<PAGE> 1
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, 1998
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
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HIGHWAYMASTER COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0352879
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16479 Dallas Parkway, Suite 710, Dallas, Texas 75248
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 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 7, 1998
- ---------------------------- -----------------------------------
Common Stock, $.01 par value 24,898,986
<PAGE> 2
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 1
Consolidated Statements of Operations for the
three months and six months ended June 30,
1998 and 1997 2
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 3
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,751 $ 26,777
Temporary investments - current portion 11,332 19,709
Accounts receivable, net 16,011 13,963
Other short-term receivables 492 916
Inventory 2,033 3,145
Pledged securities - current portion 17,187 17,187
Prepaid expenses 213 279
---------- ----------
Total current assets 66,019 81,976
Network, equipment and software, net 18,810 15,482
Temporary investments - long-term portion 9,235 13,626
Pledged securities - long-term portion 23,297 30,216
Other assets, net 4,788 5,173
---------- ----------
Total assets $ 122,149 $ 146,473
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,165 $ 6,262
Telecommunications costs payable 4,141 2,192
Accrued interest payable 5,061 4,679
Other current liabilities 5,952 4,114
---------- ----------
Total current liabilities 18,319 17,247
Senior notes payable 121,216 120,956
---------- ----------
Total liabilities 139,535 138,203
---------- ----------
Stockholders' equity (deficit):
Preferred stock -- --
Common stock 252 252
Additional paid-in capital 149,481 149,481
Accumulated deficit (166,572) (140,916)
Treasury stock (547) (547)
---------- ----------
Total stockholders' equity (deficit) (17,386) 8,270
Commitments and contingencies
---------- ----------
Total liabilities and stockholders' equity (deficit) $ 122,149 $ 146,473
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
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,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $ 5,459 $ 8,417 $ 10,086 $ 14,249
Service 12,234 5,948 23,330 11,006
-------- -------- -------- --------
Total revenues 17,693 14,365 33,416 25,255
-------- -------- -------- --------
Cost of revenues:
Product 4,159 7,150 7,906 12,148
Service 8,555 5,064 17,270 8,671
-------- -------- -------- --------
Total cost of revenues 12,714 12,214 25,176 20,819
-------- -------- -------- --------
Gross profit 4,979 2,151 8,240 4,436
-------- -------- -------- --------
Expenses:
General and administrative 6,858 2,398 10,192 6,003
Customer service 3,061 2,769 6,425 5,000
Sales and marketing 2,328 1,963 4,507 4,055
Engineering 1,671 1,095 3,080 2,212
Network services center 438 254 835 538
Severance cost 445 -- 445 --
Depreciation and amortization 1,278 600 2,347 1,093
-------- -------- -------- --------
16,079 9,079 27,831 18,901
-------- -------- -------- --------
Operating loss (11,100) (6,928) (19,591) (14,465)
Interest income 1,485 285 2,827 448
Interest expense (4,452) -- (8,892) --
-------- -------- -------- --------
Loss before income taxes (14,067) (6,643) (25,656) (14,017)
Income tax provision -- -- -- --
-------- -------- -------- --------
Net loss ($14,067) ($ 6,643) ($25,656) ($14,017)
======== ======== ======== ========
Per share:
Basic and diluted net loss ($ 0.56) ($ 0.27) ($ 1.03) ($ 0.56)
======== ======== ======== ========
Weighted average number of shares outstanding 24,899 24,858 24,899 24,843
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($25,656) ($14,017)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 2,347 1,093
Amortization of discount on notes payable 260 --
(Increase) in accounts receivable (2,048) (2,966)
Decrease in other receivables 472 790
Decrease in inventory 1,112 694
Increase (decrease) in accounts payable (3,097) 895
Increase in accrued expenses and other current liabilities 4,169 2,977
Other 213 (153)
-------- --------
Net cash used in operating activities (22,228) (10,687)
-------- --------
Cash flows from investing activities:
Additions to network and equipment (4,572) (1,191)
Additions to capitalized software (913) (2,062)
Decrease in pledged securities 6,919 --
Decrease in temporary investments 12,768 --
-------- --------
Net cash provided by (used in) investing activities 14,202 (3,253)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 202
-------- --------
Net cash provided by financing activities -- 202
-------- --------
(Decrease) in cash (8,026) (13,738)
Cash and cash equivalents, beginning of period 26,777 19,725
-------- --------
Cash and cash equivalents, end of period $ 18,751 $ 5,987
======== ========
Supplemental cash flow information:
Interest paid $ 8,212 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Six months ended June 30, 1998
(UNAUDITED)
(in thousands, except share information)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
------------------- -------------------- Paid-in -------------------
Shares Amount Shares Amount Capital Shares Amount
------ -------- ---------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity at December 31, 1997 1,000 $ -- 25,210,983 $252 $149,481 311,997 ($547)
------------------- ------------------- -------- -----------------
Net loss
Stockholders' equity at June 30, 1998 1,000 $ -- 25,210,983 $252 $149,481 311,997 ($547)
=================== =================== ======== =================
<CAPTION>
Accumulated
Deficit Total
----------- ---------
<S> <C> <C>
Stockholders' equity at December 31, 1997 ($140,916) $ 8,270
Net loss (25,656) (25,656)
--------- --------
Stockholders' equity at June 30, 1998 ($166,572) ($17,386)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company develops and implements mobile communications
solutions, including integrated voice, data and position location
services, to meet the needs of its customers. The initial application
for the Company's wireless enhanced services has been developed for,
and is marketed and sold to, companies which operate in the long-haul
trucking market. The Company provides long-haul trucking companies
with a comprehensive package of mobile communications and management
control services at a fixed rate per minute, thereby enabling its
trucking customers to effectively monitor the operations and improve
the performance of their fleets. The Company is currently developing
additional applications for its network to expand the range of trucking
companies that utilize its services and to address the needs of the
automotive and other markets.
Through 1997, the Company derived all of its revenues from the
long-haul trucking market from sales and installation of Mobile
Communication Units ("mobile units") and charges for its services. In
early 1998, the Company commenced marketing a mobile communication
solution applicable to broader segments of the trucking market.
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, 1997. 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.
3. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Complete systems $ 912,000 $ 1,370,000
Component parts 1,121,000 1,775,000
----------- -----------
$ 2,033,000 $ 3,145,000
=========== ===========
</TABLE>
4. CONTINGENCIES
As previously reported, the Company is party to a lawsuit
filed in the U.S. District Court, Northern District of Texas, Dallas
Division against AT&T Corp. ("AT&T") and Lucent Technologies, Inc.
("Lucent"). Reference is made to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 for additional
information regarding this lawsuit.
In late 1997 the Company retained experts to analyze and
advise it with respect to various taxation issues. While this
evaluation and analysis is not yet complete, it involves the
identification of exemptions from taxation for certain types of
businesses or services, the confirmation of taxes currently being
passed through and the identification of sales tax issues needing
attention by the Company.
5
<PAGE> 8
Based on preliminary estimates of possible exposure to sales taxes for current
and prior periods, the Company recorded a provision for taxes and other related
costs in the amount of $1,300,000 at June 30, 1998. This estimate may vary
materially from the amount of taxes that the Company may determine are payable.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARABILITY
During 1997, the Company's service revenues were generated from mobile
units served by either a switching complex operated by AT&T (the " AT&T
Complex") or by the Company's Network Services Center ("NSC"). During the three
and six month periods ended June 30, 1997, the majority of the installed base of
mobile units was served by the AT&T Complex. During the three and six month
periods ended June 30, 1998, the entire installed base of mobile units was
served by the NSC. Historically, the amount of service revenue and related
expense recognized by the Company varied significantly based upon whether a
particular customer received service through the AT&T Complex or the NSC. In the
case of customers served through the AT&T Complex, service charges were
collected by AT&T. The Company recognized as revenue the portion of service
charges received from AT&T, with the remainder of the service charges retained
by AT&T as compensation for its cost of providing services. In the case of
customers served by the NSC, the entire amount of the service charges to
customers is recognized by the Company as revenue and additional operating and
service expenses are borne by the Company. The operating expenses associated
with the NSC are reflected in the Company's financial statements as general and
administrative expenses (customer billing, credit, and collection activities),
network services center (other third party and internal operating expenses) and
depreciation. Because of the difference in the economic relationships described
above, as a greater proportion of customers have been served by the NSC, the
Company recognized increased service revenues, which are offset by additional
operating and service expenses.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended
June 30, 1997
Total revenues increased from $14.4 million in 1997 to $17.7 million in
1998. Product revenues decreased from $8.4 million in 1997 to $5.5 million in
1998 primarily as a result of a 43.0% decrease in mobile units sold. Product
shipments in 1998 were less than the Company's expectations as a result of a
general slowness in the trucking industry, the absence of any major new
contracts and the introduction of the Series 3000 mobile unit did not generate
any significant sales volumes. The Company is currently reevaluating its plans
and strategy for the Series 3000 product. Service revenues increased to $12.2
million in 1998 as compared to $5.9 million in 1997 due to the combined effect
of (i) the increase in the installed base of mobile units to 37,082 at June 30,
1998 from 25,233 at June 30, 1997 and (ii) increased service revenues per
mobile unit. Average monthly revenue per mobile unit in 1998 increased to
$109.31 from $82.62 in 1997 since the entire installed base of mobile units was
served through the NSC in 1998, as compared to the majority of the installed
base being served through the AT&T Complex in 1997. See discussion under
"Comparability," above.
Cost of revenues in 1998 was $12.7 million compared to $12.2 million in
1997 reflecting a decrease in cost of product revenues, as a result of the
decrease in the number of units sold, offset by an increase in cost of service
revenues as a result of the increase in the installed base of mobile units in
service.
Product gross profit margin was 23.8% in 1998 compared to 15.1% in
1997. The improvement in product gross profit margin is primarily attributable
to a lower provision for warranty costs, and lower installation costs as a
result of fewer installations in the 1998 period.
Service gross profit margin was 30.1% in 1998 compared to 14.9% in
1997. The Company incurs certain costs for airtime usage that are not billable
to customers under current billing practices. During the three months ended June
30, 1997, the Company recorded an adjustment to increase cellular airtime cost,
a component of cost of service revenue, based on new billing data received in
July, 1997. This new billing data indicated that the portion of airtime usage
not billable to customers was higher than previously believed by the Company and
used as the basis for recording accounting estimates. The increase in cost of
cellular airtime paid for by the Company in relation to airtime billable to
customers caused the decrease in service gross profit margin for the 1997
period. A portion of the adjustment made to cellular airtime costs related to
the three months ended March 31, 1997. Excluding the portion of the adjustment
attributable to the prior
7
<PAGE> 10
quarter, the Company's service gross profit margin for the quarter ended June
30, 1997 would have been approximately 20%. The improvement in service gross
profit margin to 30.1% in 1998 reflects the changed economic relationships
described under "Comparability," and the effect of technical adjustments and
modifications implemented since July, 1997 to improve service gross profit
margin. The Company continues to evaluate the components of its service gross
profit margin to attempt to identify additional technical adjustments and
modifications that may enable it to improve its service gross profit margin.
General and administrative expenses increased to $6.9 million in 1998
compared to $2.4 million in 1997. Of this $4.5 million increase, approximately
$1.5 million represents a provision for bad debts related to the Company's NSC
accounts receivable, and approximately $1.3 million represents a charge to
accrue an estimated liability for sales taxes and associated costs as described
in Note 4 to the accompanying consolidated financial statements. The $1.5
million provision for bad debts relates to personal calling accounts activated
in connection with a promotion designed to increase minutes of airtime usage. As
a result of the unfavorable experience in connection with these personal account
customers, the Company has discontinued the promotion and is changing the credit
process with respect to personal accounts in a attempt to reduce the Company's
credit risk. The remainder of the increase in general and administrative
expenses is represented primarily by (i) ordinary and customary costs associated
with billing, credit and collection activities for the NSC, (ii) growth in the
number of employees and salary increases, (iii) consulting fees in connection
with evaluation of the Company's information systems and efforts to improve
service gross profit margin, and (iv) professional fees, of which legal fees in
connection with the AT&T litigation are the most significant component.
