<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from to
Commission file number 0-26140
HIGHWAYMASTER COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0352879
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16479 DALLAS PARKWAY, SUITE 710, DALLAS, TEXAS 75248
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 732-2500
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding as of
Title of Each Class August 2, 1996
- ----------------------------------- ----------------------------------
Common Stock, $.01 par value 22,370,490
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 1
Consolidated Statements of Operations for the
three months and six months ended June 30,
1996 and 1995 2
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1996 4
Notes to Consolidated Financial Statements 5-6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11-12
Item 2 Changes in Securities 11-12
Item 3 Defaults Upon Senior Securities 11-12
Item 4 Submission of Matters to a Vote of Security Holders 11-12
Item 5 Other Information 11-12
Item 6 Exhibits and Reports on Form 8-K 11-12
Signatures 13
<PAGE>
PART I - FINANCIAL INFORMATION
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
ASSETS
June 30, December 31,
1996 1995
-------- ------------
Current assets:
Cash and cash equivalents $4,630 $23,969
Accounts receivable, net 5,921 5,949
Other short-term receivables 709 803
Inventory 9,578 4,199
Prepaid expenses 240 506
------- -------
Total current assets 21,078 35,426
Property, plant and equipment, net 5,694 3,927
Long-term receivables 1,389 1,394
Deposits 220 112
Other assets 1,169 1,510
------- -------
$29,550 $42,369
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to related parties $12,062 $ ---
Accounts payable 5,084 5,028
Telecommunications costs payable 2,305 1,984
Accrued interest payable to related parties 342 345
Accrued warranty 577 876
Other current liabilities 949 1,421
------- -------
Total current liabilities 21,319 9,654
Notes payable to related parties --- 11,488
------- -------
Total liabilities 21,319 21,142
------- -------
Series B redeemable preferred stock 9,346 8,126
------- -------
Stockholders' equity (deficit):
Common stock 224 223
Additional paid-in capital 90,831 90,560
Accumulated deficit (91,623) (77,135)
Treasury stock (547) (547)
------- -------
Total stockholders' equity (deficit) (1,115) 13,101
------- -------
$29,550 $42,369
------- -------
------- -------
See accompanying notes to consolidated financial statements.
1
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $3,651 $3,733 $6,423 $7,614
Service 3,930 2,299 7,449 4,099
-------- -------- -------- --------
Total revenues 7,581 6,032 13,872 11,713
-------- -------- -------- --------
Cost of revenues:
Product 3,672 3,796 6,403 7,877
Service 2,857 2,010 5,415 3,848
-------- -------- -------- --------
Total cost of revenues 6,529 5,806 11,818 11,725
-------- -------- -------- --------
Gross profit (loss) 1,052 226 2,054 (12)
General and administrative expenses 2,170 1,554 4,299 3,194
Sales and marketing expenses 2,427 1,500 4,710 3,033
Engineering expenses 894 697 1,736 1,360
Customer service expenses 2,045 1,301 3,930 2,659
-------- -------- -------- --------
Operating loss (6,484) (4,826) (12,621) (10,258)
Interest income 138 24 444 36
Interest expense to related parties (550) (1,990) (1,088) (3,789)
Other income (expense) (3) 6 (3) (18)
-------- -------- -------- --------
Loss before income taxes and extraordinary item (6,899) (6,786) (13,268) (14,029)
Income tax provision --- --- --- ---
-------- -------- -------- --------
Loss before extraordinary item (6,899) (6,786) (13,268) (14,029)
-------- -------- -------- --------
Extraordinary item -- loss on extinguishment of debt --- (6,980) --- (6,980)
-------- -------- -------- --------
Net loss ($6,899) ($13,766) ($13,268) ($21,009)
-------- -------- -------- --------
-------- -------- -------- --------
Per share data:
Loss before extraordinary item ($0.34) ($0.39) ($0.66) ($0.80)
Extraordinary item --- (0.37) --- (0.37)
-------- -------- -------- --------
Net loss per share ($0.34) ($0.76) ($0.66) ($1.17)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares outstanding 22,035 18,820 22,029 18,766
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($13,268) ($21,009)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 645 494
Amortization of discount on notes payable 574 1,748
Extraordinary item --- 6,980
(Increase) decrease in accounts receivable 28 (115)
(Increase) decrease in other receivables 99 (1,275)
(Increase) decrease in inventory (5,379) 927
(Increase) decrease in prepaid expenses and deposits 158 (672)
Increase (decrease) in accounts payable 56 (2,149)
Increase (decrease) in accrued expenses and other current liabilities (453) 3,592
Other 116 (128)
---------- ----------
Net cash used in operating actitivies (17,424) (11,607)
---------- ----------
CASH FLOWS FROM INVESTING ACTITIVIES:
Capital expenditures (991) (206)
Capitalized software costs (88) (578)
Construction in progress (1,108) (180)
---------- ----------
Net cash used in investing activities (2,187) (964)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs --- 72,866
Proceeds from notes payable to related parties --- 4,122
Payments on loans from related parties --- (27,239)
Proceeds from exercise of stock options 272 ---
---------- ----------
Net cash provided by financing activities 272 49,749
---------- ----------
Net increase (decrease) in cash (19,339) 37,178
Cash and cash equivalents, beginning of period 23,969 4,158
---------- ----------
Cash and cash equivalents, end of period $4,630 $41,336
---------- ----------
---------- ----------
Supplemental cash flow information:
Interest paid $508 $2,685
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended June 30, 1996
(UNAUDITED)
(in thousands, except share information)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-in ------------------ Accumulated
Shares Amount Capital Shares Amount Deficit Total
---------- -------- --------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity at December 31, 1995 22,333,661 $223 $90,560 311,997 ($547) ($77,135) $13,101
Accretion of discount -- Series B preferred stock (1,220) (1,220)
Exercise of stock options 35,829 1 271 272
Net loss (13,268) (13,268)
---------- ---- ------- ------- ----- -------- -------
Stockholders' equity at June 30, 1996 22,369,490 $224 $90,831 311,997 ($547) ($91,623) ($1,115)
---------- ---- ------- ------- ----- -------- -------
---------- ---- ------- ------- ----- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company operates a wireless enhanced-services network with both
voice and data capabilities in 99% of the available cellular coverage areas
in the United States and 100% of the A-Side cellular coverage areas in
Canada. The Company's private network covers approximately 95% of the
United States interstate highway system. Through this private network, the
Company provides integrated mobile voice, data, tracking, and fleet
management information services to trucking companies and private truck
operators in the long-haul segment of the transportation industry.
The HighwayMaster system includes a Mobile Communication Unit (the
"Mobile Communication Unit" or "Unit") installed in each truck and a
proprietary dispatch software package developed by the Company for use by
trucking companies. The Mobile Communication Unit transmits and receives
voice and data communication to and from long-haul trucks through the
Company's private network. In addition, the Unit contains a sophisticated
navigational tracking device that enables dispatchers to obtain accurate
position reports for trucks located anywhere in the United States and
Canada. The Company's dispatch software package enables a trucking company
to optimize the use of its fleet by processing data transmitted by Mobile
Communication Units and performing a variety of fleet management functions.
The Company's revenues are derived from sales and installation of
Mobile Communication Units and charges for its services.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all footnote
disclosures required by generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended
December 31, 1995. The accompanying consolidated financial statements
reflect all adjustments (all of which are of a normal recurring nature)
which are, in the opinion of management, necessary for a fair presentation
of the Company's financial position, results of operations and cash flows
for the interim periods. The results for any interim period are not
necessarily indicative of the results for the entire year.
