<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the fiscal year ended December 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: 33-83526
SECURFONE AMERICA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 34-1833574
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(State of Incorporation) I.R.S. Employer Identification No.)
8080 DAGGET ST., SUITE 220 SAN DIEGO, CALIFORNIA 92111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 619-677-5580
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 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 requirement for the past 90 days. Yes / / No /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant'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/
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.
COMMON STOCK, $0.001 PAR VALUE: $7,894,088 (AS OF JULY 1, 1999)
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $0.001 PAR VALUE PER SHARE: 10,775,169 (AS OF JULY 1, 1999)
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Transitional Small Business Disclosure Format: Yes / / No /X/
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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TABLE OF CONTENTS
<TABLE>
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ITEM PAGE
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<S> <C>
PART I............................................................................................................1
ITEM 1. BUSINESS.............................................................................................1
OVERVIEW.......................................................................................................1
WIRELESS PRODUCTS IN 1998......................................................................................3
PRODUCTS LINES.................................................................................................4
THE TARGET MARKET..............................................................................................5
DISTRIBUTION...................................................................................................5
MARKET ROLL-OUT................................................................................................5
COMPETITION....................................................................................................6
LICENSES.......................................................................................................6
EMPLOYEES......................................................................................................6
GOVERNMENT REGULATION..........................................................................................6
SERVICE MARKS AND TRADEMARKS...................................................................................7
ITEM 2. PROPERTIES...........................................................................................7
ITEM 3. LEGAL PROCEEDINGS....................................................................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................8
PART II...........................................................................................................9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................9
OVERVIEW.......................................................................................................9
RECENT EVENTS.................................................................................................10
RESULTS OF OPERATIONS:........................................................................................13
FISCAL 1998 COMPARED TO FISCAL 1997...........................................................................13
LIQUIDITY AND CAPITAL RESOURCES...............................................................................15
SEASONALITY...................................................................................................15
TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS................................................................15
YEAR 2000.....................................................................................................16
FORWARD-LOOKING STATEMENTS....................................................................................16
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................................................18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................18
PART III.........................................................................................................19
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................................19
ITEM 10. EXECUTIVE COMPENSATION..............................................................................21
OPTION GRANTS IN 1998.........................................................................................22
OPTION EXERCISES IN 1998 AND VALUES AT 1998 YEAR-END..........................................................22
LONG-TERM INCENTIVE AND PENSION PLANS.........................................................................22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................24
PART IV..........................................................................................................26
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....................................26
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:...................................................26
(b) REPORTS ON FORM 8-K:......................................................................................26
(c) EXHIBITS:.................................................................................................26
</TABLE>
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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PART I
ITEM 1. BUSINESS.
OVERVIEW
THE COMPANY
SecurFone America, Inc. (the "Company") was organized in 1996 to develop
and market prepaid wireless products and services in various markets
throughout the United States. In late 1998, the Company established a new
strategic objective of refocusing the Company's mission to pursue new
complimentary Internet-related and e-commerce opportunities. In 1999, the
Company has actively implemented its new mission by, among other actions,
selling a portion of the Company's business no long deemed essential for the
new strategy and purchasing a company whose business thrust is in line with
the new strategy.
On January 30, 1999, the Company executed an agreement with Teledata
World Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain prepaid
cellular assets to Teledata for cash and Teledata common stock. The
transaction was closed on April 22, 1999. Under the terms of the agreement,
SecurFone sold its wholly-owned subsidiary, SecurFone, Inc., to Teledata for
$498,000 in cash, 600,000 shares of Teledata common stock, and the option to
sell the stock back to Teledata at a price of $2.50 per share effective one
year from the date of the transaction if the market price of the Teledata
stock is less than $2.50 per share. The asset sale improved the Company's
balance sheet and was consistent with the Company's new business objective of
pursuing opportunities in the Internet and electronic commerce markets.
On May 7, 1999, the Company executed an agreement to acquire all
outstanding common stock of IXATA.COM, Inc. ("IXATA.COM"), a privately held
provider of Internet-based information and electronic commerce services
targeting the travel industry. The acquisition was finalized on July 1, 1999
and is consistent with the Company's new business objectives. The Company is
now operating IXATA.COM as a wholly-owned subsidiary and plans to
significantly expand IXATA.COM's operations to offer new enhanced information
services in the travel market, targeting existing and new corporate clients.
By closing the IXATA.COM acquisition, the Company has established itself
as a provider of Internet-based, electronic commerce services in rapidly
growing market for travel information services, serving an expanding base of
more than twenty major Fortune 500 firms and other organizations. IXATA.COM's
principal service, RFP Express, integrates a user-friendly, Internet-based
interface with a sophisticated data-warehousing system, interactive telephone
and fax technology to deliver automated solutions for creating, sending,
receiving and managing the preferred lodging programs request for proposal
process in the hospitality services market ("RFP process"), typically
involving hundreds or, in some cases, thousands of properties worldwide. By
automating the users' RFP business process, and also providing user-friendly
Internet access to a sophisticated data warehousing system, RFP Express,
provides dramatic cost savings to users, typically 70% or more compared to
costs for manual processes. Pricing for RFP Express includes an annual
subscription fee and transaction fees for each RFP handled. The
Internet-based, electronic commerce and operational platforms developed to
support the RFP Express offering can be used to address similar needs in
other vertical markets.
On August 1, 1997, SecurFone, Inc. was acquired by Material Technology,
Inc. (formerly Tensiodyne Scientific Corporation) and became a publicly
traded company. The Company's principal executive offices are located at 8080
Dagget Street, Suite 220, San Diego, California 92111, and its telephone
number is (888) 773-4729.
THE COMPANY'S BUSINESS CASE FOR NEW ELECTRONIC COMMERCE AND INTERNET BUSINESS
DIRECTIONS
Since inception, the Company has primarily pursued opportunities in the
prepaid wireless services market. The Company developed several unique
products to address the prepaid wireless services market and had achieved
some success in 1998. However, the emergence of new competition, industry
price reductions and other margin pressures
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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in the prepaid wireless services market suggested that significant additional
investment would be required to achieve the business scale required to
create significant shareholder value.
Recognizing the explosive growth of the Internet, and the long term
prospects for integrating new wireless and Internet-based services, in late
1998 the Company established a new business objective to pursue new
opportunities in the Internet and electronic commerce markets. In 1998, the
consumer segment of electronic commerce consumer retailing revenues totaled
$7.8 billion, with business-to-business e-commerce service revenues estimated
at $43 billion, according to a recent study by Forrester Research, a leading
information industry consulting firm. By the year 2003, business-to-business
e-commerce is expected to increase ten-fold, to $1.3 trillion, representing
about 9% of all projected US trade in the year 2003. The recently-closed
acquisition of IXATA.COM is the Company's initial step in entering the market
for business-to-business, Internet-based electronic commerce services, which
management believes is the optimum strategy to deliver substantial value to
the Company's shareholders.
Another key element in SecurFone's new growth strategy is to focus on
next generation, "pro-active" electronic commerce solutions which employ
e-commerce solutions to address labor intensive processes, rather than to
solely displace paper-based solutions. Management believes such pro-active
e-commerce solutions, which go well beyond today's basic electronic
cataloging, web portals and web-based ordering services, will change users'
business processes, create significant operating efficiencies and
dramatically reduce users' costs. More importantly, management believes such
pro-active e-commerce services will play a key role in the future market for
business-to-business e-commerce services described above. IXATA.COM, Inc.'s
RFP Express Service represents a pro-active e-commerce service which, in
management's view, is ideally positioned to meet the needs of the travel
services market. IXATA.COM's expanding client base of more than 20 major
firms, includes recent sign-ons such as Sears & Roebuck, Proctor & Gamble,
Church of Latter Day Saints, and Adams Mark Hotels demonstrate strong,
growing market acceptance for the Company's e-commerce services.
The Company is now expanding its management team and plans to secure new
financing to support both expansion of the IXATA.COM revenue base, as well as
development of new enhancements and related Internet-based services targeting
the travel and hospitality sectors.
While the outlook for Internet-based, electronic commerce services is
impressive, there can be no assurances that the Company will secure the
additional investment capital needed to succeed in this highly competitive,
rapidly changing and technology driven market, nor are there any assurances
that the Company's initial acquisition of IXATA.COM will be successful.
Investors should carefully review the risk factors described in this document
and other documents filed by the Company with the Securities and Exchange
Commission. See "Management Discussion and Analysis of Financial Condition
and Results of Operations - Forward Looking Statements."
THE COMPANY'S PREPAID WIRELESS SERVICE TARGET MARKETS AND PRODUCTS IN 1998
The U.S. wireless communications market acquired its 50 millionth
subscriber in July of 1996. Of the applications for services submitted each
year, approximately 35% are declined for reasons of poor credit. This
indicates that there are in excess of 17.5 million unfulfilled potential
wireless service users. The Company developed three main products to meet
this need:
- - BUY-THE-MINUTE-TM- ("BTM") -- a software modified cellular phone for
which the Company provides underlying national airtime, activation, and
administrative services for distribution to the end user.
- - SFA LOCAL NETWORK SOLUTION ("SFN") -- the product offered to end users for
which the Company telephonically connects directly to the underlying
wireless service provider to accomplish call routing and completion.
- - CARRIER NETWORK SERVICES ("CNS") -- a wholesale prepaid wireless platform
service that the Company sells directly to wireless carriers that do not
want to create their own platform.
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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See "-- The Product" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Product Lines."
The Company only began full-scale operations in the first quarter of
1998. Its total gross revenues from prepaid cellular operations during 1998
were $367,358. This amount represents initial beta testing of sales and
distribution channels without significant marketing or promotional
expenditures, other than industry trade shows for the purpose of distribution
recruitment. In the third quarter 1998, the Company developed a business plan
showing the investment required to develop a full-scale program for
commercial product launch and broad marketing and distribution program in
1999.
In late 1998, the Company substantially completed development of all
major aspects of its prepaid wireless network infrastructure, with the
exception of several administrative enhancements that required additional
funding. However, ongoing development of technical aspects of the Company's
business will be necessary to keep pace with industry standard technical
requirements.
WIRELESS PRODUCTS IN 1998
In 1998, the Company identified and designed products and services that
comprise each of the components required to deliver a competitive prepaid
wireless solution. Prepaid wireless products allow consumers to purchase
wireless airtime, like cellular airtime minutes, in advance, eliminating the
need for service providers to require security deposits, credit checks or
term contracts. Recent advances in telephony hardware and software have made
instantaneous processing of a "prepaid" call possible without inconveniencing
the subscriber with call routing delays. According to industry analysts, the
"prepaid" method of payment is expected to constitute a significant
percentage of total U.S. wireless revenues in the short-term future.
The critical components of the Company's wireless solution are:
- - A patent-pending telephony switch platform technology.
- - 24 hour/7 days-a-week bilingual customer service.
- - Full-service marketing support programs.
- - A nationwide network of cellular resale agreements.
The Company has filed for patent protection of its engineering design
for call routing. This telephony software and routing system enables the
Company to convert conventional wireless telephony call routing to prepaid
call routing with no modification to either the subscriber's handset or the
underlying service provider's main switching facility.
The Company maintained a customer service and activation center in
Miami, Florida to perform all activation and customer inquiry functions
necessary to support the Company's products and services. Additionally, the
Company developed a complete, turnkey point of sale and retail display
packaging to support distribution and retail efforts. This includes product
displays, posters, brochures and packaging that are all designed to enhance
the consumers understanding of the benefits of the Company's prepaid product.
In order to effect prepaid wireless activations on a national basis, the
Company entered into cellular resale agreements with GTE Corporation,
Ameritech Corporation, Bell Atlantic Mobile, BellSouth Mobile Data, Inc.,
AT&T Wireless Services and AirTouch Communications. See "-- Distribution."
The Company offered prepaid services that utilize both prevalent prepaid
technologies: handset and switch-based. The Company knows of no other Company
that currently offers both technologies on a broad basis.
- - SWITCH-BASED. Allows any cellular phone to be used on the prepaid network.
Special call routing directs the signal to a debit platform which checks
the amount of prepaid time available to the customer before the call is
completed. The Company's SFN product utilizes this technology.
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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- - HANDSET-BASED. All debit functions are performed by software that resides
in a specially modified handset. No special network routing is required,
permitting rapid initial roll-out to target markets prior to the
implementation of a switch-based solution. The Company's BTM product is a
handset-based solution.
Given the Company's refocused business objectives in late 1998, the
Company's products in 1999 will be significantly changed. New products will
include IXATA.COM's existing Internet-based e-commerce service, RFP Express,
which provides automated solutions for creating, sending, receiving and
managing the RFP process, typically involving hundreds or, in some cases
thousands of properties worldwide. By automating the users' RFP business
process, and also providing user-friendly Internet access to a sophisticated
data warehousing system, RFP Express, provides dramatic cost savings to
users. Pricing for RFP Express includes annual subscription fees and
transaction fees for each RFP handled. Management believes the
Internet-based, electronic commerce and operational platforms developed to
support the RFP Express offering can be used to address similar needs in
other vertical markets.
PRODUCT LINES
In 1998, the Company offered three main products:
- - BUY-THE-MINUTE-TM- -- a software modified handset for which the Company
provides underlying national airtime, activation, and administrative
services for end users. Uniden Corp. manufactures the handset and
U.S./Intelicom Inc. provides the handset software. This product is offered
for distribution by Brightpoint, Inc., the nation's leading wholesaler of
wireless handsets, and gives the Company immediate national exposure that
would otherwise require an extended period of time to develop. The Company
reduced barriers to market entry by achieving a market presence without the
need for fixed land line telephony because the debiting software resides
directly in the handset.
- - SFA LOCAL NETWORK SOLUTION -- the Company's flagship product that
telephonically connects directly to the underlying wireless service
provider to accomplish call routing and completion. The advantages of this
method of prepaid service provisioning are numerous, including:
- Any handset in the market, digital or analog, can be used by consumers
to access the Company's service platform.
- The Company originates and terminates each call along its own network
configuration which generates significant incremental cost savings and
increased revenue from inherent service components such as long
distance termination, voicemail and local call termination.
- The Company can provide other telephony services, such as local and
long distance prepaid service, informational services and enhanced
calling options within the same platform.
- - CARRIER NETWORK SERVICES -- the wholesale prepaid wireless platform service
that the Company sells directly to wireless carriers that do not wish to
create their own platform. In many cases, it becomes a cost-justifiable
decision for a medium to small domestic wireless carrier to out source
value-added and hardware/software defined ancillary product offerings to an
outside vendor. CNS is a robust, competitive and scalable prepaid service
platform that enables any carrier to bring a prepaid product to market in a
significantly shorter period of time than an in-house solution, enabling
the carrier to focus on marketing and sales efforts.
In 1999, the Company plans to build on the strong market acceptance for
IXATA.COM's RFP Express to develop several related e-commerce services
targeting both existing and new customers, as well as potential strategic
alliance partners. Building on the information repository features available
to IXATA.COM customers, the Company will also explore new data mining and
related business opportunities in 1999 and beyond. Since the Company does
retain wireless industry experience and some wireless assets, management
plans to explore to what extent new initiatives in the wireless Internet
services market should be pursued, and evaluate possible entry strategies in
this market. No plans are currently in place to pursue these opportunities
and there can be no assurances that the Company will secure additional
investment capital needed to succeed in this market. Investors should
carefully review the risk factors described in this document and other
documents filed by the Company with the
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<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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Securities and Exchange Commission. See "Management Discussion and Analysis
of Financial Condition and Results of Operations - Forward Looking
Statements."
THE TARGET MARKET
In 1998, the Company targeted wireless market segments to maximize its
primary goals of rapid deployment and market share acquisition. The credit
denied, credit challenged and first time users who are resisting long-term
contracts for service are considered the largest and most rapidly growing
segment of the Company's target cellular market. The Company has identified
market segments through available demographic and market research analyses
and uses this research to target retail locations, agents and distributors.
With the Company's refocused business objectives in 1999, the Company
will target Fortune 1000 companies and major organizations for supporting
preferred rate lodging programs using the RFP Express service and other
upcoming e-commerce services.
DISTRIBUTION
In 1998, the Company used two principal methods of distribution for prepaid
wireless products and services:
- - SFA NETWORK SERVICES -- a service bureau of prepaid wireless communications
services which are sold directly to carriers and resellers that wish to
offer their own prepaid wireless products.
- - BUY-THE-MINUTE-TM- -- a consumer-ready cellular phone/airtime bundle
which is sold directly to local, regional and national retail distribution
channels.
The Company entered into distribution agreements with approximately 250
independent dealers. The Company also entered into regional master
distributor agreements with communications service providers in Cleveland,
Miami, San Diego, and San Francisco. In addition, the Company executed a
national master distribution agreement with Brightpoint, Inc.
("Brightpoint"), a leading distributor of wireless communications equipment
and accessories.
For the new e-commerce and Internet-based services provided in 1999, the
Company is using dedicated sales staff including a National Account
Management structure to support marketing and client liaison activities with
Fortune 1000 companies, major organizations, Global Distribution Service
("GDS") providers worldwide and strategic alliance partners.
MARKET ROLL-OUT
In 1998, the Company offered prepaid wireless service on a market by
market basis. To initiate service in an area, the Company must balance costs
for engineering, dedicated telephone trunk line and additional switch port
capacity. To moderate associated expenses and balance these costs more
closely with revenue goals, the Company maintained a carefully planned
roll-out schedule to coordinate system expansion and minimize costs.
In 1998, operational markets were as follows:
Atlanta, Atlantic City NJ, Baltimore, Boston, Chicago, Cincinnati,
Cleveland, Elberton GA, Houston, Indianapolis, Jacksonville, Lexington KY,
Louisville, Memphis, Miami, Nashville, Newhaven CT, Bridgeport CT, Hartford
CT, Waterbury CT, New York, Norfolk, Orlando, Philadelphia, Pittsburgh,
Richmond, San Diego, San Francisco, Tampa, and Washington DC.
In addition, markets may be opened in areas of the country as requested
by our distributors pending availability of the underlying service facilities
and an business assessment of the opportunities presented.
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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There can be no assurances that the Company will have sufficient
finances to expand its markets in the planned time frame, or at all. In
addition, the rapidly changing regulatory and competitive environment within
which the Company operates has a significant impact on the Company's roll-out
schedule.
COMPETITION
The distribution of telecommunications services is highly fragmented and
competitive. Many of the Company's prepaid wireless service competitors are
larger than the Company and have financial and other resources substantially
greater than those of the Company. Prepaid wireless competition for the
Company's products and services comes primarily from incumbent wireless
carriers on a regional basis, and large cellular resellers on a national
basis. Although several firms offer switch-based or handset-based prepaid
products, the Company it not aware of any other national provider that offers
both technologies. Handset-based competitors include Topp Telecom, Inc. with
their TracFone product and Phillips Electronics North America with their ISIS
debit handset product. Switch-based competitors include wireless carriers,
Boston Technology, Inc., BCGI and Brite Voice Systems, Inc.
With the Company's refocused business directions in 1999, new
competition will be encountered from existing and emerging companies in the
rapidly changing market for e-commerce and related Internet-based services
for the travel and hospitality industry.
LICENSES
In 1997 and 1998, the Company sold licenses, representing the right to
certain exclusive distribution arrangements in the total amount of $1.6
million. The licenses are defined and based on Metropolitan Statistical Areas
and currently involve the cities of Houston, Boston, Chicago, Philadelphia,
Washington, D.C. and New York City. The Company does not anticipate any
significant revenue in 1999 will be derived from the sale of licenses.
EMPLOYEES
As of December 31, 1998, the Company employed 11 full-time and one part
time staff in addition to contracted personnel. None of the Company's
employees are covered under any collective bargaining agreement. The Company
believes its relations with its employees to be strong. With the recently
completed acquisition of IXATA.COM total headcount as of July 16, 1999 is 27
employees.
GOVERNMENT REGULATION
The telecommunications industry is undergoing significant changes. The
Telecommunications Act of 1996 (the "Act") was signed into law on February 8,
1996. Congress and the Justice Department, through legislation and consent
decrees, had previously overseen the deregulation of the long distance and
equipment segments of the industry. The Act is intended to bring competition
to local telephone service and provide the final step in the deregulation of
the telecommunications industry in this country.
The Company is regulated by various state Public Utility Commissions as
well as the Federal Communications Commission. Although the Company is
required to file and/or register with most states, most require a simple
filing procedure with little or no actual qualifying tariff approval. The
Company utilizes the services of an independent contractor to make and
maintain all required filings. The Federal Communications Commission requires
that the Company file and maintain a federally-mandated license in order for
the Company to terminate domestic land line telephone calls overseas. The
Company has filed and continues to maintain this license.
Federal law requires the Company to collect a 3% federal
telecommunications tax when service is sold by the Company to any party that
is not a licensed reseller or provider of carrier telecommunications traffic.
The Company
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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collects this tax consistent with regulatory requirements. There is currently
proposed legislation in Congress to repeal this tax.
SERVICE MARKS AND TRADEMARKS
The Company has filed U.S. Service Mark Applications for "SecurFone" and
"Buy-The-Minute." The statement of use for the SecurFone service mark was
accepted by the Patent and Trademark Office in February 1998. The statement
of use for the Buy-The-Minute service mark was filed recently and is awaiting
acceptance. The "Buy-The-Minute" service mark was included in the assets sold
to Teledata. The Company also relies on common law, including the law of
unfair competition, to protect its service marks and services. The Company is
not aware of any pending claims of infringement or other challenges to the
Company's right to use its service marks.
ITEM 2. PROPERTIES.
At the end of 1998, the Company was headquartered in San Diego,
California in a 3,700, square foot facility. The Company leased its
headquarters at a cost of $3,530 per month. The Company also leased its
customer service facilities in Miami, Florida for $700 per month, prior to
its transfer to Teledata. Currently, the Company, including the IXATA.COM
subsidiary, leases office space in San Diego for $2,300 per month.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in legal matters which are
incidental to its operations. In the opinion of management, the ultimate
resolution of these matters has not had a material adverse effect on the
Company's financial condition or results of operations.
Vortex Cellular, Inc. ("Vortex") filed a complaint (VORTEX CELLULAR,
INC. (D.B.A. DIRECT MOBILE) V. SECURFONE AMERICA, INC., ET AL., No. 727443,
Superior Court of California, County of San Diego) for breach of contract and
open book account in the amount of $27,347.56 against SecurFone on January
20, 1999. Vortex is owned by William P. Stueber, II, the Company's former
CEO. The complaint was dismissed without prejudice on March 4, 1999.
On February 1, 1998, SecurFone granted to Wireless Depot, Inc., a Nevada
corporation ("Wireless"), an exclusive license to market and sell products
and services of SecurFone in the territory of New York City, New York (the
"Territory"). Wireless paid to SecurFone a one-time royalty fee in the amount
of $350,000. In addition, Wireless made a loan to SecurFone in the amount of
$130,000. Under the terms of the license agreement, Wireless agreed to meet a
minimum $1,000,000 annual revenue target. Wireless has not met the minimum
target revenue requirements. The parties have agreed verbally to terminate
the license agreement. While no legal action has been discussed or
threatened, the parties are in dispute as to their respective rights and
obligations under the license agreement. Currently, the parties are
negotiating a settlement of all claims. The settlement may be resolved by the
issuance to Wireless of restricted common stock of SecurFone. As of the time
of this filing, the terms of the settlement agreement have not been finalized.
On November 13, 1998, SecurFone terminated the employment of Glen Benton
as the National Sales Manager. Subsequently, Mr. Benton filed a complaint
with the California Department of Industrial Relations, Division of Labor
Standards (case no. 99-04057), alleging that he was terminated for filing or
threatening to file a compliant with the California Labor Commissioner.
SecurFone considered the charges unsubstantiated and submitted a response to
Mr. Benton's allegations with the California Department of Industrial
Relations. On March 17, 1999, the California Department of Industrial
Relations advised that the case is being closed without prejudice due to fact
that Mr. Benton has abandoned his complaint. While administrative remedies
within the state Department of Industrial Relations have been exhausted, Mr.
Benton is entitled to pursue other rights and remedies if he so desires.
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<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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IDS Long Distance, Inc. v. SecurFone America, Inc., No. 98-14325 CA 01,
Circuit Court, Dade County, Florida. IDS filed a complaint for breach of
contract in excess of $15,000. against SecurFone on June 25, 1998. On July
24, 1998, the court approved a stipulation of settlement between the parties,
whereby IDS agreed to accept in full and final settlement of its claims the
sum of $30,000 payable in three (3) installment payments. On November 16,
1998, the judgment was satisfied.
SecurFone is in the process of negotiating a payment in the amount of
$25,000 in full satisfaction of long outstanding debt with American Express.
As of the date of this filing, a settlement agreement with American Express
is still being negotiated.
On October 24, 1997, SecurFone entered into a Compromise and Settlement
Agreement with Performance Printing Corporation ("Performance"), whereby,
among other things, SecurFone issued in favor of Performance a promissory
note in the principal amount of $31,921.30, together with 6% interest
thereon, in total satisfaction of a trade debt. The promissory note provided
for 24 equal monthly payments in the amount of $1,407.73, beginning on
October 24, 1997 with the last payment date of September 24, 1999. SecurFone
has failed to make its scheduled payments for the months of March, April and
May 1999. Performance has threatened to exercise its remedies available to it
under the terms of the promissory note.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the last quarter of 1998.
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<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq Over-the-Counter
Market and has been quoted on the Nasdaq Electronic Bulletin Board under the
symbol "SFAI." The following table lists the high and low closing price of
the Company's Common Stock for each quarter of 1997 and 1998. The information
included in the table represents prices between dealers exclusive of retail
mark-up, mark-down and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1998 1997
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter................ $ 6.120 $ 3.000 $ 5.37 $ 4.25
Second Quarter............... 5.593 4.00 5.00 4.50
Third Quarter................ 5.312 1.218 25.00 4.62
Fourth Quarter............... 1.281 0.156 15.00 10.00
</TABLE>
As of July 1, 1999 there were approximately 435 stockholders of record
of the Common Stock of the Company.
The Company has never paid cash dividends on its Common Stock. The
Company intends to retain earnings, if any, to finance the growth and
development of its business and does not anticipate paying any cash dividends
in the foreseeable future. Any future dividends will depend on the earnings,
capital requirements and financial condition of the Company, and on other
factors that the Company's Board of Directors may consider relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following describes certain factors which produced changes in the
results of operations of SecurFone America, Inc. (the "Company") during the
twelve months ended December 31, 1998 ("Fiscal 1998") and as compared with
the twelve months ended December 31, 1997 ("Fiscal 1997") as indicated in the
Company's Consolidated Financial Statements. The following should be read in
conjunction with the Consolidated Financial Statements and related notes.
Historical results of operations are not necessarily indicative of results
for any future period. All material inter-company transactions have been
eliminated in the results presented in this Annual Report.