Customer service expenses increased to $3.1 million in 1998 compared to
$2.8 million in 1997, attributable to the increasing emphasis on improving
response to customer needs, improvement in the technical operations of the
network and growth in the installed base of mobile units sold and in service.
Sales and marketing expenses increased to $2.3 million in 1998 compared
to $2.0 million in 1997 primarily as a result of increased advertising expense
related to AutoLink, the Series 3000 mobile unit and Platinum service.
Engineering expenses increased to $1.7 million in 1998 compared to $1.1
million in 1997. This increase is primarily attributable to increases in payroll
related costs as a result of an increase in the number of engineering personnel
devoted to continuation engineering and new product development, and other costs
specifically related to the development and release of the AutoLink service.
Severance costs of $0.4 million relate to the reduction in the number
of employees pursuant to a reorganization announced in June, 1998. The reduction
in the number of employees primarily reflects the elimination of redundancies
that had been necessary as a result of having customers served by both the AT&T
Complex and the NSC. All customers were served by the NSC as of December 31,
1997.
Depreciation and amortization expense increased to $1.3 million in 1998
compared to $0.6 million in 1997 reflecting the additional depreciation and
amortization as a result of additions to network, equipment and capitalized
software during 1997.
Interest income was $1.5 million in 1998 compared to $0.3 million in
1997. Interest expense was $4.5 million in 1998 compared to zero in 1997. The
change in these relationships reflects the higher average outstanding balances
during 1998 in cash and cash equivalents, temporary investments and notes
payable as a result of the issuance of the Senior Notes in September, 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended
June 30, 1997
Total revenues increased to $33.4 million in 1998 compared to $25.3
million in 1997. Product revenues decreased from $14.2 million in 1997 to $10.1
million in 1998 primarily as a result of a 36.0% decrease in mobile units sold.
Product shipments in 1998 were less than the Company's expectations as a result
of a general slowness in the trucking industry, the absence of any major new
contracts and the introduction of the Series 3000 mobile unit did not generate
any significant sales volumes. The Company is currently reevaluating its plans
and strategy for the Series 3000 product. Service revenues increased to $23.3
million in 1998 as compared to $11.0 million in 1997 due to the combined effect
of (i) the increased installed base of mobile units and (ii)
8
<PAGE> 11
increased service revenues per mobile unit. Average monthly revenue per mobile
unit in 1998 increased to $107.58 from $80.48 in 1997 since the entire installed
base of mobile units was served through the NSC in 1998, as compared to the
majority of the installed base being served through the AT&T Complex in 1997.
Cost of revenues in 1998 was $25.2 million compared to $20.8 million in
1997 reflecting a decrease in cost of product revenues, as a result of the
decrease in the number of units sold, offset by an increase in cost of service
revenues as a result of the increase in the installed base of mobile units in
service.
Product gross profit margin was 21.6% in 1998 compared to 14.7% in
1997. The improvement in product gross profit margin is primarily attributable
to a lower provision for warranty costs.
Service gross profit margin was 26.0% in 1998 compared to 21.2% in
1997. The Company incurs certain costs for airtime usage that are not billable
to customers under current billing practices. During the six months ended June
30, 1997, the Company recorded an adjustment to increase cellular airtime cost,
a component of cost of service revenue, based on new billing data received in
July, 1997. This new billing data indicated that the portion of airtime usage
not billable to customers was higher than previously believed by the Company and
used as the basis for recording accounting estimates. The increase in cost of
cellular airtime paid for by the Company in relation to airtime billable to
customers caused the decrease in service gross profit margin for the 1997
period. The improvement in service gross profit margin to 26.0% in 1998 reflects
the changed economic relationships described under "Comparability," above, and
the effect of technical adjustments and modifications implemented since July,
1997 to improve service gross profit margin. The Company continues to evaluate
the components of its service gross profit margin to attempt to identify
additional technical adjustments and modifications that may enable it to improve
its service gross profit margin.
General and administrative expenses increased to $10.2 million in 1998
compared to $6.0 million in 1997. Of this $4.2 million increase, approximately
$1.5 million represents a provision for bad debts related to the Company's NSC
accounts receivable, and approximately $1.3 million represents a charge to
accrue an estimated liability for sales taxes and associated costs
as described in Note 4 to the accompanying consolidated financial statements.
The $1.5 million provision for bad debts relates to personal calling accounts
activated in connection with a promotion designed to increase minutes of airtime
usage. As a result of the unfavorable experience in connection with these
personal account customers, the Company has discontinued the promotion and is
changing the credit process with respect to personal accounts in a attempt to
reduce the Company's credit risk. The remainder of the increase in general and
administrative expenses is represented primarily by (i) ordinary and customary
costs associated with billing, credit and collection activities for the NSC ,
(ii) growth in the number of employees and salary increases, (iii) consulting
fees in connection with evaluation of the Company's information systems and
efforts to improve service gross profit margin, and (iv) professional fees, of
which legal fees in connection with the AT&T litigation are the most significant
component.
Customer service expenses increased to $6.4 million in 1998 compared to
$5.0 million in 1997, attributable to the increasing emphasis on improving
response to customer needs, improvement in the technical operations of the
network and growth in the number of mobile units shipped and in service.
Sales and marketing expenses increased to $4.5 million in 1998 compared
to $4.1 million in 1997 primarily as a result of increased advertising expense
related to AutoLink, the Series 3000 mobile unit and Platinum service.
Engineering expenses increased to $3.1 million in 1998 compared to $2.2
million in 1997. This increase is primarily attributable to increases in payroll
related costs as a result of an increase in the number of engineering personnel
devoted to continuation engineering and new product development, and other costs
specifically related to the development and release of the AutoLink service.
Severance costs of $0.4 million relate to the reduction in the number
of employees pursuant to a reorganization announced in June, 1998. The reduction
in the number of employees primarily reflects the elimination of redundancies
that had been necessary as a result of having customers served by both the AT&T
Complex and the NSC. All customers were served by the NSC as of December 31,
1997.
9
<PAGE> 12
Depreciation and amortization expense increased to $2.3 million in 1998
compared to $1.1 million in 1997 reflecting the additional depreciation and
amortization as a result of additions to network, equipment and capitalized
software during 1997.
