<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 29, 2000
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 1-13436
TELETOUCH COMMUNICATIONS, INC.
(Name of registrant in its charter)
DELAWARE 75-2556090
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 N. College, Suite 200, Tyler, Texas 75702 (903) 595-8800
(Address and telephone number of principal executive offices)
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value - 4,298,130 shares outstanding as
of April 14, 2000
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
FORM 10-Q
QUARTER ENDED FEBRUARY 29, 2000
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements - Teletouch Communications, Inc. (Unaudited)
Condensed Consolidated Balance Sheets at
February 29, 2000 and May 31, 1999 4
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended February 29, 2000 and
February 28, 1999 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 29, 2000 and
February 28, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
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Part 1. Financial Information
3
<PAGE>
<TABLE>
<CAPTION>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share dcata)
February 29, 2000 May 31, 1999
----------------- ----------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents........................................................ $ 5,137 $ 5,787
Accounts receivable, net of allowance............................................ 1,972 1,788
Inventory........................................................................ 6,210 4,936
Deferred income tax assets....................................................... 56 56
Note receivable.................................................................. 500 500
Certificates of deposit, restricted as to use.................................... 1,475 725
Prepaid expenses and other current assets........................................ 1,335 1,099
------------ ------------
16,685 14,891
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $12,646 in 2000 and $10,671 in 1999.............................. 19,057 18,733
GOODWILL, INTANGIBLES AND OTHER ASSETS:
Goodwill......................................................................... 24,786 24,786
Subscriber bases................................................................. 28,255 28,225
FCC licenses..................................................................... 21,744 21,741
Non-compete agreements........................................................... 700 700
Debt issue costs................................................................. 4,100 4,100
Other............................................................................ 221 150
Accumulated amortization......................................................... (38,152) (32,070)
------------ ------------
41,654 47,632
------------ ------------
$ 77,396 $ 81,256
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................ $ 3,675 $ 4,711
Current portion of unearned sale/leaseback profit................................ 405 405
Deferred revenue................................................................. 1,763 1,514
------------ ------------
5,843 6,630
LONG-TERM LIABILITIES:
Long-term debt................................................................... 77,756 75,944
Unearned sale/leaseback profit................................................... 2,915 3,102
------------ ------------
80,671 79,046
COMMITMENTS AND CONTINGENCIES........................................................... -- --
DEFERRED INCOME TAXES................................................................... 1,042 1,042
SHAREHOLDERS' EQUITY:
Series A cumulative convertible preferred stock, $.001 par value,
15,000 shares authorized, issued, and outstanding................................ -- --
Series B convertible preferred stock, $.001 par value, 411,457 shares
authorized, 87,286 shares issued and outstanding................................. -- --
Common stock, $.001 par value, 25,000,000 shares authorized, 4,298,130
shares issued and outstanding in 2000 and 4,235,527 in 1999...................... 4 4
Additional paid-in capital....................................................... 24,863 24,816
Accumulated deficit.............................................................. (35,027) (30,282)
------------ ------------
(10,160) (5,462)
------------ ------------
$ 77,396 $ 81,256
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except shares and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
--------------------------------- ----------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Service, rent, and maintenance revenue................. $ 11,383 $ 10,953 $ 33,662 $ 31,630
Product sales revenue.................................. 3,011 2,168 7,897 5,991
-------------- --------------- -------------- ---------------
Total revenues...................................... 14,394 13,121 41,559 37,621
Net book value of products sold........................ (2,893) (2,177) (7,511) (5,875)
-------------- --------------- -------------- ---------------
11,501 10,944 34,048 31,746
Costs and expenses:
Operating......................................... 3,641 2,986 10,769 8,843
Selling........................................... 2,191 1,627 6,076 4,103
General and administrative........................ 1,776 2,491 5,657 7,186
Depreciation and amortization..................... 3,122 3,954 10,415 10,971
-------------- --------------- -------------- ---------------
Total costs and expenses............................... 10,730 11,058 32,917 31,103
-------------- --------------- -------------- ---------------
Operating income/(loss)................................ 771 (114) 1,131 643
Gain on sale of assets................................. -- 22 117 22
Interest expense, net.................................. (2,066) (1,874) (5,993) (5,857)
-------------- --------------- -------------- ---------------
Loss before income taxes............................... (1,295) (1,966) (4,745) (5,192)
Income tax expense/(benefit)........................... -- -- -- --
-------------- --------------- -------------- ---------------
Net loss............................................... (1,295) (1,966) (4,745) (5,192)
Preferred stock dividends.............................. (969) (811) (2,820) (2,379)
-------------- --------------- -------------- ---------------
Loss applicable to common stock........................ (2,264) (2,777) (7,565) (7,571)
============== =============== ============== ===============
Loss per share........................................ $ (0.53) $ (0.66) $ (1.76) $ (1.79)
============== =============== ============== ===============
Weighted average shares outstanding.................... 4,298,130 4,235,611 4,298,130 4,235,611
============== =============== ============== ===============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
February 29 and 28,
-------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Operating Activities:
Net loss........................................................................ $ (4,745) $ (5,192)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................................... 10,415 10,971
Non cash consulting expense..................................................... -- 55
Non cash interest expense....................................................... 2,424 2,240
Provision for losses on accounts receivable..................................... 1,017 547
Gain on sale of assets.......................................................... (117) (22)
Amortization of unearned sale/leaseback profit.................................. (304) (304)
Changes in operating assets and liabilities:
Accounts receivable, net...................................................... (1,201) (1,077)
Inventories................................................................... (219) 552
Prepaid expenses and other assets............................................. (325) 518
Accounts payable and accrued expenses......................................... (1,036) (1,550)
Deferred revenue............................................................. 249 408
-------------- --------------
Net cash provided by operating activities............................................ 6,158 7,146
Investing Activities:
Capital expenditures, including pagers.......................................... (6,086) (4,676)
Purchase of certificates of deposit............................................. (750) --
Deferred costs associated with acquisitions..................................... (15) --
Net proceeds from sale of assets................................................ 246 49
-------------- --------------
Net cash used for investing activities............................................... (6,605) (4,627)
Financing Activities:
Payments on long-term debt...................................................... (250) (1,000)
Net proceeds from common stock warrants......................................... 47 --
-------------- --------------
Net cash used for financing activities............................................... (203) (1,000)
-------------- --------------
Net increase/(decrease) in cash and cash equivalents................................. (650) 1,519
Cash and cash equivalents at beginning of period..................................... 5,787 4,567
-------------- --------------
Cash and cash equivalents at end of period........................................... $ 5,137 $ 6,086
============== ==============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6
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TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Teletouch
Communications, Inc., and its subsidiaries (the "Company") for the periods ended
February 29, 2000 and February 28, 1999 have been prepared in accordance with
generally accepted accounting principles for interim financial reporting applied
on a consistent basis. Significant accounting policies followed by the Company
were disclosed in the notes to the financial statements included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1999. The
balance sheet at May 31, 1999 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the
accompanying condensed consolidated financial statements contain the material
adjustments necessary to present fairly the financial position of the Company at
February 29, 2000 and May 31, 1999 and the results of its operations and cash
flows for the periods ended February 29, 2000 and February 28, 1999. All such
adjustments are of a normal recurring nature. Interim period results are not
necessarily indicative of the results to be achieved for the full year.
