<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 30, 1999.
/ / Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
Commission file number: 33-83526
THE IXATA GROUP, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter
DELAWARE 34-1833574
- --------------------------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8080 DAGGET, SUITE 220 SAN DIEGO, CALIFORNIA 92111
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(Address of Principal Executive Offices)
SECURFONE AMERICA, INC.
- -------------------------------------------------------------------------------
(Former Name)
619-677-5580
- -------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes / / No /X/
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
COMMON STOCK, $0.001 PAR VALUE PER SHARE: 11,888,142 (AS OF JANUARY 1, 2000)
- ------------------------------------------------------------------------------
Transition Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- -------------------------------------------------------------------------------
THE IXATA GROUP, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
PART I --FINANCIAL INFORMATION 2
Item 1. Financial Statements. 2
Item 2. Management's Discussion and Analysis or Plan of Operations. 16
Overview 16
Results of Operations: 19
Second Quarter of 1999 Compared to Second Quarter of 1998 19
First Half of 1999 Compared to First Half of 1998 20
Liquidity and Capital Resources 21
Year 2000 22
Related Party Transactions 22
Forward-Looking Statements 22
PART II--OTHER INFORMATION 27
Item 1. Legal Proceedings. 27
Item 2. Changes in Securities and Use of Proceeds. 27
Item 3. Defaults Upon Senior Securities. 27
Item 4. Submission of Matters to a Vote of Security Holders. 27
Item 5. Other Information. 27
Item 6. Exhibits and Reports on Form 8-K. 27
</TABLE>
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Page 1
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- -------------------------------------------------------------------------------
PART I -- FINANCIAL INFORMATIOn
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets..............................................................................3
Consolidated Statements of Operations....................................................................4
Consolidated Statements of Stockholders' Equity..........................................................5
Consolidated Statements of Cash Flows....................................................................6
Notes to Financial Statements.........................................................................7-15
</TABLE>
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Page 2
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 7,818 $ 36,123
Accounts receivable, net 4,501 63,427
Marketable securities 150,000 770,000
Prepaid expenses -- 105,100
------------ ------------
162,319 974,650
PROPERTY AND EQUIPMENT, net of accumulated depreciation 83,757 215,267
OTHER ASSETS:
Note receivable-IXATA, Inc. 150,000 --
Intangible assets, net of
accumulated amortization -- 230,201
Deposits 1,225 1,225
------------ ------------
Total other assets 151,225 231,426
------------ ------------
Total assets $ 397,301 $ 1,421,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (ACCUMULATED DEFICIT)
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term liabilities $ 72,419 $ 61,463
Accounts payable 300,908 342,782
Accrued interest 173,653 16,569
Accrued payroll 158,678 46,664
Notes payable 578,250 50,000
------------ ------------
Total current liabilities 1,283,908 517,478
------------ ------------
LONG-TERM LIABILITIES:
Advances payable -- 827,000
Notes payable-net of current portion 1,000,000 4,181
Obligation under capital leases-net of current portion 34,323 70,248
------------ ------------
Total long term liabilities 1,034,323 901,429
------------ ------------
Total liabilities 2,318,231 1,418,907
------------ ------------
STOCKHOLDERS' EQUITY (ACCUMULATED DEFICIT):
Common stock-SecurFone America, Inc. 6,275 5,880
$.001 par value, authorized 100,000,000
shares, outstanding 6,275,169 shares at
June 30, 1999 and 5,965,216 shares
at June 30, 1998
Additional paid-in capital 4,709,138 4,330,145
Additional paid-in capital-stock options 2,874,475 2,869,525
Unrealized holding (loss) on marketable securities (150,000) 770,000
Deficit accumulated during the development stage (9,360,818) (7,973,114)
------------ ------------
Total stockholders' equity (accumulated deficit) (1,920,930) 2,436
------------ ------------
Total liabilities and stockholders' equity
(accumulated deficit) $ 397,301 $ 1,421,343
------------ ------------
</TABLE>
See accompanying notes.
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Page 3
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- ---------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 1999
<TABLE>
<CAPTION>
1999 1998 May 20, 1996
------------------------ ------------------------- (Inception Date)
Three Months Six Months Three Months Six Months June 30, 1999
------------ ---------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
OPERATING EXPENSES -- -- -- -- --
------------ ---------- ------------ ----------- ----------------
Gross profit -- -- -- -- --
------------ ---------- ------------ ----------- ----------------
OPERATING EXPENSES
Selling, general and administrative 69,274 141,976 -- -- 141,976
Restructuring charge 143,932 505,832 661,451 2,814,331 10,008,577
------------ ---------- ------------ ----------- ----------------
Total Operating Expenses 213,206 647,808 661,451 2,814,331 10,150,553
Income (Loss) from Continuing Operations (213,206) (647,808) (661,451) (2,814,331) (10,150,553)
------------ ---------- ------------ ----------- ----------------
OTHER INCOME (EXPENSE):
Gain on disposal of cellular assets 708,419 708,419 -- -- 708,419
Realized stock gains -- -- -- -- 50,000
Interest expense - capital lease -- (1,206) -- -- (23,835)
Interest income -- -- -- -- 14,949
------------ ---------- ------------ ----------- ----------------
Total other income (expense) 708,419 707,213 -- -- 749,533
------------ ---------- ------------ ----------- ----------------
Income (Loss) Before Income Taxes and
Extraordinary Item 495,213 59,405 (661,451) (2,814,331) (9,401,020)
------------ ---------- ------------ ----------- ----------------
PROVISION FOR INCOME TAXES -- 1,600 1,649 1,649 3,249
------------ ---------- ------------ ----------- ----------------
Income (Loss) before extraordinary items 495,213 57,805 (663,100) (2,815,980) (9,404,269)
------------ ---------- ------------ ----------- ----------------
EXTRAORDINARY ITEMS
Gain on debt extinguishment
------------ ---------- ------------ ----------- ----------------
(less $0 Income tax) -- 43,451 43,451
------------ ---------- ------------ ----------- ----------------
Net income (loss) 495,213 101,256 (663,100) (2,815,980) (9,360,818)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized (loss) gain on securities (150,000) (150,000) 490,000 770,000 (150,000)
------------ ---------- ------------ ----------- ----------------
Comprehensive income (loss) $ 345,213 $ (48,744) $ (173,100) $(2,045,980) $ (9,510,818)
============ ========== =========== =========== ================
Net (loss) per share - basic
Income (loss) from continuing operations $ (0.03) $ (0.11) $ (0.11) $ (0.47)
=========== ========== =========== ===========
Loss before extraordinary items $ 0.08 $ 0.01 $ (0.11) $ (0.47)
=========== ========== =========== ===========
Gain (loss) on extraordinary items $ - $ 0.01 $ - $ -
=========== ========== =========== ===========
Net income (loss) $ 0.08 $ 0.02 $ (0.11) $ (0.47)
Comprehensive income (loss) $ 0.05 $ (0.01) $ (0.03) $ (0.34)
----------- ---------- ----------- -----------
Net (loss) per share - fully diluted
Income (loss) from continuing operations $ (0.03) $ (0.11) $ (0.11) $ (0.47)
=========== ========== =========== ===========
Loss before extraordinary items $ 0.08 $ 0.01 $ (0.11) $ (0.47)
=========== ========== =========== ===========
Gain (loss) on extraordinary items $ - $ 0.01 $ - $ -
=========== ========== =========== ===========
Net income (loss) $ 0.08 $ 0.02 $ (0.11) $ (0.47)
Comprehensive income (loss) $ 0.05 $ (0.01) $ (0.03) $ (0.34)
----------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
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Page 4
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MAY 20, 1996 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
Additional Deficit
Paid-in Accumulated Accumulated
Additional Capital- during the Other
Common Paid-in Stock Development Comprehensive
Stock Capital Options Stage Income (Loss) Total
-------- ----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of common
Stock, May 20, 1996 $ 3 $ 975,797 $ -- $ -- $ -- $ 975,800
Stock split 1,333.33 to 1 - March 6, 1997 39,970 (39,970) -- -- -- --
Sale of stock - 1997 1,200 118,800 -- -- -- 120,000
Acquisition - August 1, 1997 (36,173) 36,173 -- -- -- --
Stock options granted August-November, 1997 -- -- 1,227,250 -- -- 1,227,250
Contingent shares issued - December 31, 1997
and March 18, 1998 740 3,099,260 -- -- -- 3,100,000
Stock options exercised - March 19, 1998 225 -- 22,275 -- -- 22,500
Stock options granted - January 6, 1998 -- -- 1,620,000 -- -- 1,620,000
Stock issued - May 12, 1998 35 139,965 -- -- -- 140,000
Stock options exercised - August 6, 1998 50 -- 4,950 -- -- 5,000
Stock issued - November 17, 1998 42 33,290 -- -- -- 33,332
Stock issued - May 11-19, 1999 122 242,066 -- -- -- 242,188
Stock issued - June 30, 1999 61 103,757 -- -- -- 103,818
Unrealized holding gains on securities -
June 30, 1999 -- -- -- -- (150,000) (150,000)
Deficit accumulated June 30, 1999 -- -- -- (9,360,818) -- (9,360,818)
-------- ----------- ---------- ------------ ------------- -----------
Balance June 30, 1999 $ 6,275 $4,709,138 $2,874,475 $(9,360,818) $ (150,000) $(1,920,930)
-------- ----------- ---------- ------------ ------------- -----------
</TABLE>
See accompanying notes.