Interest income was $2.8 million in 1998 compared to $0.4 million in
1997. Interest expense was $8.9 million in 1998 compared to zero in 1997. The
change in these relationships reflects the higher average outstanding balances
during 1998 in cash and cash equivalents, temporary investments and notes
payable as a result of the issuance of the Senior Notes in September,1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash consumed by operating activities during the six months ended
June 30, 1998 was $22.2 million due primarily to a $25.7 million loss from
operations. The Company's cash, cash equivalents and temporary investments
balance at June 30, 1998 was $39.3 million. Based on the Company's projected
operating results, the Company believes its existing capital resources will be
sufficient to fund its currently anticipated operating needs and capital
expenditure requirements for approximately the next ten to twelve months.
However, the Company's future cash flow from operations and operating
requirements may vary depending on a number of factors, including the rate of
installation of mobile units, the level of competition, success of new products,
general economic conditions and other factors beyond the Company's control.
In September 1997, the Company issued $125,000,000 of senior notes (the
"Senior Notes") in a Rule 144A offering. The Company has placed in escrow funds
which are sufficient to pay interest on the Senior Notes through September 15,
2000. After such date, the Company will be required to pay interest on the
Senior Notes on a semi-annual basis as a rate of 13 3/4% per annum.
The Company's capital resources may be insufficient to fund its
operating needs, capital expenditures and debt service requirements in the
long-term. The Company believes that, in order to address its long-term capital
requirements, it will need to take steps to (i) improve the efficiency of its
operations so as to reduce or eliminate its operating losses, (ii) curtail or
eliminate one or more new applications under development by the Company so as
to reduce its operating costs or (iii) obtain additional sources of debt or
equity financing. The Company's ability to obtain additional debt financing is
materially restricted under the terms of the indenture governing the Senior
Notes. There can be no assurance that the Company would be able to obtain
additional debt and equity financing on terms that it would regard as
satisfactory, if at all.
In July 1998, the Company commenced a reassessment of all facets of
its business strategy, operations and organizational structure with the
objective of making more efficient use of its limited capital resources and
refocussing its operating and capital expenditure plans.
FORWARD LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including without
limitation, certain statements in this Item 2 under the captions "---Results of
Operations" and "---Liquidity and Capital Resources," may constitute forward
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from the Company's
expectations ("cautionary statements") are disclosed in this report and the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 (under
the caption "Business --- Risk Factors" and elsewhere). All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
10
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings --
AT&T Litigation. As previously reported, the Company is party
to a lawsuit filed in the U.S. District Court, Northern
District of Texas, Dallas Division against AT&T Corp. ("AT&T")
and Lucent Technologies, Inc. ("Lucent"). Reference is made to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 for additional information regarding
this lawsuit.
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 26, 1998. 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 Stockholders or until their respective
successors have been duly elected and qualified; and (ii)
ratified the selection of Price Waterhouse LLP as the
Company's independent accountants for the Company's fiscal
year ending December 31, 1998.
The Company had 24,898,986 shares of Common Stock outstanding
as of April 6, 1998, the record date for the Annual Meeting.
At the Annual Meeting, holders of a total of 19,975,389 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:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Shares Voting Shares
Director In Favor Withheld
-------- ------------- --------
<S> <C> <C>
William C. Kennedy, Jr. 19,918,863 56,526
William C. Saunders 19,918,813 56,576
Stephen L. Greaves 19,920,413 54,976
Terry S. Parker 19,920,563 54,826
Gerry C. Quinn 19,918,113 57,276
</TABLE>
Proposal 2: Ratification of Price Waterhouse as the Company's
Independent Accountants
Votes in favor: 19,965,776
Votes against: 5,080
Abstentions: 4,533
11
<PAGE> 14
Item 5. Other Information --
On June 24, 1998, the Company received notification from The
Nasdaq Stock Market, Inc. ("NASDAQ") that the Company was not
in compliance with the minimum bid price requirement for
listing on the Nasdaq National Market and that should
compliance not be demonstrated by September 24, 1998, that the
Company would be delisted at the opening of business on
September 28, 1998. At the present time, the Company is still
not in compliance with the minimum bid price requirement for
maintaining a Nasdaq National Market listing, which provides
that the bid price for the common stock must remain at or
above $5.00. In early August 1998, the Company's Board of
Directors authorized the Company, in the event that it is
unable to achieve compliance with the minimum bid price
requirement, to apply for the common stock to be admitted for
trading on the Nasdaq SmallCap Market. The Company has
commenced discussions with Nasdaq regarding the possible
reassignment of its common stock to the Nasdaq SmallCap
Market. There can be no assurance that the Company will be
able to achieve compliance with Nasdaq National Market
criteria or that the common stock will be admitted for trading
on the Nasdaq SmallCap Market.
As previously reported, the initial term of the contract
between the Company and GTE-TSI, pursuant to which GTE-TSI
provides certain functions that enable the Company to
instantly deliver calls nationwide, ended on March 14, 1998,
and the contract is continuing under its short term renewal
provisions. At the present time, the Company and GTE-TSI are
still engaged in negotiating the terms of a permanent contract
extension.
