Pursuant to subarticles (A)(i), (iii), and (iv) of this
Article VIII, Employee's employment hereunder and all compensation and
benefits payable by the Company hereunder shall be immediately
terminated. In addition, all options shall be terminated and all
shares of Common Stock issued pursuant to Article IX which have not
vested shall be returned to the Company's treasury, subject to the
restricted share agreement referenced herein. All vested shares shall
be delivered to the Employee or his estate, as the case may be.
Employee or his estate, as the case may be, shall be entitled to
receive any payments under any applicable life or disability insurance
plans, if any are in effect at the time of termination. Such payments,
if any, shall be made at the time and in accordance with the terms and
conditions of such plans.
(ii) Pursuant to subarticle (A)(ii), Employee's employment
hereunder shall terminate, all vested options shall continue to be
exercisable for a period of six months thereafter and all non vested
options shall terminate. In addition, all shares of Common Stock
issued pursuant to Article IX which have not vested shall be returned
to the Company's treasury, subject to the restricted share agreement
referenced herein. All vested shares shall be delivered to the
Employee or his estate, as the case may be. Employee or his estate, as
the case may be.
<PAGE>
(iii) In the event that the employment is terminated for any
reason except as listed in this Article VIII, the Employee shall have
the right to receive his salary for the period from the date of his
termination until the end of the initial term of the agreement as
described in Article VII.
ARTICLE IX
STOCK OPTIONS AND EXCHANGE OF LABYRINTH SHARES
FOR SHARES OF COMMON STOCK OF THE COMPANY
(A) As an inducement to Employee to enter into the Employment Agreement,
the Company granted to Employee options to purchase shares of the Company's
Common Stock, $.001 par value per share, upon and subject to the terms and
conditions of an option agreement. Employee is hereby granted options to
purchase 100,000 shares of the Company's Common Stock, vesting at the rate of
1/3 per year commencing January 10, 1998. The options shall be exercisable on
the dates of vesting and continuing until January 9, 2002. The exercise price of
the options shall be equal to $4.00 per share. The foregoing options are not
intended to qualify as incentive stock options. The options provided for herein
are not transferable by Employee and shall be exercisable only by Employee or by
his legal representative or executor.
(B) Labyrinth issued 20,000 shares of its Common Stock on the Employment
Date, subject to the terms and conditions of a restricted share agreement, which
agreement details a vesting schedule of 1/3 of the shares vesting each year, for
the three year initial term of the Employment Agreement. Subject to the
consummation of the Merger, the Company shall issue 183,600 shares of its Common
Stock in exchange for the 20,000 shares of Labyrinth, subject to the terms and
conditions of an amended restricted share agreement dated as of this date.
ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XI
ARBITRATION
Any dispute arising out of the interpretation, application, and/or
performance of this Agreement with the sole exception of any claim, breach, or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a single arbitrator in the City of San Ramon, the
State of California in accordance with the rules of the American Arbitration
Association. The arbitrator shall be selected by the Association and shall be an
attorney at law experienced in the field of corporate law. Any judgment upon any
arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XII
SEVERABILITY
If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIII
NOTICE
All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, to the address as included in the Company's records or to any such
other address as the party to receive the notice shall advise by due notice
given in accordance with this paragraph.
<PAGE>
ARTICLE XIV
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XV
WAIVER
The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
This Agreement and each Option Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of such State without
giving effect to the rules of said State governing the conflicts of laws.
ARTICLE XVII
JURISDICTION
Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought in courts having a situs
within the State of California, and Employee hereby consents to the jurisdiction
of any local, state, or federal court located within the State of California,
except in those proceedings specifically referenced in Article XI herein.
ARTICLE XVIII
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto. No
change, addition, or amendment shall be made hereto except by written agreement
signed by the parties hereto.
ARTICLE XIX
CONSTRUCTION
The parties intend for the provisions of Articles V and VI of this
agreement to be construed, interpreted, and enforced to the maximum extent
permitted by law. The parties acknowledge and agree that they have both
participated in the preparation of this Agreement, and the Agreement shall not
be construed or interpreted against either party on the basis that it was
prepared by such other party. In the event that any provision of Articles V or
VI, or any part thereof, shall be determined by any court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any
reason, such provision shall be revised and/or interpreted to make it
enforceable to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
U.S. WIRELESS CORPORATION
By:
Dr. Oliver Hilsenrath
Chief Executive Officer
EMPLOYEE
Ravi Rajapakse
Exhibit 10.89
Amended Employment Agreement with Abraham Bar
AMENDED EMPLOYMENT AGREEMENT
As of the 12th day of January 1998, the employment agreement (the
"Employment Agreement") dated the 1st day of October 1996 ("Employment Date"),
by and between Abraham Bar, residing at 936 El Cajon Way, Palo Alto, California
(hereinafter referred to as the "Employee") and Labyrinth Communication
Technologies Group, Inc. ("Labyrinth") is hereby amended. All capitalized terms
herein refer to their defined meaning as defined in the Employment Agreement,
except as may be specifically defined herein.
