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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-26140
HIGHWAYMASTER COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 51-0352879
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
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1155 KAS DRIVE
RICHARDSON, TEXAS 75081
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code): (972) 301-2000
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of each Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 22, 1999 was $19,398,743.*
The number of shares outstanding of Registrant's Common Stock was
24,967,960 as of March 22, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 1999 annual meeting of stockholders are incorporated herein by
reference into Part III of this Report. Such proxy statement will be filed with
the Securities and Exchange Commission not later than 120 days after the
Registrant's fiscal year ended December 31, 1998.
Certain exhibits filed with the Registrant's Registration Statement on
Form S-1 (Registration No. 33-91486), as amended, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, the Registrant's Form
10-Q Quarterly Report for the quarterly period ended June 30, 1996, the
Registrant's Current Report on Form 8-K filed on October 7, 1996, the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, the Registrant's Form 10-Q Quarterly Report for the quarterly period ended
March 31, 1997, the Registrant's Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1997, the Registrant's Registration Statement on Form S-3
(Registration No. 333-57281), as amended, the Registrant's Registration
Statement on Form S-4 (Registration No. 333-38361), as amended, the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, the
Registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30,
1998, the Registrant's Form 10-Q Quarterly Report for the quarterly period ended
September 30, 1998, the Registrant's Current Report on Form 8-K on September 17,
1998, and the Registrant's Current Report on Form 8-K on September 4, 1998 are
incorporated herein by reference into Part IV of this Report.
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*Excludes the Common Stock held by executive officers, directors and
by stockholders whose ownership exceeds 5% of the Common Stock outstanding at
March 22, 1999. Exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the Registrant or that
such person is controlled by or under common control with the Registrant.
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HighwayMaster Communications, Inc.
FORM 10-K
For the Fiscal Year Ended December 31, 1998
INDEX
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Page
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PART I .........................................................................................................1
ITEM 1. BUSINESS........................................................................................1
ITEM 2. PROPERTIES.....................................................................................22
ITEM 3. LEGAL PROCEEDINGS..............................................................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................24
PART II ........................................................................................................24
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................24
ITEM 6. SELECTED FINANCIAL DATA........................................................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................................................32
PART III ........................................................................................................32
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................32
ITEM 11. EXECUTIVE COMPENSATION.........................................................................32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................32
PART IV ........................................................................................................33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K................................................................................33
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PART I
ITEM 1. BUSINESS
GENERAL
The following discussion is qualified in its entirety by the more
detailed information and consolidated financial statements (including the notes
thereto) appearing elsewhere in this Annual Report on Form 10-K. Stockholders
should carefully consider the information presented under "Risk Factors" below.
HISTORICAL BACKGROUND
HighwayMaster Communications, Inc., a Delaware Corporation, (the
"Company" or "HighwayMaster") through its wholly-owned subsidiary HighwayMaster
Corporation develops and implements mobile communications solutions for long
haul truck fleets, service vehicle fleets and other mobile asset fleets,
including integrated voice, data and position location services. The Company
provides mobile communications services through a wireless enhanced services
network, which utilizes patented technology developed and owned by the Company
to integrate various transmission, long-distance, switching, tracking and other
services provided through contracts with certain telecommunications companies
and more than 70 cellular carriers. Through its agreements with cellular
carriers, the Company is able to capitalize on the more than $50 billion which
cellular carriers have invested to establish and expand cellular coverage in
the United States. The Company's communications network covers 99% of the
available cellular service areas in the United States and 100% of the available
A-side coverage in Canada. Call processing and related functions for the
Company's network are provided through a network switching center (the "NSC").
The Company holds 19 United States patents that cover certain key features of
its network which are used in locating and communicating with vehicles using
the existing cellular infrastructure.
The Company was organized on April 24, 1992 as By-Word Joint Venture
L.P., a Delaware limited partnership with one general partner, By-Word
Technologies, Inc. and one limited partner, the FBR Eighteen Corporation
("FBR"). FBR was wholly-owned by the Eighteen Wheeler Corporation ("Eighteen
Wheeler"). On April 27, 1992, By-Word Joint Venture L.P. change its name to
HighwayMaster L.P. (the "Limited Partnership").
On February 4, 1994, HighwayMaster L.P. was recapitalized resulting in
the creation of HM Holding Corporation with Eighteen Wheeler becoming a
wholly-owned subsidiary of HM Holding Corporation. FBR and the Limited
Partnership were merged with and into Eighteen Wheeler, and the name of the
surviving corporation was changed to HighwayMaster Corporation. By virtue of the
merger, HighwayMaster Corporation became the successor in interest to the
Limited Partnership. In February 1995, HM Holding Corporation changed its name
to HighwayMaster Communications, Inc.
PRODUCTS AND SERVICES
The Company's products and services can be classified into three major
categories: truck fleet mobile communications, service vehicle management and
mobile asset tracking.
TRUCK FLEET MOBILE COMMUNICATIONS
The initial applications for the Company's wireless enhanced services
network have been developed for, and are currently being marketed and sold to
companies which operate in the long-haul trucking market. The Company provides
long-haul trucking customers with a comprehensive package of mobile
communications and management control services, thereby enabling its trucking
customers to effectively monitor their operations and improve the performance
of their fleets.
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These services are provided by linking customers to the Company's
network through the installation of Series 5000 Mobile Units in their trucks.
The Series 5000 Mobile Unit enables a truck driver to send and receive voice
and data messages and utilize all of the other features and capabilities of the
Company's enhanced communications network. The Series 5000 Mobile Unit also has
navigational tracking capabilities which allow trucking companies to map a
truck's position, typically within 100 meters, anywhere in the United States
and Canada. Furthermore, the Series 5000 Mobile Unit is capable of performing a
number of other functions such as calculating fuel tax mileage, estimating
times of arrival, storing data and monitoring on-board electronic engine and
other electronic functions. For small to mid-sized fleets, the Company also
offers a dispatch software package that enables a trucking dispatcher to
optimize the use of its fleet by processing data transmitted by the Series 5000
Mobile Units and performing a variety of fleet management information
functions.
Series 5000 Mobile Unit. The Series 5000 Mobile Unit includes the
following: (i) a menu-driven display module which provides two large lines of
scrollable text on the dashboard; (ii) a microphone which clips on the sun
visor for "hands free" communication utilizing voice-recognition and
voice-synthesis technologies; (iii) a modified cellular telephone handset and
cradle; (iv) a cellular antenna; (v) a Global Positioning System ("GPS")
navigational antenna; and (vi) a computerized system module in the vehicle
which contains the positional reporting device, the cellular transceiver and
the on-board computer. The system module also houses voice-activation and
voice-synthesis software, data storage capability and unique technology that
significantly reduces the risk of cellular roaming fraud. The module provides
ports to allow for incorporation of peripheral equipment, such as a fax
machine, printer and engine monitoring equipment. The Series 5000 Mobile Unit
was designed to be "user-friendly," to have installation times that are shorter
than competing satellite unit installations, and to limit driver training to an
average of one hour. The system module is remotely programmable from the host
computer by the trucking company and by the Company.
SERVICE VEHICLE MANAGEMENT
In August 1998, the Company entered into an agreement with member
companies of SBC Communications, Inc. (the "SBC Companies"), whereby the SBC
Companies purchased 11,500 mobile units, customized proprietary software and
accompanying services from the Company for an initial term of one year. Based
on the Series 5000 platform, in addition to fleet monitoring capabilities and
voice communication, the mobile units purchased by the SBC Companies feature
alarm monitoring capabilities whereby the driver can summon emergency
assistance if required. In the first quarter of 1999, the Company entered into
a second agreement with the SBC Companies which extended the initial one year
term to three years. Subsequently, the SBC Companies ordered an additional
3,140 mobile units. The Company is actively investigating the application of
its service vehicle product to other prospective service fleet operators.
MOBILE ASSET TRACKING
The Company is currently developing TrackWare(TM); a new tracking
product application which will be initially marketed to current and potential
truck fleet customers. The Company plans to introduce its TrackWare(TM)
mobile-asset tracking product in mid-1999. The initial configuration is being
designed to allow trucking companies to track their tethered or un-tethered
trailers and report position data to a host on their office personal computer.
Based in part on a strategic alliance with Cellemetry L.L.C. allowing the
Company to utilize the Cellemetry(R) data network, the Company believes its
tracking solution will be among the most efficient in delivering short data
messages for a low monthly cost, and with a low initial hardware investment.
TrackWare(TM) is a trademark of HighwayMaster Communications, Inc. Cellemetry(R)
is a registered service mark of Cellemetry L.L.C.
DISCONTINUED PRODUCTS AND SERVICES
During the first quarter of 1998, the Company released its Series 3000
Mobile Unit. Less expensive and with more limited functionality than the
Company's Series 5000 product, the Series 3000 was primarily a voice and limited
data product. It was targeted at small fleets and owner operators who did not
require all the features of the Series 5000
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Mobile Unit, but could benefit from the Company's wireless enhanced services
network. Initial sales volumes were less than expected, and as a result, sales
and marketing activities were suspended in the second quarter of 1998. After a
reassessment of the market potential of this product offering, the Company
discontinued the Series 3000 Mobile Unit in the third quarter of 1998.
On August 31, 1998, the Company announced that it halted the
development of AutoLink(R) and would not launch the service in late 1998 as
previously anticipated. Targeted at both original equipment manufacturers
("OEM") and aftermarket segments, the AutoLink(R) product and service was
designed to provide motorists with an intelligent communications link to various
emergency, roadside assistance and information service providers. Factors that
contributed to the decision include the fact that no orders had been obtained
for sales of the AutoLink(R) product to the OEM market, resulting in an
inability to achieve economies of scale in the product and infrastructure for
the aftermarket. In addition, the Company's strategic partner in the venture
indicated that it would not proceed with the Company. The Company performed a
"soft wrap-up" of the AutoLink(R) assets and proprietary software and remains
positioned to proceed with the product should the Company identify a new
strategic partner and obtain firm OEM market commitments. AutoLink(R) is a
registered trademark of Prince Corp.
COMPETITION
In each of the markets currently targeted by the Company, there are a
number of other companies that offer or plan to offer some form of two-way
mobile communication using a variety of different technologies which compete or
could eventually be used to compete with the Company. These companies primarily
utilize satellite-based communications technologies, specialized mobile radio
("SMR"), enhanced specialized mobile radio ("Enhanced SMR"), and terrestrial
links for dedicated short range communications systems. See "Risk Factors --
Competition and Technological Change."
Conventional Satellite Communications. Satellite communication is
accomplished through transmission of a signal from an earth-based transmitter
to a satellite, which automatically retransmits the signal to an earth-based
receiver. Many communication satellites are geo-stationary and remain over a
single point over the equator by orbiting the earth in the same direction and
at the same speed as the rotation of the earth. Mobile equipment designed for
satellite communication is equipped with highly specialized rotating antennae,
which are continuously directed toward the satellite, and utilize highly
complex data or voice compression systems to minimize demands on satellite
capacity. This type of mobile communication equipment broadcasts over the radio
frequency spectrum. Domestically, the FCC regulates and controls the number of
satellite communications systems that may be placed in service.
Satellite communication available to the transportation industry
generally utilizes a single earth station to transmit and receive data via
satellite to and from satellite communication units installed in trucks.
Messages created by truck drivers on an onboard keyboard can be stored,
compressed and transmitted in short bursts. Although voice communication is
theoretically possible for mobile communication systems that utilize satellite
transmissions, the current limited capacity and high cost of satellite
communication have tended to limit competitive product offerings to data-only
services.
Satellite systems currently cover 100% of the continental United
States, and their comprehensive coverage may be perceived by truckers and
trucking companies as an advantage over the cellular system. The Company
believes that any marketing or operational advantage derived from satellite
coverage, as compared to the Company's system (which covers approximately 95% of
the United States interstate highway system), is nullified by the fact that
satellite systems require more costly equipment and do not currently offer voice
communication on a cost-effective basis. Furthermore, satellite system users can
experience queuing delays during peak periods between transmission and receipt
of messages. In addition, because geo-stationary satellites stay over the
equator, transmission and receipt of data in North America is sometimes
interrupted or rendered impossible by obstacles on the southern horizon, such as
nearby tall buildings or mountains. There can be no assurance that the costs of
satellite systems and satellite-based voice communication services will remain
higher than the cost of the Company's products and voice communication services.
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The Company's primary satellite competitor in the long-haul trucking
market is Qualcomm, Inc. ("Qualcomm") which markets its products and services
primarily to large fleets in the United States. Drivers access and utilize the
system through an onboard keyboard and data display screen. Management believes
that Qualcomm offers or plans to offer its products and services in certain
international markets including Canada, Mexico and Europe. It is believed
Qualcomm has about 230,000 OmniTRACS(R) systems worldwide, of which an estimated
180,000 are in service within the United States. OmniTRACS(R) is a registered
trademark of Qualcomm, Inc.
At least one other entity offers or plans to offer satellite-based
data communication and tracking services to the long-haul trucking industry.
American Mobile Satellite Corporation's ( "AMSC") geo-stationary
satellite-based system is similar to the Qualcomm system in that the mobile
communications equipment consists of a keyboard and data screen mounted in each
truck. Recent enhancements allow dual SMR or satellite communication in a
single unit in order to produce least-cost routing of data. The AMSC system
offers both voice and data communications, and in 1998 AMSC acquired Motorola's
Ardis data messaging business.
Middle and Low Earth Orbit Satellites. In order to maintain a
stationary position over the earth, communication satellites currently in use
must maintain a very high orbit, which requires earth stations to generate
relatively high powered transmissions for communication with the satellite.
Certain entities, including Qualcomm, are participating in the development of
Middle Earth Orbit ("MEO") and Low Earth Orbit ("LEO") satellite networks,
which are designed to employ multiple satellites in relatively lower earth
orbits, rapidly circling the earth. The lower earth orbits should facilitate
both voice and data communication services and will be accessible through
relatively lower powered transmitters and receivers, allowing them to be
installed in portable communication equipment. In terms of product and service
offerings, MEO and LEO systems can be expected to compete directly with
cellular services, including the Company's products and services, and will
offer coverage in remote areas and foreign countries currently unserved by
cellular carriers.
Specialized Mobile Radio. SMR has traditionally been used to serve the
needs of local dispatch services such as taxis and couriers, which typically
broadcast short messages to a large number of units. SMR wireless communication
systems rely on high-powered voice or data transmissions among widely-spaced
receiver/transmitter sites within a discrete local or regional area. These
systems generally have lower capacity to support simultaneous transmissions in
a given area than do cellular systems, which transmit and receive radio
communications from numerous closely-spaced cell sites. The radio hardware
currently used to operate the various SMR systems varies widely, making it
impossible for a customer to "roam" into a neighboring region that is served by
a carrier with a different hardware configuration.
Enhanced Specialized Mobile Radio. Enhanced SMR operators are
currently developing and implementing Enhanced SMR digital technology to offer
relatively low-cost mobile telephone services, with construction expected to be
completed in several years. One company, Nextel, Inc., is implementing a
nationwide digital Enhanced SMR network to provide mobile telephone service and
has begun providing service in dozens of major metropolitan areas. Nextel is
developing its Enhanced SMR network using uniform standards and a coordinated
infrastructure to provide mobile telephone services with no roaming charges
anywhere in the U.S. Other local and regional Enhanced SMR operators in
addition to Nextel may eventually be able to offer region-to-region calling and
call delivery services which will compete with the Company's services.
Dedicated Data Networks. Bell South Wireless Data (formerly RAM Mobile
Data), ARDIS (now owned by American Mobile Satellite), and Teletrac each own
and operate dedicated wireless data networks. Bell South Wireless Data
and ARDIS have built packet data networks in most metropolitan areas and a few
rural areas, but Teletrac's coverage is more restricted to a limited number of
markets. Most users of dedicated data networks are field service personnel,
transportation, security, field sales and public sector operations.
Telecommunications Act of 1996. The Telecommunications Act is intended
to increase competition in virtually every arena of communications and
eliminate many regulatory barriers to new competitors. It is unknown at this
time what effect this legislation will have on the Company's ability to compete
in the marketplace. See "Risk Factors -- Uncertainty of Government Regulation."
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Although there can be no assurances that competitors of the Company
will not adversely impact the ability of the Company to effectively market its
products and services, management believes that several significant factors
differentiate the products and services provided by the Company through its
wireless enhanced services network from conventional cellular service,
including the following:
Immediate Nationwide Call Delivery. In order to automatically (with no
user intervention) provide immediate call delivery to cellular subscribers who
travel outside of their home markets, a cellular carrier must install advanced
switching equipment (IS-41 capable), establish physical connectivity and
establish the appropriate roaming agreements with other cellular carriers. The
Company uses a patented technology which works independently from cellular
carriers' IS-41 protocol to automatically provide immediate call delivery to
its customers on essentially a nationwide basis.
Fraud Control. Conventional cellular service has historically
experienced relatively high levels of fraud. Industry sources estimate that
cellular fraud resulted in losses totaling approximately $150 million in 1997.
The Company has been able to significantly limit fraud through the architecture
of its network, which requires that all calls originated by customers be routed
to the NSC and thereby reduces or eliminates cellular cloning, fraud and call
blocking for its customers. Although to date, neither the Company nor the
cellular carriers that have properly implemented the Company's protocols have
experienced any identifiable roamer fraud in connection with the mobile
communications services provided through the Company's network, there can be no
assurance that the Company and its cellular carriers will not experience
significant roamer fraud with the mobile communications services provided
through the Company's enhanced network.
Nationwide Network. The Company's network spans across the United
States and Canada, and represents the broadest enhanced cellular coverage in
the industry.
Additional Value-Added Services. The Company offers its customers
additional value-added services which are not offered by cellular carriers who
are unable to supplement the capabilities of the existing cellular
infrastructure with the features and capabilities of the Company's enhanced
communications network. The value-added services currently offered by the
Company include data transmission and fleet tracking, as well as a number of
other ancillary services, such as estimating times of arrival, calculating fuel
tax mileage and engine monitoring. There can be no assurance that competitors
will not be able to provide value-added services which directly compete with
the Company's services.
INDUSTRY SEGMENTS
The Company considers its operations to be classified into one
industry segment: Cellular and Other Wireless Communications.
EMPLOYEES
As of December, 31, 1998, the Company employed approximately 227
employees. The Company's employees are not represented by a collective
bargaining agreement.
OTHER
INFRASTRUCTURE AND OPERATIONS
Network Configuration. The diagram set forth below depicts the configuration of
the Company network, as it is currently utilized to provide services for Series
5000 Mobile Units and is expected to be utilized to provide services for the
TrackWare(TM) product:
INSERT DIAGRAM
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Series 5000 Mobile Units. The processes illustrated in the diagram
above are fully automated, allowing communication with vehicles from any
telephone in the United States and Canada. As the vehicle enters a new cellular
coverage area, the mobile unit (1) automatically sends an identifying signal to
the cellular carrier (2). This cellular carrier information is sent via
specialized hardware and software provided by GTE Telecommunication Services,
Inc. ("GTE-TSI") (3) and occasionally EDS (4) to the Network Services Center
("NSC") (5) so the NSC will be able to direct future incoming calls for that
vehicle to the appropriate cellular carrier.
When the driver makes a phone call, the unit (1) is connected to the
NSC (5) via the cellular carrier (2) and existing long distance lines (6), and
the NSC switches the call to the appropriate destination, which may be the
dispatcher workstation for data (7) or any other telephone for voice (8). The
Company's NSC requires entry of a personal billing account or selected credit
card number for the separate billing of personal calls.
When dispatchers or outside callers desire to call a driver, their
calls are switched by the NSC (5) directly over existing long distance lines
and local exchange carriers (6) to the appropriate cellular carrier (2), which
completes the call to the driver (1). Data messages are first stored in the NSC
(5) and then forwarded to or from the dispatcher workstation (7) and the unit
(1).
The unit (1) automatically records a precise position report obtained
from GPS satellites (9) on a configurable basis. This log of reports and any
other stored data is uploaded to the NSC with every business voice or data call
made to or from the unit. Additionally, the Dispatcher workstation (7) can
initiate a call at any time to obtain an immediate position report from any
truck.
TrackWare(TM) Product. The TrackWare(TM) Unit (1) automatically
records a precise position report obtained from GPS satellites (9) and reports
the data to the NSC (5) on a scheduled basis. Additionally, the dispatcher
workstation (7) can initiate a call to obtain a position report from any
trailer or asset. The TrackWare(TM) product is based upon Cellemetry L.L.C.'s
short data message network, allowing use of the existing cellular
infrastructure in conjunction with Cellemetry's Gateway.
Wireless Telephony. Cellular communication is the primary medium for
wireless voice communication currently in use in the United States and Canada.
The cellular infrastructure utilized by the Company is already in place. By
contrast, the Company's satellite and Enhanced SMR competitors must expend
substantial amounts of capital and several years of development time to
construct networks capable of transmitting and receiving voice messages from
customers nationwide.
The Federal Communications Commission (the "FCC") has provided for a
two-operator duopoly in each cellular market. Only two licenses were awarded to
provide cellular service in any specific cellular metropolitan statistical area
("MSA") or rural statistical area ("RSA"). One of the two licenses in each
market was initially awarded to a company or group that was affiliated with a
local landline telephone carrier in the market (the "Wireline" or "B- Side"
license) and the other license in each market was initially awarded to a
company, individual or group not affiliated with any landline telephone carrier
(the "Non-Wireline" or "A-Side" license). However, once a license was awarded,
the license holder could sell the license to another qualified entity,
including the sale of "B-Side" licenses to groups not affiliated with the
landline telephone carrier, and the sale of "A-Side" licenses to a landline
telephone carrier. HighwayMaster's system utilizes both the A-Side and B-Side
carriers in its coverage areas, and has agreements with both A-Side and B-Side
carriers in approximately 55% of its markets, allowing system redundancy and
greater flexibility. In addition to cellular licenses, the FCC has issued up to
six licenses in each market to PCS providers. Currently, PCS is generally
available only in certain metropolitan markets and surrounding areas, and these
new carriers are creating increased competition for cellular operators where
available. See "Risk Factors--Competition and Technological Change."
Increased demand for wireless service is driving investment in
wireless networks and improving service coverage. Cumulative capital investment
within the wireless industry has reached $50 billion as of June 1998, up from
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approximately $6.3 billion in December 1990. The total number of cellular tower
sites increased to 57,674 in June 1998, up from 10,307 in December 1992. Total
wireless customers reached more than 60.8 million in June 1998.
Management believes that due to the large number of existing cellular
subscribers, consumer ownership of cellular telephones and the extensive
capital investment by cellular carriers in the existing cellular
infrastructure, it is unlikely that the existing cellular network will be
abandoned or replaced by Enhanced SMR or other competing technologies. A number
of cellular carriers are in the process of upgrading from existing analog
cellular systems to enhanced systems utilizing digital technology. However,
management believes that the large number of analog telephones already owned by
cellular subscribers will ensure that cellular telephone operators continue to
offer services to existing analog users concurrently with digital users, over
an extended or indefinite phase-in period that exceeds the expected useful life
of the current analog Series 5000 Mobile Units. See "Risk Factors -- Dependence
on Cellular Infrastructure"
Network Services Center. The Company's Network Service Center
provides switching services among each Series 5000 Mobile Unit,
HighwayMaster's nationwide enhanced services network, the dispatcher
workstation and the nationwide landline telephone network. The NSC is capable
of processing, storing and transmitting data. Additionally, voice
communications are routed from each Series 5000 Mobile Unit through
HighwayMaster's nationwide enhanced services network to the NSC which
automatically completes the call through the public telephone network to the
end user. Voice communications from the dispatcher or personal calls for the
driver are routed through a toll-free telephone number to the NSC, which
completes the call through the appropriate wireless cellular system for the
region in which the truck is operating. Data packets from the host or a Series
5000 Mobile Unit are stored in the NSC, then transmitted in cost-effective
batches. Time critical information, as configured by the trucking company, is
immediately transmitted to the receiving party. The NSC records data from each
transmission, generates a call record and processes the information into
customer billing records. HighwayMaster can increase capacity of the NSC as
needed to meet growing caller demands by increasing the line capacity and
number of modems and controllers.
Call Routing. Each time a Series 5000 Mobile Unit travels into a new
MSA or RSA, it automatically registers with the cellular carrier under contract
with the Company. The cellular carrier routes the message to GTE-TSI or
Electronic Data Systems, Inc. ("EDS"). Pursuant to contracts with the Company,
GTE-TSI and EDS provide the NSC with call delivery information utilized by the
NSC to deliver calls to the Series 5000 Mobile Unit as it travels through a new
MSA or RSA. Subsequent telephone calls or data transmissions originating from
the Series 5000 Mobile Unit are recognized by the local cellular carrier and
screened to allow call routing only through the NSC, where additional security
screening is conducted.
Before a call originating from a Series 5000 Mobile Unit is received by
the NSC, the Series 5000 Mobile Unit must establish an encoded electronic
"handshake" with the NSC substantially eliminating roamer fraud. The substantial
elimination of roamer fraud is a factor in the Company's ability to contract
with local cellular carriers throughout the country.
Navigation Technology. Global Positioning System technology ("GPS")
allows users to identify the location of any truck at any time via satellite.
GPS is operated by the United States government and broadcasts navigational
information from a network of dedicated satellites orbiting the earth. GPS
navigational receivers interpret signals from multiple satellites to determine
the receiver's geographical coordinates, elevation and velocity. GPS units
available for civilian use are generally accurate within 100 meters. GPS
navigational signals can be received worldwide, without adaptation of the
receiver unit to foreign standards. Management believes that the network of GPS
navigational satellites will be maintained by the United States Defense
Department in an operational status for the foreseeable future. Although
stand-alone GPS units are available for purchase by any consumer at relatively
low cost, raw navigational information is of little use to trucking companies
unless the GPS receiver is integrated with a computer system, such as the
Series 5000 Mobile Unit, to record routes traveled relative to mapped roadways
or to transmit position reports to a central dispatcher.
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The Company's use of government-operated GPS satellites differs
substantially from competitors' use of satellites for two-way communications.
GPS satellites send one-way signals to mobile receivers, allowing the Series
5000 Mobile Unit to plot its geographical coordinates. GPS satellites are not
capable of two-way communication, and no charges are assessed to users of the
GPS services. For two-way mobile communications, the Company relies exclusively
on earth-based cellular systems. The Company's primary competitors utilize
leased or owned communications satellites for two-way data communications,
incurring costs associated with ownership or leasing of satellite communication
capacity.
STRATEGIC SERVICE ALLIANCES OF THE COMPANY
Local Cellular Carriers. The Company has established a network for
United States-based trucking operators that offers mobile communication coverage
in 99% of the available cellular service areas in the United States (which
covers approximately 95% of the United States interstate highway system) and
100% of the A-Side coverage in Canada. The Company has agreements in place with
more than 70 cellular carriers, including all the regional Bell operating
companies, GTE Wireless, Inc., and Rogers Cantel, Inc., in more than 712 markets
in the United States and Canada. The Company has entered into contracts with
both A-side and B-side carriers in approximately 55% of United States cellular
coverage regions. Management expects its back-up coverage to continue to
increase as more relationships are established. Management believes that local
cellular carriers are motivated to make capacity available to the Company for
various reasons, including: (i) increases in volume of air time usage; (ii) no
customer service expense; (iii) the inability of customers using the Company's
system to switch to another cellular carrier; (iv) no customer acquisition
costs; (v) access to a national customer base not otherwise available to local
cellular carriers; (vi) use of the Company's system by long-haul truckers who
typically travel through less dense cellular coverage areas; (vii) use of the
Company's system by truckers typically during off-peak time periods; and (viii)
no expenses associated with fraudulent usage as a result of the security
protection afforded by the Company's system. In most cases, current terms of
contracts between the Company and each of its cellular carriers are generally
for one year, with automatic one-year successive renewal terms unless either
party elects to terminate the contract upon 30 day notice prior to the end of
the term. The Company has recently executed new contracts with certain of its
cellular carriers that are substantially similar to the existing contracts
except that they provide for an initial three-year term. The Company's
agreements with cellular carriers provide that the Company will not be required
to reimburse carriers for fraudulent usage unless the carriers have fully
implemented the Company's protocol. Although the Company's protocol has been
effective to prevent fraud to date, there can be no assurance that this will be
the case in the future. See "Risk Factors -- Dependence on Cellular
Infrastructure"
The Company's current contracts with cellular carriers permit the
Company to utilize their cellular networks to provide mobile communications
services to vehicles engaged in long-haul transportation and certain
recreational uses so long as such vehicles travel outside of their home areas
for specified periods of time. The Company has also amended the contracts with
64 carriers to utilize their cellular systems to provide emergency and roadside
assistance service to motorists in their home markets. There can be no assurance
that the Company will be able to obtain the additional amendments covering all
MSAs and RSAs in which it currently provides mobile communications services to
long-haul transportation vehicles.
GTE-TSI and EDS. GTE-TSI and EDS provide clearinghouse functions to the
cellular industry, creating the data link between a foreign network and a
traveling vehicle's home cellular service area, performing credit checking
functions and facilitating roamer incoming call delivery functions. The
Company's contract with GTE-TSI covers certain functions that are critical to
the Company's ability to instantly deliver calls nationwide. It covers an
initial term of three years that began on January 15, 1999. The Company is
guaranteed the right to renew the contract for up to 10 one-year periods beyond
the initial term, at a reasonable rate to be determined by GTE-TSI. A dispute
has arisen relating to the interpretation of certain intellectual property
provisions contained in the TSI Service Agreement and the inventorship of
certain patents of the Company. The Company and TSI are currently engaged in
good faith settlement discussions involving the execution of a new TSI Service
Agreement which contains language more clearly defining the intellectual
property rights of the parties and resolving the inventorship issues relating
to at least one of the Company's patents. TSI and the Company have reached a
preliminary understanding regarding the resolution of these issues and are
working together to draft final agreements. Although there can be no assurance
that the dispute will be resolved promptly or favorably to the Company,
management believes that the Company is close to reaching final resolution of
this dispute.
The agreement between the Company and EDS involves the provision by EDS
of certain clearinghouse functions in connection with EDS' cellular carrier
customers. Fewer data processing functions are conducted by EDS due to the
Company's consolidation of certain common data processing functions with
GTE-TSI. The agreement with EDS expires on October 24, 1999 and is
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renewable for subsequent one-year terms through 2003, unless 60 days notice is
provided prior to the termination date of the agreement. See "Risk Factors --
Dependence on Clearinghouse Services."
IEX Corp. IEX designed, tested, constructed and currently serves as
facility manager for the NSC. The NSC constitutes a critical link in providing
certain enhanced call processing, data management services and is necessary for
the Company to receive, store and route voice and data transmissions to and
from its customers. IEX also provides maintenance and support services for the
NSC pursuant to an agreement which is renewable on an annual basis. The Company
is currently negotiating a new software maintenance and support agreement with
IEX.
IEX and the Company have reached mutual agreement to relocate the NSC
from the IEX facility to the Company's corporate headquarters in Richardson,
Texas. The relocation of the NSC to the Company's headquarters will allow the
Company to maintain greater control over the operation and expansion of the NSC.