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> 15
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 12, 1998
By: /s/ William C. Saunders
-----------------------------------------
William C. Saunders
President and Chief Executive Officer
By: /s/ Jana Bell
-----------------------------------------
Jana Bell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
3.1 - Certificate of Incorporation of the Company, as amended.(1)(9)
3.2 - Amended and Restated By-Laws of the Company.(13)
4.1 - Specimen of certificate representing Common Stock, $.01 par value, of
the Company.(1)
4.2 - Warrant Certificate, dated September 27, 1996, issued to SBW.(7)
4.3 - Recapitalization Agreement, dated September 27, 1996, by and among the
Company, the Erin Mills Stockholders, the Carlyle Stockholders and the
other persons named therein.(7)
4.4 - Amended and Restated Stockholders' Agreement, dated September
27, 1996, by and among the Company, SBW, the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word Stockholders
and the other persons named therein.(7)
4.5 - Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 - Pledge Agreement dated September 23, 1997 by and among the Company,
Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 - Registration Rights Agreement dated September 23, 1997 by and among
the Company, HighwayMaster Corporation, Bear, Stearns & Co. Inc. and
Smith Barney Inc.(12)
4.8 - Warrant Agreement dated September 23, 1997 by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 - Warrant Registration Rights Agreement dated September 23, 1997 by and
among the Company, Bear, Stearns & Co. Inc. and Smith Barney, Inc.(12)
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)
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, as amended.(1)(5)(6)
10.7 - Purchase Agreement, dated September 27, 1996, between the
Company and SBW.(7)
10.8 - Mobile Communications (Voice and Data) Services Agreement, dated
as of July 15, 1993, between the Company and EDS Personal
Communications Corporation.(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)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
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 - Technical Services Agreement, dated September 27, 1996, between
the HM Corporation and SBW.(7)
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 - Agreement, dated December 3, 1996, between the Company and
Pickett Racing.(8)
10.19 - Software Transfer Agreement, dated April 25, 1997 between the
Company and Burlington Motor Carriers, Inc.(9)(10)
10.20 - Purchase Agreement dated September 18, 1997 by and among the
Company, HighwayMaster Corporation, Bear, Stearns & Co. Inc. and
Smith Barney Inc.(12)
10.21 - Employment Agreement, dated December 12, 1995, by and between
HighwayMaster Corporation and William McCausland.(13)
10.22 - Employment Agreement, dated May 29, 1998, by and between HighwayMaster
Corporation and Jana Alfinger Bell. (14)
27 - Financial Data Schedule.(14)
</TABLE>
- ---------
(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 Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(4) Certain confidential portions deleted pursuant to
Application for Confidential Treatment filed in connection
with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or arrangement
required to be identified pursuant to Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q Quarterly
Report for the quarterly period ended June 30, 1996.
(7) Filed in connection with the Company's Current Report on
Form 8-K filed on October 7, 1996.
(8) Filed in connection with the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
(9) Filed in connection with the Company's Form 10-Q Quarterly
Report for the quarterly period ended March 31, 1997.
(10) Certain confidential portions deleted pursuant to Order
Granting Application for Confidential Treatment issued in
connection with the Company's Form 10-Q Quarterly Report
for the quarterly period ended March 31, 1997.
(11) Filed in connection with the Company's Form 10-Q Quarterly
Report for the quarterly period ended June 30, 1997.
(12) Filed in connection with the Company's Registration
Statement on Form S-4, as amended (No. 333-38361).
<PAGE> 18
(13) Filed in connection with the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
(14) Filed herewith.
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT"), dated and effective as of
the 29th day of May, 1998, is entered into in Dallas, Texas by and between
HighwayMaster Corporation, a Delaware corporation, with its principal place of
business located at 16479 Dallas Parkway, Suite 710, Dallas, Texas, 75248
("EMPLOYER"), and Jana Ahlfinger Bell, an individual residing in Dallas, Texas
("EMPLOYEE").
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, Employer and Employee, intending to be legally bound, hereby agree as
follows:
1. Employment Relationship. Employer hereby employs Employee, and
Employee hereby accepts such employment, upon the terms and conditions set forth
in this Agreement. Such employment relationship shall continue for the stated
term of this Agreement, as described in Section 8 hereof, or until the earlier
termination of such relationship and this Agreement pursuant to Section 6
hereof.
2. Position and Responsibilities of Employee. Employee shall be
employed as Executive Vice President, Chief Financial Officer. Employee shall
report to the President and shall devote such time and attention to the business
of Employer as shall be required for the efficient management thereof, and shall
manage and supervise such business, and shall devote her full time best efforts
to the faithful performance of her duties on behalf of Employer. Employee shall
also perform such other duties, and may have job responsibilities and titles
modified from time to time as may be requested by the Executive Management of
the Company or by resolution of the Board of Directors of Employer, provided
such duties and job titles are generally consistent with the level of
responsibility currently held by Employee. Employee shall not engage in
additional gainful employment during the term of this Agreement without advance
written consent from Employer.
3. Compensation. For all services rendered by Employee pursuant to this
Agreement, Employer shall pay to Employee, and Employee shall accept as full
compensation hereunder the following:
(a) Salary. Employee shall receive a salary of $16,666 per month
payable by Employer in bi-monthly amounts in Dallas, Texas. Employee's
salary shall be subject to all appropriate federal and state withholding
taxes and shall be payable in accordance with the normal payroll procedures
of Employer. Employer may be permitted in its sole discretion, but not
required, to increase the amount of compensation payable to Employee during
the term of this Agreement, however, once increased compensation may not be
decreased.
EMPLOYMENT AGREEMENT - PAGE 1
<PAGE> 2
(b) Benefits and Perquisites. Employee shall be entitled to
participate in the employee benefit plans provided by Employer for all
employees generally, and for executive employees of Employer. Employer
shall be entitled to change such plans from time to time, and the parties
acknowledge that at the initial date of this Agreement the fringe benefits
provided to Employee include a corporate 401(k) plan (contributions by
Employee only under current plan), health and dental insurance for the
Employee, short term disability insurance, long term disability insurance
and reimbursement of certain expenses in accordance with the policies and
procedures of the Company.
(c) Discretionary Bonuses. The President and the Compensation
Committee of the Board of Directors of Employer shall establish an
incentive bonus plan for Employee based on various targets and performance
criteria to be established by Employee in consultation with the President.
The evaluation of the performance of the Employee as measured by the
applicable targets and the awarding of applicable bonuses, if any, shall be
at the sole discretion of the President. The potential annual bonus which
may be awarded to Employee shall be in the amount of $50,000 at the first
fiscal year end of Employer after execution of this Agreement, and 25% of
actual base salary paid to Employee pursuant to Section 3(a) above in
subsequent fiscal years. The first fiscal year bonus shall not be reduced
by proration for the amount of time Employee was employed by Employer
during the first fiscal year of her employment, whereas the final bonus
shall be prorated to reflect the portion of the final fiscal year which is
covered by this Agreement. Each annual discretionary bonus may be awarded
whole, in part, or withheld in its entirety based on the level of incentive
bonus plan performance criteria achieved by Employee, in the sole judgement
of the President. The discretion allowed the President and Compensation
Committee in this paragraph are expressly made subject to the duty of good
faith and fair dealing set forth in Section 13 below.