Reclassification: Certain reclassifications have been made in the prior years'
financial statements to conform to the fiscal year 2000 presentation.
NOTE B - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
February 29, May 31,
2000 1999
------- -------
(Unaudited)
Notes payable.................................... $59,750 $60,000
Junior subordinated notes, including
accrued interest............................... 18,006 15,944
------- -------
$77,756 $75,944
======= =======
Notes Payable: Teletouch's Credit Agreement provides for loans in an amount
not to exceed $70 million. As of February 29, 2000, $59,750,000 of the Credit
Agreement was funded, and $10,000,000 is available for future funding. The
Credit Agreement bears interest, at the Company's designation, at a floating
rate of the prime rate plus 1% to 2% or LIBOR plus 2% to 3%. These rates vary
depending on the leverage ratio of the Company. The Credit Agreement is secured
by substantially all of the assets of Teletouch and its subsidiaries. Borrowings
under the Credit Agreement require the principal be repaid in escalating
quarterly installments beginning with payments of $1,625,000 in August 2000 and
ending in November 2005. These principal installments are expected to be paid
with funds generated from operations. The Credit Agreement also requires the
maintenance of specified financial and operating covenants, with which the
Company is in compliance, and prohibits any payments on the Junior Subordinated
Notes and the payment of dividends.
7
<PAGE>
TELETOUCH COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - SEGMENT INFORMATION
Teletouch operates in the wireless telecommunications industry, providing
paging and messaging, cellular, and two-way radio services to a diversified
customer base. As of and for the nine months ending February 29, 2000 and
February 28, 1999, the Company had no foreign operations.
Teletouch's cellular and two-way radio operations represent less than 10%
individually and in the aggregate of revenue, operating income, and assets of
the Company.
NOTE D - SUBSEQUENT EVENTS
On March 31, 2000, Teletouch signed an agreement to acquire Eastex
Communications, a privately held company headquartered in Nacogdoches, Texas,
for approximately $0.5 million. Eastex provides paging and two-way radio
services in Nacogdoches, Lufkin, Livingston, and Huntsville, Texas. The
acquisition also includes six 450 MHz licenses for Logic Trunked Radio (LTR)
Passport-enabled systems. The Company will account for this acquisition under
the purchase method of accounting.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon numerous assumptions about future
conditions that could prove not to be accurate. Actual events, transactions and
results may materially differ from the anticipated events, transactions or
results described in such statements. The Company's ability to consummate such
transactions and achieve such events or results is subject to certain risks and
uncertainties. Such risks and uncertainties include, but are not limited to,
the existence of demand for and acceptance of the Company's products and
services, regulatory approvals and developments, economic conditions, the impact
of competition and pricing, results of financing efforts and other factors
affecting the Company's business that are beyond the Company's control. The
Company undertakes no obligation and does not intend to update, revise, or
otherwise publicly release the results of any revisions to these forward-looking
statements that may be made to reflect future events or circumstances.
OVERVIEW
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
condensed consolidated financial statements and notes thereto included elsewhere
in this report.
Teletouch is a leading provider of wireless telecommunications services,
primarily paging services, in non-major metropolitan areas and communities in
the southeast United States. As of February 29, 2000 the Company had
approximately 414,600 pagers in service. The Company derives the majority of its
revenues from fixed periodic fees, not dependent on usage, charged to
subscribers for paging services. As long as a subscriber remains on service,
operating results benefit from the recurring payments of the fixed periodic fees
without incurring additional selling expenses or other fixed costs. While there
can be no assurance, Teletouch expects that net subscriber additions will
continue to grow as the Company continues to open new retail stores and to focus
on its other sales channels.
The Company is also expanding its existing product lines. In December 1998,
Teletouch began offering its own brand of prepaid cellular service. The Company
also sells PCS cellular service as an agent for other carriers. To enhance its
primary wireless services, the Company is also expanding its offering of other
value-added services such as voice mail and Smartpager(R), a service whereby
individuals can send an alphanumeric page to a subscriber without any special
software or equipment. The Company is closely monitoring new product offerings
and the expansion of existing products and services to ensure those products and
services are meeting its customers' needs.
On March 15, 2000, Teletouch signed a five-year agreement with WebLink
Wireless, Inc. This agreement allows the Company to market two-way wireless
data service through WebLink's nationwide network. It also provides Teletouch
with a broad suite of other advanced messaging services to market to its
customers, including Internet-based messaging and content services. This
9
<PAGE>
agreement follows Teletouch's recent purchase of 32 licenses in the 900 MHz
spectrum through the FCC license auctioning process. These licenses will
provide significant paging capacity for all of the Company's markets on a common
frequency.
On March 31, 2000, Teletouch signed an agreement to acquire Eastex
Communications, a privately held company headquartered in Nacogdoches, Texas.
Eastex provides paging and two-way radio services in Nacogdoches, Lufkin,
Livingston, and Huntsville, Texas. The acquisition also includes six 450 MHz
licenses for Logic Trunked Radio (LTR) Passport-enabled systems.
LTR radio service is licensed for the 450 MHz spectrum and includes voice,
data and voice mail capabilities. The LTR Passport-enabled service includes
"follow-me roaming" features that are similar to the automatic handoff of radio
signals characteristic of cellular radio systems. The market for LTR radio
service includes customers desiring an upgrade in features and extended roaming
compared to traditional two-way radio service. LTR radio service is also a
cost-efficient communications alternative to cellular telephones since LTR
service is based on a fixed monthly fee per radio versus per-minute cellular
charges.