In connection with the relocation, the Company hired the former IEX switch
technicians whose primary responsibility at IEX was maintaining the NSC. See
"Risk Factors -- Relocation and Company Operation of NSC."
GTE Wireless. GTE Wireless provides a significant amount of cellular
coverage for the Company's network and pays all cellular carriers on behalf of
the Company, billing the Company on a monthly basis. The term of the current
agreement with GTE Wireless expired on March 20, 1999 and GTE Wireless has
informed the Company that it does not intend to renew its service agreement with
the Company. According to the service agreement, GTE Wireless is obligated to
continue to provide services for at least a nine month transition period to
allow the Company to transition to a new service provider. The Company has
executed an Administrative Carrier Agreement with Southwestern Bell Mobile
Systems, Inc. ("SBMS") whereby SBMS will replace GTE Wireless in providing the
services. The Company is currently negotiating a Transition Agreement with GTE
Wireless to effectuate a smooth transition to SBMS.
Key Suppliers. The Company does not have the ability to manufacture or
assemble its products. To the extent that the Company is dependent on a single
supplier to manufacture and assemble the Series 5000 Mobile Units and the
TrackWare(TM) Units, the possibility exists that problems experienced by the
suppliers could adversely affect the Company. The Company has an agreement with
K-Tec Electronics Corporation ("K-Tec") for the assembly of the Series 5000
Mobile Units. The Company has an agreement with Wireless Link, Inc. for the
manufacture of the TrackWare(TM) Units. The Company plans to continue to order
Series 5000 Mobile Units from K-Tec and TrackWare(TM) Units from Wireless Link.
Additionally, the Company subcontracts for the manufacture of various
components for the Series 5000 Mobile Units from various suppliers. All
transceivers for the Series 5000 Mobile Units are manufactured by Motorola, and
the Company believes that there is a limited number of suppliers who are
capable of manufacturing transceivers that meet the Company's requirements.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has obtained 19 domestic patents and has applied for
additional domestic and foreign patents. In general, the Company's existing
patents relate to certain features and capabilities of the HighwayMaster mobile
units used in locating and communicating with vehicles through the cellular
infrastructure. The Company's software is also protected under state trade
secret law and federal copyright law. See "Risk Factors -- Uncertainty
Regarding Patents and Proprietary Rights."
REGULATION
The Company's products and services are subject to various regulations
promulgated by the Federal Communications Commission ("FCC") which apply to the
wireless communications industry generally. The Company's Series 5000 Mobile
Units and its TrackWare(TM) Units must meet certain radio frequency emission
standards so as to avoid interfering with other devices. The Company relies on
the manufacturer of the cellular transceiver components
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of the Series 5000 Mobile Units and the TrackWare(TM) Units to carry out
appropriate testing and regulatory compliance procedures regarding the radio
emissions of the cellular transceiver component.
The FCC also controls several other aspects of the wireless industry
that affect the Company's ability to provide services. The FCC controls the
amount of radio spectrum available to cellular carriers, which could eventually
limit growth in cellular carrier capacity. Management expects the FCC to expand
capacity available to the cellular industry as it becomes necessary in order to
maintain current levels of service, although there is no assurance that such
expansion will occur.
The FCC also regulates telecommunications service providers or common
carriers requiring approval for entry into the marketplace and regulating the
service rates offered through tariff filing requirements. Additionally, most
state regulatory commissions regulate rate and entry for telecommunications
service providers. In order to encourage growth within the information services
segment of the telecommunications industry, the FCC issued an order creating
the enhanced services exemption from regulation. Basically, providers of
enhanced services are not subject to regulation by the FCC or the various state
regulatory agencies. Generally, services qualify as enhanced services if data
is transmitted between the provider and customer so that the customer is able
to interact with or manipulate the data regardless of whether the services
provided include telecommunications transmission components such as cellular or
long distance services. The Company believes that the services it provides to
its customers in connection with the Series 5000 and TrackWare(TM) Units
qualify as enhanced services and are exempt from both FCC and state regulation.
Alternatively, the Company believes that its services may be characterized as a
private network not offered to the public at large but offered to specific
group of users which management believes also exempts the Company from FCC and
state regulation.
The wireless telecommunications industry currently is experiencing
significant regulatory changes which may require a re-examination of laws and
regulations applicable to the Company's operations. The Company's services may
be characterized by the FCC as Commercial Mobile Radio Services ("CMRS"). If
the Company's services are classified as CMRS, the Company would subject to FCC
regulation as telecommunications service provider. However, the FCC has decided
to forbear from most regulation of the CMRS marketplace, including regulation
of the rates and terms of entry for interstate services offered by CMRS
providers. In addition, Congress has preempted state regulation of CMRS entry
and rates. Recent FCC decisions have enhanced the development of CMRS,
including requiring local telephone companies to offer interconnection and
access to their networks to CMRS providers and to establish reciprocal
compensation arrangements with CMRS providers for the transportation and
termination of calls at prices that are cost-based and just and reasonable.
If any services offered by the Company are determined to be
telecommunications services by the FCC, the revenues generated from these
services would be subject to the federal universal service fund contribution
tax. At this time, revenues generated from the Company's services which meet the
definition of Enhanced Services are not subject to FCC mandated universal
service fund contribution. However, based on a conservative interpretation, the
Company has reported certain revenues generated by the personal calling plan
service offered by the Company as a telecommunications service for purposes of
federal universal service fund contribution filings. Various states have
instituted their own universal service fund mechanisms which may or may not
follow the federal statues in exempting revenues generated by Enhanced Services.
The Company cannot predict the impact of any requirement to contribute to state
and federal universal service mechanisms. See "Risk Factors -- Uncertainty of
Government Regulations"
Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to those companies providing
long-distance services directly to its customers, without long-distance
regulatory involvement by the Company.
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RISK FACTORS
Forward Looking Statements
This Form 10-K ("Form 10-K") contains 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, that are based
upon management's beliefs, as well as assumptions made by and information
currently available to management. When used in this Form 10-K, the words
"anticipate," "believe," "estimate" or "expect" and similar expressions are
intended to identify forward-looking statements. Any statement that an event
will happen in the future is a forward-looking statement, and should not be
interpreted as a promise that the event will occur. The Company's actual
results could differ materially from those projected in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in this section, as well as those discussed elsewhere in this
Form 10-K or in the documents incorporated herein by reference.
Operating History; Significant Losses
The Company commenced its operations in April 1992. The Company began
offering its long-haul trucking application on a commercial basis in September
1993. Since its inception, the Company has experienced significant operating
losses and as a result it has a substantial accumulated deficit. The Company
must significantly increase its product sales and service revenues while
decreasing its operating expenses to achieve profitability. The Company expects
to continue to incur losses and negative cash flow from operations in the
future. There can be no assurance that the Company's future operations will
generate operating or net income or positive cash flow from operations. If the
Company does not achieve significant operating and net income and positive cash
flow, it will not have the funds required to pay the principal amount of the 13
3/4% Senior Notes ("Senior Notes") at maturity in 2005 or to make interest
payments on the Senior Notes beyond September 15, 2000, until such date the
payment of interest is provided for through a portfolio of U.S. Government
securities held in escrow. If the Company is unable to service the Senior Notes
using earnings or cash flow from operations, it will have to identify alternate
means of repayment that could include restructuring or refinancing its
indebtedness or seeking additional sources of debt or equity financing. There
can be no assurance either that the indenture for the Senior Notes (the
"Indenture") would permit the Company to pursue alternative means of repayment
or that the Company would be able to effect such a restructuring or refinancing
or obtain such additional financing if permitted to do so. The likelihood of the
long-term success of the Company must be considered in light of the expenses,
difficulties and delays frequently encountered in connection with the early
stages of the development and marketing of telecommunications products and
services, as well as the competitive environment in which the Company operates
and the other risks and uncertainties discussed in this Form 10-K. See " Item 6
Selected Financial Data," and " Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Limitations Due to Debt
The Indenture imposes significant operating and financial limitations
on the Company. Such limitations will affect, and in many respects significantly
restrict or prohibit, among other things, the ability of the Company to pay
dividends, make investments and incur additional indebtedness. These
restrictions, in combination with the Company's substantial leverage, could
limit the ability of the Company to effect future financings or otherwise
restrict the nature and scope of its activities. The degree to which the Company
is leveraged could have important consequences to Company's stockholders and to
the holders of the Senior Notes, including: (i) the impairment of the Company's
ability to obtain additional financing in the future; (ii) the reduction of
funds available to the Company for its operations or for capital expenditures as
a result of the dedication of a substantial portion of the Company's net cash
flow from operations to the payment of principal of and interest on the Senior
Notes; (iii) the possibility of an event of default under covenants contained in
the Indenture, which could have a material adverse effect on the business,
financial condition and results of operations of the Company; (iv) the placement
of the Company at a relative competitive disadvantage as compared to competitors
who are not as highly leveraged as the Company; and (v) vulnerability in the
event of a downturn in general economic conditions or its business because of
the Company's reduced financial flexibility. In addition, to the extent that the
Company enters into a bank credit agreement in the future as permitted by and
defined in the Indenture, such agreement is likely to impose additional
operating and financial restrictions on the Company, which may be more
restrictive than those provided for in the Indenture. See "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and "Business --- Recent Financing Transactions."
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No Remote Disaster Recovery System
Currently, the Company's disaster recovery systems focus on internal
redundancy and diverse routing around and within the NSC operated for the
Company. The Company does not currently have access to a remote back-up complex
that would enable it to continue to provide mobile communications services to
customers in the event of a natural disaster or other occurrence that rendered
the NSC unavailable. Accordingly, the Company's business is subject to the risk
that such a disaster or other occurrence could hinder or prevent the Company
from continuing to provide services to some or all of its customers. See
"Other -- Infrastructure and Operations."
Relocation and Company Operation of NSC
As noted above, the Company is relocating the NSC from the IEX
facilities to its new corporate headquarters in Richardson, Texas. There can be
no assurance that the Company's network will not suffer service interruption
during this physical relocation. As stated above, the Company will operate and
maintain the NSC subsequent to the relocation. The Company has limited
experience maintaining and supporting the NSC and its software and hardware
systems. Although the Company has successfully hired the former IEX switch
technicians, the Company has limited abilities to provide software maintenance
and support for the NSC. The Company is currently negotiating a service and
support agreement with IEX to provide this software support and maintenance for
the NSC. Any significant performance or other operational problems affecting the
NSC could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Other -- Infrastructure and
Operations."
AT&T Litigation
On February 16, 1996, the Company filed a lawsuit against AT&T, which
operated an enhanced switching complex for the Company (the "AT&T Complex")
until December, 1997, in the U.S. District Court, Northern District of Texas,
Dallas Division. The Company sought 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.
In September 1996, the Company amended its pleadings and filed
additional claims against AT&T related to additional breaches of contract and
various tortious activities. The Company sought a declaration that the patents
issued to AT&T using the Company's proprietary information were invalid or,
alternatively, should be transferred from AT&T to the Company, and that certain
actual or threatened AT&T conduct infringed the Company's patents. The Company
also brought claims against AT&T pursuant to the Texas Deceptive Trade Practices
Act ("DTPA") and sought actual, punitive and treble damages and attorneys' fees
in connection with its claims. Additionally, the Company's amended complaint
added another defendant, Lucent Technologies, Inc. ("Lucent"), to which AT&T
transferred certain of the patents at issue in the lawsuit.
In July and October 1996, AT&T filed counterclaims essentially
mirroring the Company's claims. AT&T sought an injunction preventing the Company
from using or disclosing AT&T's alleged trade secrets, a declaratory judgment
defining the parties' intellectual property rights, actual and punitive damages
and attorneys' fees in connection with its counterclaims. In November 1996,
AT&T filed a partial motion to dismiss the Company's DTPA claims, various tort
claims and the patent invalidity charges. Additionally, in November 1996,
Lucent filed a motion to dismiss all of the Company's claims against Lucent.
The Court ruled in December 1997 on the motions by granting the dismissal of
one non-essential tort claim against AT&T and the dismissal of the patent
invalidity charges with respect to Lucent only on the grounds that Lucent has
expressed no intent to enforce any of its patents against the Company.
On February 25, 1999, the Company and AT&T engaged in a mediation in an
effort to resolve all claims between the parties asserted in the litigation. The
Company and AT&T resolved all disputes relating to the litigation in this
mediation. The Company and AT&T have executed a binding memorandum of settlement
which will be finalized in a formal Joint Compromise, Release and Settlement
Agreement. Additionally, on March 25, 1999, the Company and Lucent resolved all
disputes related to the litigation in a mediation. The Company and Lucent
executed a binding memorandum of settlement. The terms of the settlements with
AT&T and Lucent will not adversely impact the Company's results of operations or
financial position.
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Uncertainty Regarding Patents and Proprietary Rights
The Company's success depends upon its technology and the scope and
limitations of its proprietary rights therein. In order to protect its
technology, the Company relies on a combination of patents, copyrights and
trade secret laws, as well as certain customer licensing agreements, employee
and third-party confidentiality and non-disclosure agreements and other similar
arrangements. If the Company's assertion of proprietary rights is held to be
invalid or if another person's use of the Company's technology were to occur to
any substantial degree, the Company's business, financial condition and results
of operations could be materially adversely affected.
The patents and other intellectual property rights of the Company
cannot prevent competitors from developing competing systems using other
land-based wireless communications systems or using the cellular system through
a different method. While the Company believes that the nature and scope of the
HighwayMaster communications system, including the Company's strategic business
and technological relationships, would be difficult for a competitor to
duplicate, there can be no assurance that a competitor would consider these
hindrances to be material in light of the market potential. A competitor could
invest time and resources in an attempt to duplicate certain key features of
the Company's products and services, which could result in increased
competition and have a material adverse effect on the Company's business.
Several of the Company's competitors have obtained and can be expected
to obtain patents that cover products or services directly or indirectly
related to those offered by the Company. There can be no assurance that the
Company is aware of all patents containing claims that may pose a risk of
infringement by its products or services. In addition, patent applications in
the United States are confidential until a patent is issued and, accordingly,
the Company cannot evaluate the extent to which its products or services may
infringe on future patent rights held by others. In general, if it were
determined that any of the Company's products, services or planned enhancements
infringed valid patent rights held by others, the Company would be required to
cease marketing such products or services or developing such enhancements, to
obtain licenses (which might require the payment of royalties) to develop and
market such products, services or enhancements from the holders of the patents
or to redesign such products or services to avoid infringement. In such event,
the Company also might be required to pay past royalties or other damages.
There can be no assurance that the Company would be able to obtain licenses on
commercially reasonable terms, or that it would be able to design and
incorporate alternative technologies, without a material adverse effect on its
business.
On February 23, 1999, Aeris Communications, Inc. filed an Original
Complaint against the Company in the United States District Court for the
Northern District of California alleging that the certain of the Company's
products may infringe Aeris' United States Patent No. 5,594,740. Aeris has not
served the lawsuit pursuant to a standstill agreement reached between the
parties. The parties are currently in negotiations in an effort to resolve the
disputes. However, there can be no assurance that the Company will be able to
resolve these disputes. If it were determined that any of the Company's
products infringed a valid patent held by Aeris, the Company may be required to
cease marketing of such products, to obtain licenses (which might require the
payment of past and future royalties) from Aeris or to redesign such products
to avoid infringement. There can be no assurance that the Company would be able
to obtain licenses on commercially reasonable terms, or that it would be able
to design and incorporate alternative technologies, without a material adverse
effect on the Company and its business, financial condition and results of
operations. See "Item 3 -- Legal Proceedings."
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Products in Development
The TrackWare(TM) product and service described in this Form 10-K
requires significant development efforts before commercial release. Although
the Company has executed agreements with Cellemetry, L.L.C. to utilize its
Cellemetry(R) network for the Company's TrackWare(TM) product and service,
various hardware, software and network solutions must be developed for the
TrackWare(TM) product and service to be successful. Furthermore, the current
Cellemetry(R) network must be expanded to include more cellular carriers in
order to provide nationwide coverage similar to the Company's current service
offerings. There can be no assurance that these steps will be accomplished as
currently expected, or at all. See "Business -- Products and Services --
TrackWare(TM)."
Dependence on SBC Regional Service Vehicle Contract
In August 1998, the Company entered into an agreement with the SBC
Companies whereby the SBC Companies purchased 11,500 mobile units, customized
proprietary software and accompanying services from the Company for an initial
term of one year. In the first quarter of 1999, the Company entered into a
second agreement with the SBC Companies which extended the initial one year
term to three years. Subsequently, the SBC Companies ordered an additional
3,140 mobile units. In total, this agreement represents the largest purchase
and service contract in the history of the Company.
The agreement requires the Company to perform certain product
modifications and software development for SBC in substantial conformance with
the technical specifications of the contract. The terms of the agreement
provide that SBC may receive up to a 100% refund of amounts paid to the Company
if the Company is unable to deliver mobile units and services which
substantially comply with the technical specifications of the agreement. There
are no assurances that the Company will be able to satisfy the technical
specifications of the agreement. The failure of the Company to
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timely satisfy the functional requirements could have a material adverse effect
on its business, financial condition and results of operations.
Dependence on Cellular Infrastructure
The Company utilizes the existing cellular telephone infrastructure,
with certain enhancements, as the wireless segment of the HighwayMaster
network. In most cases, current terms of contracts between the Company and each
of its cellular carriers are for one year, with automatic one-year successive
renewal terms, unless either party elects to terminate the contract upon 30
days notice prior to the end of the term. The Company has recently executed new
contracts with certain of its cellular carriers that are substantially similar
to the existing contracts, except that they provide for an initial three-year
term. In order to continue to provide mobile communications services to its
customers, the Company must continue to renew its agreements with individual
cellular carriers. If the Company is unable to renew or replace its contracts
with cellular carriers at competitive rates, the Company may be forced to
absorb the costs of increased cellular air time rates, or increase rates to
customers where allowed by individual contracts. In general, a failure on the
part of the Company to renew or replace its contracts with cellular carriers on
favorable terms could have a material adverse effect on its business, financial
condition and results of operations.
The HighwayMaster network relies on the continued technical
compatibility among its cellular service providers. Currently, cellular
carriers primarily utilize analog technology, with digital technology offered
in addition to analog in some service areas. If in the future cellular carriers
discontinue all service to analog telephones, the Company would be required to
dedicate financial resources and engineering staff to integrate a digital
cellular telephone transceiver into its products. Although cellular providers
have historically cooperated to maintain technical compatibility between
markets over time, if substantial changes to the methods of interconnection
utilized by cellular carriers occur, such as a discontinuance of the existing
out-of-area call clearing system or a decision by cellular carriers to
eliminate analog service and employ several diverse digital technologies rather
than a common digital technology, the Company may be required to undertake
costly system redesign or may encounter difficulty in providing nationwide
coverage. See "Other -- Infrastructure and Operations."
Dependence on Clearinghouse Services
GTE-TSI performs certain "clearinghouse" functions for the Company,
which include, among other things, validation and verification of roaming
numbers and provision of certain call delivery information pursuant to a
service agreement dated January 15, 1999 with an initial term of three years.
The Company is guaranteed the right to renew the TSI Service Agreement for up
to 10 one-year periods beyond the initial term, at a reasonable rate to be
determined by GTE-TSI. A dispute has arisen relating to the interpretation of
certain intellectual property provisions contained in the TSI Service Agreement
and the inventorship of certain patents of the Company. The Company and TSI are
currently engaged in good faith settlement discussions involving the execution
of a new TSI Service Agreement which contains language more clearly defining
the intellectual property rights of the parties and resolving the inventorship
issues relating to at least one of the Company's patents. GTE-TSI and the
Company have reached a preliminary understanding regarding the resolution of
these issues and are working together to draft final agreements. Although there
can be no assurance that the dispute will be resolved promptly or favorably to
the Company, management believes that the Company is close to reaching final
resolution of this dispute.
EDS also performs certain "clearinghouse" functions for the Company
which include, among other things, the validation of roaming numbers and
routing of call delivery information. The agreement with EDS expires on October
24, 1999 with successive automatic one-year renewal terms thereafter, unless
terminated at the option of either party upon 60 days notice prior to any
expiration date. There can be no assurance that the EDS agreement will be
renewed upon expiration.
If the Company is unable to renew its agreement with GTE-TSI or, to a
lesser extent, EDS, the Company may be required to make substantial and costly
design changes to the HighwayMaster network in order to ensure continued
availability of the Company's services. Because of the unique position of
GTE-TSI and EDS as industry-wide clearinghouses and the difficulty associated
with their replacement, there can be no assurance that full functionality of
the HighwayMaster system could be maintained if such a redesign were necessary.
A separate subsidiary of GTE, GTE Wireless, Inc. ("GTE Wireless")
provides certain other services to the Company, principally the direct payment
of the Company's cellular service providers for cellular airtime through the
cellular clearing house process, under a contract which expired on March 20,
1999. As stated above, GTE Wireless has informed the Company that it does not
intend to renew its service agreement with the Company. The Company has executed
an Administrative Carrier Agreement with SBMS whereby SBMS will replace GTE
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Wireless in providing the services. The Company is currently negotiating a
Transition Agreement with GTE Wireless to effectuate a smooth transition to
SBMS. The failure of the Company to enter into a Transition Agreement with GTE
Wireless may have a material adverse effect on the Company's business,
financial condition or results of operations. See "Other -- Infrastructure and
Operations."
Costs Related to Billing Discrepancies
The Company's ability to operate its business on a profitable basis
will depend in part upon whether it is able to monitor and control effectively
the direct costs of providing services to its customers, including cellular air
time charges. The Company periodically analyzes the charges billed to the
Company by GTE Wireless on behalf of cellular carriers in order to obtain the
appropriate amount of credit for any invalid air time usage charges billed to
the Company. Furthermore, the Company incurs certain valid airtime usage charges
that are not billable to customers under current billing practices. On at least
one past occasion, the Company has recorded an adjustment to increase cellular
airtime cost, a component of cost of service revenue, based on new billing data
received. There can be no assurance that the Company will not incur significant
costs in the future in connection with billing discrepancies, or that the costs
will not have an adverse impact on the Company's ability to achieve and maintain
satisfactory profit margins. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
No Long-Term Product Supply Arrangements
The Company does not have the ability to manufacture or assemble its
products. To the extent that the Company is dependent on a single supplier to
manufacture and assemble the Series 5000 Mobile Units and the TrackWare(TM)
Units, the possibility exists that problems experienced by the suppliers could
adversely affect the Company. The Company has an agreement with K-Tec
Electronics Corporation ("K-Tec") for the assembly of the Series 5000 Mobile
Units. The Company has an agreement with Wireless Link, Inc. for the
manufacture of the TrackWare(TM) Units. The Company plans to continue to order
Series 5000 Mobile Units from K-Tec and TrackWare(TM) Units from Wireless Link.
Additionally, the Company subcontracts for the manufacture of various
components for the Series 5000 Mobile Units from various suppliers. All
transceivers for the Series 5000 Mobile Units are manufactured by Motorola, and
the Company believes that there is a limited number of suppliers who are
capable of manufacturing transceivers that meet the Company's requirements. In
general, the failure to maintain or establish satisfactory arrangements for the
production and assembly of Series 5000 Mobile Units or the TrackWare(TM) Units
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Control of the Company
The Company, Southwestern Bell Wireless, Inc.("SBW"), the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word Stockholders and certain
other persons are parties to an Amended and Restated Stockholders' Agreement,
dated as of September 27, 1996 (the "Amended Stockholders' Agreement") which
amends and restates in its entirety the Stockholders' Agreement dated February
4, 1994. The parties to the Amended Stockholders' Agreement beneficially own an
aggregate of 17,417,411 shares of Common Stock, representing approximately
70.0% of the shares outstanding as of December 31, 1998.
The Amended Stockholders' Agreement contains provisions relating to,
among other things, the election of members of the Company's Board of
Directors. In particular, this agreement provides that the parties will take
all action (including the voting of shares of Common Stock owned by them)
necessary to ensure that the Board of Directors of the Company consists of: (i)
two directors designated by the Erin Mills Stockholders; (ii) one director
designated by the Carlyle Stockholders; (iii) two directors designated by the
By-Word Stockholders; and (iv) two independent directors. Each of the parties
has designated the number of directors specified in the Amended Stockholders'
Agreement, except
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<PAGE> 20
that the Carlyle Stockholders have declined to exercise their right to
designate a director. Prior to the receipt of regulatory relief ("Regulatory
Relief") permitting SBW to provide landline, interLATA long-distance service
pursuant to the Communications Act of 1934, as amended by the
Telecommunications Act (as defined herein), SBW will not be entitled to
designate a director, but will have the right to designate a non-voting
delegate who will attend all meetings of the Board of Directors and receive all
materials distributed to directors of the Company. Upon the conversion of
Series D Preferred Stock (as defined herein) into Class B Common Stock (as
defined herein), which will occur upon receipt of Regulatory Relief, SBW will
be entitled to designate one member of the Board of Directors of the Company.
In addition, if SBW and its affiliates beneficially own 20% or more of the
outstanding common stock on a fully diluted basis (including shares issuable
upon conversion or exercise of outstanding options, warrants or rights, but
excluding shares issuable upon the conversion or exercise of the certain
warrants issued to SBW or of options, warrants or rights issued by any person
other than the Company), SBW will under certain circumstances be entitled to
designate a second member of the Board of Directors.
As a result of the provisions of the Amended Stockholders' Agreement
and the number of shares of common stock owned by the stockholders who are
parties thereto, these stockholders, if they choose to act together, have the
ability to control the management and policies of the Company.
Repurchase of Senior Notes Upon Change of Control
Under the terms of the Senior Notes, upon the occurrence of a change of
control, the Company will be required to offer to repurchase all of the
outstanding Senior Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any, to
the repurchase date. There can be no assurance that the Company would have
sufficient resources to repurchase the Senior Notes upon the occurrence of a
change of control. The failure to repurchase all of the Senior Notes tendered to
the Company would constitute an event of default under the Indenture.
Furthermore, the repurchase of the Senior Notes by the Company upon a change of
control might result in a default on the part of the Company in respect of
other future indebtedness of the Company, as a result of the financial effect
of such repurchase on the Company or otherwise. The change of control
repurchase feature of the Senior Notes may have anti-takeover effects and may
delay, defer or prevent a merger, tender offer or other takeover attempt.
Competition and Technological Change
The Company faces competition from numerous other suppliers of mobile
communications services. Currently, the Company's primary competitors in the
long-haul trucking market offer data-only, two-way communications via
satellite. Other companies that compete or are planning to compete with the
Company in its target markets also offer or plan to offer satellite-based voice
and data communication systems. The primary advantage of satellite-based
communication over the Company's cellular-based system is that satellite
coverage is available in certain remote areas and foreign countries that have
not developed cellular networks, enabling data transmissions in areas not
served by cellular systems. In addition, satellite-based communication systems
generally utilize a less complicated infrastructure than the Company's network
and may be able to make updates and changes to their system more quickly than
the Company.
Certain technological advances and future product offerings could
substantially change the nature of the Company's competition. For example,
geo-stationary orbit, MEO and LEO satellite systems are expected to offer voice
and data communications that could compete directly with existing
cellular-based services, including the HighwayMaster system. One of the
Company's current competitors, AMSC, launched a geo-stationary satellite in 1995
and offers both data and voice communications. In addition, networks of MEO and
LEO satellites are in the early implementation stage, funded by consortiums of
companies that intend to provide worldwide voice communication capability. The
addition of voice capability to satellite systems may reduce the Company's
competitive advantage over certain of its competitors, and it is possible that
satellite owners may, at least on a temporary basis, offer rates at or below
the Company's rates.
Certain conventional mobile radio and Enhanced SMR providers offer
digital services that are competitive with current cellular services, including
the HighwayMaster system. If Enhanced SMR providers expand coverage and
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<PAGE> 21
establish a significant degree of uniformity, through use of proprietary
digital technology or otherwise, Enhanced SMR providers could eventually
develop an integrated network to allow nationwide roaming. Enhanced SMR
operators also offer dispatching services, data transmission and other services
through their expanding networks that could compete with the Company's
services. One telecommunications company already has implemented a system of
nationwide roaming limited to densely populated urban areas where it has built
out its network. Several other cellular and PCS carriers are currently in
various stages of implementing similar systems.
The cellular industry has developed a uniform standard for incoming
call delivery at a reduced cost. This inexpensive autonomous-registration
incoming call delivery system for cellular roamers reduces the competitive
advantages of the Company's system. Moreover, if cellular carriers were to
develop additional standard protocol and hardware for inexpensive data
transmission and fraud control or if the cost of roaming services were to
decline further, other competitive advantages of the Company's system would be
significantly reduced or lost.
In general, technology in the wireless communications industry is in a
rapid and continuing state of change as new technologies and enhancements to
existing technologies continue to be introduced. The Company believes that its
future success will depend upon its ability to develop and market products and
services that meet changing customer needs and which anticipate or respond to
technological changes on a timely and cost-effective basis. There can be no
assurance that the Company will be able to keep pace with technological
developments.
Other services are being proposed that could potentially compete with
the Company's products and services. The FCC currently is considering whether
to allocate 75 megahertz of spectrum in the 5.850-5.925 GHz band to establish
dedicated short range communications ("DSRC") systems for the deployment of
intelligent transportation systems to provide terrestrial wireless
communication links between vehicles traveling at highway speeds and roadside
systems. Current DSRC-based services include electronic toll payment and
commercial vehicle electronic clearance. Emerging DSRC services include
en-route driver information, freight mobility tracking, traffic control, and
automated roadside safety inspection, which may compete with the HighwayMaster
system.
Certain of the Company's competitors, including Qualcomm have
significantly greater name recognition, financial and other resources than the
Company. Among other things, it appears that certain of these resources have
been or are being used by Qualcomm and other competitors of the Company to
subsidize initial hardware purchases and provide extended periods of free
services in an attempt to achieve rapid penetration of certain of the Company's
target markets. See "Business -- Competition."
The failure of the Company to develop and market products and services
that meet changing customer needs and which anticipate or respond to
technological changes on a timely and cost-effective basis could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainty of Government Regulation
The Company believes that the nature of its services does not require
the Company to be classified as a common carrier for either wireless or
long-distance regulatory purposes. This conclusion is based on several
alternative regulatory interpretations. Specifically, the FCC regulates
telecommunications service providers or common carriers requiring approval for
entry into the marketplace and regulating the service rates offered through
tariff filing requirements. Additionally, most state regulatory commissions
regulate rate and entry for telecommunications service providers. In order to
encourage growth within the information services segment of the
telecommunications industry, the FCC issued an order creating the enhanced
services exemption from regulation. Basically, providers of enhanced services
are not subject to regulation by the FCC or the various state regulatory
agencies. Generally, services qualify as enhanced services if data is
transmitted between the provider and customer so that the customer is able to
interact with or manipulate the data regardless of whether the services provided
include telecommunications transmission components such as cellular or long
distance services. The Company believes that the services it provides to its
customers in connection with the Series 5000 and TrackWare(TM) Units qualify as
enhanced services and are exempt from both FCC and state regulation.