(d) Signing Bonus. Employee shall be entitled to a signing bonus of
$30,000, payable on the date Employee begins work as an employee of
Employer under this Agreement.
4. Stock Options. Upon execution of this Agreement, Employee shall be
issued stock options to purchase 70,000 shares of stock of HighwayMaster
Communications, Inc. ("Initial Options") at a price to be determined by such
Committee which is equal to the trading price of the stock on a public trading
market on the date of issuance. The Initial Options will vest over a three year
schedule as set forth herein, with one-third vesting on the first anniversary of
the execution of this Agreement, the second one-third vesting on the second
anniversary of the execution of this Agreement, and the third one-third vesting
on the third anniversary of the execution of this Agreement. Notwithstanding the
vesting schedule in the previous sentence, all Initial Options will accelerate
and will vest immediately upon sale of more than 50% of the common stock or
assets of Employer ("Change in Control of Employer"). Initial Options shall be
issued pursuant to the applicable Employee Stock Option Plan and Stock Option
Agreement to be signed by the Employee.
EMPLOYMENT AGREEMENT - PAGE 2
<PAGE> 3
In the event of any direct conflict with the Employee Stock Option Agreement or
Employee Stock Option Plan, the terms of the Initial Options shall be governed
by this Agreement.
5. Protective Covenants. Employee recognizes that her employment by
Employer is one of the highest trust and confidence because (i) Employee will
become fully familiar with all aspects of Employer's business during the period
of her employment with Employer, (ii) certain information of which Employee will
gain knowledge during her employment by Employer is proprietary and confidential
information which is of special and peculiar value to Employer, and (iii) if any
such proprietary and confidential information were imparted to or became known
by any person, including Employee, engaging in a business in competition with
that of Employer, hardship, loss and irreparable injury and damage could result
to Employer, the measurement of which would be difficult if not impossible to
ascertain. Employee acknowledges that any and all inventions, improvements,
discoveries, formulae, processes, products or designs developed by Employee
alone or in conjunction with others in connection with Employer's business
during the term of Employee's employment with Employer ("Proprietary
Information") shall be the sole and absolute property of Employer in perpetuity,
that Employee shall promptly disclose such Proprietary Information to Employer,
and Employee shall have no right, title or interest therein or to receive
additional monies therefor, regardless of whether development occurred during
working hours or any other time during the term of Employee's employment with
Employer. Employee shall assist Employer in obtaining patents on all such
Proprietary Information deemed patentable by Employer and shall execute all
documents necessary to obtain such patents and to vest Employer with full and
exclusive title to the patents and to provide testimony, documents, or otherwise
make himself available to protect the patents against infringement by others.
For purposes of this Agreement, an invention shall be deemed to have been made
during the period of Employee's employment if, during such period, the invention
was conceived or first actually reduced to practice, and Employee agrees that
any patent application filed by Employee within one (1) year after the
termination of Employee's employment with Employer shall be presumed to relate
to an invention made during the term of Employee's employment with Employer
unless Employee can establish the contrary. Employee further acknowledges that
Employer has developed unique skills, concepts, sales presentations, marketing
programs, marketing strategy, business practices, methods of operation,
trademarks, licenses, technical information, Proprietary Information, computer
software programs, tapes and discs concerning its operations systems, customer
lists, customer leads, documents identifying past, present and future customers,
hiring and training methods, investment policies, financial and other
confidential and proprietary information concerning its operations and expansion
plans ("Trade Secrets"). Therefore, Employee agrees that it is necessary for
Employer to protect its business and that of its affiliates from such damage,
and Employee further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both Employee and
Employer, to protect Employer or its affiliates against damage due to loss or
disclosure of Proprietary Information or Trade Secrets and shall apply to and be
binding upon Employee as provided herein:
EMPLOYMENT AGREEMENT - PAGE 3
<PAGE> 4
(a) Trade Secrets. Employee recognizes that her position with
Employer is one of the highest trust and confidence by reason of Employee's
access to and contact with certain Trade Secrets of Employer. Employee
agrees and covenants that, except as may be required by Employer in
connection with this Agreement, or with the prior written consent of
Employer, Employee shall not, either during the term of this Agreement or
thereafter, directly or indirectly, use for Employee's own benefit or for
the benefit of another, or disclose, disseminate, or distribute to another,
except as directed by Employer or as required for the performance of
Employee's duties on behalf of the Employer, any Trade Secret (whether or
not acquired, learned, obtained, or developed by Employee alone or in
conjunction with others) of Employer or of others with whom Employer has a
business relationship. All memoranda, notes, records, drawings, documents,
or other writings whatsoever made, compiled, acquired, or received by
Employee during the term of this Agreement, arising out of, in connection
with, or related to any activity or business of Employer, including, but
not limited to, the customers, suppliers, or others with whom Employer has
a business relationship, the arrangements of Employer with such parties,
and the pricing and expansion policies and strategy of Employer, are, and
shall continue to be, the sole and exclusive property of Employer and
shall, together with all copies thereof and all advertising literature, be
returned and delivered to Employer by Employee immediately, without demand,
upon the termination of this Agreement, or at any time upon Employer's
demand.
Employee represents and warrants that she is not bound by any
agreement with any prior employer or other party that will be breached by
execution and performance of this Agreement, or which would otherwise
prevent her from performing her duties with Employer as set forth in this
Agreement. Employee represents and warrants that she has not retained any
copies of proprietary and confidential information of any prior employer,
and she will not use or rely on any confidential and proprietary
information of any prior employer in carrying out her duties for Employer.
(b) Covenant Not to Compete. In the event this Agreement is
terminated for any reason, Employee hereby covenants and agrees that for a
period of 24 months after termination of this Agreement for any reason, she
will not directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, shareholder (other than through
ownership of publicly-traded capital stock of a corporation which
represents less than five percent (5%) of the outstanding capital stock of
such corporation), corporate officer, director, investor, financier or in
any other individual or representative capacity, engage or participate in
the wireless tracking and communication services business for the long haul
trucking industry in the United States of America, or in wireless
automotive vehicle security and roadside assistance services in the United
States of America.