Teletouch also recently launched a 450 MHz Passport system in Tyler and
Longview, Texas. This service will provide the Company with significant growth
opportunities to provide "Nextel-type" radio service in its East Texas and other
markets.
10
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items from the Company's condensed
consolidated statements of operations and certain other information for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29 and 28, February 29 and 28,
----------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except pagers, ARPU and per share amounts)
<S> <C> <C> <C> <C>
Service, rent and maintenance revenue $ 11,383 $ 10,953 $ 33,662 $ 31,630
Product sales revenue 3,011 2,168 7,897 5,991
-------- -------- -------- --------
Total revenues 14,394 13,121 41,559 37,621
Net book value of products sold (2,893) (2,177) (7,511) (5,875)
-------- -------- -------- --------
$ 11,501 $ 10,944 $ 34,048 $ 31,746
Operating expenses $ 10,730 $ 11,058 $ 32,917 $ 31,103
Operating income $ 771 $ (114) $ 1,131 $ 643
Net loss before preferred stock dividends $ (1,295) $ (1,966) $ (4,745) $ (5,192)
Net loss after preferred stock dividends $ (2,264) $ (2,777) $ (7,565) $ (7,571)
Loss per share after preferred stock dividends $ (0.53) $ (0.66) $ (1.76) $ (1.79)
EBITDA (1) $ 3,893 $ 3,840 $ 11,546 $ 11,614
Pagers in service at end of period 414,600 385,000 414,600 385,000
Average revenue per unit ("ARPU") $ 9.10 $ 9.30 $ 9.04 $ 9.30
</TABLE>
___________________________
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization (and certain non-recurring income and expenses). EBITDA is a
standard measure of financial performance in the paging industry. However,
EBITDA is not a measure defined in generally accepted accounting principles
("GAAP") and should not be construed as an alternative to operating income
or cash flows from operating activities as determined in accordance with
GAAP. EBITDA is, however, one of the primary financial measures by which
the Company's covenants are calculated under its debt agreements. The
EBITDA shown above does not include gain/(loss) on the sale of assets.
Results of Operations for the nine and three months ended February 29 and 28,
- -----------------------------------------------------------------------------
2000 and 1999
- -------------
Total revenue: Teletouch's total revenue increased to $41.6 and $14.4 million
-------------
for the nine months and three months ended February 29, 2000 from $37.6 and
$13.1 million for the nine months and three months ended February 28, 1999.
This increase is due primarily to the additional revenues of $2.2 million from
new cellular products and from an increase in pagers in
11
<PAGE>
service resulting from internal growth. Pagers in service increased to
approximately 414,600 at February 29, 2000 as compared to 385,000 at February
28, 1999.
The positive impact on total revenue of the increase in pagers in service is
partially offset by the decline in average revenue per unit ("ARPU"). ARPU for
the nine months ended February 29, 2000 was $9.04 as compared to $9.21 for the
nine months ended May 31, 1999 and $9.30 for the nine months ended February 28,
1999. The decrease in ARPU is primarily due to an increase in the percentage of
the Company's subscriber base represented by resellers as well as increased
competition in the Company's markets. Resellers are businesses that buy airtime
at wholesale prices from Teletouch and sell the service to end users. While the
wholesale price to a reseller is lower than the price the Company charges to its
other customers, a reseller bears the cost of acquiring, billing, collecting and
servicing its subscribers. At February 29, 2000 approximately 40% of the
Company's subscriber base was represented by resellers as opposed to 38% at
February 28, 1999. In fiscal 1999, Teletouch implemented a minor price increase
for its basic paging service. The price increase will have a positive impact on
the Company's future ARPU, but as competitors continue to pursue its customers
in the marketplace and as the percentage of its subscriber base represented by
resellers increases, the Company's ARPU will continue to decline. Nevertheless,
Teletouch expects that the growth of paging units in service and the
introduction of new products and services will be sufficient to offset any
decline in ARPU and not result in a decrease in total revenue.
Operating expenses, excluding depreciation and amortization: Operating
-----------------------------------------------------------
expenses, excluding depreciation and amortization, were $22.5 million, 54% of
total revenue, for the first nine months of fiscal year 2000 as compared to
$20.1 million, 54% of total revenue, for the first nine months of fiscal year
1999; and $7.6 million, 53% of total revenue, for the three months ended
February 29, 2000 as compared to $7.1 million, 54% of total revenue, for the
three months ended February 28, 1999. Costs have increased primarily because of
the opening of 16 new retail outlets, particularly in the areas of payroll,
rent, and advertising expenses. As new retail stores are opened, operating
expenses are expected to increase as a percentage of revenue for a period of
time. Additionally, due to the restructuring of certain administrative
collection functions in May 1999, bad debt losses have increased significantly
for the nine and three months ended February 29, 2000 as compared to the nine
and three months ended February 28, 1999. However, the Company has implemented
new procedures that have resulted in lower bad debt losses for the third quarter
of fiscal 2000 compared to the second quarter of fiscal 2000.
Depreciation and amortization: Depreciation and amortization expense was
------------------------------
$10.4 and $3.1 million for the nine months and three months ended February 29,
2000 as compared to $11.0 and $4.0 million for the nine months and three months
ended February 28, 1999. The decrease is primarily due to lower depreciation
expenses recorded on returned leased pagers and the expiration of amortization
on certain intangibles, partially offset by the addition of new retail outlets.
12
<PAGE>
Interest expense: Net interest expense increased to $6.0 million for the nine
----------------
months ended February 29, 2000 from $5.9 million for the nine months ended
February 28, 1999; and $2.1 million for the three months ended February 29, 2000
from $1.9 million for the three months ended February 28, 1999. Increased
interest expense associated with the Junior Subordinated Notes, partially offset
by the decrease in long-term debt owed under the Credit Agreement at February
29, 2000 versus February 28, 1999 and lower interest rates for most of fiscal
2000, is the primary factor contributing to the higher interest costs.
