-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IKrz4h8sUJCGS98gOAKVcMYL0HXTjNqvVwLM7mewFlZBDafJWIU08DpntNXrQW6c DTqzwEcrGstXfOWQSpaL5g== 0000904454-00-000060.txt : 20000510 0000904454-00-000060.hdr.sgml : 20000510 ACCESSION NUMBER: 0000904454-00-000060 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELETRAC INC /DE CENTRAL INDEX KEY: 0001045419 STANDARD INDUSTRIAL CLASSIFICATION: 4812 IRS NUMBER: 481172403 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-35021 FILM NUMBER: 589464 BUSINESS ADDRESS: STREET 1: 2131 FARADAY AVE CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 7609312644 MAIL ADDRESS: STREET 1: 2131 FARADAY AVE CITY: CARLSBAD STATE: CA ZIP: 92008 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For transition period from to 333-35021 Commission file number TELETRAC, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 48-1172403 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3220 Executive Ridge Dr. #100 Vista, CA 92083 (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: 760-597-0510 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered ------------------- --------------------- None None Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate 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. |_| The Registrant has no publicly traded equity securities. As of December 31, 1999, Teletrac, Inc. had outstanding 10,000,000 shares of Common Stock, par value $0.01 per share. Documents Incorporated By Reference: None PART I Item 1. BUSINESS General As used in this Report, unless the context otherwise requires, the term "Company" refers to Teletrac, Inc. ("Teletrac"). This Report contains certain forward-looking statements covering the Company's objectives, planned or expected activities and anticipated financial performance. These forward-looking statements may generally be identified by words such as "expects", "anticipates", "believes", "plans", "should", "will", "may", "projects" (or variants of these words or phrases), or similar language indicating the expression of an opinion or view concerning the future with respect to the Company's financial position, results of operations, prospects or business. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein and those factors discussed in detail in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section of the Company's Registration Statement on Form S-1 (Registration Number 333-35017), as declared effective by the Securities and Exchange Commission on November 5, 1997 (the "Form S-1"). The Company is a leading provider of vehicle location and wireless data solutions to commercial fleet operators. The Company has developed an information services platform that enables customers to better manage their mobile workforce, provide security for their property and personnel and communicate more effectively with mobile workers. The Company utilizes various wireless data networks to provide vehicle location and data communications. The majority of the location and data traffic today for the Company is carried via the Company-developed proprietary land-based location and data communications technology. In addition, the Company has multiple customers utilizing the cellular digital packet data network (or "CDPD") coupled with global positioning (or "GPS") for location determination. The Company is also in the process of evaluating other data networks combined with GPS for other applications for commercial fleet operators. As of December 31, 1999, the Company maintained operations in 12 metropolitan markets: Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco, San Diego, Sacramento, Washington, D.C./Baltimore and New York. As of December 31, 1999, the Company served over 3000 commercial fleet accounts, more than any other provider of fleet vehicle location services, and had approximately 56,559 vehicle applications with commercial customers. In its Miami and Los Angeles markets, the Company also uses its proprietary location systems to provide vehicle location and stolen vehicle recovery services to consumers. As of December 31, 1999, the Company had approximately 6,792 consumer units in service. 2 The Company believes that there is substantial demand for cost-effective information services that offer both reliable location tracking and data communications in metropolitan areas. The Company's products can be used either alone or in conjunction with other communications technologies. The Company believes that the majority of its target customers' vehicles are currently equipped with wireless communications devices that do not provide automatic location features, such as two-way radio, specialized mobile radio ("SMR"), pagers and cellular devices. The Company's products and services allow commercial fleet operators to (i) increase driver productivity and fleet efficiency, (ii) improve customer service, (iii) limit unauthorized vehicle use, and (iv) reduce driver overtime. The Company's customers include metropolitan commercial fleets (such as trade service providers, delivery services, bus and taxi fleets, ambulance companies, telecommunications companies, utility companies, municipal government vehicles and law enforcement agencies) and long-haul trucking