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Page 5
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- ---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION)
TO JUNE 30, 1999
<TABLE>
<CAPTION>
1999 1998 May 20, 1996
------------------------ -------------------------- (Date of Inception)
Three Months Six Months Three Months Six Months to June 30, 1999
------------ ---------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 495,213 $ 101,256 $ (663,100) $(2,815,980) $ (9,360,818)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 7,743 27,499 29,623 59,246 216,504
Sale of subsidiary (708,419) (708,419) -- -- (708,419)
Stock options granted and contingent
shares issued -- -- -- 1,620,000 4,327,250
Decrease (increase) in accounts receivable 4,352 2,637 (2,101) (28,323) (4,501)
Decrease (increase) in notes receivable -- -- -- 89,353 5,833
Decrease (increase) in royalties receivable -- -- -- 100,000 --
Decrease (increase) in inventory -- -- -- 22,153 --
Decrease (increase) in intangible and other assets -- -- -- -- (56,680)
Decrease (increase) in prepaid expenses -- 35,000 (104,800) (105,100) --
(Decrease) increase in accounts payable,
payroll payable and accrued expenses (39,745) (47,973) 143,571 233,144 598,238
(Decrease) increase in deferred royalty revenue -- -- -- (100,000) --
------------ ---------- ------------ ------------ ----------------
NET CASH PROVIDED IN (USED)
OPERATING ACTIVITIES (240,856) (590,000) (596,807) (925,507) (4,982,593)
------------ ---------- ------------ ------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of subsidiary and related assets 472,257 472,257 -- -- 472,257
Investment in subsidiary (150,000) (150,000) -- -- (150,000)
Purchase of property and equipment -- (157) (6,701) (12,457) (314,474)
------------ ---------- ------------ ------------ ----------------
NET CASH PROVIDED IN (USED)
INVESTING ACTIVITIES 322,257 322,100 (6,701) (12,457) 7,783
------------ ---------- ------------ ------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to paid-in capital 345,823 345,823 140,000 162,500 1,589,667
Issuance of stock options and contingent shares -- -- -- -- 1,647,500
Issuance of stock for debt 183 183 -- -- 183
Proceeds from capital lease -- -- -- -- 159,650
Proceeds from advances payable -- -- 500,000 827,000 --
Proceeds from notes payable 54,003 416,231 (3,880) (7,699) 2,101,273
Repayments on advances (338,000) (338,000) -- -- (338,000)
Repayments on notes payable (137,718) (143,095) -- -- (143,095)
Repayments under capital lease (3,743) (6,946) (6,155) (15,221) (83,206)
------------ ---------- ------------ ------------ ----------------
NET CASH PROVIDED IN (USED)
FINANCING ACTIVITIES (79,452) 274,186 629,965 966,580 4,933,972
------------ ---------- ------------ ------------ ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,949 6,286 26,457 28,616 (40,838)
BEGINNING CASH AND CASH EQUIVALENTS 5,869 1,532 9,666 7,507 --
------------ ---------- ------------ ------------ ----------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 7,818 $ 7,818 $ 36,123 $ 36,123 $ (40,838)
============ ========== ============ ============ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 3,839 $ 27,806 $ 29,545 $ 49,851 $ 384,114
============ ========== ============ ============ ================
Cash paid during the period for income taxes $ -- $ 1,600 $ 1,649 $ 1,649 $ 2,400
============ ========== ============ ============ ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Amortization of prepaid loan fees paid by stock issued $ -- $ 35,000 $ 35,000 $ 35,000 $ 140,000
============ ========== ============ ============ ================
Issuance of stock for operating services $ 346,006 $ 346,006 -- -- $ 346,006
============ ========== ============ ============ ================
(Decrease) Increase in fair value of
marketable securities $ (150,000) $ (150,000) $ 490,000 $ 490,000 $ --
============ ========== ============ ============ ================
Purchase of stock and options in exchange
for sale of subsidiary $ 300,000 $ 300,000 -- -- $ 300,000
------------ ---------- ------------ ------------ ----------------
</TABLE>
See accompanying notes.
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Page 6
<PAGE>
THE IXATA GROUP, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1999
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF
INCEPTION) TO JUNE 30, 1999
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
IXATA Group, Inc. and its wholly owned subsidiary, SecurFone Services, Inc.
(collectively referred to as the "Company"). Inter-company transactions and
balances have been eliminated in the consolidated financial statements.
NATURE OF OPERATIONS
During the period reported, the Company was principally engaged in the sale of
prepaid cellular phone services. The Company provided these services in some
markets and, in other markets, licensed the Company's resources to unrelated
parties.
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.
- - 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.
- - 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
On August 1, 1997, SecurFone, Inc. was acquired by Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) and became a publicly traded
corporation. On August 1, 1997, Material Technology, Inc. was renamed to
SecurFone America, Inc. In April of 1999 the name of SecurFone, Inc was changed
to SecurFone Services, Inc. and a new subsidiary was formed named SecurFone,
Inc. This new subsidiary was subsequently sold. On January 31, 2000, SecurFone
America, Inc. changed its name to The IXATA Group, Inc.
DEVELOPMENT STAGE OPERATIONS
The Company was organized to develop and market prepaid wireless products and
services in various U.S. markets. The Company invested significant capital and
effort in development of its network, software, routing and carrier interface
technology throughout 1997 and 1998. In 1998, the Company began its initial
introduction of services to various U.S. markets. During development and market
testing the industry experienced price reductions, new competition and other
margin pressures. In late 1998 the Company revised its business plan to reflect
the significant additional funding that would be required to achieve the
business scale required to create significant shareholder value. Recognizing the
explosive growth of the internet and e-commerce markets, and the long term
prospects for integrating new wireless and internet-based services, the Company
established a new objective to pursue opportunities in the internet and
e-commerce market sectors. To meet this objective, the Company has, since late
1998, pursued the sale of portions of its wireless business, acquired a new
Internet-based e-commerce subsidiary, IXATA.COM, and raised additional funding.
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 three commercial banks.
Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up to
$100,000.
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Page 7
<PAGE>
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include temporary cash investments and trade receivables. Concentration of
credit risk with respect to trade receivables is limited due to the Company's
large number of customers and wide range of locations served. The Company
occasionally maintains deposits in excess of federally insured limits.
Management believes that the risk is limited by maintaining all deposits in high
quality financial institutions.
PROPERTY AND EQUIPMENT
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is calculated using the accelerated
depreciation method for both financial reporting and income tax purposes. For
the quarters ended June 30, 1999 and 1998 depreciation expense of $7,743 and
$14,077 was charged to operations, respectively. For the six months ended June
30, 1999 and 1998 depreciation expense of $27,499 and $28,154 was charged to
operations, respectively.
REVENUE AND EXPENSE RECOGNITION
The Company recognizes revenue from sales of cellular airtime, net of an
allowance for uncollectible amounts, when substantially all significant services
to be provided by the Company have been performed. Expenses are recognized in
the period in which they are incurred. An allowance has been provided for
uncollectible accounts based on management's evaluation of the accounts and
their history.
CHANGE IN ACCOUNTING PRINCIPLE
Effective December 1, 1998, the Company retroactively changed its method of
recognizing start-up costs in its consolidated financial statements to conform
with a recent pronouncement of the AICPA, 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.
Amortization in the amount of $15,546 was charged to expense for the quarter
ended June 30, 1998. Amortization in the amount of $31,092 was charged to
expense for the six months ended June 30, 1998.
USE OF ESTIMATES
In preparing the Company's consolidated 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. These estimates are based on management's
knowledge and experience. Accordingly, actual results could differ from those
estimates.
COMPENSATED ABSENCES
The Company does not have a vacation policy as of June 30, 1999. Unpaid vacation
has not been accrued since it is considered immaterial.
RECLASSIFICATIONS
Certain accounts in the prior-year consolidated financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year consolidated financial statements.
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Page 8
<PAGE>
Note 2. MARKETABLE SECURITIES
Cost and fair value of marketable securities available for sale at June 30,
1999 and 1998 consisted of equities as follows:
<TABLE>
<CAPTION>
------------------------ ----------------------------- ---------------------------- -------------------
Cost Unrealized Gain (Loss) Fair Value
------------------------ ----------------------------- ---------------------------- -------------------
<S> <C> <C> <C>
June 30, 1999 $ 300,000 $(150,000) $ 150,000
------------------------ ----------------------------- ---------------------------- -------------------
June 30, 1998 $ 0 $ 770,000 $ 770,000
------------------------ ----------------------------- ---------------------------- -------------------
</TABLE>
At June 30, 1999 and 1998 the Company held securities that have unrealized
losses and gains of $(150,000) and $770,000, respectively. Due to the net loss
carry forwards there is no tax expense (benefit) on the realization of this loss
or gain.
Note 3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
June June
1999 1998
---- ----
<S> <C>
Office Furniture and Equipment $ 31,105 $ 35,043
Computer Software 1,138 88,802
Computer Hardware 160,819 190,691
-------- -------
193,062 314,536
Accumulated Depreciation (109,305) (99,269)
-------- -------
$ 83,757 $ 215,267
======== =======
</TABLE>
Note 4. NOTE RECEIVABLE
The note receivable at June 30, 1999 consists of advances made to IXATA, Inc.
("IXATA.COM") for operating expenses. IXATA.COM became a subsidiary in July
1999. See Note 14 - Subsequent Events.
Note 5. SHORT TERM NOTES PAYABLE
As of June 30, 1999 and 1998 notes payable, other obligations and short term
debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable to Material Technology, Inc. $ -- $ 165,000
Notes payable (formerly treated as an advances payable) to
unrelated parties for advances of $130,000 that was due
January 30, 1999, with 10% interest. The note is unsecured. $ 130,000 $ --
Notes payable dated September 1, 1998 for advances made to the
Company by a Nevada corporation and an individual bearing 10%
interest per annum, principal and interest payable August 31,
1999 298,250 --
Note payable for a settlement to the Company's former CEO to
resolve all outstanding Company obligations related to his
employment due April 1, 1999. 50,000 --
Note payable to a limited partnership bearing 15% interest,
principal and interest due November 1, 1999 secured by a
100,000 --
--------- -------
- ------------------------------------------------------------------------------------------------------------------------
Page 9
<PAGE>
<S> <C>
certain stock pledge agreement $ 578,250 $ 50,000
======= ======
</TABLE>
Note 5. LONG TERM DEBT
As of June 30, 1999 and 1998 notes payable, other obligations and long term debt
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Advances payable to unrelated parties and potential investors who
have committed the funds on a long term basis. Negotiations
with various parties have not characterized the debt and
equity nature of the funds or finalized interest rates,
maturity dates, repayment terms or other features for the
advances $ --- $ 827,000
Convertible debenture in the amount of $1,000,000 issued August
21, 1998 for advances made to the Company. The debenture has
12% interest rate payable quarterly. The principal is payable
on the earlier of (1) the Company's receipt of at least $8
million proceeds from a public offering of Company securities
or (2) August 21, 2001. Non-detachable warrants for 500,000
shares exercisable at $2.72 per share were issued in
connection with the convertible debenture. The warrants expire
August 21, 2003. 1,000,000 --
Note payable with a vendor under an agreement dated October 1997
is a two year, unsecured note with an annual interest rate of
6% and monthly payments of $1,407 including interest. The
balance at June 30, 1999 requires payment within six months 6,928 20,295
CAPITAL LEASE
In March 1997, the Company entered into a sale-leaseback
arrangement under which computer equipment capitalized at
$159,649 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 99,814 115,597
------ -------
Total 1,106,742 962,892
Less: Current Portion of notes and other maturities (72,419) (61,463)
------- -------
Total long term liabilities $ 1,034,323 $ 901,429
========= =======
</TABLE>
Minimum future lease payments under non-cancelable capital leases for the next
five years are as follows:
<TABLE>
<S> <C>
June 30, 2000 $65,491
June 30, 2001 34,323
------
Total minimum future lease payments $99,814
========
</TABLE>
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Page 10
<PAGE>
The note payable maturities on long term debt for the next five years
are as follows:
<TABLE>
<S> <C>
1999 $106,928
2000 0
2001 1,000,000
---- ---------
Total $ 1,106,928
===== ===========
</TABLE>
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 1,333,333 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.