W I T N E S S E T H :
WHEREAS, the Company has undertaken the process of merging (the
"Merger") Labyrinth together with and into U.S. Wireless Corporation (the
"Company"), the parent company of Labyrinth, in accordance with a share exchange
offer presented to the shareholders of Labyrinth whereby the Company will be the
sole surviving company; and
WHEREAS, as Labyrinth shall cease to exist, Employee shall become an
employee of the Company and in accordance therewith shall exchange his shares of
common stock of Labyrinth for shares of Common Stock of the Company, subject to
a vesting schedule, in accordance with the amended restricted share agreement
referenced herein; and
WHEREAS, the Employee and the Company desire to continue Employee's
employment with the Company as Vice President - Hardware, and in accordance
therewith amends his Employment Agreement, as described herein, which amendment
shall supersede all prior agreements between the Company, its subsidiaries,
and/or predecessors, and the Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby retains Employee as Vice President - Hardware of the Company, and
the Employee hereby agrees to continue his employment. In this capacity,
Employee will report directly to the Chief Executive Officer and President of
the Company.
ARTICLE II
DUTIES AND ACKNOWLEDGMENTS
(A) The Employee shall, during the term of his employment with the Company,
and subject to the direction and control of the Company's Board of Directors,
perform such duties and functions related to his position as he may be called
upon to perform by the Company's Board of Directors during the term of this
Agreement.
(B) The Employee agrees to devote 100% of his normal business time, or such
less amount of his business time as shall be agreed upon by the Company and the
Employee, to the Company. Employee shall use his best efforts in the performance
of his duties for the Company and in rendering such services for any subsidiary
corporations of the Company.
(C) The Employee shall perform, in conjunction with the Company's
Management, to the best of his ability, the following services and duties for
the Company and its subsidiary corporations (by way of example, and not by way
of limitation):
(i) Those duties attendant to the position with the Company for
which he is hired;
(ii) Design, Development of and implementation of the Company's
Hardware systems for the Company's product lines; and
<PAGE>
(iii) Formulation of the Company's business plans with respect to
his area of operations, subject to the direction of the Board of
Directors.
(D) Employee acknowledges that all Intellectual Property (as defined
herein) developed or co-developed by the Employee during the Employee's tenure
with the Company shall be the sole and absolute property of the Company.
Employee agrees to facilitate and coordinate, to the best of his ability, the
safeguarding of all Intellectual Property which is developed or co-developed
during Employee's tenure with the Company. Employee, on behalf and at the
request of the Company shall detail all Intellectual Property developed or
co-developed, so that the Company may file the appropriate patents or other
filings in order to protect the Company's ownership rights in such properties.
Employee shall execute and deliver assignments of all rights and interest in any
Intellectual Property developed or co-developed during Employee's tenure with
the Company, for the Company's records and as needed for filing with any
federal, state, city, local, or foreign government agency or authority.
(E) Employee represents that he shall comply with all federal, state and
local securities laws and shall have prepared and filed with the appropriate
agencies all required filings in a timely and efficient manner. Employee further
agrees to abide by the rules and regulations of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the Employment Date, the Company had paid the Employee
a salary at the rate of $100,000 per annum, which was increased to $110,000 as
of January 1, 1998, which rate shall continue during the remaining term of this
Agreement. Salary shall be paid in equal monthly installments or pursuant to
such regular pay periods as are adopted by the Company (the "Base Salary"). (B)
The Company shall deduct from Employee's compensation all federal, state, and
local taxes which it may now or may hereafter be required to deduct.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; and (ii) Employee shall be reimbursed by the Company upon
presentation of appropriate vouchers for all business expenses incurred by the
Employee on behalf of the Company.
(B) In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier may request.
(C) For each year of the term hereof, Employee shall be entitled to fifteen
(15) days paid vacation.
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of
his employment hereunder, except when acting on behalf of and with the
authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
proposed and current services and pricing, and any information relating to the
Company's business (collectively referred to as the "Proprietary Information").