Income tax benefit: For fiscal year 2000, the Company estimates the effective
------------------
tax benefit rate will be 0%. A valuation allowance has been recorded against
deferred tax assets which are not likely to be realized. Specifically,
Teletouch's carryforwards expire at specific future dates and utilization of
certain carryforwards is limited to specific amounts each year. However, due to
the uncertain nature of their ultimate realization, the Company has established
a valuation allowance against these carryforward benefits and will recognize
benefits only as reassessment demonstrates they are realizable. Realization is
entirely dependent upon future earnings in specific tax jurisdictions. While
the need for this valuation allowance is subject to periodic review, if the
allowance is reduced, the tax benefits of the carryforwards will be recorded in
future operations as a reduction of the Company's income tax expense.
EBITDA: EBITDA decreased to $11.5 million, 28% of total revenue, for the nine
------
months ended February 29, 2000 from $11.6 million, 31% of total revenue, for the
nine months ended February 28, 1999; and increased to $3.9 million, 27% of total
revenue, for the three months ended February 29, 2000 from $3.8 million, 29% of
total revenue, for the three months ended February 28, 1999. The decrease in
EBITDA as a percentage of total revenue is primarily due to the 16 new retail
outlets opened during the first nine months of fiscal 2000 and increased bad
debt losses, as previously discussed.
FINANCIAL CONDITION
Teletouch's Credit Agreement provides for loans in an amount not to exceed $70
million. As of February 29, 2000, $59,750,000 of the Credit Agreement was
funded, and $10,000,000 is available for future funding. The Credit Agreement
bears interest, at the Company's designation, at a floating rate of the prime
rate plus 1% to 2% or LIBOR plus 2% to 3%. These rates vary depending on the
leverage ratio of the Company. The Credit Agreement is secured by substantially
all of the assets of Teletouch and its subsidiaries. Borrowings under the Credit
Agreement require the principal be repaid in escalating quarterly installments
beginning with payments of $1,625,000 in August 2000 and ending in November
2005. These principal installments are expected to be paid with funds generated
from operations. The Credit Agreement also requires the maintenance of specified
financial and operating covenants, with which the Company is in compliance, and
prohibits any payments on the Junior Subordinated Notes and the payment of
dividends.
13
<PAGE>
Teletouch's operations require capital investment to purchase inventory for
lease to customers, to open new retail facilities, and to acquire paging
infrastructure equipment to support the Company's growth. Net capital
expenditures, including pagers, amounted to $6.1 million and $4.7 million for
the first nine months of fiscal years 2000 and 1999, respectively. Teletouch
anticipates capital expenditures to continue to be higher in fiscal 2000 as
compared to fiscal 1999 as the Company continues its retail store expansion,
improves its infrastructure, and meets its subscribers' pager needs. The
Company also anticipates relatively large capital expenditures in fiscal 2001 as
it plans to add 30 additional retail locations within its existing markets.
Teletouch will pay for these expenditures with cash generated from operations
and, if necessary, borrowings under the unused portion of the Credit Agreement
(discussed above).
The Company's inventory balance increased $1.3 million between May 31, 1999
and February 29, 2000, down from the $2.2 million increase between May 31, 1999
and November 30, 1999. This increase was funded with cash generated from
operations. The increase occurred primarily to support Teletouch's prepaid
cellular program and other new wireless programs, to stock the Company's new
retail stores, and to meet the needs of other marketing programs. Inventory
levels are expected to continue to decrease in the last quarter of Fiscal 2000
as these needs are being met.
IMPACT OF YEAR 2000
Teletouch has experienced no significant issues with respect to Year 2000.
However, the Company is continuing to monitor its systems to insure that any
issues that might arise are addressed immediately.
14
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Teletouch is party to various legal proceedings arising in the ordinary course
of business. The Company believes there is no proceeding, either threatened or
pending, against it that could result in a material adverse effect on its
results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Page
Number Title of Exhibit Number
- ------ ---------------- ------
10 J. Richard Carlson Employment Agreement 17
27 Financial Data Schedule 29
(b) Reports on Form 8-K.
--------------------
None.
15
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELETOUCH COMMUNICATIONS, INC.
------------------------------
(Registrant)
Date: April 14, 2000
/s/ J. Richard Carlson
----------------------
J. Richard Carlson
President
Chief Executive Officer
Date: April 14, 2000
/s/ J. Kernan Crotty
--------------------
J. Kernan Crotty
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
16
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated December 22, 1999, between
Teletouch Communications, Inc., a Delaware corporation (together with its
subsidiaries, the "Company"), and J. Richard Carlson, an individual residing in
Tyler, Texas (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to offer the Employee employment upon the
terms and conditions set forth herein and the Employee desires to accept such
employment;
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and the Employee hereby agree as follows:
1. Term of Employment; Office and Duties.
-------------------------------------
(a) Beginning on December 1, 1999 (the "Employment Date") and for
an initial term ending May 31, 2001, the Company shall employ the Employee as a
senior executive of the Company with the title of President, Chief Executive
Officer and Chief Operating Officer, with the duties and responsibilities
prescribed for such offices in the Bylaws of the Company and such additional
duties and responsibilities consistent with such positions as may from time to
time be assigned to the Employee by the Board of Directors. Employee agrees to
perform such duties and discharge such responsibilities in accordance with the
terms of this Agreement. This Agreement shall be renewed for an additional one-
year term, by the mutual written agreement of the Employee and the Company at
least thirty (30) days prior to its expiration.
(b) The Employee shall devote all of his working time to the
business and affairs of the Company other than during vacations of at most three
weeks per year and periods of illness or incapacity; provided, however, that
-------- -------
nothing in this Agreement shall preclude the Employee from devoting time
required: (i) for serving as a director or officer of any organization or entity
not in the paging business; (ii) delivering lectures or fulfilling speaking
engagements; and (iii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance of
- -------- -------
his duties hereunder.
2. Compensation and Benefits.
-------------------------
For all services rendered by the Employee in any capacity during the period of
Employee's employment by the Company, including without limitation,
services as an executive officer or member of any committee of the
Company or any subsidiary, affiliate or division thereof, from and after
the Effective Date the Employee shall be compensated as follows:
(a) Base Salary. The Company shall pay the Employee a fixed salary
-----------
("Base
17
<PAGE>
Salary") at a rate of two hundred thousand dollars ($200,000) per year. The
Board of Directors may periodically review the Employee's Base Salary with a
view to increasing such Base Salary if, in the judgment of the Board of
Directors, the earnings of the Company or the services of the Employee merit
such an increase. Base Salary will be payable in accordance with the customary
payroll practices of the Company.