Certain matters discussed in this Annual Report constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and involve risks and
uncertainties. These forward-looking statements relate to, among other
things, expectations of the business environment in which the Company
operates, projections of future performance, perceived opportunities in the
market and statements regarding the Company's mission and vision. The
Company's actual results, performance or achievements may differ
significantly from the results, performance, or achievements expressed or
implied in these forward-looking statements. See "--Forward-Looking
Statements."
OVERVIEW
The Company develops and markets prepaid wireless products and services
in various markets throughout the United States. The Company only began
full-scale operations in the first quarter of 1998. The Company has
substantially completed development of all major aspects of its prepaid
wireless network systems and previously planned to implement the marketing
and sales programs necessary to create a sustainable revenue base. The
Company also plans to develop the necessary back office and administrative
support systems to support the business. Significant additional funding will
be required to support these new activities
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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The products and services that the Company developed during its start-up
phase were initially introduced to a limited number of U.S. cities to fully
test the network, administrative, engineering and marketing infrastructure
prior to full-scale roll-out. The Company invested significant capital and
effort to develop its network, software, routing and carrier interface
technology, for the hiring and development of an experienced management team,
and the initial introduction of services to the roll-out markets. The Company
may, from time to time, make increasing expenditures to expand its available
network capacity as demand increases. The ability of the Company to meet its
business growth objectives will depend on securing substantial new funding
for advertising and promotion activities, as well as funding for securing new
distribution channels. To effectively manage the Company's growth and
maintain quality controls over its services and network, the Company must
also expand its internal management, technical and accounting systems, all of
which will require substantial investment.
RECENT EVENTS
MANAGEMENT CHANGES
William P. Stueber, II, Chief Executive Officer and a Director, left the
Company to pursue other interests effective October 31, 1998. The Company has
negotiated a settlement with Mr. Stueber to resolve all outstanding
obligations related to his prior employment by the Company. On September 11,
1998, the Company's Chief Operating Officer and a Director, Derek M. Davis,
resigned to pursue other interests. Mr. Davis agreed to be available to
Company executives for a period of two months, without compensation, in order
to ensure a smooth transition of tasks and responsibilities to his
replacement. Effective February 1, 1998, Michael Lee, the Company's Chief
Financial Officer and a Director, resigned. Mr. Lee's departure was by mutual
agreement with the Company's Board of Directors. Steven L. Wasserman,
Secretary and Director, resigned from his position as a Director to pursue
other interests effective April 30, 1999. Mr. Wasserman continues as
Secretary of the Company.
Paul B. Silverman executed an employment agreement assuming the role of
Chief Executive Officer effective November 1, 1998, and was elected a
Director on December 11, 1998.
Andrew H. Kent joined the management team as Director, Business
Development effective November 1, 1998. In that position, Mr. Kent reported
to the Chief Executive Officer and played a key role in reshaping the
Company's overall business strategy to pursue new e-commerce and
Internet-related business opportunities. In June 1999, Mr. Kent was appointed
Vice President and Chief Financial Officer for the Company and appointed to
serve as a Director. (For additional information on management changes, see
"Directors and Officers of the Registrant").
On July 1, 1999, the Company further expanded the management team and
appointed three new Directors, including one new outside Director. The new
Directors include Robert Steiner and Fred Gluckman, senior officers and
co-founders of the newly-acquired IXATA.COM subsidiary, and Paul Hatch, an
SEC attorney and Senior Vice President at Edelman Public Relations, a
Washington, DC-based public relations firm.
NEW STRATEGIC DIRECTIONS
In late 1998, the Company established the strategic objective of
pursuing new complimentary Internet-related and e-commerce opportunities. On
January 30, 1999, the Company executed a previously announced agreement with
Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain
prepaid cellular assets sold to Teledata for cash and Teledata common stock.
The sale is consistent with the Company's objectives of improving the
financial position of the Company and pursuing planned new business
directions. See "Sale of Selected Assets and Lines of Business".
Consistent with the Company's new business objectives, on May 7, 1999,
the Company executed a letter of intent to acquire all outstanding common
stock of IXATA.COM, a privately held provider of Internet-based, automated
systems and related information services designed to automate redundant,
labor-intensive processes in the travel industry. IXATA.COM's current
principal product is RFP Express-SM-, an Internet-based software system that
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
automates the preferred lodging programs proposal process in the hospitality
services market. Current prospects and customers for the RFP Express-SM-
service include corporate users, travel planners, and Global Distribution
Service ("GDS") providers. Interim and long term funding to support
IXATA.COM's national rollout will be provided by SecurFone. The acquisition
was finalized on July 1, 1999. The Company has established IXATA.COM, Inc. as
a wholly-owned subsidiary and plans to significantly expand IXATA.COM's
operations to offer new enhanced, Internet-based, information services in the
travel market, targeting existing and new corporate clients.
The acquisition of IXATA.COM is consistent with the Company's new
objective of pursuing innovative, high potential Internet-related,
value-added `transactional' business opportunities. The Company believes
IXATA.COM's technology and resources will make an important contribution to
support other new Internet-related initiatives the Company plans to pursue.
The Company is now further expanding its management team and planning to
secure new financing to support both expansion of the IXATA.COM. revenue
base, as well as development of new enhancements and related Internet-based
services targeting the travel and hospitality sectors. There can be no
assurances that the Company will obtain the financing necessary to fund its
expansion plans.
UPCOMING IXATA.COM PRODUCTS AND SERVICES
IXATA.COM's premier product, RFP Express-SM-, integrates a sophisticated
data-warehousing system, interactive telephone and fax technology and
user-friendly, Internet-based interface to deliver solutions providing
dramatic cost savings for corporate users.
RFP Express-SM- enables travel managers to conduct large scale preferred
lodging programs request for proposal process in the hospitality services
market ("RFP process"), on an automated, efficient basis using global
Internet services. RFP Express-SM- distributes RFPs to a substantial number of
hospitality properties, automatically tracks and records the RFP responses,
provides automatic reminders to entities who failed to respond, allows the
travel manager to negotiate submitted responses, provides automated
acceptance or rejection letters and creates a searchable, real-time data
warehouse based on responses.
While Internet services are the primary transport mode for RFP
Express-SM-, the system also interfaces transparently to existing fax and
e-mail systems, further expanding the market opportunity and providing a
smooth transition to existing operating environments.
NEW FUNDING
Recognizing that new funding is essential to meet the Company's core
business objectives as well as expand into new business areas, the Company
has pursued several options.
On June 16, 1998, the Company executed a Letter of Intent with Young
Management Group ("YMG") for securing new capital, and agreeing to the
planned acquisition of SCIES, Inc. ("SCIES"), a privately-held, development
stage provider of Internet telephony software, systems and services that is
headquartered in Reston, Virginia. Structure of the final funding provided by
YMG was contingent upon completion of a definitive business agreement between
the Company and YMG. On August 1, 1998, YMG declined to meet its funding
obligation payable at that date and the funding agreement was terminated.
Total funds provided to the Company by YMG during May through July 1998 were
$115,000, and were recorded as loans to the Company. To further improve the
Company's financial position, in May 1999 the YMG loan was converted to
equity. See "Conversion of Existing Debt to Equity." The planned acquisition
of SCIES has not yet been completed. See "Other Information."
On November 17, 1998, the Company entered into a relationship with the
Strategica Group for investment banking services and bridge funding. For
services rendered, Strategica was issued 41,665 shares of the Company's
unregistered common stock and received a cash payment of $2,500. Due to
delays encountered in securing new funding, the Company, on January 11, 1999,
terminated its business relationship with Strategica and elected to
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Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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pursue other new funding alternatives. To support the Company's new refocused
business objectives in late 1998, the Company pursued the sale of selected
assets as described below.
On February 4, 1999, the Company executed a Purchase Agreement with All
Points Telecom, Inc. ("APT"), a privately-held telecommunications firm,
whereby APT would acquire a controlling interest in the Company through the
purchase of 4.5 million shares of the Company's common stock from Montpilier
Holdings, Inc. ("Montpilier"). Montpilier is the principal stockholder of the
Company and is owned indirectly by Michael M. Grand, a Director of the
Company. Under the terms of the agreement, APT would also loan up to $1.8
million at the time of closing to the Company. The proceeds of this loan
would be used to repay existing debt and provide additional working capital
to meet the Company's growth needs. On April 12, 1999, the Company rejected a
modified APT proposal, the Company and APT terminated discussions and the
Company elected to pursue other alternatives.
SALE OF SELECTED ASSETS AND LINES OF BUSINESS
On January 30, 1999, the Company executed a previously announced
agreement with to sell certain prepaid cellular assets to Teledata for cash
and Teledata common stock. On April 22, 1999, the Company executed a final
agreement to sell all outstanding shares of a wholly-owned subsidiary of the
Company, SecurFone, Inc., to Teledata for $498,000 in cash, 600,000 shares of
Teledata unregistered common stock, and the option to sell the stock back to
Teledata at a price of $2.50 per share effective one year from the date of
the transaction if the market price of the Teledata stock is less than $2.50
per share. SecurFone, Inc. assets include certain cellular service resale
agreements, the Company's Miami customer service center, rights to the
Buy-The-Minute-TM- ("BTM") product and selected distribution channels. Under
the terms of the agreement, the Company will continue to offer prepaid
cellular services and may establish resale and joint service arrangements to
serve selected markets.
The sale was consistent with the Company's planned strategy of
refocusing its business objectives to pursue new e-commerce and
Internet-based business opportunities to create significant shareholder
value. The Company plans to continue to offer prepaid wireless services,
focusing on higher margin opportunities, primarily through resale.
MATERIAL TECHNOLOGIES STOCK TRANSFER
On August 1, 1997, SecurFone, Inc. was acquired by Material Technology,
Inc. ("Matech I") (formerly Tensiodyne Scientific Corporation) and became a
publicly-traded corporation. In connection with the transaction, the Company
retained 560,000 shares of Material Technologies, Inc. ("Matech II") Class A
Common Stock.
In July, 1997, Sherman Baker and certain Matech I shareholders
associated with Mr. Baker (the "Baker Group") disputed the distribution of
Matech II shares issued to Robert M. Bernstein, the Chief Executive Officer
and major shareholder of Matech I. As a result of Mr. Baker's claims and
demand, SecurFone delayed finalizing the July 31, 1997 transaction until all
disputes between Matech I and its shareholders were resolved.
On October 22, 1997, the Baker Group filed a claim against Mr.
Bernstein for breach of contract and for inducing the group to enter into an
exchange agreement in connection with the SecurFone transaction. As a result
of the Baker Group's claims against Mr. Bernstein and in order to close the
SecurFone transaction, Mr. Bernstein placed 150,000 of his personally-held
SecurFone shares in escrow subject to a resolution of the Baker Group's
claims. SecurFone also withheld payment of $50,000 and executed a $50,000
promissory note (the "Note") with a demand for payment contingent on, among
other items, the release of all claims from the Baker Group toward SecurFone.
The 560,000 shares of Matech II stock held by SecurFone were pledged as
collateral on the Note.
On July 31, 1998, the Baker Group entered into a settlement
agreement with Mr. Bernstein and Matech II and on August 18, 1998, the Baker
Group filed a Release of Claims against SecurFone. Pursuant to the original
transaction, Matech II was entitled to the balance of $50,000 owed by
SecurFone, and demanded payment, on October 5, 1998. The SecurFone Board of
Directors reviewed the situation on October 9, 1998, and determined that
given the illiquidity of the Matech II stock, and the current financial
obligations of the Company, it was in the Company's best interests to allow
Matech II to acquire the pledged stock in cancellation of the Note.
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
On October 9, 1998, Matech II served notice to SecurFone of its
default on the Note. On October 19, 1998, SecurFone returned to Matech II the
560,000 shares of its common stock which were pledged as collateral on the
Note and the Note was cancelled.
CONVERSION OF EXISTING DEBT TO EQUITY
In 1999, agreement was secured from several existing note holders to
convert existing debt to unregistered shares of SecurFone common stock. On
May 19, 1999, Young Management Group was issued 59,266 unregistered shares of
the Company's common stock to eliminate total debts of $118,532, including
notes of $115,000, and Michael Gilburd was issued 12,500 unregistered shares
of the Company's common stock to eliminate total debts of $25,000.
ADDITIONAL ISSUANCE OF SECURITIES
For rendering brokering services and as a part of the transaction to
purchase IXATA.COM, the Company agreed to pay Global One, Inc. ("Global"),
600,000 shares of restricted common stock of the Company. Global is an
international business corporation in Nevis, British Virgin Islands. As of
July 1, 1999, the date the purchase agreement was finalized, these 600,000
shares have not been issued. The Company intends to issue the shares to
Global in the third quarter of 1999.
RESULTS OF OPERATIONS:
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
The Company only began full-scale operations in the first quarter of
1998; accordingly, a detailed comparison of revenues between Fiscal 1997 and
Fiscal 1998, with the exception of licensing income as discussed below, is
not meaningful. Prepaid cellular revenues for Fiscal 1998 increased to
$367,358 from $88,431 in Fiscal 1997. The increase was as a result of the
Company introducing its switch-based prepaid cellular product in the 30
markets, up from offering service in just four markets in 1997.
COST OF GOODS SOLD
Total cost of goods sold for Fiscal 1998 increased to $476,728 from
$65,547 in Fiscal 1997 primarily due to the Company introducing the sale of
its SFN switch-based product.
GROSS PROFIT/MARGIN
Gross profit for Fiscal 1998 decreased to a loss of $109,370 from
profits of $22,884 in Fiscal 1997 primarily due to the high fixed portion of
cost of goods associated with the introduction and market roll-out of the
Company's SFN switch-based product.
OPERATING EXPENSES
Selling, general and administrative expenses increased to $2,437,287 in
Fiscal 1998 from $1,859,418 in Fiscal 1997. The increase in selling, general
and administrative expenses was primarily due to the hiring and development
of an experienced management team. The wages and associated taxes in Fiscal
1998 increased to $763,402 from $377,066 in Fiscal 1997. Consulting, legal
and professional fees increased to $328,059 in Fiscal 1998 from
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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$246,151 in Fiscal 1997 due to the Company's increased need for assistance in
technological developments, new product development, accounting regulations
and Public Utilities Commission, Federal Communications Commission and
Securities and Exchange Commission requirements. Marketing-related expenses,
including advertising, printing and tradeshows, decreased in Fiscal 1998 to
$77,029 from $285,367 in Fiscal 1997. In addition, the Company recorded
amortization and depreciation expenses of $329,559 in Fiscal 1998 versus
$120,678 in Fiscal 1997.
Operating expenses decreased to $4,057,287 in Fiscal 1998 from
$6,163,784 in Fiscal 1997. In addition to the increase in selling, general
and administrative expenses discussed above, the decrease in operating
expenses was due to a $1,620,000 non-cash expense associated with stock-based
compensation in Fiscal 1998 as compared to $4,327,250 non-cash expense
associated with stock-based compensation in Fiscal 1997. At various dates in
August, October and November 1997, the Company granted stock options to
purchase 430,900 shares of Common Stock under the Company's two stock option
plans. According to generally accepted accounting principles, these shares
were recorded as a stock-based compensation expense of $1,227,250 with a
corresponding entry to the paid-in capital -- stock options granted account.
On December 3, 1997, the Company issued 620,000 contingent shares of Common
Stock pursuant to various employment, retainer, consulting and fee
agreements. As of December 31, 1997, all conditions of the share issuance had
been met which resulted in an accounting cost entry of $3,100,000 being added
to operating expenses and corresponding entries being made to the common
stock and additional paid-in capital accounts. In January 1998, the Company
granted stock options to the Company's former President, William Stueber, to
purchase 400,000 shares of Common Stock. These shares were recording as a
stock-based compensation expense of $1,620,000 with a corresponding entry to
the paid-in capital -- stock options granted account.
The net loss for Fiscal 1998 was, however, reduced by a $50,000 realized
gain on the disposition of marketable securities that the Company held which
resulted in a comprehensive loss of $4,304,943 or $0.72 per share as compared
to $4,771,669 or $0.95 per share for Fiscal 1997.
OTHER EXPENSES
Interest expense increased to $288,286 in Fiscal 1998 from $68,021 in
Fiscal 1997 due to the Company's purchase of computer hardware under a
capital lease agreement and the payment of interest to investors who have
obtained letters of credit on behalf of the Company which are posted with the
Company's underlying telephony service providers for the purpose of
provisioning service to initial roll-out markets.
Additionally, the Company took a one time Fiscal 1997 loss of $48,980
for efforts expended on SecurFone New York, Inc. ("SFNY"), a licensee. In
August 1996, the Company entered into a licensing agreement with SFNY. As
part of the agreement, the Company paid for various start up costs of SFNY.
Shortly thereafter, SFNY defaulted under the terms of the licensing agreement
and ceased operations. As a result, the monies paid by the Company to SFNY
were written off as a one-time charge to income.
NETWORK INFRASTRUCTURE AND COSTS
To provide services, the Company purchases many requisite underlying
component network telephony services from various vendors. Some of these
vendors operate in a highly competitive and minimally regulated environment,
others either exist as monopolies, part of an oligopoly or otherwise in an
environment of little competition in a service segment that is heavily
regulated. 1997 brought severe and wide sweeping change to much of the
telephony industry. As a consequence, the Company has been afforded the
opportunity to competitively seek bids for many of its requisite underlying
service components. In 1998 the Company began, and will continue to
implement, an initiative to significantly lower costs to provide service and
ensure a purchasing environment of multiple, redundant vendors for each
category of purchase service. The overall result of this initiative should be
to increase the gross profit margins of each of the Company's product
offerings
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SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
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LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses as a
result of the development and operation of its service platform and
supporting networks. The Company expected that such losses would continue to
increase as the Company focused on the development, construction and
expansion of its service platform and underlying networks and expands its
customer base. Cash provided by operations would not be sufficient to fund
the expansion of the product offerings and resultant subscriber base. The
Company is continually reviewing various sources of additional financing to
fund its growth. As of December 31, 1998, the Company had received advances
in the amount of $1,427,029 from private investors.
The Company is required by underlying wireless carriers to post
irrevocable letters of credit to secure the purchase of airtime. Prompt
payment history, as well as overall financial condition will also effect each
carrier's decision to stabilize, increase or eliminate these financial
guarantees. The Company has an agreement with two investors that may obtain
letters of credit of up to $1.0 million that are secured by their personal
assets (the "LC Agreement"). These investors have renewed the LC Agreement
through April 1, 1999. As compensation for their initial agreement to provide
letters of credit, the Company issued warrants to these investors to purchase
a total of 225,000 shares of Common Stock (the "LC Warrants"). In connection
with the renewal of the LC Agreement, the Company issued a total of 35,000
additional shares of Common Stock to these investors. An amount of $35,000
was recorded as interest expense in the third quarter of 1998 for the
issuance of the shares. An additional $35,000 interest expense will be
recorded in each of the next two quarterly periods to fully reflect the cost
of the issuance of the 35,000 shares.
At December 31, 1998, the Company had cash and cash equivalents of
$1,532. In addition, the Company had accounts receivable totaling $3,519 from
the sale of the Company's switch-based debit cellular product. Net cash used
by operating activities was $1,451,213 in Fiscal 1998 compared to $221,840 in
Fiscal 1997. Net cash used in investing activities in Fiscal 1998 was $12,212
used to purchase equipment as compared with $154,108 in Fiscal 1997. Net cash
provided by financing activities in Fiscal 1998 totaled $1,457,450 which
consisted primarily of $1,280,699 in proceeds from notes payable to the
Company from private investors as compared with $328,836 in Fiscal 1997 which
consisted primarily of capital contributions of $120,000 and proceeds from
capital lease of $159,650.
In order to continue at its current rate of network development and
expansion, the Company would require additional, non-revenue related
financing of approximately $1.25 million for 1999 to fund operating losses
and to purchase additional computer hardware and software which would allow
the Company to increase its call capacity and efficiency. The Company would
also require an additional letter of credit facility of $2.0 million to
secure the necessary air time from underlying carriers in order to support
the proposed market roll-out and expansion. The Company is continuing
negotiations to secure this additional funding from all possible sources. See
"-Recent Events - New Funding." Long-term liquidity will depend on the
Company's ability to obtain long-term financing and attain profitable
operations.
SEASONALITY
Sales of the Company's products and services are generally not seasonal,
with the exception of December, which typically provides a modest increase in
volume due to holiday purchases. Local wireless carrier credit policies,
penetration rates and promotional efforts primarily dictate sales levels.
TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS
Income taxes are provided for based on earnings reported for financial
statement purposes pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109. The provision for income taxes differs
from the amounts currently payable because of timing differences in the
recognition of certain income and expense items for financial and tax
reporting purposes. SFAS 109 uses the asset and liability method to account
for income taxes which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between tax basis and financial reporting basis of assets and liabilities. An
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For the Year Ended December 31, 1998
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allowance has been provided for by the Company which reduced the tax benefits
accrued by the Company for its net operating losses to zero, as it cannot be
determined when, or if, the tax benefits derived from these operating losses
will materialize.
In February 1997 the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share." This statement establishes a different method
of computing net income per share than was required under the provisions of
Accounting Principles Board Opinion No. 15. Under SFAS 128, the Company is
required to present both basic net income per share and diluted net income
per share. The Company adopted SFAS 128 in the first quarter of 1998 and all
historical net income per share data presented is restated to conform to the
provisions of SFAS 128.
Effective December 1, 1998, the Company retroactively changed its method
of recognizing start-up costs to conform with a recent pronouncement of the
American Institute of Certified Public Accountants ("AICPA"), Statement of
Position ("SOP") 98-5 Reporting on the Costs of Start-Up Activities. The
Company previously amortized these costs over a five-year period beginning
January 1, 1997, using the straight-line method. The new pronouncement
requires start-up costs to be expensed as incurred. As a result, the
cumulative effect of applying the new method retroactively as of January 1,
1997 was charged to 1998 earnings as required by SOP 98-5. The effect of the
change decreased amortization and net income for the three months and twelve
months ended December 31, 1998 by $46,638 and $261,293 respectively.
YEAR 2000
The Company utilizes two different computer systems. The network
telephony system used in call routing and rating consists of three
components, presently the Bull Mini Computer, Apex interactive voice response
("IVR") unit which is Intel based, and accounting and debit software.
According to the vendor, the Bull and Apex IVR are presently Year 2000
compliant. The Company recently upgraded the accounting and debit software to
INFORMIX, which is Year 2000 compliant, in late 1998. The Company's
administrative computer network utilizes accounting, database, and
computational software that are all Year 2000 compliant according to
management's recent discussions with its vendors. As a result, management
does not anticipate any material adverse effect to the operations of the
Company with respect to the Year 2000 problem.
While the Year 2000 considerations are not expected to materially impact
the Company's internal operations, they may have an effect on some of the
Company's customers and suppliers, and thus indirectly affect the Company.
Generally, the Company requires its key vendors and suppliers to certify they
are Year 2000 compliant. With respect to other vendors and suppliers with
which the Company's systems interface and exchange data, the Company expects
to initiate communication on an ongoing basis to discuss their Year 2000
compliance. The Company has not determined the exact costs and expenses it
expects to incur relating to preparation of its systems for the Year 2000.
Based on current assessments and compliance plans in process, the Company
does not expect that the Year 2000 issue, including the cost of making its
critical systems and applications compliant, will have a material effect on
its business operations, or its financial position or results of operations.
However, if appropriate modifications are required by the Company's key
suppliers and vendors, and if those modifications are not made on a timely
basis, the Company's actual costs or timing for Year 2000 compliance may
differ materially from current estimates. There can be no assurance that the
systems of other parties upon which the Company relies will be converted on a
timely basis. It is not possible to quantify the aggregate cost to the
Company with respect to customers and suppliers with Year 2000 problems,
although the Company does not anticipate it will have a material adverse
impact on its business.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations
about expansion into new markets, growth in existing markets, and the
Company's ability to attract new sources of financing, are forward-looking
statements that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to:
- --------------------------------------------------------------------------------
Page 16
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
- - NEW BUSINESS VENTURE. The Company has limited prior operating history. The
likelihood of the success of the Company must be considered in light of the
expenses, complications and delays frequently encountered in connection
with the establishment and expansion of new businesses, and the competitive
environment in which the Company operates. Therefore, there can be no
assurances that future revenues from sales of the Company's product will
occur or be significant or that the Company will be able to sell its
products at a profit. Future revenues and profits, if any, will depend on
various factors, including, but not limited to, the successful
commercialization of the Company's products and successfully implementing
its planned marketing strategies.
- - INSUFFICIENT CAPITAL TO CONTINUE OPERATIONS. As the Company continues to
implement its business, present sources of financing will not be adequate
to support the Company's increased cash needs. Furthermore, the Company's
entry into new Internet and electronic commerce business areas will create
additional demands for investment capital. If the Company fails to obtain
necessary short-term financing, it will not be able to continue operations.
Long-term liquidity will depend on the Company's ability to obtain
long-term financing and attain profitable operations.
- POSSIBLE DELISTING. Because of recent changes in the Nasdaq listing rules,
the Company's Common Stock could be delisted from trading on the Nasdaq
Over-the-Counter Bulletin Board Service, unless the Company makes required
filings with the Securities and Exchange Commission. If the Company's stock
were to be delisted, there would be no public market for the stock and
stockholders would be unable to liquidate their investment. Although the
Company intends to make the required filings with the Securities and
Exchange Commission and retain its stock listing on the Nasdaq Bulletin
Board, there can be no assurances that it will be able to do so.
- - DEPENDENCE ON NEW PRODUCT INTRODUCTION AND COMMERCIALIZATION. The concept
of and the technology to manufacture, operate and market Internet-based
electronic commerce and prepaid cellular services have only been recently
developed. Although the Company believes that there is a large market for
its product, there can be no assurance that the Company will be successful
in the introduction of its new product. The Company's successful entry into
the Internet and electronic commerce markets in 1999 will also depend on
the rapid introduction and commercialization of new products and services
in a highly competitive and rapidly changing global market. To achieve
success in this environment, the Company may have to overcome significant
technological and marketing hurdles which may not be currently foreseen.
Since the Company may be pursuing innovative, new applications in the
Internet and electronic commerce markets, there may be little direct
operating history on which to base assumptions as to practicality, market
acceptability, sales volume and profitability.
- - COMPETITION. The Internet-based electronic commerce and prepaid cellular
industries have become increasingly competitive due to the entry of large,
well financed service providers into the market. Other potential
competitors include companies with substantially greater financial and
marketing resources than those of the Company. In the Internet and
electronic commerce markets, while the market has shown strong growth,
there are numerous, well-funded competitors as well. No assurance can be
given that competitors possessing greater financial resources than the
Company will not be able to develop a product which is more appealing or
offer similar products at lower prices than those of the Company. The
Company may not be able to operate successfully in this competitive
environment.