Prior to the reorganization 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 shares outstanding with a reverse
split of 1 for 10 resulting in 500,216 shares issued and outstanding. Also,
Material Technology, Inc. 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 reorganization with Material
Technology, Inc. whereby 4,000,000 shares issued and outstanding common stock
of SecurFone America, Inc. were exchanged for 4,500,000 shares issued and
outstanding common stock of Material Technology, Inc. As a result of the
reorganization, 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.
On November 13, 1997, the Company registered with the Securities and Exchange
Commission on Form S-8 (the "S-8 filing") 1,000,000 shares under the 1997 Stock
Option Plan to grant incentive stock options and non-qualified stock options to
officers and key employees. At the same time a similar registration for 250,000
shares under the 1997 Director Non-qualified Stock Option Plan was made. At
various dates the Company granted stock options under the two stock option plans
totaling 830,900 shares consisting of 300,000 shares at an option price of $1.00
per share, 130,900 shares at an option price of $2.50 per share and 400,000
shares at an option price of $0.10 per share. These options are exercisable
during 1997 and 1998. These shares were recorded as $1,227,250 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 December 3, 1997, the Company issued 620,000 conditional shares of common
stock with a par value of $.001 per share registered with the S-8 filing. These
shares were issued pursuant to various employment, retainer, consulting and fee
agreements. As of December 31, 1997 all conditions of these shares had been met
and $3,100,000 was recorded as SG&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 for 400,000 shares at an option price of $.10 per share. These
options are exercisable immediately and are recorded as $1,620,000 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 February 18, 1999 the 350,000 unexercised
options were returned.
On March 19, 1998, an additional 345,000 shares were issued as a 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 were the result of two
stock subscriptions in private placements.
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<PAGE>
On May 12, 1998, 35,000 shares were issued in connection with credit
accommodations provided to the Company by investors (see Note 1).
On August 6, 1998, 50,000 shares were issued on the exercise of stock options.
On November 17, 1998, the Company issued 41,665 shares of unregistered common
stock in exchange for investment banking services and bridge funding and a cash
payment of $2,500.
On April 23, 1999, the Company granted a director 20,000 fully vested stock
options under the 1997 Stock Option Plan that are exercisable at $.125 per share
and expire April 23, 2009.
On May 11, 1999, the Company converted $50,000 debt for legal services by
issuance of 50,000 unregistered shares of common stock.
On May 12, 1999, the Company converted debt to an unrelated individual in the
amount of $25,000 by issuance of 12,500 unregistered shares of common stock.
On May 19, 1999, the Company converted $118,532 of debt including a note payable
of $115,000 due to Young Management Company by issuance of 59,266 unregistered
shares of the Company's common stock.
On June 30, 1999, the Company settled a dispute with Associated Barter Services,
Inc. ("ABS") for advertising services in the amount of $103,818 by issuance of
61,522 shares of the Company's common stock.
On June 30, 1999, the Company granted 50,000 stock options (fully vested June
30, 2000) under the 1997 Directors Stock Option Plan to a director exercisable
at $1.28 per share with an expiration date of June 30, 2009.
As of June 30, 1999, a total of 100,000,000 shares of common stock were
authorized and 6,275,169 shares were issued and outstanding.
Note 7. RELATED PARTIES
The Secretary of the Company is also a partner in the law firm that represents
the Company in its legal matters.
The accrued payroll is due to officers and directors of the Company. The expense
recognized for the quarters ended June 30, 1999 and 1998 is $67,509 and $17,499,
respectively. The expense recognized for the six months ended June 30, 1999 and
1998 is $140,211 and $46,664, respectively.
Note 8. LOSS ON SECURFONE NEW YORK
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 thereafter, SFNY fell into default
under the term 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 of
$48,980.
Note 9. 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 (FASB 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.
FASB 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.
For the year ended December 31, 1998, the Company had net operating loss carry
forwards for federal income and state income tax purposes. These carry forwards
may provide future tax benefits. The federal net operating loss will begin to
expire in 2011, if not utilized to offset taxable income. Various state net
operating loss carry forwards will
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<PAGE>
begin to expire earlier. Future changes in ownership, as defined by Section
382 of the Internal Revenue Code, could limit the amount of net operating
loss carry forwards used in any one year.
An allowance has been provided for by the Company that reduced the tax benefits
accrued by the Company for its net operating losses to zero. It cannot be
determined when, or if, the tax benefits derived from these losses will
materialize. Income taxes in the amounts of $0 and $819 were paid in the
quarters ended June 30, 1999 and 1998, respectively. Income taxes in the amounts
of $1,600 and $1,649 were paid in the six months ended June 30, 1999 and 1998,
respectively.
Note 10. SALE OF SUBSIDIARY (net of tax effect) EXTINGUISHMENT
On January 30, 1999 the Company executed an agreement with Teledata World
Services, Inc., a publicly traded company ("TWOS"), whereby certain prepaid
cellular assets would be sold to TWOS for cash and TWOS common stock. On
April 22, 1999, the Company executed a final agreement to sell a wholly-owned
subsidiary, SecurFone, Inc. to TWOS for cash and stock. Under the agreement
TWOS acquired all outstanding shares of SecurFone, Inc. for $498,000 in cash,
600,000 shares of unregistered TWOS common stock (subject to Rule 144) valued
at $300,000 and the option to sell the stock back to TWOS at a price of $2.50
per share effective one year from the date of the transaction if the market
price of the TWOS stock is less than $2.50 per share. As of June 30, 1999, no
value has been recorded for the option. SecurFone, Inc. assets include
certain cellular service resale agreements, the Company's Miami customer
service center, rights to the Buy-The-Minute-TM- product and selected
distribution channels. Under the agreement, the Company could continue to
offer prepaid cellular services and could establish resale and joint service
arrangements to serve selected markets. As a result of the net operating loss
carry forwards there are no income taxes.
Subsequent to the sale of certain prepaid cellular assets to TWOS and given the
B2B e-commerce opportunity presented in conjunction with the IXATA acquisition,
the Company ceased its prepaid cellular operations, effective June 30, 1999. The
net loss from operations of the ceased cellular operations is a reflection of
the historic financial performance of this business line, which the Company has
elected not to pursue further. This net loss is represented as a Restructuring
Charge under continuing operations for the current and previous periods. The
Company retains the net operating loss carry forwards from this disposed
business line.
Note 11. EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT
The extraordinary gain is a result of the settlement agreement with the
Company's former CEO to resolve all outstanding Company obligations related to
his employment with the Company in exchange for a payment of $50,000 payable not
later than April 1,1999. As a result of the net operating losses sustained by
the Company, there is no tax effect.
Note 12. COMMITMENTS AND CONTINGENCIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained losses totaling $9,327,509 since its inception, of which $5,157,131
represents expenses associated with stock-based compensation plans as noted at
Note 6.
The continuing losses resulting from operations, and not necessarily those costs
associated with stock-based compensation plans, are an indication that the
Company may not be able to continue to operate without an additional cash
infusion. The Company has been and is currently seeking private and public
equity and bridge loans in order to finance operations. The Company has retained
business advisory firms to assist the Company in meeting its financing needs.
Paul Silverman executed an employment agreement assuming the role of Chief
Executive Officer as of November 1, 1998 and was elected to the Board of
Directors on December 11, 1998. Mr. Silverman was also granted options to
acquire 100,000 shares of the Company's stock at $0.10 per share upon execution
of the employment agreement, and qualified incentive stock options to acquire up
to 300,000 additional shares of the Company's stock based on achievement of
Company goals established by the Board of Directors. Mr. Silverman was granted
options to acquire 50,000 shares of the Company's stock at $0.28 per share under
the Company's 1997 Directors Option Plan. Total deferred compensation as of June
30, 1999 is approximately $89,000.
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Note 13. QUARTERLY INFORMATION
Following is computational information for earnings per share information
calculated under Statement of Financial Accounting Standards No. 130, Earnings
Per Share (EPS) which is effective for periods beginning after December 15,
1997.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999 QUARTER ENDED JUNE 30, 1998
--------------------------- ---------------------------
Income (Loss) Shares Per Share Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (DENOMINATOR) AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income (loss) available
to common Stockholders $ 495,213 6,152,764 $.08 $(663,100) 5,982,716 $(.11)
EFFECT OF DILUTIVE SECURITIES
Stock Options 375,642 0*
------------- -------------
DILUTED EPS
Income available to
common stockholders and
assumed conversions $543,869 6,528,406 $.08 $(663,100) 5,982,716 $(.11)
</TABLE>
* SFAS 128 requires the use of weighted averages for stock outstanding
during the quarter. Although stock options issued under Company plans
had exercise prices which were below the average market price of the
common shares, they were not computed in calculating diluted earnings
per share because SFAS 128 does not include stock dilutions that
would reduce per share losses. If computed, outstanding stock options
would have increased outstanding shares by 536,535.
As of June 30, 1999 1,350,900 stock options were issued, 700,900 were vested,
500,000 had been forfeited and 50,000 had been exercised.
Note 14. SUBSEQUENT EVENTS
Subsequent to the sale of certain prepaid cellular assets to TWOS the Company
effectively discontinued its prepaid cellular operations. See Note 10 - Sale of
Subsidiary (net of tax effect) Extinguishment.
On May 7, 1999, the Company executed an agreement to acquire all outstanding
common stock of IXATA.COM, Inc., a privately held provider of Internet-based
e-commerce services targeting the travel industry, in exchange for 4,500,000
shares of the Company. The acquisition was finalized on July 1, 1999. As of June
30, 1999 IXATA's financial statement showed the following results for the period
February 1 through June 30, 1999: revenue $901, net loss $510,335.
The Company has agreed to pay Global One, Inc. (Global) 600,000 shares of common
stock for brokering services as a part of the purchase of IXATA.COM. Global is
an international business corporation in Nevis, British Virgin Islands. The
Company intends to issue the shares to Global in the first quarter of 2000.
In October 1999 the Company agreed to issue 50,000 unregistered shares of the
Company's common stock to eliminate total debts to Kohrman Jackson & Krantz
P.L.L. ("KJK"), the Company's legal counsel, in the amount of $50,000. The
Company issued the shares to KJK in the fourth quarter of 1999.
On August 18, 1999, an individual exercised options under the Directors Option
Plan for 9,500 shares of common stock.
In November of 1999, the Company offered equity investments to private parties.
As of January 1, 2000, the Company had sold 1,177,003 shares of its unregistered
common stock for $0.85 a share in connection with the offering. Proceeds to the
Company were $ 941,602 after the deduction of Scott & Stringfellow, Inc.'s
placement agent fee of $0.05 per share. As of January 1, 2000, 1,053,473 shares
were issued. The purchasers in the offering
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were granted the right in certain
instances to include their shares in future offerings of registered stock by the
Company.