Alternatively, the Company believes that its services may be characterized as a
private network
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<PAGE> 22
not offered to the public at large but offered to specific group of users which
also exempts the Company from FCC and state regulation. The Company relies on
its long-distance providers and cellular providers to comply with any
regulatory requirements. The reclassification of the Company's services as
telecommunications services could have a material adverse effect on the
Company's business, financial condition and results of operations.
The wireless telecommunications industry currently is experiencing
significant regulatory changes which may require a re-examination of laws and
regulations applicable to the Company's operations. The Company's services may
be characterized by the FCC as CMRS. If the Company's services are classified
as CMRS, the Company would subject to FCC regulation as telecommunications
service provider. However, the FCC has decided to forbear from most regulation
of the CMRS marketplace, including regulation of the rates and terms of entry
for interstate services offered by CMRS providers. In addition, Congress has
preempted state regulation of CMRS entry and rates. Recent FCC decisions have
enhanced the development of CMRS, including requiring local telephone companies
to offer interconnection and access to their networks to CMRS providers and to
establish reciprocal compensation arrangements with CMRS providers for the
transportation and termination of calls at prices that are cost-based and just
and reasonable.
If any services offered by the Company are determined to be
telecommunications services by the FCC, the revenues generated from these
services would be subject to the federal universal service fund contribution
tax. At this time, revenues generated from the Company's services which meet the
definition of enhanced services are not subject to FCC mandated universal
service fund contribution. However, based on a conservative interpretation the
Company has reported certain revenues generated by the personal calling plan
service offered by the Company as a telecommunications service for purposes of
federal universal service fund contribution filings. Various states have
instituted their own universal service fund mechanisms which may or may not
follow the federal statues in exempting revenues generated by enhanced services.
The Company cannot predict the impact of any requirement to contribute to state
and federal universal service mechanisms.
Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to the companies providing
long-distance services directly to Company customers, without long-distance
regulatory involvement by the Company. The reclassification of the Company's
services as long distance services could have a material adverse effect on the
Company's business, financial condition and results of operations.
In February 1996, the Telecommunications Act of 1996 was signed into
law. This is the most comprehensive set of telecommunications laws to be enacted
since the original Communications Act of 1934 was passed. The Telecommunications
Act encourages competition in virtually every arena of communications and
eliminates many regulatory barriers to new competitors by, in some instances,
preempting state and local restrictions. The Telecommunications Act requires the
FCC to extensively revise many of the rules and regulations under which the
telecommunications industry has been operating. To that end, the FCC has
completed approximately 80 different proceedings in connection with the
Telecommunications Act. At this time, it is unclear how the Telecommunications
Act will affect the activities of the Company, its strategic business
relationships with other communications companies, or its customers. There can
be no assurance that the relaxing of barriers to competition in the industry
will not hinder the Company's growth and viability in the marketplace.
Dependence on Key Personnel
The Company is dependent on the efforts of Jana Bell, President and
Chief Executive Officer, Bill McCausland, Senior Vice President Operations,
Michael Smith, Executive Vice President and Chief Financial Officer, Todd
Felker, Senior Vice President Sales & Marketing and a group of employees with
technical knowledge regarding the Company's systems. The loss of services of
one or more of these individuals could materially and adversely affect the
business of the Company and its future prospects. The Company has employment
agreements with Ms. Bell, and Messrs. McCausland, Smith and Felker. Ms. Bell,
and Messrs. McCausland, Smith and Felker may each terminate their
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<PAGE> 23
employment agreements upon 90 days written notice. The Company does not
maintain key man life insurance on any of the Company's officers or employees.
The Company's future success will also depend on its ability to attract and
retain additional management and technical personnel required in connection
with the growth and development of its business.
Year 2000 Software Risk
The Company has established a Year 2000 project team, which includes
employees with various functional responsibilities and outside consultants. The
project team has identified five phases in becoming Year 2000 compliant: (i)
awareness, locating, listing and prioritizing specific technology that is
potentially subject to Year 2000 challenges; (ii) assessment and determining
the element of risk that exists through inquiry, research and testing; (iii)
resolving Year 2000 related issues that were identified in previous phases by
repair in a testing environment; (iv) validation testing, monitoring, obtaining
certification and verifying the correct manipulation of dates and date related
data, including systems of material third parties; and (v) implementation,
installation, integration, and application of Year 2000 ready resolutions by
replacement, upgrade or repair of technology systems, including those of
material third parties.
The Company is performing its Year 2000 analysis on all systems
located at the Company as well as some located at customer sites. In addition
to internally controlled operating systems, the Company relies on third parties
for services and/or goods that may be affected by Year 2000 challenges. The
Company is in the process of obtaining assurances from third parties that their
systems are or will be Year 2000 compliant in a timely manner.
While the Company does not anticipate delays or postponements in
implementing Year 2000 resolutions in a timely manner, there can be no
certainty that implementation of solutions will be made in a timely manner
until the validation phase is completed. The inability to address all issues in
a timely and successful manner could have an adverse effect on the Company's
business and results of operations. The failure of third parties to provide
Year 2000 compliant products and/or services could have a material adverse
effect on the Company's financial condition and results of operations. Such
risks include, but are not limited to, inability to deliver or receive calls
and/or data, failure to accurately report and bill existing customers, accept
new orders and the inability to perform other customer care tasks.
Management believes the cost of becoming Year 2000 compliant will be
approximately $650,000 during 1999. Although the Company does not expect the
cost to have a material adverse effect on its business or results of operations,
there can be no assurance that the Company will not be required to incur
significant unanticipated costs in relation to its readiness obligations. The
Company has not deferred any specific projects, goals or objectives relating
to its operations as a result of Year 2000 compliance efforts.
Expansion Risk
To the extent that the Company is successful in implementing its
business strategy, the Company may experience periods of rapid expansion in the
future. In order to manage growth effectively in the complex environment in
which it operates, the Company will need to maintain and improve its operating
and financial systems and expand, train and manage its employee base. In
addition, the Company must carefully manage production and inventory levels to
meet product demand and facilitate new product introductions. Inaccuracies in
demand forecasts could result in insufficient or excessive inventories and
disproportionate overhead expenses. The Company must also expand the capacity
of its sales, distribution and installation networks in order to achieve
continued growth in its existing and future markets. In general, the failure to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
Customer Concentration
AmeriTruck Distribution Corporation, Burlington Motor Carriers,
Contract Freighters, Inc., the SBC Companies and Wal-Mart Stores East, Inc.
collectively accounted for approximately 40% of the Company's installed base of
mobile units as of December 31, 1998. The loss of any of these customers, or
any event, occurrence or development which
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<PAGE> 24
adversely affects the relationship between the Company and any of these
customers, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Product Liability
Testing, manufacturing and use of the Company's products entail the
risk of product liability. Although management believes the Series 5000 Mobile
Unit offers safety advantages over conventional cellular telephones, it is
possible that operation of the product may give rise to product liability
claims. Product liability claims present a risk of protracted litigation,
substantial money damages, attorney's fees, costs and expenses, and diversion
of management attention. In addition, as the Company expands its business to
include the provision of alarm monitoring services in connection with the SBC
regional service vehicles contract, the Company is exposed to an increased risk
of litigation regarding various safety, performance and other matters. Product
liability claims which exceed policy limits applicable to the Company's
liability insurance or which are excluded from the policy coverage could have a
material adverse effect on the business or financial condition of the Company.
Common Stock Available for Purchase by SBW
Pursuant to a Purchase Agreement dated September 27, 1996 (the
"Purchase Agreement"), and certain agreements and instruments related thereto,
the Company issued to SBW (i) 1,000 shares of Series D Preferred Stock and (ii)
the Warrants. The shares of Series D Preferred Stock issued to SBC are
initially convertible into an aggregate of 1,600,000 shares of Common Stock at
the option of SBW. The Warrants generally entitle SBW to purchase from the
Company (i) 3,000,000 shares of Common Stock at an exercise price of $14.00 per
share and (ii) 2,000,000 shares of Common Stock at an exercise price of $18.00
per share, in each case subject to adjustment to prevent dilution. If all of
the shares of Series D Preferred Stock were converted into Common Stock and all
the Warrants were exercised by SBW, SBW would hold approximately 21.0% of the
outstanding shares of Common Stock (based on the total number of shares of
Common Stock outstanding as of December 31, 1998).
Certain Rights of SBW
The Purchase Agreement and certain of the other agreements and
instruments related thereto afford various rights to SBW that are not available
to the other stockholders of the Company. For example, the Company has granted
to SBW, as the holder of Series D Preferred Stock, the right to approve certain
actions on the part of the Company, including (i) mergers or consolidations
involving the Company that require stockholder approval under the General
Corporation Law of the State of Delaware (the "DGCL"); (ii) sales of all or
substantially all of the assets of the Company that require stockholder
approval under the DGCL; (iii) amendments to the Company's Certificate of
Incorporation; (iv) the dissolution of the Company; (v) the adoption,
implementation or acceptance by the Company of certain anti-takeover
provisions; (vi) the issuance by the Company of equity securities, including
securities convertible into equity securities (subject to specified
exceptions) and the incurrence by the Company of debt obligations in an amount
exceeding $5.0 million in any year; (vii) the Company entering into any line of
business other than its existing line of business or entering into joint
ventures, partnerships or similar arrangements which would require expenditures
of more than $3.0 million; (viii) the disposition by the Company in any
12-month period of assets (other than assets sold in the ordinary course of
business) of which the fair market value exceeds $3.0 million; and (ix) any
amendment, alteration or repeal of the terms of the Series D Preferred Stock.
Dividend Policy
The Company has never paid cash dividends on its Common Stock and has
no plans to do so in the foreseeable future. The Company intends to retain
earnings, if any, to develop and expand its business.
Shares Eligible for Future Sale
The Company had 24,898,986 shares of Common Stock outstanding as of
December 31, 1998. Approximately 11,641,449 shares of Common Stock are freely
tradable without restrictions or further registration under the Securities
21
<PAGE> 25
Act. The remaining shares are deemed "restricted securities" within the meaning
of the Securities Act as a result of the issuance thereof in private
transactions prior to the Company's initial public offering in June 1995 and
pursuant to the Recapitalization Agreement entered into at the time of the SBC
transaction. These "restricted securities" may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as those provided by Rules 144 and 144A
promulgated under the Securities Exchange Act.
The Amended Stockholder's Agreement provides for certain demand,
piggyback or other registration rights to the stockholders who are parties to
it. In particular, the agreement provides that, with respect to an aggregate of
1,818,018 shares of Common Stock issued to the Erin Mills Stockholders and
certain of the Carlyle Stockholders in connection with the Recapitalization
Transactions, the Company would register one-half each of such shares under the
Securities Act, for sale during the three-month periods beginning March 31,
1997 and September 27, 1997. The Erin Mills Stockholders have waived the right
to cause the Company to register such shares, although they have reserved the
right to revoke such waiver at any time. The Carlyle Stockholders executed a
waiver similar to the Erin Mills Stockholders' waiver; however, they then
exercised their piggyback rights in connection with the registration of
warrants and warrant shares that were issued in connection with the 1997 sale
of Senior Notes. The Carlyle Shareholders are offering all 2,723,468 shares
beneficially owned by them to the public under the warrant registration
statement filed on September 18, 1998. During 1998 none of the Carlyle
Stockholders' Company Common Stock was purchased pursuant to the offering. See
"Part II, Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters."
The sale of a substantial number of shares of Common Stock or the
availability of a substantial number of shares for sale may adversely affect
the market price of the Common Stock and could impair the Company's ability to
raise additional capital through the sale of its equity securities.
Volatility of Stock Price
Historically, the market prices for securities of emerging companies
in the telecommunications industry have been highly volatile. Future
announcements concerning the Company or its competitors, including results of
technological innovations, new commercial products, financial transactions,
government regulations, proprietary rights or product or patent litigation may
have a significant impact on the market price of the Company's Common Stock.
The Company's stock price has been highly volatile in recent periods.
ITEM 2. PROPERTIES
REAL PROPERTY AND LEASES
The Company does not own any real property. The Company leases
approximately 73,400 square feet of office space for its corporate headquarters
in Richardson, Texas, of which approximately 18,600 square feet is sub-leased to
another company. In addition, the Company leases approximately 15,000 square
feet of warehouse and office space in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
AT&T Litigation. On February 16, 1996, the Company filed a lawsuit
against AT&T, which operated an enhanced switching complex for the Company (the
"AT&T Complex") until December, 1997, in the U.S. District Court, Northern
District of Texas, Dallas Division. The Company sought 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.
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In September 1996, the Company amended its pleadings and filed
additional claims related to breach of contract and various tortious activities.
The Company sought a declaration that the patents issued to AT&T using the
Company's proprietary information were invalid or, alternatively, should be
transferred from AT&T to the Company, and that certain actual or threatened AT&T
conduct infringed the Company's patents. The Company also brought claims against
AT&T pursuant to the Texas Deceptive Trade Practices Act ("DTPA") and sought
actual, punitive and treble damages and attorneys' fees in connection with its
claims. Additionally, the Company's amended complaint added another defendant,
Lucent Technologies, Inc. ("Lucent"), to which AT&T transferred certain of the
patents at issue in the lawsuit.
In July and October 1996, AT&T filed counterclaims essentially
mirroring the Company's claims. AT&T sought an injunction preventing the Company
from using or disclosing AT&T's alleged trade secrets, a declaratory judgment
defining the parties' intellectual property rights, actual and punitive damages
and attorneys' fees in connection with its counterclaims. In November 1996, AT&T
filed a partial motion to dismiss the Company's DTPA claims, various tort claims
and the patent invalidity charges. Additionally, in November 1996, Lucent filed
a motion to dismiss all of the Company's claims against Lucent. The Court ruled
in December 1997 on the motions by granting the dismissal of one non-essential
tort claim against AT&T and the dismissal of the patent invalidity charges with
respect to Lucent only on the grounds that Lucent has expressed no intent to
enforce any of its patents against the Company.
On February 25, 1999, the Company and AT&T engaged in a mediation in an
effort to resolve all claims between the parties asserted in the litigation. The
Company and AT&T resolved all disputes relating to the litigation in this
mediation. The Company and AT&T have executed a binding memorandum of settlement
which will be finalized in a formal Joint Compromise, Release and Settlement
Agreement. Additionally, on March 25, 1999, the Company and Lucent resolved all
disputes related to the litigation in a mediation. The Company and Lucent
executed a binding memorandum of settlement. The terms of the settlement with
AT&T and Lucent will not adversely impact the Company's results of operations or
financial position.
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Aeris. On February 23, 1999, Aeris Communications, Inc. filed an
Original Complaint against the Company in the United States District Court for
the Northern District of California alleging that the certain of the Company's
products may infringe Aeris' United States Patent No. 5,594,740. Aeris has not
served the lawsuit pursuant to a standstill agreement reached between the
parties. The parties are currently in negotiations in an effort to resolve the
disputes. However, there can be no assurance that the Company will be able to
resolve these disputes. If it were determined that any of the Company's
products infringed a valid patent held by Aeris, the Company may be required to
cease marketing of such products, to obtain licenses (which might require the
payment of past and future royalties) from Aeris or to redesign such products
to avoid infringement. There can be no assurance that the Company would be able
to obtain licenses on commercially reasonable terms, or that it would be able
to design and incorporate alternative technologies, without a material adverse
effect on the Company and its business, financial condition and results of
operations. See "Risk Factors -- Uncertainty Regarding Patents and Proprietary
Rights."
Other. The Company is also involved in various other claims and
lawsuits incidental to its business, primarily collections lawsuits in which
the Company is seeking payment of amounts owed to it by customers. In
connection with the Company's efforts to collect payments from a small number
of former customers, such former customers have on occasion alleged breaches of
contractual obligations under service agreements with the Company. The Company
does not believe that these claims and lawsuits will have a material adverse
affect on the Company's business, financial condition and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year covered by this report through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was initially offered to the public on June
22, 1995, and was quoted on the National Market ("Nasdaq NMS") through
close of business on February 1, 1999, after which time it began trading on the
Nasdaq SmallCap Market ("Nasdaq SmallCap") under the symbol "HWYM". The
following table sets forth the range of high and low trading prices on Nasdaq
NMS for the Common Stock for the periods indicated, as reported by Nasdaq NMS.
Such price quotations represent inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES
HIGH LOW
------- --------
<S> <C> <C>
1997
First Quarter................................... $21 1/8 $11 3/8
Second Quarter.................................. $17 1/4 $ 9 3/4
Third Quarter................................... $16 $ 7 1/2
Fourth Quarter.................................. $9 7/8 $ 5
1998
First Quarter $8 $ 5 3/8
Second Quarter $6 1/2 $ 2 5/16
Third Quarter $4 1/2 $ 7/8
Fourth Quarter.................................. $2 1/8 $ 53/64
</TABLE>
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The Company had approximately 2,100 holders of common stock as of
March 22, 1999. The last sales price for the Company's Common Stock as reported
on March 22, 1999 was $1.875. The Company did not pay dividends on its Common
Stock for the year ended December 31, 1998 and has no plans to do so in the
foreseeable future.
On June 24, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") notified
the Company that it was not in compliance with the minimum bid price
requirement of $5.00 per share for listing on the Nasdaq NMS and that the
Company's securities would be delisted on September 28, 1998 unless it achieved
compliance by September 24, 1998. Additionally, on November 6, 1998, the
Company received notification from Nasdaq that it was not in compliance with
Nasdaq NMS' minimum market value of public float of $15 million and that the
Company's securities would be delisted on February 4, 1999 unless it achieved
compliance with this requirement by February 3, 1999. Delisting was stayed
pending a hearing before a Nasdaq Listing Qualifications Hearing Panel ("Nasdaq
Panel") held on November 19, 1998. At the hearing, the Company presented an
overview of its restructuring activities and results to date as well as a
compliance plan for correcting the bid price and public float market value
deficiencies. The Company requested continued inclusion via an exception to the
bid price through May 31, 1999. The Nasdaq Panel notified the Company on
January 28, 1999 that the Company's common stock listing would be moved from
Nasdaq NMS to Nasdaq SmallCap at the close of business February 1, 1999. The
Nasdaq Panel acknowledged the Company's progress in restructuring the business
and indicated that although the Company's stock would not be delisted, an
exception extension to May 31, 1999 was too long to remain out of compliance on
Nasdaq NMS. Since the Company met all maintenance criteria for Nasdaq SmallCap,
the Nasdaq Panel determined to move the Company's common stock listing to
Nasdaq SmallCap where it has been traded since February 1, 1999.
On September 18, 1998, under the Securities Act of 1933, as amended,
the Securities and Exchange Commission ("SEC") declared effective the Company's
registration statement on Form S-3, as amended (the "Registration Statement").
The Company registered warrants and warrant shares as required pursuant to the
Warrant Registration Rights Agreement entered into as part of the Company's
1997 Debt Offering. Under the terms of the Warrant Registration Rights
Agreement, the Company is obligated to use its best efforts to keep the
Registration Statement continuously effective until the earlier of (i) the
expiration of the warrants or (ii) the time when all warrants have been
exercised; provided, however, that during any consecutive 365-day period, the
Company may suspend the effectiveness of the Registration Statement on up to
two occasions for a period of not more than 45 consecutive days in connection
with a possible acquisition, business combination or other development
affecting the Company if the Board of Directors determines that disclosure
thereof would not be in the best interests of the Company. The Company will not
receive any proceeds from the sale of the warrants by the selling warrant
holders. To the extent that any warrants are exercised, the Company will
receive the exercise price for the warrant shares. During 1998 no warrants were
sold and no warrant shares were exercised.
Additionally, the Company registered shares required pursuant to the
Amended Stockholders' Agreement (the "Stockholders' Agreement"). The
Stockholders' Agreement grants piggyback registration rights to certain
stockholders who are parties thereto. Accordingly, whenever the Company
proposes to register any shares of Common Stock (or securities convertible into
or exchangeable for, or options, warrants or other rights to acquire Common
Stock) under the Securities Act of 1933 (other than registrations on Form S-4
or Form S-8), the eligible parties to the Stockholders' Agreement have the
right to include shares of Common Stock held by them in any such registration.
However, if the inclusion of shares of Common Stock pursuant to the piggyback
registration provisions is reasonably determined by the managing underwriter or
underwriters to materially adversely affect the success of the proposed
offering, the Company may exclude certain shares from the offering. All
eligible parties under the Stockholders' Agreement were given notice of their
opportunity to piggyback the offering of their Company Common Stock holdings on
the Registration Statement. The Carlyle Stockholders were the only eligible
parties who exercised their piggyback rights in connection with the
registration of warrants and warrant shares under the Registration Statement.
The Carlyle Shareholders are offering all 2,723,468 shares beneficially owned
by them to the public under the Registration Statement. During 1998 none of the
Carlyle Stockholders' Company Common Stock was purchased pursuant to the
offering.
25
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth for each of the years 1994,
1995, 1996, 1997, and 1998 has been derived from audited financial statements,
including the consolidated balance sheets at December 31, 1998 and 1997 and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity for each of the three years in the period ended December
31, 1998 and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues:
Product $ 16,832 $ 27,187 $ 14,645 $ 16,946 $ 11,075
Service 46,463 27,445 16,056 9,908 2,436
-------- -------- -------- -------- --------
Total revenues 63,295 54,632 30,701 26,854 13,511
-------- -------- -------- -------- --------
Cost of revenues:
Product 12,991 22,133 15,099 17,730 11,867
Service 32,419 21,397 11,489 9,172 2,099
Writedown of inventory -- -- 1,943 -- 1,658
-------- -------- -------- -------- --------
Total cost of revenues 45,410 43,530 28,531 26,902 15,624
-------- -------- -------- -------- --------
Gross profit (loss) 17,885 11,102 2,170 (48) (2,113)
-------- -------- -------- -------- --------
Expenses:
General and administrative 22,748 11,872 7,997 6,488 5,752
Customer service 10,844 11,493 8,089 5,727 4,587
Sales and marketing 7,372 7,723 9,139 6,273 3,890
Engineering 5,399 4,604 3,487 2,868 1,900
Network services center 1,992 1,416 607 -- --
Severance and AutoLink(R) termination costs 5,357 -- -- -- --
Depreciation and amortization 5,829 2,684 1,482 811 825
-------- -------- -------- -------- --------
59,541 39,792 30,801 22,167 16,954
-------- -------- -------- -------- --------
Operating loss (41,656) (28,690) (28,631) (22,215) (19,067)
Interest income 4,827 2,500 809 1,041 279
Interest expense (17,099) (4,857) (1,691) (5,106) (5,999)
Recapitalization costs -- -- -- -- (733)
Other expense -- -- (230) (117) (361)
-------- -------- -------- -------- --------
Loss before income taxes and
extraordinary item (53,928) (31,047) (29,743) (26,397) (25,881)
Income tax provision -- -- -- -- --
-------- -------- -------- -------- --------
Loss before extraordinary item (53,928) (31,047) (29,743) (26,397) (25,881)
Extraordinary item 18,867 -- (317) (6,980) --
-------- -------- -------- -------- --------
Net loss $(35,061) $(31,047) $(30,060) $(33,377) $(25,881)
======== ======== ======== ======== ========
Per share (1):
Loss per share before extraordinary item $ (2.17) $ (1.25) $ (1.39) $ (1.43) $ (1.61)
Extraordinary item 0.76 -- (0.01) (0.35) --
-------- -------- -------- -------- --------
Basic and diluted net loss $ (1.41) $ (1.25) $ (1.40) $ (1.78) $ (1.61)
======== ======== ======== ======== ========
Weighted average number of shares
outstanding 24,899 24,864 22,763 19,813 17,040
======== ======== ======== ======== ========
- ----------
(1)Pro forma (unaudited) for 1994
OTHER FINANCIAL AND OPERATING DATA(unaudited)
Units installed at December 31, 47,657 33,122 20,354 14,751 6,131
Average monthly usage-minutes per unit 121 121 130 136 135
Average monthly service revenue per unit $ 99.26 $ 85.54 $ 76.23 $ 79.08 $ 66.22
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term investments $ 26,169 $ 46,486 $ 19,725 $ 23,969 $ 4,158
Working capital 29,143 64,729 24,605 25,772 4,223
Network, equipment and software - net 20,649 15,482 8,629 5,020 1,772
Total assets 103,126 146,473 42,929 42,369 16,430
Notes payable 91,697 120,956 -- 11,488 36,247
Redeemable preferred stock -- -- -- 8,126 6,149
Stockholders' equity (deficit) (26,791) 8,270 34,664 13,101 (34,773)
Capital expenditures $ 10,520 $ 9,499 $ 5,139 $ 4,076 $ 1,613
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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 its
commercial dispatch and tracking services in broader market segments.
The Company's revenues are derived primarily from the long-haul
trucking market from sales and installation of Mobile Communication Units
("mobile units") and charges for its services.
During the third quarter of 1998 the Company announced that it was:
(i) halting the development of its AutoLink(R) service, and (ii) implementing a
number of key management and structural changes designed to more closely align
the Company's expenditures with its revenues. As a result of these
announcements, the Company reduced its workforce by approximately 25% and
recorded charges of $2,481,000 for obligations under employment contracts and
severance payments to terminated employees, and $2,431,000 to recognize asset
impairments and record estimated amounts to be incurred to extinguish
contractual obligations associated with the AutoLink(R) program.
The Company's installed base of mobile units was 47,657 at December
31, 1998, compared to 33,122 at December 31, 1997, an increase of 44 percent.
Continuing increases in the installed base, which will generate greater service
revenues, are critical to achieving profitable operations and, therefore, key
to the ultimate success of the Company. Continuing operating losses and
negative cash flow are anticipated in 1999. However, based on the Company's
projected operating results, after considering the above changes, the Company
believes its existing capital resources will be sufficient to fund its
currently anticipated operating needs and capital expenditure requirements for
the next twelve months.
Until the third quarter of 1996, the Company's service revenues were
generated from mobile communications units served exclusively by a switching
complex operated by AT&T Corporation (the "AT&T Complex"). The Company's
Network Services Center ("NSC") commenced service during the third quarter of
1996. During 1997, voice and data communication services were provided by both
the Company's NSC and the AT&T Complex while the provision of service was
transitioned from the AT&T Complex to the NSC. Since January 1, 1998, the
Company has provided voice
27
<PAGE> 31
and data communication services for all of its customers exclusively through
the NSC together with related customer billing, credit and collection
activities. The amount of service revenues and related expenses 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.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues increased to $63.3 million in 1998 compared to $54.6
million in 1997. Product revenues declined to $16.8 million in 1998 from $27.2
million in 1997, primarily as a result of a 45.5% decrease in mobile units
sold. Product shipments in 1998 were less than the Company's expectations
primarily as a result of the absence of any contribution from major new
contracts and the introduction of the Series 3000 mobile unit that did not
generate any significant sales volumes. After a reassessment of the market, the
Series 3000 product offering was discontinued. The Company signed one major new
contract during 1998; however, the 8,686 units shipped and placed in service in
connection with this contract are not reflected in product revenues because the
earnings process was not complete at December 31, 1998. Service revenues
increased to $46.5 million in 1998 as compared to $27.4 million in 1997 due to
the combined effect of (i) the increased installed base of mobile units and
(ii) increased service revenues per mobile unit. Average monthly revenue per
mobile unit in 1998 increased to $99.26 from $85.54 in 1997 because 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 "General," above.
Cost of revenues in 1998 was $45.4 million compared to $43.5 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 22.8% in 1998 compared to 18.6% in
1997. The improvement in product gross profit margin is primarily attributable
to a lower provision for warranty costs.
Service gross profit margin was 30.2% in 1998 compared to 22.0% in
1997. The Company incurs certain costs for airtime usage that are not billable
to customers under current billing practices. The improvement in service gross
profit margin in 1998 reflects the changed economic relationships described
above, and the effect of technical adjustments and modifications implemented to
reduce the amount of airtime costs incurred that are not billable to customers.
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 $22.7 million in 1998
compared to $11.9 million in 1997. Of this $10.8 million increase,
approximately $4.3 million represents a provision for bad debts related to the
Company's accounts receivable, and approximately $3.0 million represents a
charge to accrue an estimated liability for sales taxes and associated costs as
described in more detail in Note 8 to the accompanying consolidated financial
statements. Of the $4.3 million provision for bad debts, $1.5 million 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, during the second quarter
of 1998 the Company discontinued the promotion and changed the credit process
with respect to personal accounts in an attempt to reduce the Company's credit
risk. The Company recorded a $2.7 million provision as a result of a major
customer's filing for Chapter 11 bankruptcy protection. 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 average number
28
<PAGE> 32
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) legal and professional fees.
Customer service expenses decreased to $10.8 million in 1998 compared
to $11.5 million in 1997. This decrease is attributable to the reduction in the
number of employees pursuant to a reorganization announced in the second
quarter of 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.
Sales and marketing expenses decreased to $7.4 million in 1998
compared to $7.7 million in 1997 primarily from cost savings realized in the
fourth quarter as a result of the reorganization announced during the third
quarter of 1998.
Engineering expenses increased to $5.4 million in 1998 compared to
$4.6 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 of the AutoLink(R) service.
Depreciation and amortization expense increased to $5.8 million in
1998 compared to $2.7 million in 1997 reflecting the additional depreciation
and amortization as a result of additions to network, equipment and capitalized
software during 1997 and 1998.
Interest income was $4.8 million in 1998 compared to $2.5 million in
1997. Interest expense was $17.1 million in 1998 compared to $4.9 million in
1997. The change in these relationships reflects higher average outstanding
balances during 1998 in cash and short-term investments, temporary investments
and notes payable as a result of the issuance of $125,000,000 of Senior Notes
("Senior Notes") in September 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total revenues increased to $54.6 million in 1997 from $30.7 million
in 1996. Product revenues increased in 1997 to $27.2 million from $14.6 million
in 1996 primarily as a result of a 97.1% increase in mobile units sold. Average
sales price per mobile unit decreased primarily as a result of a larger
percentage of sales qualifying for the Company's most favorable tier pricing.
This decrease in average sales price was offset by a lower average cost per
mobile unit sold. The lower average cost per mobile unit is primarily
attributable to manufacturing and procurement economies. Service revenues
increased to $27.4 million in 1997 as compared to $16.1 million in 1996
primarily as a result of the increase in the installed base of mobile units.
Average monthly revenue per mobile unit in 1997 increased to $85.54 from $76.23
in 1996 as a result of proportionately more services being provided through the
NSC rather than the AT&T Complex.
Cost of revenues in 1997 was $43.5 million compared to $28.5 million
in 1996. This increase is primarily as a result of the increase in the number
of mobile units sold and in service.
Product gross profit margin was 18.6% in 1997 compared to a negative
16.4% in 1996. This improvement was primarily attributable to: (i) lower
charges associated with the migration of earlier generation mobile units to the
NSC, (ii) reduced charges for upgrade contracts and excess and obsolete
inventory, and (iii) the leverage obtained on the fixed portion of the Company's
installation costs as a result of the significant increase in shipments and
installations.
Service gross profit margin was 22.0% in 1997 compared to 28.4% in
1996. The Company incurs certain costs for airtime usage that are not billable
to customers under current billing practices. Billing data received in 1997
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. An 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.