- - DEPENDENCE ON UNDERLYING CELLULAR AND LONG DISTANCE CARRIERS. The Company
is currently dependent on a limited number of domestic wireless and long
distance carriers to provide access for its services. Although the Company
believes that it currently has sufficient access to transmission facilities
and long distance networks on favorable terms, and believes that its
relationships with carriers is satisfactory, an increase in the rates
charged by carriers would have a adverse effect on the Company's operating
margins. Failure to obtain continuing access to such facilities and
networks on favorable terms, would also have a material adverse effect on
the Company, including the possibility that the Company may need to
significantly curtail or cease its prepaid cellular services operations or
to develop its own capabilities at a cost in excess of the Company's
ability to fund such undertakings.
- --------------------------------------------------------------------------------
Page 17
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
- - DEPENDENCE ON INTERNET. The Company is currently dependent on the Internet
as an access and transmission medium to provide its services. Although the
Company believes that the acceptability and usability of the Internet will
increase over time, any increase in the rates charged by Internet service
providers, carriers or decreased use of the Internet for electronic
commerce transactions, resulting in a decreased usage of the Internet would
have a material adverse effect on the Company's operating margins. Failure
to promote Internet access as the preferred means of accessing the
Company's service could also have a material adverse effect on the Company,
including the possibility that the Company may need to significantly
curtail or cease its Internet based e-commerce operations or to develop its
own capabilities at a cost in excess of the Company's ability to fund such
undertakings.
- - REGULATORY ENVIRONMENT, UNFORESEEN COSTS AND REGULATION. Currently, both
land line and wireless telephony are undergoing rapid and drastic
regulatory changes. Furthermore, Internet-based electronic commerce is
under increased scrutiny by regulatory agencies and may also undergo rapid
and drastic regulatory changes. The Company's products have components that
are regulated by both state and federal regulatory agencies. There can be
no assurances that one or more services currently offered by the Company
will not be negatively impacted by newly-created or interpreted regulation.
These and other risks described in this Annual Report must be considered by any
investor or potential investor in the Company.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Attached to this Annual Report and filed as a part of this Annual Report
are the Consolidated Financial Statement and Financial Statement Schedule
required by Regulation S-X.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
- --------------------------------------------------------------------------------
Page 18
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information about the directors and executive officers of the
Company as of July 1, 1999 is included below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DIRECTOR OR
NAME AGE POSITION OFFICER SINCE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Derek Davis 34 Chief Operating Officer and Director (Resigned
September 11, 1998) June 1996
- ---------------------------------------------------------------------------------------------------------
Fred Gluckman 49 Executive Vice President, Technology and
Automation IXATA.COM and Director July 1999
- ---------------------------------------------------------------------------------------------------------
Michael M. Grand 59 Director April 1997
- ---------------------------------------------------------------------------------------------------------
Paul Hatch 47 Director July 1999
- ---------------------------------------------------------------------------------------------------------
Andrew H. Kent 35 Vice President and Chief Financial Officer and Director June 1999
- ---------------------------------------------------------------------------------------------------------
Michael Lee Chief Financial Officer and Director (Resigned
February 20, 1998) June 1996
- ---------------------------------------------------------------------------------------------------------
Paul B. Silverman 55 Chief Executive Officer and Director November 1998
- ---------------------------------------------------------------------------------------------------------
Robert Steiner 44 Executive Vice President, Marketing, IXATA.COM
and Director July 1999
- ---------------------------------------------------------------------------------------------------------
William P. Stueber, II 38 President and Director (Resigned October 31, 1998) April 1996
- ---------------------------------------------------------------------------------------------------------
Steven L. Wasserman 45 Secretary and Director (Resigned as Director
April 30, 1998) April 1996
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The following describes the business background and the experience of each of
the directors and executive officers of the Company:
DEREK M. DAVIS became Chief Operating Officer of the Company in June
1996 and interim Chief Financial Officer in February 1998. From March 1993 until
June 1996, Mr. Davis was Director of Operations of Central Communications
Corporation, a company engaged in the construction and operation of 220 MHz
Specialized Mobile Radio systems. From December 1990 until September 1991, Mr.
Davis was a financial analyst for Rovic Diamonds, a diamond mining company. On
September 11, 1998, Mr. Davis resigned to pursue other interests. Mr. Davis
agreed to be available to Company executives for a period of two months, without
compensation, in order to ensure a smooth transition of tasks and
responsibilities to his replacement.
FRED GLUCKMAN is Executive Vice President, Technology and
Automation of the Company's IXATA.COM subsidiary and was appointed a Director
of the Company July 1, 1999. Mr. Gluckman is a co-founder of IXATA.COM. Since
1994, Mr. Gluckman was co-founder and CEO of Tel.n.Form, Inc., a
privately-held provider of automated sales lead and related information to
auto dealerships and financial institutions. Through Mr. Gluckman's many
joint ventures, Mr. Gluckman has gained a reputation as one of the leading
experts in the use of automation to eliminate costly, redundant business
processes. Born in Israel and raised in Canada, Mr. Gluckman holds a Bachelor
of Science degree from McGill University.
MICHAEL M. GRAND has been a director of the Company since its
inception. Mr. Grand is an attorney practicing in the areas of commercial and
real estate law. He is a member of the Michigan bar. Mr. Grand is the President
and sole shareholder of Parthenon Holdings, L.L.C., a holding company which is
the sole shareholder of Montpilier Holdings, Inc. ("Montpilier"), a holding
company and a significant stockholder of the Company.
PAUL HATCH was appointed as a member of the Company's Board of
Directors on July 1, 1999. Mr. Hatch is currently Senior Vice President at
Edelman Public Relations Worldwide where he directs the firm's state and local
programs practice. Mr. Hatch has more than 25 years experience in political
campaigns, public affairs and
- --------------------------------------------------------------------------------
Page 19
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
communications. Mr. Hatch's background includes serving as the Executive
Director of the Republican Governors' Association (RGA), working closely with
the nation's 32 Republican governors and their staffs. Mr. Hatch also served
as the deputy political director of the Republican National Committee (RNC).
Mr. Hatch has represented Anderson Consulting, Laidlaw, IMG. US West
Communications, Texaco, 3M, the National Education Association, Microsoft,
CSX Transportation Co., Northwest Airlines, and other Fortune 500 clients.
Mr. Hatch currently provides support services to the RGA, the RNC, as well as
Republican Leadership in the U.S House of Representatives. Prior to joining
the RGA, Mr. Hatch resided in Salt Lake City, practiced Law, specializing in
Securities law and regulated industries, and served as a special assistant
Attorney General. Mr. Hatch studied Finance and Economics at University of
Utah and obtained a Juris Doctor Degree from the University's College of Law
in 1978.
MICHAEL LEE became Chief Financial Officer and a Director of the
Company in June 1996. Mr. Lee is a certified public accountant and member of the
American Institute of Certified Public Accountants and the Ohio Society of
Certified Public Accountants. Mr. Lee has been a tax partner since October 1993
at Bober, Markey & Company, a large regional public accounting firm. Previously
Mr. Lee has worked at Grant Thornton International LLP, one of the world's
largest public accounting firms. Effective February 20, 1998, Michael Lee, the
Company's Chief Financial Officer and a Director resigned. Mr. Lee's departure
was by mutual agreement with the Company's Board of Directors.
ANDREW H. KENT joined the management team as Director, Business
Development effective November 1, 1998. In the new position, Mr. Kent reports to
the Chief Executive Officer and played a key role in reshaping the Company's
overall business strategy to pursue new e-commerce and Internet-related business
opportunities. On June 30, 1999, Mr. Kent was appointed Vice President and Chief
Financial Officer, reporting to the Chief Executive Officer. Mr. Kent was also
elected to serve on the Company's Board of Directors on June 30, 1999.
PAUL B. SILVERMAN became Chief Executive Officer of the Company in
November 1998 and a director in December 1998. Since January 1997, Mr. Silverman
has been Chairman of the Board and Chief Executive Officer of SCIES, Inc., a
global Internet telephone systems and services company. From 1990 to 1996, Mr.
Silverman was Chief Executive Officer of JMS North America, Inc. (formerly James
Martin Strategy, Inc.), an international management consulting and engineering
company. Previously, Mr. Silverman held senior management consulting positions
with Coopers & Lybrand and Booz Allen and Hamilton. Mr. Silverman's background
also includes more than 20 years experience in senior engineering, marketing and
international business development positions with major information industry
firms including Satellite Business Systems (division of IBM), GTE, Xerox and RCA
Global Communications, Inc.
ROBERT STEINER is Executive Vice President Marketing of the Company's
IXATA.COM subsidiary and was appointed a Director of the Company on July 1,
1999. Mr. Steiner is a co-founder of IXATA.COM. From 1991 to 1994, Mr. Steiner
was founder and Managing Partner of Smith, Steiner & Thomas, one of the largest
travel management consulting companies in the world. Mr. Steiner's background
also includes serving as Manager, Corporate Procurement for Northrop
Corporation, and a Contracting Officer within the United States Air Force. Mr.
Steiner holds a BA in Economics from the University of California, and an MBA
from Pepperdine University.
WILLIAM P. STUEBER, II became CEO, President and a Director of the
Company in June 1996. Since 1983, he has been the President of Vortex Cellular,
Inc., a cellular activating and consulting company doing business as Direct
Mobile ("Direct Mobile"). Mr. Stueber is also an exclusive agent of Bell
Atlantic NYNEX Mobile. Effective October 31, 1998, Mr. Stueber left the Company
to pursue other interests. The Company has negotiated a settlement with Mr.
Stueber to resolve all outstanding obligations related to his prior employment
by the Company. See "Employment Agreements."
STEVEN L. WASSERMAN has been Secretary and was a Director of the
Company since its inception. Mr. Wasserman is an attorney and a partner of the
law firm of Kohrman Jackson & Krantz P.L.L., Cleveland, Ohio. He also serves as
Secretary and a director of INTEK Global Corporation, a wireless service and
technology company. Mr. Wasserman is a member of the bars of Ohio and Florida.
Mr. Wasserman was a principal of the law corporation of Honahan, Harwood,
Chernett & Wasserman, LPA, Cleveland, Ohio, from 1983 to September 1994. Mr.
- --------------------------------------------------------------------------------
Page 20
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Wasserman resigned his position as a Director to pursue other interests
effective April 30, 1999. Mr. Wasserman continues as Secretary of the Company.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met four times and acted by written consent eight
times in 1998. During 1998, all members of the Board of Directors participated
in each Board meeting.
DIRECTOR COMPENSATION
Members of the Board of Directors are not compensated for their services as
directors. The SecurFone America, Inc. 1997 Directors' Option Plan (the
"Directors' Option Plan") provides for the automatic "formula" grant to each
director of an option to purchase 50,000 shares of the Company's common stock,
$0.001 par value per share (the "Common Stock"), on the date of his or her
initial election to the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
("SEC") the initial reports of ownership and reports of changes in ownership of
the Common Stock. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all ss. 16(a)
forms they file. Based solely on filings received by the Company, the Company is
not aware of any delinquent ss. 16(a) filings in 1998.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid by the Company since
its inception to Paul B. Silverman, the Company's President and Chief Executive
Officer, and William P. Stueber, II, the former President, the only executive
officer whose total annual salary exceeded $100,000 in 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
ANNUAL COMPENSATION
----------------------- LONG-TERM
NAME FISCAL COMPENSATION ALL OTHER
YEAR SALARY OPTION AWARDS COMPENSATION
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul B. Silverman 1998 $ 23,080 (4) -- $ 84,991 (3)
1997 -- -- --
1996 -- -- --
- ----------------------------------------------------------------------------------------
William P. Stueber, II 1998 $152,308 -- --
1997 $ 39,358 (1) $50,000 $105,000 (2)
1996 -- -- $ 55,000 (2)
- ----------------------------------------------------------------------------------------
</TABLE>
(1) $11,666 of this amount was earned by Mr. Stueber in 1997, but payment
was deferred pursuant to the terms of his employment agreement. See "Employment
Agreements."
(2) The listed amounts were paid to Direct Mobile for consulting services
provided to the Company in 1996 and before Mr. Stueber joined the Company in
1997. Mr. Stueber is the President and sole owner of Direct Mobile.
- --------------------------------------------------------------------------------
Page 21
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
(3) The listed amount was paid to Paul Silverman and SCIES, Inc. for
consulting services provided to the Company in 1998 and before Mr. Silverman
joined the Company in 1998. Paul B. Silverman is Chief Executive Officer of
SCIES. Mr. Silverman currently retains a 40 % ownership interest in SCIES. Of
this amount, $11,535 for consulting services, was earned by Mr. Silverman in
1998, but payment was deferred.
(4) $23,080 of this amount was earned by Mr. Silverman in 1998, but
payment was deferred.
OPTION GRANTS IN 1998
The following table summarizes information concerning options granted
during 1998 to Mr. Silverman and Mr. Stueber:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PERCENT OF
SHARES OF TOTAL OPTIONS
NAME COMMON STOCK GRANTED TO EXERCISE MARKET VALUE
UNDERLYING EMPLOYEES IN PRICE PER PER SHARE ON EXPIRATION
OPTIONS FISCAL 1998 SHARE DATE OF GRANT DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William P. Stueber, II 400,000 72.3% $0.10 $4.05 1/06/08 (1)
- -------------------------------------------------------------------------------------------------------
100,000 27.3% $0.10 $0.53 12/01/08
Paul B. Silverman 50,000 $0.28 $0.28 12/11/08
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) 50,000 of these options were exercised in 1998. The remainder of the
options were subsequently cancelled in 1999 pursuant to a settlement agreement
between the Company and Stueber. See "Employment Agreements."
OPTION EXERCISE IN 1998 AND VALUES AT 1998 YEAR-END
The following table summarizes information with respect to the unexercised
options held by Mr. Silverman and Mr. Stueber as of December 31, 1998. Also
reported are values of "in-the-money" options, that is, the amount by which the
exercise price of the option is exceeded by the last sale price of the Common
Stock on December 26, 1998, the last day on which a sale occurred before
year-end.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES NUMBER OF SHARES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME ON REALIZED OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
EXERCISE --------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William P. Stueber, II 50,000 $138,750 50,000 (1) -- $ 0 --
350,000 (1) $19,600
- ------------------------------------------------------------------------------------------------------------------
50,000 0 $ -
Paul B. Silverman 100,000 -- $ 5,600
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These options have been subsequently cancelled in 1999 pursuant to a
settlement agreement between the Company and Stueber. See "Employment
Agreement."
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive, pension or similar
plans.
- --------------------------------------------------------------------------------
Page 22
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
The Company executed an employment agreement with Mr. Silverman on November
1, 1998 to serve as Chief Executive Officer. Mr. Silverman's salary compensation
is $150,000, increasing to $180,000 per year after the Company secures minimum
new funding of $750,000. Mr. Silverman also received options to acquire 100,000
shares of the Company's Common Stock upon execution of the employment agreement,
and additional options for 300,000 shares directly linked to the Company's
ability to meet specified market capitalization targets and financial
milestones. On December 11, 1998, Mr. Silverman was appointed a director of the
Company and granted options to purchase 50,000 shares of Common Stock under the
Directors' Option Plan.
Effective November 1, 1997, the Company entered into an employment
agreement with Mr. Stueber to act as President. The agreement was for a term of
one year with automatic annual renewals unless either party terminated the
agreement. Mr. Stueber left the Company to pursue other interests effective
October 31, 1998.
Mr. Stueber's employment agreement provided for an annual salary of
$250,000, of which $15,000 was payable monthly. The agreement provided that the
deferred portion of Mr. Stueber's salary would become payable upon the earlier
of a determination by the Board of Directors of the Company that the Company had
sufficient revenues or capital or May 1, 1998. After May 1, 1998, Mr. Stueber
agreed to continue to defer the deferred portion of his salary until the Company
had sufficient revenues or capital to pay Mr. Stueber. In addition, Mr. Stueber
was granted an option to purchase 400,000 shares of Common Stock at an exercise
price of $0.10 per share on January 6, 1998, pursuant to the agreement. The
agreement provided that if Mr. Stueber was terminated or left the employment of
the Company, his salary would continue for a period of three or six months
depending upon the reason for the termination of his employment. Pursuant to the
employment agreement, Mr. Stueber has agreed not to compete with the Company for
a period of one year after the termination of his employment. On February 8,
1999, the Company executed a settlement agreement with Mr. Stueber to resolve
all outstanding claims related to his prior employment by the Company and cancel
his outstanding options for $50,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table includes, as of July 1, 1999, information regarding the
beneficial ownership of the Company's Common Stock, by each stockholder known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, each director and executive officer of the Company, Mr.
Stueber, the Company's former President, and all directors and executive
officers as a group.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP (2)
--------------------------------------------
NAMES AND ADDRESS (1) SHARES PERCENTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Andreoli Family Trust (3) 1,761,875 16.4%
- -------------------------------------------------------------------------------------
Fred Gluckman (4) 1,761,875 16.4%
- -------------------------------------------------------------------------------------
Robert Steiner 516,250 4.8%
- -------------------------------------------------------------------------------------
William P. Stueber, II (5) 0 0.0%
- -------------------------------------------------------------------------------------
Andrew H. Kent (6) 20,000 0.2%
- -------------------------------------------------------------------------------------
Paul B. Silverman (7) 150,000 1.4%
- -------------------------------------------------------------------------------------
Paul Hatch 0 0.0%
- -------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 23
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Steven L. Wasserman (8) 100,000 0.9%
- -------------------------------------------------------------------------------------
Michael M. Grand (9) 4,550,000 42.0%
- -------------------------------------------------------------------------------------
All directors and executive officers
As a group (seven individuals) (10) 7,098,125 64.3%
- -------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, the address of each of the beneficial owners is
c/o SecurFone America, Inc., 8080 Dagget, Suite 220, San Diego, California
92111.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is considered to be
the beneficial owner of securities that can be acquired by such person
within 60 days from July 1, 1999 upon the exercise of warrants or options.
Each beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by that person (but not those held by any
other person) and which are exercisable within 60 days from July 1, 1999
have been exercised.
(3) Andreoli Family Trust's address is 3131 Liberty Circle South, Las Vegas, NV
89121.
(4) These shares are held by the Gluckman Family Trust of which Mr. Gluckman is
the trustee.
(5) Mr. Stueber address c/o Direct Mobile Vortex Cellular, 14 E. Main Street,
Somerville, NJ 08876.
(6) Includes options to purchase 20,000 shares of Common Stock.
(7) Includes an option to purchase 100,000 shares of the Company's Common Stock
granted upon execution of Mr. Silverman's employment agreement. Does not
include an option to purchase 50,000 shares of Common Stock granted under
the Directors' Option Plan, which are not presently exercisable, or options
to acquire up to an additional 300,000 shares of Common Stock contingent
upon the Company's ability to meet specified market capitalization and
financial milestones which have not yet been reached.
(8) Includes (i) an option to purchase 50,000 shares of Common Stock granted
under the Directors' Option Plan and (ii) 50,000 shares of Common Stock
held by Kohrman Jackson & Krantz P.L.L. Mr. Wasserman is a partner of the
law firm of Kohrman Jackson & Krantz P.L.L., which provides legal services
to the Company.
(9) Includes (i) an option to purchase 50,000 shares of Common Stock granted
under the Directors' Option Plan and (ii) 4,500,000 shares of Common Stock
held by Montpilier. Montpilier is wholly owned by Parthenon Holdings,
L.L.C., of which Mr. Grand is the sole shareholder.
(10) Includes options to purchase a total of 270,000 shares of Common Stock
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On August 1, 1997, SecurFone, Inc. was acquired by Material Technology,
Inc. (formerly Tensiodyne Scientific Corporation) and became a publicly-traded
corporation. Material Technology, Inc. issued 4,500,000 shares of its common
stock to Montpilier in exchange for all of the outstanding capital stock of
SecurFone, Inc. Montpilier is the principal stockholder of the Company and is
owned indirectly by Michael M. Grand, a director of the Company.
On June 12, 1998, the Company executed a term sheet for the acquisition of
SCIES, Inc. ("SCIES"), a global Internet telephone systems and services company.
The term sheet calls for the Company to issue shares of unregistered Common
Stock to purchase SCIES and a funding commitment for the Company from third
parties.
- --------------------------------------------------------------------------------
Page 24
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Paul B. Silverman, Chief Executive Officer of the Company, is Chief Executive
Officer of SCIES. Mr. Silverman currently retains a 40 % ownership interest
in SCIES. The acquisition of SCIES has not yet been completed and there is no
assurance the transaction will be completed in the future.
Steven L. Wasserman, a former director and the present Secretary of the
Company, is a partner of the law firm of Kohrman Jackson & Krantz P.L.L., which
provides legal services to the Company.
- --------------------------------------------------------------------------------
Page 25
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: PAGE
<S> <C>
Independent Auditors' Report.........................................................F-1
Consolidated Balance Sheet at December 31, 1998 and 1997.............................F-2
Consolidated Statements of Operations for the twelve months ended
December 31, 1998 and 1997......................................................F-3
Consolidated Statement of Cash Flows for the twelve months ended
December 31, 1998 and 1997......................................................F-4
Consolidated Statement of Common Stockholders' Equity for the twelve months
ended December 31, 1998, 1997 and 1996.........................................F-5
Notes to Consolidated Financial Statements...........................................F-6
</TABLE>
There are no other accounting schedules required by applicable accounting
regulations of the Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K:
The Company did not file any Forms 8-K during the quarter ended December
31, 1998.
(c) EXHIBITS:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement among Montpilier Holdings, Inc.,
SecurFone America, Inc., Material Technology, Inc. and Robert M.
Bernstein dated as of February 17, 1997, (incorporated by
reference to the Company's Form 10-K filed by the Company for the
fiscal year end 1996)
---------------------------------------------------------------------------
3.1 The Company's Amended and Restated Certificate of Incorporation
(incorporated by reference to the Company's S-1 Registration
Statement as filed with the Securities and Exchange Commission
(File No. 33-83526))
---------------------------------------------------------------------------
3.2 The Company's Bylaws (incorporated by reference to the Company's
S-1 Registration Statement as filed with the Securities and
Exchange Commission (File No. 33-83526))
---------------------------------------------------------------------------
4.1 Class A Convertible Preferred Stock Certificate of Designations
(incorporated by reference to the Company's S-1 Registration
Statement as filed with the Securities and Exchange Commission
(File No. 33-83526))
4.2 Class B Convertible Preferred Stock Certificate of Designations
(incorporated by reference to the Company's S-1 Registration
Statement as filed with the Securities and Exchange Commission
(File No. 33-83526))
---------------------------------------------------------------------------
10.1 The Company's 1997 Stock Option Plan (incorporated by reference
to the Company's S-8 Registration Statement as filed with the
Securities and Exchange Commission (File No. 333-40379))
---------------------------------------------------------------------------
10.2 The Company's 1997 Director's Stock Option Plan (incorporated by
reference to the Company's S-8 Registration Statement as filed
with the Securities and Exchange Commission (File No.333-40379))
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 26
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
10.3 Employment Agreement, effective as of October 24, 1997, between
the Company and Derek Davis (incorporated by reference to the
Company's S-8 Registration Statement as filed with the Securities
and Exchange Commission (File No. 333-40379))
---------------------------------------------------------------------------
10.4 Executive Employment Agreement, entered into as of November 1,
1997, between William P. Stueber, II and the Company
---------------------------------------------------------------------------
10.5 Settlement Agreement and Mutual Release, entered into between
William P. Stueber, II and the Company
---------------------------------------------------------------------------
10.6 Executive Employment Agreement, entered into as of November 1,
1998, between Paul B. Silverman and the Company
---------------------------------------------------------------------------
10.7 Purchase Agreement, dated February 1999, between the Company and
Teledata World Services, Inc.
---------------------------------------------------------------------------
10.8 Security Agreement, dated February 1999, between the Company and
Teledata World Services, Inc.
---------------------------------------------------------------------------
10.9 Secured Promissory Note in the original principal amount of
$248,000, dated February 1999, of the Company payable to Teledata
World Services, Inc.
---------------------------------------------------------------------------
10.10 First Amendment to Purchase Agreement, dated April 15th 1999,
between Teledata World Services, Inc. and the Company
---------------------------------------------------------------------------
10.11 Stock Purchase Agreement, by and among the Company, Montpiler
Holdings, Inc., IAXATA.COM, Inc., and all of the shareholders of
IXATA, dated July 1, 1999 (incorporated by reference to the
Company's 8-K Current Report as filed with the Securities and
Exchange Commission on July 20, 1999 (File No. 033-83526))
---------------------------------------------------------------------------
10.12 Voting agreement, by and among the Company and certain
stockholders of the Company, dated July 1, 1999 (incorporated by
reference to the Company's 8-K Current Report as filed with the
Securities and Exchange Commission on July 20, 1999 (File No.
033-83526))
---------------------------------------------------------------------------
23.1 Consent of Conte Co., CPA, Inc.
---------------------------------------------------------------------------
24.1 Reference is made to the Signatures section of this Report for
the Power of Attorney
---------------------------------------------------------------------------
27.1 Financial Data Schedule
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Page 27
<PAGE>
SECURFONE AMERICA, INC.
Annual Report on Form 10-KSB
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SECURFONE AMERICA, INC.
By: /s/ Paul B. Silverman
------------------------
Paul B. Silverman, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Steven L. Wasserman and
Christopher J. Hubbert, his true and lawful attorney-in-fact, each acting alone,
with full powers of substitution, and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments, to
this report, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact or their substitutes,
each acting alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ PAUL B. SILVERMAN Chief Executive Officer August 20, 1999
- -------------------------- (principal executive officer)
Paul B. Silverman
/s/ Andrew H. Kent Chief Operating Officer, Chief Financial Officer August 20, 1999
- -------------------------- and Director (principal financial officer)
Andrew H. Kent
/s/ Michael M. Grand Director August 20, 1999
- --------------------------
Michael M. Grand
/s/ Fred Gluckman Director August 20, 1999
- --------------------------
Fred Gluckman
/s/ Paul Hatch Director August 20, 1999
- --------------------------
Paul Hatch
/s/ Robert Steiner Director August 20, 1999
- --------------------------
Robert Steiner
</TABLE>
- --------------------------------------------------------------------------------
Page 28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Securfone America, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Securfone
America, Inc. and Subsidiary as of December 31, 1998 and 1997 and the related
consolidated statements of income, cash flows and stockholders' equity for
the years ended December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of Securfone America, Inc. and Subsidiary
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Securfone
America, Inc. as of December 31, 1998 and 1997, and the results of their
operations and their cash flows in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Securfone America, Inc. and Subsidiary will continue as a going concern. As
discussed in Note 13 to the financial statements, Securfone America, Inc. and
Subsidiary have suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 13.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Conte Co., CPA, Inc.