Operating expenses for 1995 have been reclassified to conform to the
1996 presentation.
3. INVENTORIES
June 30, December 31,
1996 1995
------------------- --------------
Complete systems $ 5,434,000 $ 2,153,000
Component parts 4,694,000 2,476,000
-------------- -------------
10,128,000 4,629,000
Less inventory reserve (550,000) (430,000)
------------ ------------
$ 9,578,000 $ 4,199,000
------------ ------------
------------ ------------
5
<PAGE>
4. EARNINGS PER SHARE
Net loss per share for the three months and six months ended June 30,
1995 and 1996 was computed by dividing the net loss, increased by the accretion
of discount on Series B Preferred Stock by the weighted average number of
shares outstanding during the periods.
Stock options granted with exercise prices below the $19.75 offering price
in the Company's June 1995 initial public offering (the "Offering") and shares
of common stock issued during the twelve-month period preceding the initial
filing date of the registration statement for the Offering have been included in
the calculation of weighted average shares outstanding for the three months and
six months ended June 30, 1995. The stock options were included in the
calculation of common stock equivalents using the treasury stock method. Stock
options are excluded from the calculation of weighted average shares outstanding
for the three months and six months ended June 30, 1996 since their effect would
be anti-dilutive.
5. LITIGATION
On February 16, 1996, the Company filed a lawsuit against AT&T Corp. in the
U.S. District Court, Northern District of Texas, Dallas Division. The Company
is seeking preliminary and permanent injunctive relief restraining AT&T from
using and disclosing the Company's trade secrets and proprietary information
relating to its mobile communications technology. The suit also requests actual
and punitive damages, including attorneys' fees, stemming from AT&T's
intentional and tortious conduct in violation of certain non-disclosure and
other confidentiality agreements signed by AT&T regarding the Company's trade
secrets. AT&T has filed counterclaims essentially mirroring the Company's
allegations.
On December 14, 1995 and on February 23, 1996, lawsuits were filed against
the Company and its directors, along with the lead underwriters for the
Company's Offering, by William M. Crawford, Trustee of the Crawford Family
Trust, in the United States District Court, Northern District of Texas and by
Steven M. Fradin, Southern District of New York, respectively. The plaintiff in
each suit seeks securities class-action certification and purports to represent
all similarly situated shareholders, who bought stock in the Company pursuant to
its Offering in June 1995 or immediately thereafter. The plaintiffs, seeking
unspecified damages, allege that the Company's registration statement,
prospectus and other communications in its Offering contained false and
materially misleading statements. HighwayMaster believes that the plaintiffs'
claims are without merit and the Company intends to vigorously defend against
the lawsuits. The two lawsuits have been consolidated into one and the
Company currently has a motion to dismiss before the Court.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30,
1995
Revenues for the three months ended June 30, 1996 were $7.6 million
compared to $6.0 million for the three months ended June 30, 1995. Product
revenues for the three months ended June 30, 1996 were $3.7 million compared
to $3.7 million for the three months ended June 30, 1995. The number of
Mobile Communication Units sold during the three months ended June 30, 1996
were 23.6% less than Units sold during the three months ended June 30, 1995.
Offsetting this decrease in the number of Units sold were a higher average
sales price per Unit, increased revenues from installations and the sale of
parts, and a reduction in sales returns during the 1996 period. The
decrease in Units sold in the 1996 period as compared to the 1995 period is
due to, among other things, (i) the time lapse between the headcount
expansion and restructuring of the Company's sales force, which began during
the fourth quarter of 1995 and continued into the second quarter of 1996, and
the realization of the benefits thereof, (ii) prospective customers
postponing their decision to purchase until they are comfortable that the
Company can deliver service with its new Complex, (iii) prospective
customers' concerns about the Company's financial condition and (iv) adverse
economic conditions affecting the trucking industry. Service revenues for
the three months ended June 30, 1996 were $3.9 million compared to $2.3
million for the three months ended June 30, 1995. The increase in service
revenues from the 1995 period to the 1996 period is primarily attributable to
the increase in the number of Mobile Communication Units in service.
Cost of revenues for the three months ended June 30, 1996 was $6.5
million compared to $5.8 million for the three months ended June 30, 1995.
This relationship reflects the decrease in the number of Units sold in the
1996 period compared to the 1995 period offset by increased cost of service
revenues in the 1996 period as a result of the increase in the number of
Mobile Communication Units in service. Cost of revenues for the 1996 period
was 86.1% of revenues compared to 96.3% of revenues for the 1995 period.
Cost of product revenues for the 1996 period was 100.6% of product revenues
compared to 101.7% of product revenues in the 1995 period. Both periods
reflect higher costs associated with a product installation infrastructure
with excess capacity to support anticipated increases in sales. During the
three months ended June 30, 1996, the Company commenced a modification
program for the earlier versions of the Mobile Communication Units in service
to make them compatible with the new Company Complex. During July, 1996, the
Company commenced an upgrade program on its initial production run of the
current version of its Mobile Communications Unit, the HM 5000. The costs
associated with these programs will negatively impact cost of product
revenues during the the third quarter of 1996 and possibly into the fourth
quarter of 1996. Cost of service revenues for the 1996 period was 72.7% of
service revenues compared to 87.4% of service revenues in the 1995 period.
The improvement from the 1995 period to the 1996 period is primarily due to
(i) the effect of lower costs as a result of renegotiated rates with the
Company's service providers that were in effect during the 1996 period and
(ii) improvement in the Company's ability to monitor and control charges for
airtime usage.
General and administrative expenses for the three months ended June 30,
1996 were $2.2 million compared to $1.6 million for the three months ended June
30, 1995. From the 1995 period to the 1996 period, the Company's general and
administrative functions were increased to meet the growth in revenues as well
as for the additional administrative requirements of a public company.
Accordingly, virtually all categories of expenses increased. The most
significant increases were payroll related costs, occupancy costs, insurance and
legal fees.
Sales and marketing expenses for the three months ended June 30, 1996 were
$2.4 million compared to $1.5 million for the three months ended June 30, 1995.
The increase from the 1995 period to the 1996 period is primarily related to
growth in the number of employees.
Engineering expenses for the three months ended June 30, 1996 were $0.9
million compared to $0.7 million for the three months ended June 30, 1995. This
increase is primarily attributable to increases in payroll related costs, offset
in part by decreased expenditures for contract labor, and operating expenses for
the Company Complex.
7
<PAGE>
Customer service expenses for the three months ended June 30, 1996 were
$2.0 million compared to $1.3 million for the three months ended June 30, 1995.
This increase is primarily attributable to (i) payroll related costs as a result
of growth in the number of employees and (ii) related travel and telephone costs
in response to the increased number of Units in service.
The changes in interest income and interest expense to related parties
between the 1996 and 1995 periods reflects the income from temporary investments
made with a portion of the proceeds from the Initial Public Offering and lower
average outstanding indebtedness in the 1996 period as a result of the debt
repayments made with a portion of the proceeds from the Initial Public Offering.