General and administrative expenses increased to $11.9 million in 1997
from $8.0 million in 1996. These increased expenses reflect the costs
associated with billing, credit and collection activities for the NSC and a
general increase in expenses as a result of the growth in the number of
employees from 295 at the end of 1996 to 348 at the end
29
<PAGE> 33
of 1997. The most significant expense increase was bad debt expense. The Company
records an allowance for doubtful accounts based on a percentage of sales.
Accordingly, bad debt expense increased because of: (i) the significant increase
in product revenues from 1996 to 1997, (ii) provision for bad debts on the NSC,
and (iii) a $1 million charge recorded to provide for loss on the sales-type
lease receivable due from a customer as a result of the customer's early
termination of the lease.
Customer service expenses increased to $11.5 million in 1997 compared
to $8.1 million in 1996, 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 decreased to $7.7 million in 1997 from
$9.1 million in 1996. This decrease was primarily related to a reduction in the
number of sales and marketing employees. During 1996, a significant number of
new employees were added to the sales force. During 1997, there was a
significant reduction in the number of sales employees in connection with the
realignment of the sales force to coincide with the Company's target markets.
Engineering expenses increased to $4.6 million in 1997 compared to
$3.5 million in 1996. This increase was 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.
Network services center expense increased to $1.4 million in 1997 from
$0.6 million in 1996 reflecting an entire year of operations for the NSC in
1997 as compared to only a portion of the year in 1996.
Depreciation and amortization expense increased to $2.7 million in
1997 compared to $1.5 million in 1996 reflecting an entire year of depreciation
for the NSC in 1997 as compared to only a portion of the year in 1996, and the
depreciation and amortization on other additions to equipment and capitalized
software during 1997.
Interest income was $2.5 million in 1997 compared to $0.8 million in
1996. Interest expense was $4.9 million in 1997 compared to $1.7 million in
1996. The change in these relationships reflected higher average outstanding
balances during 1997 in cash and short-term investments, temporary investments
and notes payable as a result of the issuance of the Senior Notes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash consumed by operating activities during 1998 was $35.6 million
due primarily to an operating loss of $41.7 million. The Company's cash and
short-term investments balance at December 31, 1998 was $26.2 million. During
the third quarter, the Company halted the development of the AutoLink(R) program
and made a number of key management and structural changes designed to more
closely align the Company's expenditures with its revenues. Based on the
Company's projected operating results, after considering these changes, the
Company believes its existing capital resources will be sufficient to fund its
currently anticipated operating needs and capital expenditure requirements for
the next 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.
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) increase the installed base of
mobile units in service and improve the efficiency of its operations, so as to
reduce or eliminate its operating losses, or (ii) 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 or equity financing on satisfactory terms, if at all.
In September 1997, the Company issued the Senior Notes in a Rule 144A
offering. The Company has placed in escrow funds (the "Pledged Securities")
which are sufficient to pay interest on the Senior Notes through
30
<PAGE> 34
September 15, 2000. After such date, the Company will be required to pay
interest on the Senior Notes on a semi-annual basis at a rate of 13 3/4% per
annum. During the fourth quarter of 1998 the Company purchased and subsequently
retired $30,645,000 principal amount of the Senior Notes on the open market for
$9,885,000 plus accrued interest thereon, resulting in a gain on extinguishment
of debt of $18,867,000 after the write-off of associated debt discount and debt
issuance costs. The gain is reported as an extraordinary item in the
accompanying Consolidated Statements of Operations. Upon the retirement of the
Senior Notes, the allocable portion of the Pledged Securities related thereto,
in the amount of $8,063,000, was released to the Company. The Company may
continue to make purchases on the open market in the event conditions remain
favorable.
YEAR 2000
The Company has established a Year 2000 project team, which includes
employees with various functional responsibilities and outside consultants. The
project team has identified five phases in becoming Year 2000 compliant: (i)
awareness, locating, listing, and prioritizing specific technology that is
potentially subject to Year 2000 challenges; (ii) assessment and determining
the element of risk that exists through inquiry, research and testing; (iii)
resolving Year 2000 related issues that were identified in previous phases by
repair in a testing environment; (iv) validation testing, monitoring, obtaining
certification, and verifying the correct manipulation of dates and date related
data, including systems of material third parties; and (v) implementation,
installation, integration and application of Year 2000 ready resolutions by
replacement, upgrade or repair of technology systems, including those of
material third parties.
The Company is performing its Year 2000 analysis on all systems
located at the Company as well as some located at customer sites. In addition
to internally controlled operating systems, the Company relies on third parties
for services and/or goods that may be affected by Year 2000 challenges. The
Company is in the process of obtaining assurances from third parties that their
systems are or will be Year 2000 compliant in a timely manner.
While the Company does not anticipate delays or postponements in
implementing Year 2000 resolutions in a timely manner, there can be no
certainty that implementation of solutions will be made in a timely manner
until the validation phase is completed. The inability to address all issues in
a timely and successful manner could have an adverse effect on the Company's
business and results of operations. The failure of third parties to provide
Year 2000 compliant products and/or services could have a material adverse
effect on the Company's financial condition and results of operations. Such
risks include, but are not limited to, inability to deliver or receive calls
and/or data, failure to accurately report and bill existing customers, accept
new orders, and the inability to perform other customer care tasks.
Management believes the cost of becoming Year 2000 compliant will be
approximately $650,000 during 1999. Although the Company does not expect the
cost to have a material adverse effect on its business or results of operations,
there can be no assurance that the Company will not be required to incur
significant unanticipated costs in relation to its readiness obligations. The
Company has not deferred any specific projects, goals, or objectives relating
to its operations as a result of Year 2000 compliance efforts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements at December 31, 1997
and 1998, and for each of the three years in the period ended December 31, 1998
and the Report of PricewaterhouseCoopers LLP, independent accountants, are
included in this Annual Report on Form 10-K on pages F-1 through F-17.
31
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding Directors and Executive Officers is incorporated
by reference to the section entitled "Election of Directors" in the
Registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Annual Meeting of Stockholders to be
held on May 25, 1999 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference
from the Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference
from the Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference
from the Proxy Statement under the heading "Certain Transactions."
32
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C> <C>
(a) Documents filed as part of the report:
(1) Report of Independent Accountants......................................................................F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997...........................................F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996..............................................................F-3
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 .............................................................F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1997 and 1996 .........................................F-5
Notes to Consolidated Financial Statements.............................................................F-7
(2) Consolidated Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts .........................................................S-1
</TABLE>
Financial statement schedules other than those listed above have been omitted
because they are either not required, not applicable or the information is
otherwise included.
(3) Exhibits
EXHIBIT
NUMBER TITLE
- ------- -----
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)
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<PAGE> 37
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 - Second Amendment to Employment Agreement, dated September 1, 1998,
by and between HighwayMaster Corporation and William C. Saunders.
(16)
10.3 - Agreement and General Release, dated September 30, 1998, by and
between HighwayMaster Corporation and William C. Kennedy, Jr.(15)
10.4 - Release of HighwayMaster Communications, Inc. and HighwayMaster
Corporation by William C. Saunders, dated December 15, 1998.(16)
10.5 - Release of William C. Saunders by HighwayMaster Communications,
Inc. and HighwayMaster Corporation, dated December 15, 1998.(16)
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 - Stock Option Agreement, dated June 22, 1998, by and between the
Company and John Stupka.(16)
10.10 - Services Agreement, dated March 20, 1996, between the Company and
GTE-Mobile Communications Service Corporation.(3)(4)
10.11 - Acknowledgment by William C. Saunders dated December 15, 1998.(16)
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 - Mutual Separation and Release, dated December 22, 1998, by and
between HighwayMaster Corporation and Gordon D. Quick.(16)
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
HighwayMaster 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 - February 27, 1997 Addendum to Original Employment Letter dated
September 19, 1997 by and between the HighwayMaster Corporation and
Robert LaMere.(16)
10.19 - Software Transfer Agreement, dated April 25, 1997 between the
Company and Burlington Motor Carriers, Inc.(9)(10)
10.20 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and Todd A. Felker.(16)
10.21 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and William McCausland.(16)
10.22 - Employment Agreement, dated May 29, 1998, by and between
HighwayMaster Corporation and Jana Ahlfinger Bell.(14)
10.23 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.24 - First Amendment to Employment Agreement, dated September 15, 1998,
by and between HighwayMaster Corporation and Jana A. Bell.(16)
10.25 - Employment Agreement, dated November 24, 1998, by and between
HighwayMaster Corporation and Michael Smith.(16)
10.26 - September 18, 1998 Amended and Restated Stock Option Agreement of
May 29, 1998, by and between the Company and Jana Ahlfinger Bell.
(16)
34
<PAGE> 38
10.27 - Stock Option Agreement, dated August 12, 1998, by and between the
Company and Jana Ahlfinger Bell.(16)
10.28 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and Jana Ahlfinger Bell.(16)
10.29 - September 18, 1998 Amended and Restated Stock Option Agreement of
February 29, 1996, by and between the Company and William H.
McCausland.(16)
10.30 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and William H. McCausland.(16)
10.31 - September 18, 1998 Amended and Restated Stock Option Agreement of
April 25, 1997, by and between the Company and Robert LaMere.(16)
10.32 - September 18, 1998 Amended and Restated Stock Option Agreement of
June 3, 1998, by and between the Company and Todd A. Felker(16)
10.33 - Stock Option Agreement of November 24, 1998, by and between the
Company and Michael Smith.(16)
10.34 - Stock Option Agreement, dated April 4, 1995, by and between the
Company and Terry Parker.(16)
11 - Statement re: Computation of Per Share Earnings(16)
21.1 - Subsidiaries of the Company(1)
23.1 - Consent of PriceWaterhouseCoopers LLP, independent auditors.(16)
24 - Powers of Attorney of directors and officers of the Company
(included on signature pages to this Annual Report on Form 10-K).
27 - Financial Data Schedule.(16)
- ---------------
(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.
35
<PAGE> 39
(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).
(13) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
(14) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1998.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1998.
(16) Filed herewith.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits required by this Item are listed under Item 14(a)(3).
(d) Financial Statements Schedules
The consolidated financial statement schedules required by this Item are
listed under Item 14(a)(2).
36
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 30, 1999
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/JANA AHLFINGER BELL
-------------------------------------
Jana Ahlfinger Bell,
President and Chief Executive Officer
37
<PAGE> 41
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10K for the fiscal year ended December 31, 1998, has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
/S/WILLIAM C. KENNEDY, JR. Interim Chairman of the Board March 30, 1999
----------------------------
William C. Kennedy, Jr.
/S/JANA AHLFINGER BELL President, Chief Executive Officer, and March 30, 1999
---------------------------- Director (Principal Executive Officer)
Jana Ahlfinger Bell
/S/W. MICHAEL SMITH Senior Vice President and March 30, 1999
---------------------------- Chief Financial Officer
W. Michael Smith (Principal Financial Officer)
/S/STEPHEN P. TACKE Vice President and Controller March 30, 1999
---------------------------- (Principal Accounting Officer)
Stephen P. Tacke
/S/TERRY S. PARKER Director March 30, 1999
----------------------------
Terry S. Parker
/S/STEPHEN L. GREAVES Director March 30, 1999
----------------------------
Stephen L. Greaves
/S/GERRY C. QUINN Director March 30, 1999
----------------------------
Gerry C. Quinn
/S/JOHN T. STUPKA Director March 30, 1999
----------------------------
John T. Stupka
</TABLE>
38
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HighwayMaster
Communications, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 33 present fairly, in all material
respects, the financial position of HighwayMaster Communications, Inc. and its
subsidiary (the "Company") at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999,
except as to Note 12,
which is as of March 29, 1999
F-1
<PAGE> 43
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
ASSETS
December 31,
------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 26,169 $ 46,486
Accounts receivable, net of allowance for doubtful accounts
of $9,528 and $2,148, respectively 14,585 13,963
Inventory 12,921 3,145
Pledged securities - current portion 12,974 17,187
Other current assets 714 1,195
---------- ----------
Total current assets 67,363 81,976
Network, equipment and software, net of accumulated depreciation and
and amortization of $10,202 and $5,463, respectively 20,649 15,482
Temporary investments -- 13,626
Pledged securities - long-term portion 11,814 30,216
Other assets, net of accumulated amortization
of $565 and $236, respectively 3,300 5,173
---------- ----------
Total assets $ 103,126 $ 146,473
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 11,362 $ 6,262
Telecommunications costs payable 5,920 2,192
Accrued interest payable 3,784 4,679
Advance payments from customers 7,452 --
Other current liabilities 9,702 4,114
---------- ----------
Total current liabilities 38,220 17,247
Senior notes payable 91,697 120,956
---------- ----------
Total liabilities 129,917 138,203
---------- ----------
Stockholders' equity (deficit):
Series D participating convertible preferred stock, $.01 par value,
1,000 shares authorized; 1,000 shares issued and outstanding -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
25,210,983 issued; 24,898,986 shares outstanding 252 252
Additional paid-in capital 149,481 149,481
Accumulated deficit (175,977) (140,916)
Treasury stock, 311,997 shares, at cost (547) (547)
---------- ----------
Total stockholders' equity (deficit) (26,791) 8,270
Commitments and contingencies (Note 12)
---------- ----------
Total liabilities and stockholders' equity (deficit) $ 103,126 $ 146,473
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 44
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product $ 16,832 $ 27,187 $ 14,645
Service 46,463 27,445 16,056
-------- -------- --------
Total revenues 63,295 54,632 30,701
-------- -------- --------
Cost of revenues:
Product 12,991 22,133 15,099
Service 32,419 21,397 11,489
Write-down of inventory -- -- 1,943
-------- -------- --------
Total cost of revenues 45,410 43,530 28,531
-------- -------- --------
Gross profit 17,885 11,102 2,170
-------- -------- --------
Expenses:
General and administrative 22,748 11,872 7,997
Customer service 10,844 11,493 8,089
Sales and marketing 7,372 7,723 9,139
Engineering 5,399 4,604 3,487
Network services center 1,992 1,416 607
Severance and AutoLink termination costs 5,357 -- --
Depreciation and amortization 5,829 2,684 1,482
-------- -------- --------
59,541 39,792 30,801
-------- -------- --------
Operating loss (41,656) (28,690) (28,631)
Interest income 4,827 2,500 809
Interest expense (17,099) (4,857) (1,691)
Other (expense) -- -- (230)
-------- -------- --------
Loss before income taxes and extraordinary item (53,928) (31,047) (29,743)
Income tax provision -- -- --
-------- -------- --------
Loss before extraordinary item (53,928) (31,047) (29,743)
Extraordinary item 18,867 -- (317)
-------- -------- --------
Net loss $(35,061) $(31,047) $(30,060)
======== ======== ========
Per share:
Basic and diluted loss before extraordinary item $( 2.17) $ (1.25) $ (1.39)
Extraordinary item 0.76 -- (0.01)
-------- -------- --------
Basic and diluted net loss $( 1.41) $ (1.25) $ (1.40)
======== ======== ========
Weighted average number of shares outstanding 24,889 24,864 22,763
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(35,061) $( 31,047) $(30,060)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 5,829 2,684 1,482
Amortization of discount on notes payable 503 131 871
Extraordinary item (18,867) -- 317
(Increase) in accounts receivable (622) (5,426) (2,588)
(Increase) decrease in inventory (9,776) 313 741
(Increase) in pledged securities -- (815) --
Increase (decrease) in accounts payable 5,100 2,812 (1,578)
Increase in accrued expenses and other current liabilities 15,873 6,170 189
Other 1,409 248 809
-------- --------- --------
Net cash used in operating activities (35,612) (24,930) (29,817)
-------- --------- --------
Cash flows from investing activities:
Additions to network and equipment (9,202) (7,072) (4,877)
Additions to capitalized software (1,318) (2,427) (262)
(Purchase of) liquidation of pledged securities 14,553 (46,588) --
(Increase) decrease in temporary investments 13,626 (13,626) --
(Increase) decrease in short-term investments 10,001 (19,709) --
-------- --------- --------
Net cash provided by (used in) investing activities 27,660 (89,422) (5,139)
-------- --------- --------
Cash flows from financing activities:
Purchase of senior notes (10,427) -- --
Release of pledged securities allocable to retired senior notes 8,063 -- --
Proceeds from issuance of senior notes, net -- 120,937 --
Proceeds from issuance of common stock, net -- -- 10,000
Proceeds from issuance of preferred stock and warrants, net -- -- 19,688
Proceeds from notes payable to related parties -- -- 5,000
Payments on loans from related parties -- -- (5,000)
Proceeds from exercise of stock options -- 467 1,024
-------- --------- --------
Net cash provided by (used for) financing activities (2,364) 121,404 30,712
-------- --------- --------
Increase (decrease) in cash and cash equivalents (10,316) 7,052 (4,244)
Cash and cash equivalents, beginning of year 26,777 19,725 23,969
-------- --------- --------
Cash and cash equivalents, end of year 16,461 26,777 19,725
Short-term investments 9,708 19,709 --
-------- --------- --------
Cash and short-term investments $ 26,169 $ 46,486 $ 19,725
======== ========= ========
Supplemental cash flow information:
Interest paid $ 16,806 $ -- $ 1,056
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share information)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
--------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Stockholders' equity (deficit) at December 31, 1995 - $ - 22,333,661 $223 $90,560
Issuance of common stock 1,818,018 18 22,707
Issuance of Series D preferred stock 1,000 - 19,688
Exchange of Series B preferred stock for common stock 864,000 9 10,791
Accretion of discount -- Series B redeemable
preferred stock
Exercise of stock options 134,848 1 1,083
Net loss for year
--------- ------ --------- ------ ---------
Stockholders' equity (deficit) at December 31, 1996 1,000 - 25,150,527 251 144,829
Exercise of stock options 60,456 1 466
Issuance of warrants 4,186
Net loss for year
--------- ------ --------- ------ ---------
Stockholders' equity (deficit) at December 31, 1997 1,000 - 25,210,983 252 149,481
Net loss for year
--------- ------ --------- ------ --------
Stockholders' equity (deficit) at December 31, 1998 1,000 $ - 25,210,983 $252 $149,481
========= ====== ========== ====== =========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
-------------------- Accumulated
Shares Amount Deficit Total
-------- ------ ------- -----
<S> <C> <C> <C> <C>
Stockholders' equity (deficit) at December 31, 1995 311,997 ($547) ($77,135) $13,101
Issuance of common stock 22,725
Issuance of Series D preferred stock 19,688
Exchange of Series B preferred stock for common stock (843) 9,957
Accretion of discount -- Series B redeemable
preferred stock (1,831) (1,831)
Exercise of stock options 1,084
Net loss for year (30,060) (30,060)
------- ------ --------- --------
Stockholders' equity (deficit) at December 31, 1996 311,997 (547) (109,869) 34,664
Exercise of stock options 467
Issuance of warrants 4,186
Net loss for year (31,047) (31,047)
------- ------ --------- --------
Stockholders' equity (deficit) at December 31, 1997 311,997 (547) (140,916) 8,270
Net loss for year (35,061) (35,061)
-------- ------ --------- --------
Stockholders' equity (deficit) at December 31, 1998 311,997 ($547) ($175,977) ($26,791)
========= ====== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 47
HIGHWAYMASTER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 its
commercial dispatch and tracking services in broader market segments.
The Company's revenues are derived primarily from the long-haul
trucking market from sales and installation of Mobile Communication Units
("mobile units") and charges for its services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include those of HighwayMaster
Communications, Inc. and HighwayMaster Corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Estimates Inherent in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from product sales and licensing of product software are
generally recognized at the time the mobile units are shipped to customers.
During the third quarter of 1998 the Company entered into a contract for
delivery of mobile units coupled with development and delivery of additional
features over the term of the installation period. The earning process on this
contract is not complete until all of the additional features have been
delivered and accepted by the customer. Accordingly, revenue has not been
recognized for the mobile units shipped in connection with this contract.
Mobile units shipped under this contract are reflected in inventory as
"equipment shipped not yet accepted" and payments received from the customer
for the equipment are classified in current liabilities as "advance payments
from customers."
Revenues generated from voice and data communications services are
recognized upon customer usage. Until the third quarter of 1996, AT&T
Corporation ("AT&T") invoiced and collected payments from all of the Company's
customers for voice and data communication services associated with the
Company's equipment. The Company recorded as revenue an amount equal to the
payments received from AT&T, and the remainder of these service charges,
including amounts for call processing, enhanced long distance services and
customer collection fees, was retained by AT&T under the terms of the Company's
contract with AT&T. Beginning in the third quarter of 1996, the Company started
providing customer billing, credit and collection activities for voice and data
communication services. During 1997, voice and data
F-6
<PAGE> 48
communication services were provided by both the Company and AT&T while the
provision of service was transitioned from AT&T to the Company. Since January
1, 1998, the Company has provided customer billing, credit and collection
activities for voice and data communication services for all of its customers.
Financial Instruments
The Company considers all liquid interest-bearing investments with a
maturity of three months or less at the date of purchase to be cash
equivalents. Short-term investments generally mature between three months and
two years from the purchase date. All cash and short-term investments are
classified as available for sale. Cost approximates market for all
classifications of cash and short-term investments; realized and unrealized
gains and losses were not material.
Temporary investments at December 31, 1997 consisted of high grade
debt securities. Amortized cost approximated market.
Pledged securities consist of a portfolio of U. S. Government
securities, including interest earned thereon, which will provide funds
sufficient to pay in full when due the interest payments on the Senior Notes
through September 15, 2000. These securities are classified as held to
maturity. Amortized cost of pledged securities approximates market; realized
and unrealized gains and losses were not material.
The carrying amount of cash and short term investments, temporary
investments, pledged securities, accounts receivable, accounts payable and
accrued liabilities approximates fair value because of their short-term
maturity.
Business and Credit Concentrations
The majority of the Company's business activities and related accounts
receivable are with customers in the interstate trucking industry. The
receivables generated from equipment sales are generally secured by the
respective mobile units shipped to the customer. Allowances have been provided
for amounts which may eventually become uncollectible and to provide for any
disputed charges. During 1997, one customer accounted for approximately $6.7
million, or 12%, of total consolidated revenues. No customer accounted for more
than 10% of total consolidated revenues for either of the years ended December
31, 1998 or 1996.
Inventory
Inventory consists primarily of component parts and finished products
which are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
Network, Equipment and Software
Network, equipment and software are stated at cost and are depreciated
on a straight-line basis over the estimated useful lives of the various classes
of assets, which generally range from three to five years. Maintenance and
repairs are charged to operations while renewals or betterments are
capitalized.
Research and Development Costs
The Company expenses research and development costs as incurred.
During 1998, 1997 and 1996, the Company expensed $2,286,000, $1,616,000 and
$1,294,000 in research and development costs for hardware and software that are
reflected in Engineering Expenses in the Consolidated Statements of Operations.
The 1998 and 1997 amounts are net of $324,000 and $526,000, respectively, of
research and development expenditures reimbursed by a third party.
F-7
<PAGE> 49
Software Development Costs
Costs related to the research, design and development of computer
software are charged to research and development expense as incurred. During
1998, 1997, and 1996, the Company expensed $1,236,000, $553,000, and $673,000,
respectively, in research and development costs that are reflected in
Engineering Expenses in the Consolidated Statements of Operations. The 1998 and
1997 amounts are net of $284,000 and $468,000, respectively, of research and
development expenditures reimbursed by a third party. Software development
costs that meet the capitalization requirements of Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed" are capitalized. Software development
costs are amortized using the straight line method over eighteen months or the
estimated economic life of the product, whichever is less.
Advertising Costs
Advertising costs are expensed as incurred. During 1998, 1997, and
1996, the Company expensed $1,692,000, $1,511,000 and $1,637,000, respectively,
in advertising costs that are reflected in Sales and Marketing Expenses in the
Consolidated Statements of Operations.
Income Taxes
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes." Deferred
income taxes are calculated using an asset and liability approach wherein
deferred taxes are provided for the tax effects of basis differences for assets
and liabilities arising from differing treatments for financial and income tax
reporting purposes. Valuation allowances against deferred tax assets are
provided where appropriate.
Earnings Per Share
The Company computes earnings per share in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." Net
loss per share for the years ended December 31, 1998 and 1997 was computed by
dividing the net loss by the weighted average number of shares outstanding
during the year. Net loss per share for the year ended December 31, 1996 was
computed by dividing the net loss, increased by the accretion of discount on
the Series B Preferred Stock $(1,831,000), by the weighted average number of
shares outstanding during the year. Common stock equivalents have been excluded
form the weighted average number of shares outstanding since their effect would
be anti-dilutive.
Reclassifications
Certain reclassifications have been made for consistent presentation.
3. SEVERANCE AND AUTOLINK TERMINATION COSTS
During the third quarter of 1998 the Company announced that it was
halting the development of its AutoLink service. As a consequence, the Company
recorded a charge of $2,431,000 to recognize asset impairments and record
estimated amounts to be incurred to extinguish contractual obligations
associated with the AutoLink program.
During 1998 the Company recorded $2,926,000 in severance costs related
to two reorganizations. Severance costs of $445,000 relate to a reduction in
the number of employees, announced in the second quarter of 1998, primarily
reflecting the elimination of redundancies that had been necessary as a result
of having customers served by both the AT&T Complex and the NSC. During the
third quarter of 1998, the Company announced a number of key management and
structural changes designed to more closely align the Company's expenditures
with its revenues. As a result of this announcement and the AutoLink
announcement, the Company reduced its workforce by approximately 25% and
recorded charges of $2,481,000 for obligations under employment contracts and
severance payments to terminated employees.
F-8
<PAGE> 50
Through December 31, 1998, $3,329,000 of severance and AutoLink
termination costs had been incurred, of which $2,895,000 were cash payments for
severance and contractual obligations and $434,000 for asset write-offs.
4. CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
----------- -----------
<S> <C> <C>
Cash and commercial paper $ 3,039,000 $ 339,000
Corporate notes and bonds 4,595,000 24,592,000
Money market accounts 8,827,000 1,846,000
----------- -----------
Cash and cash equivalents 16,461,000 26,777,000
----------- -----------
Corporate notes and bonds 7,688,000 8,710,000
State, municipal and agency securities 2,020,000 2,801,000
U.S. government and agency securities -- 8,198,000
----------- -----------
Short-term investments 9,708,000 19,709,000
----------- -----------
$26,169,000 $46,486,000
=========== ===========
</TABLE>
5. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997
----------- -----------
<S> <C> <C>
Complete systems $ 1,577,000 $ 1,370,000
Component parts 826,000 1,775,000
Equipment shipped not yet accepted 10,518,000 --
----------- -----------
$12,921,000 $ 3,145,000
=========== ===========
</TABLE>
6. NETWORK, EQUIPMENT AND SOFTWARE
<TABLE>
<CAPTION>
Network, equipment and software consisted of the following:
December 31
-----------
1998 1997
----------- -----------
<S> <C> <C>
Network services center $13,310,000 $ 7,460,000
Computers and office equipment 5,668,000 3,373,000
Mobile units and equipment 6,862,000 5,807,000
Software 5,011,000 4,305,000
----------- -----------
30,851,000 20,945,000
Less: accumulated depreciation and
amortization (10,202,000) (5,463,000)
----------- -----------
$20,649,000 $15,482,000
=========== ===========
</TABLE>
Total depreciation expense charged to operations during 1998, 1997 and
1996 was $4,753,000, $1,999,000, and $1,058,000, respectively.
F-9
<PAGE> 51
As of December 31, 1998 and 1997, the unamortized portion of software
costs was $3,047,000 and $2,616,000, respectively. Amortization of
such costs charged to expense during 1998, 1997, and 1996 was
$584,000, $728,000, and $504,000, respectively.
7. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997
----------- -----------
<S> <C> <C>
Debt issue costs $ 3,617,000 $ 4,797,000
Long term receivables -- 290,000
Other 248,000 322,000
----------- -----------
3,865,000 5,409,000
Less: accumulated amortization (565,000) (236,000)
----------- -----------
$ 3,300,000 $ 5,173,000
=========== ===========
</TABLE>
Debt issue costs related to the issuance of the Senior Notes are
amortized on a straight-line basis over the debt term.
8. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997
---------- ----------
<S> <C> <C>
Deferred revenue $ 1,475,000 $ 1,214,000
Severance and AutoLink termination costs payable 2,028,000 --
Excise and sales taxes payable 3,077,000 562,000
Other 3,122,000 2,338,000
----------- -----------
$ 9,702,000 $ 4,114,000
=========== ===========
</TABLE>
Deferred revenue at December 31, 1998 and 1997 represents amounts
invoiced to a customer for a new generation of mobile units which were expected
to be delivered during 1998. Pending delivery of the contracted units, the
customer installed current generation mobile units. At December 31, 1998, the
ultimate resolution of this contract has not been determined.
In late 1997 the Company retained experts to analyze and advise it
with respect to various taxation issues. This evaluation and analysis involved
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. Based on
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 $3,040,000 during 1998. Of this amount, $2,288,000 is included
in "excise and sales taxes payable" at December 31, 1998.
F-10
<PAGE> 52
9. SENIOR NOTES PAYABLE
On September 23, 1997, the Company issued 125,000 Units comprised of
$125,000,000 of 13.75% Senior Notes due September 15, 2005 and warrants to
purchase 820,750 shares of common stock at $9.625 per share. Interest is payable
on the notes semi-annually on March 15 and September 15. The Company used
$46,588,000 of the proceeds from the issuance of the Units to purchase a
portfolio of U. S. Government securities which will provide funds sufficient to
pay in full when due the first six scheduled interest payments on the notes.
This amount, including interest earned thereon, is reflected in the accompanying
Consolidated Balance Sheets under the captions "pledged securities."
The Indenture for the Senior Notes contains certain covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness, pay dividends or make other distributions, repurchase any capital
stock or subordinated indebtedness, make certain investments, create certain
liens, enter into certain transactions with affiliates, sell assets, enter into
certain mergers and consolidations, or enter into sale and leaseback
transactions. The Company may incur up to $15,000,000 of additional
indebtedness in the event certain conditions are satisfied.
The Senior Notes are redeemable at any time on or after September 15,
2001 at redemption prices declining annually from 110.313% of principal amount
in 2001 to 100.000% of principal amount in 2004, plus accrued and unpaid
interest. Prior to September 15, 2001, the Company may redeem up to 35% in the
aggregate principal amount of the Senior Notes at a redemption price of 113.75%
of the principal amount thereof, plus accrued and unpaid interest with the net
proceeds of a qualifying equity offering (as defined).
During the fourth quarter of 1998 the Company purchased and
subsequently retired $30,645,000 principal amount of its Senior Notes on the
open market for $9,885,000 plus accrued interest thereon, resulting in a gain
on extinguishment of debt of $18,867,000 after the write-off of associated debt
discount and debt issuance costs. The gain is reported as an extraordinary item
in the accompanying Consolidated Statement of Operations. Upon the retirement
of the Senior Notes, the allocable portion of the Pledged Securities related
thereto, in the amount of $8,063,000, was released to the Company.