Norton, Ohio
August 30, 1999
F-1
<PAGE>
SECURFONE AMERICA, INC. AND SUBSIDIARY
(FORMERLY MATERIAL TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
12-31-98 12-31-97
----------------- ----------------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $1,532 $7,507
Accounts Receivable, Less Allowance for Doubtful
Accounts of $43,568 and $0 7,138 35,104
Royalties Receivable 0 100,000
Prepaid Expenses 35,000 0
Inventory 0 22,153
----------------- ----------------
Total Current Assets 43,670 164,764
----------------- ----------------
Fixed Assets
Property and equipment, net of
accumulated depreciation 174,936 230,989
----------------- ----------------
Other Assets
Note Receivable, including accrued interest 0 89,353
Intangible assets, net of
accumulated amortization 0 261,293
Deposits 1,225 1,225
----------------- ----------------
Total Other Assets 1,225 351,871
----------------- ----------------
TOTAL ASSETS $219,831 $747,624
----------------- ----------------
----------------- ----------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of obligations under
capital leases $47,449 $44,471
Accounts Payable 489,400 159,701
Accrued Payroll 111,544 11,334
Notes Payable 275,000 0
Accrued Interest on Notes Payable 80,267 0
Current Portion LT Debt 16,356 0
Other Accrued Liabilities 0 1,833
----------------- ----------------
Total Current Liabilities 1,020,016 217,339
----------------- ----------------
Long-Term Liabilities
Note Payable 1,358,696 77,997
Obligations under capital leases 59,311 86,369
----------------- ----------------
Total Long-Term Liabilities 1,418,007 164,366
Deferred Royalty Revenue 0 100,000
----------------- ----------------
Total Liabilities 2,438,023 481,705
----------------- ----------------
Stockholders' Equity
Common Stock-Securfone America, Inc. 6,092 5,620
$.001 Par Value, Authorized 100,000,000 Shares,
Outstanding 5,620,216 Shares @ December 31, 1997 and
6,091,881 Shares @ December 31, 1998
Paid-in Capital 4,363,315 4,190,180
Paid-in-Capital - Stock Options 2,874,475 1,227,250
Retained Earnings (Deficit) (9,462,074) (5,157,131)
Accumulated Deficit
----------------- ----------------
Total Stockholders' Equity (2,218,192) 265,919
----------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $219,831 $747,624
----------------- ----------------
----------------- ----------------
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
SECURFONE AMERICA, INC. AND SUBSIDIARY
(FORMERLY MATERIAL TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED
<TABLE>
<CAPTION>
12-31-98 12-31-97
----------------- ------------------
<S> <C> <C>
REVENUES
CELLULAR SERVICES $367,358 $88,431
----------------- ------------------
TOTAL REVENUES 367,358 88,431
----------------- ------------------
COST OF GOODS SOLD
CELLULAR AIR TIME 346,582 63,265
CELLULAR CALLING CARDS 0 2,282
LANDLINE 124,465 0
OTHER 5,681 0
----------------- ------------------
TOTAL COST OF GOODS SOLD 476,728 65,547
----------------- ------------------
GROSS PROFIT (LOSS) (109,370) 22,884
OPERATING EXPENSES
SELLING, GENERAL, AND ADMINISTRATIVE 2,437,287 1,859,418
STOCK-BASED COMPENSATION 1,620,000 4,327,250
----------------- ------------------
INCOME (LOSS) FROM OPERATIONS (4,166,657) (6,163,784)
OTHER INCOME (EXPENSE)
INTEREST INCOME 0 9,116
ROYALTY REVENUE 100,000 1,500,000
REALIZED STOCK GAINS (LOSSES) 50,000 0
INTEREST EXPENSE-CAPITAL LEASE (11,879) (10,750)
INTEREST EXPENSE-LETTERS OF CREDIT (196,140) (57,271)
INTEREST EXPENSE N/P (80,267) 0
LOSS ON ABANDONMENT OF LICENSING AGREEMENT 0 (48,980)
----------------- ------------------
TOTAL OTHER INCOME (EXPENSE) (138,286) 1,392,115
----------------- ------------------
NET INCOME (LOSS) ($4,304,943) ($4,771,669)
----------------- ------------------
----------------- ------------------
NET INCOME (LOSS) PER SHARE - PRIMARY ($0.72) ($1.06)
----------------- ------------------
----------------- ------------------
WEIGHTED AVG. COMMON SHARES OUTSTANDING 5,949,174 4,520,090
----------------- ------------------
----------------- ------------------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
SECURFONE AMERICA, INC. AND SUBSIDIARY
(FORMERLY MATERIAL TECHNOLOGY, INC.)
CONDSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED
<TABLE>
<CAPTION>
12-31-98 12-31-97
---------------- ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($4,304,943) ($4,771,669)
---------------- ------------------
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation & Amortization 68,266 120,679
Stock Options Granted & Contingent Shares Issued 1,620,000 4,327,250
Decrease (Increase) in Accounts Receivable 27,966 (35,104)
Decrease (Increase) in Notes Receivable 89,353 116,480
Decrease (Increase) in Prepaid Expenses (35,000) 0
Decrease (Increase) in Royalties Receivable 100,000 150,000
Decrease (Increase) in Inventory 22,153 (22,153)
Decrease (Increase) in Intangibles and Other Assets 261,293 (76,822)
(Decrease) Increase in Current portion of Long-Term debt 16,356 0
(Decrease) Increase in Accounts Payable 329,699 106,332
(Decrease) Increase in Deferred Royalty Revenue (100,000) (150,000)
(Decrease) Increase in Accrued Expenses 178,644 13,167
(Decrease) Increase in Notes Payable 275,000 0
---------------- ------------------
Total Adjustments 2,853,730 4,549,829
---------------- ------------------
Net Cash Used by Operating Activities (1,451,213) (221,840)
---------------- ------------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (12,212) (154,108)
---------------- ------------------
Net Cash Used in Investing Activities (12,212) (154,108)
---------------- ------------------
Cash Flows from Financing Activities:
Contribution to Capital 196,700 120,000
Proceeds from Capital Lease 0 159,650
Repayments Under Capital Lease (47,449) (28,811)
Increase in Long Term Notes Payable 1,280,699 77,997
Stock Options Exercised & Contingent Shares Issued 27,500 0
----------------- ------------------
Net Cash Provided in Financing Activities 1,457,450 328,836
---------------- ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (5,975) (47,112)
BEGINNING BALANCE-CASH AND CASH EQUIVALENTS 7,507 54,619
---------------- ------------------
ENDING BALANCE-CASH AND CASH EQUIVALENTS $1,532 $7,507
---------------- ------------------
---------------- ------------------
</TABLE>
Supplemental Disclosures:
Cash payments for:
Interest $288,286
--------
--------
See Notes to Financial Statements
F-4
<PAGE>
SECURFONE AMERICA, INC. AND SUBSIDIARY
(FORMERLY MATERIAL TECHNOLOGY, INC.)
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $5,620 $3
Stock options granted and shares issued 472 41,790 $3
Stock repurchased (36,173)
--------------------------------------------------
Balance at end of year 6,092 5,620 3
--------------------------------------------------
Paid-in Capital
Balance at beginning of year 5,417,430 975,797
Additions to Capital 1,820,360 4,441,633 975,757
--------------------------------------------------
Balance at end of year 7,237,790 5,417,430 975,757
--------------------------------------------------
Retained Earnings (Deficit)
Balance at beginning of year (5,157,131) (385,462)
Net income (loss) (4,304,943) (4,771,669) (385,462)
--------------------------------------------------
Balance at end of year (9,462,074) (5,157,131) (385,462)
--------------------------------------------------
Total Common Stockholders' Equity ($2,218,192) $265,919 $590,298
--------------------------------------------------
--------------------------------------------------
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by SecurFone America, Inc. and
Subsidiary are set forth below:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
SecurFone America,Inc. and its wholly owned subsidiary, SecurFone, Inc.
(collectively referred to as the "Company"). Intercompany transactions and
balances have been eliminated in the consolidated financial statements.
NATURE OF OPERATIONS
SecurFone America, Inc., and its wholly owned subsidiary, SecurFone, Inc., are
principally engaged in the sale and licensing of prepaid cellular phone
services. The Company provides these services in various markets; and in other
markets, licenses the Company's resources to unrelated parties. When a license
is sold, the Company agrees to provide exclusivity to the licensor for the
Company's network based debit product in certain licensed areas.
On August 1, 1997, the Company completed a reverse merger with Material
Technology, Inc. (Formerly Tensiodyne Scientific Corporation) and became a
publicly traded corporation.
MANAGEMENT
On September 11, 1998, the Company's Chief Operating Officer and a Director,
Derek M. Davis, resigned to pursue other interests. Mr. Davis agreed to be
available to Company executives for a period of two months, without
compensation, in order to ensure a smooth transition of tasks and
responsibilities to his replacement.
William P. Steuber, II, Chief Executive Officer and a Director, left the Company
to pursue other interests effective October 31, 1998. Subsequent to year end,
the Company has negotiated a settlement with Mr. Steuber to resolve all
outstanding obligations related to his prior employment
by to the Company.
Paul B. Silverman executed an employment agreement assuming the role of Chief
Executive Officer effective November 1, 1998.
F-6
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mr Silverman was subsequently elected a Director of the Company on December 11,
1998.
On November 1, 1998, Andrew H. Kent joined the management team as Director of
Business Development and was later appointed Chief Financial Officer of the
Company in June of 1999.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. The Company maintains its cash accounts in two commercial banks.
Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up to
$100,000.
INVENTORY
Inventories are valued on the first in, first out (FIFO) method, at cost. There
is no inventory account balance at December 31, 1998.
PROPERTY AND EQUIPMENT
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is calculated using accelerated
depreciation for both financial reporting and income tax purposes. As of
December 31, 1998 and 1997 depreciation expense of $50,506 and $71,055,
respectively was charged to operations.
FINANCIAL INSTRUMENTS
As collateral for performance and advances on long-term contracts, the Company
has stand-by Letters of Credit that it can issue. The Company has an agreement
with investors that may obtain Letters of Credit which are secured by their
personal assets through their personal banks. As of December 31, 1998, the
Company had stand-by letters of credit that it could issue for up to $1,000,000.
The amount available to said investors for stand-by letters of credit at
December 31, 1998 is $133,900. As of December 31, 1998 and 1997, interest
expense of $196,140 and $56,250 was charged to operations.
The Company's cash, accounts receivable, notes payable, and long-term debt at
December 31, 1998 are all valued at appropriate current market rates and appear
stated at fair value as governed by Statement of Financial Accounting Standards
No. 131 (SFAS 131).
F-7
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE AND EXPENSE RECOGNITION
The Company recognizes revenue from sales of cellular air time, net of an
allowance for uncollectible amounts, when substantially all significant services
to be provide by the Company have been performed. Expenses are recognized in the
period in which they are incurred.
INTANGIBLE ASSETS
Intangible assets are comprised of various costs incurred by the Company as part
of the start-up phase of operations. The Company began amortizing these costs
over a five year period as of January 1, 1997, using the straight-line method.
As of December 31, 1997, $49,624 in amortization expense of organizational costs
had been charged to operations. However, due to the Company adopting AICPA
Statement of Position 98-5 (SOP 98-5), these costs were expensed at December 31,
1998 in accordance with APB Opinion No. 20. The balance of the organization
costs of $199,109 was charged to Selling, General & Administrative expense.
BUSINESS SEGMENTS
Statement of Financial Accounting Standards No. 131 (SFAS 131) indicates the
need for disclosure of a company's sales in different market segments. The
Company had sales of its prepaid cellular air time in the domestic, U.S. market
only.
USE OF ESTIMATES
In preparing the Company's financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2 - ROYALTIES RECEIVABLE AND DEFERRED ROYALTY REVENUE
Royalties receivable and deferred royalty revenue at December 31, 1997
represents the portion of total revenue from initial license sales attributable
to services required to be provided by the Company that have not yet been
performed. These accounts have no balance at December 31, 1998.
F-8
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 is comprised of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Office Equipment $ 35,043 $ 22,929
Computer Software 88,901 88,802
Computer Hardware 190,373 190,373
-------- ---------
314,317 302,104
Accumulated Depreciation (139,381) (71,115)
-------- ---------
$174,936 $230,989
-------- ---------
-------- ---------
</TABLE>
NOTE 4 - CAPITAL LEASE
In March, 1997, the Company entered into a sale-leaseback arrangement which
is being accounted for as a capital lease. Under the agreement, the Company
sold certain equipment and leased it back for a period of 48 months, at which
time the Company will repurchase the equipment from the lessor. Minimum
future lease payments under non-cancelable capital leases for the next five
years are as follows:
<TABLE>
<S> <C>
1999 47,449
2000 47,449
2001 and thereafter 11,862
--------
Total minimum future Lease payments $106,760
--------
--------
</TABLE>
NOTE 5 - OFFICE LEASE OBLIGATIONS
In September of 1997, the Company entered into a lease agreement for a period
of three years for the San Diego office. The future lease payments for the
remaining two years of the agreement are as follows:
<TABLE>
<S> <C>
1999 45,800
2000 31,680
-------
Total minimum future Lease payments $77,480
-------
-------
</TABLE>
F-9
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 6 - COMMON STOCK
At December 31, 1996, 30,000 shares of SecurFone America, Inc.'s stock were
authorized and 3,000 shares were issued and outstanding.
On March 5, 1997, an additional 4,700,000 shares were authorized by the Board
of Directors.
On March 6, 1997 the shareholders of SecurFone America, Inc. approved a stock
split of 1,333.33 to 1 shares, increasing the 3,000 shares issued and
outstanding to 4,000,000 shares with a par value of $.01 per share. The
amount of $39,970 was transferred from the paid-in-capital account to common
stock account to record the split. All per share amounts have been restated
to reflect this stock split.
Prior to the reverse merger between SecurFone America, Inc. and Material
Technology, Inc., Material Technology, Inc. had as of July 31, 1997
100,000,000 shares authorized and 5,000,000 with a reverse split of 1 for 10
resulting in 500,216 shares issued and outstanding. Also, Material Technology
issued an additional 4,500,000 shares on July 31, 1997 for a total of
5,000,216 shares issued and outstanding. On August 1, 1997, SecurFone
America, Inc completed a reverse merger with Material Technology Inc. whereby
4,000,000 shares issued and outstanding of SecurFone America, Inc. were
exchanged for 4,500,000 shares issued of Material Technology, Inc. As a
result of the reverse merger, there were 5,000,216 shares issued and
outstanding and 100,000,000 shares authorized. The amount of $36,173 was
transferred from the common stock account to the additional paid in capital
account to reflect the par value change from $.01 to $.001 per share.
Total shares registered with S-8 registration on November 13, 1997 under the
1997 Stock Option Plan was 1,000,000 shares and 250,000 shares under the 1997
Director Stock Option Plan. At various dates in August, October and November
1997, stock options were granted under the two stock option plans totaling
430,900 shares consisting of 300,000 shares at an option price of $1.00 per
share and 130,900 shares at an option price of $2.50 per share. These options
are exercisable during 1998. These shares are recorded as Selling, General &
Administrative (S, G&A) expense in the amount of $1,227,250 and additional
paid in capital - stock options at the grant date in accordance with
Statement of Financial Accounting Standards NO. 123 (SFAS 123) "Accounting
for Stock-Based Compensation".
F-10
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 6 - COMMON STOCK (Continued)
On December 3, 1997, the Company (SecurFone America, Inc. formerly Material
Technology, Inc.) issued 620,000 contingent shares of common stock with a par
value of $.001 per share registered with the S-8 filing. These shares were
issued pursuant various employment, retainer, consulting and fee agreements.
As of December 31, 1997 all conditions of these shares have been met and
$3,100,000 is recorded as S, G & A expense, and common stock and additional
paid in capital accounts at the issue date.
On January 6, 1998, the Company granted stock options under the 1997 Stock
Option Plan of 400,000 shares at an option price of $.10 per share. These
options are exercisable immediately and are recorded as $1,620,000 Selling,
General & Administrative (SG&A) expense and additional paid in capital- stock
options at the grant date in accordance with Statement of Financial Accounting
Standards No. 123 (SFAS 123) "Accounting for Stock Based Compensation."
On March 19, 1998, an additional 345,000 shares were issued as the result of the
following transactions: 225,000 shares of stock issued pursuant to warrants
exercised by the individuals providing credit accommodations in connection with
letters of credit issued by the Company; 120,000 shares issued as a result of
two stock subscriptions in private placement.
On May 12, 1998, 35,000 shares were issued in connection with credit
accommodations provided to the Company by investors as discussed in Note 1.
On August 6, 1998, 50,000 shares were issued on the exercise of vested stock
options with $4,950 recorded as additional paid in capital - stock options.
On November 17, 1998, 41,665 shares of common stock were issued as payment of
legal fees with $33,290 recorded as paid in capital.
As of December 31, 1998, and June 28, 1999, there are 100,000,000 shares of
common stock authorized and 6,091,881 shares issued and outstanding at a par
value of $.001 per share.
Per Statement of Financial Accounting Standards, SFAS 128, the Company is
required to present both basic and diluted earnings per share figures. However,
diluted earnings per share (EPS) numbers were not reported in the financial
statements for 1997 or 1998 as the net loss would cause anti-dilution in the EPS
figures.
F-11
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 7 - NOTES PAYABLE
The Company maintains several short-term and long-term notes payable. As of
December 31, 1998, there is a balance of $275,000 in the short-term notes
payable account. The balance of $1,358,696 in the long-term notes payable
account is made up of various notes including one to Krystal Systems, Inc. in
the form of a 12% convertible debenture due 2001 in the original principal
amount of $1,000,000 plus $22,029 in additional loans, bringing the total amount
owed to Krystal Systems at 12-31-98 to $1,022,029. This entire balance is
included in the long-term notes payable balance given above. During 1998,
$80,267 was charged to interest expense on all notes payable.
NOTE 8 - INCOME TAXES
Income taxes are provided based on earnings reported for financial statement
purposes pursuant to the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109). The provision for income taxes differs from the
amounts currently payable because of timing differences in the recognition of
certain income and expense items for financial and tax reporting purposes. SFAS
109 uses the asset and liability method to account for income taxes which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities. An allowance has been provided for by
the Company which reduced the tax benefits accrued by the Company for its net
operating losses to zero, as it cannot be determined when, or if, the tax
benefits derived from these operating losses will materialize.
NOTE 9 - RELATED PARTIES
An officer of the Company is also a partner in the law firm which represents the
Company in its legal matters.
The Company's Chief Executive Officer and Chief Financial Officer have an
account payable from the Company.
Montpilier Holdings, Inc. is the principal stockholder of the Company and is
owned indirectly by Michael M. Grand, a director of the Company.
F-12
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 10 - LOSS ON ABANDONMENT OF LICENSING AGREEMENT
In August, 1996, the Company entered into a licensing agreement with
SecurFone New York, Inc. (SFNY). As part of the agreement, the Company
forwarded monies to SFNY to cover various start up costs. Shortly afterward,
SFNY fell into default under the terms of the licensing agreement and ceased
operations. The monies paid by the Company to SFNY were written off as a
one-time charge to income in 1997 of $48,980.
NOTE 11 - SUBSEQUENT EVENTS
On January 30, 1999, the Company executed an agreement with Teledata World
Services, Inc. ("Teledata"), a publicly traded company, whereby certain prepaid
cellular assets would be sold to Teledata for cash and Teledata common stock.
Under the agreement, Teledata would acquire all outstanding shares of Securfone,
Inc., a wholly owned operating subsidiary of the Company for $498,000 and
600,000 shares of unregistered Teledata common stock and the option to sell the
stock back to Teledata at a price of $2.50 per share effective one year from the
date of the transaction if the market price of the Teledata stock is less than
$2.50 per share. As of April 22, 1999, the deal was completed.
The Company currently has Letters of Credit posted on its behalf to support
Carrier Reseller Agreements in the amount of $1,000,000 as more specifically
described in Note 1. None of these Letters of Credit are in default. The Letters
of Credit will remain in place until at least April 1, 1999, provided Teledata
pays $7,500 per month to the issuers or obligors on the Letters of Credit. The
Company further represents that it will extend the Letters of Credit for a
period of one year until April 1, 2000, provided that Teledata continues to pay
the carrying charges of $7,500 per month, pays any and all bank extension fees,
and either puts up additional collateral to support the Letters of Credit in the
amount of $250,000, or enters into a mutually agreeable "Lock-Box" arrangement
for the payment of carrier charges.
On February 8, 1999, the Company executed a settlement agreement with former
Chief Executive Officer and Director William P. Steuber, II. This agreement
resolved all outstanding Company obligations related to his employment with the
Company in exchange for a payment of $50,000. This payment was made in April of
1999 in the form of a note payable issued to Mr. Steuber.
On May 7, 1999, the Company executed a letter of intent to acquire all
outstanding stock of IXATA.COM, Inc. ("IXATA") and acquire fiduciary control of
the company. IXATA is a
F-13
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 11 - SUBSEQUENT EVENTS - Continued
privately-held provider of Internet based, automated systems and related
information services designed to automate redundant, labor intensive
processes in the travel industry. Upon completion of the proposed
transaction, Securfone will acquire all outstanding stock of IXATA in a
planned tax-free stock swap. The Company will in turn provide ongoing,
immediate funding for IXATA for operations and business expansion. IXATA will
operate as a wholly owned subsidiary of the Company, and Securfone America,
Inc. will be renamed IXATA.COM. This transaction closed as of July 1, 1999.
On May 12 and May 19, 1999, the Company sold an additional 12,500 and 59,266
shares of Securfone par value $.001 Common Stock for $25,000 and $118,532,
respectively per stock subscription agreements.
NOTE 12 - CONTINGENCIES
In November 1996, the Company entered into an agreement with Associated
Barter Services, Inc. ("ABS") under which ABS agreed to arrange for
advertising services for the Company. The Company agreed to issue shares of
the Company's common stock in exchange for these services.
The Company negotiated an amendment to the agreement on June 30, 1998. The
amendment gives ABS 61,522 shares of Securfone common stock as payment in
full of its barter obligation to ABS for $307,608 of the Barter Credit
utilized by Securfone. Additional stock will be issued to ABS if the unused
portion of Barter Credit is utilized by Securfone. The 61,522 shares were
issued to ABS on June 30, 1999.
On or about August of 1998, American Express Travel Services asserted a claim
against the Company for unpaid credit card charges in the approximate amount
of $63,000. These charges were incurred by the Company's former Chief
Financial Officer in the course of his employment with the Company. The
Company has asserted as a defense that the charges were not properly
authorized and has attempted to settle the dispute through negotiation.
American Express has agreed to accept the sum of $25,000 in full settlement
of this account, subject to certain conditions including the settlement of
another account in the name of the Company's former Chief Financial Officer.
There can be no assurance that the settlement will be completed, and American
Express has given no indication of when or if it will initiate a complaint to
recover the claimed amount.
F-14
<PAGE>
SecurFone America, Inc. and Subsidiary
(Formerly Material Technology, Inc.)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 12 - CONTINGENCIES (Continued)
The Company has been advised by Bell Atlantic that it is obligated for an
unpaid account in the sum of $6,534 for service fees and related charges.
Bell Atlantic has indicated that it intends to initiate a complaint to
recover the amount claimed.
NOTE 13- GOING CONCERN
As the Company continues to implement its business plan, there exists the
possibility that present and planned sources of cash flow will not be
adequate to support the Company's increased needs with respect to cash and
cash flow burdens. The additional possibility exists that present and planned
sources of revenue will not be sufficient enough to the point that ongoing
operations may cease to exist. Currently, management is pursuing additional
sources of debt and equity financing, as well as additional sales. The
Company's ability to continue as a going concern is contingent upon these
factors.
F-15
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of this 1st day of November, 1997 between WILLIAM P. STUEBER, II,
(the "Executive"), whose address is Fourteen East Main Street, Somerville, NJ
08876 and SECURFONE AMERICA, INC., a Delaware corporation ("SecurFone" or
"Company") whose address is 5850 Oberlin Street, Suite 220, San Diego, CA
92121.
RECITALS:
WHEREAS, SecurFone wishes to obtain the services of the Executive; and
WHEREAS, the Executive desires to obtain employment with SecurFone
pursuant to the terms of this Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein
and other consideration the receipt and sufficiency of which is hereby
acknowledged, the Executive and SecurFone agree as follows:
1. EMPLOYMENT. As of the date of this Agreement, SecurFone will employ
the Executive as President and Chief Executive Officer of SecurFone, in
accordance with the terms and conditions set forth herein. SecurFone will also
use its best efforts to cause its stockholders to elect Executive to the Board
of Directors of SecurFone.
2. DUTIES. The Executive will devote not less than 40 hours per week or
90% of his business time and best efforts to the business of SecurFone and its
related organizations performing such duties as are customary to his position
and as may be reasonably requested by the Chairman or Board of Directors of
SecurFone. The Executive will at all times conduct himself in conformity with
the policies of SecurFone. The Executive is required to perform the following
duties and responsibilities:
a. Development and implementation of the SecurFone's business
plan for sales and marketing of prepaid cellular telephone services;
b. Negotiate and obtain resale agreements with cellular,
paging and PCS carriers in markets designated by SecurFone's Board of
Directors or Chief Executive Officer;
c. Negotiate switch platform vendor agreements to provide
advance switching and voice processing services and access to domestic
and international long distance telephone services;
d. Negotiate with banks and clearing vendors for indirect
channel fund processing;
<PAGE>
e. Advise and direct key personnel hiring to implement the
SecurFone business plan; and
f. Provide overall operational supervision to the SecurFone
business on a daily basis. SecurFone acknowledges that Executive
will not be required to relocate his residence to fulfill his
employment duties hereunder.
SecurFone acknowledges that Executive has certain existing business which
imposes preexisting obligations with certain cellular companies, which
Stueber shall disclose to SecurFone in writing prior to the execution of this
Agreement (the "Pre-Existing Obligations"). Executive represents that (i) the
Pre-Existing Obligations will not affect his ability to discharge his
obligations to SecurFone hereunder, and (ii) that he will not renew any of
the Pre-Existing Obligations, or create any new obligations of a similar
nature, without first obtaining the consent of SecurFone. In reliance on the
foregoing representations, SecurFone agrees to allow Executive to continue to
fulfill the Pre-Existing Obligations, so long as the representations remain
true and correct in all material respects.
3. COMPENSATION. For the performance of his duties during the term
of this Agreement, the Executive will earn a monthly salary of $20,833, of
which $15,000 will be payable monthly. The parties agree that the balance of
such monthly salary shall be accrued and deferred without interest and shall
be payable upon the earlier of (i) a determination by the Board of Directors
that the Company has sufficient revenues or capital, or (ii) May 1, 1998.
4. STOCK OPTION BENEFIT. The Company shall grant to the Executive a
Non-Qualified Stock Option for 400,000 Shares of the Company's Common Stock.
The Option shall be granted pursuant to a Plan adopted by the Company's Board
of Directors and approved by the Company's Shareholders. The exercise price
of the Option shall be $0.10 per Share. The Option shall be issued to
Executive on January 6, 1998. On or before January 20, 1998, the Company
shall file a Registration Statement to register the Shares underlying the
Option on a Form S-8 Registration Statement (or other applicable form as may
then be required for such registration) at the sole expense of the Company,
and shall diligently proceed to complete such registration. Executive shall
cooperate with the Company in any such registration and shall execute such
documents as may be requested by the Company so as to file and effectuate
such registration.