The 1995 extraordinary item, loss on extinguishment of debt, represents the
write-off of the unamortized balances of debt discount and debt issue costs
associated with the early retirement of notes payable to related parties.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues for the six months ended June 30, 1996 were $13.9 million
compared to $11.7 million for the six months ended June 30, 1995. Product
revenues for the six months ended June 30, 1996 were $6.4 million compared
to $7.6 million for the six months ended June 30, 1995. The decrease in
product revenues from the 1995 period to the 1996 period is primarily
attributable to a 30.0% decrease in the number of Units sold offset in part
by a higher average sales price per Unit, increased revenues from
installations and the sale of parts, and a reduction in sales returns in the
1996 period. The decrease in Units sold in the 1996 period as compared to the
1995 period is due to, among other things, (i) the time lapse between the
headcount expansion and restructuring of the Company's sales force, which
began during the fourth quarter of 1995 and continued into the second quarter
of 1996, and the realization of the benefits thereof, (ii) prospective
customers postponing their decision to purchase until they are comfortable
that the Company can deliver service with its new Complex, (iii) prospective
customers' concerns about the Company's financial condition and (iv) adverse
economic conditions affecting the trucking industry. Service revenues for
the six months ended June 30, 1996 were $7.4 million compared to $4.1 million
for the six months ended June 30, 1995. The increase in service revenues from
the 1995 period to the 1996 period is primarily attributable to the increase
in the number of Mobile Communication Units in service.
Cost of revenues for the six months ended June 30, 1996 was $11.8 million
compared to $11.7 million for the six months ended June 30, 1995. This
relationship reflects the decrease in the number of Units sold in the 1996
period compared to the 1995 period offset by increased cost of service
revenues in the 1996 period as a result of the increase in the number of
Mobile Communication Units in service. Cost of revenues for the 1996 period
was 85.2% of revenues compared to 100.1% of revenues for the 1995 period.
Cost of product revenues for the 1996 period was 99.7% of product revenues
compared to 103.5% of product revenues in the 1995 period. The improvement
from a negative margin in the 1995 period to a positive margin in the 1996
period is primarily due to higher average selling prices and lower average
cost per Unit in the 1996 period as compared to the 1995 period. However,
both periods reflect higher costs associated with a product installation
infrastructure with excess capacity to support anticipated increases in
sales. During the three months ended June 30, 1996, the Company commenced a
modification program for the earlier versions of the Mobile Communication
Units in service to make them compatible with the new Company Complex. During
July, 1996, the Company commenced an upgrade program on its initial
production run of the current version of its Mobile Communications Unit, the
HM 5000. The costs associated with these programs will negatively impact cost
of product revenues during the the third quarter of 1996 and possibly into
the fourth quarter of 1996. Cost of service revenues for the 1996 period was
72.7% of service revenues compared to 93.9% of service revenues in the 1995
period. The improvement from the 1995 period to the 1996 period is primarily
due to (i) the effect of lower costs as a result of renegotiated rates with
the Company's service providers that were in effect during the 1996 period
and (ii) improvement in the Company's ability to monitor and control charges
for airtime usage.
General and administrative expenses for the six months ended June 30, 1996
were $4.3 million compared to $3.2 million for the six months ended June 30,
1995. From the 1995 period to the 1996 period, the Company's general and
administrative functions were increased to meet the growth in revenues as well
as for the additional administrative requirements of a public company.
Accordingly, virtually all categories of expenses increased. The most
significant increases were payroll related costs, occupancy costs, insurance and
legal fees. These increases were partially offset by decreases in bad debt
expense and amortization expense.
8
<PAGE>
Sales and marketing expenses for the six months ended June 30, 1996 were
$4.7 million compared to $3.0 million for the six months ended June 30, 1995.
The increase from the 1995 period to the 1996 period is primarily related to
growth in the number of employees.
Engineering expenses for the six months ended June 30, 1996 were $1.7
million compared to $1.4 million for the six months ended June 30, 1995. This
increase is primarily attributable to increases in payroll related costs,
offset in part by decreased expenditures for contract labor, research and
development expenditures, and operating expenses for the Company Complex.
Customer service expenses for the six months ended June 30, 1996 were $3.9
million compared to $2.7 million for the six months ended June 30, 1995. This
increase is primarily attributable to (i) payroll related costs as a result of
growth in the number of employees and (ii) related travel and telephone costs in
response to the increased number of Units in service.
The changes in interest income and interest expense to related parties
between the 1996 and 1995 periods reflects the income from temporary investments
made with a portion of the proceeds from the Initial Public Offering and lower
average outstanding indebtedness in the 1996 period as a result of the debt
repayments made with a portion of the proceeds from the Initial Public Offering.
The 1995 extraordinary item, loss on extinguishment of debt, represents the
write-off of the unamortized balances of debt discount and debt issue costs
associated with the early retirement of notes payable to related parties.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $0.2 million at June 30, 1996
compared to working capital of $25.8 million at December 31, 1995. The notes
payable to related parties, in the amount of $12.1 million, became a current
liability at June 30, 1996.The Company's cash and cash equivalents balance at
June 30, 1996 was $4.6 million compared to $24.0 million at December 31, 1995.
Net cash consumed during the six months ended June 30, 1996 was $19.3
million due primarily to a $13.3 million loss from operations, an inventory
build-up of $5.4 million and capital expenditures of $2.2 million.
The Company's business historically has not required substantial capital
expenditures. However, the Company has expended approximately $2.6 million
through June 30, 1996 and is committed to expend an additional $2.0 million for
the development and construction of the Company Complex to serve as an
alternative to the AT&T Complex and to provide system architecture that could be
modified to serve local or regional dispatchers of service vehicle or
transportation fleets. The Company Complex was placed in service in July, 1996.
In the event the Company elects to expand its local service business or to
pursue other business opportunities, the Company will need to build additional
complexes, using the Company Complex as a prototype.
The capital resources currently available to the Company are limited
and, accordingly, the Company will need to obtain financing from outside
sources during the third quarter of 1996 to continue to fund its anticipated
operating needs, capital expenditures and debt service requirements. The need
to obtain financing from outside sources is attributable to, among other
things, a build up in its inventories of Mobile Communication Units as a
result of actual sales of Units being lower than projected sales levels and
continuing expenditures needed to implement the Company's operational plans
and to expand, train and manage its employee base. Furthermore, the Company
has negotiated short-term deferred payment arrangements with certain of its
trade and other creditors, and will require additional working capital in the
near future in order to bring current its accounts with these creditors.
The Company is currently engaged in negotiations with certain of its
principal shareholders who may have an interest in providing short-term
financing to the Company. Based on recent discussions between the Company and
certain of its principal shareholders, the Company expects that it may be
able to obtain short-term financing from such shareholders in the near
future, although negotiations with respect to the terms of such financing
have not yet been completed and the Company has not obtained a binding
commitment with respect to any such financing. Any financing provided to the
Company by such shareholders would likely be in the form of one or more
equity investments intended to provide the Company with sufficient working
capital to meet its operating and other needs for at least the next few
months.
In addition to short-term financing, the Company will need to obtain
long-term debt or equity financing from outside sources in order to continue
to fund the growth and development of its business. Although the Company has
identified various potential sources of long-term financing, there can be no
assurance that the Company will be able to obtain such financing on terms
that it regards as satisfactory, if at all.
If the Company is not able to obtain adequate short-term or long-term
financing, the Company's ability to implement its current operational plans
would be jeopardized and it may be required to modify or curtail certain of
its existing business activities.
9
<PAGE>
INFLATION
The Company believes that to date inflation has not had a material effect
on its results of operations. Although inflation may in the future affect the
cost of the Mobile Communication Units sold by the Company, the Company expects
that economies of scale and engineering improvements are likely to offset any
foreseeable cost increases.
10
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings --
On February 16, 1996, the Company filed a lawsuit against AT&T Corp. in
the U.S. District Court, Northern District of Texas, Dallas Division.