F-11
<PAGE> 53
10. INCOME TAXES
The components of the Company's net deferred tax asset were as
follows:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets
Step-up of tax basis in assets $ 1,511,000 $ 1,704,000
Research and development credit 205,000 167,000
Recapitalization costs 167,000 164,000
Allowance for doubtful accounts 3,240,000 730,000
Accrued interest 5,797,000 332,000
Other accrued liabilities 390,000 504,000
Inventory 444,000 411.000
Net operating loss carryforwards 46,206,000 41,864,000
------------ ------------
Gross deferred tax assets 57,960,000 45,876,000
Valuation allowance (56,501,000) (45,304,000)
------------ ------------
Net deferred tax asset 1,459,000 572,000
Deferred tax liability
Depreciation (1,010,000) (497,000)
Other (449,000) (75,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
The following is a reconciliation of the provision for income taxes at
the U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
December 31
-----------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax benefit at Federal statutory rate $(11,921,000) $(10,556,000) $(10,220,000)
Net operating losses not benefitted 11,860,000 10,502,000 10,146,000
Other 61,000 54,000 74,000
------------ ------------ ------------
Income tax benefit $ --- $ --- $ ---
============ ============ ============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
aggregating approximately $135.9 million which expire in various years between
2007 and 2013. Due to the issuance of certain notes payable during 1994, there
was a change in ownership under the Internal Revenue Code which limits the
annual utilization of these carryforwards and will cause some amount of the
carryforwards to expire unutilized. Any additional changes in ownership could
also result in additional limitations of loss carryforwards.
11. STOCKHOLDERS' EQUITY INSTRUMENTS AND RELATED MATTERS
Recapitalization
On September 27, 1996, the Company and certain related parties holding
outstanding securities of the Company entered into a Recapitalization Agreement
(the "Recapitalization Agreement"), and consummated the Recapitalization
Transactions contemplated thereby. In particular, upon the terms and conditions
set forth in the Recapitalization Agreement, (i) the Company repaid in full the
principal amount of and interest accrued on certain promissory notes payable to
related parties in the aggregate principal amount of $5.0 million executed in
August and September 1996 to enable the Company to meet its short-term working
capital and other requirements, (ii) the Company issued an aggregate of 800,000
shares of Common Stock to two stockholders in exchange for aggregate cash
payments in the amount of $10.0 million, (iii) the Company issued an aggregate
of 864,000 shares of Common Stock in exchange for the surrender
F-12
<PAGE> 54
to the Company for cancellation of all outstanding shares of Series B Preferred
Stock, (iv) the Company paid a portion of the accrued and unpaid interest on
certain promissory notes payable to related parties in the aggregate principal
amount of $12,662,000 (the "Related Party Notes") , and (v) the Company issued
an aggregate of 1,018,018 shares of Common Stock in exchange for the surrender
of the Related Party Notes for cancellation. In connection with the foregoing,
the unamortized balances of debt discount and debt issue costs associated with
the indebtedness retired, in the aggregate amount of $317,000, were charged to
expense and are reported in the accompanying Consolidated Statements of
Operations as an extraordinary item.
Issuance of Series D Preferred Stock
On September 27, 1996, the Company and Southwestern Bell Wireless
Holdings, Inc. ("SBW"), a wholly owned subsidiary of SBC Communications Inc.,
consummated certain transactions, including but not limited to (i) the issuance
of 1,000 shares of a new series of preferred stock, par value $0.01 per share,
designated as Series D Participating Convertible Preferred Stock ("Series D
Preferred Stock") in consideration of a cash payment in the amount of $20.0
million and (ii) the issuance to SBW of certain Warrants.
Each outstanding share of Series D Preferred Stock is convertible into
1,600 shares of Common Stock at the option of SBW. In addition, at such time as
SBW obtains certain regulatory relief required in order for it to offer
long-distance telephone services, all outstanding shares of Series D Preferred
Stock will automatically convert into an equal number of shares of a new series
of common stock designated as Class B Common Stock.
Each outstanding share of Class B Common Stock will be convertible
into 1,600 shares of Common Stock at the option of SBW. The holders of Class B
Common Stock will be entitled to receive dividends and liquidating
distributions in an amount equal to the dividends and liquidating distributions
payable on or in respect of the number of shares of Common Stock into which
such shares of Class B Common Stock are then convertible. The holders of Common
Stock and Class B Common Stock will generally have identical voting rights and
will vote together as a single class, with the holders of Class B Common Stock
being entitled to a number of votes equal to the number of shares of Common
Stock into which the shares of Class B Common Stock held by them are then
convertible. In addition, the holders of Class B Common Stock will be entitled
to elect one director of the Company (or two directors if SBW and its
affiliates beneficially own at least 20% of the outstanding shares of Common
Stock on a fully diluted basis) and will have the right to approve certain
actions on the part of the Company.
The Warrants issued to SBW entitle the holder thereof to purchase (i)
3,000,000 shares of Common Stock at an exercise price of $14.00 per share and
(ii) 2,000,000 shares of Common Stock at an exercise price of $18.00 per share.
The Warrants will expire on September 27, 2001.
Incentive Plan and Other
Pursuant to a 1994 Stock Option Plan, as amended (the "Plan"), options
may be granted to employees for the purchase of an aggregate of up to 2,474,462
shares of the Company's common stock. The Plan requires that the exercise price
for each stock option be not less than 100% of the fair market value of common
stock at the time the option is granted. Both nonqualified stock options and
incentive stock options, as defined by the Internal Revenue Code, may be
granted under the Plan. Generally, options granted under the Plan vest 20% on
the date of grant and 20% on each of the following four anniversary dates of
the date of grants and expire six years from the date of grant.
F-13
<PAGE> 55
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. Accordingly, no compensation cost has been recognized
for options issued under the Plan. Had compensation cost been determined based
on the fair market value at the grant dates for awards under the Plan
consistent with the method provided by Statement of Financial Accounting
Standards No 123, "Accounting for Stock-Based Compensation," the Company's net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss As reported $ (35,061,000) $ (31,047,000) $ (30,060,000)
Pro forma $ (36,007,000) $ (31,712,000) $ (30,584,000)
Net loss
per share As reported $ (1.41) $ (1.25) $ (1.40)
Pro forma $ (1.45) $ (1.28) (1.42)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants during the years as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
Dividend -- -- --
Expected volatility 59.8% 65.10% 74.02%
Risk free rate of return 4.96% 6.50% 6.24%
Expected life in years 4.9 6.00 6.00
</TABLE>
A summary of the status of the Company's Plan as of December 31, 1998,
1997 and 1996, and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,157,309 $ 7.82 2,043,298 7.61 1,974,462 $ 7.58
Granted 1,481,490 1.34 227,000 9.75 266,000 $ 7.73
Exercised -- -- (60,456) 7.64 (134,848) 7.59
Forfeited (1,692,209) 7.12 (52,533) 7.93 (62,316) 7.62
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at
end of year 1,946,590 $ 3.50 2,157,309 $ 7.82 2,043,298 $ 7.61
========== ========== ========== ========== ========== ==========
Options exercisable
at end of year 1,056,676 $ 5.12 1,722,248 $ 7.63 1,565,165 $ 7.58
========== ========== ========== ========== ========== ==========
Weighted average
value of options granted
during the year $ 0.74 $ 6.36 $ 5.51
========== ========== ==========
</TABLE>
F-14
<PAGE> 56
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number of Weighted Average Weighted Average Number of Weighted Average
Range of Option Price Options Remaining Life Exercise Price Options Exercise Price
- --------------------- --------- --------------- --------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 to $1.19 1,120,478 4.4 $ 1.12 386,014 $ 1.19
$1.56 125,000 5.9 1.56 25,000 1.56
$7.58 to $8.62 701,112 1.9 7.67 645,662 7.61
--------- --------------- --------------- --------- ----------------
1,946,590 3.6 $ 3.50 1,056,676 $ 5.12
========= =============== =============== ========= ================
</TABLE>
The Company has granted options outside of the Plan to directors of the Company
to purchase 7,596 shares of common stock. All of these options are exercisable
at December 31, 1998 at prices ranging from $2.50 to $7.58 per share.
Retirement Plan
The Company sponsors a 401(k) Retirement Investment Profit-Sharing
Plan covering substantially all employees. The Company did not make matching
contributions to the Plan in 1998, 1997 or 1996.
12. COMMITMENTS AND CONTINGENCIES
Litigation
In February 1996, the Company filed a lawsuit against AT&T which alleged various
contractual breaches in AT&T's construction and operation of the switching
complex (the "AT&T Complex") designed for the Company by AT&T. The lawsuit also
sought to restrain AT&T from using and disclosing the Company's trade secrets
and proprietary information relating to the Company's mobile communications
technology. The Company's claims requested injunctive relief and sought damages
relating to various contractual, deceptive trade practices and other tortious
claims asserted in relation to the ownership of the intellectual property and
with regard to the development and operation of the AT&T Complex on the
Company's behalf. The Company later amended the lawsuit to include Lucent
Technologies, Inc. ("Lucent") to which AT&T transferred certain patents at issue
in the suit. In response to the Company's lawsuit, AT&T counterclaimed and
asserted ownership of the trade secrets and proprietary information regarding
the design and function of the Company's mobile communications unit, dispatcher
software and certain methods developed to prevent fraudulent use of the system.
In December 1997, the Court ruled on partial motions to dismiss filed by AT&T
and Lucent by granting the dismissal of two of the Company's non-essential
claims against AT&T and Lucent.
On February 25, 1999, the Company and AT&T engaged in a mediation in an
effort to resolve all claims between the parties asserted in the litigation. The
Company and AT&T resolved all disputes relating to the litigation in this
mediation. The Company and AT&T have executed a binding memorandum of settlement
which will be finalized in a formal Joint Compromise, Release and Settlement
Agreement. Additionally, on March 25, 1999, the Company and Lucent resolved all
disputes related to the litigation in a mediation. The Company and Lucent
executed a binding memorandum of settlement. The terms of the settlements with
AT&T and Lucent will not adversely impact the Company's results of operations or
financial position.
F-15
<PAGE> 57
The Company is involved in other litigation matters that arise in the
normal course of conducting its business. These matters are not considered to
be of a material nature nor are they expected to have a material effect on the
business activities or continued operations of the Company.
Leases
The Company leases certain office facilities and furniture and
equipment under noncancelable operating leases. The future minimum lease
payments associated with such leases were as follows as of December 31, 1998:
<TABLE>
<S> <C>
1999 $ 806,000
2000 802,000
2001 670,000
2002 626,000
2003 682,000
Thereafter 4,314,000
----------
$7,900,000
</TABLE>
During 1998, 1997, and 1996, total rent expense charged to operating
expenses was approximately $1,606,000, $1,664,000, and $1,388,000,
respectively.
13. RELATED PARTY TRANSACTIONS
During the third quarter of 1998, one of the Company's shareholders,
SBC Communications, Inc. ("SBC") contracted to purchase 11,500 mobile units,
customized proprietary software and accompanying services. The contract requires
the Company to perform certain product modifications and software development.
The Company may be required to refund 100% of the purchase price if the product
modifications and software development are not completed in substantial
conformance with the technical specifications of the contract. Accordingly, the
earnings process on this contract is not complete, and revenues will not be
recognized, until final acceptance by SBC. As of December 31, 1998, 8,686 mobile
units had been installed by SBC. Mobile units shipped and payments received from
SBC on this contract through December 31, 1998 are reflected in the accompanying
Consolidated Balance Sheets as "equipment shipped not yet accepted" and "advance
payments from customers," respectively.
The Company procures certain advertising services pursuant to an
"Agency Agreement." During 1998, 1997, and 1996, the Company paid $1,105,000,
$579,000, and $435,000, respectively, under the Agency Agreement, which
includes the pass-through of actual third-party expenses incurred by the Agency
on the Company's behalf. The Agency Agreement provides that in consideration
for its advertising services, the Agency will receive a 5% profit based on the
Agency's internal costs on all services provided to the Company, subject to
future negotiation, in addition to actual third-party media, production and
other reasonable expenses. The Agency Agreement may be terminated, with or
without
F-16
<PAGE> 58
cause, at any time by either party, with 90 days' notice. A former officer of
the Company was a principal stockholder and officer of the Agency until January
1, 1997 at which time his equity interest was sold. The former officer
continues to participate in the revenues of the Agency until certain
contractual obligations from the sale of the officer's equity interest in the
Agency are discharged. The former officer resigned from the Company in
December, 1998.
The Company leased office space from an affiliate of a stockholder
until September 30, 1998. Total rent paid under this agreement during 1998,
1997 and 1996 was approximately $729,000, $817,000, and $699,000, respectively.
The Company had a management consulting arrangement with a member of
its Board of Directors. During 1998 and 1997, the Company paid approximately
$69,000 and $286,000, respectively, under this consulting arrangement, which
amounts include reimbursed expenses.
Interest expense to related parties was $1,691,000 in 1996.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited consolidated quarterly results of operations for 1998 and
1997 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998
- ----
<S> <C> <C> <C> <C>
Total revenues $15,723 $17,693 $15,194 $14,685
Gross profit 3,261 4,979 4,364 5,281
Operating loss (8,491) (11,100) (15,265) (6,800)
Loss before
extraordinary item (11,589) (14,067) (18,484) (9,788)
Extraordinary item -- -- -- 18,867
Net income (loss) (11,589) (14,067) (18,484) 9,079
Income (loss) per share: (1)
Before extraordinary item $ (0.47) $ (0.57) $ (0.74) $ (0.39)
Extraordinary item -- -- -- 0.76
Basic and diluted income (loss) $ (0.47) $ (0.57) $ (0.74) $ 0.37
Weighted average shares
outstanding 24,899 24,899 24,899 24,899
1997
- ----
Total revenues $10,890 $14,365 $16,172 $13,205
Gross profit 2,285 2,151 3,316 3,350
Operating loss (7,537) (6,928) (6,414) (7,811)
Net loss (7,374) (6,643) (6,591) (10,439)
Loss per share: (1)
Basic and diluted loss $ (0.30) $ (0.27) $ (0.27) $ (0.42)
Weighted average shares
outstanding 24,844 24,858 24,868 24,896
</TABLE>
(1) Net loss per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net loss per share amounts
will not necessarily equal the total for the year.
F-17
<PAGE> 59
SCHEDULE II
HIGHWAYMASTER COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions Other End of Period
- ----------- ----------- ---------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts $ 815,000 160,000 (201,000) 0 $ 774,000
Inventory reserves 430,000 2,223,000 (405,000) 0 2,248,000
Valuation allowance against
deferred tax asset 21,551,000 12,816,000 0 378,000 34,745,000
Year ended December 31, 1997
Allowance for doubtful accounts
Accounts receivable 774,000 1,427,000 (53,000) 0 2,148,000
Other receivable 0 900,000 0 0 900,000
Inventory reserves 2,248,000 892,000 (1,931,000) 0 1,209,000
Valuation allowance against
deferred tax asset 34,745,000 10,501,000 0 58,000 45,304,000
Year ended December 31, 1998
Allowance for doubtful accounts
Accounts receivable 2,148,000 6,650,000 (38,000) 768,000 9,528,000
Other receivable 900,000 0 (900,000) 0 0
Inventory reserves 1,209,000 332,000 (234,000) 0 1,307,000
Valuation allowance against
deferred tax asset $45,304,000 11,197,000 0 0 $56,501,000
</TABLE>
S-1
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<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)
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
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 - Second Amendment to Employment Agreement, dated September 1, 1998,
by and between HighwayMaster Corporation and William C. Saunders.
(16)
10.3 - Agreement and General Release, dated September 30, 1998, by and
between HighwayMaster Corporation and William C. Kennedy, Jr.(15)
10.4 - Release of HighwayMaster Communications, Inc. and HighwayMaster
Corporation by William C. Saunders, dated December 15, 1998.(16)
10.5 - Release of William C. Saunders by HighwayMaster Communications,
Inc. and HighwayMaster Corporation, dated December 15, 1998.(16)
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 - Stock Option Agreement, dated June 22, 1998, by and between the
Company and John Stupka.(16)
10.10 - Services Agreement, dated March 20, 1996, between the Company and
GTE-Mobile Communications Service Corporation.(3)(4)
10.11 - Acknowledgment by William C. Saunders dated December 15, 1998.(16)
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 - Mutual Separation and Release, dated December 22, 1998, by and
between HighwayMaster Corporation and Gordon D. Quick.(16)
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
HighwayMaster 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 - February 27, 1997 Addendum to Original Employment Letter dated
September 19, 1997 by and between the HighwayMaster Corporation and
Robert LaMere.(16)
10.19 - Software Transfer Agreement, dated April 25, 1997 between the
Company and Burlington Motor Carriers, Inc.(9)(10)
10.20 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and Todd A. Felker.(16)
10.21 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and William McCausland.(16)
10.22 - Employment Agreement, dated May 29, 1998, by and between
HighwayMaster Corporation and Jana Ahlfinger Bell.(14)
10.23 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.24 - First Amendment to Employment Agreement, dated September 15, 1998,
by and between HighwayMaster Corporation and Jana A. Bell.(16)
10.25 - Employment Agreement, dated November 24, 1998, by and between
HighwayMaster Corporation and Michael Smith.(16)
10.26 - September 18, 1998 Amended and Restated Stock Option Agreement of
May 29, 1998, by and between the Company and Jana Ahlfinger Bell.
(16)
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
10.27 - Stock Option Agreement, dated August 12, 1998, by and between the
Company and Jana Ahlfinger Bell.(16)
10.28 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and Jana Ahlfinger Bell.(16)
10.29 - September 18, 1998 Amended and Restated Stock Option Agreement of
February 29, 1996, by and between the Company and William H.
McCausland.(16)
10.30 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and William H. McCausland.(16)
10.31 - September 18, 1998 Amended and Restated Stock Option Agreement of
April 25, 1997, by and between the Company and Robert LaMere.(16)
10.32 - September 18, 1998 Amended and Restated Stock Option Agreement of
June 3, 1998, by and between the Company and Todd A. Felker(16)
10.33 - Stock Option Agreement of November 24, 1998, by and between the
Company and Michael Smith.(16)
10.34 - Stock Option Agreement, dated April 4, 1995, by and between the
Company and Terry Parker.(16)
11 - Statement re: Computation of Per Share Earnings(16)
21.1 - Subsidiaries of the Company(1)
23.1 - Consent of PriceWaterhouseCoopers LLP, independent auditors.(16)
24 - Powers of Attorney of directors and officers of the Company
(included on signature pages to this Annual Report on Form 10-K).
27 - Financial Data Schedule.(16)
</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.
<PAGE> 63
(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).
(13) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
(14) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1998.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1998.
(16) Filed herewith.
<PAGE> 1
Exhibit 10.2
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (this "Amendment"), dated
and effective as of the 1st day of September, 1998, is by and between
HighwayMaster Corporation, a Delaware corporation ("Employer"), and William C.
Saunders, an individual residing in Dallas County, Texas ("Employee").
RECITALS
Employer and Employee entered into that certain Employment Agreement,
dated and effective as of the 4th day of February, 1994, as amended as of the
7th day of February, 1994 and amended as of the 13th day of December 1994 (the
"Employment Agreement"), and the parties wish to further amend the Employment
Agreement to reflect certain changes in the employment of Employee, such changes
having been approved by the Board of Directors of Employer at a meeting of the
Board of Directors held on September 15, 1998.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Employment Agreement, Employer and
Employee, intending to be legally bound, hereby agree as follows:
1. Change of Title. Every occurrence of the title "President and Chief
Executive Officer" as it occurs in the Employment Agreement, as
previously amended, shall be deleted and replaced with the term
"Chairman of the Board".
2. Change of Duties. Section 2 of the Employment Agreement shall be
replaced in its entirety with the following:
2. Position and Responsibilities of Employee. Employee shall be
employed as the Chairman of the Board of Employer and shall be
stationed in Dallas County, Texas during the term of this Agreement.
Employee will devote substantially his full working time efforts in
furtherance of his employment responsibilities set forth in this
Agreement. In addition to performing duties normally assigned to the
Chairman of the Board of comparable corporations, Employee will perform
services of an executive nature to assist the management of the
Employer generally to the extent his expertise, knowledge, and business
relationships will be of benefit to Employer's management in the
furtherance of Employer's business. Such assistance to the management
of the Employer will be at the discretion of and pursuant to the
direction of the Chief Executive Officer of the Employer. Unless
specifically directed and authorized by the Chief Executive Officer of
the Employer or by the Board of Directors of the Employer, Employee
will not be authorized to execute or enter into contracts on the
Employer's behalf. The failure of Employee to perform any of the duties
set forth in this Section 2 shall not be grounds for Employer to
withhold payment of any of the compensation set forth in Section 3
below or to offset Employer's damages against the payments set forth
in Section 3 below. The failure of employee to perform its duties
under this Section 2 shall not entitle Employer to a cause of action
against Employee.
<PAGE> 2
3. Compensation. Section 3 of the Employment Agreement shall be replaced
in its entirety with the following:
3. Compensation. Employee shall receive a monthly salary of $33,333.33.
Employee shall be entitled to participate in the employee benefit plans
provided by Employer for all executive employees generally, including a
special monthly automobile allowance of five hundred dollars ($500.00).
Employee shall be entitled to four weeks paid vacation during each
calendar year. The payment of the monthly salary amount specified above
shall survive termination of this Agreement under the circumstances set
forth in Section 7 below, whereas the executive benefit plans and
vacation time accrual shall be effective and shall accrue to Employee's
benefit only for the time periods that Employee is actually employed as
a full-time employee of Employer except to the extent the terms of such
plans expressly provide for the continuation of benefits after such
time.
4. No Changes to Section 4.
5. Protective Covenants.
The first full paragraph of Section 5 shall be modified by adding the
following sentence, as the second to last sentence in the paragraph, immediately
after the definition of "Trade Secrets":
"Proprietary Information" and "Trade Secrets" shall also include such
Proprietary Information and Trade Secrets that Employee obtains while
on site at the HighwayMaster premises after the date of his termination
of employment.
Section 5(b) of the Employment Agreement shall be amended by adding the
following sentence:
This Covenant Not to Compete shall not prohibit Employee from
soliciting or contracting Qualcomm, AMSC, or any other competitor of
the Company for the purpose of sponsoring an automotive racing program
with which Employee may be involved. Although Employee may sign
autographs, entertain guests at racing-related events, and similarly
interact with customers and potential customers of competitors at
racing-related events, Employee will not actively engage himself in the
direct person-to-person sales efforts of such competitors.
6. Termination. Section 6 of the Employment Agreement shall be replaced in
its entirety as follows:
6. Termination. This Agreement may be terminated by either party on or
after December 1, 1998 upon written notice to the other party. However,
termination prior to certain dates set forth in Section 7 below shall
result in adjustments in payments and other matters as set forth in
Section 7 below. The provisions of Sections 5 and 7 hereof
2
<PAGE> 3
shall survive the termination of this Agreement to the extent necessary
or reasonably appropriate to effect the intent of the parties hereto as
expressed in such provisions.
7. Compensation Upon Termination. Section 7 of the Employment Agreement
shall be replaced in its entirety as follows:
7. Compensation Upon Termination.
(a) General. 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
him before the effective date of termination, as provided in Section
3(a) hereof, prorated on the basis of the number of full days of
service rendered by Employee during the year to the effective date of
termination, (ii) any accrued but unpaid vacation or sick leave
benefits in accordance with the accrual policies of the Employer, and
(iii) any authorized but unreimbursed business expenses. Under certain
conditions as set forth in subsections (b) and (c) below, Employee
shall be entitled to additional compensation upon termination.
(b) Termination by Employee. Upon termination of this
Agreement by Employee by written notice to Employer for any reason to
be effective prior to December 1, 1998, Employer shall pay to Employee
the sum of $200,000 on January 1, 1999. Upon termination of this
Agreement by Employee by written notice to Employer for any reason to
be effective on or after December 1, 1998 but prior to September 1,
1999 (or at any time upon death or permanent disability), Employer
shall pay to Employee an immediate lump sum payment which is equal to
the total remaining compensation which would have been payable to
Employee through September 1, 1999 pursuant to the first sentence of
Section 3 above if Employee's employment had not terminated; provided,
however, that if such termination is effective in 1998, such lump sum
payment will instead be due on January 1, 1999. Terms regarding vesting
and exercise of certain stock options of Employee are separately set
forth in the stock option agreement between Employee and Employer dated
as of September 18, 1998, that was executed concurrently with that
certain Second Amendment to Employment Agreement between Employer and
Employee dated effective as of September 1, 1998.
(c) Termination by Employer. Upon termination of this
Agreement by Employer prior to September 1, 1999 for any reason,
Employer shall pay to Employee an immediate lump sum payment which is
equal to the total remaining compensation which would have been payable
to Employee through September 1, 1999 pursuant to the first
sentence of Section 3 above; provided, however, that if such
termination is effective in 1998, such lump sum payment will instead be
due on January 1, 1999. Terms regarding vesting and exercise of certain
stock options of Employee are separately set forth in the stock option
agreement between Employee and Employer dated as of September 18, 1998,
that was executed concurrently with that certain Second Amendment to
Employment Agreement between Employer and Employee dated effective as
of September 1, 1998.
3
<PAGE> 4
(d) Release. Upon termination of this Agreement, Employer will
release (and does hereby release), and will cause each of the other
Releasors (as defined in Exhibit A) to release, each of the Released
Parties (as defined in Exhibit A) from any and all Claims (as defined
in Exhibit A) that arise on or before the termination of this Agreement
(other than those that arise pursuant to Section 5 after the date of
this Agreement or as a result of intentional fraud or criminal conduct
by Employee after the date of this Agreement). Employer will effect
such obligation by executing and delivering, and causing each of the
other Releasors (as defined in Exhibit A) a release in form and
substance similar to that attached as Exhibit A, but appropriately
modified to reflect the foregoing.
8. Term. Section 8 of the Employment Agreement shall be amended to read as
follows:
8. Term. The stated term of this Agreement and the employment
relationship created hereunder shall be and remain in effect for one
full year, commencing on the date hereof, unless sooner terminated in
accordance with Section 6 hereof.
9. Notices. The addresses for notice set forth in Section 13 of the
Employment Agreement shall be amended as follows:
HighwayMaster Corporation
1155 East Kas Drive
Richardson, Texas 75081
William C. Saunders
1155 East Kas Drive
Richardson, Texas 75081
10. Incorporation of Amendment. This Amendment shall be included with and
incorporated into the Employment Agreement for all purposes.
11. Mutual Release. The following shall be added to the Employment
Agreement as Section 18:
18. Mutual Release. In exchange for the promises in this Agreement,
the parties have caused to be fully executed and delivered releases in
the form attached hereto as Exhibits A and B, respectively.
12. Shareholder Voting. To the extent a vote of the shareholders of the
Company or its parent are required to implement the terms and intent of
this Amendment, such as by voting in favor of the change in the title
and position of Employee, Employee agrees to vote shares held by him in
favor of any resolutions which may be required to implement the terms
and intent of this Amendment.
4
<PAGE> 5
13. No Offset of Amounts Payable to Employee. The following shall be added
to the Employment Agreement as Section 19:
19. No Offset of Amounts Payable to Employee. Amounts payable by
Employer to Employee pursuant to this Agreement shall not be offset
with any amounts payable by Employee to Employer, regardless of whether
such amounts arise out of Employee's breach of this Agreement or any
other dispute.
14. Limitations. The following shall be added to the Employment Agreement
as Section 20:
20. Limitations. Employer hereby acknowledges that the benefits to be
received by it under this Agreement (other than those pursuant to
Section 5) are fully received at the date Employee executes and
delivers this Agreement. IT IS EXPRESSLY AGREED AND UNDERSTOOD THAT THE
SOLE AND EXCLUSIVE REMEDY FOR A BREACH OF THIS AGREEMENT BY EMPLOYEE
(OTHER THAN A BREACH OF SECTION 5 OR INTENTIONAL FRAUD) IS TERMINATION.
Furthermore, Employer hereby acknowledges that it shall not be entitled
to recover damages in excess of actual damages as a result of any
breach of Section 5 of this Agreement or any breach of this Agreement
caused by the intentional fraud of Employee and hereby waives any and
all rights to consequential, punitive, extraordinary, exemplary,
indirect, special, or other damages, however characterized, that exceed
actual damages.
15. Insurance and Indemnification. The following shall be added to the
Employment Agreement as Section 21:
21. Insurance and Indemnification. Employer hereby agrees to maintain
in full force and effect, during the Indemnity Term, indemnification
obligations and insurance that satisfy the requirements of this
Section. The indemnification obligations required by this Section must
(a) indemnify Employee against any and all claims that may be brought
against him as a result of being or having been an officer, director,
employee, or agent of, or having any other relationship (contractual or
otherwise) with any of the Releasing Parties; (b) have terms (e.g.,
rights to receive indemnification and expense reimbursement, standards
for receiving indemnification and expense reimbursement, etc.) that are
no less favorable to Employee than the terms of the indemnification
obligations that are currently in place; and (c) have terms (e.g.,
rights to receive indemnification and expense reimbursement, standards
for receiving indemnification and expense reimbursement, etc.)
that are no less favorable to Employee than the terms of the
indemnification obligations that hereafter benefit any officer,
director, employee, or agent of any of the Releasing Parties. The
insurance required by this Section must (a) insure Employee against any
and all claims that may be brought against him as a result of being or
having been an officer, director, employee, or agent of, or having any
other relationship (contractual or otherwise) with any of the Releasing
Parties; (b) have terms (e.g., amount, coverage, creditworthiness of
the insurer, etc.) that are no less favorable to Employee than the
terms of the insurance policies that are currently in place; and (c)
have terms (e.g., amount, coverage, creditworthiness of the insurer,
etc.) that are no less favorable to Employee than the terms of the
insurance policies that are hereafter obtained for the
5
<PAGE> 6
benefit of any officer, director, employee, or agent of any of the
Releasing Parties. "Indemnity Term" means the term of this Agreement
and thereafter for at least eight years and, to the extent any claim is
pending or threatened at the end of such eight-year period, until each
such claim is fully and finally resolved (through a final, unappealable
court order, arbitration award, settlement, or otherwise) in a manner
that conclusively determines the ultimate liability of Employee with
respect thereto. Employer shall promptly furnish evidence reasonably
satisfactory to Employee of its compliance with this Section. If
Employer fails to so furnish such evidence to Employee, Employee may,
at the expense of Employer, obtain such insurance. Employer will
promptly reimburse Employee for the cost of any such insurance plus pay
interest on the amount thereof at the highest lawful rate from the date
Employee requests such payment until Employee is fully paid.
In any instance where Employer is required to indemnify Employee
pursuant to this Section 21, Employee shall provide reasonably prompt
notice to Employer of any covered claim or threat of claim that
Employee knows about, and shall allow Employer to choose counsel,
manage litigation, and settle litigation to the extent of Employer's
indemnity.
16. Exhibits. The Employment Agreement is hereby amended to add as Exhibits
A, B, and C thereto Exhibits A, B, and C to this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
EMPLOYER:
HIGHWAYMASTER CORPORATION
By: /S/ JANA A. BELL
----------------------------
Jana A. Bell.