Effective January 31, 2000, the Company changed its name to The IXATA Group,
Inc. from SecurFone America, Inc.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following describes certain factors which produced changes in the
results of operations of The IXATA Group, Inc. (the "Company") during the
three and six months ended June 30, 1999 and as compared with the three and
six months ended June 30, 1998 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 Quarterly Report.
Certain matters discussed in this Quarterly 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
The Company was organized 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 actively implemented its new
mission by, among other actions, selling a portion of the Company's business
no longer considered essential for the new strategy and purchasing a company
whose business thrust is in line with the new strategy. See "The Company's
Business Case for New Electronic Commerce and Internet Business Directions."
Throughout 1997 and 1998, the Company developed and marketed prepaid
wireless products and services in various markets throughout the United
States. By late 1998, the Company had 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 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 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. To effectively manage the Company's growth and maintain quality
controls over its services and network, the Company needed to expand its
internal management, technical resources, accounting and other administrative
support systems, all of which required additional investment. 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. Significant additional
funding was required to support these activities.
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,
the Company 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. 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. The asset sale improved the Company's balance
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<PAGE>
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, 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.
Subsequent to the sale of the prepaid cellular assets to Teledata, the
Company had planned to continue to offer prepaid wireless services, focusing
on higher margin opportunities, primarily through resale. Given the
opportunities available through IXATA.COM and the associated resources
required, the Company has discontinued its prepaid cellular operations. The
discontinuing of operations 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.
Effective January 31, 2000, the Company changed its name to The IXATA
Group, Inc. from SecurFone America, Inc. The Company believed it was in the
best interest of the Company to change its corporate name to "The IXATA
Group, Inc." to capitalize upon the success of the Company's IXATA.COM
subsidiary and to establish an image that is consistent with the Company's
focus on Internet-related and e-commerce solutions. The Company believes that
the name change will act as a critical facilitator in the expansion of its
business objective to pursue new opportunities in Internet-based business
offerings and e-commerce markets.
The Company's principal executive offices are located at 8080 Dagget
Street, Suite 220, San Diego, California 92111, and its telephone number is
(800) 473-6748.
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 in the prepaid wireless services
market suggested that significant additional investment would be required to
achieve the business scale required to create substantial 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 business-to-business ("B2B") 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 to
$1.3 trillion,
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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 the Company's new growth strategy is to focus on
next generation, "pro-active" B2B 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'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 corporate user base of more than 20
major firms, demonstrate strong, growing market acceptance for the Company's
e-commerce services. Since acquiring the new IXATA.COM subsidiary, the total
base of major corporate users has increased to more than 70 firms as of
January 2000, further attesting to the growing acceptance of the Company's
RFP Express service.
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."
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 common stock of the Company. Global is an international
business corporation in Nevis, British Virgin Islands. The Company intends to
issue the shares to Global in the first quarter of 2000.
In 1999, agreement was secured from Kohrman Jackson & Krantz P.L.L.
("KJK"), the Company's legal counsel, to convert existing debt to
unregistered shares of the Company's common stock. On October 19, 1999, KJK
agreed to receive 50,000 unregistered shares of the Company's common stock to
eliminate total debts of $50,000. The Company issued the shares to KJK in the
fourth quarter of 1999.
In November of 1999, the Company offered equity investments to private
parties in an offering exempt from registration pursuant to Regulation D of
the Securities Act of 1933. As of January 21, 2000, the Company had sold
1,344,651 shares of its unregistered common stock for $0.85 a share in
connection with the offering. Proceeds to the Company were $1,075,721 after
the deduction of Scott & Stringfellow, Inc.'s ("S&S") placement agent fee of
$0.05 per share. The purchasers in the offering were granted the right in
certain instances to include their shares in future offerings of registered
stock by the Company.
For rendering investment banking services, the Company agreed to issue
643,553 warrants to S&S for the price of $0.01 per warrant. These warrants
expire in October of 2004. The exercise price of the warrants is $1.687 per
warrant. The warrants will be exercisable after the earlier of a) one year
from November 2, 1999, b) immediately upon change of control of the Company,
or c) upon closing of a firmly underwritten public offering of the Company's
equity securities.
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RESULTS OF OPERATIONS:
The Company, in the second quarter of 1999, sold the Company's
Buy-The-Minute-TM- ("BTM") product and the Company discontinued operation of the
Company's SFA Local Network Solution ("SFN"). As a result of these
transactions, certain accounts in the prior-year financial statements have
been reclassified for comparative purposes to conform with the presentation
in the current-year financial statements. Therefore, detailed comparison of
financial results are not meaningful.
SECOND QUARTER OF 1999 COMPARED TO SECOND QUARTER OF 1998
REVENUES
The Company only began full-scale operations in the first quarter of
1998. The Company discontinued operation of the Company's SFN solution
effective as of June 30, 1999 and sold the Company's BTM product line in
April of 1999. Accordingly, the Company has recognized no revenue from
continuing operations in either the second quarter of 1999 or the second
quarter of 1998.
COST OF GOODS SOLD
The Company had no continuing operations effectively as of June 30,
1999. Accordingly, the Company has recognized no Cost of Goods Sold from
continuing operations in either the second quarter of 1999 or the second
quarter of 1998.
GROSS PROFIT/MARGIN
The Company had no continuing operations effectively as of June 30,
1999. Accordingly, the Company has recognized no Gross Profit/Margin from
continuing operations in either the second quarter of 1999 or the second
quarter of 1998.
OPERATING EXPENSES
Selling, general and administrative expenses from continuing operations
increase to $69,724 in the second quarter of 1999 from $0 in the second
quarter of 1998. This increase was due to the declaration of discontinued
operation effective June 30, 1999 resulting in operating expenses from
continuing operations in the second quarter of 1999 for expenses incurred
from ongoing operations related to the general management of the Company as
the Company's direction was being refocused. See "The Company's Business Case
for New Electronic Commerce and Internet Business Directions."
The Company previously engaged in the sale of prepaid cellular phone
services. The Company provided these services in some markets and, in other
markets, licensed the Company's resources to unrelated parties. In a limited
number of instances, certain distribution rights were offered in various
markets for a license fee. As of June 30, 1999, the Company effectively
ceased these operations and restructured the basic company focus. Net loss
for restructured operations decreased to $143,932 in the second quarter of
1999 from $661,451 in the second quarter of 1998. This was due to the
Company's effort to control its financial exposure in a business that was
under increasing revenue and profitability pressure and the Company limiting
its operations as it transitioned to its new B2B e-commerce focus.
Loss from continued operations in the second quarter of 1999 decreased
to $213,206 from $661,451 in the second quarter of 1998 due to the reduction
in the restructuring charge associated with the of the cellular operations.
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OTHER EXPENSES
The Company recorded a gain on the sale of a product line of $708,419 in
the second quarter of 1999. The Company did not sell any assets in the second
quarter of 1998. The Company does not foresee selling any additional assets
in the near future.
FIRST HALF OF 1999 COMPARED TO FIRST HALF OF 1998
REVENUES
The Company only began full-scale operations in the first quarter of
1998, and discontinued these operations of the Company's SFN solution
effective as of June 30, 1999 and sold of the Company's BTM product line in
April of 1999. Accordingly, the Company has recognized no revenue from
continuing operations in either the first half of 1999 or the first half of
1998.
COST OF GOODS SOLD
The Company had no continuing operations effectively as of June 30,
1999. Accordingly, the Company has recognized no Cost of Goods Sold from
continuing operations in either the first half of 1999 or the first half of
1998.
GROSS PROFIT/MARGIN
The Company had no continuing operations effectively as of June 30,
1999. Accordingly, the Company has recognized no Gross Profit/Margin from
continuing operations in either the first half of 1999 or the first half of
1998.
OPERATING EXPENSES
Selling, general and administrative expenses from continuing operations
increase to $141,976 in first half of 1999 from $0 in the first half of 1998.
This increase was due to the declaration of discontinued operation effective
June 30, 1999 resulting in operating expenses from continuing operations in
the first half of 1999 for expenses incurred from ongoing operations related
to the general management of the Company as the Company's direction was being
refocused. See "The Company's Business Case for New Electronic Commerce and
Internet Business Directions."
The Company previously engaged in the sale of prepaid cellular phone
services. The Company provided these services in some markets and, in other
markets, licensed the Company's resources to unrelated parties. In a limited
number of instances, certain distribution rights were offered in various
markets for a license fee. As of June 30, 1999, the Company effectively
ceased these operations and restructured the basic company focus. Net loss
for restructured operations decreased to $505,832 in the first half of 1999
from $2,814,331 in the first half of 1998. This was due to the Company's
effort to control its financial exposure in a business that was under
increasing revenue and profitability pressure and the Company limiting its
operations as it transitioned to its new B2B e-commerce focus.
Loss from continued operations in the first half of 1999 decreased to
$647,808 from $2,814,331 in the first half of 1998 due to the reduction in
the restructuring charge associated with the of the cellular operations.
OTHER EXPENSES
The Company recorded a gain on the sale of a product line of $708,419 in
the first half of 1999. The Company did not sell any assets in the first half
of 1998. The Company does not foresee selling any additional assets in the
near future.
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<PAGE>
The Company recorded an extraordinary gain on debt of $43,451 in the
first half of 1999. This was related to a settlement to the Company's former
CEO to resolve all outstanding Company obligations related to his employment.
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 June 30, 1999, the Company had received advances in
the amount of $1,578,250 from private investors.
The Company was 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 first quarter of 1999 for the
issuance of the shares. At June 30, 1999, these Letters of Credit were no
longer in effect and are not required because of the Company's sale of the
BTM assets to Teledata.
At June 30, 1999, the Company had cash and cash equivalents of $7,818.
In addition, the Company had accounts receivable totaling $4,501 from the
sale of the Company's switch-based debit cellular product. Net cash used by
operating activities was $541,344 in the first half of 1999 compared to
$925,507 in the first half of 1998. Net cash provided by investing activities
in the first half of 1999 was $322,257, consisting of $472,257 provided by
the sale of a subsidiary and related assets, $150,000 used for investment in
subsidiary, and $157 used to purchase equipment as compared with the use of
$12,457 to purchase equipment in the first half of 1998. Net cash provided by
financing activities in the first half of 1999 totaled $225,530 which
consisted primarily of $416,221 in proceeds from notes payable to the Company
from private investors as compared with $966,580 in the first half of 1998
which consisted primarily of proceeds from advances payable of $827,000.
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.
On October 12, 1999, the Company entered into a relationship with Scott
& Stringfellow, Inc., an investment banker, to act as the exclusive financial
advisor to the Company, in connection with the exploration of potential
alternative strategic transactions, including without limitation one or more
private equity offerings, mergers and acquisitions and a public equity
offering. See "-Overview - Additional Issuances of Securities."
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<PAGE>
YEAR 2000
Year 2000 problems did not impact the Company's internal operations or
cause it to incur material costs to modify its systems. However, unforeseen
Year 2000 problems may still cause significant unanticipated expenses.