(b) Bonus.
-----
(i) Employee will be entitled to receive an annual bonus
("the "Annual Bonus"), payable each year subsequent to the issuance of final
audited financial statements, but in no case later than 150 days after the end
of the Company's most recently completed fiscal year. The targeted amount of the
Annual Bonus is $200,000, but the final determination on the amount of the
Annual Bonus will be made by the Compensation Committee of the Board of
Directors, based primarily upon the Company's actual reported operating
performance versus the Company's budgeted performance for the Company's most
recently completed fiscal year. Specifically, the Compensation Committee will
give consideration to Earning Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), to EBITDA less Capital Expenditures, and to other
traditional criteria for determining operating performance. The Compensation
Committee may also consider other more subjective factors in making its
determination.
(ii) In addition to other amounts payable hereunder, Employee
shall receive from the Company a signing bonus of $100,000, payable within
thirty days after the Employment Date.
(iii) The Employee will participate in an annual bonus pool to
be developed and approved by the Company's Board of Directors.
(iv) If during the Employee's tenure as President, Chief
Executive Officer and Chief Operating Officer hereunder, the Junior Subordinated
Debt that is issued and outstanding is paid by the Company or a third party and
the Series A Preferred Stock issued by the Company is redeemed or purchased by
the Company or purchased by a third party (the "Repayment"), then the Employee
shall receive a Repayment Bonus. The Repayment Bonus shall be computed as
follows: if total cash proceeds equals or exceeds twenty-five million dollars
($25,000,000) but is less than thirty million dollars ($30,000,000) then the
Repayment Bonus shall equal $250,000; if total cash proceeds equals or exceeds
thirty million dollars ($30,000,000) but is less than thirty-five million
dollars ($35,000,000) then the Repayment Bonus shall equal $750,000; if total
cash proceeds equals or exceeds thirty-five million dollars ($35,000,000) then
the Repayment Bonus shall equal $1,000,000. Notwithstanding the foregoing, in
the event that the Junior Subordinated Debt and the Series A Preferred Stock are
repaid, redeemed and/or paid in full in cash and the Company ceases to be a
public reporting company pursuant to Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934 as a consequence of the acquisition of
substantially all of the outstanding voting securities of the Company by a
single person, party or group (the "Acquirer"), then the Employee will be
entitled to the greater of (a) the net proceeds payable to him by the Acquirer
or the Company
18
<PAGE>
for his interest in any and all options issued by the Company and owned by the
Employee or (b) the Repayment Bonus, but not both.
(c) Fringe Benefits.
---------------
(i) The Employee shall be entitled to participate in such
disability, health and life insurance and other fringe benefit plans or
programs, including a Section 401(k) retirement plan, of the Company established
from time to time by the Board of Directors, if any, to the extent that his
position, tenure, salary, age, health and other qualifications make him eligible
to participate, subject to the rules and regulations applicable thereto. Such
additional benefits shall include, but not be limited to, paid sick leave and
individual health insurance, all in accordance with the policies of the Company.
Where possible, all waiting and eligibility periods will be waived.
(ii) The stock options (the "Employment Options") to purchase
333,333 shares of the Company's Common Stock, par value $.001 per share (the
"Common Stock") previously granted to the Employee by the Company, which shall
be exercisable at a price per share equal to the average of the closing price of
the Common Stock for the 20-trading days prior to the Employment Date. The terms
of vesting, and the other material terms of the Employment Options will remain
unchanged.
(iii) In addition to the foregoing, on June 25, 2000 and
provided that Employee is still in the employ of the Company, Employee will be
granted an additional 166,667 options (the "Outyear Options") to purchase Common
Stock. The Outyear Options shall have an exercise price per share equal to the
average of the closing price of the Common Stock for the 20 trading days prior
to June 25, 2000 . The Outyear Options shall vest on a daily basis, pro rata
over a two year period beginning on the date of their grant.
(iv) Common Stock issuable upon exercise of the Employment
Options and the Outyear Options shall be unregistered, restricted stock. The
vesting of all options granted pursuant to this Agreement shall accelerate upon
sale of substantially all of the assets of the Company or the merger out of
existence of the Company provided that Employee is still in the employ of the
Company.
(d) Withholding and Employment Tax. Payment of all compensation
------------------------------
hereunder shall be subject to customary withholding tax and other employment
taxes as may be required with respect to compensation paid by an
employer/corporation to an employee.
(e) Disability. The Company shall, to the extent such benefits can
----------
be obtained at a reasonable cost, provide the Employee with disability insurance
benefits at least as favorable to the Employee as those being provided by the
Company to other senior executives of the Company. In the event of the
Employee's Disability (as hereinafter defined), the Employee and his family
shall continue to be covered by all of the Company's life, medical, health and
dental plans, at the Company's expense, to the extent such benefits can be
obtained at a reasonable cost, for the term of such Disability (as hereinafter
defined) in accordance with the
19
<PAGE>
terms of such plans.
(f) Death. The Company shall, to the extent such benefits can be
-----
obtained at a reasonable cost, provide the Employee with life insurance benefits
at least as favorable to the Employee as those being provided by the Company to
other senior executives of the Company. In the event of the Employee's death,
the Employee's family shall continue to be covered by all of the Company's
medical, health and dental plans, at the Company's expense, to the extent such
benefits can be obtained at a reasonable cost, for twenty-four (24) months
following the Employee's death in accordance with the terms of such plans.
(g) Vacation. Employee shall receive three (3) weeks of vacation
--------
annually, administered in accordance with the Company's existing vacation
policy. Unused vacation days may not be carried over into subsequent periods.
3. Business Expenses.
-----------------
The Company shall pay or reimburse all reasonable travel and entertainment
expenses incurred by the Employee in connection with the performance of
his duties under this Agreement, including reimbursement for attending
out-of-town meetings of the Board of Directors if requested to attend,
in accordance with such procedures as the Company may from time to time
establish for senior officers and as required to preserve any deductions
for federal income taxation purposes to which the Company may be
entitled and subject to the Company's normal requirements with respect
to reporting and documentation of such expenses.