President and CEO
EMPLOYEE:
/S/ WILLIAM C. SAUNDERS
--------------------------------
WILLIAM C. SAUNDERS
6
<PAGE> 1
Exhibit 10.4
RELEASE
For good and valuable consideration, as set forth in the Amendment to
Employment Agreement executed between the parties concurrently herewith, the
receipt and adequacy of which are hereby acknowledged and confessed, William C.
Saunders ("Saunders"), on behalf of himself and his heirs, successors, and
assigns (collectively, the "Releasing Parties"), hereby fully releases, acquits,
and forever discharges HighwayMaster Communications, Inc., formerly known as HM
Holding Corporation, a Delaware corporation, and HighwayMaster Corporation, a
Delaware corporation, and each of their respective predecessors, parents,
affiliates, and subsidiaries (each of the foregoing being called a
"HighwayMaster Company") and the respective employees, officers, directors,
agents, predecessors, successors, assigns, representatives, and all related
entities of each HighwayMaster Company (all of such persons being called
collectively, the "Released Parties"), of and from any and all actions, causes
of action, suits, debts, disputes, damages, claims, obligations, liabilities,
and demands of any kind whatsoever, at law or in equity, whether matured, or
unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate,
known or unknown (collectively, "Claims") that the Releasing Parties (or any of
them) had, now has, or hereafter can, shall, or may have against the Released
Parties or any of them for, upon, or by reason of any matter, cause, or thing
whatsoever arising in connection with or related to Saunders being, on or before
the date of this Release, an officer, director, employee, or agent of, or having
any other relationship (contractual or otherwise) with, a HighwayMaster Company.
The released Claims also include but are not limited to claims arising under
Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss. 2000e (relating to
employment discrimination), the Civil Rights Act of 1991, P.L. 102-166, the
Texas Human Relations Act, Tex. Rev. Civ. Stat. Art. 5221k or similar statutes
from other applicable states, the Age Discrimination in Employment Act, 29
U.S.C. ss. 621, and under any other state or federal statute or regulation, any
claims for breach of contract, tort, and personal injury of any sort, including
but not limited to those arising out of or relating in any way to Saunders'
employment by, association with and termination of employment from
HighwayMaster. This release covers claims both that Saunders knows about and
those that he may not know about, but does not include prospective rights which
Saunders has as a shareholder of the Company.
Notwithstanding the foregoing, nothing in this Release is intended to
release any Claims arising on or after the date hereof under or pursuant to (a)
the provisions of that certain Employment Agreement dated as of February 4,
1994, executed by HighwayMaster Corporation and Saunders, as amended through
September 1, 1998 (except to the extent such September 1, 1998 amendment of the
Employment Agreement releases, by its own terms, certain claims and provisions
contained in the Employment Agreement prior to its amendment) that are
applicable after or arise as a result of termination of employment, including
but not limited to the right to obtain the payment of $300,000 as provided in
Section 7(b) thereof on January 21, 1999 and the rights under Section 21
thereof; (b) that certain Stock Option Agreement executed by HighwayMaster
Communications, Inc. and Saunders dated as of June 13, 1994, as amended on
September 18, 1998, effective as of June 13, 1994; (c) that certain Stock Option
Agreement executed by HighwayMaster Communications, Inc. and Saunders dated as
of September 18, 1998; or (d) any other claims that arise from matters that
are included in clauses (a) through (e) of that certain acknowledgment dated as
of even date herewith executed by Saunders.
<PAGE> 2
Saunders hereby agrees that he will not assert, and that he is estopped
from asserting, against the Released Parties, or any of them, any Claim that he
has released in this Release.
This Release will be null and void and of no force or effect as to any
Released Party with respect to any Releasing Party if that certain Release dated
the date hereof executed by Highwaymaster Communications, Inc., formerly known
as HM Holding Corporation, a Delaware corporation, and HighwayMaster
Corporation, a Delaware corporation, for the benefit of any Releasing Party is
found, in a final, nonappealable order of a court of competent jurisdiction
entered after pursuit and exhaustion of all appeals, to be ineffective with
respect to such Releasing Party in some material respect and such Released Party
or its successor in interest asserts a Claim against such Releasing Party that
would have been released but for such order.
No waiver or amendment of this Release, or the promises, obligations,
or conditions herein, shall be valid unless set forth in writing and signed by
the party against whom such waiver or amendment is to be enforced, and no
evidence of any waiver or amendment of this Release shall be ordered or received
in evidence in any proceeding, arbitration or litigation between the Releasing
Parties (or any of them) and the Released Parties (or any of them) arising out
of or affecting this Release unless such waiver or amendment is in writing and
signed as stated above.
Saunders hereby represents and warrants that he has not assigned,
pledged, or transferred in any manner to any person or entity any Claim that is
the subject of this Release. Saunders shall indemnify the Released Parties and
each of them from and against all Claims that are the subject of this Release
that are asserted by any person or entity by or through any Releasing Party or
as a result of any assignment, pledge, or transfer that caused the foregoing
representation to be false.
The provisions of this Release shall be specifically enforceable.
Executed in one or more counterparts as of December 15 , 1998.
/S/ WILLIAM C. SAUNDERS
--------------------------------
William C. Saunders
2
<PAGE> 1
Exhibit 10.5
RELEASE
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged and confessed, Highwaymaster Communications, Inc.,
formerly known as HM Holding Corporation, a Delaware corporation, and
HighwayMaster Corporation, a Delaware corporation (each, a "Releasor"), each on
behalf of itself, each of its predecessors, and each of its subsidiaries and
their respective predecessors (each of the foregoing being called a
"HighwayMaster Company") and the respective representatives, successors, and
assigns of each HighwayMaster Company (collectively, the "Releasing Parties"),
hereby fully releases, acquits, and forever discharges William C. Saunders
("Saunders") and his heirs, successors, assigns, and representatives (all of
such persons being called collectively, the "Released Parties"), of and from
any and all actions, causes of action, suits, debts, disputes, damages, claims,
obligations, liabilities, and demands of any kind whatsoever, at law or in
equity, whether matured, or unmatured, liquidated or unliquidated, vested or
contingent, choate or inchoate, known or unknown (collectively, "Claims") that
the Releasing Parties (or any of them) had, now has, or hereafter can, shall,
or may have against the Released Parties or any of them for, upon, or by reason
of any matter, cause, or thing whatsoever arising in connection with or related
to Saunders being, on or before the date of this Release, an officer, director,
employee, or agent of, or having any other relationship (contractual or
otherwise) with, a HighwayMaster Company, including but in no way limited to
matters that involve any alleged negligence, misconduct, breach of contract,
breach of fiduciary or other duty, malfeasance, misfeasance, criminal conduct,
or violation of law by Saunders.
EACH RELEASING PARTY HEREBY ACKNOWLEDGES AND AGREES THAT THIS
RELEASE RELEASES CLAIMS ARISING FROM THE ACTUAL OR ALLEGED NEGLIGENCE
OR OTHER FAULT OF THE RELEASED PARTIES.
Each Releasor hereby agrees that it will not assert, and that it is
estopped from asserting, against the Released Parties, or any of them, any
Claim that it has released in this Release.
This Release will be null and void and of no force or effect as to any
Released Party with respect to any Releasing Party if that certain Release
dated the date hereof executed by Saunders for the benefit of any Releasing
Party is found, in a final, nonappealable order of a court of competent
jurisdiction entered after pursuit and exhaustion of all appeals, to be
ineffective with respect to such Releasing Party in some material respect and
such Released Party or its successor in interest asserts a Claim against such
Releasing Party that would have been released but for such order.
No waiver or amendment of this Release, or the promises, obligations,
or conditions herein, shall be valid unless set forth in writing and signed by
the party against whom such waiver or amendment is to be enforced, and no
evidence of any waiver or amendment of this Release shall be ordered or
received in evidence in any proceeding, arbitration or litigation between the
Releasing Parties (or any of them) and the Released Parties (or any of them)
arising out of or affecting this Release unless such waiver or amendment is in
writing and signed as stated above.
<PAGE> 2
Each Releasor hereby represents and warrants that it has not assigned,
pledged, or transferred in any manner to any person or entity any Claim that is
the subject of this Release. The Releasors, jointly and severally, shall
indemnify the Released Parties and each of them from and against all Claims
that are the subject of this Release that are asserted by any person or entity
by or through any Releasing Party or as a result of any assignment, pledge, or
transfer that caused the foregoing representation to be false.
Notwithstanding the foregoing, nothing in this Release is intended to
release any prospective Claims arising on or after the date hereof under or
pursuant to (a) the provisions of that certain Employment Agreement dated as of
February 4, 1994, executed by HighwayMaster Corporation and Saunders, as
amended through September 1, 1998 (except to the extent such amendment of the
Employment Agreement releases, by its own terms, certain claims and provisions
contained in the Employment Agreement prior to its amendment) that are
applicable after or arise as a result of termination of employment; (b) that
certain Stock Option Agreement executed by HighwayMaster Communications, Inc.
and Saunders dated as of June 13, 1994, as amended on September 18, 1998,
effective as of June 13, 1994; or (c) that certain Stock Option Agreement
executed by HighwayMaster Communications, Inc. and Saunders dated as of
September 18, 1998.
The provisions of this Release shall be specifically enforceable.
Executed in one or more counterparts as of December 15 , 1998.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ Jana A. Bell
----------------------------------
Jana A. Bell, President and CEO
HIGHWAYMASTER CORPORATION
By: /S/ Jana A. Bell
Jana A. Bell, President and CEO
2
<PAGE> 3
<PAGE> 1
Exhibit 10.09
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and John Stupka,
a member of the Board of Directors of the Company (the "Optionee"), regarding
stock of the Company.
RECITALS:
A. The Board of Directors of the Company has voted to offer to
Optionee a position on the Board of Directors of the Company, and Optionee has
accepted such offer;
B. The Board of Directors of the Company wishes to provide Optionee
with certain compensation in connection with his service on the Board of
Directors of the Company;
NOW, THEREFORE, in consideration of the premises and the benefits to
be derived from the mutual observance of the covenants and promises contained
herein and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 3 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 3 hereof, subject to adjustment pursuant to
Section 4 hereof and subject to the Optionee's acceptance and agreement to the
terms, conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 4, the
exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 3 hereof.
<PAGE> 2
3. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: June 22, 1998
b. Name of Optionee: John Stupka
c. Number of Shares Covered by Option: 3,798
d. Option Exercise Price Per Share: $2.50
4. Adjustments to Number of Shares and Option Price. The price to be
paid and the number of shares to be issued upon exercise of outstanding Options
shall be subject to adjustment by the Board of Directors of the Company, in its
sole discretion, to reflect any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
similar event.
5. Tax Status. This Option shall not be deemed to qualify as an
incentive option under Section 422 of the Internal Revenue Code of 1986, as
amended.
6. Exercise of Option. Except as otherwise provided in this Option
Agreement, Optionee may exercise all or any portion of this Option at any time
and from time to time after the Date of Grant.
7. Expiration of Option. This Option shall expire and cease to be
exercisable on the sixth anniversary of the Date of Grant or such earlier date
as may be specified in this Option Agreement.
8. Termination of Affiliation.
(a) Subject to the following provisions of this Section 8, this
Option may not be exercised unless at the time of exercise the
Optionee is a member of the Board of Directors of the Company or a
Subsidiary.
2
<PAGE> 3
(b) If the Optionee's position as a member of the Board of
Directors of the Company or a Subsidiary shall terminate for any
reason other than death, the Optionee may exercise this Option, to the
same extent it was exercisable on the date of such termination, during
the 60-day period following the date of such termination. In no event
may the Optionee exercise this Option later than the date on which the
Option would have expired under Section 7 hereof.
(c) If the Optionee's position as a member of the Board of
Directors of the Company or a Subsidiary shall terminate by reason of
the Optionee's death, the executor or administrator of the Optionee's
estate or the person to whom this Option is transferred by will or the
laws of descent or distribution may exercise this Option with respect
to any or all shares covered by this Option within 60 days after the
date of the Optionee's death, but in no event may this Option be
exercised later than the date on which the Option would have expired
if the Optionee had lived. Such exercise of the Options shall only be
permitted 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.
9. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares. This Option shall not 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.
3
<PAGE> 4
10. Nontransferability of Option. This Option shall not be assignable
or transferable other than by will or the laws of descent and distribution and
shall be exercisable only by the Optionee during his lifetime. No transfer of
this Option Agreement 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.
11. No Registration Statement on File. At the time of the issuance of
this Option, the shares to be issued hereunder are not registered for public
sale, and any sale thereof must comply with applicable securities regulations,
including any applicable holding periods.
12. Investment Representation. At such time or times as the Optionee
may exercise this Option, the Optionee shall, upon the request of the Company,
represent in writing (i) that the shares being acquired by the Optionee will
not be sold except pursuant to an effective registration statement, or
applicable exemption from registration, under the Securities Act of 1933, as
amended, (ii) that it is the Optionee's intention to acquire the shares being
acquired for investment only and not with a view to distribution thereof, and
(iii) other customary representations as the Company deems necessary or
advisable. No shares will be issued unless and until the Company is satisfied
as to the accuracy of such representations.
13. Restrictive Legends.
(a) Certificates representing shares of Common Stock delivered
pursuant to the exercise of this Option Agreement shall bear an
appropriate legend referring to the terms, conditions, and
restrictions described in this Option Agreement. Any attempt to
dispose of any such shares of Common Stock in contravention of the
terms, conditions and restrictions
4
<PAGE> 5
described in this Option Agreement 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
Optionee (or his 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 this Option Agreement, shall be subject to the terms and
conditions of this Option Agreement and bear the same legend as the
shares received pursuant to the exercise of this Option Agreement.
14. Continued Board Membership. Nothing herein shall confer upon the
Optionee any right to continued membership on the Board of Directors of the
Company or a Subsidiary or shall prevent the Company or Subsidiary which
retains the Optionee from terminating such relationship at any time, with or
without cause.
15. Rights as Shareholder. Nothing herein is intended to or shall give
to the Optionee any right or status of any kind as a stockholder of the Company
in respect of any shares of Common Stock covered by this Option or entitle the
Optionee to any dividends or distributions thereon unless and until a share
certificate representing such shares shall have been delivered to the Optionee
and registered in the Optionee's name. Upon the issuance and receipt of such
certificate or certificates, the 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 Option Agreement.
16. Merger or Reorganization of the Company. If the Company shall at
any time participate in a reorganization and (A) the Company is not the
surviving entity, or (B) the Company
5
<PAGE> 6
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
Optionee written notice of such fact on or before 15 days before such merger or
consolidation, and this Option Agreement 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 consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed a merger or consolidation
for the foregoing purposes.
17. 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 Board of Directors of
the Company, provided that not less than 15 days' prior written notice of the
date so fixed shall be given to Optionee, and the Optionee shall have the
right, during the 15- day period preceding such termination, to exercise his
Option.
18. Interpretation. If and when questions arise from time to time as
to the intent, meaning or application of the provisions of this Option
Agreement, such questions shall be decided by the Board of Directors of the
Company in its sole discretion, and any such decision shall be conclusive and
binding on the Optionee. The Optionee hereby agrees that this Option is granted
and accepted subject to such condition and understanding.
19. Withholding of Taxes. Upon exercise of this Option (either wholly
or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind which may be required to be withheld in connection with the
issuance to the Optionee of Common Stock upon exercise of this Option.
6
<PAGE> 7
20. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed certified mail (return receipt requested) or sent by overnight delivery
service, cable, telegram, facsimile transmission or telex to the Optionee or
the Company at the address set forth below or at such other addresses as shall
be specified by the parties by like notice:
HighwayMaster Communications, Inc.
16479 Dallas Parkway, Suite 710
Dallas, Texas 75248
Fax: (972) 930-7286
Attn: William C. Kennedy, Jr.
John Stupka
120 WINDRUSH
RIDGELAND, MS 39157
21. Confidentiality. Unless otherwise permitted by the Chairman of the
Board or the President of the Company, Optionee agrees to keep confidential the
terms of this Option Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Option
Agreement to be effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /S/ WILLIAM C. SAUNDERS
-----------------------------------
Name: William C. Saunders
---------------------------------
Title: President and CEO
--------------------------------
/S/ JOHN STUPKA
--------------------------------------
John Stupka, Optionee
7
<PAGE> 1
Exhibit 10.11
ACKNOWLEDGMENT
I acknowledge that my employment with HighwayMaster Corporation ended
effective on December 1, 1998, as a "Termination by Employee" under Section 7(b)
of my amended Employment Agreement, and I have resigned from the boards of
directors of HighwayMaster Corporation and HighwayMaster Communications, Inc.
effective December 1, 1998. I acknowledge that I have received payment in full
for HighwayMaster Corporation's obligations under my Employment Agreement dated
February 4, 1994, as amended, except for (a) ongoing duties of HighwayMaster to
indemnify or insure me as set forth in Section 21 of my Employment Agreement,
(b) benefits under employee benefit plans to the extent the terms of any
applicable employee benefit plans expressly provide for the continuation of
benefits after termination of employment, (c) benefits required by law,
including the offering of COBRA benefits at rates provided by law, (d)
reasonable expense reimbursements pursuant to Section 4 of the Employment
Agreement that are incurred before December 1, 1998 and requested before
December 31, 1998, and (e) $300,000 minus normal payroll withholding, which
HighwayMaster agrees to pay me on January 1, 1999.
I understand that due to my resignation effective December 1, 1998,
100,000 of my stock options in HighwayMaster Communications, Inc. that were
priced at $1.19 per share do not vest, and have expired. I understand that the
remaining 393,478 of my stock options, priced at $7.58 per share, will expire 60
days after December 1, 1998.
Executed as of December 15, 1998.
/s/ WILLIAM C. SAUNDERS
- -----------------------------------
William C. Saunders
<PAGE> 1
Exhibit 10.13
MUTUAL SEPARATION AND RELEASE
This Mutual Separation and Release ("Agreement") is by and among Gordon
Quick and HighwayMaster Corporation, its employees, officers, directors, agents,
predecessors, successors, parents, subsidiaries, affiliates, and all related
entities including HighwayMaster Communications, Inc. (individually and
collectively referred to as "HighwayMaster"). The parties agree as follows:
1. In accordance with the HighwayMaster's regular payroll practices,
HighwayMaster shall pay Mr. Quick $30,502.10 per month for the period
from the date of this Agreement through January 15, 1999, and
$33,552.30 per month for the period from January 16, 1999 through April
30, 1999. On May 1, 1999, HighwayMaster shall pay Mr. Quick a cash
payment of $434,797, plus $14,193 if Mr. Quick shall have provided at
least 80 hours of service to HighwayMaster during the period from
January 1, 1999 through January 31, 1999, plus $26,296 if Mr. Quick
shall have provided at least 80 hours of service to HighwayMaster
during the period from February 1, 1999 through February 28, 1999, plus
$13,000 if Mr. Quick shall have worked at least 80 hours of service to
HighwayMaster during the period from March 1, 1999 through March 31,
1999, plus $6,200 if Mr. Quick shall have worked at least 80 hours of
service to HighwayMaster during the period from April 1, 1999 through
April 30, 1999, less withholding and other deductions as required by
law.
2. Except as specified in this Agreement and company policy, all other
fringe benefits and perquisites related to Mr. Quick's employment will
end as of April 30, 1999, which is the day his employment ends.
HighwayMaster and Mr. Quick acknowledge that Mr. Quick has received
concurrently with, or prior to, the execution of this Agreement, all
amounts payable by HighwayMaster for reimbursement of expense to the
date of this Agreement, all amounts payable by HighwayMaster for
reimbursement of expense to the date of this Agreement, unused vacation
days less any required withholding and other appropriate deductions
(totaling 40 hours of accrued vacation), and any other amounts payable
or reimbursements due to Mr. Quick by HighwayMaster for any reason to
the date of this Agreement.
3. HighwayMaster and Mr. Quick acknowledge the sufficiency of the
consideration exchanged hereunder in connection with each of their
promises herein.
4. Commencing from the date of this Agreement until April 30, 1999, Mr.
Quick will have the duties and responsibilities of chief Operating
Officer of HighwayMaster as determined by the Chief Executive Officer
of HighwayMaster, but in no event shall such duties and
responsibilities obligate Mr. Quick to perform services for
HighwayMaster in excess of 80 hours in each of January 1999 and
February 1999. The parties understand and agree that Mr.
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<PAGE> 2
Quick may seek and secure alternative employment at any time during
this period and that to the extent Mr. Quick does not provide at least
80 hours of service in each of January 1999 and February 1999,
HighwayMaster's only recourse is that it should not be obligated to
make the additional incremental payments of $14,193.00, $26,296.00,
$13,000.00 and $6,200.00 as specified in Section 1 hereof. Mr. Quick
agrees that he will relinquish the title and role of Chief Operating
Officer of HighwayMaster Corporation and HighwayMaster Communications,
Inc. effective on April 30, 1999.
5. After termination of his employment, Mr. Quick agrees to provide
HighwayMaster an additional 40 hours for litigation consultation as
reasonably requested upon reasonable notice by HighwayMaster after
April 30, 1999. If HighwayMaster requests Mr. Quick to engage in travel
in connection with providing such services, HighwayMaster will
reimburse Mr. Quick's reasonable travel and lodging expenses in
accordance with its standard travel reimbursement policies.
6. Mr. Quick understands and agrees that all of the options issued to him
pursuant to the Option Agreement executed between himself and
HighwayMaster Communications, Inc. dated as of June 13, 1994 (the
"Option Agreement") will lapse and expire on June 30, 1999.
7. In exchange for the promises in this Agreement, Mr. Quick on behalf of
his heirs and assigns as well as himself, releases and discharges
HighwayMaster from all of its duties, responsibilities and obligations
of any kind under that certain Employment Agreement between Mr. Quick
and HighwayMaster, dated as of November 23, 1994 (the "Employment
Agreement"). HighwayMaster releases and discharges Mr. Quick from his
duties, responsibilities and obligations of any kind under the
Employment Agreement, except for the ongoing, prospective duties set
forth in Section 5 of the Employment Agreement which are reconfirmed by
this Agreement in return for the consideration set forth herein.
HighwayMaster releases and discharges Mr. Quick from any and all
claims, demands, losses, liabilities and causes of action arising or
accruing concurrent with or prior to the date of execution of this
Agreement, for or because of anything done or omitted by Mr. Quick.
This release includes but is not limited to claims arising under Title
VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e (relating
to employment discrimination), the Civil Rights Act of 1991, P.L.
102-166, the Texas Human Relations Act, Tex. Rev. Viv. Stat. Art 5221k
or similar statues from other applicable states, the Age Discrimination
in Employment Act, 29 U.S.C. Section 621, and under any other state or
federal statute or regulation, any claims for breach of contract, tort,
and personal injury of any sort, including but not limited to those
arising out of or relating in any way to Mr. Quick's employment by,
association with and termination of employment from HighwayMaster. This
release covers claims both that HighwayMaster knows about and those
that it may not know about. Further, by accepting the benefits
described above, HighwayMaster agrees not to sue Mr. Quick with respect
to any claims that are released in this paragraph.
Mr. Quick releases and discharges HighwayMaster from any and all
claims, demands, losses, liabilities and causes of action arising or
accruing concurrent with or prior to the date of execution of this
Agreement, for or because of anything done or omitted by HighwayMaster.
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<PAGE> 3
This release includes but is not limited to claims arising under Title
VII of the Civil Rights Act of 1964, 42, U.S.C. Section 2000e (relating
to employment discriminations) the Civil Rights Act of 1991, P.L.
102-166, the Texas Human Relations Act, Tex. Rev. Civ. Stat. Art. 5221k
or similar statutes from other applicable states, the Age
Discrimination in Employment Act, 29 U.S.C. Section 621, and under any
other state or federal statute or regulation, any claims for breach of
contract, tort, and personal injury of any sort, including but not
limited to those arising our of or relating in any way to Mr. Quick's
employment by, association with and termination of employment from
HighwayMaster. This release covers claims both that Mr. Quick knows
about and those that he may not know about. Further, by accepting the
benefits described above, Mr. Quick agrees not to sue HighwayMaster, or
the related persons and entities described, with respect to any claims
that are released in this paragraph
8. Mr. Quick agrees that he will not at any time prior to May 1, 2000
solicit for employment, hire under his direct or indirect managerial
control, or encourage or refer any other party to solicit or hire for
employment, any employee of HighwayMaster.
9. By making this Agreement, HighwayMaster and Mr. Quick are not admitting
that they have done anything wrong. HighwayMaster and Mr. Quick agree
that this Agreement is inadmissible as evidence in any proceeding,
legal or otherwise, except to the extent necessary to enforce its
provisions.
Mr. Quick will make no negative or disparaging statement, wither orally
or in writing, about HighwayMaster or any of their directors, officers,
shareholders, or affiliates. HighwayMaster and its management will make
no negative or disparaging statement, either orally or in writing,
about Mr. Quick.
10. Mr. Quick acknowledges that he has been advised of his rights to
consult his own attorney prior to signing this Agreement. Mr. Quick
understands that whether or not to do so is Mr. Quick's decision. Mr.
Quick agrees, however, that HighwayMaster shall not be required to pay
any of his attorney's fees or costs, now or later, in this or any
related matter or lawsuit, except to the extent of $1,500 in connection
with the preparation and negotiation of this Agreement which shall be
payable with five (5) days of receipt of any attorney's invoice
therefor, and provided, further, that any attorney's fees to which Mr.
Quick is otherwise legally entitled for the enforcement of this
Agreement or for which the Company is legally required to pay under its
Bylaws or insurance policies are not waived by this Section 10 of this
Agreement.
11. This Agreement constitutes the entire agreement and understanding
between the parties with respect to the subject matter herein, and
supersedes and replaces any and all prior agreements and
understandings, whether oral or written, with respect to such matters.
Any representation or statement not expressly contained in this
Agreement will not be binding upon either party. No amendment,
interpretation or waiver of any of the provisions of this Agreement
shall be effective unless made in writing and signed by the parties
hereto. If any portion of this Agreement is found to be unenforceable,
then both Mr. Quick and HighwayMaster desire that all other portions
that can be separated from it or appropriately limited in scope will
remain fully valid and enforceable. Each party also agrees that,
without
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<PAGE> 4
receiving further consideration, it will sign and deliver such
documents and do anything else that is reasonably necessary in the
future to make the provisions of this Agreement effective.
12. This Agreement is to be executed, delivered, and performed in Dallas,
Texas. This Agreement shall be construed in accordance with the laws of
the State of Texas. In the event any dispute or controversy arises
regarding the terms, enforceability, subject matter, or any other
controversy arises out of or is related to this Agreement, the parties
agree that such dispute or controversy shall be submitted exclusively
to binding arbitration pursuant to the rules and regulations of the
American Arbitration Association (the "AAA"). The parties agree that
should arbitration become necessary, they will utilize and comply with
all available rules of the AAA for expediting such arbitration. The
site of such arbitration will be in Dallas County, Texas and will
commence no later than 30 days after any party files for arbitration.
13. MR. QUICK ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, HAS HAD AN
OPPORTUNITY TO ASK QUESTIONS AND HAVE IT EXPLAINED TO HIM AND THAT HE
UNDERSTANDS THAT THE AGREEMENT WILL HAVE THE EFFECT OF WAIVING ANY
ACTION HE MIGHT PURSUE, INCLUDING BREACH OF CONTRACT, PERSONAL INJURY,
DISCRIMINATION ON THE BASIS OF RACE, AGE, SEX NATIONAL ORIGIN, OR
DISABILITY AND ANY OTHER CLAIMS ARISING PRIOR TO THE EFFECTIVE DATE OF
THE AGREEMENT. Mr. Quick represents that he has not been induced to
execute this Agreement by any statement, act or representation of any
kind or character on the part of anyone, except as may be contained in
this Agreement.
ACCEPTED AND AGREED TO:
/s/ GORDON QUICK DATE: 12/21/98
----------------------------- ----------------
GORDON QUICK
HIGHWAYMASTER CORPORATION
BY: /s/ JANA BELL DATE: 12/22/98
-------------------------- ----------------
NAME: Jana Bell
------------------------
TITLE: President and CEO
-----------------------
HIGHWAYMASTER COMMUNICATIONS, INC.
BY: /s/ JANA BELL DATE: 12/22/98
-------------------------- ----------------
NAME: Jana Bell
------------------------
TITLE: President and CEO
-----------------------
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<PAGE> 1
Exhibit 10.18
[COMPANY LETTERHEAD]
ADDENDUM TO ORIGINAL EMPLOYMENT LETTER DATED SEPTEMBER 19, 1997:
February 28, 1997
Mr. Robert LaMere
207 Wedgewood Circle
Carl Junction, Missouri 64834
Dear Bob:
It is my pleasure to offer you a position with HighwayMaster Corporation as the
Senior Vice President of Transportation Systems, with your employment date to
be Saturday, March 1, 1997. You will be reporting to Gordon Quick, the Chief
Operating Officer. Your initial job responsibilities have been outlined for you
and you will receive them from your direct report.
The monthly salary for this exempt position is ten thousand four hundred
sixteen dollars and sixty-seven cents ($10,416.67). The position is terminable
at will, by either party, and HighwayMaster Corporation may change your salary
or job responsibilities from time to time as it deems necessary. If the change
results in a reduction in either your salary or job responsibilities, you may
elect to terminate your employment and receive your six (6) months severance.
Medical, dental, life, short and long term disability will be provided for you
at the Company's expense, although HighwayMaster Corporation reserves the right
to change carriers or coverage levels. Medical and dental insurance will be
available at group rates for your dependents at your expense. Coverage for you
will be the first of the month following thirty (30) days of employment. Your
initial vacation eligibility will be three (3) weeks per year earned at ten
(10) hours per month. Additional benefits include six (6) paid sick days per
year, the Company paid holidays and 401(k) plan.
We will issue a check for seventy thousand dollars ($70,000), which you can
utilize for all of your relocation expenses after we receive written
confirmation of your employment letter. You must remain in the company's
employment for one (1) year from your relocation date, (this is valid if you
decide to leave the company and null and void, if the company terminates your
employment) or you will have to reimburse the company for all of your
relocation expenses.
<PAGE> 2
Mr. Robert LaMere
February 28, 1997
Page Two
You will receive thirty thousand (30,000) stock options and the price will be
determined on your employment date with the company, March 1, 1997.
Additionally, if termination should occur, you will be entitled to six (6)
months severance, paid in lump sum based on your base salary and this will be
applicable for the first three (3) years of your employment.
You will be eligible to receive a fifteen thousand dollar ($15,000) bonus upon
the closing of the Burlington Motors/HighwayMaster Corporation software
agreement.
You will receive periodical performance review, at which time we will evaluate
your performance, position and compensation with no guarantee of change at that
time.
I believe that you will find the position challenging and commensurate with
your talents and objectives. We look forward to you becoming a part of our
team.
Please sign, date and return the duplicate copy of this letter to confirm that
it clearly states our mutual understanding and your acceptance of the position.