fleets when operating within metropolitan markets. The Company offers a range of fleet management solutions, depending on the customer's budget and location and messaging needs. All of these solutions involve the installation in each vehicle of a vehicle location unit ("VLU") or a "VLU+" in the case of a CDPD/GPS application. The VLU is a radio transceiver that receives and transmits signals used to determine a vehicle's location. In addition to the VLU, commercial fleet customers generally purchase software or location services from the Company. The Company's primary product for commercial fleets is Fleet Director Enterprise Edition(R), a proprietary software application that permits simultaneous location of all fleet vehicles on a real-time 24-hour-a-day basis through a digitized map displayed on the customer's dedicated personal computer or network server, which is connected to the Company's Network Control Center. Fleet Director Enterprise Edition (R) can be complemented with the Company's data communication units, which allow two-way messaging between the fleet dispatcher and drivers directly from the Fleet Director Enterprise Edition(R) screen. In its Miami and Los Angeles markets, the Company also uses its proprietary location systems to provide vehicle location and stolen vehicle recovery services to consumers. The Company's service locates and tracks stolen vehicles in real time and its equipment can be integrated with a vehicle's alarm system and/or ignition so that it is automatically activated if the vehicle is stolen. The Company's service also allows a subscriber to initiate vehicle location in other emergency or roadside assistance situations. The Company has continued providing consumer service as a legacy of the business acquired from AirTouch Teletrac but has not launched and does not intend to launch any new marketing efforts with respect to this service. Recent Developments On June 9, 1999 the Company filed for voluntary protection under Chapter 11 of the U.S. Bankruptcy Code. On September 15, 1999, the Company's Plan of Reorganization was confirmed by the United States Bankruptcy Court and it was effective on September 29, 1999 (the "Reorganization"). Pursuant to the Reorganization, certain indebtedness of the Company was discharged in exchange for cash, and/or new indebtedness, and/or new equity interests, certain indebtedness was reinstated, certain claims were settled, executory contracts and unexpired leases were assumed or rejected, certain prepetition claims were discharged, and the new members of the new Board of Directors of the Company 3 were designated. The Company distributed to creditors approximately $21.7 million in restricted cash, $0.2 million in unrestricted cash, $15.0 million 9% Senior Notes due September 30, 2004 (the "Senior Notes"), equity securities consisting of 10 million shares of new common stock and 800,000 warrants, each of which is convertible into one share of new common stock at an exercise price of $7.40 per share. In order to fund operations of the Company post Reorganization, the Company issued an aggregate of $3.0 million principal amount of 10% Senior Secured Notes due September 30, 2000 (the "Senior Secured Notes"). The Senior Secured Notes have quarterly interest payments and also have 3,000,000 detachable warrants, each of which is convertible into one share of new common stock at an exercise price of $0.05 per share. Commercial Fleet Management Target Markets The Company's commercial fleet services provide reliable, cost-effective location information, data communications and fleet management services in real time. The Company markets its fleet management products both to metropolitan fleets and long-haul trucking fleets, which may desire to optimize driver efficiency in metropolitan areas because of the impact on customer service and overall fleet productivity. The Company believes that metropolitan commercial fleets represent the largest market for its existing products. Many metropolitan commercial fleet operators have not employed location information or data communications because of the lack of cost-effective and reliable alternatives. Two-way voice services (such as cellular, SMR and two-way radio) cost significantly more to provide a similar level of location services and rely on the driver to report vehicle location. A significant number of metropolitan fleet vehicles utilize lower-cost one-way paging services, but such services lack both location tracking and two-way data communications. Management believes the Company's commercial fleet service generates demonstrable cost benefits and efficiency gains for metropolitan fleet customers. Due to the diversity of metropolitan commercial fleets, the Company's customer base ranges from independent plumbers with five or six vehicles to large municipal bus and ambulance fleets and national delivery companies. The Company's range of products allows it to provide a fleet management solution to meet each segment of this market. The Company primarily focuses it sales efforts at fleets of at least five vehicles, which it believes can be serviced more cost-effectively than smaller fleets. The Company believes that by utilizing alternative wireless data networks like CDPD, the Company will be able to attract nationwide customers with fleet operations in a number of metropolitan markets. Among the Company's current customers are Emery Air Freight, Inc., Brinks Incorporated (security transportation), Roto Rooter Corp., AT&T Cable Services., and department stores such as Target. Products and Services The Company offers its customers a range of fleet management, communications and security products. The Company relies on the installation of a VLU or VLU+ in each customer vehicle in order to provide vehicle location and data communication services. 