4. Termination of Employment.
-------------------------
Notwithstanding any other provision of this Agreement, Employee's employment
with the Company may be terminated upon written notice to the other
party as follows:
(a) By the Company, in the event of the Employee's death or
Disability (as hereinafter defined) or for Cause (as hereinafter defined). For
purposes of this Agreement, "Cause" shall mean either: (i) the indictment of, or
the bringing of formal charges against, Employee by a governmental authority of
competent jurisdiction for charges involving criminal fraud or embezzlement;
(ii) the conviction of Employee of a crime involving an act or acts of
dishonesty, fraud or moral turpitude by the Employee, which act or acts
constitute a felony; (iii) Employee's continued failure to substantially perform
Employee's duties hereunder (after the elapse of a reasonable period to cure
such failure to perform if such failure is curable) following written notice
from the Board of Directors specifically setting forth such failure; (iv)
Employee having willfully caused the Company, without the approval of the Board
of Directors, to fail to abide by either a valid contract to which the Company
is a party or the Company's Bylaws; (v) Employee having committed acts or
omissions constituting gross negligence or willful misconduct with respect to
the Company; (vi) Employee having committed acts or omissions constituting a
breach of Employee's duty of loyalty or fiduciary duty to the Company or any act
of dishonesty or fraud with respect to the Company; or (vii) Employee having
committed acts or omissions constituting a material breach of this Agreement
which are not cured in a reasonable time, which time shall be 30 days from
receipt of written
20
<PAGE>
notice from the Company of such material breach. A determination that Cause
exists as defined in clauses (iv), (v), (vi) or (vii) (as to this Agreement) of
the preceding sentence shall be made by at least a majority of the members of
the Board of Directors. For purposes of this Agreement, "Disability" shall mean
the inability of Employee, in the reasonable judgment of a physician appointed
by the Board of Directors, to perform his duties of employment for the Company
or any of its subsidiaries because of any physical or mental disability or
incapacity, where such disability shall exist for an aggregate period of more
than 120 days in any 365-day period or for any period of 90 consecutive days.
The Company shall by written notice to the Employee specify the event relied
upon for termination pursuant to this Section 4(a), and Employee's employment
hereunder shall be deemed terminated as of the date of such notice. In the event
of any termination under this Subsection 4(a), the Company shall pay all amounts
then due to the Employee under Section 2(a) of this Agreement for any portion of
the payroll period worked but for which payment had not yet been made up to the
date of termination, and, if such termination was for Cause, the Company shall
have no further obligations to Employee under this Agreement, and any and all
options granted hereunder shall terminate according to their terms. In the event
of a termination due to Employee's Disability or death, the Company shall comply
with its obligations under Sections 2(e) and 2(f).
(b) By the Company, in the absence of Cause, for any reason and in
its sole and absolute discretion, provided that in such event the Company shall,
as liquidated damages or severance pay, or both, continue to pay to Employee the
Base Salary (at a monthly rate equal to the rate in effect immediately prior to
such termination) for the 12-month period commencing on the date of termination
(the "Termination Payments"). For the avoidance of doubt, the intent of the
foregoing is that the Company shall pay to Employee ratably, over a 12-month
period, 12/12 of the amount of the Base Salary. In addition, the Company will
pay to Employee a minimum bonus, payable as severance within 90 days after the
close of the Company's most recent fiscal year for which an annual bonus
hereunder has not yet been determined as of the date of termination, in an
amount equal to the greater of (i) $100,000 or (ii) the amount of Annual Bonus
determined in accordance with the provisions of Section 2(b)(i) hereof, pro
rated for that portion of the fiscal year during which the Employee served as
President, Chief Executive Officer and Chief Operating Officer pursuant to this
Agreement; provided however, that no bonus shall accrue or be payable hereunder
if the Company's reported EBITDA for such fiscal year is less than 90% of
budgeted EBITDA for such fiscal year. Finally, any and all unvested options
granted hereunder shall immediately terminate and that any and all vested
options granted hereunder shall terminate according to their terms in the event
Employee is no longer employed by the Company.
(c) By the Employee for "Good Reason," (as the Employee shall
determine in good faith) which shall be deemed to exist: (i) if the Company's
Board of Directors fails to elect or reelect the Employee to, or removes the
Employee from, any of the offices referred to in Section 1(a); (ii) if the scope
of Employee's duties, responsibilities, authority or position is significantly
reduced (excluding, for this purpose, changes in responsibilities resulting from
the growth or shrinkage of the Company's business) (but not excluding changes
resulting from a sale of the Company, whether by merger, tender offer or
otherwise) provided that Employee shall act within 30 days of any such
diminution in the scope of his duties, responsibilities, authority or
21
<PAGE>
position; or (iii) if the Company shall have continued to fail to comply with
any material provision of this Agreement after a 30-day period to cure (if such
failure is curable) following written notice to the Company of such non-
compliance. In the event of any termination under this Section 4(c), the Company
shall, as liquidated damages or severance pay, or both, pay the Termination
Payments to Employee for the 12-month period commencing on the date notice of
such termination is given to the Company. In addition, the Company will pay to
Employee a minimum bonus, payable as severance within 90 days after the close of
the Company's most recent fiscal year for which an annual bonus hereunder has
not yet been determined as of the date of termination, in an amount equal to the
greater of (i) $100,000 or (ii) the amount of Annual Bonus determined in
accordance with the provisions of Section 2(b)(i) hereof, pro rated for that
portion of the fiscal year during which the Employee served as President, Chief
Executive Officer and Chief Operating Officer pursuant to this Agreement;
provided however, that no bonus shall accrue or be payable hereunder if the
Company's reported EBITDA for such fiscal year is less than 90% of budgeted
EBITDA for such fiscal year. Finally, any and all unvested options granted
hereunder shall immediately terminate and that any and all vested options
granted hereunder shall terminate according to their terms in the event Employee
is no longer employed by the Company.
(d) Employee and the Company shall execute a mutual release of all
claims against the other party (excluding claims pursuant to this Agreement for
post-termination obligations of the parties) prior to commencing the payment of
Termination Payments.
(e) During any period in which Employee is obligated not to compete
with the Company pursuant to Section 5 hereof (unless Employee was terminated
for Cause), Employee and his family shall continue to be covered by the
Company's life, medical, health and death plans. Such coverage shall be at the
Company's expense to the same extent as if Employee were still employed by the
Company. In the event of a termination pursuant to Sections 4(b) or 4(c), the
Company shall provide to Employee, at the Company's expense, outplacement
services of a nature customarily provided to a senior executive.