In order to expedite the orientation process, I would appreciate it, if you
would bring your driver's license and social security card/birth certificate
with you on your first da.
If you have any questions or concerns regarding this matter, please contact me
at (972)-732-2506.
Sincerely Accepted by
CAROLYN LOCKE
Carolyn Locke /s/ ROBERT LAMERE
Director of Human Resources ------------------------------------
Robert LaMere
Date: 3/4/97
-------------------------------
cc: Gordon Quick
Personnel File
<PAGE> 1
Exhibit 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT"), dated and effective as
of the 3rd day of June, 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 Todd A. Felker, 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 Senior Vice President, Director of Marketing, with job
responsibilities initially limited to the AutoLink project, to be expanded at
the sole discretion of Employer. Employee shall report to the Director of
AutoLink 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 his full time best efforts to the
faithful performance of his 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 President and Director of
AutoLink 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 $12,500 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 the compensation may not be decreased.
<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), health and dental insurance for the
Employee, and reimbursement of certain expenses in accordance with the
policies and procedures of the Company.
(c) Discretionary Bonuses. Employer shall establish an incentive
bonus plan for Employee based on various targets and performance
criteria to be established by the President and the Director of
AutoLink in consultation with the Employee. 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 Director of AutoLink and the President. The
potential annual bonus which may be awarded to Employee shall be in
the amount of $50,000 at each fiscal year end of Employer during the
term of this Agreement. 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 his 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 in 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
and the Director of AutoLink. The discretion allowed the President,
the Director of AutoLink, and Senior Management in this paragraph are
expressly made subject to the duty of good faith and fair dealing set
forth below in Paragraph 13.
4. Stock Options. Upon commencement of employment and approval of the
Compensation Subcommittee of the Board of Directors of HighwayMaster
Communications, Inc., Employee shall be issued stock options to purchase 30,000
shares of stock of HighwayMaster Communications, Inc. 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 options will vest over
a four year schedule as set forth in the applicable Employee Stock Option Plan
and the Employee Stock Option Agreement to be signed by the Employee. In the
event of any direct conflict, the terms of the stock options shall be governed
by the terms of this Section 4 of this Agreement and not by the Employee Stock
Option Agreement and the Employee Stock Option Plan, as amended from time to
time in accordance with their terms. Notwithstanding the other terms of this
paragraph, in the event that 50% or more of the outstanding common stock or
assets of the Employer are sold or otherwise transferred for reasons other than
merely administrative reorganization ("Change in Control of the Company"), all
stock options issued concurrently with the execution of this Agreement shall
accelerate and be deemed vested on the day prior to the Change in Control of
the Company.
5. Protective Covenants. Employee recognizes that his 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 his employment with Employer, (ii) certain information
EMPLOYMENT AGREEMENT - PAGE 2
<PAGE> 3
of which Employee will gain knowledge during his 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:
(a) Trade Secrets. Employee recognizes that his 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
EMPLOYMENT AGREEMENT - PAGE 3
<PAGE> 4
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 he 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 him from performing his duties with Employer as set
forth in this Agreement. Employee represents and warrants that he has
not retained any copies of proprietary and confidential information of
any prior employer, and he will not use or rely on any confidential
and proprietary information of any prior employer in carrying out his
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, he 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 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
EMPLOYMENT AGREEMENT - PAGE 4
<PAGE> 5
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. If
Employer terminates this Agreement pursuant to this sub-section,
Employee shall be entitled to the compensation as specifically
provided in Section 7 below.
(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 Senior 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;
EMPLOYMENT AGREEMENT - PAGE 5
<PAGE> 6
(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 Senior Management
of Employer, substantially interferes with Employee's performance
of his duties hereunder;
(4) Substantial failure of performance by Employee, other than
a failure permitted pursuant to Subsection 6(a) above which is
repeated or continued after 30 day written notice to Employee of
such failure, and which is reasonably determined by the Senior
Management 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; 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 under Section 6(a) or 6(b) above 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 Subsection 6(a) or 6(b) above). 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 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 his 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 his successor and generally preparing for an orderly
transition;
EMPLOYMENT AGREEMENT - PAGE 6
<PAGE> 7
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 him
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, (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. If Employee's employment hereunder terminates because of the death
or permanent disability of Employee, all amounts that may be due to him under
this Section 7 shall be paid to him or his 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 concurrently
with execution of this Agreement that have not yet vested shall continue to
vest until the end of the initial term of this Agreement set forth in Section 8
below, pursuant to the provisions of Section 4 above. Provided, that in the
event Employee's employment hereunder terminates pursuant to Section 6(d) after
the Employer ceases to conduct business as a going concern as a result of
insolvency or bankruptcy; Employee shall only be entitled to 9 months of
regular salary payments as set forth in Section 3(a) above, accelerated and
payable to Employee immediately upon termination.
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
EMPLOYMENT AGREEMENT - PAGE 7
<PAGE> 8
remedy for any breach of the provisions of this Agreement and that any party
may in its sole discretion apply to any court of law or equity of competent
jurisdiction for 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; provided, however, that in the event of the merger or
consolidation of Employer 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.
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 and 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
EMPLOYMENT AGREEMENT - PAGE 8
<PAGE> 9
If to Employee: Todd A. Felker
2633 Shadow Hill Ln.
Plano, TX 75093
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 his 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 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 HIS 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.
[SIGNATURE PAGE FOLLOWS]
EMPLOYMENT AGREEMENT - PAGE 9
<PAGE> 10
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:
/s/ TODD A. FELKER
-----------------------------------------
Todd A. Felker
EMPLOYMENT AGREEMENT - PAGE 10
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT"), dated and effective as
of the 3rd day of June, 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 William H. McCausland, 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 Sr. Vice President, Network and Customer Operations, with job
responsibilities related thereto and to be expanded at the sole discretion of
Employer. 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 his full time best efforts to the faithful performance of his 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 President 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 $12,500 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 the 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), health and dental insurance for the
Employee, and reimbursement of certain expenses in accordance with the
policies and procedures of the Company.
(c) Discretionary Bonuses. Employer shall establish an incentive
bonus plan for Employee based on various targets and performance
criteria to be established by the President and Board of Directors in
consultation with the Employee. 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 $25,000 two times during each fiscal year of
Employer (for a potential total of $50,000 per fiscal year), during
the term of this Agreement. Each annual discretionary bonus may be
awarded in 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 and Board of
Directors. The discretion allowed the President, in this paragraph is
expressly made subject to the duty of good faith and fair dealing set
forth below in Paragraph 13.
4. Stock Options. Employee previously has been issued stock options to
purchase shares of stock of HighwayMaster Communications, Inc. The terms of the
stock options are as set forth in the applicable Employee Stock Option Plan and
Employee Stock Option Agreement previously signed by the Employee.
Notwithstanding the terms of the Stock Option Agreement dated as of September
18, 1998 between Employee and HighwayMaster Communications, Inc. (the "1998
Stock Option Grant"), in the event that 50% or more of the outstanding common
stock or assets of the Employer are sold or otherwise transferred for reasons
other than merely administrative reorganization ("Change in Control of the
Company"), all stock options issued pursuant to the 1998 Stock Option Grant
shall accelerate and be deemed vested on the day prior to the Change in Control
of the Company.
5. Protective Covenants. Employee recognizes that his 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 his employment with Employer, (ii) certain information of which Employee
will gain knowledge during his 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
EMPLOYMENT AGREEMENT - PAGE 2
<PAGE> 3
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:
(a) Trade Secrets. Employee recognizes that his 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.
EMPLOYMENT AGREEMENT - PAGE 3
<PAGE> 4
Employee represents and warrants that he 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 him from performing his duties with Employer as set
forth in this Agreement. Employee represents and warrants that he has
not retained any copies of proprietary and confidential information of
any prior employer, and he will not use or rely on any confidential
and proprietary information of any prior employer in carrying out his
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, he 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 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:
EMPLOYMENT AGREEMENT - PAGE 4
<PAGE> 5
(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 his 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. If
Employer terminates this Agreement pursuant to this sub-section,
Employee shall be entitled to the compensation as specifically
provided in Section 7 below.
(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 Senior 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 Senior Management
of Employer, substantially interferes with Employee's performance
of his duties hereunder;
(4) Substantial failure by Employee to perform the fundamental
functions and obligations of his employment position set forth in
Section 2 of this Agreement, other than a failure permitted
pursuant to Subsection 6(a) above, which is repeated or continued
after 30 day written notice to Employee of such failure, and which
is
EMPLOYMENT AGREEMENT - PAGE 5
<PAGE> 6
materially injurious to the business or interests of Employer and
which failure is not cured by Employee within such 30 day period;
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 under Section 6(a) or 6(b) above 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 Subsection 6(a) or 6(b) above). 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 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 his 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 his 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 him
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, (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
EMPLOYMENT AGREEMENT - PAGE 6
<PAGE> 7
through the termination date of this Agreement. If Employee's employment
hereunder terminates because of the death or permanent disability of Employee,
all amounts that may be due to him under this Section 7 shall be paid to him or
his 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 concurrently
with execution of this Agreement that have not yet vested shall continue to
vest until the end of the initial term of this Agreement set forth in Section 8
below, pursuant to the provisions of Section 4 above. Provided, that in the
event Employee's employment hereunder terminates pursuant to Section 6(d) after
the Employer ceases to conduct business as a going concern as a result of
insolvency or bankruptcy; Employee shall only be entitled to 9 months of
regular salary payments as set forth in Section 3(a) above, accelerated and
payable to Employee immediately upon termination.
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 June 3, 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 law or equity of competent
jurisdiction for 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 binding arbitration in
Dallas, Texas in accordance with the rules of the American Arbitration
Association then in effect. The binding 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.
EMPLOYMENT AGREEMENT - PAGE 7
<PAGE> 8
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; provided, however, that in the event of the merger or
consolidation of Employer 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.
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 and 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: William H. McCausland
5901 Castlebar Lane
Plano, TX 75093
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.
EMPLOYMENT AGREEMENT - PAGE 8
<PAGE> 9
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 his 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 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 HIS 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/ JANA AHLFINGER BELL
-------------------------------------
JANA AHLFINGER BELL,
President and Chief Executive Officer
EMPLOYEE:
/s/ WILLIAM H. MCCAUSLAND 12/22/98
-----------------------------------------
William H. McCausland
<PAGE> 1
Exhibit 10.24
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (this "Amendment"), dated
and effective as of the 15th day of September, 1998, is by and between
HighwayMaster Corporation, a Delaware corporation ("Employer"), and Jana A.
Bell, an individual residing in Dallas County, Texas ("Employee").
RECITALS
Employer and Employee entered into that certain Employment Agreement,
dated and effective as of the 29th day of May, 1998 (the "Employment
Agreement"), and the parties wish to amend the Employment Agreement to reflect a
change in the title of Employee, such change having been approved by the Board
of Directors of Employer at a meeting of the Board of Directors held on even
date herewith.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Employment Agreement, Employer and
Employee, intending to be legally bound, hereby agree as follows:
1. Change of Title. Every occurrence of the title "Chief Financial
Officer" as it occurs in the Employment Agreement shall be deleted and replaced
with the term "President and Chief Executive Officer".
1. Change of Salary. The first sentence of Section 3(a) of the
Employment Agreement shall be replaced with the following:
a. Salary. Employee shall receive a salary of $25,000 per month
payable by Employer in bi-monthly amounts in Dallas, Texas.
2. Change of Bonus. The third sentence of Section 3(c) of the
Employment Agreement shall be replaced by the following two
sentences:
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 50% of
actual base salary paid to Employee pursuant to Section 3(a)
above in subsequent fiscal years. The $50,000 bonus for which
Employee is eligible for the first fiscal year end of Employer
shall be paid early, such that the $50,000 shall be deemed
earned and payable to Employee on September 15, 1998.
3. Vesting on Change of Control. The following sentence shall be
inserted immediately prior to the last sentence in Section 4 of the Employment
Agreement:
In addition, the options granted as of August 12, 1998 and
September 18, 1998
<PAGE> 2
will accelerate and will vest immediately upon a Change in
Control of Employer.
4. Incorporation of Amendment. This Amendment shall be included
with and incorporated into the Employment Agreement for all purposes, provided
that no effective date or other time period set forth in the Employment
Agreement shall be amended or affected by the effective date of this Amendment.
The terms set forth in the Employment Agreement shall govern interpretation and
enforcement of this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
EMPLOYER:
HIGHWAYMASTER CORPORATION
By: /S/ J. RAYMOND BILBAO 2/22/99
------------------------------------------
J. Raymond Bilbao
Secretary and General Counsel
EMPLOYEE:
/S/ JANA A. BELL 2/1/99
----------------------------------------------
JANA A. BELL
<PAGE> 1
Exhibit 10.25
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT"), dated as of the 24th day
of November, 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 Michael Smith, an individual residing in Dallas Flower Mound, 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 Chief Financial Officer, with job responsibilities related
thereto and to be expanded at the sole discretion of Employer. Employee shall
report to the President and shall devote such time, skill 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 his full time
best efforts to the faithful performance of his 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 President 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 $12,500
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.
(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,
EMPLOYMENT AGREEMENT - PAGE 1
<PAGE> 2
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), health and dental insurance for
the Employee, and reimbursement of certain expenses in accordance with
the policies and procedures of the Company.
(c) Signing Bonus. Employer shall pay to Employee a
signing bonus of $30,000 upon execution of this Agreement.
(d) Discretionary Bonuses. Employer shall establish an
incentive bonus plan for Employee based on various targets and
performance criteria to be established by the President and Board of
Directors in consultation with the Employee. 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 $25,000 at each fiscal
year end of Employer during the term of this Agreement, pro-rated for
partial years. Each annual discretionary bonus may be awarded in 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 and Board of Directors.
4. Stock Options. Employee will be granted options to purchase
75,000 125,000 shares of common stock of the Employer's parent concurrent with
the execution of this Agreement. The terms and vesting of the stock options are
as set forth in the applicable Employee Stock Option Plan and Employee Stock
Option Agreement signed by the Employee concurrently with this Agreement.
5. Protective Covenants. Employee recognizes that his 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 his employment with Employer, (ii) certain information of which Employee will
gain knowledge during his 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
EMPLOYMENT AGREEMENT - PAGE 2
<PAGE> 3
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:
(a) Trade Secrets. Employee recognizes that his 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 he 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 him from
performing his duties with Employer as set forth in this Agreement. Employee
represents and warrants that he has not retained any copies of proprietary and
confidential information of any prior employer, and he will not use or rely on
any confidential and proprietary information of any prior employer in carrying
out his duties for Employer.
EMPLOYMENT AGREEMENT - PAGE 3
<PAGE> 4
(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, he 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 or regional
trucking industry in the United States of America, or in wireless
automotive vehicle security and roadside assistance services in the
United States of America, or in fleet tracking and dispatching services
in the United States of America.
(c) Non-Solicitation of Employees Employee agrees
that he will not, for a period of two years after he leaves the
employment of Employer, solicit for employment, encourage or refer any
other party to solicit for employment, or hire or cause to be hired any
employee of HighwayMaster.
(d) 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 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.
(e) 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:
EMPLOYMENT AGREEMENT - PAGE 4
<PAGE> 5
(a) Death or Permanent Disability. The employment
relationship shall be terminated effective on the death or permanent
disability of the Employee.
(b) Termination for Cause. The following events,
which for purposes of this Agreement shall constitute "cause" for
termination:
(1) The 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 Senior Management or Board
of Directors of Employer which are not inconsistent with the
provisions of this Agreement);
(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 Senior Management of Employer, substantially interferes
with Employee's performance of his duties hereunder;
(4) Substantial failure of performance by
Employee, other than a failure permitted pursuant to
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 under Section 6(a) or 6(b) above 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 Subsection 6(a) or 6(b) above). 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 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 his 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
EMPLOYMENT AGREEMENT - PAGE 5
<PAGE> 6
Period. If Employee terminates this Agreement with notice prior to
December 14, 1999, Employee shall be required to pay back, on a
pro-rata basis, the signing bonus set forth in Section 3(c) above.
(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 his 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 him 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. If Employee's employment
hereunder terminates because of the death or permanent disability of Employee,
all amounts that may be due to him under this Section 7 shall be paid to him or
his 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.
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 December 14, 1998 (with employee to be bound by
confidentiality and other provisions set forth in Section 5 herein to the extent
confidential information is provided to Employee prior to such date), and shall
remain in effect for one year 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
EMPLOYMENT AGREEMENT - PAGE 6
<PAGE> 7
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 law or equity of
competent jurisdiction for 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; provided, however, that in the event of the
merger or consolidation of Employer 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.
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. 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
1155 Kas Drive
Richardson, TX 75081
If to Employee: Michael Smith
2222 Kings Forest
Flower Mound, TX 75022
EMPLOYMENT AGREEMENT - PAGE 7
<PAGE> 8
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.
14. 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 his or its obligations specified herein or
reasonably implied from the terms hereof.
15. 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 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 HIS CONTACTS WITH THE STATE OF TEXAS
ARE SUBSTANTIAL AND CONTINUING, INCLUDING VISITS TO DALLAS FOR TRAINING, VARIOUS
ADMINISTRATIVE FUNCTIONS, ETC.
16. 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.
17. 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/ JANA AHLFINGER BELL
--------------------------------------------
JANA AHLFINGER BELL,
President and Chief Executive Officer
EMPLOYEE:
/S/ MICHAEL SMITH 11/30/98
------------------------------------------------
Michael Smith
EMPLOYMENT AGREEMENT - PAGE 8
<PAGE> 1
Exhibit 10.26
3 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
This AMENDED AND RESTATED STOCK OPTION AGREEMENT is entered into by and
between HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), and the undersigned employee of the Company's subsidiary,
HighwayMaster Corporation, (the "Optionee"). This AMENDED AND RESTATED STOCK
OPTION AGREEMENT amends, restates and replaces in its entirety the prior STOCK
OPTION AGREEMENT entered into between Optionee and the Company which has the
same Date of Grant set forth in Section 18(a) below.
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 3, the
exercise price payable by the Optionee upon exercise of this Option is set forth
in Section 17 hereof. This AMENDED AND RESTATED OPTION AGREEMENT has been
adjusted to reflect an amended stock option exercise price per share, as set
forth in Section 17 hereof.
3. Tax Status. This Option will be treated as an "incentive stock
option" within the meaning of Section 422 of the Code to the extent that any
portion of this Option meets the requirements of Section 422 of the Code. To the
extent that any portion of this Option does not meet such Code requirements,
this Option shall be deemed a nonqualified stock option.
<PAGE> 2
4. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, and
third anniversaries of the Date of Grant, Optionee may exercise (cumulatively)
rights to acquire one-third of the Common Stock subject to the Option.
5. Expiration of Option. This Option shall expire and cease to be
exercisable on the sixth anniversary of the Date of Grant or such earlier date
as may be specified in the Plan.
6. Termination of Affiliation.
(a) Subject to the following provisions of this Section 6 and
Article VI of the Plan, this Option may not be exercised unless at the
time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the Company
or a Subsidiary shall terminate for any reason other than death, and
other than Termination by Employer With Notice without cause as set
forth in Section 6(d) of that certain Employment Agreement entered into
between Optionee and a Subsidiary of the Company as of May 29, 1998
(the "Employment Agreement"), the Optionee may exercise this Option, to
the same extent it was exercisable on the date of such termination,
during the 60-day period following the effective date of such
termination. In no event may the Optionee exercise this Option later
than the date on which the Option would have expired under Section 5
hereof.
(c) If the Optionee's position as an Employee of the Company
or a Subsidiary shall terminate by reason of Termination by Employer
With Notice without cause as set forth in Section 6(d) of the
Employment Agreement, the options set forth in Section 17 of this
Agreement shall continue to vest as set forth in Section 4 of this
Agreement, and Optionee may exercise this Option for the duration of
the initial term of the Employment Agreement as set forth in Section 8
of the Employment Agreement, as if the Employee's employment not been
terminated until the last day of the initial term set forth in Section
8 of the Employment Agreement. In no event may the Optionee exercise
this Option later than the date on which the Option would have expired
under Section 5 hereof.
2
<PAGE> 3
(d) If the Optionee's position as an Employee of the Company
or a Subsidiary shall terminate by reason of the Optionee's death, the
executor or administrator of the Optionee's estate or the person to
whom this Option is transferred by will or the laws of descent or
distribution may exercise this Option with respect to any or all shares
covered by this Option within 60 days after the date of the Optionee's
death. In no event may the Optionee or her estate exercise this Option
later than the date on which the Option would have expired under
Section 5 hereof.
7. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating the
number of shares of Common Stock as to which the Option is being exercised and
accompanied by payment in full in cash or by certified check of the exercise
price for all such shares.
8. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
9. Continued Employment or Retention. Subject to the terms of any
employment agreement between the Company and the Optionee, nothing herein shall
confer upon the Optionee any right to be continued in the employ or retention of
the Company or a Subsidiary or shall prevent the Company or Subsidiary which
employs or retains the Optionee from terminating such employment in accordance
with the Employment Agreement.
10. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
3
<PAGE> 4
11. Interpretation. If and when questions arise from time to time as
to the intent, meaning or application of the provisions hereof or of the Plan,
such questions shall be decided by the Board of Directors or the Committee in
its sole discretion, and any such decision shall be conclusive and binding on
the Optionee. The Optionee hereby agrees that this Option is granted and
accepted subject to such condition and understanding.
12. Investment Representation. At such time or times as the Optionee
may exercise this Option, the Optionee shall, upon the request of the Company,
represent in writing (i) that the shares being acquired by the Optionee will not
be sold except pursuant to an effective registration statement, or applicable
exemption from registration, under the Securities Act of 1933, as amended, (ii)
that it is the Optionee's intention to acquire the shares being acquired for
investment only and not with a view to distribution thereof, and (iii) other
customary representations as the Company deems necessary or advisable. No shares
will be issued unless and until the Company is satisfied as to the accuracy of
such representations.
13. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to the
Optionee of Common Stock upon exercise of this Option.
14. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed certified mail (return receipt requested) or sent by overnight delivery
service, cable, telegram, facsimile transmission or telex to the Optionee at the
address on the signature page hereof and to the Company at the address set forth
below or at such other addresses as shall be specified by the parties by like
notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
4
<PAGE> 5
15. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
16. Confidentiality. Unless otherwise permitted by the Chairman of
the Board or the President of the Company, Optionee agrees to keep confidential
the terms of this Option Agreement (and the terms of any other Option Agreement
with any other employee of the Company known to Optionee) and shall not disclose
such terms to any other employee or otherwise.
17. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: MAY 29, 1998
b. Name of Optionee: JANA AHLFINGER BELL
c. Number of Shares Covered by Option: 70,000
d. Option Exercise Price Per Share: $1.19
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ J. RAYMOND BILBAO
---------------------------------------
Name: J. Raymond Bilbao
-------------------------------------
Title: General Counsel & Secretary
------------------------------------
/s/ JANA AHLFINGER BELL
------------------------------------------
JANA AHLFINGER BELL, Optionee
5
<PAGE> 1
Exhibit 10.27
3 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and the
undersigned employee of the Company's subsidiary, HighwayMaster Corporation,
(the "Optionee").
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth
below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 17 hereof. This AMENDED AND RESTATED OPTION AGREEMENT has
been adjusted to reflect an amended stock option exercise price per share, as
set forth in Section 17 hereof.
3. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code.
To the extent that any portion of this Option does not meet such Code
requirements, this Option shall be deemed a nonqualified stock option.
4. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, and
third anniversaries of the Date of Grant, Optionee may exercise (cumulatively)
rights to acquire one-third of the Common Stock subject to the Option.
<PAGE> 2
5. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
6. Termination of Affiliation.
(a) Subject to the following provisions of this Section 6
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, and other than Termination by Employer With Notice without
cause as set forth in Section 6(d) of that certain Employment
Agreement entered into between Optionee and a Subsidiary of the
Company as of May 29, 1998 (the "Employment Agreement"), the Optionee
may exercise this Option, to the same extent it was exercisable on the
date of such termination, during the 60-day period following the
effective date of such termination. In no event may the Optionee
exercise this Option later than the date on which the Option would
have expired under Section 5 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of Termination by
Employer With Notice without cause as set forth in Section 6(d) of the
Employment Agreement, the options set forth in Section 17 of this
Agreement shall continue to vest as set forth in Section 4 of this
Agreement, and Optionee may exercise this Option for the duration of
the initial term of the Employment Agreement as set forth in Section 8
of the Employment Agreement, as if the Employee's employment not been
terminated until the last day of the initial term set forth in Section
8 of the Employment Agreement. In no event may the Optionee exercise
this Option later than the date on which the Option would have expired
under Section 5 hereof.
2
<PAGE> 3
(d) If the Optionee's position as an Employee of the Company or a
Subsidiary shall terminate by reason of the Optionee's death, the
executor or administrator of the Optionee's estate or the person to
whom this Option is transferred by will or the laws of descent or
distribution may exercise this Option with respect to any or all
shares covered by this Option within 60 days after the date of the
Optionee's death. In no event may the Optionee or her estate exercise
this Option later than the date on which the Option would have expired
under Section 5 hereof.
7. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares.
8. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
9. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary or shall prevent the Company or
Subsidiary which employs or retains the Optionee from terminating such
employment in accordance with the Employment Agreement.
10. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
11. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the
Committee in its sole discretion, and any such decision shall be conclusive and
binding on the
3
<PAGE> 4
Optionee. The Optionee hereby agrees that this Option is granted and accepted
subject to such condition and understanding.
12. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the
Optionee will not be sold except pursuant to an effective registration
statement, or applicable exemption from registration, under the Securities Act
of 1933, as amended, (ii) that it is the Optionee's intention to acquire the
shares being acquired for investment only and not with a view to distribution
thereof, and (iii) other customary representations as the Company deems
necessary or advisable. No shares will be issued unless and until the Company
is satisfied as to the accuracy of such representations.
13. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to
the Optionee of Common Stock upon exercise of this Option.
14. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
15. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
16. Confidentiality. Unless otherwise permitted by the Chairman
of the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms
4
<PAGE> 5
of any other Option Agreement with any other employee of the Company known to
Optionee) and shall not disclose such terms to any other employee or otherwise.
17. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: AUGUST 12, 1998
b. Name of Optionee: JANA AHLFINGER BELL
c. Number of Shares Covered by Option: 400,000
d. Option Exercise Price Per Share: $1.00
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ J. Raymond Bilbao
-----------------------------------
Name: J. Raymond Bilbao
---------------------------------
Title: General Counsel & Secretary
--------------------------------
/s/ JANA AHLFINGER BELL
---------------------------------------
JANA AHLFINGER BELL, Optionee
5
<PAGE> 1
Exhibit 10.28
3 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and the
undersigned employee of the Company's subsidiary, HighwayMaster Corporation,
(the "Optionee").
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth
below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 17 hereof.
3. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code.
To the extent that any portion of this Option does not meet such Code
requirements, this Option shall be deemed a nonqualified stock option.
4. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, and
third anniversaries of the Date of Grant, Optionee may exercise (cumulatively)
rights to acquire one-third of the Common Stock subject to the Option.
<PAGE> 2
5. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
6. Termination of Affiliation.
(a) Subject to the following provisions of this Section 6
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, and other than Termination by Employer With Notice without
cause as set forth in Section 6(d) of that certain Employment
Agreement entered into between Optionee and a Subsidiary of the
Company as of May 29, 1998 (the "Employment Agreement"), the Optionee
may exercise this Option, to the same extent it was exercisable on the
date of such termination, during the 60-day period following the
effective date of such termination. In no event may the Optionee
exercise this Option later than the date on which the Option would
have expired under Section 5 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of Termination by
Employer With Notice without cause as set forth in Section 6(d) of the
Employment Agreement, the options set forth in Section 17 of this
Agreement shall continue to vest as set forth in Section 4 of this
Agreement, and Optionee may exercise this Option for the duration of
the initial term of the Employment Agreement as set forth in Section 8
of the Employment Agreement, as if the Employee's employment not been
terminated until the last day of the initial term set forth in Section
8 of the Employment Agreement. In no event may the Optionee exercise
this Option later than the date on which the Option would have expired
under Section 5 hereof.
2
<PAGE> 3
(d) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of the Optionee's
death, the executor or administrator of the Optionee's estate or the
person to whom this Option is transferred by will or the laws of
descent or distribution may exercise this Option with respect to any
or all shares covered by this Option within 60 days after the date of
the Optionee's death. In no event may the Optionee or her estate
exercise this Option later than the date on which the Option would
have expired under Section 5 hereof.
7. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares.
8. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
9. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary or shall prevent the Company or
Subsidiary which employs or retains the Optionee from terminating such
employment in accordance with the Employment Agreement.
10. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
11. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the
Committee in its sole discretion, and any such decision shall be conclusive and
binding on the
3
<PAGE> 4
Optionee. The Optionee hereby agrees that this Option is granted and accepted
subject to such condition and understanding.
12. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the
Optionee will not be sold except pursuant to an effective registration
statement, or applicable exemption from registration, under the Securities Act
of 1933, as amended, (ii) that it is the Optionee's intention to acquire the
shares being acquired for investment only and not with a view to distribution
thereof, and (iii) other customary representations as the Company deems
necessary or advisable. No shares will be issued unless and until the Company
is satisfied as to the accuracy of such representations.
13. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to
the Optionee of Common Stock upon exercise of this Option.
14. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
15. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
16. Confidentiality. Unless otherwise permitted by the Chairman
of the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms
4
<PAGE> 5
of any other Option Agreement with any other employee of the Company known to
Optionee) and shall not disclose such terms to any other employee or otherwise.
17. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: SEPTEMBER 18, 1998
b. Name of Optionee: JANA AHLFINGER BELL
c. Number of Shares Covered by Option: 30,000
d. Option Exercise Price Per Share: $1.00
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ J. RAYMOND BILBAO
--------------------------------
Name: J. Raymond Bilbao
-------------------------------
Title: General Counsel & Secretary
------------------------------
/s/ JANA AHLFINGER BELL
------------------------------------
JANA AHLFINGER BELL, Optionee
5
<PAGE> 1
Exhibit 10.29
4 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
This AMENDED AND RESTATED STOCK OPTION AGREEMENT is entered into by
and between HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), and the undersigned employee of the Company's subsidiary,
HighwayMaster Corporation, (the "Optionee"). This AMENDED AND RESTATED STOCK
OPTION AGREEMENT amends, restates and replaces in its entirety the prior STOCK
OPTION AGREEMENT entered into between Optionee and the Company which has the
same Date of Grant set forth in Section 18(a) below.
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth
below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 18 hereof.
3. Adjustments to Number of Shares and Option Price. This
AMENDED AND RESTATED OPTION AGREEMENT has been adjusted to reflect an amended
stock option exercise price per share, as set forth in Section 18 below. The
number of shares of Common Stock exercisable under this Option and exercise
price have also been adjusted to give effect to the purchase under that certain
Subscription Agreement dated February 4, 1994, by and among the Company and the
Purchasers listed therein by such
<PAGE> 2
Purchasers of an aggregate of 2,130.435 shares of Common Stock of the Company.