(c) Survival of Covenants. Each covenant of Employee set forth in
this Section 5 shall survive the termination of this Agreement and shall be
construed as an agreement
EMPLOYMENT AGREEMENT - PAGE 4
<PAGE> 5
independent of any other provision of this Agreement, and the
existence of any claim or cause of action of Employee against Employer
whether predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by Employer of said covenant.
(d) Remedies. In the event of breach or threatened breach by
Employee of any provision of this Section 5, Employer shall be entitled to
relief by temporary restraining order, temporary injunction, or permanent
injunction or otherwise, in addition to other legal and equitable relief to
which it may be entitled, including any and all monetary damages which
Employer may incur as a result of said breach, violation or threatened
breach or violation. Employer may pursue any remedy available to it
concurrently or consecutively in any order as to any breach, violation, or
threatened breach or violation, and the pursuit of one of such remedies at
any time will not be deemed an election of remedies or waiver of the right
to pursue any other of such remedies as to such breach, violation, or
threatened breach or violation, or as to any other breach, violation, or
threatened breach or violation.
Employee hereby acknowledges that Employee's agreement to be bound by
the protective covenants set forth in this Section 5 was a material inducement
for Employer entering into this Agreement and agreeing to pay Employee the
compensation and benefits set forth herein.
6. Termination. The employment relationship between Employee and
Employer created hereunder shall terminate before the expiration of the stated
term of this Agreement upon the occurrence of any one of the following events:
(a) Death or Permanent Disability. The employment relationship shall
be terminated effective on the death of the Employee.
The Employee shall be entitled to leaves of absence from the
Company in accordance with the policy of the Company generally
applicable to executives for illness or other temporary disabilities for a
period or periods not exceeding six months in any calendar year, and her
status as an employee shall continue during such periods. Provided, that
Employee shall apply for Employer's short term disability insurance
payments during such six month period, Employer shall supplement such short
term disability payments during the first three months of such six month
period to equal Employee's total compensation under this Agreement, and
during the last three months of such six month period Employee shall accept
payments under the Employer's standard short term disability plan (as
referenced in Section 3(b) above) in lieu of salary amounts set forth in
Sections 3(a) above. If, as a result of Employee's incapacity due to
physical or mental illness which prevents Employee from satisfactorily
performing duties for the Company on a full time basis and such incapacity
is determined to be total and permanent such that the Employee will have
been unable to perform her duties on a full-time basis for six months
during a single fiscal year, the Employee shall be deemed to have
experienced a permanent disability and the Company may terminate this
Agreement upon thirty days written notice.
EMPLOYMENT AGREEMENT - PAGE 5
<PAGE> 6
(b) Termination for Cause. The following events, which for purposes
of this Agreement shall constitute "cause" for termination:
(1) The willful breach by Employee of any provision of Sections
1, 2 or 5 (including but not limited to a refusal to follow lawful
directives of the President and Executive Management or Board of
Directors of Employer which are not inconsistent with the provisions of
this Agreement) after notice to Employee of the particular details
thereof and a period of 10 days thereafter within which to cure such
breach and the failure of Employee to cure such breach within such 10
day period;
(2) Any act of fraud, misappropriation or embezzlement by
Employee with respect to any aspect of Employer's business;
(3) The illegal use of drugs by Employee during the term of this
Agreement that, in the determination of the President and Executive
Management or the Board of Directors of Employer, substantially
interferes with Employee's performance of her duties hereunder;
(4) Substantial failure of performance by Employee, which is
repeated or continued after 30 day written notice to Employee of such
failure, and which is reasonably determined by the President and
Executive Management or the Board of Directors of Employer to be
materially injurious to the business or interests of Employer and which
failure is not cured by Employee within such 30 day period other than
for the disability as covered in Subsection 6(a) above; or
(5) conviction of Employee by a court of competent jurisdiction
of a felony or of a crime involving moral turpitude.
Any notice of discharge pursuant to Subsections 6(a) and 6(b) shall
describe with reasonable specificity the cause or causes for the
termination of Employee's employment, as well as the effective date of the
termination (which effective date may be the date of such notice under
Subsections 6(a) or 6(b)). If Employer terminates Employee's employment for
any of the reasons set forth above, Employer shall have no further
obligations hereunder from and after the effective date of termination
(other than as set forth below) and shall have all other rights and
remedies available under this or any other agreement and at law or in
equity.
(c) Termination by Employee. Employee may terminate this Agreement
without liability to Employer arising from the resignation of Employee at
any time during the term of this Agreement upon 90 days or more (the
"Notice Period") written notice to Employer. In the event of a proper
notice by Employee, the termination date of Employee's
EMPLOYMENT AGREEMENT - PAGE 6
<PAGE> 7
employment and this Agreement with Employer shall be the date
provided in such notice, and Employee shall be entitled to compensation
during the Notice Period (ending in its entirety upon completion of the
Notice Period), as provided in Section 7 below. Upon proper notice of
Employee's voluntary termination, Employer has the right to require
Employee to cease her employment responsibilities immediately; however, for
purposes of the compensation, stock option vesting, and all other benefits
provided to Employee by or as a result of this Agreement, Employee shall be
considered an employee of Employer for the entire Notice Period.
(d) Termination by Employer with Notice. Employer may terminate this
Agreement without cause at any time upon 30 days' written notice to
Employee, during which period Employee shall not be required to perform any
services for Employer other than to assist Employer in training her
successor and generally preparing for an orderly transition; PROVIDED,
HOWEVER, that Employee shall be entitled to compensation upon such
termination as provided in Section 7 below.