4 Fleet Management. The Company's fleet management software products and services are designed to address the needs of key vertical markets within the metropolitan fleet marketplace. The vertical markets that the Company is focused on today include municipals, utilities, distribution, services, and on-demand transportation. These vertical markets share common characteristics and represent the best fit for the Company's current products and services. The Company emphasizes a solution approach with these vertical markets emphasizing integration where necessary to the customer's existing back office systems. Fleet Director Enterprise Edition(R) is a proprietary software application that provides fleet customers accurate fleet vehicle location through the customer's detailed digitized map of a metropolitan area displayed on the customer's dedicated personal computer or network server, which is connected to the Company's networks. Fleet Director Enterprise Edition(R) displays the position of all VLU-equipped vehicles at periodic intervals determined by the customer (typically every 15 minutes), at the time of each communication with a vehicle and otherwise as specified by the customer. Customers can adjust the level of map detail through a zoom in/zoom out feature, allowing a customer to simultaneously view the location of all fleet vehicles or to focus in on a single vehicle. Fleet operators can establish "zones of compliance" around their customers' locations, their drivers' homes, or other locations to detect whether vehicles enter or leave specific areas. Fleet Director Enterprise Edition(R) also produces reports that detail a driver's route and the time of each stop and provides documentation for customers who require verification of deliveries. Real-time location reports can also be saved on the customer's computer to be retrieved and reviewed on-screen or printed at a later time. Fleet Director Enterprise Edition(R) can also act as a platform from which the customer can use the Company's two-way communications products (discussed below) to send and receive messages to and from drivers. Customers can type messages directly to drivers from the computer on which Fleet Director Enterprise Edition(R) operates and send the messages to a single vehicle, several vehicles or the entire fleet. Communications. The Company offers two communication systems to its Fleet Director(R) customers. The Mobile Data Terminal ("MDT") is the Company's more advanced two-way messaging system. It allows for alphanumeric communications from the fleet operator to its drivers and up to thirty-five pre-programmed messages from the drivers to the fleet operator. The Status Messaging Terminal ("SMT") is a low-cost alternative to the MDT. The SMT allows for four pre-programmed messages which may be sent from the customer to the drivers and eight pre-programmed messages which may be sent from the drivers to the customer. The MDT and the SMT are both small terminals typically mounted on the fleet vehicle's dashboard and are connected to the VLU or VLU+. 5 Both the MDT and the SMT automatically provide customers with an electronic "receipt" when the message is received and therefore do not rely on drivers for vehicle locations or message delivery. As a result, the Company's system provides more reliable location information and messages than many competing technologies. The Company's communication applications generally have lower service costs than conventional real-time, two-way communication services, such as cellular, SMR and Enhanced Specialized Mobile Radio ("ESMR") services. Security Services. The Company offers its commercial fleet customers several vehicle security and driver safety options that operate through the Company's location networks. A VLU can be connected directly to a vehicle's alarm system, triggering the Company's security system when the alarm is set off, or connected to an alarm button either located in the vehicle or carried remotely by the driver. Customers with Fleet Director Enterprise Edition(R) may also establish a "zone of compliance" that activates the Company's security system when vehicles leave the zone. When the security system is activated, a signal is sent by the VLU to the Company's local network system which automatically alerts the customer through Fleet Director Enterprise Edition(R). If the customer does not respond, the Company will telephone the customer directly. If the customer believes that the vehicle has been stolen or a driver is in danger, the Company will work directly with the local law enforcement authorities to track the location