For the purposes of this Agreement, trade secrets and confidential information
shall mean information disclosed to the Employee or known by him as a
consequence of his employment by the Company, whether or not pursuant to this
<PAGE>
Agreement, and not generally known in the industry, concerning the Company?s
Intellectual Property, business, finances, methods, operations, marketing
information, pricing, and information relating to proposed expansion of the
Company or the Company's business plans. The Employee acknowledges that trade
secrets and other items of confidential information, as they may exist from time
to time, are valuable and unique assets of the Company, and that disclosure of
any such information would cause substantial injury to the Company. The
foregoing is intended to be confirmatory of the common laws of the states of
California and Delaware relating to trade secrets and confidential information.
?Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
re-issuances, continuations, continuations in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
ARTICLE VI
RESTRICTIVE COVENANTS
(A) In the event of the Employee's termination with the Company, whether
voluntarily or for cause, Employee agrees that he will not, for a period of four
years following such termination, directly enter into or become associated with
or engage in any other business (whether as a partner, officer, director,
shareholder, employee, consultant, or otherwise), which business is a direct or
indirect competitor of the Company, or any current or future subsidiary,
associate, affiliate or joint venture partner, which is a direct or indirect
competitor of the Company, or any subsidiary or Parent company.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this paragraph is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable, or in the alternative, such judicially substituted term may be
substituted therefor.
(C) Employee agrees that during the term of this Restrictive Covenant, he
will not, directly or indirectly, (a) contact, induce, or influence any
customers or clients, joint venture partners, employee, consultant, associate or
affiliate of the Company or its or their successors with respect to the
Company?s proposed business as described in (A) above or for any reason
whatsoever, without the written consent of the Company, signed by two executive
officers; (b) request or advise any customers, clients, joint venture partners,
suppliers, manufacturers, employees, consultants, associates or affiliates of
the Company or its or their successors, who may contact or attempt to contact
the Employee to withdraw, curtail, or cancel such parties' business with the
Company or its successors; (c) disclose to any other persons or corporations the
names or addresses of any of the customers, clients, joint venture partners,
suppliers, manufacturers, wireless services providers, employees, consultants,
associates, or affiliates of the Company or its or their successors; or (d)
induce or encourage any employee to terminate his relationship with the Company.
<PAGE>
ARTICLE VII
TERM
This Agreement shall be for an initial term of three years commencing on
the Employment Date, subject to automatic extension, as provided herein, unless
sooner terminated pursuant to the terms of Article VIII. After the initial term,
this Agreement shall automatically renew for additional periods of one year,
until such time as either Employee resigns, the shares referenced in Article IX
have fully vested, or Employee is terminated in accordance with Article VIII.
ARTICLE VIII
TERMINATION AND EFFECT THEREOF
(A) The Company may terminate this Agreement:
(i) Upon the death of Employee during the term hereof, except
that the Employee's legal representatives, successors, assigns, and
heirs shall have those rights and interests as otherwise provided in
this Agreement, including the right to receive accrued but unpaid
bonus compensation, if any.
(ii) Upon written notice from the Company to the Employee, if
Employee becomes totally disabled and as a result of such total
disability, has been prevented from and unable to perform all of his
duties hereunder for a period of four (4) consecutive months.
(iii) If the Employee engages in fraud, misappropriation of
Company funds, or gross negligence in the performance of his duties.
(iv) The Company shall have the right to terminate Employee's
employment hereunder for cause. For purposes of this Agreement,
"cause" means (a) a breach of the covenants herein, (b) failure to
perform his duties in a professional and competent manner; (c) failure
by Employee to substantially perform his duties or obligations
hereunder; (d) Employee engaging in misconduct which is materially
injurious to the Company; (e) Employee engaging in any act that in any
way has a direct, substantial, and adverse effect on the Company's
reputation; (f) Employee committing a crime of moral turpitude; (g)
Employee's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent jurisdiction of a crime
constituting a felony.
(B) Upon termination of this Agreement:
(i) Pursuant to subarticles (A)(i), (iii), and (iv) of this
Article VIII, Employee's employment hereunder and all compensation and
benefits payable by the Company hereunder shall be immediately
terminated. In addition, all options shall be terminated and all
shares of Common Stock issued pursuant to Article IX which have not
vested shall be returned to the Company's treasury, subject to the
restricted share agreement referenced herein. All vested shares shall
be delivered to the Employee or his estate, as the case may be.
Employee or his estate, as the case may be, shall be entitled to
receive any payments under any applicable life or disability insurance
plans, if any are in effect at the time of termination. Such payments,
if any, shall be made at the time and in accordance with the terms and
conditions of such plans.