The Company is seeking preliminary and permanent injunctive relief
restraining AT&T from using and disclosing the Company's trade secrets
and proprietary information relating to its mobile communications
technology. The suit also requests actual and punitive damages,
including attorneys' fees. AT&T has filed counterclaims essentially
mirroring the Company's allegations. The Company and AT&T were parties
to a contract (the "AT&T Contract") under which AT&T provides enhanced
call processing, data management services and long-distance network
transport services through a switching complex owned and operated by
AT&T. In reliance upon AT&T's assurance of both confidentiality and
exclusivity, supported by separate non-disclosure agreements, the
Company provided certain trade secrets to AT&T to enable it to
construct and operate the AT&T Complex. In its complaint, the Company
alleged that AT&T threatened to terminate the AT&T Contract and make
available to one or more competitors of the Company services based on
the Company's proprietary technology and trade secrets. The AT&T
Contract was terminated effective June 29, 1996. However, AT&T
continues to provide services for the Company without a formal contract
pursuant to AT&T's obligation with respect to its existing service
agreements with customers.
On December 14, 1995 and on February 23, 1996, lawsuits were filed
against the Company and its directors, along with the lead underwriters
for the Company's Offering, by William M. Crawford, Trustee of the
Crawford Family Trust, in the United States District Court, Northern
District of Texas and by Steven M. Fradin, Southern District of New York,
respectively. The Plaintiff in each suit seeks securities class-action
certification and purports to represent all similarly situated
shareholders, who bought stock in the Company pursuant to its Offering in
June 1995 or immediately thereafter. The plaintiffs, seeking
unspecified damages, allege that the Company's registration statement,
prospectus and other communications in its Offering contained false and
materially misleading statements. HighwayMaster believes that the
plaintiffs' claims are without merit and the Company intends to
vigorously defend against the lawsuits. The two lawsuits have been
consolidated into one and the Company currently has a motion to dismiss
before the court.
Item 2. Changes in Securities -- None.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on May 23, 1996. At the Annual Meeting, the stockholders of the
Company (i) elected each of the persons listed below to serve as a director
of the Company until the next Annual Meeting of Stockhholders or until
their respective successors have been duly elected and qualified; (ii)
approved the Company's Amended and Restated 1994 Stock Option Plan, which
increased the aggregate number of shares of Common Stock authorized for
issuance under such plan to 2,474,463 shares; and (iii) ratified the
selection of Price Waterhouse LLP as the Company's independent accountants
for the Company's fiscal year ending December 31, 1996.
The Company had 22,021,664 shares of Common Stock outstanding as of April
3, 1996, the record date for the Annual Meeting. At the Annual Meeting,
holders of a total of 21,024,324 shares of Common Stock were present in
person or represented by proxy. The following sets forth information
regarding the results of the voting at the Annual Meeting:
11
<PAGE>
Proposal 1: Election of Directors
Shares Voting Shares
Director In Favor Withheld
-------- ------------- --------
William C. Kennedy, Jr. 20,090,057 934,267
William C. Saunders 20,089,657 934,667
Robert B. Calhoun, Jr. 20,089,057 935,267
William E. Conway, Jr. 20,089,057 935,267
John H. Daniels 20,088,657 935,667
Richard G. Darman 19,915,257 1,109,067
Mark D. Ein 19,916,257 1,108,067
Stephen L. Greaves 19,915,257 1,109,067
Terry S. Parker 20,089,682 934,642
Gerry C. Quinn 20,090,057 934,267
Elly H. Reisman 20,089,057 935,267
Proposal 2: Approval of the Company's Amended and Restated 1994 Stock
Option Plan
Votes in favor: 19,450,280
Votes against: 398,273
Abstentions: 943,137
Proposal 3: Ratification of Price Waterhouse as the Company's
Independent Accountants
Votes in favor: 20,994,553
Votes against: 8,165
Abstentions: 21,606
Item 5. Other Information
COMPTRONIX CORPORATION
On August 9, 1996, Comptronix Corporation ("Comptronix") filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code.
Comptronix assembles the Mobile Communication Units installed in each
truck in accordance with specifications provided by the Company. The
various components used by Comptronix in the assembly of the Units
(including GPS components and cellular transceivers) are obtained from
certain other manufacturers such as Motorola. In light of the various
legal and other uncertainties associated with the Comptronix bankruptcy
proceedings, there can be no assurance that such proceedings will not
adversely affect the Company's ability to obtain sufficient supplies of
Units to meet the needs of its customers. At the present time, the
Company has in its possession a limited inventory of Units available for
shipment to its customers. In addition, a substantial inventory of Units
and components, a significant portion of which has been fully paid for by
the Company, is held at a site operated by Comptronix. Although the Company
currently believes that it will be able to obtain access to the Units
which have been fully paid for by it in the ordinary course of business,
no assurances can be given in this regard.
In light of the bankruptcy proceedings recently commenced by
Comptronix, the Company will need to evaluate the options available to it
in order to ensure that it has an adequate supply of Mobile Communication
Units in the long term. The Company is not able to predict the outcome of
the Comptronix bankruptcy proceedings, and it is possible that all or part
of the operations of Comptronix could be discontinued, curtailed or
modified in the course of such proceedings. In general, the timely supply
of Units for sale to the Company's customers may be adversely affected if
Comptronix is not able to continue to meet the needs of the Company's
customers and if the Company is not able to make alternative supply
arrangements on terms it regards as satisfactory.
NETWORK SERVICES CENTER ("NSC")
As previously announced, on June 29, 1996, HighwayMaster's service
contract with AT&T expired and, on that same date, HighwayMaster began
commercial service with its own Network Services Center ("NSC" or "Company
Complex") that it had been constructing with IEX Corp. For new customers
commencing service after June 29, 1996, HighwayMaster's NSC is fully
replacing the AT&T complex. Other than the normal operational issues
encountered in designing and implementing a switching center of this
complexity, the transition has been progressing in an orderly fashion.
Customers who entered into service agreements prior to June 29, 1996
currently are being serviced by the AT&T complex. AT&T has stated that
these customers will continue to be extended service by AT&T through its
complex, at least until their respective original service agreements expire.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K -- None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIGHWAYMASTER COMMUNICATIONS, INC.
Date: August 13, 1996
By: /s/ William C. Saunders
-----------------------------------
William C. Saunders
President and Chief Executive Officer
By: /s/ Steven C. Whitehead
-----------------------------------
Steven C. Whitehead
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
QUARTERLY REPORT
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
----------------------------
HIGHWAYMASTER COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
EXHIBITS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Title
- ------ -----
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Form of Amended By-Laws of the Company. (1)
4.1 Specimen of certificate representing Common Stock, $.01 par
value, of the Company. (1)
4.2 Subscription Agreement, dated February 4, 1994, by and among the
Company and the Purchasers listed on the Schedule thereof. (1)
4.3 Stockholders' Agreement, dated as of February 4, 1994, among the
Company, Carlyle HighwayMaster Investors, L.P., Carlyle
HighwayMaster Investors II, L.P., Chase Manhattan Investment
Holdings, Inc., Clipper/Merban, L.P., Clipper/Merchant Partners,
L.P., Clipper Capital Associates, L.P., Erin Mills International
Investment Corporation, F.U. Enterprises, Ltd., By-Word
Technologies, Inc., Robert S. Folsom and Robert T. Hayes. (1)
4.4 Addendum No. 1 to Subscription Agreement and Stockholders
Agreement of the Company, dated March 28, 1994, among the
Company, Carlyle HighwayMaster Investors, L.P., Carlyle
HighwayMaster Investors II L.P., H.M. Rana Investments Limited,
TC Group, L.L.C., Chase Manhattan Investment Holdings, Inc.,
Clipper/Merban, L.P., Clipper/Merchant Partners, L.P., Clipper
Capital Associates, L.P., Erin Mills International Investment
Corporation, F.U. Enterprises, Ltd., By-Word Technologies, Inc.,
Robert S. Folsom and Robert T. Hayes. (1)
4.5 Consent of Security Holders of the Company and Second Amendment
to Stockholders' Agreement, dated November 1994, among the
Company, the former shareholders of By-Word Technologies, Inc.
listed on Exhibit A thereto, Carlyle HighwayMaster Investors,
L.P., Carlyle HighwayMaster Investor II, L.P., TC Group, L.L.C.,
H.M. Rana Investments Limited, Chase Manhattan Investment
Holdings, Inc., Clipper/Merban, L.P., Clipper/Merchant Partners,
L.P., Clipper Capital Associates, L.P., Erin Mills International
Investment Corporation, Robert S. Folsom and Robert T. Hayes.