of the vehicle in real-time. Many customers also attach VLUs directly to valuable cargo or to expensive equipment such as construction equipment. The Company believes it has developed excellent relations with local law enforcement officials due to the past performance of the Company's location system, and that such relations contribute to its ability to quickly recover stolen vehicles and equipment. Sales and Marketing; Customer Service The Company uses a direct sales force to sell its commercial vehicle location and fleet management services, and has a sales force located in each market where it operates. The Company's sales efforts rely on sales managers who supervise the sales activities of sales representatives, contact and negotiate with larger potential customers, and have authority to negotiate prices within defined parameters. Sales commissions generally are directly linked to the number of units a sales person sells. As of December 31, 1999, the Company's direct sales force consisted of approximately 40 employees. The Company's advertising and marketing efforts are generally directed to local and regional markets and its strategy has focused on print advertising in industry journals, direct mail, videos, telemarketing, industry trade shows and on-site marketing promotions and demonstrations. Consumer Vehicle Services The Company is currently focusing on its core business of commercial fleet management. As a legacy of the business acquired from AirTouch Teletrac in January 1996 (the "Acquisition"), the Company has continued to provide consumer service (now sold under the name Teletracer(TM)) and has allowed dealer arrangements in place at the time of the Acquisition to continue, but has not launched any new marketing efforts. 6 Target Market The demand for vehicle security products and services has grown as consumers have become increasingly concerned with vehicle theft. The consumer vehicle security industry encompasses a number of security products and services, including mechanical theft-prevention devices such as The Club(R), installed automated vehicle alarms and vehicle recovery services such as LoJack(R). The vehicle security industry has developed rapidly since the late 1970s, as motor vehicle theft increased dramatically. According to industry sources, in 1994, an estimated 22% of all new automobiles (or approximately 2.26 million new automobiles) and 62% of luxury vehicles purchased in the United States were equipped with an electronic car alarm. Vehicle theft and the demand for vehicle security are particularly high in the metropolitan centers and surrounding suburbs serviced by the Company. Products and Services The Company's proprietary location technology and VLU equipment can be used for consumer applications without modification. A VLU is installed in a consumer's vehicle and is generally connected to a security alarm and/or integrated with the vehicle's internal ignition system. By connecting the unit to a vehicle security alarm, vehicle recovery service can be initiated automatically. If the vehicle alarm is triggered, the unit emits an emergency locate signal, notifying the Company's regional control center of a potential vehicle theft. Each regional control center is staffed twenty-four hours a day, seven days a week with Company employees who contact local law enforcement authorities and direct them to the location of the stolen vehicle. The Company currently distributes its consumer product and services through auto dealers, electronic retailers and other distributors. The Company's ability to offer automated, reliable and real-time service differentiates its stolen vehicle recovery service from other available services. The VLU provides automatic vehicle tracking at the time of theft. This is in contrast to other vehicle recovery services, such as LoJack(R), that require a subscriber to report a vehicle stolen in order to begin the tracking process. 7 The Company also offers a proprietary telephone-operated mobile information service called OZZ(R). This service allows its subscribers telephone access to a computer that will locate a subscriber's vehicle in real-time and report its location for compliance, security and convenience purposes. The subscriber calls the Teletrac OZZ(R) telephone number, enters a personal identification number for the vehicle to be located and within seconds receives an automated voice response indicating the location of the vehicle at that time. In addition to providing the customer with the location of the vehicle, OZZ(R) is a "mobile yellow pages" that provides the customer the location of nearby prominent businesses or landmarks from a menu of choices. The customer can call OZZ(R) and obtain information such as the location of the nearest fast food restaurant, automatic teller machine, gas station, hospital, police station, or interstate on-ramp. Teletrac offers OZZ(R) to both consumer and commercial customers. The OZZ(R) service can also be used to remotely instruct the VLU to lock/unlock the doors of the vehicle. The firm that has contracted to provide roadside assistance service for the Company estimates that 25% of roadside assistance calls are for keys locked in the vehicle. All of