Further, the Company's key vendors or suppliers may suffer from undiscovered
Year 2000 problems, which could harm the Company's business and results of
operations.
RELATED PARTY TRANSACTIONS
On February 1, 1999, IXATA.COM and Tel.n.Form, Inc. ("Tel.n.Form")
entered into a management and support agreement whereby Tel.n.Form agreed to
provide selected consulting services to support IXATA.COM's business
development through December 31, 1999. The agreement also provided that
IXATA.COM would reimburse Tel.n.Form for use of certain shared expenses such
as office space and computer facilities. After completion of the acquisition
of IXATA.COM by the Company on July 1, 1999, the Company continued the
Tel.n.Form agreement to minimize any potential disruption of IXATA.COM's
operations and support the transition to the Company. For support services
provided by Tel.n.Form, the Company incurs total costs of approximately
$23,840 per month. The Company believes costs incurred under the agreement
are reasonable and no more than it would incur under an agreement with an
unaffiliated third party. The support services agreement expired on December
31, 1999 and to minimize any disruption of operations, the Company continued
selected support services, such as office space and shared computer
facilities, as needed, on a month-by-month basis consistent with the
agreement. Since the Company has added additional IXATA.COM management
personnel, expanded the IXATA.COM staff and has now fully incorporated
IXATA.COM into the Company, it no longer requires the services provided by
Tel.n.Form. The Company has notified Tel.n.Form that the agreement will be
terminated in its entirety as of March 31, 2000.
The majority owner of Tel.n.Form is the Gluckman Family Trust, which is
a significant shareholder of the Company. Fred Gluckman, who currently serves
as Executive Vice President - Technology and Automation of IXATA.COM, and as
a Director of the Company, is the Chairman of the Board of Tel.n.Form. Mr.
Gluckman also serves as a trustee of the Gluckman Family Trust. Vera Ellen
Andreoli is the Trustee of the Andreoli Family Trust, which is a significant
shareholder of the Company. Mrs. Andreoli also provides consulting services
to Tel.n.Form, and Mrs. Andreoli's husband is a significant owner of
Tel.n.Form and a Tel.n.Form employee and provided selected consulting
services to IXATA.COM under the management services agreement.
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:
- - THE COMPANY HAS A SHORT OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT
DECISION. The Company established a new strategic objective of refocusing
the Company's mission to pursue Internet-related and e-commerce
opportunities in the travel and hospitality service markets in late 1998.
As a result, its business plan is currently in the early stage and,
accordingly, the Company has a limited operating history on which to base
an evaluation of its business and prospects. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. To address
these risks, the Company must, among other things, attract a number of
major corporate clients/customers and strategic alliance partners,
implement and successfully execute its marketing and sales strategy, and
successfully recruit and motivate qualified sales and technical personnel.
There can be no assurance that the Company will be successful in addressing
such risks, and the failure to do so could have a material adverse effect
on the Company. The likelihood of success of the Company must be considered
in light of the problems, expenses, complications and delays frequently
encountered in connection with the development of an early stage
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<PAGE>
business. It is impossible to predict the degree of success the Company
will have in achieving its objectives.
- - THE COMPANY REQUIRES SIGNIFICANT ADDITIONAL CAPITAL, WHICH IT MAY NOT BE
ABLE TO OBTAIN. As the Company continues to implement its business plan,
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. The Company may not be able to obtain future equity or
debt financing on satisfactory terms or at all. 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. The Company's
auditors issued an opinion with its most recent audit of the Company's
financial statements raising doubt about the Company's ability to continue
as a going concern if it does not obtain additional debt or equity
financing.
- - IF THE COMPANY IS UNABLE TO SUCCESSFULLY INTEGRATE IXATA.COM, ITS FINANCIAL
RESULTS WILL SUFFER. The Company completed its acquisition of IXATA.COM on
July 1, 1999. Its future profitability will depend heavily on its ability
to integrate IXATA.COM. Failure to successfully integrate the companies may
cause significant operating inefficiencies and adversely affect
profitability. To successfully integrate the companies, the Company must,
among other things, install and standardize adequate operational, financial
and control systems.
Although the Company has no definitive plans to acquire any business in the
near future, if it does acquire additional companies, it will face business
integration risks similar to those described above. In addition, during the
beginning stage of development and operation, the Company may encounter
expenses and difficulties that it may not expect or are beyond its control.
As a result, it may not be able to achieve or maintain profitability.
- - THE COMPANY'S FAILURE TO PROTECT OR MAINTAIN ITS INTELLECTUAL PROPERTY
RIGHTS COULD PLACE IT AT A COMPETITIVE DISADVANTAGE AND RESULT IN LOSS OF
REVENUE AND HIGHER EXPENSES. The Company's performance and ability to
compete are dependent to a significant degree on its proprietary electronic
commerce system and services. The steps the Company has taken to protect
its proprietary intellectual property rights may not prevent or deter
someone else from using or claiming rights to its intellectual property.
Third party infringement or misappropriation of trade secrets, copyrights,
trademarks or other proprietary information could seriously harm the
Company's business. The Company also cannot assure that it will be able to
prevent the unauthorized disclosure or use of its proprietary knowledge,
practices and procedures if its senior managers or other key personnel
leave it. In addition, although the Company believes that its proprietary
rights do not infringe on the intellectual property rights of others, other
parties may claim that it has violated their intellectual property rights.
These claims, even if not true, could result in significant legal and other
costs and may distract management.
- - THE COMPANY'S BUSINESS PROSPECTS DEPEND ON DEMAND FOR AND MARKET ACCEPTANCE
OF THE 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 resulting in a decreased usage of the Internet or decreased use
of the Internet for electronic commerce transactions, would have a
materially 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 materially 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.
- - IF THE COMPANY'S MARKET DOES NOT GROW AS EXPECTED, ITS REVENUES WILL BE
BELOW ITS EXPECTATIONS AND ITS BUSINESS AND FINANCIAL RESULTS WILL SUFFER.
The Company is engaging in a developing business with an unproven market.
Accordingly, it cannot accurately estimate the size of its market or the
potential demand for its services. If its customer base does not expand or
if there is not widespread acceptance of its products and services, its
business and prospects will be harmed. The Company believes that its
potential to grow and increase its market acceptance depends principally on
the following factors, some of which are beyond its control:
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<PAGE>
(a) the effectiveness of its marketing strategy and efforts;
(b) its product and service quality;
(c) its ability to provide timely, effective customer support;
(d) its distribution and pricing strategies as compared to its
competitors;
(e) its industry reputation; and
(f) general economic conditions.
- - ANY FAILURE OF THE COMPANY'S INTERNET AND E-COMMERCE INFRASTRUCTURE COULD
LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS WHICH COULD REDUCE REVENUES AND
HARM BUSINESS AND FINANCIAL RESULTS. The Company's success, in particular
its ability to automate the RFP process successfully, largely depends on
the efficient and uninterrupted operation of its computer and
communications hardware and software systems. The Company's systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events.
The Company presently has very limited redundant systems. It does not have
a formal disaster recovery plan and carries no business interruption
insurance to compensate it for losses that may occur. Temporary or
permanent loss of data or systems through casualty or operating malfunction
could have a materially adverse effect on the Company's business.
- - THE COMPANY COULD LOSE CUSTOMERS AND EXPOSE ITSELF TO LIABILITY IF BREACHES
OF ITS NETWORK SECURITY DISRUPT SERVICE TO ITS CUSTOMERS OR JEOPARDIZE THE
SECURITY OF CONFIDENTIAL INFORMATION STORED IN ITS COMPUTER SYSTEMS.
Despite the implementation of network security measures, the Company's
network infrastructure is vulnerable to computer viruses, break-ins and
similar disruptive problems caused by its customers or Internet users. Any
of these acts could lead to interruptions, delays or cessation in service
to the Company's customers and subscribers. Furthermore, such inappropriate
use of the network by third parties could also potentially jeopardize the
security of confidential information stored in the computer systems and the
Company's customers' computer systems, which may result in liability to
existing customers and may also deter potential customers. Any security
measures the Company implements may be circumvented in the future. The
costs and resources required to eliminate computer viruses and alleviate
other security problems may result in interruptions or delays to the
Company's customers that could cause harm to the Company's reputation as
well as its business and financial results.
- - RAPID GROWTH IN THE COMPANY'S BUSINESS COULD STRAIN ITS RESOURCES AND HARM
ITS BUSINESS AND FINANCIAL results. The planned expansion of the Company's
operations will place a significant strain on its management, financial
controls, operations systems, personnel and other resources. The Company
expects that its customers increasingly will demand additional information,
reports and services related to the services and products the Company
currently provides. If the Company is successful in implementing its
marketing strategy, it also expects the demands on its network
infrastructure and technical support resources to grow rapidly, and it may
experience difficulties responding to customer demand for its services and
providing technical support in accordance with its customers' expectations.
The Company may not be able to keep pace with any growth, successfully
implement and maintain its operational and financial systems or
successfully obtain, integrate and utilize the employees, facilities,
third-party vendors and equipment, or management, operational and financial
resources necessary to manage a developing and expanding business in an
evolving industry. If the Company is unable to manage growth effectively,
it may lose customers or fail to attract new customers and its business and
financial results will suffer.
- - THE COMPANY MAY NOT BE ABLE TO COMPETE IN ITS MARKET SINCE THIS MARKET IS
HIGHLY COMPETITIVE. The Internet-based electronic commerce market has
become increasingly competitive due to the entry of large, well-financed
service providers into the market. Other potential competitors in the
market for Internet-based electronic commerce services for the travel and
hospitality industry may include companies with substantially greater
financial and marketing resources than those of the Company. 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. Direct competitors today include JBH and Lanyon, among others
seeking to enter the market for e-commerce services targeting the travel
and hospitality sectors.
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<PAGE>
Other potential competitors, such as Ariba, Inc., have existing,
well-established e-commerce platforms and have also indicated an interest
in pursuing IXATA.COM's target market. While to date the market reaction
to the Company's service has been positive vis-a-vis competitive services,
there is no assurance this will continue in the future.
- - THE COMPANY DEPENDS ON THE SERVICES OF SENIOR MANAGEMENT AND OTHER KEY
PERSONNEL AND THE ABILITY TO HIRE, TRAIN AND RETAIN SKILLED EMPLOYEES. The
success of the Company will be dependent on the skill and experience of
certain key employees. The Company believes that the loss of Paul B.
Silverman, CEO, or Andrew H. Kent, CFO, Robert Steiner, President and
Vice-President - Marketing of IXATA.COM, or Fred Gluckman Vice-President
-Technology of IXATA.COM, could disrupt or delay the Company's business or
would otherwise have a material adverse effect on the Company's business.
The Company's future success also depends on its ability to identify,
attract, hire, retain and motivate other well qualified managerial, sales
and marketing personnel. There can be no assurance that these professionals
will be available in the market or that the Company will be able to meet
their compensation requirements.