(1)
10.1 License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.) (1)
<PAGE>
Exhibit
Number Title
- ------ -----
10.2 Agency Agreement, dated February 1, 1993, between the Company and
Saunders, Lubinski & White, Inc. (1)
10.3 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Kennedy, Jr., as
amended. (1) (5)
10.4 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Saunders, as amended.
(1) (5)
10.5 Employment Agreement, dated November 23, 1994, by and between
HighwayMaster Corporation and Gordon D. Quick. (1) (5)
10.6 Amended and Restated 1994 Stock Option Plan of the Company, dated
February 4, 1994. (1) (5) (6)
10.7 Agreement, dated June 29, 1993, between the Company and American
Telephone & Telegraph Company. (1) (2)
10.8 Mobile Communications (Voice and Data) Services Agreement, dated
as of July 15, 1993, between the Company and EDS Personal
Communications Corporation, as amended. (1) (2)
10.9 Services Agreement, dated March 14, 1995, between the Company and
GTE Telecommunications Services Incorporated. (1) (2)
10.10 Services Agreement, dated March 20, 1996, between the Company and
GTE-Mobile Communications Service Corporation. (3) (4)
10.11 Agreement, dated June 8, 1994, between the Company and Truckstops
of America, Inc. (1)
10.12 Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as of
July 15, 1993, between the Company and EDS Personal
Communications Corporation. (3) (4)
10.13 Letter Agreement, dated April 5, 1995, between the Company and
IEX Corporation. (1)
10.14 Product Development Agreement dated December 21, 1995, between
the Company and IEX Corporation. (3) (4)
10.15 Form of Note Extension Option Agreement, dated March 29, 1996,
between HighwayMaster Communications, Inc.,
<PAGE>
Exhibit
Number Title
- ------ -----
HighwayMaster Corporation and certain noteholders of
HighwayMaster Communications, Inc. (3)
10.16 Letter Agreement, dated February 19, 1996, between the Company
and IEX Corporation. (3)
10.17 Form of Adoption Agreement, Regional Prototype Cash or Deferred
Profit-Sharing Plan and Trust Sponsored by McKay Hochman Co.,
Inc., relating to the HighwayMaster Corporation 401 (k) Plan.
(1)
10.18 Employment Agreement, dated May 4, 1995, by and between
HighwayMaster Corporation and Steven C. Whitehead. (1, filed as
exhibit 10.21)
10.19 Note Exchange and Amendments Agreements, dated May 26, 1995,
between the Company and Archery Partners, Chase Manhattan
Investment Holdings, Inc., Carlyle HighwayMaster Investors, L.P.,
Carlyle HighwayMaster Investors II, L.P., H.M. Rana Investments
Limited, TC Group, L.L.C., Clipper/Merban, L.P., Clipper/Merchant
Partners, L.P., Clipper Capital Associates, L.P., Erin Mills
International Investment Corporation, Robert S. Folsom, Margaret
D. Folsom, R. Stephen Folsom, Robert T. Hayes, Cynthia Ann
Hayes, Alicia Ellen Hayes, JoAnn Hayes, William C. Saunders,
William C. Kennedy, Jr., Donald M. Kennedy and Mark D. Ein. (1)
10.20 Form of Agreement, dated November 1,1995, between the Company and
Rocketsports, Inc. (3) (4)
11 Statement re Computation of Per Share Earnings. (6)
27 Financial Data Schedules. (6)
-----------------------------------------------------
(1) Filed in connection with the Company's Registration
Statement on Form S-1, as amended (No. 33-91486) effective
June 22, 1995.
(2) Certain confidential portions deleted pursuant to Order
Granting Application for Confidential Treatment issued in
connection with Registration Statement on Form S-1 (No. 33-
91486) effective June 22, 1995.
(3) Filed in connection with the Company's 1995 Annual Report on
Form 10-K.
(4) Certain confidential portions deleted pursuant to
Application for Confidential Treatment filed in connection
with the 1995 Annual Report on Form 10-K.
(5) Indicates management or compensatory plan or arrangement
required to be identified pursuant to Item 14(a)(4).
(6) Filed herewith.
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. PURPOSES...................................................... 1
1.1. Purpose of Plan............................................... 1
ARTICLE II. DEFINITIONS................................................... 1
2.1. Definitions................................................... 1
ARTICLE III. STOCKHOLDER APPROVAL; RESERVATION OF SHARES................... 3
3.1. Stockholder Approval.......................................... 3
3.2. Shares Reserved Under Plan.................................... 3
ARTICLE IV. PARTICIPATION IN PLAN......................................... 4
4.1. Eligibility................................................... 4
4.2. Participation Not Guarantee of Employment or Retention........ 4
ARTICLE V. GRANT AND EXERCISE OF OPTIONS................................. 4
5.1. Grant of Options.............................................. 4
5.2. Option Agreements............................................. 4
5.3. Option Terms.................................................. 5
5.4. Payment of Exercise Price and Delivery of Shares.............. 6
5.5. Merger or Reorganization of the Company....................... 7
5.6. Dissolution or Liquidation of the Company..................... 7
ARTICLE VI. TERMINATION AND DEATH......................................... 8
6.1. Termination................................................... 8
6.2. Death......................................................... 8
ARTICLE VII. ADMINISTRATION OF PLAN........................................ 9
7.1. Administration................................................ 9
7.2. Liability..................................................... 10
7.3. Determinations................................................ 10
ARTICLE VIII. AMENDMENT AND TERMINATION OF PLAN............................. 11
8.1. Amendment of Plan............................................. 11
8.2. Termination................................................... 11
8.3. Tax Status of Options......................................... 11
ARTICLE IX. MISCELLANEOUS PROVISIONS...................................... 12
9.1. Restrictions Upon Grant of Options............................ 12
9.2. Restrictions Upon Resale of Unregistered Stock................ 13
9.3. Adjustments................................................... 13
9.4. Use of Proceeds............................................... 13
9.5. Substitution of Options....................................... 13
9.6. Restrictive Legends........................................... 14
9.7. Notices...................................................... 15
i
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
ARTICLE I.
PURPOSES
1.1. PURPOSE OF PLAN. The purposes of the HighwayMaster Communications,
Inc. Amended and Restated 1994 Stock Option Plan (the "PLAN") are to advance the
interests of HighwayMaster Communications, Inc. (the "COMPANY") and its
stockholders by providing significant incentives to selected officers and
employees of the Company and its Subsidiaries (as defined herein) and to enhance
the interest of such officers and employees in the Company's success and
progress by providing them with an opportunity to become stockholders of the
Company. Further, the Plan is designed to enhance the Company's ability to
attract and retain qualified management and other personnel necessary for the
success and progress of the Company.