the Company's consumer customers can also telephone the Company's call-in Roadside Assistance Program, through which the Company will have a tow truck sent to the caller's location. Under its Automated Roadside Assistance Program, offered to its customers at a higher monthly fee, the Company can direct a tow truck directly to a subscribing customer's location when the customer presses a roadside assistance button installed in his or her vehicle. Technology The Company utilizes various wireless data networks to provide vehicle location and data communications. The majority of the location and data traffic today for the Company is carried via the Company-developed proprietary land-based location and data communications technology. In addition, the Company has multiple customers utilizing CDPD coupled with GPS for location determination. The Company is also in the process of evaluating other data networks combined with GPS for other applications for commercial fleet operators. The Company has developed a proprietary, accurate and reliable spread spectrum-based wireless network architecture that provides for both location determination and two-way messaging. The Company's low-cost wireless network architecture permits cost-effective and accurate location and messaging services in metropolitan areas. The Company's networks use multilateration-based techniques and land-based receivers for position determination, avoiding the "line-of-sight" problems that may arise for satellite-based systems in urban areas where tall buildings can block a satellite's view of a vehicle. The Company believes that its land-based multilateration techniques are uniquely appropriate for precise location determination in urban settings and that it can accurately locate a vehicle equipped with its equipment in real-time within a range of less than one-half of an average city block (approximately 150 feet). 8 In order to locate a subscriber vehicle, the Company's local network broadcasts a "paging" transmission (the "Forward Link") simultaneously from each transmitter on the network. The Forward Link is used to transmit both location commands and alphanumeric messages to the VLU. Each subscriber's vehicle is equipped with a VLU, a videocassette-sized "transceiver" unit which responds to the location command of the Forward Link by emitting a response signal (the "Reverse Link"). The Reverse Link is received by at least four nearby base station units ("BSUs") which calculate both the time of transmission of the Forward Link and the time of arrival of the Reverse Link and relay this data, via wireline telephone networks, to the Network Control Center ("NCC"), the local network's data processing center. The NCC uses the Company's proprietary network software to calculate the location of the VLU from the information received by the BSUs. The NCC consists of the Company's radio-frequency control equipment, telecommunication access connection computers, proprietary software and the Company's customer database. The NCC instantaneously relays the location information to a subscriber's Fleet Director(R) software application or OZZ(R) call-in request (via automated response). The Company's customers can also use the Forward Link to transmit alphanumeric messages from their centralized dispatch office to their fleet vehicles and the Reverse Link to transmit more limited messages from vehicles to the centralized dispatch office. The network system can transmit alphanumeric messages at a transmission speed of 2,400 bits per second. At December 31, 1999, the Company maintained and operated its proprietary network in eight metropolitan markets: Los Angeles, Miami, Chicago, Detroit, Dallas, Houston, Orlando and San Diego. In New York and Washington, D.C./Baltimore, Ituran USA owns, operates and maintains the proprietary network and the Company pays Ituran USA a monthly fee for usage on their network for the Company's subscribers in those markets. At December 31, 1999, Ituran USA also notified the Company of its intention to elect its option to purchase the Miami and Orlando networks. In the same way as the New York and Washington transactions, the Company will pay Ituran USA a monthly fee for usage on those networks for the Company's subscribers. 9 In a number of customer vehicle applications, the Company utilizes CDPD coupled with GPS for location determination. The vehicle is equipped with a subscriber unit (the VLU+) that includes both a CDPD wireless data modem and a GPS receiver. The CDPD services are provided by certain cellular carriers who have built packet data capabilities onto their existing cellular networks. The Company currently has a nationwide reseller agreement with AT&T for CDPD services. The CDPD services are available in over 1000 cities and towns across the U.S. The Company also uses differential correction to enhance the accuracy of the location determination of the GPS receiver. For the VLU+ service offering, the Company also provides wireless data or messaging communications by combining SMT or MDT terminals with the VLU+. The messaging information is transmitted over the CDPD network and delivered to the customer in a similar fashion as with the Company's proprietary network. Network and Subscriber Equipment The Company terminated its agreements with Tadiran, its former supplier of VLUs in December 1998. The Company does not expect to purchase additional VLUs because inventory is expected to be sufficient to cover projected sales. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company has contracted with a San Diego-based manufacturer for VLU+s. The components of the VLU+ are generally off-the-shelf wireless components that are available commercially from a number of different manufacturers. The Company's network also includes a number of components that are used in the wireless messaging industry. The Company purchases standard transmitters from Glenayre Technologies, Inc. and Motorola, Inc. The transmitters, which are similar to transmitters used in one-way paging networks, transmit the Forward Link in a manner similar to a paging network. Much of the Company's communications equipment, its antennas and many other components of its networks are also available through a number of existing suppliers of wireless messaging equipment. 10 Competition The Company currently faces competition for each type of service it offers. The Company expects that in the future it will face competition from new technologies as well as from existing products. Certain of the Company's competitors are larger and have substantially greater financial and research and development resources and more extensive marketing and selling organizations than the Company. There can be no assurance that additional competitors will not enter markets that the Company already serves or plans to serve or that the Company will be able to withstand such competition. Moreover, changes in technology could lower the cost of competitive services to a level where the Company's services would become less competitive or where the Company would need to reduce its service prices in order to remain competitive, which could have a material adverse effect on the Company's business. Commercial Vehicle Market The Company knows of three basic classes of products that offer commercial location and messaging capabilities competitive with the Company's products: (i) GPS, private satellite and Loran-C systems, (ii) LMS systems and (iii) traditional wireless communication. GPS, Private Satellite and Loran-C Systems. GPS, certain private satellite networks and Loran-C can provide location information, and when paired with a communications system, may provide a system competitive with the Company's products. GPS systems receive signals from NAVSTAR satellites, U.S. government-funded satellites used for position location. GPS systems and certain private satellite systems use satellite ranging techniques to measure a GPS device's distance relative to a group of satellites in space. Typically, a GPS device must be in "sight" of several satellites to receive adequate transmission data for the determination of relative location on earth. The Loran-C system uses land-based transmitting stations to send a low-frequency radio signal which is used by a vehicle to calculate its position relative to the location of other Loran-C transmitters. Satellite and Loran-C systems are generally not as effective as LMS networks such as the Company's in metropolitan areas. Because GPS and other satellite services require "line of sight" to the orbiting satellite, dense metropolitan areas, parking garages, tunnels or other covered areas can impact the system's effectiveness and reliability. Loran-C systems also frequently have difficulty penetrating "metropolitan canyons" and therefore may provide inaccurate position readings in urban areas. In most GPS, private satellite and Loran-C vehicle location systems, vehicle-mounted equipment gathers location data and transmits it by a wireless communication system to a dispatch center. There are a number of wireless systems that can be linked to a satellite system or a Loran-C system to transmit location information to a dispatch center: 11 o Cellular and PCS Communication Systems- Cellular and PCS systems can provide local or nationwide networks to transmit location information to a dispatcher. However, cellular and PCS operators generally price their airtime at price levels that do not allow for frequent location information transmittals by vehicles equipped with GPS, private satellite or Loran-C systems to dispatchers on a cost-basis competitive with the Company. Most vehicle location systems that link a satellite or Loran-C location system with a cellular or PCS communication system, such as HighwayMaster, are best-suited for long-haul trucking fleets. In addition, in certain U.S. markets, some cellular operators have added a data service over their existing cellular infrastructure that can improve the cost and delivery of location information over existing cellular networks. The data service, called CDPD, is an overlay of a packet switched data service on a traditional cellular system. CDPD is available in approximately 80 metropolitan markets throughout the U.S., including all the markets, other than Los Angeles, in which the Company is currently operating or plans to operate. One company that is currently utilizing CDPD coupled with GPS to the