- - RISKS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS COULD RESTRICT THE
COMPANY'S ABILITY TO EXPAND GLOBALLY AND HARM ITS BUSINESS AND PROSPECTS.
The Company markets and sells its services and products in the United
States and internationally. The Company's failure to manage its
international operations effectively could limit the future growth of its
business. There are certain risks inherent in conducting the Company's
business internationally, such as:
(a) changes in international regulatory requirements could restrict
the Company's ability to deliver services to its international
customers;
(b) differing technology standards across countries that may impede
the Company's ability to integrate its product offerings across
international borders;
(c) difficulties collecting accounts receivable in foreign
jurisdictions;
(d) political and economic instability could lead to appropriation of
the Company's physical assets, its ability to deliver its services
to customers and harm its financial results;
(e) protectionist laws and business practices favoring local
competitors; and
(f) potentially adverse tax consequences due to unfavorable changes in
tax laws.
- - GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD LIMIT THE COMPANY'S
BUSINESS OR SLOW ITS GROWTH. Although Internet-based electronic commerce is
not currently subject to government regulation, it is under increased
scrutiny by regulatory agencies and may undergo rapid and drastic
regulatory changes. 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 regulations.
- - UNDISCOVERED YEAR 2000 COMPUTER COMPLICATIONS COULD DISRUPT THE COMPANY'S
OPERATIONS AND HARM ITS BUSINESS. Although Year 2000 problems did not
materially impact internal operations or cause the Company to incur
material costs to modify systems, unforeseen Year 2000 problems may still
cause significant unanticipated expenses. Further, key vendors or suppliers
may suffer from undiscovered Year 2000 problems, which could harm the
Company's business and results of operations.
- - THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS WHICH MAY
CAUSE VOLATILITY OR A DECLINE IN THE PRICE OF ITS COMMON STOCK. The Company
may experience significant fluctuations in its future quarterly operating
results due to a variety of factors, many of which are outside the
Company's control. Such fluctuations may cause the price of its common
stock to fall. Factors that may adversely affect the Company's quarterly
operating results include, without limitation:
(a) the Company's ability to retain existing customers, attract new
customers at a steady rate and maintain customer satisfaction;
(b) the mix of products and services sold by the Company;
(c) the announcement or introduction of new products and services by
the Company and its competitors;
(d) price competition in the industry;
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<PAGE>
(e) the amount and timing of operating costs and capital expenditures
relating to any expansion of the Company's business, operations and
infrastructure;
(f) governmental regulation; and
(g) general economic conditions and economic conditions specific to the
travel and hospitality industry.
Further, stock prices and trading volumes for many Internet companies
fluctuate widely for a number of reasons, including some reasons which may
be unrelated to their businesses or results of operations. This market
volatility, as well as general domestic or international economic, market
and political conditions, could materially adversely affect the price of
the Company's stock without regard to the Company's operating performance.
In addition, the Company's operating results may be below the expectations
of public market analysts and investors. If this were to occur, the market
price of the stock would likely significantly decrease.
- - THE COMPANY'S EXECUTIVE OFFICERS, DIRECTORS, AND PARTIES RELATED TO THEM,
IN THE AGGREGATE, WILL CONTROL 53% OF THE COMPANY'S COMMON STOCK AND MAY
HAVE THE ABILITY TO CONTROL MATTERS REQUIRING STOCKHOLDER APPROVAL. The
Company's executive officers, directors and parties related to them own a
large enough stake in the Company to determine matters presented to
stockholders, the approval of significant corporate transactions, such as
any merger, consolidation or sale of all or substantially all of the
Company's assets, and the control of the management and affairs of the
Company. In addition, certain executive officers, directors and other
shareholders, representing 67% of the Company's outstanding common stock,
have entered into a Voting Agreement in which the parties agree to vote
their shares for certain directors. As a result, these stockholders may
have the ability to control the election and removal of directors.
Accordingly, such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company,
impede a merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company,
which in turn could have an adverse effect on the market price of the
Company's common stock.
- - THE COMPANY'S COMMON STOCK MAY BE DELISTED FROM THE NASDAQ OVER-THE-COUNTER
BULLETIN BOARD SERVICE. 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 Common Stock and stockholders would have difficulty liquidating 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 assurance that it will be able to do
so.
These and other risks described in this Quarterly Report must be considered by
any investor or potential investor in the Company.
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<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 11, 1999, the Company issued 50,000 unregistered shares of common
stock in satisfaction of $50,000 in legal fees payable to the Company's
counsel. The Company believes the issuance to be exempt under Section 4(2) of
the Securities Act.
On May 12, 1999, the Company extinguished debt to an unrelated
individual in the amount of $25,000 by the issuance of 12,500 unregistered
shares common stock. The Company believes the issuance to be exempt under
Section 4(2) of the Securities Act.
On May 19, 1999, the Company satisfied $118,532 of debt, including a
note payable of $115,000, due to Young Management Company, by the issuance of
59,266 unregistered shares of the Company's common stock. The Company
believes the issuance to be exempt under Section 4(2) of the Securities Act.
On June 30, 1999, the Company settled a dispute with Associated Barter
Services, Inc. ("ABS") for advertising services in the amount of $103,818 by
the issuance of 61,522 unregistered shares of the Company's common stock. The
Company believes the issuance to be exempt under Section 4(2) of the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No defaults upon senior securities occurred during the second quarter of
1999.
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 second quarter of 1999.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits being filed with this Quarterly Report:
3.3 Certificate of Amendment of Certificate of Incorporation of
SecurFone America, Inc. dated January 31, 2000
10.13 Management Services and Support Agreement dated February 1,
1999, between Tel.n.Form, Inc. and IXATA.COM
10.14 Executive Employment Agreement dated as of August 24, 1999,
between Andrew H. Kent and the Company
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<PAGE>
10.15 Letter Agreement dated as of November 9, 1999 extending the
term of the Executive Employment Agreement between Paul B.
Silverman and the Company
10.16 Form of Registration Rights Agreement for November, 1999,
private placement equity investment offering
27 Financial Data Schedule
(b) The Company is filing a report on Form 8-K relating to the acquisition
of IXATA, Inc. simultaneously with the filing of this Form 10-QSB. The Company
did not file any reports on Form 8-K during the second quarter of 1999.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this Quarterly Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The IXATA Group, Inc.
Date: March 10, 2000 /s/ PAUL B. SILVERMAN
---------------------
By Paul B. Silverman,
Chief Executive Officer
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SECURFONE AMERICA, INC.
SecurFone America, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the
unanimous written consent of its members, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of
Incorporation of the Corporation:
RESOLVED, that the stockholders hereby authorize the
Corporation to file the following Amendment to the Certificate of
Incorporation with the Secretary of State of the State of Delaware:
Article FIRST of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"FIRST: The name of the Corporation is The IXATA Group,
Inc."
SECOND: That in lieu of a meeting, the amendment of the
Corporation's Certificate of Incorporation was duly adopted by the written
consent of the holders of a majority of the outstanding shares of the
Corporation entitled to vote on the matter.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 242 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be signed by its Chief Executive Officer this 31st day of
January, 2000.
/s/ Paul B. Silverman
-----------------------
Paul B. Silverman,
Chief Executive Officer
<PAGE>
EXHIBIT 10.13
Management Services and Support Agreement
THIS MANAGEMENT SERVICES AND SUPPORT AGREEMENT, made as of the 1st day of
February 1999, by and between Tel n. Form, Inc. ("Tel.n.Form"), a provider of
on-line information services, and a California corporation and having its
principal business office at 8080 Daggett Street, 2nd Floor, San Diego, CA
92111; and IXATA.COM, Inc. ("IXATA"), a California corporation and provider of
Internet-based information services having its principal place of business at
8080 Daggett Street, 2nd Floor, San Diego, CA 92111.
WITNESSETH:
WHEREAS, IXATA and Tel.n.Form have recently agreed to a transaction whereby
IXATA has acquired selected existing communications service assets from
Tel.n.Form, and
WHEREAS, IXATA and Tel.n.Form will continue to provide and operate selected
information services using shared communications systems and information
processing platforms, and
WHEREAS, IXATA and Tel.n.Form foresee areas of mutual opportunity to reduce
operating costs and achieve operational efficiencies with selected support
services provided by Tel.n.Form to support IXATA operations, and
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF AGREEMENT
A. The enclosed agreement outlines the scope of management and operational
support services provided by Tel.n.Form to support IXATA operations through
December 31, 1999.
2. SUPPORT SERVICES PROVIDED BY TEL.N.FORM TO IXATA
A. Tel.n.Form will provide the following services:
- Route incoming dial-up traffic to IXATA processing systems using
Tel.n.Form's existing voice switching system and 1-800 facilities
- Provide hosting and processing services for RFP Express and related
IXATA offerings using Tel.n.Form's existing servers and processing
systems
- Provide computer, telephone and related support facilities to meet
IXATA's needs
- Provide senior management and technical support staff services as
needed until such time as new staff are hired within IXATA.COM.
B. To the extent possible, Tel.n.Form will work with designated IXATA staff to
ensure all of the above activities and associated knowledge base are
transferred, during a reasonable transitional period, directly to
appropriate IXATA staff.
C. To the extent needed, Tel.n.Form will also provide specialized software
development systems support to assist in the design, development and
management of large scale systems for specialized applications. Terms and
conditions for provisioning such large-scale systems will be covered by a
separate agreement on a project-by-project basis.
3. COSTS FOR SERVICES PROVIDED
A. For the services provided to IXATA by Tel.n.Form as outlined in item 2
above,costs are as follows:
<PAGE>
Monthly Fixed Cost: The monthly allocated costs will be in
accordance with Schedule 1 (attached)
Monthly Variable Cost: Allocated costs for use of 1-800 lines may
vary throughout the period based on usage
Period: Through December 31, 1999 renewable under
similar terms and condition
B. Monthly cost allocations shown in Schedule 1 may be revised as needed upon
notice in writing to IXATA at least ten days prior to the start of the
month when costs are to be modified. All increases and changes will be
subject to mutual agreement of all parties.
C. For other ongoing operations costs incurred, IXATA and Tel.n.Form will
develop a mutually agreeable cost sharing arrangements as needed.
4. TERMINATION AND RENEWAL:
A. Either party my cancel this agreement upon 90 days notification to the other
party in writing.
B. The agreement will be extended automatically for periods of six months
under the same terms and conditions subject to agreement of both parties.
Agreed:
IXATA.COM, Inc.
/s/ FRED GLUCKMAN
- -----------------
By:
CEO
- ------------------
Title:
FEBRUARY 1, 1999
- ----------------
Date:
Tel.n.Form, Inc.