(ii) Pursuant to subarticle (A)(ii), Employee's employment
hereunder shall terminate, all vested options shall continue to be
exercisable for a period of six months thereafter and all non vested
options shall terminate. In addition, all shares of Common Stock
issued pursuant to Article IX which have not vested shall be returned
to the Company's treasury, subject to the restricted share agreement
referenced herein. All vested shares shall be delivered to the
Employee or his estate, as the case may be. Employee or his estate, as
the case may be.
<PAGE>
(iii) In the event that the employment is terminated for any
reason except as listed in this Article VIII, the Employee shall have
the right to receive his salary for the period from the date of his
termination until the end of the initial term of the agreement as
described in Article VII.
ARTICLE IX
STOCK OPTIONS AND EXCHANGE OF LABYRINTH SHARES
FOR SHARES OF COMMON STOCK OF THE COMPANY
(A) As an inducement to Employee to enter into the Employment Agreement,
the Company granted to Employee options to purchase shares of the Company's
Common Stock, $.001 par value per share, upon and subject to the terms and
conditions of an option agreement. Employee is hereby granted options to
purchase 100,000 shares of the Company's Common Stock, vesting at the rate of
1/3 per year commencing October 3, 1997. The options shall be exercisable on the
dates of vesting and continuing until October 2, 2001. The exercise price of the
options shall be equal to $2.50 per share. The foregoing options are not
intended to qualify as incentive stock options. The options provided for herein
are not transferable by Employee and shall be exercisable only by Employee or by
his legal representative or executor.
(B) Labyrinth issued 25,000 shares of its Common Stock on the Employment
Date, subject to the terms and conditions of a restricted share agreement, which
agreement details a vesting schedule of 1/3 of the shares vesting each year, for
the three year initial term of the Employment Agreement. Subject to the
consummation of the Merger, the Company shall issue 229,500 shares of its Common
Stock in exchange for the 25,000 shares of Labyrinth, subject to the terms and
conditions of an amended restricted share agreement dated as of this date.
ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XI
ARBITRATION
Any dispute arising out of the interpretation, application, and/or
performance of this Agreement with the sole exception of any claim, breach, or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a single arbitrator in the City of San Ramon, the
State of California in accordance with the rules of the American Arbitration
Association. The arbitrator shall be selected by the Association and shall be an
attorney at law experienced in the field of corporate law. Any judgment upon any
arbitration award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XII
SEVERABILITY
If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XIII
NOTICE
All notices required to be given under the terms of this Agreement shall be
in writing and shall be deemed to have been duly given only if delivered to the
addressee in person or mailed by certified mail, return receipt requested, to
the address as included in the Company's records or to any such other address as
the party to receive the notice shall advise by due notice given in accordance
with this paragraph.
<PAGE>
ARTICLE XIV
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XV
WAIVER
The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XVI
GOVERNING LAW
This Agreement and each Option Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of such State without
giving effect to the rules of said State governing the conflicts of laws.
ARTICLE XVII
JURISDICTION
Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought in courts having a situs
within the State of California, and Employee hereby consents to the jurisdiction
of any local, state, or federal court located within the State of California,
except in those proceedings specifically referenced in Article XI herein.
ARTICLE XVIII
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties hereto. No
change, addition, or amendment shall be made hereto except by written agreement
signed by the parties hereto.
ARTICLE XIX
CONSTRUCTION
The parties intend for the provisions of Articles V and VI of this
agreement to be construed, interpreted, and enforced to the maximum extent
permitted by law. The parties acknowledge and agree that they have both
participated in the preparation of this Agreement, and the Agreement shall not
be construed or interpreted against either party on the basis that it was
prepared by such other party. In the event that any provision of Articles V or
VI, or any part thereof, shall be determined by any court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any
reason, such provision shall be revised and/or interpreted to make it
enforceable to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
U.S. WIRELESS CORPORATION
By:
Dr. Oliver Hilsenrath
Chief Executive Officer
EMPLOYEE
Abraham Bar
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.0
FINANCIAL DATA SCHEDULE
This schedule contains summary information extracted from the Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part I, Item 7, of this Form 10 - KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 2,285,750
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,285,750
<PP&E> 649,544
<DEPRECIATION> (249,648)
<TOTAL-ASSETS> 2,710,681
<CURRENT-LIABILITIES> 267,900
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,208,358
<TOTAL-LIABILITY-AND-EQUITY> 2,710,681
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,036,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,192,565)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