Notwithstanding the foregoing, the obligations of the Company pursuant to this
Section 4(e) shall remain in effect no longer than twelve months following
Employee's termination.
(f) Notwithstanding any other provision of this Agreement, the
Company shall have the right on one occasion to defer making Termination
Payments to Employee for a maximum period of ninety (90) days (the "Deferral
Period") if the making of such payments will cause a default or event of default
under the Company's senior loan agreement. Prior to electing to defer
Termination Payments hereunder, the Company will make good faith efforts to
obtain a waiver of any such default or event of default from its senior lender.
5. Non-Competition.
---------------
During the period of Employee's employment hereunder, for one (1) year after any
termination of Employee's employment under Section 4(b) or 4(c) and for
three (3) years after any termination of Employee pursuant to Section
4(a) hereof, the Employee shall not, within any state in which the
Company or any subsidiary of the Company is duly qualified to do
business, or in any state in which the Company is then providing
services or marketing its services (or engaged in active
22
<PAGE>
discussions to provide such services), or within a one hundred (100) mile radius
of any such state, directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company as such businesses
exist or are in development on the date of the termination of the Employee's
employment (unless the Board of Directors shall have authorized such activity
and the Company shall have consented thereto in writing). Investments in less
than five percent of the outstanding securities of any class of a corporation
subject to the reporting requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, shall not be prohibited by this
Section 5. At the option of Employee and so long as Employee shall have executed
the mutual release required under Section 4(d), Employee's obligations under
this Section 5 arising after the termination of Employee shall be suspended
during any period (except for a Deferral Period) in which the Company fails to
pay to him Termination Payments required to be paid to him pursuant to this
Agreement. The provisions of this Section 5 are subject to the provisions of
Section 14 of this Agreement.
6. Inventions and Confidential Information.
---------------------------------------
The parties hereto recognize that a major need of the Company is to preserve its
specialized knowledge, trade secrets, and confidential information. The
strength and good will of the Company is derived from the specialized
knowledge, trade secrets, and confidential information generated from
experience with the activities undertaken by the Company and its subsidiaries.
The disclosure of this information and knowledge to competitors would be
beneficial to them and detrimental to the Company, as would the disclosure of
information about the marketing practices, pricing practices, costs, profit
margins, design specifications, analytical techniques, and similar items of
the Company and its subsidiaries. The Employee acknowledges that the
proprietary information, observations and data obtained by him while employed
by the Company concerning the business or affairs of the Company are the
property of the Company. By reason of his being a senior executive of the
Company, the Employee has or will have access to, and has obtained or will
obtain, specialized knowledge, trade secrets and confidential information
about the Company's operations and the operations of its subsidiaries, which
operations extend throughout the United States. Therefore, subject to the
provisions of Section 14 hereof, the Employee hereby agrees as follows,
recognizing that the Company is relying on these agreements in entering into
this Agreement:
(i) During the period of Employee's employment with the Company and for
three (3) years thereafter, the Employee will not use, disclose to
others, or publish or otherwise make available to any other party any
inventions or any confidential business information about the affairs
of the Company, including but not limited to confidential information
concerning the Company's products, methods, engineering designs and
standards, analytical techniques, technical information, customer
information, employee information, and other confidential information
acquired by him in the course of his past or future services for the
Company. Employee agrees to hold as the Company's property all books,
papers, letters, formulas, memoranda, notes, plans, records, reports,
computer tapes, printouts, software and other documents, and all
copies thereof and therefrom, in any way relating to the Company's
business and affairs, whether made by him or otherwise coming into
his possession, and on termination of his employment, or on demand of
the Company, at any time, to deliver the same to the Company within
twenty four (24) hours of such termination or demand.
(ii) During the period of Employee's employment with the Company and for
three (3) years
23
<PAGE>
thereafter, (a) the Employee will not directly or indirectly through
another entity induce or otherwise attempt to influence any employee of the
Company to leave the Company's employ and (b) the Employee will not
directly or indirectly hire or cause to be hired or induce a third party to
hire, any such employee (unless the Board of Directors shall have
authorized such employment and the Company shall have consented thereto in
writing) or in any way interfere with the relationship between the Company
and any employee thereof and (c) induce or attempt to induce any customer,
supplier, licensee, licensor or other business relation of the Company to
cease doing business with the Company or in any way interfere with the
relationship between any such customer, supplier, licensee or business
relation of the Company.
7. Indemnification.
---------------
The Company will indemnify the Employee (and his legal representatives) to
the fullest extent permitted by the laws of the state in which the Company is
incorporated, as in effect at the time of the subject act or omission, or by the
Certificate of Incorporation and Bylaws of the Company, as in effect at such
time or on the date of this Agreement, whichever affords greater protection to
the Employee, and the Employee shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its executive officers, against all judgments, damages, liabilities, costs,
charges and expenses whatsoever incurred or sustained by him or his legal
representative in connection with any action, suit or proceeding to which he (or
his legal representatives or other successors) may be made a party by reason of
his being or having been an officer of the Company or any of its subsidiaries
except that the Company shall have no obligation to indemnify Employee for
liabilities resulting from conduct of the Employee with respect to which a court
of competent jurisdiction has made a final determination that Employee committed
gross negligence or willful misconduct.
8. Litigation Expenses.
-------------------
In the event of any litigation or other proceeding between the Company and
the Employee with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder and such litigation or proceeding results in
final judgment or order in favor of the Employee, which judgment or order is
substantially inconsistent with the positions asserted by the Company in such
litigation or proceeding, the Company in such event shall reimburse the Employee
for all of his reasonable costs and expenses relating to such litigation or
other proceeding, including, without limitation, his reasonable attorneys' fees
and expenses. In no event shall the Employee be required to reimburse the
Company for any of the costs and expenses relating to such litigation or other
proceeding.