/s/ P. CHRISTOPHER ANDREOLI
- ---------------------------
By:
CEO
- ---------------------------
Title:
FEBRUARY 1, 1999
- ---------------------------
Date:
<PAGE>
ATTACHMENT
REVISED: FEBRUARY 1, 1999
SCHEDULE 1-ALLOCATION OF TEL.N.FORM COSTS TO SUPPORT IXATA.COM, INC.
OPERATIONS
<TABLE>
<S> <C>
1. Staffing Support Services Provided Cost To Tel.n.Form Allocation to IXATA
John Corkhill $8,000 $4,000
Lois Walters $3,300 $1,200
Christopher Andreoli $10,000
Other Staff -0-
SUB-TOTAL: STAFFING SUPPORT $15,200
2. Other Services Services Provided Cost To Tel.n.Form Allocation to IXATA
Rent $6,900 $2,300
800 Telephone $23,000 $4,500
Computer Lease $750
Desk, chairs, copy machine, phones $290
Office and kitchen supplies $300
SUB-TOTAL OTHER SERVICES $8,140
TOTAL MONTHLY COST ALLOCATION $23,340
</TABLE>
<PAGE>
EXHIBIT 10.14
REVISED: SEPTEMBER 9, 1999
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
as of the 24th day of August, 1999 between Andrew Kent, (the "Executive"), whose
address is 2613 N. Potomac Street, Arlington, VA 22207, and SecurFone America,
Inc., a Delaware corporation ("SecurFone" or "Company") whose address is 8080
Daggett Street, Suite 220, San Diego, CA 92111.
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. SecurFone will employ the Executive as Vice President
and Chief Financial Office 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 Chief
Executive Officer 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 implement SecurFone's overall business and
financial plan for securing a leadership position in the
market for Internet-based, electronic commerce and related
services.
b. Assume overall financial responsibility to support SecurFone's
filings with the SEC and other government authorities as
appropriate
-1-
<PAGE>
c. Assist in managing relationships with financial institutions
and funding sources to meet company's funding needs and
maximize shareholder value
c. Assume overall fiduciary responsibility for SecurFone's
consolidated business operations including ensuring proper
controls and reporting processes are implemented
d. Identify and pursue new acquisition targets which are
consistent with SecurFone's strategic plan and maximize
shareholder value
3. COMPENSATION. For the performance of his duties during the
term of this Agreement, the Executive will earn an annual
salary of $120,000 of which the annualized salary will be
payable on a weekly basis. Executive agrees to defer
$3,000 per month and will be paid $7,000 per month starting
August 20, 1999 on a weekly basis. The continued agreement
to defer salary is contingent upon the timely and
uninterrupted flow of weekly salary payments. Future
deferred salary will be eliminated after Board approval and
new funding is received by the Company adequate to cover
staff salary needs.
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
Non-Qualified Options for 20,000 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
$0.10 per share, or the current market price upon the
date of this Agreement, whichever is lower. This
Option shall become exercisable one year from the
date of this Agreement. The maximum number of shares
exercisable under this option is 5,000 shares per
month.
b. The Company shall grant to the Executive Qualified
Incentive Options for 15,000 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 the current
market price upon the date of this Agreement. The
Option shall be exercisable by the Executive upon
SecurFone achieving a minimal market capitalization of
$50 million based on the average closing market prices
for a five-day period. The maximum number of shares
exercisable under this option is 5,000 shares per
month.
c. The Company shall grant to the Executive Qualified
Incentive Options for 10,000 shares of the Company's
Common Stock. The Option shall be granted pursuant to a
Plan adopted by the Company's Board of Directors
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<PAGE>
and approved by the Company's Shareholders. The exercise
price of the Option per share is to be the current
market price upon the date of this Agreement. The
Option shall be exercisable by the Executive within
seven days after the Company reports positive cash flow
from operations for a minimum 60 day period. The
maximum number of shares exercisable under this option
is 5,000 shares per month.
5. d. Executive agrees that his sale of the stock received upon
exercise of the options granted pursuant to this Agreement will
also be subject to the volume limitations contained in Rule
144(e)(1) promulgated under the Securities Act of 1933.
Notwithstanding this provision, the maximum number of shares
that the Executive can exercise in any thirty day period is
5,000 shares for the options granted above. 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
three (3) weeks paid vacation per year, commencing upon
execution date of this Agreement.
6. EXPENSES. The Executive will be reimbursed in a timely manner 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 ninety (90) consecutive calendar days or (b) the
Company shall have received a certificate from a physician
reasonably acceptable to both the
-3-
<PAGE>
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.
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 thirty (30)
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 Financial Officer of SecurFone,
(v) the
-4-
<PAGE>
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 Agreement and provided for under
previous agreements entered into between the Company and
the Executive and such failure is not corrected within
thirty (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 Financial Officer.
e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate
his employment with the Company upon not less than thirty
(30) 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 three (3) 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 until the last
date of employment with the company.
9. TERM. This Agreement will continue in effect from July 1, 1999
until July 1, 2000 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 assuming all conditions set forth in the
Agreement are met by Securfone, the Executive will not
during the term of this Agreement and for a period of six
months (6) 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
six (6) months, conducted the business:
-5-
<PAGE>
(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 purposes of this Section 10, the
"Business" will mean the business activities of
SecurFone and its Affiliates in the business of
offering Internet-based , electronic commerce services
in the travel and hospitality sectors. 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, 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.
-6-
<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, unless required
by law or order, 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. 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.
-7-
<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. 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. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Virginia 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 Commonwealth of Virgina.
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. 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:
Andrew Kent
2613 N. Potomac Street
Arlington, VA 22207
If to SecurFone:
SecurFone America, Inc.
8080 Daggett Street, Suite 220
San Diego, CA 92111
-8-
<PAGE>
With a copy to:
Christopher Hubbert, 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: Paul B. Silverman
-------------------------
Its: CEO
/s/ Andrew H. Kent
-----------------------
ANDREW KENT
-9-
<PAGE>
EXHIBIT 10.15
November 9, 1999
Mr. Paul B. Silverman
9520 Center Street
Vienna, Virginia 22181
Dear Mr. Silverman:
The Board of Directors of SecurFone America, Inc. has proposed that the term of
the executive employment agreement between you and the Company dated November 1,
1998 be extended to December 31, 1999. All other terms of the agreement would
remain unchanged. Please sign below to acknowledge your agreement with the terms
of this letter.
Sincerely,
/s/ Andrew H. Kent
- ----------------------------
SecurFone America, Inc.
Andrew H. Kent,
I agree to the terms of this letter as of the date appearing above.
/s/ Paul B. Silverman
- -----------------------------
Paul B. Silverman
<PAGE>
EXHIBIT 10.16
FORM OF
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") dated as of October
___, 1999 is entered into by and among SecurFone America, Inc., a Delaware
corporation (the "COMPANY"), and the holders of shares of the Company's Common
Stock, par value $.001 per share (the "COMMON STOCK"), listed on the signature
pages hereto (such holders referred to herein as the "INVESTORS").
WHEREAS, the parties hereto desire to grant to the Investors certain
incidental registration rights.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
1.1 "COMMISSION" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
1.2 "COMMON STOCK" means the number of shares of Common Stock issued to the
Investors under the Stock Subscription Agreement (taking into account
appropriate adjustments as a result of any stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise).
1.3 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
1.4 "QUALIFIED PUBLIC OFFERING" or "QIPO" means an underwritten public
offering of the Company's Common Stock pursuant to a Registration Statement in
which the aggregate gross proceeds to the Company are no less than $15,000,000
underwritten by a reputable nationally recognized underwriting firm.
1.5 "REGISTRABLE SHARES" means (i) the Investors' Shares; and (ii) any
other shares of Common Stock of the Company issued in respect of the shares
described in clause (i) (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock that are Registrable Shares shall cease to be
Registrable Shares (x) upon any sale pursuant to a Registration Statement,
Section 4(l) of
<PAGE>
the Securities Act or Rule 144 under the Securities Act, (y)
with respect to a Stockholder, when such Stockholder is eligible to sell,
transfer or otherwise convey all of such Stockholder's Registrable Shares
pursuant to Rule 144 under the Securities Act in any 3 month period or (z) upon
any sale in any manner to a person or entity which is not entitled to the rights
provided by this Agreement.
1.6 "REGISTRATION EXPENSES" means the expenses described in Section 6.
1.7 "REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, any other form for a limited purpose, any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation or a registration statement on Form S-3 solely for
the purpose of registering shares issued in a non-underwritten offering in
connection with a merger, combination or acquisition).
1.8 "SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
1.9 "STOCK SUBSCRIPTION AGREEMENT" means the Stock Subscription Agreement
of even date herewith, by and among the Company and the parties set forth
therein, as amended from time to time.
1.10 "STOCKHOLDERS" means the Investors and any persons or entities to whom
the rights granted under this Agreement are transferred by the Investors, their
successors or assigns pursuant to Section 13 hereof.
Section 2. SALE OR TRANSFER OF SHARES OF PREFERRED STOCK; LEGEND
2.1 The Registrable Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or (ii) the
Company first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act.
2.2 Notwithstanding anything to the contrary contained in the foregoing
Section 2.1, no registration or opinion of counsel shall be required for a
transfer made in accordance with Rule 144 under the Securities Act.
2.3 (a) Each certificate representing the Registrable Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and
until such shares are registered under such Act or an
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<PAGE>
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
(b) In addition to the legend set forth in paragraph (a) of
this Section 2.3, each certificate representing the Registrable Shares shall
bear a legend substantially in the following form:
"The shares of stock represented by this certificate are subject to
the terms of a Registration Rights Agreement, dated October __, 1999,
between the Company and the registered owner of this certificate (or
the registered owner's predecessor in interest), and such Agreement is
available for inspection without charge at the offices of the
Company."
(c) The foregoing legends shall be removed from the
certificates representing any Registrable Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to Rule 144(k)
under the Securities Act.
Section 3. INCIDENTAL REGISTRATION.
3.1 Whenever the Company proposes to file a Registration Statement at any
time and from time to time, it will, prior to such filing, give written notice
to all Stockholders of its intention to do so and, upon the written request of a
Stockholder or Stockholders given within 20 days after the Company provides such
notice (which request shall state the intended method of disposition of such
Registrable Shares), the Company shall use its best efforts to cause all
Registrable Shares that the Company has been requested by such Stockholder or
Stockholders to register to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of such Stockholder or
Stockholders; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 3 without obligation
to any Stockholder.
3.2 In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof accept the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as will not, in the good faith
opinion of the underwriters, jeopardize the success of the offering by the
Company. If, in the opinion of the managing underwriter, the registration of
all, or part of, the Registrable Shares that the holders have requested to be
included would materially and adversely affect such public offering, then the
Company shall be required to include in the underwriting only that number of
Registrable Shares, if any, that the managing underwriter in good faith
believes may be sold without causing such adverse effect; and provided that
no persons or entities other than the Company, the Stockholders and persons
or entities holding registration rights granted in accordance with Section 12
and Section 13 hereof shall be permitted to include securities in the
offering. If the number of Registrable Shares to be included in the
underwriting in accordance with the foregoing is less than the total number
of shares that the holders of
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<PAGE>
Registrable Shares have requested to be included, the Investor's holding
Registrable Shares who have requested registration shall participate in the
underwriting pro rata based upon their total ownership of shares of Common
Stock of the Company. If any holder would thus be entitled to include more
shares than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata based upon their total
ownership of Registrable Shares.