7. Compensation Upon Termination. Upon the termination of Employee's
employment under this Agreement before the expiration of the stated term hereof
for any reason, Employee shall be entitled to (i) the salary earned by her
before the effective date of termination as provided in Section 3(a) hereof
(including salary payable during any applicable notice period), prorated on the
basis of the number of full days of service rendered by Employee during the
salary payment period to the effective date of termination, (ii) any accrued,
but unpaid, vacation or sick leave benefits, and (iii) any previously authorized
but unreimbursed business expenses, and (iv) the pro-rata portion of the
Discretionary Bonus set forth in Section 3(c) above which shall be determined
based on the annualization of the Employer's performance criteria in its
then-current fiscal year as established through the termination date of this
Agreement. Determination of such metric achievement shall be subject to the same
good faith discretion of the President as set forth in 3(c) above. If Employee's
employment hereunder terminates because of the death or permanent disability of
Employee, all amounts that may be due to her under this Section 7 shall be paid
to her or her administrators, personal representatives, heirs and legatees, as
may be appropriate.
If Employee's employment hereunder terminates without cause pursuant to
Section 6(d) above, Employer shall pay to Employee (in addition to the amounts
set forth in Subsections 7(i), 7(ii), 7(iii) and 7(iv) above) salary payments
for the duration of the initial term of this Agreement as set forth in Section 8
below when and as such salary payments would have come due had the Employee's
employment not been terminated. Any options awarded that have not yet vested
shall continue to vest under the provisions of Section 4 above. Provided, that
in the event Employee's employment hereunder terminates pursuant to Section 6(d)
after i) a Change of Control of the Company, or after ii) the Employer ceases to
conduct business as a going concern, or after iii) the Employer initiates
Bankruptcy proceedings; Employee shall be entitled to an immediate payment equal
to the next 12 months of regular salary payments in lieu of such next twelve
months of regular salary payments which would otherwise be due within the
initial term of this Agreement as set forth in
EMPLOYMENT AGREEMENT - PAGE 7
<PAGE> 8
Section 3(a) above, without prejudicing the rights of Employee to receive any
additional salary payments which remain to be paid under the initial term of
this Agreement.
The provisions of Sections 5 and 7 hereof shall survive the termination
of the employment relationship hereunder and this Agreement to the extent
necessary or reasonably appropriate to effect the intent of the parties hereto
as expressed in such provisions.
8. Term. This Agreement shall be binding and enforceable against
Employer and Employee immediately upon its execution by both such parties. The
stated term of this Agreement and the employment relationship created hereunder
shall begin on _______, 1998, and shall remain in effect for three years
thereafter, unless sooner terminated in accordance with Section 6 hereof. This
Agreement shall be deemed to be renewed for a month-to-month, at-will basis
after its initial term unless the parties execute an express written renewal
agreement which specifies a different term.
9. Remedies. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. Notwithstanding Section 10 below, the
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any party may
in its sole discretion apply to any court of competent jurisdiction for
equitable remedies of specific performance and/or injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement or relating to Employee's rights, compensation and
responsibilities as an employee shall be determined by arbitration in Dallas,
Texas in accordance with the rules of the American Arbitration Association then
in effect. The arbitration shall be submitted to a single arbitrator selected in
accordance with the American Arbitration Association's procedures then in effect
for the selection of commercial arbitrators. This Section 10 shall survive
termination of this Agreement for any reason.
11. Assignment. This Agreement is personal to Employee and may not be
assigned in any way by Employee without the prior written consent of Employer.
This Agreement shall not be assignable or delegable by Employer, other than to
an affiliate of Employer for administrative purposes only; provided, however,
that in the event of a merger or consolidation of Employer with another entity
or affiliate, the obligations of Employer hereunder shall be binding upon the
surviving or resulting entity of such merger of consolidation. The rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the heirs, legatees, administrators and personal representatives of
Employee and upon the successors, representatives and assigns of Employer.
EMPLOYMENT AGREEMENT - PAGE 8
<PAGE> 9
12. Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.
13. Duty of Good Faith and Fair Dealing. Employer and Employee agree to
deal fairly and in good faith with each other with respect to all obligations
imposed by this Agreement.
14. Notices. All notices and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally, mailed by certified mail (return receipt
requested) or sent by overnight delivery service, cable, telegram, facsimile
transmission or telex to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(a) If to Employer: Wesley E. Schlenker
General Counsel
HighwayMaster Corporation
16479 Dallas Parkway, Suite 710
Dallas, Texas 75248-2621
If to Employee: Jana Ahlfinger Bell
305 Falcon Court
Coppell, Texas 75019
Notice so given shall, in the case of notice so given by mail, be
deemed to be given and received on the fourth calendar day after posting, in the
case of notice so given by overnight delivery service, on the date of actual
delivery and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission or,
as the case may be, personal delivery.
15. Further Actions. Whether or not specifically required under the
terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of her or its obligations specified herein or reasonably
implied from the terms hereof.
16. GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE DEEMED MADE WHEN
ACCEPTED BY HIGHWAYMASTER AT HIGHWAYMASTER'S EXECUTIVE OFFICE IN DALLAS, AND
SHALL BE GOVERNED BY AND CONSTRUED
EMPLOYMENT AGREEMENT - PAGE 9
<PAGE> 10
IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF SUCH OFFICE AND EMPLOYEE
CONSENTS TO EXCLUSIVE JURISDICTION AND VENUE AT THE SITE OF SUCH OFFICE, AND TO
SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL. EMPLOYEE ACKNOWLEDGES THAT
HER CONTACTS WITH THE STATE OF TEXAS ARE SUBSTANTIAL AND CONTINUING, INCLUDING
VISITS TO DALLAS FOR TRAINING, VARIOUS ADMINISTRATIVE FUNCTIONS, ETC.
17. Entire Agreement and Amendment. This Agreement contains the entire
understanding and agreement between the parties, and supersedes any other
agreement between Employee and Employer, whether oral or in writing, with
respect to the subject matter hereof. This Agreement may not be altered,
amended, or rescinded, nor may any of its provisions be waived, except by an
instrument in writing signed by both parties hereto or, in the case of an
asserted waiver, by the party against whom the waiver is sought to be enforced.
18. Counterparts. This Agreement may be executed in counterparts, with
the same effect as if both parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMPLOYER:
HIGHWAYMASTER CORPORATION
By: /s/WILLIAM C. SAUNDERS
--------------------------
WILLIAM C. SAUNDERS,
President and Chief Executive
Officer
EMPLOYEE:
JANA AHLFINGER BELL
------------------------------
Jana Ahlfinger Bell
EMPLOYMENT AGREEMENT - PAGE 10
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