The number of shares and exercise price shall also be adjusted as provided in
Section 9.3 of the Plan.
4. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code.
To the extent that any portion of this Option does not meet such Code
requirements, this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, third
and fourth anniversaries of the Date of Grant, Optionee may exercise
(cumulatively) rights to acquire one-fifth of the Common Stock subject to the
Option.
6. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this Section 7
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, the Optionee may exercise this Option, to the same extent it
was exercisable on the date of such termination, during the 60-day
period following the date of such termination. In no event may the
Optionee exercise this Option later than the date on which the Option
would have expired under Section 6 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of the Optionee's
death, the executor or administrator of the Optionee's estate or the
person to whom this Option is transferred by will or the laws of
descent or distribution may exercise this Option with respect to any
or all shares covered by this Option within 60 days after the date of
the Optionee's death.
2
<PAGE> 3
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares.
9. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
10. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary or shall prevent the Company or
Subsidiary which employs or retains the Optionee from terminating such
employment at any time, with or without cause.
11. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
12. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the
Committee in its sole discretion, and any such decision shall be conclusive and
binding on the Optionee. The Optionee hereby agrees that this Option is
granted and accepted subject to such condition and understanding.
13. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the
Optionee will not be sold except pursuant to an effective registration
statement, or applicable exemption from registration, under the Securities Act
of 1933, as amended, (ii) that it is the Optionee's
3
<PAGE> 4
intention to acquire the shares being acquired for investment only and not with
a view to distribution thereof, and (iii) other customary representations as
the Company deems necessary or advisable. No shares will be issued unless and
until the Company is satisfied as to the accuracy of such representations.
14. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to
the Optionee of Common Stock upon exercise of this Option.
15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
16. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
17. Confidentiality. Unless otherwise permitted by the Chairman
of the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms of any other
Option Agreement with any other employee of the Company known to Optionee) and
shall not disclose such terms to any other employee or otherwise.
18. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: FEBRUARY 29, 1996
b. Name of Optionee: BILL MCCAUSLAND
4
<PAGE> 5
c. Adjusted Number of Shares Covered by Option: 30,000
d. Option Exercise Price Per Share: $1.19
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ Jana Bell
------------------------------
Name: Jana Bell
----------------------------
Title: President and CEO
---------------------------
/s/ WILLIAM H. MCCAUSLAND 12/22/98
------------------------------------------
BILL MCCAUSLAND, Optionee
5
<PAGE> 1
Exhibit 10.30
4 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and the
undersigned employee of the Company's subsidiary, HighwayMaster Corporation,
(the "Optionee").
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth
below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 18 hereof.
3. Adjustments to Number of Shares and Option Price. The number
of shares of Common Stock exercisable under this Option and exercise price have
been adjusted to give effect to the purchase under that certain Subscription
Agreement dated February 4, 1994, by and among the Company and the Purchasers
listed therein by such Purchasers of an aggregate of 2,130.435 shares of Common
Stock of the Company. The number of shares and exercise price shall also be
adjusted as provided in Section 9.3 of the Plan.
<PAGE> 2
4. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code.
To the extent that any portion of this Option does not meet such Code
requirements, this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, third
and fourth anniversaries of the Date of Grant, Optionee may exercise
(cumulatively) rights to acquire one-fifth of the Common Stock subject to the
Option.
6. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this Section 7
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, the Optionee may exercise this Option, to the same extent it
was exercisable on the date of such termination, during the 60-day
period following the date of such termination. In no event may the
Optionee exercise this Option later than the date on which the Option
would have expired under Section 6 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of the Optionee's
death, the executor or administrator of the Optionee's estate or the
person to whom this Option is transferred by will or the laws of
descent or
2
<PAGE> 3
distribution may exercise this Option with respect to any or all
shares covered by this Option within 60 days after the date of the
Optionee's death.
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating
the number of shares of Common Stock as to which the Option is being exercised
and accompanied by payment in full in cash or by certified check of the
exercise price for all such shares.
9. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
10. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary or shall prevent the Company or
Subsidiary which employs or retains the Optionee from terminating such
employment at any time, with or without cause.
11. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
12. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the
Committee in its sole discretion, and any such decision shall be conclusive and
binding on the Optionee. The Optionee hereby agrees that this Option is
granted and accepted subject to such condition and understanding.
3
<PAGE> 4
13. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the
Optionee will not be sold except pursuant to an effective registration
statement, or applicable exemption from registration, under the Securities Act
of 1933, as amended, (ii) that it is the Optionee's intention to acquire the
shares being acquired for investment only and not with a view to distribution
thereof, and (iii) other customary representations as the Company deems
necessary or advisable. No shares will be issued unless and until the Company
is satisfied as to the accuracy of such representations.
14. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to
the Optionee of Common Stock upon exercise of this Option.
15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, Texas 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
16. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
4
<PAGE> 5
17. Confidentiality. Unless otherwise permitted by the Chairman of
the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms of any
other Option Agreement with any other employee of the Company known to
Optionee) and shall not disclose such terms to any other employee or
otherwise.
18. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: SEPTEMBER 18, 1998
b. Name of Optionee: BILL MCCAUSLAND
c. Adjusted Number of Shares Covered by Option: 20,000
d. Option Exercise Price Per Share: $1.19
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ JANA BELL
----------------------------------
Name: Jana Bell
--------------------------------
Title: President and CEO
-------------------------------
/s/ WILLIAM H. MCCAUSLAND 12/22/98
--------------------------------------
BILL MCCAUSLAND, Optionee
5
<PAGE> 1
Exhibit 10.31
4 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
This AMENDED AND RESTATED STOCK OPTION AGREEMENT is entered into by and
between HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), and the undersigned employee of the Company's subsidiary,
HighwayMaster Corporation, (the "Optionee"). This AMENDED AND RESTATED STOCK
OPTION AGREEMENT amends, restates and replaces in its entirety the prior STOCK
OPTION AGREEMENT entered into between Optionee and the Company which has the
same Date of Grant set forth in Section 18(a) below.
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section
3, the exercise price payable by the Optionee upon exercise of this Option is
set forth in Section 18 hereof.
3. Adjustments to Number of Shares and Option Price. This
AMENDED AND RESTATED OPTION AGREEMENT has been adjusted to reflect an amended
stock option exercise price per share, as set forth in Section 18 below. The
number of shares of Common Stock exercisable under this Option and exercise
price have also been adjusted to give effect to the purchase under that certain
Subscription Agreement dated February 4, 1994, by and among the Company and the
Purchasers listed therein by such
<PAGE> 2
Purchasers of an aggregate of 2,130.435 shares of Common Stock of the Company.
The number of shares and exercise price shall also be adjusted as provided in
Section 9.3 of the Plan.
4. Tax Status. This Option will be treated as an "incentive
stock option" within the meaning of Section 422 of the Code to the extent that
any portion of this Option meets the requirements of Section 422 of the Code. To
the extent that any portion of this Option does not meet such Code requirements,
this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and
this Option Agreement, as of the Date of Grant and each of the first, second,
third and fourth anniversaries of the Date of Grant, Optionee may exercise
(cumulatively) rights to acquire one-fifth of the Common Stock subject to the
Option.
6. Expiration of Option. This Option shall expire and cease to
be exercisable on the sixth anniversary of the Date of Grant or such earlier
date as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this
Section 7 and Article VI of the Plan, this Option may not be exercised
unless at the time of exercise the Optionee is an Employee of the
Company or a Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, the Optionee may exercise this Option, to the same extent it was
exercisable on the date of such termination, during the 60-day period
following the date of such termination. In no event may the Optionee
exercise this Option later than the date on which the Option would have
expired under Section 6 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of the Optionee's
death, the executor or administrator of the Optionee's estate or the
person to whom this Option is transferred by will or the laws of
descent or distribution may exercise this Option with respect to any or
all shares covered by this Option within 60 days after the date of the
Optionee's death.
2
<PAGE> 3
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating the
number of shares of Common Stock as to which the Option is being exercised and
accompanied by payment in full in cash or by certified check of the exercise
price for all such shares.
9. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
10. Continued Employment or Retention. Subject to the terms of
any employment agreement between the Company and the Optionee, nothing herein
shall confer upon the Optionee any right to be continued in the employ or
retention of the Company or a Subsidiary or shall prevent the Company or
Subsidiary which employs or retains the Optionee from terminating such
employment at any time, with or without cause.
11. Rights as Shareholder. Nothing herein is intended to or
shall give to the Optionee any right or status of any kind as a stockholder of
the Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
12. Interpretation. If and when questions arise from time to
time as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the Committee
in its sole discretion, and any such decision shall be conclusive and binding on
the Optionee. The Optionee hereby agrees that this Option is granted and
accepted subject to such condition and understanding.
13. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the Optionee
will not be sold except pursuant to an effective registration statement, or
applicable exemption from registration, under the Securities Act of 1933, as
amended, (ii) that it is the Optionee's
3
<PAGE> 4
intention to acquire the shares being acquired for investment only and not with
a view to distribution thereof, and (iii) other customary representations as the
Company deems necessary or advisable. No shares will be issued unless and until
the Company is satisfied as to the accuracy of such representations.
14. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to the
Optionee of Common Stock upon exercise of this Option.
15. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
16. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
17. Confidentiality. Unless otherwise permitted by the
Chairman of the Board or the President of the Company, Optionee agrees to keep
confidential the terms of this Option Agreement (and the terms of any other
Option Agreement with any other employee of the Company known to Optionee) and
shall not disclose such terms to any other employee or otherwise.
18. Specified Information. This Option Agreement shall apply
with respect to the following specific information:
a. Date of Grant: APRIL 25, 1997
b. Name of Optionee: BOB LAMERE
4
<PAGE> 5
c. Adjusted Number of Shares Covered by Option: 30,000
d. Option Exercise Price Per Share: $1.19
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By:/S/ JANA BELL
---------------------------------
Name: Jana Bell
------------------------------
Title: President and CEO
-----------------------------
/S/ BOB LAMERE
------------------------------------
BOB LAMERE, Optionee
5
<PAGE> 1
Exhibit 10.32
4 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
This AMENDED AND RESTATED STOCK OPTION AGREEMENT is entered into by and
between HighwayMaster Communications, Inc., a Delaware corporation (the
"Company"), and the undersigned employee of the Company's subsidiary,
HighwayMaster Corporation, (the "Optionee"). This AMENDED AND RESTATED STOCK
OPTION AGREEMENT amends, restates and replaces in its entirety the prior STOCK
OPTION AGREEMENT entered into between Optionee and the Company which has the
same Date of Grant set forth in Section 18(a) below.
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 3,
the exercise price payable by the Optionee upon exercise of this Option is set
forth in Section 18 hereof.
3. Adjustments to Number of Shares and Option Price. This AMENDED
AND RESTATED OPTION AGREEMENT has been adjusted to reflect an amended stock
option exercise price per share, as set forth in Section 18 below. The number of
shares of Common Stock exercisable under this Option and exercise price have
also been adjusted to give effect to the purchase under that certain
Subscription Agreement dated February 4, 1994, by and among the Company and the
Purchasers listed therein by such
<PAGE> 2
Purchasers of an aggregate of 2,130.435 shares of Common Stock of the Company.
The number of shares and exercise price shall also be adjusted as provided in
Section 9.3 of the Plan.
4. Tax Status. This Option will be treated as an "incentive stock
option" within the meaning of Section 422 of the Code to the extent that any
portion of this Option meets the requirements of Section 422 of the Code. To the
extent that any portion of this Option does not meet such Code requirements,
this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, third
and fourth anniversaries of the Date of Grant, Optionee may exercise
(cumulatively) rights to acquire one-fifth of the Common Stock subject to the
Option.
6. Expiration of Option. This Option shall expire and cease to be
exercisable on the sixth anniversary of the Date of Grant or such earlier date
as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this Section 7
and Article VI of the Plan, this Option may not be exercised unless at
the time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate for any reason other than
death, the Optionee may exercise this Option, to the same extent it was
exercisable on the date of such termination, during the 60-day period
following the date of such termination. In no event may the Optionee
exercise this Option later than the date on which the Option would have
expired under Section 6 hereof.
(c) If the Optionee's position as an Employee of the
Company or a Subsidiary shall terminate by reason of the Optionee's
death, the executor or administrator of the Optionee's estate or the
person to whom this Option is transferred by will or the laws of
descent or distribution may exercise this Option with respect to any or
all shares covered by this Option within 60 days after the date of the
Optionee's death.
2
<PAGE> 3
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating the
number of shares of Common Stock as to which the Option is being exercised and
accompanied by payment in full in cash or by certified check of the exercise
price for all such shares.
9. Nontransferability of Option. This Option shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable only by the Optionee during his lifetime.
10. Continued Employment or Retention. Subject to the terms of any
employment agreement between the Company and the Optionee, nothing herein shall
confer upon the Optionee any right to be continued in the employ or retention of
the Company or a Subsidiary or shall prevent the Company or Subsidiary which
employs or retains the Optionee from terminating such employment at any time,
with or without cause.
11. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of
the Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
12. Interpretation. If and when questions arise from time to time
as to the intent, meaning or application of the provisions hereof or of the
Plan, such questions shall be decided by the Board of Directors or the Committee
in its sole discretion, and any such decision shall be conclusive and binding on
the Optionee. The Optionee hereby agrees that this Option is granted and
accepted subject to such condition and understanding.
13. Investment Representation. At such time or times as the
Optionee may exercise this Option, the Optionee shall, upon the request of the
Company, represent in writing (i) that the shares being acquired by the Optionee
will not be sold except pursuant to an effective registration statement, or
applicable exemption from registration, under the Securities Act of 1933, as
amended, (ii) that it is the Optionee's intention to acquire the shares being
acquired for investment only and not with a view to distribution thereof, and
(iii) other customary representations as the Company deems necessary or
advisable. No shares will be issued unless and until the Company is satisfied as
to the accuracy of such representations.
3
<PAGE> 4
14. Withholding of Taxes. Upon exercise of this Option (either
wholly or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to the
Optionee of Common Stock upon exercise of this Option.
15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the Optionee at the address on the signature page hereof and to the Company at
the address set forth below or at such other addresses as shall be specified by
the parties by like notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, TX 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
16. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
17. Confidentiality. Unless otherwise permitted by the Chairman of
the Board or the President of the Company, Optionee agrees to keep confidential
the terms of this Option Agreement (and the terms of any other Option Agreement
with any other employee of the Company known to Optionee) and shall not disclose
such terms to any other employee or otherwise.
18. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: JUNE 3, 1998
b. Name of Optionee: TODD A. FELKER
4
<PAGE> 5
c. Adjusted Number of Shares Covered by Option: 30,000
d. Option Exercise Price Per Share: $1.19
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By:/s/ JANA BELL
----------------------------------------
Name: Jana Bell
--------------------------------------
Title: President & CEO
-------------------------------------
/s/ TODD A. FELKER
-------------------------------------------
BILL MCCAUSLAND, Optionee
5
<PAGE> 1
Exhibit 10.33
4 YEAR VESTING
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and the
undersigned employee of the Company's subsidiary, HighwayMaster Corporation,
(the "Optionee").
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 18 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 18 hereof, subject to adjustment pursuant to
Section 3 hereof and subject to the Optionee's acceptance and agreement to all
of the terms and conditions and restrictions described in the HighwayMaster
Communications, Inc. (formerly known as HM Holding Corporation) 1994 Stock
Option Plan, as amended (the "Plan"), a copy of which has been provided to the
Optionee, and to the further terms, conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 3, the
exercise price payable by the Optionee upon exercise of this Option is set forth
in Section 18 hereof.
3. Adjustments to Number of Shares and Option Price. The number of
shares of Common Stock exercisable under this Option and exercise price have
been adjusted to give effect to the purchase under that certain Subscription
Agreement dated February 4, 1994, by and among the Company and the Purchasers
listed therein by such Purchasers of an aggregate of 2,130.435 shares of Common
Stock of the Company. The number of shares and exercise price shall also be
adjusted as provided in Section 9.3 of the Plan.
<PAGE> 2
4. Tax Status. This Option will be treated as an "incentive stock
option" within the meaning of Section 422 of the Code to the extent that any
portion of this Option meets the requirements of Section 422 of the Code. To the
extent that any portion of this Option does not meet such Code requirements,
this Option shall be deemed a nonqualified stock option.
5. Exercise of Option. Subject to the terms of the Plan and this
Option Agreement, as of the Date of Grant and each of the first, second, third
and fourth anniversaries of the Date of Grant, Optionee may exercise
(cumulatively) rights to acquire one-fifth of the Common Stock subject to the
Option. Notwithstanding the vesting schedule in the previous sentence, the
rights to purchase the Common Stock subject to the Opton OPTION will accelerate
and will vest the day immediately prior to the sale of more than 50% of the
common stock or assets of the Company, other than reorganizations performed
merely for administrative purposes.
6. Expiration of Option. This Option shall expire and cease to be
exercisable on the sixth anniversary of the Date of Grant or such earlier date
as may be specified in the Plan.
7. Termination of Affiliation.
(a) Subject to the following provisions of this Section 7 and
Article VI of the Plan, this Option may not be exercised unless at the
time of exercise the Optionee is an Employee of the Company or a
Subsidiary.
(b) If the Optionee's position as an Employee of the Company
or a Subsidiary shall terminate for any reason other than death, the
Optionee may exercise this Option, to the same extent it was
exercisable on the date of such termination, during the 60-day period
following the date of such termination. In no event may the Optionee
exercise this Option later than the date on which the Option would have
expired under Section 6 hereof.
2
<PAGE> 3
(c) If the Optionee's position as an Employee of the Company
or a Subsidiary shall terminate by reason of the Optionee's death, the
executor or administrator of the Optionee's estate or the person to
whom this Option is transferred by will or the laws of descent or
distribution may exercise this Option with respect to any or all shares
covered by this Option within 60 days after the date of the Optionee's
death.
8. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating the
number of shares of Common Stock as to which the Option is being exercised and
accompanied by payment in full in cash or by certified check of the exercise
price for all such shares.
9. Nontransferability of Option. This Option shall not be assignable
or transferable other than by will or the laws of descent and distribution and
shall be exercisable only by the Optionee during his lifetime.
10. Continued Employment or Retention. Subject to the terms of any
employment agreement between the Company and the Optionee, nothing herein shall
confer upon the Optionee any right to be continued in the employ or retention of
the Company or a Subsidiary or shall prevent the Company or Subsidiary which
employs or retains the Optionee from terminating such employment at any time,
with or without cause.
11. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
such shares shall have been delivered to the Optionee and registered in the
Optionee's name.
12. Interpretation. If and when questions arise from time to time as
to the intent, meaning or application of the provisions hereof or of the Plan,
such questions shall be decided by the Board
3
<PAGE> 4
of Directors or the Committee in its sole discretion, and any such decision
shall be conclusive and binding on the Optionee. The Optionee hereby agrees that
this Option is granted and accepted subject to such condition and understanding.
13. Investment Representation. At such time or times as the Optionee
may exercise this Option, the Optionee shall, upon the request of the Company,
represent in writing (i) that the shares being acquired by the Optionee will not
be sold except pursuant to an effective registration statement, or applicable
exemption from registration, under the Securities Act of 1933, as amended, (ii)
that it is the Optionee's intention to acquire the shares being acquired for
investment only and not with a view to distribution thereof, and (iii) other
customary representations as the Company deems necessary or advisable. No shares
will be issued unless and until the Company is satisfied as to the accuracy of
such representations.
14. Withholding of Taxes. Upon exercise of this Option (either wholly
or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind required to be withheld in connection with the issuance to the
Optionee of Common Stock upon exercise of this Option.
15. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed certified mail (return receipt requested) or sent by overnight delivery
service, cable, telegram, facsimile transmission or telex to the Optionee at the
address on the signature page hereof and to the Company at the address set forth
below or at such other addresses as shall be specified by the parties by like
notice:
HighwayMaster Communications, Inc.
1155 Kas Drive
Richardson, Texas 75081
Fax: (972) 301-2263
Attn: Secretary & General Counsel
4
<PAGE> 5
16. Defined Terms. All capitalized terms used herein and not
otherwise defined shall have the meanings given them in the Plan.
17. Confidentiality. Unless otherwise permitted by the Chairman of
the Board or the President of the Company, Optionee agrees to keep confidential
the terms of this Option Agreement (and the terms of any other Option Agreement
with any other employee of the Company known to Optionee) and shall not disclose
such terms to any other employee or otherwise.
18. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: NOVEMBER 24, 1998
b. Name of Optionee: MICHAEL SMITH
c. Adjusted Number of Shares Covered by Option: 125,000
d. Option Exercise Price Per Share: $1.56
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement to be
effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ JANA AHLFINGER BELL
-----------------------------------
Name: Jana Ahlfinger Bell
---------------------------------
Title: President & CEO
--------------------------------
/s/ MICHAEL SMITH 11/30/98
--------------------------------------
MICHAEL SMITH, Optionee
5
<PAGE> 1
Exhibit 10.34
HIGHWAYMASTER COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
This OPTION AGREEMENT is entered into by and between HighwayMaster
Communications, Inc., a Delaware corporation (the "Company"), and Terry Parker,
a member of the Board of Directors of the Company (the "Optionee"), regarding
stock of the Company.
RECITALS:
A. The Board of Directors of the Company has voted to offer to
Optionee a position on the Board of Directors of the Company, and Optionee has
accepted such offer;
B. The Board of Directors of the Company wishes to provide Optionee
with certain compensation in connection with his service on the Board of
Directors of the Company;
NOW, THEREFORE, in consideration of the premises and the benefits to be
derived from the mutual observance of the covenants and promises contained
herein and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee
effective as of the date set forth in Section 3 hereof (the "Date of Grant"),
the right and option (the "Option") to purchase up to the aggregate number of
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") set forth in Section 3 hereof, subject to adjustment pursuant to Section
4 hereof and subject to the Optionee's acceptance and agreement to the terms,
conditions and restrictions set forth below.
2. Exercise Price. Subject to adjustment pursuant to Section 4, the
exercise price payable by the Optionee upon exercise of this Option is set forth
in Section 3 hereof.
<PAGE> 2
3. Specified Information. This Option Agreement shall apply with
respect to the following specific information:
a. Date of Grant: April 4, 1995
b. Name of Optionee: Terry Parker
c. Number of Shares Covered by Option: 1.9477
d. Option Exercise Price Per Share: $14,785.71
4. Adjustments to Number of Shares and Option Price. The price to be
paid and the number of shares to be issued upon exercise of outstanding Options
shall be subject to adjustment by the Board of Directors of the Company, in its
sole discretion, to reflect any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
similar event.
5. Tax Status. This Option shall not be deemed to qualify as an
incentive option under Section 422 of the Internal Revenue Code of 1986.
6. Exercise of Option. Except as otherwise provided in this Option
Agreement, Optionee may exercise all or any portion of this Option at any time
and from time to time after the Date of Grant.
7. Expiration of Option. This Option shall expire and cease to be
exercisable on the sixth anniversary of the Date of Grant or such earlier date
as may be specified in this Option Agreement.
8. Termination of Affiliation.
(a) Subject to the following provisions of this Section 8, this
Option may not be exercised unless at the time of exercise the
Optionee is a member of the Board of Directors of the Company or a
Subsidiary.
2
<PAGE> 3
(b) If the Optionee's position as a member of the Board of
Directors of the Company or a Subsidiary shall terminate for any
reason other than death, the Optionee may exercise this Option, to the
same extent it was exercisable on the date of such termination, during
the 60-day period following the date of such termination. In no event
may the Optionee exercise this Option later than the date on which the
Option would have expired under Section 7 hereof.
(c) If the Optionee's position as a member of the Board of
Directors of the Company or a Subsidiary shall terminate by reason of
the Optionee's death, the executor or administrator of the Optionee's
estate or the person to whom this Option is transferred by will or the
laws of descent or distribution may exercise this Option with respect
to any or all shares covered by this Option within 60 days after the
date of the Optionee's death, but in no event may this Option be
exercised later than the date on which the Option would have expired
if the Optionee had lived. Such exercise of the Options shall only be
permitted 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.
9. Procedure to Exercise. This Option may be exercised only by
delivery of a written notice to the Company at its principal office, stating the
number of shares of Common Stock as to which the Option is being exercised and
accompanied by payment in full in cash or by certified check of the exercise
price for all such shares. This Option shall not 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.
3
<PAGE> 4
10. Nontransferability of Option. This Option shall not be assignable
or transferable other than by will or the laws of descent and distribution and
shall be exercisable only by the Optionee during his lifetime. No transfer of
this Option Agreement 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.
11. Restrictions Regarding Issuance of Stock Pending Registration. 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 this Option Agreement should become necessary or desirable, the
Board of Directors of the Company in its sole discretion may determine that
delivery of the certificates for such shares of Common Stock shall not be made
until the 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 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.
12. Investment Representation. At such time or times as the Optionee
may exercise this Option, the Optionee shall, upon the request of the Company,
represent in writing (i) that the shares being acquired by the Optionee will not
be sold except pursuant to an effective registration statement, or applicable
exemption from registration, under the Securities Act of 1933, as amended, (ii)
that it is the Optionee's intention to acquire the shares being acquired for
investment only and not with a view to distribution thereof, and (iii) other
customary representations as the Company deems necessary or
4
<PAGE> 5
advisable. No shares will be issued unless and until the Company is satisfied as
to the accuracy of such representations.
13. Restrictive Legends.
(a) Certificates representing shares of Common Stock delivered
pursuant to the exercise of this Option Agreement shall bear an
appropriate legend referring to the terms, conditions, and restrictions
described in this Option Agreement. Any attempt to dispose of any such
shares of Common Stock in contravention of the terms, conditions and
restrictions described in this Option Agreement 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
Optionee (or his 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 this Option Agreement, shall be subject to the terms and
conditions of this Option Agreement and bear the same legend as the
shares received pursuant to the exercise of this Option Agreement.
14. Continued Board Membership. Nothing herein shall confer upon the
Optionee any right to continued membership on the Board of Directors of the
Company or a Subsidiary or shall prevent the Company or Subsidiary which retains
the Optionee from terminating such relationship at any time, with or without
cause.
15. Rights as Shareholder. Nothing herein is intended to or shall
give to the Optionee any right or status of any kind as a stockholder of the
Company in respect of any shares of Common Stock covered by this Option or
entitle the Optionee to any dividends or distributions thereon unless and until
a share certificate representing such shares shall have been delivered to the
Optionee and
5
<PAGE> 6
registered in the Optionee's name. Upon the issuance and receipt of such
certificate or certificates, the 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 Option Agreement.
16. Merger or Reorganization of the Company. If the Company shall at
any time participate in a reorganization 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 Optionee written notice of such fact on or
before 15 days before such merger or consolidation, and this Option Agreement
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 consideration
(apart from the assumption of obligations) consisting primarily of securities
shall be deemed a merger or consolidation for the foregoing purposes.
17. 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 Board of Directors of
the Company, provided that not less than 15 days' prior written notice of the
date so fixed shall be given to Optionee, and the Optionee shall have the right,
during the 15-day period preceding such termination, to exercise his Option.
18. Interpretation. If and when questions arise from time to time as
to the intent, meaning or application of the provisions of this Option
Agreement, such questions shall be decided by the Board of Directors of the
Company in its sole discretion, and any such decision shall be conclusive
6
<PAGE> 7
and binding on the Optionee. The Optionee hereby agrees that this Option is
granted and accepted subject to such condition and understanding.
19. Withholding of Taxes. Upon exercise of this Option (either wholly
or in part), the Optionee must pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal, state or local
taxes of any kind which may be required to be withheld in connection with the
issuance to the Optionee of Common Stock upon exercise of this Option.
20. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed certified mail (return receipt requested) or sent by overnight delivery
service, cable, telegram, facsimile transmission or telex to the Optionee or the
Company at the address set forth below or at such other addresses as shall be
specified by the parties by like notice:
HighwayMaster Communications, Inc.
16479 Dallas Parkway
Suite 710
Dallas, Texas 75248
Fax: (214) 250-0182
Attn: William C. Kennedy, Jr.
Terry Parker
1730 BRIERCROFT COURT
CARROLLTON, TX 75006
21. Confidentiality. Unless otherwise permitted by the Chairman of
the Board or the President of the Company, Optionee agrees to keep confidential
the terms of this Option Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement
to be effective as of the Date of Grant set forth above.
HIGHWAYMASTER COMMUNICATIONS, INC.
By: /s/ WILLIAM C. KENNEDY, JR.
-------------------------------------
Name: William C. Kennedy, Jr.
-----------------------------------
Title: Chairman
----------------------------------
/s/ TERRY PARKER
----------------------------------------
Terry Parker, Optionee
7
<PAGE> 1
Exhibit 11
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1998 1997 1996
------------ -------------- ------------
<S> <C> <C> <C>
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item $(53,928,000) $ (31,047,000) $(29,743,000)
Accretion of Series B preferred stock -- -- (1,831,000)
------------ -------------- ------------
Loss before extraordinary item (53,928,000) (31,047,000) (31,574,000)
Extraordinary item 18,867,000 -- (317,000)
------------ -------------- ------------
Net loss applicable to common stockholders $(35,061,000) $ (31,047,000) $(31,891,000)
============ ============== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted average number of shares outstanding,
net of treasury shares 24,898,986 24,863,721 22,762,864
Additional weighted average shares for assumed exercise of
stock options, net of shares assumed to be repurchased
with exercise proceeds -- -- --
------------ -------------- ------------
Weighted average number of shares outstanding 24,898,986 24,863,721 22,762,864
============ ============== ============
NET LOSS PER COMMON SHARE APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item $ (2.17) $ (1.25) $ (1.31)
Accretion of Series B preferred stock -- -- (0.08)
------------ -------------- ------------
Loss before extraordinary item (2.17) (1.25) (1.39)
Extraordinary item 0.76 -- (0.01)
------------ -------------- ------------
Net loss per common share applicable to common stockholders $ (1.41) $ (1.25) $ (1.40)
============ ============== ============
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-2914) and on Form S-3 (No. 333-57281) of
HighwayMaster Communications, Inc. of our report dated February 16, 1999, except
as to Note 12, which is as of March 29, 1999 appearing on page F-1 of this
Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944400
<NAME> HIGHWAYMASTER COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 16,461
<SECURITIES> 9,708
<RECEIVABLES> 24,113
<ALLOWANCES> 9,528
<INVENTORY> 12,921
<CURRENT-ASSETS> 67,363
<PP&E> 30,851
<DEPRECIATION> 10,202
<TOTAL-ASSETS> 103,126
<CURRENT-LIABILITIES> 38,220
<BONDS> 91,697
0
0
<COMMON> 252
<OTHER-SE> (27,043)
<TOTAL-LIABILITY-AND-EQUITY> 103,126
<SALES> 16,832
<TOTAL-REVENUES> 63,295
<CGS> 12,991
<TOTAL-COSTS> 45,410
<OTHER-EXPENSES> 59,541
<LOSS-PROVISION> 6,650
<INTEREST-EXPENSE> 17,099
<INCOME-PRETAX> (53,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 18,867
<CHANGES> 0
<NET-INCOME> (35,061)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