5. BENEFIT PLANS. During the term of this Agreement, Executive shall
be entitled to participate in all employee benefit plans which are maintained
or established by the Company from time to time and which cover SecurFone's
senior executives, provided he satisfies any applicable eligibility
requirements therefor. Executive acknowledges the right of the Company to
amend or terminate such plans at any time in the exercise of its discretion.
Executive further acknowledges that the Company may wish to maintain
insurance on his life for its benefit and agrees to submit to any physical
examination which may be required in order to obtain such insurance.
SecurFone has no current employee benefit plan in existence. Executive shall
receive four (4) weeks paid vacation per year, commencing six (6) months from
the date of this Agreement.
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<PAGE>
6. EXPENSES. The Executive will be reimbursed for all reasonable
expenses incurred by him in performing his duties hereunder, provided that
such expenses are incurred and accounted for in accordance with the policies
and procedures established by SecurFone.
7. TERMINATION OF EMPLOYMENT.
a. DEATH; DISABILITY. In the event of Executive's death or
Disability (as hereinafter defined), his employment with the Company
shall be deemed terminated as of the end of the month in which such
death or Disability occurs, and all rights, duties and obligations of
the parties hereunder shall thereupon cease, except that in the case of
the termination due to Disability, Executive's obligations under
Section 11 shall continue. For purposes of this Section, Disability
shall be deemed to have occurred if (a) Executive shall be unable to
perform his duties on an active full-time basis by reason of disability
or impairment of health for a period of at least one hundred eighty
(180) consecutive calendar days or (b) the Company shall have received
a certificate from a physician reasonably acceptable to both the
Company and Executive (or his representative) to the effect that
Executive is incapable of reasonably performing services under this
Agreement in accordance with past practices.
b. BY COMPANY FOR GOOD CAUSE. Executive's employment with the
Company may be terminated at the option of and by written notice from
the Company if the Board of Directors of the Company shall find Good
Cause for termination. For purposes of this Agreement, Good Cause shall
mean only (i) Executive's willful failure to perform his duties under
this Agreement within a reasonable period of time after receipt of
written notice from the Company setting forth in reasonable detail the
duties which Executive has failed to perform and the corrective actions
expected of him; (ii) a breach of Executive's duty of loyalty to the
Company, including but not limited to a breach of Executive's
obligations under Sections 10 or 11 below; (iii) indictment for,
conviction of, or written confession to a crime against the Company or
a crime which otherwise materially adversely affects Executive's
ability to perform his obligations under this Agreement, any business
relationship which the Company maintains or the general reputation and
good will of the Company; or (iv) Executive shall have been found by
the Board of Directors of the Company to have been repeatedly and
excessively using alcohol, drugs and/or any other intoxicating or
controlled substance. Upon any such termination all rights, obligations
and duties of the parties hereunder shall immediately cease, except
that the Company shall fulfill its obligations to Executive under
Section 8 hereof, and except for Executive's obligations under Sections
10 and 11 hereof.
c. BY COMPANY WITHOUT GOOD CAUSE. The Company may also
terminate Executive's employment at any time by written notice without
Good Cause, whereupon all rights, obligations and duties of the parties
hereunder shall immediately cease, except that the Company shall
fulfill its obligations to Executive under Section 8 hereof, and except
for Executive's obligations under Section 11 hereof.
3
<PAGE>
d. BY EXECUTIVE FOR GOOD REASON. Executive may terminate his
employment with the Company upon not less than sixty (60) days advance
written notice for "Good Reason." Upon the effective date of any such
termination all rights, obligations and duties of the parties hereunder
shall immediately cease, except that (i) the Company shall fulfill its
obligations to Executive under Section 8(a) hereof, (ii) the Company
shall fulfill its obligations to Executive under Section 8(b) hereof,
and (iii) Executive's obligations under Section 11 hereof shall remain
effective. For purposes of this Agreement, the Executive will have
"Good Reason" if (iv) the Board of Directors of SecurFone shall fail to
re-elect, or shall remove Executive from the office of President and
Chief Executive Officer of SecurFone, (v) the Board of Directors of
SecurFone shall make significant negative change in the nature of scope
of the authorities, powers, functions or duties of Executive hereunder,
(vi) the Company shall fail to pay when due any compensation provided
for in this Agreement and such failure is not corrected within ninety
(90) days after notice thereof to the Company by the Executive,
provided however, that the Company's failure to pay compensation when
due shall not be considered Good Reason until April 1, 1998, or (vii)
any pattern of conduct done with the approval of the Board of Directors
of the Company which impedes the Executive in the exercise of his
authorities, powers, functions or duties, hereunder in the manner in
which they would normally be exercised by the President and Chief
Executive Officer.
e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate
his employment with the Company upon not less than sixty (60) days
advance written notice. Upon the effective date of any such termination
all rights, obligations and duties of the parties hereunder shall
immediately cease, except for Executive's obligations under Sections
10 and 11 hereof; provided, however, that the Company shall be required
to fulfill the obligations set forth in Section 8 hereof. The Company
shall not be prohibited from terminating Executive under Section 7(c)
above following receipt of a notice of termination from Executive,
subject to its obligations thereunder.
8. TERMINATION COMPENSATION.
a. SEVERANCE PAY. If Executive's employment is terminated
pursuant to Section 7(c) or 7(d), Executive shall be entitled to the
continued payment of the monthly salary described in Section 3 above
for a period of six (6) months following such termination. If
Executive's employment is terminated pursuant to Section 7(b) or 7(e),
Executive shall be entitled to the continued payment of the monthly
salary described in Section 3 above for a period of three (3) months
following such termination.
b. ACCELERATED PAY. Notwithstanding Section 8(a), in the event
of termination of Executive all compensation then due and owing and all
amounts then accrued to Executive shall become due and payable upon the
effective date of Executive's termination.
9. TERM. This Agreement will continue in effect from the date
hereof until November 1, 1998 unless sooner terminated under Section 7 hereof.
The Agreement shall automatically renew from year to year unless either party
gives no less than thirty (30) days and no more than ninety (90) days notice of
its/his intent not to renew this Agreement.
4
<PAGE>
10. NON-COMPETITION.
a. RESTRICTIONS. As consideration for the compensation and
benefits to be provided to the Executive under this Agreement, and as
an additional incentive for Executive to enter into this Agreement, the
Executive will not during the term of this Agreement and for a period
of twelve (12) months thereafter if Executive's employment is
terminated pursuant to Section 7(b) or 7(e), directly or indirectly,
for himself or for others, in any state of the United States or in any
foreign country where SecurFone or any of its Affiliates (as defined
below) is then conducting the Business (as defined below) or has,
during the previous twelve (12) months, conducted the business:
(1) engage in the Business;
(2) render advice, consultation, or services to or
otherwise assist any other person or entity who competes,
directly or indirectly, with SecurFone or any of its
Affiliates;
(3) transact any business in any manner pertaining to
suppliers or customers of SecurFone or any of its Affiliates
which, in any manner, would have, or is likely to have, an
adverse effect upon the conduct of the Business of SecurFone
or any of its Affiliates; or
(4) induce any employee, agent or representative of
SecurFone or any of its Affiliates to terminate his or her
employment with SecurFone or such Affiliate.
b. DEFINITIONS. For the purposes of this Section 10, the
"Business" will mean the business activities of SecurFone and its
Affiliates in sales and marketing or prepaid cellular telephone and
related services using a prepaid telephone card or related wireless
communications technology providing access to a national or local
prepaid cellular network with advance switching and voice processing
services carried on within a 100 mile radius of any facility or office
operated or maintained by SecurFone or any of its Affiliates. The term
"Affiliates" shall mean any entity controlling, controlled by or under
common control with SecurFone, including, but not limited to, SecurFone
divisions and subsidiaries, and any licensee, franchisee or agent of
SecurFone products or services.
c. REASONABLENESS; ENFORCEMENT. The Executive understands that
the foregoing restrictions may limit his ability to engage in certain
business pursuits during the period provided for above, but
acknowledges that he will receive sufficiently higher remuneration and
other benefits from SecurFone hereunder than he would otherwise receive
to justify such restriction. The Executive acknowledges that he
understands the effect of the provisions of this Section 10, that he
has had reasonable time to consider the effect of the provisions of
this Section 10, and that he was encouraged to and had an opportunity
to consult an attorney with respect to these provisions. SecurFone and
the Executive consider the restrictions contained in this Section 10 to
be reasonable and necessary. Nevertheless, if any aspect of these
restrictions is found to be unreasonable or otherwise unenforceable by
a Court of competent
5
<PAGE>
jurisdiction, the parties intend for such restrictions to be modified
by such Court so as to be reasonable and enforceable and, as so
modified by the Court, to be fully enforced. In the event of a breach
or threatened breach of this Section 10 by Executive, SecurFone will
be entitled to preliminary and permanent injunctive relief, without
bond or security, sufficient to enforce the provisions thereof and
SecurFone will be entitled to pursue such other remedies at law or
in equity which it deems appropriate.
11. CONFIDENTIAL INFORMATION.
a. PROHIBITION ON DISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. The Executive will at all times keep and maintain
Confidential Information (as defined below) confidential and will not,
at any time, either during or subsequent to his employment with
SecurFone, either directly or indirectly, use any Confidential
Information for his own benefit, or otherwise divulge, disclose, or
communicate any Confidential Information to any person or entity in any
manner whatsoever, other than employees or agents of SecurFone or its
Affiliates who have a need to know such information, and then only to
the extent necessary to perform their responsibilities an behalf of
SecurFone or its Affiliates.
b. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential
Information" will mean any and all information (excluding information
in the public domain) relating to the Business, including, without
limitation, all patents and patent applications; copyrights (whether
registered or to be registered in the United States or elsewhere) which
are applied for, issued to or owned by SecurFone or any of its
Affiliates; inventions; trade secrets; computer programs; engineering
and technical data; drawings or designs; manufacturing techniques;
information concerning pricing and pricing policies; marketing
techniques; suppliers; methods and manner of operations; and
information relating to the identity and location of all past, present
and prospective customers.
c. ENFORCEMENT. The Executive's obligations contained in this
Section 11 are of a special and unique character which gives them a
peculiar value to SecurFone. The parties recognize that SecurFone
cannot be reasonably or adequately compensated in damages alone in an
action at law should the Executive breach such obligations. The
Executive therefore expressly agrees that, in addition to any other
rights or remedies which SecurFone may possess, it will be entitled to
injunctive and other equitable relief in the form of preliminary and
permanent injunctions, without bond or other security, in the event of
any actual or threatened breach of such obligations by the Executive,
in order to enforce this Section 11.
12. SUCCESSORS. This Agreement is personal to the Executive and will
not be assignable by him without the prior written consent of SecurFone, except
that Executive's right to receive compensation may be assigned by Executive, in
writing. Any amounts payable after the death of the Executive shall be paid to
the executor or administrator of his estate. This Agreement will inure to the
benefit of and be binding upon SecurFone, its Affiliates and their successors
and assigns.
6
<PAGE>
13. INDEMNIFICATION. The Certificate of Incorporation of the Company
provides, in Article VII thereof, captioned "Indemnification," that the Company
shall indemnify certain persons under certain conditions. A copy of said Article
VII is attached hereto as Exhibit A. The Company agrees that the Executive shall
be a person covered by the attached Article VII, that the Executive shall be
entitled to the benefit of all of the provisions of Article VII, and that such
provisions shall remain in full force and effect with respect to the Executive
throughout the term of this Agreement, without regard to any amendment to
Article VII which might be adopted after the date hereof. The Company agrees
that to the extent the Company's obligations under this paragraph are insurable,
the Company agrees to purchase insurance, in the amount of $2,500,000 to secure
the Company's obligations hereunder.
14. TIME. The parties acknowledge that time is of the essence in the
performance of the obligations of each party hereto, and that the timely
performance of such obligations is a pre-condition to the continuation of the
obligations of the other party.
15. EUROPE. The parties acknowledge that the Executive is not being
compensated pursuant to the terms of this Agreement for any efforts he might
expend on behalf of the Company or its affiliates in Europe, and that they
intend to address compensation for such efforts in either a separate agreement
or in a subsequent addendum hereto.
16. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflict of laws. Any action brought to enforce this Agreement or
to seek relief based upon any provision of it will be brought in a court of
competent jurisdiction in the State of Delaware.
17. MERGER. This Agreement supersedes any and all prior agreements,
whether written or oral, with respect to the Executive's employment by SecurFone
or any of its Affiliates and contains all of the promises, representations,
warranties and agreements between the parties with respect to such employment.
18. MODIFICATION. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties or their
respective successors.
19. NOTICES. All notices or other communications hereunder will be in
writing and will be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, to the following:
If to the Executive:
William P. Stueber, II
Fourteen East Main Street
Somerville, NJ 08876
7
<PAGE>
If to SecurFone:
SecurFone America, Inc.
5850 Oberlin Street, Suite 220
San Diego, CA 92121
With a copy to:
John A. Hutchings, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, CO 80203
Any party may from time to time change its address for purposes of this
Agreement by giving notice of such change to the other party, but no such change
will be deemed effective, until actually received by the party to whom it is
directed. Notice and communications under this Agreement will be effective when
actually received by the party to whom they are directed.
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year written above.
SECURFONE AMERICA, INC.
a Delaware Corporation
By: /s/ Steven L. Wasserman
------------------------
Its: Secretary
-----------------------
/s/ William P. Stueber, II
---------------------------
WILLIAM P. STUEBER, II
8
<PAGE>
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
KNOW ALL MEN BY THESE PRESENTS, that this agreement is entered into
by and between SECURFONE AMERICA, INC. AND ITS SUBSIDIARIES ("SECURFONE"), a
Delaware corporation, MONTPILIER HOLDINGS, INC. ("MONTPILIER"), a Nevada
corporation, and William P. Stueber, II ("Stueber").
W I T N E S S E T H
WHEREAS, beginning in 1996, Stueber developed a business plan for a
pre-paid cellular network and communication service which was presented to
SecurFone and its principals for potential investment and/or purchase; and
WHEREAS, as a result of negotiations between SecurFone and Stueber,
the parties entered into certain Executive Employment Agreements dated August
1, 1996 and November 1, 1997; and
WHEREAS, pursuant to Stueber's Executive Employment Agreement, dated
November 1, 1997, Stueber was granted an option to purchase 400,000 shares of
SecurFone common stock; Stueber was also granted an option to purchase 50,000
shares of SecurFone common stock pursuant to SecurFone's 1997 Directors'
Stock Option Plan; and in addition Stueber claims a right or option to
receive a portion of the SecurFone common stock owned by Montpilier; and
WHEREAS, Stueber has initiated litigation against SecurFone on
behalf of Vortex Cellular, Inc. dba Direct Mobile, and has threatened other
litigation arising from the aforementioned Employment Agreements and other
dealings by and among the parties; and
WHEREAS, the parties hereto have agreed to settle and resolve all
claims and disputes which exist or may exist in the future between or among
them subject to the terms and conditions set forth therein.
<PAGE>
NOW, THEREFORE, in consideration of the payment by SecurFone or
Montpilier to Stueber of the sum of Fifty Thousand Dollars ($50,000), and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. On or before April 1, 1999, SecurFone or Montpilier will wire
transfer the sum of $50,000 to such account as designated by Stueber. Stueber
shall provide wiring instructions to SecurFone on or before March 26, 1999
designating the recipient of such payment.
2. Upon receipt of the settlement funds set forth in Paragraph 1
above, Stueber agrees to cause the dismissal of the pending complaint
captioned VORTEX CELLULAR, INC. VS. SECURFONE AMERICA, INC. pending in the
Superior Court of California, County of San Diego, Case No. 727443.
3. Upon receipt of the settlement funds set forth in Paragraph 1
above, Stueber agrees, for himself, each of his heirs, executors,
administrators and assigns, to release and forever discharge SecurFone and
Montpilier together with their respective subsidiaries, shareholders,
officers, directors and affiliates, and their respective agents, attorneys
and employees, from and against any and all claims, actions, demands and
suits of any and all descriptions, known or unknown arising out of or in any
manner connected with Stueber's employment or business relationship with
SecurFone or Montpilier. Stueber's release shall include but not be limited
to any claims arising from his Employment Agreements with SecurFone and the
stock option agreement relating thereto, and Stueber further agrees to
execute such documents and other instruments reasonably required by SecurFone
or Montpilier to effectuate the provisions of this Agreement.
4. In consideration of Stueber's release and the other terms and
conditions of this Agreement, SecurFone and Montpilier, together with their
subsidiaries, shareholders, officers, directors and affiliates, and their
respective agents, attorneys and employees, hereby release and forever
discharge Stueber and his heirs, executors, administrators and assigns, from
and against any and all claims, actions, demands and suits of any and all
descriptions, known or unknown arising out
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of or in any manner connected with Stueber's employment or business
relationship with SecurFone or Montpilier.
5. This Agreement and the covenants and conditions contained herein
shall not be deemed as an admission of liability or acknowledgment of any
responsibility be any party to another, and that in the event the payment due
Stueber as provided in Paragraph 1 is not made in accordance with the terms
hereof, then in such event this Agreement shall be null and void and the
parties are free to pursue such claims and actions as they may deem
appropriate.
6. The parties hereto acknowledge that this Agreement is executed of
their own free will and desire and that each party has had the opportunity to
consult with legal counsel prior to execution of this Agreement.
7. This Agreement and the obligations of the parties shall be
governed and construed in accordance with the laws of the State of Delaware
without reference to principles of conflict of law.
8. This Agreement shall enure and be binding upon the parties, and
their respective heirs and assigns. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all such
counterparts shall together constitute but one and the same instrument.
Further, a facsimile signature shall be deemed an original.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the said parties have hereunto executed this
agreement as of the day and year set forth below.
SECURFONE AMERICA, INC.
By: /s/ Steven L. Wasserman
----------------------------------
Its: Secretary
----------------------------------
MONTPILIER HOLDINGS, INC.
By: /s/ Steven L. Wasserman
----------------------------------
Its: Secretary
----------------------------------
/s/ William P. Stueber, II
------------------------------------
WILLIAM P. STUEBER, II, individually
and on behalf of Vortex Cellular, Inc. dba
Direct Mobile
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered
into as of the 1st day of November, 1998 between Paul B. Silverman, (the
"Executive"), whose address is 9520 Center Street, Vienna, VA 22181, and
SecurFone America, Inc., a Delaware corporation ("SecurFone" or "Company")
whose address is 5850 Oberlin Street, Suite 220, San Diego, CA 92121.
RECITALS:
WHEREAS, SecurFone wishes to obtain the services of the Executive;
and
WHEREAS, the Executive desires to obtain employment with SecurFone
pursuant to the terms of this Agreement;
NOW THEREFORE, in consideration of the mutual promises contained
herein and other consideration the receipt and sufficiency of which is hereby
acknowledged, the Executive and SecurFone agree as follows:
1. EMPLOYMENT. As of November 1, 1998, SecurFone will employ the
Executive as Chief Executive Officer of SecurFone. The Executive will also
continue to serve as Chief Executive Officer of SCIES, Inc. which will be
established as a wholly owned subsidiary of SecurFone upon completion of a
merger agreement now being finalized. SecurFone will also use its best
efforts to cause its stockholders to elect Executive to the Board of
Directors of SecurFone.
2. DUTIES. The Executive will devote his full time efforts to the
business of SecurFone and its related organizations performing such duties as
are customary to his position and as may be reasonably requested by the
Chairman or Board of Directors of SecurFone. The Executive will at all times
conduct himself in conformity with the policies of SecurFone. The Executive
is required to perform the following duties and responsibilities:
a. Develop and manage relationships with financial
institutions and funding sources to meet company's
funding needs and maximize shareholder value;
b. Develop and implement SecurFone's strategic plan for
securing a leadership position in the market for
wireless and related communications services;
c. Assume overall management and fiduciary
responsibility for SecurFone's consolidated business
operations;
d. Identify and pursue new acquisition targets which are
consistent with SecurFone's strategic plan and
maximize shareholder value;
e. Develop an overall management and organizational plan
to meet the company's business needs;
<PAGE>
f. Provide overall operational direction to the
SecurFone business on a daily basis.
3. COMPENSATION. For the performance of his duties during the term
of this Agreement, the Executive will earn an annual salary of $150,000 of
which the annualized salary will be payable on a weekly basis. The parties
agree that after the Company receives additional new funding of not less than
$750,000, secured from external sources, the Executive will earn an annual
salary of $180,000 of which the annualized salary will be payable on a weekly
basis. The Executive will also receive an allowance of up to $600 per month
for a company car.
4. STOCK OPTION BENEFIT. The Company will grant both Qualified and
Non-Qualified Stock Options which will be granted based upon the Executive's
successful performance, and the ability of the Company to meet specified
objectives. The option schedule is set forth below.
a. The Company shall grant to the Executive a
Non-Qualified Stock Option for 100,000 Shares of the
Company's Common Stock. The Option shall be granted
pursuant to a Plan adopted by the Company's Board of
Directors and approved by the Company's Shareholders.
The exercise price of the Option shall be $0.10 per
Share. The Option shall be issued to Executive on
December 1, 1998. This Option shall vest immediately
and is exercisable anytime in the next five years.
b. Consistent with the terms and conditions of the
existing Director compensation plan, the Company
shall grant to the Executive, Options for 50,000
shares of the Company's Common Stock upon the
Executive's election to serve as a Director. The
exercise price of the Option shall be $1.00 per
Share.
c. The Company shall grant to the Executive Qualified
Incentive Option for 100,000 Shares of the Company's
Common Stock. The Option shall be granted pursuant to
a Plan adopted by the Company's Board of Directors
and approved by the Company's Shareholders. The
exercise price of the Option per Share is to be
determined, but in no case more than current market
price upon the effective date of this agreement. The
Option shall be issued to Executive upon closing a
minimum total funding commitment of $1.0 million in
cash, debt or equity funding from external sources.
This Option is exercisable anytime in the next five
years.
d. The Company shall grant to the Executive Qualified
Incentive Option for 100,000 shares of the Company's
Common Stock. The Option shall be granted pursuant to
a Plan adopted by the Company's Board of Directors
and approved by the Company's Shareholders. The
exercise price of the Option per Share is to be
determined, but in no case more than current market
price upon the effective date of this agreement. The
Option shall be issued to Executive upon SecurFone
achieving a minimal market capitalization of $30
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<PAGE>
million based on the closing market prices for a five
day period. This Option is exercisable anytime in the
next five years.
e. The Company shall grant to the Executive Qualified
Incentive Option for 100,000 Shares of the Company's
Common Stock. The Option shall be granted pursuant to
a Plan adopted by the Company's Board of Directors
and approved by the Company's Shareholders. The
exercise price of the Option per Share is to be
determined, but in no case more than current market
price upon the effective date of this agreement. The
Option shall be issued to Executive within seven days
after the Company reports positive cash flow from
operations for a minimum 60 day period. This Option
is exercisable anytime in the next five years.
5. BENEFIT PLANS. During the term of this Agreement, Executive shall
be entitled to participate in all employee benefit plans which are maintained
or established by the Company from time to time and which cover SecurFone's
senior executives, provided he satisfies any applicable eligibility
requirements therefor. Executive shall be entitled to participate in other
cash and stock incentives as granted at the discretion of the Board of
Directors based on achieving selected milestones. Executive acknowledges the
right of the Company to amend or terminate such plans at any time in the
exercise of its discretion. Executive further acknowledges that the Company
may wish to maintain insurance on his life for its benefit and agrees to
submit to any physical examination which may be required in order to obtain
such insurance. SecurFone has no current employee benefit plan in existence.
Executive shall receive four (4) weeks paid vacation per year, commencing
upon execution date of this Agreement.
6. EXPENSES. The Executive will be reimbursed for all reasonable
expenses incurred by him in performing his duties hereunder, provided that
such expenses are incurred and accounted for in accordance with the policies
and procedures established by SecurFone.
7. TERMINATION OF EMPLOYMENT.
a. DEATH; DISABILITY. In the event of Executive's death or
Disability (as hereinafter defined), his employment with the Company
shall be deemed terminated as of the end of the month in which such
death or Disability occurs, and all rights, duties and obligations of
the parties hereunder shall thereupon cease, except that in the case of
the termination due to Disability, Executive's obligations under
Section 11 shall continue. For purpose of this Section, Disability
shall be deemed to have occurred if (a) Executive shall be unable to
perform his duties on an active full-time basis by reason of disability
or impairment of health for a period of at least one hundred eighty
(180) consecutive calendar days or (b) the Company shall have received
a certificate from a physician reasonably acceptable to both the
Company and the Executive (or his representative) to the effect that
Executive is incapable of reasonably performing services under this
Agreement in accordance with past practices.
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<PAGE>
b. BY COMPANY FOR GOOD CAUSE. Executive's employment
with the Company may be terminated at the option of
and by written notice from the Company if the Board
of Directors of the Company shall find Good Cause for
termination. For purposes of this Agreement, Good
Cause shall mean only (i) Executive's willful failure
to perform his duties under this Agreement within a
reasonable period of time after receipt of written
notice from the Company setting forth in reasonable
detail the duties which Executive has failed to
perform and the corrective actions expected of him;
(ii) a breach of Executive's duty of loyalty to the
Company, including but not limited to a breach of
Executive's obligations under Sections 10 or 11
below; (iii) indictment for, conviction of, or
written confession to a crime against the Company or
a crime which otherwise materially adversely affects
Executive's ability to perform his obligations under
this Agreement, any business relationship which the
Company maintains or the general reputation and good
will of the Company; or (iv) Executive shall have
been found by the Board of Directors of the Company
to have been repeatedly and excessively using
alcohol, drugs and/or any other intoxicating or
controlled substance. Upon any such termination all
rights, obligations and duties of the parties
hereunder shall immediately cease, except that the
Company shall fulfill its obligations to Executive
under Section 8 hereof, and except for Executive's
obligations under Sections 10 and 11 hereof.
c. BY COMPANY WITHOUT GOOD CAUSE. The Company may also
terminate Executive's employment at any time by written
notice without Good Cause, whereupon all rights,
obligations and duties of the parties hereunder shall
immediately cease, except that the Company shall
fulfill its obligations to Executive under Section 8
hereof, and except for Executive's obligations under
Section 11 hereof.
d. BY EXECUTIVE FOR GOOD REASON. Executive may terminate
his employment with the Company upon not less than
sixty (60) days advance written notice for "Good
Reason." Upon the effective date of any such
termination all rights, obligations and duties of the
parties hereunder shall immediately cease, except
that (i) the Company shall fulfill its obligations to
Executive under Section 8(a) hereof, (ii) the Company
shall fulfill its obligations to Executive under
Section 8(b) hereof, and (iii) Executive's
obligations under Section 11 hereof shall remain
effective. For purposes of this Agreement, the
Executive will have "Good Reason" if (iv) the Board
of Directors of SecurFone shall fail to reelect, or
shall remove Executive from the office of Chief
Executive Officer of SecurFone, or, upon completion
of the planned SCIES merger, shall fail to reelect,
or shall remove Executive Chief Executive Officer of
SCIES, Inc., (v) the Board of Directors of SecurFone
shall make a significant negative change in the
nature of scope of the authorities, powers, functions
or duties of Executive hereunder, (vi) the Company
shall fail to pay when due any compensation provided
for in this
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<PAGE>
Agreement and such failure is not corrected within
ninety (90) days after notice thereof to the Company
by the Executive, or (vii) any pattern of conduct done
with the approval of the Board of Directors of the
Company which impedes the Executive in the exercise of
his authorities, powers, functions or duties,
hereunder in the manner in which they would normally
be exercised by the Chief Executive Officer.
e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may
terminate his employment with the Company upon not
less than sixty (60) days advance written notice.