ARTICLE II.
DEFINITIONS
2.1. DEFINITIONS. Certain terms used herein shall have the meaning below
stated, subject to the provisions of Section 8.1 hereof.
(a) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
(b) "CODE" means the Internal Revenue Code of 1986.
(c) "COMMITTEE" means the committee of directors appointed by the
Board to administer the Plan pursuant to Article VII hereof.
1
<PAGE>
(d) "COMMON STOCK" means the authorized common stock of the Company,
par value $.01 per share, as constituted on the date the Plan becomes
effective.
(e) "COMPANY" means HighwayMaster Communications, Inc., a Delaware
corporation.
(f) "EMPLOYEE" means an officer or other employee of the Company or a
Subsidiary, including a member of the Board who is also an employee.
(g) "FAIR MARKET VALUE" means the fair market value of a share of
Common Stock determined in good faith by the Committee.
(h) "INCENTIVE OPTION" means an option intended to qualify as an
incentive option under Section 422 of the Code.
(i) "NONQUALIFIED OPTION" means an option that does not qualify as an
Incentive Option.
(j) "OPTION" means an option to purchase Common Stock granted by the
Company to an Employee pursuant to Section 5.1 hereof.
(k) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms of an Option granted under the Plan.
(l) "OPTIONEE" means an Employee to whom an Option has been granted
under the Plan.
(m) "PLAN" means the HighwayMaster Communications, Inc. Amended and
Restated 1994 Stock Option Plan, as set forth herein and as from time to
time amended.
(n) "SUBSIDIARY" means a subsidiary of the Company within the meaning
of Section 424(f) of the Code.
2
<PAGE>
ARTICLE III.
STOCKHOLDER APPROVAL; RESERVATION OF SHARES
3.1. STOCKHOLDER APPROVAL. The Plan shall become effective only if,
within 12 months from the date the Plan is adopted by the Board, the Plan is
approved by the affirmative vote of the holders of a majority of the shares of
Common Stock of the Company, or by the unanimous written consent of such
holders, in accordance with the applicable provisions of the Certificate of
Incorporation and Bylaws of the Company and applicable state law.
3.2. SHARES RESERVED UNDER PLAN. The aggregate number of shares of Common
Stock which may be issued upon the exercise of Options granted under the Plan
shall not exceed 2,474,463 shares, all or any part of which may be issued
pursuant to Options; provided, however, that the maximum number of shares of
Common Stock which may be issued to an Optionee under the Plan shall not exceed
593,478 shares (as may be adjusted pursuant to Section 9.3 of the Plan). Shares
of Common Stock issued upon the exercise of Options granted under the plan may
consist of either authorized but unissued shares or shares which have been
issued and which shall have been heretofore or shall be hereafter reacquired by
the Company. The total number of shares authorized under the plan shall be
subject to increase or decrease in order to give effect to the provisions of
Section 9.3 hereof and to give effect to any amendment adopted pursuant to
Article VIII. If any Option granted under the Plan shall expire, terminate or
be cancelled for any reason without having been exercised in full, the number of
shares as to which such Option was not exercised shall again be available for
purposes of the Plan. The Company shall at all time while the Plan is in effect
reserve such number of shares of Common Stock as will be sufficient to satisfy
the requirements of the Plan.
3
<PAGE>
ARTICLE IV.
PARTICIPATION IN PLAN
4.1. ELIGIBILITY. Options under the Plan may be granted to any Employee
of the Company or a Subsidiary. The Committee shall determine those Employees
to whom Options shall be granted, and, subject to Section 3.2 hereof, the number
of shares of Common Stock subject to each such Option.
4.2. PARTICIPATION NOT GUARANTEE OF EMPLOYMENT OR RETENTION. Nothing in
this Plan or in any Option Agreement shall in any manner be construed to limit
in any way the right of the Company or any Subsidiary to terminate an Employee's
employment at any time, without regard to the effect of such termination on any
rights such Employee would otherwise have under this Plan, or give any right to
an Employee to remain employed or retained by the Company or a Subsidiary
thereof in any particular position or at any particular rate of compensation.
ARTICLE V.
GRANT AND EXERCISE OF OPTIONS
5.1. GRANT OF OPTIONS. The Committee may from time to time in its
discretion grant Options to Employees. All Options under the Plan shall be
granted within ten years from the date the Plan is adopted by the Board or the
date the Plan is approved by holders of the Common Stock of the Company,
whichever is earlier.
5.2. OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by an Option Agreement between the Company and the Optionee in such
form as the Committee shall approve and containing such provisions and
conditions not inconsistent with the provisions of the Plan, including the term
during which the Option may be exercised and whether in installments or
otherwise, as the Committee shall determine.
4
<PAGE>
5.3. OPTION TERMS. Options granted under the Plan shall be subject to the
following requirements:
(a) OPTION PRICE. The exercise price of each Incentive Option
granted under the Plan shall not be less than the higher of the par value
or 100% of the Fair Market Value of the shares of Common Stock subject to
the Option on the date the Option is granted. The exercise price of any
Nonqualified Options granted under the Plan shall be determined by the
Committee. The exercise price of an Option may be subject to adjustment
pursuant to Section 9.3 hereof.
(b) TERM OF OPTION. The term during which an Option is exercisable
shall be that period determined by the Committee as set forth in the
applicable Option Agreement, provided that no Option shall have a term that
exceeds a period of ten years from the date of its grant.
(c) NONTRANSFERABILITY OF OPTION. No Option granted under the Plan
shall be transferable by the Optionee otherwise than by will or the laws of
descent and distribution, and each such Option shall be exercisable during
the Optionee's lifetime only by him or her. No transfer of an Option by an
Optionee by will or by the laws of descent and distribution shall be
effective to bind the Company unless the Company shall have been furnished
with written notice thereof and a copy of the will and/or such other
evidence as the Committee may determine necessary to establish the validity
of the transfer.
(d) TIME AND AMOUNT EXERCISABLE. Each Option shall be exercisable in
accordance with the provisions of the Option Agreement pursuant to which it
is granted in whole, or from time to time in part, subject to any
limitations with respect to the number of shares for which the Option may
be exercised at a particular time and to such
5
<PAGE>
other conditions as the Committee in its discretion may specify in the
Option Agreement. Any portion of an Option which has become exercisable
shall remain exercisable until it is exercised in full or it terminates or
expires pursuant to the terms of the Plan or the applicable Option
Agreement.
(e) OPTIONS GRANTED TO TEN PERCENT STOCKHOLDERS. No Incentive Option
shall be granted to any Employee who owns, directly or indirectly within
the meaning of Section 424(d) of the Code, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company
or any Subsidiary, unless at the time the Option is granted, the exercise
price of the Option is at least 110% of the Fair Market Value of the Common
Stock subject to such Option and such Option, by its terms, is not
exercisable after the expiration of five years from the date such Option is
granted. The provisions of this Section 5.3(e) shall not apply to the
grant of Nonqualified Options.
5.4. PAYMENT OF EXERCISE PRICE AND DELIVERY OF SHARES.
(a) NOTICE AND PAYMENT FOR SHARES. Each Option shall be exercised by
delivery of a written notice to the Company in such form as the Committee
shall approve stating the number of shares of Common Stock as to which the
Option is being exercised and accompanied by payment therefor. No Option
shall be deemed exercised in the event that payment therefor is not
received, and shares of Common Stock shall not be issued upon the exercise
of an Option unless the exercise price is paid in full at the time of
exercise. Payment for shares of Common Stock purchased upon the exercise
of an Option shall be made in cash or by certified check.