9. Consolidation; Merger; Sale of Assets; Change of Control.
--------------------------------------------------------
Nothing in this Agreement shall preclude the Company from combining,
consolidating or merging with or into, transferring all or substantially all
of its assets to, or entering into a partnership or joint venture with,
another corporation or other entity, or effecting any other kind of corporate
combination provided that the corporation resulting from or surviving such
combination, consolidation or merger, or to which such assets are transferred,
or such partnership or joint venture
24
<PAGE>
assumes this Agreement and all obligations and undertakings of the Company
hereunder. The mere occurrence of any such transaction shall not, in and of
itself, constitute an event falling within the scope of Section 4(c). Upon such
a consolidation, merger, transfer of assets or formation of such partnership or
joint venture, this Agreement shall inure to the benefit of, be assumed by, and
be binding upon such resulting or surviving transferee corporation or such
partnership or joint venture, and the term "Company," as used in this Agreement,
shall mean such corporation, partnership or joint venture or other entity, and
this Agreement shall continue in full force and effect and shall entitle the
Employee and his heirs, beneficiaries and representatives to exactly the same
compensation, benefits, perquisites, payments and other rights as would have
been their entitlement had such combination, consolidation, merger, transfer of
assets or formation of such partnership or joint venture not occurred.
10. Survival of Obligations.
-----------------------
Sections 4, 5, 6, 7, 8, 9, 11, 12 and 14 shall survive the termination for
any reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement or otherwise).
11. Employee's Representations.
--------------------------
The Employee hereby represents and warrants to the Company that (i) the
execution, delivery and performance of this Agreement by the Employee do not
and shall not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which the
Employee is a party or by which he is bound, (ii) the Employee is not a party
to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall
be the valid and binding obligation of the Employee, enforceable in accordance
with its terms. The Employee hereby acknowledges and represents that he has
consulted with legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
12. Company's Representations.
-------------------------
The Company hereby represents and warrants to the Employee that (i) the
execution, delivery and performance of this Agreement by the Company do not
and shall not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which the
Company is a party or by which it is bound and (ii) upon the execution and
delivery of this Agreement by the Employee, this Agreement shall be the valid
and binding obligation of the Company, enforceable in accordance with its
terms.
13. Enforcement.
-----------
Because the Employee's services are unique and because the Employee has access
to confidential information concerning the Company, the parties hereto agree
that money damages would not be an adequate remedy for any breach of this
Agreement. Therefore, in the event of a breach or threatened breach of this
Agreement, the Company may, in addition to other rights and remedies existing
in its favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
25
<PAGE>
14. Severability.
------------
In case any one or more of the provisions or part of a provision contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability shall be deemed not to affect any other jurisdiction or
any other provision or part of a provision of this Agreement, nor shall such
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction; and this Agreement shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid or
illegal or unenforceable had never been contained herein and such provision or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible. In furtherance and not in
limitation of the foregoing, the Company and the Employee each intend that the
covenants contained in Sections 5 and 6 shall be deemed to be a series of
separate covenants, one for each county of the State of Texas and one for each
and every other state, territory or jurisdiction of the United States and any
foreign country set forth therein. If, in any judicial proceeding, a court
shall refuse to enforce any of such separate covenants, then such
unenforceable covenants shall be deemed eliminated from the provisions hereof
for the purpose of such proceedings to the extent necessary to permit the
remaining separate covenants to be enforced in such proceedings. If, in any
judicial proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time, scope or area thereof is deemed to
be excessive or unreasonable, then it is the intent of the parties hereto that
such covenants, which would otherwise be unenforceable due to such excessive
or unreasonable period of time, scope or area, be enforced for such lesser
period of time, scope or area as shall be deemed reasonable and not excessive
by such court.
15. Entire Agreement; Amendment.
---------------------------
This Agreement contains the entire agreement between the Company and the
Employee with respect to the subject matter hereof and thereof. This Agreement
may not be amended, waived, changed, modified or discharged except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any amendment, waiver, change, modification or discharge is
sought. No course of conduct or dealing shall be construed to modify, amend or
otherwise affect any of the provisions hereof.
16. Notices.
-------
All notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if physically delivered,
delivered by express mail or other expedited service or upon receipt if
mailed, postage prepaid, via registered mail, return receipt requested,
addressed as follows:
26
<PAGE>
(a) To the Company: (b) To the Employee:
Teletouch Communications, Inc. J. Richard Carlson
110 North College, Suite 200 1905 Royal Oak Drive
Tyler, Texas 75711 Tyler, Texas 75703
Attn: Chairman of the Board
with a copy to: with a copy to:
Continental Illinois Venture Corporation Daniel F. Markham, P.C.
231 South LaSalle Street 36 West 44th Street, Suite 1111
Chicago, Illinois 60697 New York, New York 10036
Attn: Marcus D. Wedner Attn: Daniel F. Markham, Esquire
and to:
De Martino Finkelstein Rosen & Virga
1818 N. Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esquire
and/or to such other persons and addresses as any party shall have specified in
writing to the other.
17. Assignability.
-------------
This Agreement shall not be assignable by either party and shall be binding
upon, and shall inure to the benefit of, the heirs, executors, administrators,
legal representatives, successors and assigns of the parties. In the event
that all or substantially all of the business of the Company is sold or
transferred, then this Agreement shall be binding on the transferee of the
business of the Company whether or not this Agreement is expressly assigned to
the transferee.
18. Governing Law.
-------------
This Agreement shall be governed by and construed under the laws of the State of
Texas.
19. Waiver and Further Agreement.
----------------------------
Any waiver of any breach of any terms or conditions of this Agreement shall
not operate as a waiver of any other breach of such terms or conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof. Each of
the parties hereto agrees to execute all such further instruments and documents
and to take all such further action as the other party may reasonably require in
order to effectuate the terms and purposes of this Agreement.
20. Headings of No Effect.
---------------------
27
<PAGE>
The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.
COMPANY:
TELETOUCH COMMUNICATIONS, INC.
By:
---------------------------
Robert M. McMurrey,
Chairman of the Board
EMPLOYEE:_
--------------------------------
J. Richard Carlson
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 5,137
<SECURITIES> 0
<RECEIVABLES> 2,135
<ALLOWANCES> 163
<INVENTORY> 6,210
<CURRENT-ASSETS> 16,685
<PP&E> 31,703
<DEPRECIATION> 12,646
<TOTAL-ASSETS> 77,396
<CURRENT-LIABILITIES> 5,843
<BONDS> 77,756
0
0
<COMMON> 4
<OTHER-SE> (10,164)
<TOTAL-LIABILITY-AND-EQUITY> 77,396
<SALES> 41,559
<TOTAL-REVENUES> 41,559
<CGS> 7,511
<TOTAL-COSTS> 32,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,993
<INCOME-PRETAX> (4,745)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,745)
<EPS-BASIC> (1.76)
<EPS-DILUTED> (1.76)
</TABLE>