Upon the effective date of any such termination all
rights, obligations and duties of the parties
hereunder shall immediately cease, except for
Executive's obligations under Sections 10 and 11
hereof, provided, however, that the Company shall not
be prohibited from terminating Executive under
Section 7(c) above following receipt of a notice of
termination from Executive, subject to its
obligations thereunder.
8. TERMINATION COMPENSATION: SEVERANCE PAY. If Executive's employment
is terminated pursuant to Section 7(c) or 7(d), Executive shall be entitled to
the continued payment of the annual salary described in Section 3 above for a
period of six (6) months following such termination. If Executive's employment
is terminated pursuant to Section 7(b) or 7(e), Executive shall be entitled to
the continued payment of the annual salary described in Section 3 above for a
period of three (3) months following such termination.
9. TERM. This Agreement will continue in effect from the date hereof
until October 1, 1999 unless sooner terminated under Section 7 hereof. The
Agreement shall automatically renew from year to year unless either party gives
no less than thirty (30) days and no more than ninety (90) days of its/his
intent not to renew this Agreement.
10. NON-COMPETITION.
a. RESTRICTIONS. As consideration for the compensation
and benefits to be provided to the Executive under
this Agreement, and as an additional incentive for
Executive to enter into this Agreement, the Executive
will not during the term of this Agreement and for a
period of twelve (12) months thereafter if
Executive's employment is terminated pursuant to
Section 7(b) through 7(e), directly or indirectly,
for himself or for others, in any state of the United
States or in any foreign country where SecurFone or
any of its Affiliates (as defined below) is then
conducting the Business (as defined below) or has,
during the previous twelve (12) months, conducted the
business:
(1) engage in the Business;
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<PAGE>
(2) render advice, consultation, or services to
or otherwise assist any other person or
entity who competes, directly or indirectly,
with SecurFone or any of its Affiliates;
(3) transact any business in any manner
pertaining to suppliers or customers of
SecurFone or any of its Affiliates which, in
any manner, would have, or is likely to
have, an adverse effect upon the conduct of
the Business of SecurFone or any of its
Affiliates; or
(4) induce any employee, agent or representative
of SecurFone or any of its Affiliates to
terminate his or her employment with
SecurFone or such Affiliate.
b. DEFINITIONS. For purposes of this Section 10, the
"Business" will mean the business activities of
SecurFone and its Affiliates in sales and marketing
of prepaid cellular telephone and related services
using a prepaid telephone card or related wireless
communications technology providing access to a
national or local prepaid cellular network with
advance switching and voice processing services
carried on within a 100 mile radius of any facility
or office operated or maintained by SecurFone or any
of its Affiliates. The term "Affiliates" shall mean
any entity controlling, controlled by or under common
control with SecurFone, including, but not limited
to, SecurFone divisions and subsidiaries, and any
licensee, franchisee or agent of SecurFone products
or services.
c. REASONABLENESS; ENFORCEMENT. The Executive
understands that the foregoing restrictions may limit
his ability to engage in certain business pursuits
during the period provided for above, but
acknowledges that he will receive sufficiently higher
remuneration and other benefits from SecurFone
hereunder than he would otherwise receive to justify
such restriction. The Executive acknowledges that he
understands the effect of the provisions of the
provisions of this Section 10, and that he was
encouraged to and had an opportunity to consult an
attorney with respect to these provisions. SecurFone
and the Executive consider the restrictions contained
in this Section 10 to be reasonable and necessary.
Nevertheless, if any aspect of these restrictions is
found to be unreasonable or otherwise unenforceable
by a Court of competent jurisdiction, the parties
intend for such restrictions to be modified by such
Court so as to be reasonable and enforceable and, so
as modified by the Court, to be fully enforced. In
the event of a breach or threatened breach of this
Section 10 by Executive, SecurFone will be entitled
to preliminary and permanent injunctive relief,
without bond or security, sufficient to enforce the
provisions thereof and SecurFone will be entitled to
pursue such other remedies at law or in equity which
it deems appropriate.
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<PAGE>
11. CONFIDENTIAL INFORMATION.
a. PROHIBITION ON DISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION. The Executive will at all times keep and
maintain Confidential Information (as defined below)
confidential and will not, at any time, either during
or subsequent to his employment with SecurFone,
either directly or indirectly, use any Confidential
Information for his own benefit, or otherwise
divulge, disclose, or communicate any Confidential
Information to any person or entity in any manner
whatsoever, other than employees or agents of
SecurFone or its Affiliates who have a need to know
such information, and then only to the extent
necessary to perform their responsibilities on behalf
of SecurFone or its Affiliates.
b. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential
Information" will mean any and all information
(excluding information in the public domain) relating
to the Business, including, without limitation, all
patents and patent applications; copyrights (whether
registered or to be registered in the United States
or elsewhere) which are applied for, issued to or
owned by SecurFone or any of its Affiliates;
inventions; trade secrets; computer programs;
engineering and technical data; drawings or designs;
manufacturing techniques; information concerning
pricing and pricing policies; marketing techniques;
suppliers; methods and manner of operations; and
information relating to the identity and location of
all past, present and prospective customers.
c. ENFORCEMENT. The Executive's obligations contained in
this Section 11 are of a special and unique character
which gives him a peculiar value to SecurFone. The
parties recognize that SecurFone cannot be reasonably
or adequately compensated in damages alone in an
action at law should the Executive breach such
obligations. The Executive therefore expressly agrees
that, in addition to any other rights or remedies
which SecurFone may possess, it will be entitled to
injunctive and other equitable relief in the form of
preliminary and permanent injunctions, without bond
or other security, in the event of any actual or
threatened breach of such obligations by the
Executive, in order to enforce this Section 11.
12. SUCCESSOR. This Agreement is personal to the Executive and will not
be assignable by him without the prior written consent of SecurFone, except that
Executive's right to receive compensation may be assigned by Executive, in
writing. Any amounts payable after the death of the Executive shall be paid to
the executor or administrator of his estate. This Agreement will inure to the
benefit of and be binding upon SecurFone, its Affiliates and their successors
and assigns.
13. INDEMNIFICATION. The Certificate of Incorporation of the Company
provides, in Article VII thereof, captioned "Indemnification," that the Company
shall indemnify certain persons under certain conditions. A copy of said Article
VII is attached hereto as Exhibit A. The Company
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<PAGE>
agrees that the Executive shall be a person covered by the attached Article
VII, that the Executive shall be entitled to the benefit of all of the
provisions of Article VII, and that such provisions shall remain in full
force and effect with respect to the Executive throughout the term of this
Agreement, without regard to any amendment to Article VII which might be
adopted after the date hereof. The Company agrees that to the extent the
Company's obligations under this paragraph are insurable, the Company agrees
to purchase insurance, in the amount of $2,500,000 to secure the Company's
obligations hereunder.
14. TIME. The parties acknowledge that time is of the essence in the
performance of the obligations of each party hereto, and that the timely
performance of such obligations is a precondition to the continuation of the
obligations of the other party.
15. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflict of laws. Any action brought to enforce this Agreement or
to seek relief based upon any provision of it will be brought in a court of
competent jurisdiction in the State of Delaware.
16. MERGER. This Agreement supersedes any and all prior agreements,
whether written or oral, with respect to the Executive's employment by SecurFone
or any of its Affiliates and contains all of the promises, representations,
warranties and agreements between the parties with respect to such employment.
17. MODIFICATION. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties or their
respective successors.
18. NOTICE. All notices or other communications hereunder will be in
writing and will be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, to the following:
If to the Executive:
Paul B. Silverman
9520 Center Street
Vienna, VA 22181
If to SecurFone:
SecurFone America, Inc.
5850 Oberlin Street, Suite 220
San Diego, CA 92121
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With a copy to:
Ernest Stern, Esq.
Piper & Marbury L.L.P.
1200 19th Street N.W.
Washington, D.C. 20036
Steve Wasserman, Esq.
Kohrman Jackson & Krantz P.L.L.
20th Floor, One Cleveland Center
Cleveland, OH 44114
Any party may from time to time change its address for purposes of this
Agreement by giving notice of such change to the other party, but no such change
will be deemed effective until actually received by the party to whom it is
directed. Notice and communications under this Agreement will be effective when
actually received by the party to whom they are directed.
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year written above.
SECURFONE AMERICA, INC.
a Delaware Corporation
By: /s/ Steven L. Wasserman
------------------------------------
Its: Secretary
-----------------------------------
/s/ Paul B. Silverman
--------------------------------------
PAUL B. SILVERMAN
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<PAGE>
PURCHASE AGREEMENT
This Agreement, dated this _ day of February, 1999, SECURFONE
AMERICA, INC., a Delaware corporation (the "Seller") and TELEDATA WORLD
SERVICES, INC., a Nevada corporation (the "Purchaser").
RECITALS
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of SecurFone, Inc., formerly known as SecurFone America, Inc.,
a Delaware corporation (the "Company");
WHEREAS, the Seller desires to sell and the Purchaser desires to buy
such shares on the terms herein stated.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Sale of Shares. The Seller shall sell and transfer to the Purchaser,
and the Purchaser shall purchase and acquire from the Seller, all of
the outstanding shares of the Company.
2. Purchase Price. The purchase price for all of the shares referenced in
paragraph 1 is as follows:
a) $498,000.00 cash, payable as follows:
i) $198,000.00 paid to date;
ii) $50,000.00 paid on January 28, 1999;
iii) $50,000.00 paid on February 5, 1999;
iv) $200,000.00 paid at closing date;
v) All pre-closing advances [paragraphs 2(a)(i) -
2(a)(iii)] shall be the subject of a Promissory Note
from Seller to Purchaser secured by a Security
Agreement of even date herewith, pledging all assets
of Seller as collateral for the Promissory Note. The
Promissory Note and Security Agreement shall be
cancelled upon closing. If transaction does not close
for any reason whatsoever, the Promissory Note shall
be due and payable on April 15, 1999.
Page 1 of 10
<PAGE>
b) 600,000 shares of stock of Purchaser delivered as follows:
i) 100,000 shares issued to the Seller at closing (the
"Closing Shares");
ii) 500,000 issued at closing to an escrow agent, chosen
by mutual consent, for a period of six (6) months,
subject to the terms of the true-up provisions
contained in paragraph 12 hereof (the "Escrowed
Shares"), provided that 200,000 shares of the
Escrowed Shares shall be released from escrow ninety
(90) days after the closing date if Seller has
fulfilled its obligation to extend certain letters of
credit for a twelve (12) month period as required in
paragraph 5(t) hereof.
iii) As to both the 100,000 Closing Shares and the 500,00
Escrowed Shares, Seller shall have the right to "put"
those shares to the purchaser at the expiration of
the twelve (12) months from closing at a total price
of $1,500,000.00. If Seller shall elect to "put" any
or all of the Closing Shares at this price, the
Purchaser shall have the following options in its
sole discretion to satisfy this "put":
1. Purchase such shares from Seller at a total
price of $1,500,000.00; or
2. Issue such additional shares to Seller as to
compensate Seller for the difference in the
then current market price for such shares
and the sum of $1,500,000.00.
iv) All shares issued will be restricted pursuant to
provisions of Rule 144 of the Securities and Exchange
Commission; provided that the holding period for such
shares shall commence on the closing date for
purposes of Rule 144.
3. Closing Date. The closing shall take place on April 1, 1999, at the
offices of the Purchaser in Atlanta, Georgia. At the closing, the
Seller shall deliver to the Purchaser, free and clear of any and all
claims, liens, charges and encumbrances, certificates for the Company's
shares referred to in paragraph 1, in negotiable form.
4. Default by Seller. If the Seller shall fail or refuse to deliver any of
the shares to the Purchaser at the closing, the Purchaser, without
prejudice to its rights against the Seller, may refuse to consummate
this Agreement and terminate all of its obligations hereunder.
5. Seller's Representations and Warranties. The Seller represents and
warrants to the Purchaser as follows:
Page 2 of 10
<PAGE>
a) Corporate Action. The transactions contemplated by this
Agreement have been duly authorized and approved on behalf of
the Seller, and the Seller has the requisite corporate power
and authority to enter into this Agreement and to perform its
obligations hereunder; other than stockholder approval the
proxies for which Seller will have properly mailed to its
shareholder prior to closing. This Agreement constitutes a
valid and binding agreement of the Seller enforceable in
accordance with its terms.
b) Corporate Status. The Company is, and will be on the closing
date, a corporation duly organized, validly existing, and in
good standing under the laws of Delaware; the copies of the
Company's Certificate of Incorporation, and all amendments
thereof to date, and of the Company's Bylaws as amended to
date, certified by the Company's Secretary, which have been
delivered to the Purchaser, are complete and correct as of the
date of this Agreement. The Company is not licensed or
qualified as a foreign corporation in any state.
c) Common Shares. The aggregate number of shares that the Company
is authorized to issue is __ common shares, $___ per share par
value, all of which shares are issued and presently
outstanding. All such shares have been validly issued and are
fully paid and non-assessable.
d) Title to Shares. The Seller is, and will be on the closing
date, the owner, free and clear of any and all claims, liens,
charges and encumbrances, of the number of the Company's
shares set forth in subparagraph (c) of this paragraph; and on
the closing date, Seller will be able to freely issue all such
shares to Purchaser.
e) Liabilities. The Company has no liabilities whatsoever as of
the closing date, except as set forth on Exhibit "A" hereto.
Debt. By closing date, Seller will have paid to Telecom
Category Management, Inc. the amount of $13,750.00.
g) Litigation. There is no litigation pending or threatened
against the Company except as described on Exhibit "B."
h) Taxes. All of the Company's tax returns have been filed as
required by all applicable laws, and all taxes shown thereon
have been paid when due.
i) Title to Assets. The Company has good and marketable title to
all its properties and assets. A true and correct listing of
the Company's inventory and equipment is attached hereto as
Exhibit "C."
Page 3 of 10
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j) FSP McLane Contract. Seller's distribution contract with FSP
McLane has been properly assigned to the Company.
k) No Inconsistent Obligations/No Violation. The Company is not,
and will not on the closing date be, in default of any of its
obligations or in violation of (i) its certificate of
incorporation or bylaws or (ii) any unit writ, order,
judgment, decree, law or ruling, which would have a material
adverse effect on the Company.
l) Employment Laws. The Company has complied with all material
applicable federal and state laws relating to the employment
of labor or benefits, including, without limitation, the
provisions relating to wages, hours, collective bargaining,
employee benefits and the payment of social security taxes,
and is not liable for any arrears of wages, or any tax or
penalties, for failure to comply with any of the foregoing.
m) Obligations to the Seller. Any and all obligations of the
Company to the Seller have been fully paid and satisfied.
n) Intellectual Property. The Company has the means, rights and
information required to manufacture, process, sell, offer for
sale and use the items and perform the services as presently
being manufactured, processed, offered for sale, sold, used or
performed by the Company including, without limitation the
successful operation of the prepaid cellular telephone system.
o) Copyright. The Company owns and has copyrighted its
Buy-the-Minute brand name.
p) UPC Codes. The Company owns all UPC codes associated with the
Buy-the Minute brand prepaid cards.
q) Consents. The execution and delivery of this Agreement by the
Seller and the consummation of the transactions contemplated
by this Agreement do not require the consent, approval or
action of any person, firm or other entity, or any public,
governmental or judicial authority.
r) Real Property. The Company owns no real property which is used
or useable in the Company's business.
s) Material Contracts. Exhibit "D" attached hereto contains a
listing of all written or oral material contracts or
commitments of the Company.
t) Environrnental Laws. The Company (including its predecessors
for whose acts and omissions it is responsible) have complied
in all respects with all material applicable laws, rules,
regulations and ordinances relating to pollution and
environmental control.
Page 4 of 10
<PAGE>
u) Employment Contracts. There are no employment contracts
between the Company and any individuals or entities except as
provided on Exhibit "E" attached hereto. All employees except
as noted on Exhibit "E" are "employees at will" as that term
is defined under the applicable state law.
v) Carrier Reseller Agreements. The Company currently has in
place Carrier Reseller Agreements with each of the entities
listed on Exhibit "F" hereof, and except as noted on Exhibit
"F," none of these contracts are in default, and all charges
pursuant to the Agreements have been paid in full.
w) Letters of Credit. The Company currently has Letters of Credit
posted on its behalf to support the Carrier Reseller
Agreements described on Exhibit "F," in the amount of
$1,000,000.000 as more specifically described on Exhibit "G"
hereof. None of these Letters of Credit are in default. The
Letters of Credit will remain in place until at least April 1,
1999, provided Purchaser pays $7,500.00 per month to the
issuers or obligors on the Letters of Credit. The Seller
further represents that it will extend the Letters of Credit
for a period of one (1) year until April 1, 2000, provided
that Purchaser:
i) Continues to pay the carrying charges of $7,500.00
per month;
ii) Pays any and all bank extension fees; and
iii) Either puts up additional collateral to support the
Letters of Credit in the amount of $250,000.00, or
enters into a mutually agreeable "Lock-Box"
arrangement for the payment of carrier charges.
x) Brokers. No broker or finder has been employed the Seller in
connection with the negotiations relative to this Agreement.
All negotiations relative to this Agreement have been carried
on directly by the Seller without the intervention of any
third party other than legal counsel and accountants for the
Seller and legal counsel and accountants for the Purchaser.
y) Statements True and Correct. No representation or warranty
made by the Seller nor any statement or certificate or
instruction furnished to the Purchaser pursuant to this
Agreement or in connection with the transactions contemplated
by this Agreement contains any untrue statement of material
fact or omits to state a material fact necessary to make the
statements contained therein not misleading.
6. The Purchaser represents and warrants to and for the benefit of the
Seller as follows:
Page 5 of 10
<PAGE>
a) Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing, under the laws of the
State of Nevada with full power and authority to carry on the
business in which it is engaged, to own the property owned by
it and to perform its obligations under this Agreement.
b) Corporate Action. The transactions contemplated by this
Agreement have been duly authorized and approved on behalf of
the Purchaser, and the Purchaser has the requisite corporate
power and authority to enter into this Agreement and to
perform its obligations hereunder. This Agreement constitutes
a valid and binding agreement of the Purchaser enforceable in
accordance with its terms.
c) No Event of Breach or Default. The consummation of the
transactions contemplated by this Agreement will not violate
any Agreement, order, judgment or decree to which the
Purchaser is a party or by which it is bound and will not
violate any other restriction of any kind or character to
which the Purchaser is subject.
d) Broker. No broker or finder has been employed by the Purchaser
in connection with the negotiations relative to this
Agreement. All negotiations relative to this Agreement have
been carried on directly by the Purchaser without the
intervention of any third party other than legal counsel or
accountants for the Purchaser and legal counsel and
accountants for the Seller.
7. Compliance with Securities Laws.
a) The Seller acknowledges that the shares of Purchaser's Stock
to be delivered to the Seller pursuant to this Agreement has
not been registered under the Federal Securities Act of 1933,
as amended (the "1933 Act"), and that therefore the stock is
not fully transferable except as permitted under various
exemptions contained in the 1933 Act and the rules of the
Securities and Exchange Commission interpreting the Act. The
provisions contained in this Section are intended to ensure
compliance with the 1933 Act. Purchaser acknowledges that the
Seller is not presently in compliance with its filing
requirements under the Securities Exchange Act of 1934.
b) The Seller acknowledges being informed that the Purchaser's
Stock must be held by the Seller indefinitely unless the
Purchaser's Stock is registered for sale by such Seller under
the 1933 Act or an exemption from such registration is
available. Each Seller understands that any routine sale of
the Purchaser Stock made in reliance upon Rule 144 of the
Securities and Exchange Commission promulgated under the 1933
Act can be made only in limited amounts after the expiration
of a period of one (1) year from the closing date and
otherwise in accordance with the terms and conditions of Rule
144 and further understands that in the event that the
exemption from registration provided by Rule 144 is not
available, compliance with some other exemption under the 1933
Act will be required in the absence of registration.
c) Purchaser may instruct its transfer agents not to transfer any
of the Purchaser's Stock
Page 6 of 10
<PAGE>
unless such agents have been advised by Purchaser or
otherwise have been satisfied the Seller seeking to
transfer shares has complied with the provisions of this
Section.
8. Conduct of Business Pending Closing. Prior to the closing Seller
agrees that:
a) Ordinary Course. The business of the Company will be conducted
only in the ordinary and usual course consistent with past
practices.
b) Corporate Documents. No change will be made in the Certificate
of Incorporation or the Bylaws of the Company.
c) Stock Shares. No change will be made in the authorized
corporate shares of the Company.
d) Dividends. No dividend or other distribution or payment will
be declared or made in respect of the shares of the Company,
and the Company will not directly or indirectly redeem,
purchase, or otherwise acquire any of such shares.
e) Operations, Inspection. The Company will continue to operate
its business in the manner heretofore operated by it. No
contracts or purchase orders, other than in the ordinary and
usual course of business consistent with past practices, will
be entered into or delivered by the Company. Until the
closing, representatives of the Purchaser shall have the
right, during the normal business hours, to visit the offices
of the Company and observe the operation of the business and
shall have access to all of the Company's records.
f) Casualty. The Company will keep all of its inventory and
other property fully insured against any loss, either by
fire, other casualty, or theft. If prior to the closing
date such property is totally or substantially damaged by
reason of fire or other casualty, or is lost by reason of
theft, the Purchaser may, in the exercise of its sole
discretion, terminate this Agreement and all moneys
previously deposited by it with the Seller shall be
refunded to it and all parties shall be released from any
further liability hereunder. If the Purchaser elects to
consummate this transaction despite such damage or loss, it
shall receive the proceeds of any insurance paid by reason
of such damage or loss.
g) Employee Compensation. Without first receiving written
approval from Purchaser, no increase will be made in the
compensation payable or to become payable by the Company to
any officer, employee, or agent, nor will any bonus payment
or arrangement be made by the Company to or with any
officer, employee, or agent, except bonus payments to
employees (officers and agents excluded) in accordance with
the established practice of the Company.
h) Status Quo. The Company will use its best efforts to preserve
its business organization, to keep available the services of
its officers and other employees, and
Page 7 of 10
<PAGE>
to preserve friendly relations with its customers.
9. All existing Company bank accounts shall be transferred immediately to
the Purchaser upon closing of this Agreement, together with any and all
books and records of the Company.
10. Conditions to Obligations of the Purchaser. All obligations of the
Purchaser are subject to the fulfillment and satisfaction of each of
the following conditions on or prior to the closing:
a) Proceedings and Documents Satisfactory. All proceedings taken
in connection with the consummation of the transactions
contemplated herein and all documents and papers relating
thereto shall be satisfactory to Purchaser and its counsel,
and Purchaser and its counsel shall have timely received
copies of such documents and papers, all in form and substance
satisfactory to Purchaser and its counsel, as requested by
Purchaser or its counsel in connection therewith.
b) Representations and Warranties. The representations and
warranties contained in Section 6 of this Agreement, and in
any certificate, instrument, schedule, agreement or other
writing delivered by or on behalf of the Company or the Seller
in connection with the transactions contemplated by this
Agreement shall be true and correct as of the date when made
and shall be deemed to be made again at and as of the closing
date and shall be true at and as of such time.
c) Compliance with Agreements and Conditions. The Seller and the
Company shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or
complied with by each such party prior to or on the closing
date.
d) Certificate of the Seller. The Seller shall have delivered to
the Purchaser a certificate, executed by the Seller, or on
behalf the Seller, dated the closing date, certifying in such
detail as the Purchaser may reasonably request as to the
fulfillment and satisfaction of the conditions specified in
subparagraphs (b) and (c) above.
e) Consents. The Seller shall have delivered to the Purchaser
such consents and approvals from third parties as are
necessary in the Purchaser's reasonable opinion for the
continuation in full force and effect after the Closing (a) of
the Company's contracts and agreements; and (b) of the
Company's business in the same manner as conducted prior to
the Closing.
f) Miscellaneous. Purchaser and its counsel shall have
received such other opinions, certifications and documents
from the Company or the Seller as Purchaser and its counsel
may reasonably request.
11. Indemnification and True-Up. The Seller shall indemnify the Purchaser,
its successors and assigns (the "Indemnities"), in respect of: (a) all
liabilities of the Company of any nature, whether accrued, absolute,
contingent, or otherwise, existing at closing, to the extent not
Page 8 of 10
<PAGE>
reflected on Exhibit "A" hereof; (b) any damage or deficiency resulting
from any misrepresentation, breach of warranty, or nonfulfillment of
any agreement on the part of the Seller, under this Agreement, or from
any misrepresentation in or omission from any certificate or other
instrument furnished or to be furnished to the Purchaser hereunder; and
(c) all actions, suits, proceedings, demands, assessments, judgments,
costs, and expenses incident to any of the foregoing (collectively,
"Indemnified Losses").
The payment for Indemnified Losses described above shall be made by
deducting from the Escrowed Shares such shares required to be sold at
the end of the six (6) month Escrow Period to compensate Purchaser for
its damages as stated above. For example, if the Indemnified Losses are
determined by Purchaser to be $150,000.00 and the market price for the
Purchaser's Stock at the end of the Escrow Period shall be $2.00 per
share, the parties agree that the Escrow Agent shall disburse only
425,000 shares to Seller and shall return 75,000 shares to the
Purchaser.
12. Injunction. The parties recognize that the rights conveyed herein are
unique and that the failure to fulfill the obligations of this
Agreement will cause irreparable injury to the other party. The parties
agree that should it be proven that one party has defaulted hereunder,
the injured party, in addition to other remedies provided by law, shall
be entitled to a mandatory injunction, both temporarily and
permanently, to restrain the defaulting party from failing to perform
in accordance with the terms of this Agreement.
13. Survival of Representations. The Seller has not made any
representation, warranty, or covenant not set forth herein, and this
Agreement constitutes the entire agreement between the parties. All
representations and warranties and agreements shall survive the closing
and any examination or investigation at any time made by the Purchaser.