(b) RIGHTS OF OPTIONEE IN STOCK. Neither any Optionee nor the legal
representatives, heirs, legatees or distributees of any Optionee shall be
deemed to be the
6
<PAGE>
holder of, or to have any of the rights of a holder with respect to, any
shares of Common Stock issuable upon exercise of an Option granted
hereunder unless and until such shares are issued to him or her or them and
such person or persons have received a certificate or certificates
therefor. Upon the issuance and receipt of such certificate or
certificates, such Optionee or the legal representatives, heirs, legatees
or distributees of such Optionee shall have absolute ownership of the
shares of Common Stock evidenced thereby, including the right to vote such
shares, to the same extent as any other owner of shares of Common Stock,
and to receive dividends thereon, subject, however, to the terms,
conditions and restrictions of this Plan.
5.5. MERGER OR REORGANIZATION OF THE COMPANY. If the Company shall at any
time participate in a reorganization to which 424(a) of the Code applies and (A)
the Company is not the surviving entity, or (B) the Company is the surviving
entity and the holders of Common Stock are required to exchange their shares for
property and/or securities, the Company shall give each Optionee written notice
of such fact on or before 15 days before such merger or consolidation, and each
vested option shall be exercisable in full after receipt of such notice and
prior to such merger or consolidation. Options not exercised prior to such
merger or consolidation shall expire on the occurrence of such merger or
consolidation. A sale of all or substantially all the assets of the Company for
a consideration (apart from the assumption of obligations) consisting primarily
of securities shall be deemed a merger or consolidation for the foregoing
purposes.
5.6. DISSOLUTION OR LIQUIDATION OF THE COMPANY. In the event of the
proposed dissolution or liquidation of the Company, the options granted
hereunder shall terminate as of a date to be fixed by the Committee, provided
that not less than 15 days' prior written notice of the
7
<PAGE>
date so fixed shall be given to the Optionee, and the Optionee shall have the
right, during the 15-day period preceding such termination, to exercise his or
her option.
ARTICLE VI.
TERMINATION AND DEATH
6.1. TERMINATION. Except as provided in Section 6.2, if an Optionee's
position as an Employee of the Company or a Subsidiary terminates for any reason
other than death, the Employee may, unless the applicable Option Agreement
provides otherwise, exercise an Option previously granted within 60 days after
the date of such termination, but in no event later than the date on which the
Option would have expired in accordance with its terms. During such 60-day
period, the Optionee may exercise the Option only to the extent that the
Optionee was entitled to do so at the date of his or her termination and, to the
extent the Option is not so exercised, it shall expire at the end of such 60-day
period.
6.2. DEATH.
(a) If an Optionee dies while he or she is an Employee of the Company
or a Subsidiary and at the time of his or her death the Optionee was
entitled to exercise an Option theretofore granted to him or her, the
Option shall, unless the applicable Option Agreement provides otherwise,
expire 60 days after the date of his or her death, but in no event later
than the date on which the Option would have expired if the Optionee had
lived. During such 60-day period, the Option may be exercised by the
Optionee's executor or administrator or by any person or persons who shall
have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of his or her death and, to the extent the
Option is not so exercised, it shall expire at the end of such 60-day
period.
8
<PAGE>
(b) If an Optionee dies during the 60-day period after the
termination of his or her position as an Employee of the Company or a
Subsidiary and at the time of his or her death, the Optionee was entitled
to exercise an Option theretofore granted to him or her, the Option shall,
unless the applicable Option Agreement provides otherwise, expire 60 days
after the date on which his or her position as an Employee of the Company
or a Subsidiary terminated, but in no event, later than the date on which
the Option would have expired if the Optionee had lived. Until the
expiration of such 60-day period, the Option may be exercised by the
Optionee's executor or administrator or by any person or persons who shall
have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of his or her death and, to the extent the
Option is not so exercised, it shall expire at the end of such 60-day
period.
ARTICLE VII.
ADMINISTRATION OF PLAN
7.1. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board or such other committee as may be appointed by the Board
of the Company (the "Committee"), which Committee shall consist of three
members, all of whom are members of the Board. The members of the Committee
shall not be eligible to participate in the Plan. A majority of the Committee
shall constitute a quorum thereof and the actions of a majority of the Committee
at a meeting at which a quorum is present, or actions unanimously approved in
writing by all members of the Committee, shall be the actions of the Committee.
Vacancies occurring on the Committee shall be filled by the Board. The
Committee shall have full and final authority (i) to interpret the Plan and each
of the Option Agreements, (ii) to prescribe, amend and rescind rules
9
<PAGE>
and regulations, if any, relating to the Plan, (iii) to make all determinations
necessary or advisable for the administration of the Plan and (iv) to correct
any defect, supply any omission and reconcile any inconsistency in the Plan and
any Option Agreement. The Committee's determination in all matters referred to
herein shall be conclusive and binding for all purposes and upon all persons,
including, without limitation, the Company, the stockholders of the Company, the
Committee, and each of the members thereof and the Employees of the Company and
their respective successors in interest.
7.2. LIABILITY. No member of the Committee shall be liable for anything
done or omitted to be done by him or her or by any other member of the Committee
in connection with the Plan, except for his or her own willful misconduct or
gross negligence (unless the Company's Certificate of Incorporation or Bylaws,
or any indemnification agreement between the Company and such person, in each
case in accordance with applicable law, provides otherwise). The Committee
shall have power to engage outside consultants, auditors or other professional
help to assist in the fulfillment of the Committee's duties under the Plan at
the Company's expense.
7.3. DETERMINATIONS. In making its determinations concerning the
Employees who shall receive Options as well as the number of shares to be
covered thereby and the time or times at which they shall be granted, the
Committee shall take into account the nature of the services rendered by the
respective Employees, their past, present and potential contribution to the
Company's success and such other factors as the Committee may deem relevant.
The Committee shall determine the form of Option Agreements under the Plan and
the terms and conditions to be included therein, provided such terms and
conditions are not inconsistent with the terms of the Plan the Company's
Certificate of Incorporation or Bylaws or the Stockholders' Agreement among the
Company and all of its initial stockholders. The Committee may waive any
provisions of any
10
<PAGE>
Option Agreement, provided such waiver is not inconsistent with the terms of the
Plan the Company's Certificate of Incorporation or Bylaws or the Stockholders'
Agreement among the Company and all of its initial stockholders as then in
effect. The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Options under the Plan, whether or not such persons are similarly
situated.
ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN
8.1. AMENDMENT OF PLAN. The Plan may be amended at any time and from time
to time by the Board, but no amendment which (i) increases the aggregate number
of shares of Common Stock which may be issued pursuant to Options granted under
the Plan, (ii) decreases the minimum Option exercise price provided in the Plan,
(iii) extends the period during which Options may be granted pursuant to the
Plan, (iv) changes the class of individuals eligible to be granted Options, or
(v) has the effect of any of the above shall be effective unless and until the
same is approved by the affirmative vote of the holders of a majority of the
shares of Common Stock of the Company, or the unanimous written consent of such
holders, in accordance with the applicable provisions of the Certificate of
Incorporation and Bylaws of the Company and applicable state law. No amendment
to the Plan shall, without the consent of an Optionee, affect such Optionee's
rights under an Option previously granted.