metropolitan fleet market is @Road, a privately-held corporation based in Fremont, California. At year-end 1999, @Road had approximately 7,000 units installed. o SMR/ESMR- 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. Several SMR operators are constructing ESMR digital systems that offer mobile telephone services. Some SMR and ESMR providers are beginning to integrate GPS with their systems to determine location and transmit the location information back to the subscriber via the SMR or ESMR communications network. o Satellite-based Communications- Satellite-based communication is accomplished through transmission of a signal from a vehicle-based transmitter to a satellite, which automatically retransmits the signal to a dispatcher. Such systems provide seamless nationwide service for transmitting location information, but do not currently transmit location data at a cost competitive with the Company's system. Vehicle location products with satellite-based communications are currently offered by Orbcomm Global, L.P. and Qualcomm, Inc. o Dedicated Wireless Networks- ARDIS and RAM are dedicated wireless two-way data networks that also can be used to transmit location information through integration with GPS. ARDIS is owned by American Mobile Satellite Corporation and RAM is owned by a joint venture between RAM Broadcasting Corp. and BellSouth. Both wireless providers cover primarily metropolitan markets. ARDIS covers approximately the top 400 markets in the United States, and RAM reports coverage in approximately the top 100 markets (in both cases, including all the markets in which the Company currently operates or plans to operate). 12 LMS Systems. The Company knows of other companies that are developing competitive LMS location and messaging systems. Pinpoint Communications Inc., METS Inc./MobileVision, L.P. and Comtrak Inc. each have developed technologies that use LMS spectrum to provide both location information and messaging. Such alternative LMS systems are also land-based wireless systems suited for providing accurate and cost-effective service in metropolitan areas. Current LMS operators and prospective LMS operators may also benefit from an FCC auction of three frequency bands, including the band on which the Company's system operates, for LMS purposes. The Company believes that to date it is the only company that has established a commercially operational LMS network in the U.S. Traditional Wireless Communication. Many fleet managers use existing SMR, ESMR, two-way radio, cellular or paging systems to communicate with vehicles and obtain their location. Such systems are less reliable than the Company's products, however, because they rely exclusively on drivers to accurately identify their location. Consumer Vehicle Market LoJack(R). The Company's principal competitor to date in the consumer vehicle market has been LoJack(R). The LoJack(R) system is based on a VHF transponder (essentially a homing device) with a range of approximately two miles. The LoJack(R) vehicle recovery system requires a customer to report a stolen vehicle to LoJack(R) in order to initiate the location process. Once a stolen vehicle report is received, LoJack(R) personnel activate the transponder unit located in the stolen vehicle by transmitting a signal across the area in which the vehicle was stolen. Police equipped with LoJack(R) equipment track the signal from the stolen vehicle by the strength of the signal. The LoJack(R) system is not an automatic, real-time, screen-based tracking system, and it does not provide the service features of the Company's OZZ(R) and roadside assistance products. GPS/Cellular Systems. Several companies have begun to link GPS location technology with cellular communications to create emergency location systems for consumer vehicles. Carcop(R), Onstar(TM) and Lincoln Rescu(TM) all rely on this technology to provide emergency roadside assistance and/or stolen car recovery. Such systems, because they are based on GPS locating technology, can be less effective in metropolitan areas where most auto thefts occur. Theft Deterrents. A number of products are currently sold for vehicle theft deterrence. Consumer products range from The Club(R) to automatic alarm systems. While such systems do not provide the location information or range of services of the Company's consumer products, they are often available at a significantly lower cost. 13 Product Protection The Company currently has no material patents and generally seeks to protect its proprietary network software, software products and trade secrets by requiring that its consultants, employees and others with access to such software and trade secrets sign nondisclosure and confidentiality agreements. Management believes that these actions provide appropriate legal protection for the Company's intellectual property rights in its software and products. Furthermore, management believes that the competitive position of the Company depends primarily on the technical competence and creative ability of its personnel and that its business is not materially dependent on patents, copyright protection or trademarks. Regulation The construction, operation and acquisition of radio-based systems