14. Benefit. This Agreement shall be binding upon, and inure to the benefit
of, the respective legal representative, successors, and assigns of the
parties.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing, and shall be deemed to have been duly
given if delivered or mailed first class, postage prepaid, to any
Seller at the address furnished by such Seller to the Purchaser in
writing.
16. Choice of Law and Jurisdiction. This Agreement has been executed in the
State of Georgia and shall be construed in accordance with the laws of
such state and from other agreements. The parties further agree that
any action brought to enforce this Agreement shall be brought only in
the state and federal courts in that state and the parties hereby
irrevocably submit themselves to the exclusive jurisdiction of such
courts.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
18. Actions Necessary to Complete Transaction. Each party hereby agrees to
execute and deliver
Page 9 of 10
<PAGE>
all such other documents or instruments and to take any action as
may be reasonably required in order to effectuate the transactions
contemplated by this Agreement.
19. Waiver. Any waiver by either party of any breach of any term of
condition of this Agreement shall not be deemed a waiver of any other
breach of such term or condition, nor shall the failure of either party
to enforce such provision constitute a waiver of such provision or of
any other provision, nor shall such action be deemed a waiver or
release of any other party for any claims arising out of or connected
with this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
SELLER: PURCHASER:
SECURFONE AMERICA, INC TELEDATA WORLD SERVICES, INC., a
Nevada corporation
By: /s/ Paul Silverman By: /s/ Tony Cullen
-------------------------------- -------------------------------
Tony Cullen
Its: Chief Executive Officer Its: President
-------------------------------- -------------------------------
Page 10 of 10
<PAGE>
EXHIBIT A
LIABILITIES
NONE
<PAGE>
EXHIBIT B
NO LITIGATION PENDING
<PAGE>
EXHIBIT C
SECURFONE MIAMI OFFICE INVENTORY LIST
<TABLE>
<CAPTION>
Office Furniture
Quantity Description of Item Item Cost Total Cost
<S> <C> <C> <C>
1 Desk, Executive L shaped with return $799.00 $799.00
3 Desk, Work Centers w/key board holders $199.00 $597.00
1 Desk, Executive with right return $300.00 $300.00
1 Table, Lounge, round, light oak $160.00 $160.00
1 Microwave Cart, White $ 89.00 $89.00
1 File cabinet, Lateral 4 drawer, beige $579.00 $579.00
2 File cabinet, Lateral 2 drawer, beige $349.00 $758.00
2 File cabinet, letter size, 2 drawer $69.99 $138.00
1 Chair, Executive, high back with arms $149.00 $149.00
2 Chair, Executive with arms grey/black $99.00 $198.00
2 Chair, secretarial, grey/black $79.00 $158.00
- --------------------------------------------------------------------------------------------------------
TOTAL $3,925.00
Office Equipment & Software
Quantity Description of Item
1 Telephone System, Comdial 8 lines $2,500.00 $2,500.00
6 Telephone Sets, Comdial, Black $250.00 $1,500.00
1 GE Refrigerator, 3.5 cubic ft. $159.00 $159.00
1 Sharp Microwave, white $149.00 $149.00
2 Computer, pentium 133 w/28.8 modems $1,200.00 $2,400.00
4 Monitors, Color, super vga $200.00 $800.00
2 Computer, 486 $800.00 $1,600.00
3 Fax machines, Hewlet Packard Office Jet $399.00 $1,197.00
1 Winfax for windows $100.00 $100.00
1 Procom-Plus for windows $200.00 $200.00
1 Bishop Books $250.00 $250.00
1 Dialogic Voice Systems $200.00 $200.00
1 Dialogic Voice Board $800.00 $800.00
I Act 3.4 for windows $150.00 $150.00
1 Back-up system, UPS $499.00 $499.00
1 Min Inventory & Cellular Activation Program $50,000.00 $50,000.00
- --------------------------------------------------------------------------------------------------------
TOTAL $62,504.00
Office Accessories
Quantity Description of Items
1 Magnavox Radio & CD player $89.00 $89.00
1 Eureka Super Broom $49.00 $49.00
4 Staplers, swingline $12.00 $48.00
2 Calculator, desk top $25.00 $50.00
Calculator, desk top, small $12.00 $12.00
1 Frames, pictures & posters $35.00 $105.00
4 Plants w/ pots $25.00 $100.00
2 Boards $20.00 $40.00
Stationary supplies, tape dispensers, pencils, $200.00 $200.00
pens, markers, paper clip remover,
Lounge supplies, coffee, creamer,
sugars, cups $50.00 $50.00
- --------------------------------------------------------------------------------------------------------
TOTAL $743.00
- -------------------------------------------------------------------------------------------------------------------
GRAND TOTAL $67,172.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D
NO MATERIAL CONTRACTS OTHER THAN THOSE LISTED IN EXHIBIT E & F
<PAGE>
EXHIBIT E
EMPLOYEE CONTRACTS
IVONNE SUAREZ
Original employee contract dated April 1, 1996. Increase in salary dated
September 1,1998.
<PAGE>
EXHIBIT F
CARRIER RESELLER AGREEMENTS:
Carrier Reseller Agreement between the Company and Airtouch Cellular dated
October 1st, 1998.
Carrier Reseller Agreement between the Company and Ameritech Cellular dated May
13th, 1998.
Carrier Reseller Agreement between the Company and Bell Atlantic Mobile dated
October 31st, 1997.
Carrier Reseller Agreement between the Company and BellSouth Cellular
Corporation dated October 13th ,1997.
Carrier Reseller Agreement between the Company and GTE Wireless dated June 26th,
1997.
Carrier Reseller Agreement between the Company and Mobile One Wireless Network
dated November 1st, 1996.
<PAGE>
EXHIBIT G
LETTERS OF CREDIT
<TABLE>
<CAPTION>
Carrier Amount Bank/LC No Market Expiration
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$100,000.00 City Nat. S49678 All Markets 4/l/99
GTE $200,000.00 City Nat. 980403.OD.0414 All Markets 4/l/99
Ameritech $100,000.00 City National S49389 Chic./Detroit 4/1/99
Bell Atlantic Nynex $250,000.00 Union Bank 315S611076 All Markets 4/15/99
BellSouth Mobility $ 50,000.00 City Nat. 980402.OD.0409 Atlanta 4/1/99
BellSouth Mobility $ 3,750.00 City Nat. 980224.OD.0369 Atlanta 4/1/99
BellSouth Mobility $ 6,250.00 City Nat. 305S6111128 New Orleans 4/15/99
BellSouth Mobility $ 8,750.00 City Nat. S50010 FL 4/1/99
BellSouth Mobility $ 10,000.00 City Nat. 980813.OD.0517 FL 4/1/99
BeflSouth Mobility $ 8,750.00 City Nat. 980402.OD.0410 FL 4/l/99
BcIlSouth Mobility $ 10,000.00 City Nat. 971217.OD.0147 Miami 4/1/99
Airtouch Cellular $ 50,000.00 Union Bank - 315S611168 Los Angeles 4/15/99
Airtouch Cellular $ 18,600.00 Union Bank 315S611167 Phoenix 4/15/99
Mobile One $ 50,000.00 Union Bank - 315S610723 Miami 4/15/99
- ----------------------------------------------------------------------------------------------------
TOTAL: $866,100.00
TOTAL DOLLARS ALLOCATED FOR LCs: $866,100.00
ADDITIONAL DOLLARS AVAILABLE FOR LCs: $133,900.00
- --------------------------------------------------------------------------------
TOTAL: $1,000,000.00
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SECURITY AGREEMENT
This Agreement entered into this _ day of February, 1999, by and
between SECURFONE AMERICA, INC., a Delaware corporation (the "Debtor"), whose
principal office is at 5850 Oberlin Drive, Suite 220, San Diego, California
92121, and TELEDATA WORLD SERVICES, INC., a Nevada corporation with its
principal office at 900 Circle 75 Parkway, Suite 205, Atlanta, Georgia 30339
("Secured Party"), agree as follows:
SECTION 1. CREATION OF SECURITY INTEREST.
Debtor hereby grants to Secured Party a security interest in the
property described in Section 2 of this Agreement (the "Collateral") to secure
performance and payment of (i) that certain Promissory Note in the original
amount of $298,000.00 dated February ___, 1999, executed by Debtor and payable
to the order of the Secured Party (the "Note"); (ii) all subsequent advances
under the Note; (iii) all renewals, extensions, and modifications of the Note;
and (iv) all obligations and indebtedness of Debtor to Secured Party of whatever
kind and however created, whether presently existing or hereafter arising. All
of the foregoing obligations and indebtedness described in this Section 1 shall
hereinafter be referred to as the "Secured Indebtedness," and the Note and all
other documents evidencing or giving rise to the Secured Indebtedness shall
hereinafter be referred to collectively as the "Security Instruments."
SECTION 2. COLLATERAL.
As collateral for the Secured Indebtedness, Debtor hereby assigns and
grants to Secured Party a lien and security interest in all of the Debtor's
following property, wherever located, and whether now owned or hereafter
acquired or created:
(a) Accounts, accounts receivable, reimbursement, notes, contracts, contract
rights, chattel paper, cash, checks, drafts, documents, instruments, all rights
of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor,
(b) Any and all equipment and inventory;
(c) Customer lists, all documents containing the names, addresses, telephone
numbers, and other information regarding the Debtor's customers, subscribers,
tapes, programs, printouts, disks, and other material and documents relating to
the recording, billing of analyzing of any of the foregoing, and any other right
to payment;
(c) Any and all contract and lease rights, including network contracts, customer
contracts for the furnishing by Debtor of telecommunication services, and
billing and collection contracts, whether evidenced by a document or otherwise;
(d) All telephone account and accounts receivable arising from telecommunication
services rendered to an end user prior to the sale, assignment, or transfer of
such account (collectively the "End User Accounts") to a regional Bell operating
company, a Bell operating company, local exchange company; credit card company
or provider of local telephone services (each a "LEC") for billing and
collection; and rights in and to any of the telephone receivables, debts, and
other amounts
<PAGE>
payable to the Debtor by any LEC, and all cash and non-cash proceeds of the
foregoing;
(e) All records and documents relating to any of the foregoing including,
without limitation, records of accounts whether in the form of writing,
microfilm, microfiche, tape or electronic media; and
(f) All products and proceeds (cash and non-cash) of all of the foregoing, and
increases, accessions, renewals, replacements and substitutions of all of the
foregoing.
The inclusion of proceeds in this Agreement does not authorize Debtor to sell,
dispose of or otherwise use the Collateral in any manner not specifically
authorized by this Agreement.
SECTION 3. DEBTOR'S REPRESENTATIONS AND WARRANTIES.
Debtor hereby represents and warrants to Secured Party as
follows:
3.1 CLEAR TITLE TO COLLATERAL. Debtor is the sole owner of the
Collateral, having good and marketable title thereto, free and clear of any and
all liens, encumbrances, claims, or rights of others created by any acts or
omissions of Debtor, except for the security interest granted to Secured Party.
3.2 FIRST PRIORITY LIEN. This Agreement constitutes a valid
and continuing lien on an security interest in the Collateral in favor of
Secured Party, prior to all other liens, encumbrances, security interests and
rights of others arising from any acts or omissions of Debtor, and is
enforceable as such as against creditors of and purchaser from Debtor.
SECTION 4. EVENTS OF DEFAULT.
The following events are Events of Default:
4.1 FAILURE TO PAY. The Debtor does not pay when due any
amount due under any of the Security Instruments or the Debtor otherwise
breaches the provisions thereof, and the Debtor fails to cure such nonpayment or
other breach within any cure period provided thereunder.
4.2 LIMITATIONS REGARDING COLLATERAL. The Debtor sells,
transfers leases or otherwise disposes of any of the Collateral, or attempts,
offers or contracts to do so, or Debtor creates, permits or suffers to exist any
lien, security interest, encumbrance, claim or right in or to the Collateral
other than those in favor of Secured Party (the "Other Encumbrances"). Debtor
will, at Debtor's sole expense, defend the Collateral against and take such
other action as is necessary to remove such Other Encumbrances and defend the
right, title and interest of Secured Party in and to any of Debtor's rights to
the Collateral, including without limitation any proceeds and products thereof,
against the claims and demands of all persons.
4.3 MISREPRESENTATION. Any representation or warrant made by
the Debtor herein or in any of the Security Instruments proves to have been
untrue in any material respect, or any representation, statement (including
Financial Statements), certificate or data furnished or made by the Debtor (or
any officer, accountant or attorney of the Debtor) hereunder or under any of the
Security Instruments proves to have been untrue in any material respect, as of
the date as of which the facts therein set forth were stated or certified.
2
<PAGE>
4.4 IMPAIRMENT OF COLLATERAL. Secured Party, in good faith,
considers any Collateral to be unsafe or in such danger of misuse that Secured
Party's prospect of or right to payment or performance under this Agreement or
any instrument or agreement required hereunder or under any other agreement
between Secured Party and Debtor is materially impaired.
4.5 CROSS DEFAULT. The Debtor breaches, defaults, or commits
an event of default under any other agreement, document or instrument between
Secured Party and Debtor and Debtor fails to cure such breach, default or event
of default within any cure period provided thereunder.
4.6 CHANGE OF NAME OR CHIEF EXECUTIVE OFFICE. Debtor changes
its name, or its Chief Executive Office, or changes its corporate structure in
any way that would make filed financing statements misleading without giving
Secured Party at least thirty (30) days advance written notice of such change or
move, and ensuring that any steps necessary to continue the perfection and
priority of Secured Party's security interest in the Collateral shall have been
taken, all at Debtor's expense. 4.7 Opportunity to Cure. Any Event of Default
described in Section 4.2 and 4.4 may be cured within five (5) calendar days
after notice by Secured Party, which notice to Debtor may be verbal or written.
SECTION 5. SECURED PARTY'S RIGHTS.
5.1 RIGHTS OF SECURED PARTY UPON DEFAULT. If there is an Event
of Default which the Debtor fails to cure within any applicable cure period, the
Secured Party may, at its option and at any time thereafter:
(a) Declare the entire aggregate amount of the Secured Indebtedness then
outstanding and the interest and other fees and expenses accrued thereon, and
all other obligations of Debtor to Secured Party to be immediately due and
payable without notice and without presentment, demand, protest, notice of
protest, or other notice of default or dishonor of any kind, all of which are
hereby expressly waived by the Debtor;
(b) require Debtor to assemble the Collateral, including any books and records
pertaining to the Collateral, and make them available to Secured Party at a
place designated by Secured Party;
(c) notify any account debtor, any buyers of the Collateral, and any other
person of Secured Party's interest in the Collateral;
(d) request confirmation from any account debtor of the status of the account
upon which the account debtor is obligated;
(e) without prior notice to Debtor, demand and collect any payments and proceeds
of the accounts directly from the account debtors;
(f) require Debtor to obtain Secured Party's prior written consent to any sale,
agreement to sell, or other disposition of any Collateral;
3
<PAGE>
(g) remedy any default or waive any default without waiving the default remedies
and without waiving any other prior or subsequent default;
(h) take such measures as Secured Party may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, collect on, prepare
for sale or lease, market for sale or lease, sell or lease, or otherwise dispose
of any Collateral;
(i) endorse or sign the name of Debtor on all checks, drafts, collections,
receipts and other documents, and taken possession of and open the mail
addressed to Debtor and remove therefrom any payments and proceeds of the
Collateral;
(j) use or transfer, without any additional consideration to Debtor, any of
Debtor's rights and interests in any intellectual property, including but not
limited to patents, now owned or hereafter acquired by Debtor, if Secured Party
deems such use or transfer necessary or advisable in order to take possession
of, hold, preserve, process, assemble, prepare for sale or lease, market for
sale or lease, or otherwise dispose of, any Collateral; and
(k) have a receiver appointed by any court of competent jurisdiction to take
possession of and protect the value of the Collateral.
Debtor hereby constitutes and appoints Secured Party as Debtor's
attorney-in-fact to perform all acts and execute all documents in connection
with the remedies described in this Agreement. This power of attorney is coupled
with an interest and shall be irrevocable.
5.2 FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. At any time
and from time to time, upon the written request of Secured Party, and at the
sole expense of Debtor, Debtor promptly and duly shall execute, deliver and
record any documents, instruments, agreements and amendments, and take all such
flurther action as Secured Party may reasonably deem desirable in obtaining the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing statements or
amendments under the applicable Uniform Commercial Code. Debtor hereby also
authorizes Secured Party to file any such financing statement or amendment
thereto, without the signature of Debtor, or with a copy or telecopy of Debtor's
signature, to the extent permitted by applicable law, or to execute any
financing statement or amendment thereof on behalf of Debtor as Debtor's
attorney-in-fact.
5.3 RIGHTS UNDER UNIFORM COMMERCIAL CODE. Without limiting any
of Secured Party's rights and remedies under this Agreement, Secured Party may
enforce the security interest and other liens aiven hereunder, and under all
Security Instruments and documents referred to herein or contemplated hereby,
pursuant to the applicable Uniform Commercial Code and any other applicable law
including all legal and equitable remedies available to lenders generally.
5.4 PAYMENTS OF TAXES AND INSURANCE. If Debtor fails to pay
any taxes, assessments, insurance premiums, or other amounts due to third
parties as required by Debtor on the Collateral, Secured Party may in its
discretion, and without prior notice to Debtor make any such payment. Any
payments made by Secured Party under this paragraph shall not constitute (i) an
agreement by Secured Party to make similar payments in the future; or (ii) a
waiver by Secured Party of any Event
4
<PAGE>
of Default under this Agreement. Secured Party need not inquire as to, or
contest the validity of, any such expense, tax, security interest,
encumbrance or lien, and the receipt of the notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing. Debtor
agrees to pay Secured Party, on demand, each payment made by Secured Party
under this paragraph together with a late fee, if any, provided in the
Service Agreement.
5.5 RIGHTS AND REMEDIES ARE CUMULATIVE. All rights and
remedies provided herein are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies otherwise provided
by law. Any single or partial exercise of any right or remedy shall not preclude
the further exercise thereof or the exercise of any other right or remedy.
5.6 SELF-HELP REMEDIES. SECURED PARTY MAY ENFORCE ITS RIGHTS
UNDER THIS AGREEMENT WITHOUT RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL
HEARING, AND DEBTOR EXPRESSLY WAIVES, RENOUNCES, AND KNOWINGLY RELINQUISHES ANY
LEGAL RIGHT WHICH MIGHT OTHERWISE REQUIRE SECURED PARTY TO ENFORCE ITS RIGHTS BY
JUDICIAL PROCESS. NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT DEBTOR OR
SECURED PARTY FROM RESORTING TO JUDICIAL PROCESS AT SUCH PARTY'S OPTION.
5.7 SALE OR DISPOSITION OF COLLATERAL. Without limiting the
generality of the foregoing, if there is an Event of Default which the Debtor
fails to cure within any applicable cure period, the Secured Party may, at its
option and at any time thereafter, without further demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place and public or private sale) to or upon Debtor or any
other person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or sell or otherwise dispose
of and deliver said Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or at any of Secured Party's offices or elsewhere at such prices
as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Secured Party shall have the right upon any such
public sale or sales, and to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of said Collateral so sold,
free of any right or equity of redemption in Debtor. To the extent permitted by
applicable law, Debtor waives all claims, damages, and demands against Secured
Party arising out of the lawful repossession, retention or sale of the
Collateral in accordance with the terms hereof.
5.8 NOTICE OF SALE. Debtor agrees that Secured Party need not
give more than ten (10) days' notice of the time and place of any public sale or
of the time after which a private sale may take place and that such notice is
reasonable notification of such matters.
5.9 APPLICATION OF SALE PROCEEDS. Secured Party shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care, safekeeping or otherwise of any
or all of the Collateral or in any way relating to the rights of Secured Party
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Secured
5
<PAGE>
Indebtedness to Debtor, in such order as Secured Party may elect, Debtor
remaining liable for any deficiency remaining unpaid after such application
and the reasonable fees of any attorneys employed by Secured Party to collect
such deficiency, and only after so applying such net proceeds and after the
payment by Secured Party of any other amount required by any provision of
law, including Section 9.504(l) of the Uniform Commercial Code, need Secured
Party account for the surplus, if any, to Debtor.
5.10 INSPECTION OF RECORDS. Secured Party and any of its
employees and agents may enter upon Debtor's premises at any reasonable time to
inspect Debtor's books and records pertaining to the Collateral.
5. 11 NO CONSEQUENTIAL DAMAGE. SECURED PARTY SHALL NOT BE
LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT OR INCIDENTAL DAMAGES IN
CONNECTION WITH THIS AGREENIENT OR THE COLLATERAL.
6.1 NOTICES. Any communications between the parties hereto to
be given in writing shall be given by mailing the same, postage prepaid, or by
telex, cable facsimile, overnight courier, or personal delivery, to each party
at their addresses set forth below or to such other addresses as either party
may in writing hereafter indicate. Any communication shall be effective upon the
earlier of delivery or five (5) days after sending.
ADDRESS FOR NOTICE AND COMMUNICATIONS ARE:
If to the Secured Party: TeleData World Services, Inc.
900 Circle 75 Parkway
Suite 205
Atlanta, Georgia 30339
If to the Debtor: SecurFone America, Inc.
5850 Oberlin Drive Suite 220
San Diego, CA 92121
or at such other address as any party may hereafter designate for itself by
written notice to the other party in the manner herein described.
6.2 NO WAIVER; CUMULATIVE REMEDIES. Secured Party shall not
be any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Secured Party. A waiver by Secured Party of any right or remedy
hereunder or any one occasion shall not be construed as a bar to any right or
remedy which Secured Party would otherwise have had on any future occasion.
The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law.
6.3 SUCCESSORS AND ASSIGNS. All covenants and agreements
herein contained by or on behalf of the Debtor shall bind its successors and
assigns and shall inure to the benefit of the Secured
6
<PAGE>
Party and its successors and assigns. Secured Party's rights under this
Agreement or the indebtedness hereby secured may be assigned from time to
time, and in any such case the assignee shall be entitled to all of the
rights, privileges and remedies granted in this Agreement to Secured Party.
Debtor may not assign this Agreement or any instruments or documents executed
in connection herewith or any of the rights of Debtor hereunder without the
prior written consent of Secured Party.
6.4 GOVERNING LAW. This Agreement shall be construed in
accordance with an governed by the laws of the State of Georgia, without regard
to the conflict of law provisions.
6.5 SEVERABILITY. In the event any one of more of the
provisions contained in this Agreement, the Security Instruments, or in any
other instrument or document referred to herein or executed in connection with
or as security for the Service Agreement, shall, for any reason, be held to be
invalid, illegal or unenforceable, such provision(s) shall not affect any other
provision of this Agreement, the Service Agreement, the Security Instruments, or
any other instrument or document referred to herein or executed in connection
with or as security for the Service Agreement.
6.6 DEFINED TERMS. Unless otherwise defined in this Agreement,
terms used in this Agreement which are defined in the applicable Uniform
Commercial Code are used with the meanings as therein defined.
6.7 ENTIRE AGREEMENT. This Agreement and all instruments,
agreements, and documents attached hereto, referred to herein or executed in
connection herewith, integrate all the terms and conditions mentioned herein or
incidental hereto, constitute the entire agreement between the parties with
respect to the subject matter thereof, and supersede all prior discussions,
negotiations and communication whether oral or written. Neither Secured Party
nor Debtor shall be bound by any promises, representations, warranties, or
affirmations not contained in this Agreement, in an agreement, instrument, or
document attached hereto or referred to herein or executed in connection
herewith.
6.8 PARAGRAPH HEADING. Paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provision of this
Agreement.
6.9 ATTORNEYS' FEES. In the event Secured Party retains the
services of an attorney to enforce any provision of the Service Agreement, this
Agreement, or any other obligation of Debtor to Secured Party, Debtor agrees to
pay reasonable attorneys' fees and other costs, expenses, and disbursements,
incurred by Secured Party in connection therewith.
7
<PAGE>
EXECUTED as of this _____ day of February, 1999.
DEBTOR: SECURED PARTY:
SECURFONE AMERICA, INC. TELEDATA WORLD SERVICES, INC.
By: /s/ Paul B. Silverman By: /s/ Tony Cullen
---------------------- ---------------------
Its: CEO Its: President and CEO
---------------------- ---------------------
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<PAGE>
ATTACHMENT A TO FINANCING STATEMENT
As collateral for the Secured Indebtedness, Debtor hereby
assigns and grants to Secured Party a lien and security interest in all of the
Debtor's following property, wherever located, and whether now owned or
hereafter acquired or created:
1. Accounts, accounts receivable, reimbursement, notes,
contracts, contract rights, chattel paper, cash, checks,
drafts, documents, instruments, all rights of Debtor to
receive payment in money or kind, and other evidence of
indebtedness owed to Debtor;
2. Any and all equipment and inventory;
3. Customer lists, all documents containing the names, addresses,
telephone numbers, and other information regarding the
Debtor's customers, subscribers, tapes, programs, printouts,
disks, and other material and documents relating to the
recording, billing of analyzing of any of the foregoing, and
any other right to payment;
4. Any and all contract and lease rights, including network
contracts, customer contracts for the furnishing by Debtor of
telecommunication services, and billing and collection
contracts, whether evidenced by a document or otherwise;
5. All telephone account and accounts receivable arising from
telecommunication services rendered to an end user prior to
the sale, assignment, or transfer of such account
(collectively the "End User Accounts") to a regional Bell
operating company, a Bell operating company, local exchange
company; credit card company or provider of local telephone
services (each a "LEC") for billing and collection; and rights
in and to any of the telephone receivables, debts, and other
amounts payable to the Debtor by any LEC, and all cash and
non-cash proceeds of the foregoing;
6. All records and documents relating to any of the foregoing
including, without limitation, records of accounts whether in
the form of writing, microfilm, microfiche, tape or electronic
media; and
7. All products and proceeds (cash and non-cash) of all of the
foregoing, and increases, accessions, renewals, replacements
and substitutions of all of the foregoing.
<PAGE>
$248,000.00 FEBRUARY ___, 1999
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, SecurFone America, Inc. (the
"Maker") whose principal place of business is located at 5850 Oberlin Drive,
Suite 220, San Diego, California 92121, hereby promises to pay to the order
of TeleData World Services, Inc., a Nevada corporation (the "Holder"), at its
offices at 900 Circle 75 Parkway, Suite 205, Atlanta, Georgia 30339, or at
such place as the Holder may from time to time designate, the principal sum
of Two Hundred Forty-Eight Thousand Dollars ($248,000.00), together with
interest on such sum from the date hereof, payable as follows:
(i) Interest shall accrue on the unpaid principal balance hereof from the
date of this Note until paid in full at a rate equal to eight percent
(8 %) per annum. If the Maker fails to pay to the holder any amounts
owing to the Holder under this Note as of the due date, interest
("Post-Default Interest") on all outstanding unpaid amounts under this
Note shall accrue at a rate equal to eighteen percent (18 %) per annurn
from the original due date of such amount until all such amounts have
been paid in full and shall be payable on demand.