8.2. TERMINATION. The Board may, at any time, terminate the Plan as of
any date specified in a resolution adopted by the Board. If not earlier
terminated, the Plan shall terminate on February 4, 2004. No Options may be
granted after the Plan has terminated but the Committee shall continue to
supervise the administration of Options previously granted.
11
<PAGE>
8.3. TAX STATUS OF OPTIONS. To the extent applicable, the Plan is
intended to permit the issuance of Options to Employees in accordance with the
provisions of Section 422 of the Code. Subject to the provision of Section 8.1
of the Plan, the Plan and Option Agreements may be modified or amended at any
time, both prospectively and retroactively, and in a manner that may affect
Options previously granted, if such amendment or modification is necessary for
the Plan and Options granted hereunder to qualify under said provision of the
Code. All Options granted under the Plan shall be intended to qualify as
qualified Incentive Options under Section 422 of the Code to the extent that any
portion of the Options granted meet the requirements of Section 422 of the Code.
To the extent that any portion of the Options granted under the Plan do not meet
the requirements of Section 422 of the Code, such Options shall be deemed to be
Nonqualified Options. Nothing in the Plan shall be deemed to prohibit the
issuance of Nonqualified Options under the Plan.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
9.1. RESTRICTIONS UPON GRANT OF OPTIONS. If the listing upon any stock
exchange or the registration or qualification under any federal or state law of
any shares of Common Stock to be issued on the exercise of Options granted under
the Plan (whether to permit the grant of Options or the resale or other
disposition of any such shares of Common Stock by or on behalf of the Employees
receiving such shares) should be or become necessary or desirable, the Board in
its sole discretion may determine that delivery of the certificates for such
shares of Common Stock shall not be made until such listing, registration or
qualification shall have been completed. The Company agrees that it will use
its reasonable best efforts to effect any such listing, registration or
qualification; provided, however, that the Company shall not be required to use
its reasonable
12
<PAGE>
best efforts to effect such registration under the Securities Act of 1933 other
than on Form S-8 or such other forms as may be in effect from time to time
calling for information comparable to that presently required to be furnished
under Form S-8.
9.2. RESTRICTIONS UPON RESALE OF UNREGISTERED STOCK. Each Optionee shall,
if the Company deems it advisable, represent and agree in writing (i) that any
shares of Common Stock acquired by such Optionee pursuant to this Plan will not
be sold except pursuant to an effective registration statement under the
Securities Act of 1933 or pursuant to an exemption from registration under said
Act, (ii) that such Optionee is acquiring such shares of Common Stock for his or
her own account and not with a view to the distribution thereof and (iii) to
such other customary matters as the Company may request. In such case, no
shares of Common Stock shall be issued to such Optionee unless such Optionee
provides such representations and agreements and the Company is reasonably
satisfied that such representations and agreements are correct.
9.3. ADJUSTMENTS. The number of shares of Common Stock of the Company
authorized for issuance under the Plan, as well as the price to be paid and the
number of shares issued upon exercise of outstanding Options, shall be subject
to adjustment by the Committee, in its sole discretion, to reflect any stock
split, stock dividend, recapitalization, merger consolidation, reorganization,
combination or exchange of shares or other similar event.
9.4. USE OF PROCEEDS. The proceeds from the sale of Common Stock pursuant
to Options granted under the Plan shall constitute general funds of the Company
and may be used for such corporate purposes as the Company may determine.
9.5. SUBSTITUTION OF OPTIONS.
(a) The Committee may, with the consent of the holder of any Option
granted under the Plan, cancel such Option and grant a new Option in
substitution therefor,
13
<PAGE>
provided that the Option as so substituted shall satisfy all of the
requirements of the Plan as of the date such new Option is granted.
(b) Options may be granted under this Plan in substitution for
options held by individuals who are employees of another corporation and
who become Employees of the Company or any Subsidiary of the Company
eligible to receive Options pursuant to the Plan as a result of a merger,
consolidation, reorganization or similar event. The terms and conditions
of any Options so granted may vary from those set forth in the Plan to the
extent deemed appropriate by the Committee in order to conform the
provisions of Options granted pursuant to the Plan to the provisions of the
options in substitution for which they are granted.
9.6. RESTRICTIVE LEGENDS.
(a) Certificates representing shares of Common Stock delivered
pursuant to the exercise of Options shall bear an appropriate legend
referring to the terms, conditions and restrictions described in this Plan.
Any attempt to dispose of any such shares of Common Stock in contravention
of the terms, conditions and restrictions described in this Plan shall be
ineffective, null and void, and the Company shall not effect any such
transfer on its books.
(b) Any shares of Common Stock of the Company received by an Optionee
(or his or her heirs, legatees, distributees or representative) as a stock
dividend on, or as a result of a stock split, combination, exchange of
shares, reorganization, merger, consolidation or otherwise with respect to,
shares of Common Stock received pursuant to the exercise of Options, shall
be subject to the terms and conditions of this Plan and bear the same
legend as the shares received pursuant to the exercise of Options.
14
<PAGE>
9.7. NOTICES. Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company at its principal place of
business, and to the Optionee at the address on file with the Company at the
time of grant hereunder, or to such other address as either party may hereafter
designate in writing by notice similarly given by one party to the other.
IN WITNESS WHEREOF, upon authorization of the Board of Directors and the
Stockholders of the Company, the undersigned has caused this Plan to be executed
as of the 4th day of February 1994.
/s/ WILLIAM C. SAUNDERS
----------------------
William C. Saunders,
President
15
<PAGE>
Exhibit 11
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item ($6,899,000) ($6,786,000) $13,268,000) ($14,029,000)
Accretion of Series B preferred stock (610,000) (494,000) (1,220,000) (988,000)
------------- ------------- ------------- --------------
Loss before extraordinary item (7,509,000) (7,280,000) (14,488,000) (15,017,000)
Extraordinary item --- (6,980,000) --- (6,980,000)
------------- ------------- ------------- --------------
Net loss applicable to common stockholders ($7,509,000) ($14,260,000) ($14,488,000) ($21,997,000)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted average number of shares outstanding,
net of treasury shares 22,035,490 17,641,672 22,029,077 17,567,425
Additional weighted average shares for assumed
exercise of stock options,net of shares
assumed to be repurchased with exersise proceeds --- 1,178,822 --- 1,198,804
------------- ------------- ------------- --------------
Weighted average number of shares outstanding 22,035,490 18,820,494 22,029,077 18,766,229
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
NET LOSS PER COMMON SHARE APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item ($0.31) ($0.36) ($0.60) ($0.75)
Accretion of Series B preferred stock (0.03) (0.03) (0.06) (0.05)
------------- ------------- ------------- --------------
Loss before extraordinary item (0.34) (0.39) (0.66) (0.80)
Extraordinary item --- (0.37) --- (0.37)
------------- ------------- ------------- --------------
Net loss applicable to common stockholders ($0.34) ($0.76) ($0.66) ($1.17)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4630
<SECURITIES> 0
<RECEIVABLES> 6714
<ALLOWANCES> (793)
<INVENTORY> 9578
<CURRENT-ASSETS> 21078
<PP&E> 6832
<DEPRECIATION> (1138)
<TOTAL-ASSETS> 29550
<CURRENT-LIABILITIES> 21319
<BONDS> 0
0
0
<COMMON> 224
<OTHER-SE> (1339)
<TOTAL-LIABILITY-AND-EQUITY> 29550
<SALES> 6423
<TOTAL-REVENUES> 13872
<CGS> 6403
<TOTAL-COSTS> 11818
<OTHER-EXPENSES> 14675
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> 1088
<INCOME-PRETAX> (13268)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13268)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> 0
</TABLE>