Section 4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
4.1 prepare and file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective for the earlier of 120
days or until the completion of the distribution;
4.2 as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement;
4.3 as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the registration statement, each
amendment and supplement thereto, prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the selling Stockholder may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
4.4 as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholders
shall reasonably request, and do any and all other acts and things that may
be necessary or desirable to enable the selling Stockholders to consummate
the public sale or other disposition in such states of the Registrable Shares
owned by the selling Stockholder; provided, however, that the Company shall
not be required in connection with this Section 4.4 to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall
promptly notify the selling Stockholders and, if requested, the selling
Stockholders shall immediately cease making offers of Registrable Shares and
return all prospectuses to the Company. The Company shall promptly provide
the selling Stockholders with revised prospectuses and, following receipt of
the revised prospectuses, the selling Stockholders shall be free to resume
making offers of the Registrable Shares.
-4-
<PAGE>
Section 5. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this
Section, the term "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with this Agreement, including, without limitation,
all registration and filing fees, exchange listing fees, printing expenses,
fees and disbursements of counsel for the Company and the reasonable fees and
expenses of one (1) counsel selected by the selling Stockholders to represent
the selling Stockholders, state Blue Sky fees and expenses, and the expense
of any special audits incident to or required by any such registration, but
excluding underwriting discounts, selling commissions and the fees and
expenses of selling Stockholders' own counsel (other than the counsel
selected to represent all selling Stockholders).
Section 6. INDEMNIFICATION AND CONTRIBUTION. In the event of any
registration of any of the Registrable Shares under the Securities Act
pursuant to this Agreement, the Company will indemnify and hold harmless the
seller of such Registrable Shares, each underwriter of such seller of such
Registrable Shares, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse such seller, underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by such seller, underwriter
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use
in the preparation thereof.
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, and any other seller
of Registrable Shares or any such seller's partners, directors or officers
and each person, if any, who controls such seller within the meaning of the
Securities Act and the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company, such directors and
officers, underwriter, selling Stockholder or controlling person may become
subject under the Securities Act, Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such
-5-
<PAGE>
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or
any amendment or supplement to the Registration Statement, or arise out of or
are based upon any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and each such Seller of Registrable Shares will reimburse the
Company for any legal or any other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action if the statement or omission was made in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of such seller, specifically for use in connection with the
preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the net proceeds received by
each selling Stockholder of Registrable Shares sold as contemplated herein.
Each party entitled to indemnification under this Section 6 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld); and, provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent that the Indemnifying Party's ability to defend against such claim or
litigation is impaired as a result of such failure to give notice. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential
differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party in the
defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party. Each Indemnified
Party shall furnish such information regarding itself or the claim in
question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in this Section 6 is due in
accordance with its terms but for any reason is held to be unavailable to an
Indemnified Party in respect to any losses, claims, damages and liabilities
referred to herein, then the Indemnifying Party shall, in lieu of
indemnifying such
-6-
<PAGE>
Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities to which such party may be subject in proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and the Indemnified Party on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact related to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Investors agree that it would not
be just and equitable if contribution pursuant to this Section 6 were
determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph of Section 6, (a) in no case
shall any one Investor be liable or responsible for any amount in excess of
the net proceeds received by such Investor from the offering of Registrable
Shares and (b) the Company shall be liable and responsible for any amount in
excess of such proceeds; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution for any person who was not
guilty of such fraudulent misrepresentation. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party or parties under this Section,
notify such party or parties from whom such contribution may be sought, but
the omission so to notify such party or parties from contribution may be
sought shall not relieve such party from any other obligation it or they may
have thereunder or otherwise under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its prior written consent, which consent shall not be unreasonably
withheld.
Section 7. INFORMATION BY HOLDER. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
Section 8. "MARKET STAND-OFF" AGREEMENT. Each Stockholder, if requested
by the Company and an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such
Stockholder for a specified period of time determined by the Company and the
underwriters (not to exceed 180 days) following the effective date of a
Registration Statement; provided, that:
(a) such agreement shall only apply to the first two such Registration
Statements covering Common Stock of the Company to be sold on its behalf to
the public in an underwritten offering; and
(b) all Stockholders holding not less than the number of shares of
Common Stock held by such Stockholder (including shares of Common Stock
issuable upon the
-7-
<PAGE>
conversion of convertible securities, or upon the exercise of options,
warrants or rights) and all officers and directors of
the Company enter into similar agreements.
Such agreement shall be in writing in a form reasonably satisfactory
to the Company and such underwriter. The Company may impose stop-transfer
instructions with respect to the Registrable Shares or other securities
subject to the foregoing restriction until the end of the stand-off period.
Section 9. RULE 144 REQUIREMENTS. The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon written request
(i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent
annual or quarterly report of the Company, and (iii) such other reports and
documents of the Company as such holder may reasonably request to avail
itself of any similar rule or regulation of the Commission allowing it to
sell any such securities without registration.
Section 10. SELECTION OF UNDERWRITER. In the case of any
registration effected pursuant to this Agreement, the Company shall have the
right to designate the managing underwriter in any underwritten offering,
subject to the approval of the holders of a majority of the Registrable Shares
requested to be included in such offering, which approval shall not be
unreasonably withheld.
Section 11. TERMINATION OF RIGHTS Those certain registration
rights granted hereunder to the Stockholders shall terminate on the third
anniversary of a QIPO.
Section 12. SUCCESSORS AND ASSIGNS. Except as provided in
Section 13, the provisions of this Agreement shall be binding upon, and inure to
the benefit of, the respective successors, assigns, heirs, executors and
administrators of the parties hereto.
Section 13. TRANSFERS OF CERTAIN RIGHTS.
13.1 AMOUNT. The rights granted to each Investor under this Agreement may
be transferred to any other person.
13.2 TRANSFEREES. Any transferee (other than an affiliate) to whom rights
under this Agreement are transferred shall, as a condition to such transfer,
deliver to the Company a written instrument by which such transferee agrees to
be bound by the obligations
-8-
<PAGE>
imposed upon the Investors under this Agreement to
the same extent as if such transferee were an Investor hereunder.
13.3 SUBSEQUENT TRANSFEREES. A transferee to whom rights are transferred
pursuant to this Section 13 may not again transfer such rights to any other
person or entity, other than as provided in Sections 13.1 or 13.2 above.
13.4 PARTNERS AND STOCKHOLDERS. Notwithstanding anything to the contrary
herein, an Investor may transfer rights granted to it under this Agreement to
any partner of such Investor to whom shares of Common Stock are transferred
pursuant to Section 2 and who delivers to the Company a written instrument in
accordance with Section 13.2 above and containing the representation that the
transfer is exempt from registration under the Securities Act. In the event
of such transfer, such partner or stockholder shall be deemed to be an
Investor for purposes of this Section 13 and may again transfer such rights
to any other person or entity that acquires shares of Common Stock from such
partner or stockholder, in accordance with, and subject to, the provisions of
Section 13.1, 13.2 and 13.3 above.
Section 14. MISCELLANEOUS.
14.1. NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreement with respect to its securities that is inconsistent with or
violates the rights granted to the holders of Registrable Shares in this
Agreement.
14.2. ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company will not take
any action, or permit any change to occur, with respect to its securities that
would adversely affect the ability of the holders of Registrable Shares to
include such Registrable Shares in a registration undertaken pursuant to this
Agreement or that would adversely affect the marketability of such Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
14.3. REMEDIES. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically (without posting
any bond or other security), to recover damages caused by reason of any breach
of any provision of this Agreement and to exercise all other rights granted by
law.
14.4. AMENDMENTS AND WAIVERS; ADDITIONAL PARTIES.
(a) Except as otherwise provided herein, the provisions of this Agreement
may be amended and the Company may take action herein prohibited, or omit to
perform any act herein required to be performed by it, if, but only if, the
Company has obtained the written consent of holders of at least 66 2/3% of the
Registrable Shares then in existence.
(b) Notwithstanding anything to the contrary in this Agreement, the Company
may amend this Agreement to include additional parties at any time and from time
to time. Such additional parties shall be included in the definition of
"Stockholders," and their names shall be added to EXHIBIT A, attached hereto.
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<PAGE>
14.5. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware (without reference to the choice of law
or conflicts of law provisions thereof).
14.6. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, one (1) business day after they have been
sent to the recipient by reputable overnight courier service (charges prepaid)
or three (3) business days after mailed by first class mail, postage prepaid.
Such notices, demands, and other communications shall be addressed:
If to the Company, at:
SecurFone America, Inc.
8080 Daggett Street
San Diego, CA 91114
Attention: Paul B. Silverman
or at such other address or addresses as may have been furnished in
writing by the Company to the Investors, with a copy to:
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Ernest M. Stern
If to an Investor, at his or its address set forth on EXHIBIT A, or at such
other address or addresses as may have been furnished to the Company in writing
by such Investor.
If to any other transferee to whom shares were transferred pursuant to
Section 2, at such address or addresses as may have been furnished to the
Company in writing.
Notices provided in accordance with this Section 14 shall be deemed
delivered upon personal delivery or two (2) business days after deposit in the
mail.
14.7. SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
14.8. TITLES AND SUBTITLES. The titles of the sections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
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<PAGE>
14.9. EXPENSES. The Company shall pay, and hold the Investors and all
holders of Registrable Shares harmless against liability for the payment of (i)
the reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement and (ii) the reasonable fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement.
[SIGNATURES ON FOLLOWING PAGES]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
COMPANY:
SECURFONE AMERICA, INC.
/s/ Paul B. Silverman
--------------------------------
Paul B. Silverman, President
<PAGE>
==============================================================================
SECURFONE AMERICA, INC.
REGISTRATION RIGHTS AGREEMENT
COUNTERPART SIGNATURE PAGE
==============================================================================
The person or entity set forth below does hereby cause this Counterpart
Signature Page to be executed, acknowledged and delivered by the undersigned
authorized person in its name and on its behalf in order to accept and agree to
be bound by all the terms and provisions of the Registration Rights Agreement,
dated as of October ___, 1999 to which this Counterpart Signature Page is
attached.
WITNESS:
______________________________ By:_________________________________
Name:
Its:
Address:
_____________________________
_____________________________
_____________________________
Telephone No.________________________
Telecopier No._______________________
-13-
<PAGE>
EXHIBIT A
INVESTORS
NAME AND ADDRESS
ADDITIONAL PARTIES
NAME AND ADDRESS
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