(ii) All outstanding principal and interest under this Note shall be due and
payable upon the earlier on April 15, 1999.
If the Maker fails to pay to the Holder when due any amounts owing
to the Holder under this Note, or breaches any other terms of this Note or
any other agreement with Holder (an "Event of Default"), the Holder may
declare, by written notice, the entire principal amount then unpaid, together
with all accrued interest, immediately due and payable. This Note is secured
by Security Agreement of even date herewith between the parties. Maker agrees
that any default under the Security Agreement shall constitute an Event of
Default of this Note. If an Event of Default occurs and this Note is placed
in the hands of an attorney for collection, or suit is filed hereon, or
proceedings are had in bankruptcy, receivership, reorganization, or other
judicial proceedings for the establishment or collection of any amount called
for hereunder, or any amount payable or to be payable hereunder is collected
through any such proceedings, the Maker agrees to pay attorneys' fees and
collection fees to the Holder.
Except as otherwise provided herein, Maker waives presentment,
demand, protest and notice of dishonor. Failure by the Holder to exercise any
of the rights or remedies set forth herein shall not constitute a waiver of
the right to exercise the same or any other right of remedy at any subsequent
time in respect to the same or any other event. The acceptance by the Holder
of any payment hereunder that is less than payment in full of all amounts due
and payable at the time of such payment shall not constitute a waiver of the
right to exercise any of the foregoing rights or remedies at that time or at
any subsequent time, or nullify any prior exercise of any such right or
remedy without the express written consent of the Holder.
All amounts payable hereunder are payable in lawful money of the United
States of America.
It is expressly stipulated and agreed to be the intent of the Maker and
the Holder to at all
<PAGE>
times comply with the applicable law now or hereafter governing the interest
payable on this Note or the indebtedness evidenced hereby. If the applicable
law as it is now or as it may be revised, repealed or judicially interpreted
so as to render usurious any amount called for under this Note, or contracted
for, charged, taken, reserved or received with respect to the indebtedness
evidenced by this Note, or if the Holder's exercise of the option herein
contained to accelerate the maturity of this Note or if any prepayment by the
Maker results in the Maker having paid any interest in excess of that
permitted by applicable law, then it is the Maker's and the Holder's express
intent that all excess amounts theretofore collected by the Holder be
credited on the principal balance of this Note (or, if this Note has been
paid in full, refunded to the Maker), and the provisions of this Note shall
immediately be deemed reformed and the amounts thereafter collectible
hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder.
All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by Maker by messenger, telex, telecopier or mail at the following
address or such other address as Maker may notify Holder in writing from time to
time:
SecurFone America, Inc.
5850 Oberlin Drive Suite 220
San Diego, California 92121
This Note shall be governed and construed in accordance with Georgia
law without regard to conflicts of law principles.
The terms of this Note shall be binding upon and inure to the benefit
of the successors and assigns of the Maker and the Holder.
Executed as of the date and year first above written.
SECURFONE AMERICA, INC.
By: /s/ Paul B. Silverman
---------------------
Its: CEO
---------------------
2
<PAGE>
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made
and entered into as of the 15th day of April, 1999 by and among TELEDATA WORLD
SERVICES, INC., a Nevada corporation (the "Purchaser") and SECURFONE AMERICA,
INC., a Delaware corporation (the "Seller").
RECITALS
WHEREAS, the Purchaser and Seller made and entered into that certain
Purchase Agreement (as further amended, modified, supplemented or restated from
time to time, the "Purchase Agreement"); and
WHEREAS, Purchaser and Seller wish to amend certain provisions of the
Purchase Agreement and have agreed to such proposed amendments;
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
Article I
Amendments
1.1 The first recital to the Purchase Agreement is hereby amended
to delete the words "SecurFone, Inc., formerly known as SecurFone America, Inc."
and insert in lieu thereof the words "SecurFone, Inc., a Delaware corporation
and wholly-owned subsidiary of SecurFone Services, Inc., a Delaware corporation
formerly known as SecurFone Inc. and formerly known as SecurFone America, Inc."
1.2 Paragraph 2(a) of the Purchase Agreement is hereby amended to
delete the first sentence thereof and clauses (i) through (iv) thereof and
substitute in lieu thereof the following:
(a) $627,537.96 cash (of which $129,537.96 represents the
payment by Purchaser of various costs of Seller or
its affiliates) payable as follows:
i) Previously paid on the following dates:
1. $65,000.00 paid on October 26, 1998;
2. $50,000.00 paid on November 19, 1998;
3. $40,000.00 paid on December 2, 1998;
4. $35,000.00 paid on December 14, 1998;
5. $8,000.00 paid on December 30, 1998;
6. $50,000.00 paid on February 1, 1999;
7. $55,671.84 paid on February 8, 1999;
<PAGE>
8. $62,580.99 paid on March 31, 1999;
9. $5,671.84 paid on April 2, 1999;
10. $7,708.04 paid on April 5, 1999;
11. $66,961.44 paid on April 9, 1999;
12. $6,578.04 paid on April 12, 1999; and
ii) $167,243.94 to be paid at closing;
iii) Pre-closing advances in the amount of
$298,000 shall be the subject of a
Promissory Note from Seller to Purchaser
secured by a Security Agreement of even date
herewith, pledging all assets of Seller as
Collateral for the Promissory Note. The
Promissory Note and Security Agreement shall
be cancelled upon closing. If the
transaction does not close for any reason
whatsoever, the Promissory Note shall be due
and payable on April 15, 1999.
1.3 Paragraph 2(b)(ii) of the Purchase Agreement is hereby amended
to delete the reference therein to "paragraph 12" and substitute in lieu thereof
"paragraph 11."
1.4 Paragraph 2(b) of the Purchase Agreement is hereby deleted in
its entirety and substituted in lieu thereof is the following:
(a) 600,000 shares of the Common Stock of Purchaser (the
"Shares") delivered at Closing subject to the terms of the true-up
provisions contained in paragraph 12 hereof and the "Make-Whole"
provisions of Section 1.3(c);
i) All shares issued under this Agreement will
be restricted pursuant to provisions of Rule
144 of the Securities and Exchange
Commission and will bear a restricted stock
legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") OR THE SECURITIES LAW OF
ANY OTHER STATE AND ARE ISSUED AND SOLD IN
RELIANCE UPON CERTAIN EXEMPTIVE PROVISIONS.
SAID SECURITIES CANNOT BE SOLD, OFFERED FOR
SALE OR OTHERWISE TRANSFERRED) EXCEPT
PURSUANT TO EITHER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION THEREFROM UPON THE RECEIPT BY THE
COMPANY OF AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE
2
<PAGE>
COMPANY AND ITS COUNSEL THAT SUCH
TRANSFER DOES NOT REQUIRE REGISTRATION
UNDER ANY APPLICABLE LAWS."
ii) Purchaser represents and warrants that under
Rule 144 the holding period for the shares
issued or issuable by Purchaser under this
Agreement will commence on the Closing Date.
1.5 The Purchase Agreement is hereby amended to add the following
new paragraph 1.3 (c):
On the first anniversary of the Closing Date (the
"Determination Date"), the fair market value of the Shares on
such date shall be calculated by multiplying the number of
Shares (adjusted for any stock splits or combination and
including any Shares transferred to Purchaser in satisfaction
of Seller's Indemnification obligations under Paragraph 11) by
the Market Price per share. If the fair market value is less
than $1,500,000 then Purchaser, at its election, shall within
five business days thereafter (i) pay to Seller in cash the
sum arrived at by subtracting the Fair Market Value of the
Shares on the Determination Date from $1,500,000 (the "Make
Whole Amount") or (ii) if the average daily trading volume of
the Common Stock for the five trading days immediately
preceding the Determination Date is at least 50,000 shares,
issue to the Seller such number of shares of Common Stock
determined by dividing the Make Whole Amount by the Market
Price per share.
1.6 Paragraph 3 of the Purchase Agreement is hereby amended to
delete the date "April 1, 1999": and insert in lieu thereof "April 15, 1999 or
such other date as the parties may mutually agree".
1.7 Paragraph 5(c) of the Purchase Agreement is hereby amended to
insert immediately preceding the words "Common Shares" the number "3,000" and to
insert immediately preceding the words "per share" the following dollar amount:
"$0.01".
1.8 Paragraph 5(w) of the Purchase Agreement is hereby deleted in
its entirety and substituted in lieu thereof is the following:
(w) Letters of Credit. The Company currently has letters
of credit posted on its behalf to support the Carrier
Reseller Agreements described on Exhibit "F", in the
amount of $650,000.00, as more specifically described
on Exhibit "G" hereof . True and correct copies of
such Letters of Credit shall be delivered to
Purchaser at Closing. None of these Letters of Credit
are in default. The Letters of Credit will remain in
place until at least April 1, 2000, provided
Purchaser pays $4,875.00 per month or such lesser
amount as may be due thereunder to the issuers or
obligors on the Letters of Credit (such issuers or
obligors hereinafter collectively, the "LOC Issuers"
and individually, a "LOC Issuer"). The Seller further
represents that it has caused the LOC Issuers to
3
<PAGE>
issue such letters or extend the term of such Letters
of Credit through until April 1, 2000 and that such
Letters of Credit may not be revoked except pursuant
to the conditions set forth therein, if any, and
herein. Such Letters of Credit may not be terminated
by Seller and Seller will take no action to cause any
LOC Issuer to terminate such Letters of Credit so
long as Purchaser:
(i) Purchaser continues to pay the carrying
charges of $4,875.00 (the "Carrying
Charges") per month to Mr. Robert Freedman
("Freedman") who has provided collateral (in
the form of one-year certificates of
deposit) to the LOC Issuers or their
successors or assigns;
(ii) Purchaser has paid any and all bank
extension fees, which fees are set forth on
Exhibit "H"; and
(iii) No claim arising after the Closing Date (as
defined below) is made on the Letters of
Credit in excess of the LOC Security.
Purchaser shall deposit as soon as practicable
following the Closing Date the sum of $162,500.00
(the "LOC Security") into an escrow account under an
escrow agreement substantially in the form attached
as Exhibit "I" hereto to fulfill its obligations to
secure the reimbursement obligations of Seller under
the Letters of Credit, but only from and to the
extent the Letters of Credit are drawn upon by one or
more Carriers as a result of Purchaser's failure to
pay such Carriers under the Carrier Reseller
Agreements for services rendered after April 15, 1999
or such later date as the purchase of the stock of
the Company contemplated by the Agreement and this
Amendment shall occur (such date hereinafter the
"Closing Date"). Purchaser's obligations to finish
and maintain the LOC Security shall terminate:
(1) if the Letters of Credit are drawn
upon with respect to (a) any
obligations of Seller, the Company,
SecurFone Services, Inc. or any of
their Affiliates, arising prior to
the Closing Date, or (b) any
obligations of SecurFone America,
Inc., SecurFone Services, Inc. or
any of their Affiliates arising
after the Closing Date; or
(2) if an LOC Issuer is presented with a
drawing which complies with all of
the terms and conditions of the
applicable letter of credit and such
drawing is not honored or paid in
full for any reason whatsoever.
If, subsequent to the Closing Date,
Purchaser and Seller agree in writing to any
reduction in the LOC Amount, then the LOC Security
shall be
4
<PAGE>
reduced by $0.25 for each $1.00 reduction in the LOC
Amount and Purchaser and Seller shall cause the
excess and all earnings thereon to be returned to
Purchaser.
Notwithstanding anything above to the
contrary, and so long as there shall not have been a
draw on such Letters of Credit with respect to
obligations of the Company to Carriers arising after
the Closing Date, Purchaser shall be relieved of its
obligation to deposit the LOC Amount in the Escrow
Account and shall be entitled to withdraw all the LOC
Security and all earnings thereon from the Escrow
Account if Purchaser shall have established "lock
box" agreements with each of the Carriers to which
the Letters of Credit relate pursuant to which all or
substantially all of (a) the amounts paid to
Purchaser by its customers utilizing the applicable
Carrier's network or services or (b) Purchaser's
obligations to such Carriers are to be deposited
pursuant to a lock box arrangement with, or in favor
of, such Carrier over which such Carrier (or a
servicing agent unaffiliated with the Purchaser or
the Seller) may exercise custody and control of the
funds deposited therein if an event of default shall
occur under the applicable Carrier agreement. The
lock box agreements shall contain such other terms
which are acceptable to the applicable Carrier and if
the terms of the lock box are agreed to by the
applicable Carrier, then such terms shall
conclusively be deemed acceptable to Seller in
connection with Purchaser's satisfaction of its right
hereunder to establish such lock box agreements to
obtain the release of the LOC Security.
In the event Purchaser is able to establish lock box agreements with
some, but not all, of the Carriers, the LOC Security shall be reduced in
proportion to the accounts to which the Letters of Credit relate. Similarly, if
Letters of Credit have been drawn on to pay some Carriers and if lock box
agreements have been established with respect to Carriers as to whose accounts
no Letters of Credit have been drawn, the LOC Security shall be reduced to
reflect such lock box agreements and returned to Purchaser but in no event shall
the LOC Security be reduced below an amount equal to the aggregate amounts drawn
under the Letters of Credit for which LOC Security has been deposited into the
Escrow Account unless and until such amounts have been reimbursed by payment by
the Company to the LOC Issuer or by application of some or all of the LOC
Security. Notwithstanding any reduction or cancellation in the LOC Security,
Purchaser will pay the Carrying Charges to Freedman through April 1, 2000 unless
Freedman elects to liquidate the certificates of deposit currently securing the
Letters of Credit.
1.9 Paragraph 5 of the Purchase Agreement is hereby amended to add
the following additional representations and warranties:
z) There are no Liabilities against, relating to or
affecting the Company or any of its Assets.
(aa) Authority. Each of the Seller, SecurFone Services,
Inc. and the Company
5
<PAGE>
had full corporate power and authority to effect the
transfer of the Assets of SecurFone Services, Inc. to
the Company and to perform its obligations in
connection therewith and to consummate the
transactions contemplated hereby and such transfer of
the Assets of SecurFone Services, Inc. to the Company
was duly and validly authorized by the Board of
Directors of Seller, SecurFone Services, Inc. and the
Company and, except as set forth below, no other
corporate action of the part of Seller, SecurFone
Services, Inc. or the Company or any class or series
of its security holders (equity or debt) was
necessary and the Board of Directors of each of the
Seller, SecurFone Services, Inc. and the Company
concluded that the consideration to be received by
their respective corporations upon consummation of
such transactions was fair from a financial point of
view; PROVIDED, HOWEVER, that although the
transactions contemplated hereby have been approved
in an action by written consent by Montpilier
Holdings, Inc., a holder of at least a majority of
the issued and outstanding capital stock of Seller
entitled to vote on such transactions, the
stockholders of the Seller as a whole have not been
informed of the action by written consent. Seller
agrees to furnish notice of such action by written
consent as soon as is reasonably practicable after
the Closing Date. The asset transfer agreements have
been duly and validly executed and delivered by
Seller, SecurFone Services, Inc. and the Company and
constitute legal, valid and binding obligations of
Seller, SecurFone Services, Inc. and the Company
enforceable in accordance with their respective
terms.
(bb) No Conflicts or Approvals Required. The execution and
delivery by the Agreement whereby the Assets of
SecurFone Services, Inc. were transferred to the
Company did not and, on and immediately after the
Closing Date, will not:
(i) conflict with or result in a violation or
breach of any of the terms, conditions or
provisions of the respective Certification
of Incorporation and by-laws of the Seller,
SecurFone Services, Inc. and the Company;
(ii) conflict with or result in a material
violation or material breach of any term or
provision of any law, order or judgment
applicable to Seller, SecurFone Services,
Inc, or the Company or any of their
respective Assets and Properties;
(iii) (A) conflict with or result in a violation
or material breach of, (B) constitute (with
or without notice or lapse of time or both)
a default under, (C) require Seller,
SecurFone Services, Inc. or the Company to
obtain any consent, approval or action of,
make any filing with or give any notice to
any person or entity as a result or under
the terms of, (D) result in or give to any
person or entity any right of
6
<PAGE>
termination, cancellation, acceleration or
modification in or with respect to, (E)
result in or give to any person or entity
any additional rights or entitlement to
increased, additional, accelerated or
guaranteed payments under, or (F) result in
the creation or imposition of any lien upon
the Company or any of its Assets under, any
contract or license to which Seller,
SecurFone Services, Inc. or the Company is a
party or by which any of their respective
Assets are bound; or
(iv) require any consent, approval or action of,
filing with or notice to any governmental or
regulatory authority or any other person or
entity (including, without limitation, any
Carrier or LOC Issuer on the part of Seller,
SecurFone Services, Inc. or the Company in
connection with the execution, delivery and
performance of the transfer of the Assets of
SecurFone Services, Inc. to the Company, or
of this Agreement or the consummation of the
transactions contemplated hereby or thereby,
other than the filing of an information
statement with the Securities and Exchange
Commission.
(cc) Legal Proceedings. (i) there are no actions, suits,
proceedings, arbitrations or governmental or
regulatory investigations or audits (individually and
collectively, "Actions") pending or, threatened
against, relating to or affecting Seller, SecurFone
Services, Inc. or the Company or any of their
respective Assets which (1) could result in the
issuance of an order restraining, enjoining or
otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated
by this Agreement or the transfer of assets by
SecurFone Services, Inc. to the Company or otherwise
result in a diminution of the benefits contemplated
by this Agreement to Purchaser or the transfer of
assets by SecurFone Services, Inc. to the Company, or
(2) if determined adversely to Seller, SecurFone
Services, Inc. or the Company, could be expected to
result in (x) any injunction or other equitable
relief against the Company that would interfere with
its business or operations or (y) require the return
or transfer of assets by the Company or result in an
equitable or constructive trust being placed upon its
assets; and (ii) there are no facts or circumstances
known to Seller that could reasonably be expected to
give rise to any Action that would be required to be
disclosed pursuant to clause (i) above; and (iii)
there are no orders or judgments outstanding against
Seller, SecurFone Services, Inc. or the Company with
respect to the matters contemplated by clauses (i)
and (ii) above.
(dd) No Fraudulent Conveyance. The transfer of assets by
SecurFone, Inc. to the Company was not made with the
intent to impede, hinder or defraud the creditors of
the Seller and was made for adequate consideration.
7
<PAGE>
1.10 Paragraph 6 of the Purchase Agreement is hereby amended to add
the following new subparagraphs (e) and (f):
(e) Market. Purchaser agrees to use its reasonable best
efforts to maintain the listing of the Common Stock
on the Nasdaq Over the-Counter Bulletin Board System,
the Nasdaq Small Cap Market System, the Nasdaq
National Market System or any principal national
stock exchange, for a period of two years following
the Closing Date or until such earlier date as Seller
shall no longer own any of the Shares.
(f) Purchaser has furnished Seller draft financial
statements for the year ended December 31, 1997 and
the nine months ended September 30, 1998. To the
knowledge of Purchaser such draft financial
statements are materially complete and materially
accurate as of the dates thereof; except that
Purchaser makes no representation or warranty as to
the value of the capital stock of Worldwide Cellular,
Inc. ("WWC") or the underlying assets of WWC acquired
in connection therewith as of the respective dates of
such draft financial statements and informs the
Seller that Purchaser currently believes that such
WWC stock and underlying assets have little or no
value as of the date of this Agreement and Purchaser
further believes that any audit of its financial
statements for the year ended December 31, 1998 would
contain a going concern qualification. Purchaser
further makes no representation or warranty with
respect to the assets, financial condition or results
of operation of Purchaser since the respective dates
of such draft financial statements.
1.11 Paragraph 11 of the Purchase Agreement is hereby amended by
deleting such paragraph in its entirety and substituting the following in lieu
thereof:
11. Indemnification and True-Up. The Seller shall
indemnify the Purchaser, its successors and assigns
(the "Indemnities"), in respect of (a) all
liabilities of Seller, SecurFone Services, Inc. and
the Company of any nature, whether accrued, absolute,
contingent, or otherwise, existing at closing, to the
extent not reflected on Exhibit "A" hereof; (b) any
damage or deficiency resulting from any
misrepresentation, breach of warranty, or
non-fulfillment of any agreement on the part of the
Seller, under this Agreement, or from any
misrepresentation in or omission from any certificate
or other instrument furnished or to be furnished to
the Purchaser hereunder; and (c) all actions, suits,
proceedings, demands, assessments, judgments, costs,
and expenses incident to any of the foregoing
(collectively, "Indemnified Losses").
Upon notice by Purchaser to Seller of the
amount of Purchaser's Indemnified Losses, Seller
shall pay such losses first, from the Shares by
redelivering such number of Shares which is equal to
the Indemnified Losses in order to compensate
Purchaser for its damages as stated above. To the
8
<PAGE>
extent the Indemnified Losses cannot be satisfied by
repayment of the Shares, Seller shall pay the
Indemnified losses in cash. The total amount of
Indemnified Loss payable by Seller under this
Agreement shall not exceed $2,186,037.96. For
purposes of this Section 11, the value of the Shares
will be equal to the greater of $2.50 per share of
the fair market value of the Shares calculated, as of
the business day immediately preceding the date on
which such payment is to be made by multiplying the
number of shares to be redelivered to Purchaser by
the Market Price of such Shares. For example, if the
Indemnified Losses are determined by Purchaser to be
$150,000.00 and the Market Price for the Purchaser's
Stock is $3.00 per share, the parties agree that the
Seller shall return 50,000 Shares to the Purchaser.
Conversely, if the Market Price is $2.00 per share,
then the Seller would return 60,000 shares ($150,000
/ $2.50 = $60,000).
1.12 The Purchase Agreement is hereby amended to add the following
new paragraph 20:
Certain Definitions. For purposes of this Agreement,
the following terms shall have the meaning ascribed to them
below:
"Affiliate" means any person or entity that directly, or
indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the person or
entity specified. For purposes of this definition, control of
a person or entity means the power, direct or indirect, to
direct or cause the direction of the management and policies
of such person or entity whether by contract or otherwise and,
in any event and without limitation of the previous sentence,
any person or entity owning ten percent (10%) or more of the
voting securities of another person or entity shall be deemed
to control that person or entity.
"Assets" means all assets and properties of every kind,
nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute,
accrued, contingent, fixed or otherwise and wherever
situated), including the goodwill related thereto, operated,
owned or leased by the Company, including, without limitation,
cash, cash equivalents, stocks, securities, evidences of
indebtedness owing to the Company, accounts and notes
receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods and
intellectual property.
"Common Stock" means the common stock of TeleData World
Services, Inc., par value $.001 per share or any successor
security thereto.
"Liabilities" means all obligations of any person or entity
(i) for borrowed money, (ii) evidenced by notes, bonds,
debentures or similar instruments, (iii) for the deferred
purchase price of goods or services (including trade payables
and other accruals incurred in the ordinary course of
business, (iv) under capital leases, (v) in the nature of
guarantees of the obligations described in clauses (i) through
(iv) above
9
<PAGE>
of any other person or entity, and (g) any other obligations
and other liabilities of the person or entity (including,
without limitation, as a successor to any person or entity,
and, in the case of each of the clauses (i) through (vi)
above, whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Market Price" shall be determined on the basis of: (i) the
average sale price of the Purchaser's Common Stock over the
ten (10) trading days prior to the applicable calculation date
on the principal stock exchange, or the National Association
of Securities Dealers' Automated Quotation National Market
System ("NASDAQ/NMS"), as the case may be, on which such
Common Stock is then listed or admitted to trading, (ii) if
the Common Stock is not then listed or admitted to trading on
any stock exchange or the NASDAQ/NMS, as the case may be, the
average of the last reported closing bid and asked prices on
such day in the over-the-counter market, as furnished by the
NASDAQ system or the National Quotation Bureau, Inc., (iii) if
neither such corporation at the time is engaged in the
business of reporting such prices, as furnished by any similar
firm then engaged in such business, or (iv) if there is no
such firm, as furnished by any member of the National
Association of Securities Dealers ("NASD") selected by the
Purchaser which is not an Affiliate of the Purchaser or the
Seller.
1.13 The Purchase Agreement is hereby amended to add the following
new paragraph 21:
Assignment: Seller may assign its obligations to sell the
stock of SecurFone, Inc. to SecurFone Services, Inc., PROVIDED
THAT all references herein to the other obligations of Seller
shall be the joint and several obligations of SecurFone
America, Inc. and SecurFone Services, Inc.
1.14 Exhibit "G" to the Purchase Agreement is hereby deleted in its
entirety and such Exhibit "G" is replaced with Exhibit "G" attached to this
Agreement.
Article 2
Miscellaneous
2.1 EFFECTIVE DATE. The effective date the amendments to the
Purchase Agreement set forth in this Amendment shall become effective as of the
date first written above.
2.2 FEES AND EXPENSES. Each party hereto shall bear their own fees
in connection with the preparation and execution of this Amendment.
2.3 NO OTHER CHANGES. Except as expressly amended hereby, all
representations, warranties, terms, covenants and conditions of the Purchase
Agreement and the other ancillary agreements contemplated thereby shall remain
unamended and unwaived and shall continue in full force and effect.
10
<PAGE>
2.4 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
(Signatures begin on next page)
11
<PAGE>
WITNESS the hand and seal of each of the undersigned as of the date
first written above.
SECURFONE AMERICA, INC.
By: /s/ Paul Silverman
---------------------------------------------
Name: Paul Silverman
Title: Chief Executive Officer
SECURFONE SERVICES, INC.
By: /s/ Paul Silverman
---------------------------------------------
Name: Paul Silverman
Title: Chief Executive Officer
TELEDATA WORLD SERVICES, INC.
By: /s/ Anthony W. Cullen
---------------------------------------------
Name: Anthony W. Cullen
Title: President and Chief Executive Officer
12
<PAGE>
---------------------------------
CONTE CO., CPA, INC.
---------------------------------
A PROFESSIONAL CORPORATION
4322 S. Cleveland-Massillon Road
Norton, Ohio 44203-5732
216.825.3535 ! Fax: 216.825.0055
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Annual Report, United
States Securities and Exchange Commission, of SecurFone America, Inc. of our
report dated August 30, 1999 appearing in their form 10-KSB.
/s/ Conte Co., CPA, Inc.
Conte Co., CPA, Inc.
Norton, OH
August 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,532
<SECURITIES> 0
<RECEIVABLES> 7,138
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,670
<PP&E> 314,317
<DEPRECIATION> 139,381
<TOTAL-ASSETS> 219,831
<CURRENT-LIABILITIES> 1,020,016
<BONDS> 1,358,696
0
0
<COMMON> 6,092
<OTHER-SE> 2,224,284
<TOTAL-LIABILITY-AND-EQUITY> 219,831
<SALES> 367,358
<TOTAL-REVENUES> 467,358
<CGS> 476,728
<TOTAL-COSTS> 4,166,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,286
<INCOME-PRETAX> (4,304,943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,304,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 50,000
<CHANGES> 0
<NET-INCOME> (4,304,943)
<EPS-BASIC> (0.72)
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</TABLE>