in the LMS industry in the U.S. are subject to regulation by the FCC under the Communications Act. Multilateration LMS is a service operating under new FCC rules. As such, the LMS rules have not been subject to any significant interpretation by the FCC in written decisions. As a pioneer in this new service, the Company may operate under rules with significant ambiguities. The application of largely uninterpreted rules in situations that the Company may encounter will present matters of first impression to the FCC's staff. The Company cannot predict how changes to or interpretations of these rules may affect its operations or its business plans. Construction and Operation of Grandfathered Systems The FCC adopted its initial rules for the LMS service in 1995. The FCC's LMS rules provide for the "grandfathering" of LMS systems, such as those of the Company, that were in operation or authorized as of February 3, 1995. LMS licenses granted prior to the 1995 rules, including those under which the Company operates its system, were granted for individual transmitter sites. The FCC's rules provide that future LMS licenses will be granted on a geographic basis and awarded through auctions. The FCC stopped accepting applications for new LMS facilities in 1995, pending its development of rules and procedures for auctioning the LMS spectrum. To maintain grandfathered status for its existing licenses, the Company was required, among other things, to complete its construction of licensed transmitter sites by January 1, 1997, to a level where each system would be capable of locating a vehicle. By December 31, 1996, the Company had constructed LMS systems capable of locating a vehicle in 26 markets, including the six markets in which the Company had systems that were in operation prior to 1995. The grandfathered authorizations issued to the Company allow the operation of multilateration LMS base stations at particular sites specified in the authorization, subject to a requirement that base stations may not be relocated to a site more than two kilometers from an initially authorized site. In a few instances, the Company has obtained waivers from the FCC to permit location of a transmitter site to a location more than two kilometers from the original site. In December 1998, the Company requested that the FCC cancel licenses in three markets. Current FCC rules do not provide for grandfathered LMS licensees like the Company to construct "fill-in" transmitters to service gaps in the service coverage area due to terrain obstructions. On December 18, 1997, however, the FCC granted the Company, at the Company's request, a waiver that permits the Company to obtain authorizations for new "fill-in" transmitters within the coverage area of its facilities. The Commission granted the Company's applications for "fill-in" transmitters in several markets. Under the terms of the waiver order, the Company may no longer submit applications for "fill-in" transmitters. 14 In July, 1998, the FCC adopted auction rules for the multilateration LMS service, and the auction began in February 1999, for 528 licenses representing three frequency blocks in 176 geographic LMS license areas which, in the aggregate, encompassed all of the United States. In the auction, four bidders acquired 289 of the licenses. No minimum bid was placed on the remaining licenses and they reamin unassigned. The Company did not bid for spectrum in the LMS auction. The Company understands that the FCC will expect cooperative arrangements for sharing between grandfathered licensees and the EA licensees resulting from the auction. The Company will be permitted to continue operating its grandfathered facilities in that EA, but it will be precluded from expanding its coverage area within such EA. Permissible Use Restrictions and Interconnection The FCC's rules do not contemplate that LMS be used for "general messaging purposes," but LMS systems may transmit status and instructional messages, either voice or non-voice, so long as they are related to the location or monitoring functions of the system. This restriction precludes an LMS licensee from offering messaging services other than as part of its location and monitoring services. Under the FCC's rules, LMS service may include location of non-vehicular traffic, so long as the primary operations involve location of vehicles. In addition, the FCC order requires that interconnection to the public switched telephone network be on a "store and forward" basis. This requirement limits the Company's ability to offer real-time voice communications services, except with respect to emergency communications. LMS customers may engage in delayed voice or data messaging over the telephone system. The FCC set a thirty-second delay as the "safe harbor" for store and forward interconnection but acknowledged that other approaches may also be acceptable depending upon the configuration of the system. Foreign Ownership The FCC has not declared whether multilateration LMS will be classified as a private mobile radio service (PMRS) or as a commercial mobile radio service (CMRS), but has proposed to classify LMS providers on a case-by-case basis. 15 If the Company's services were reclassified as CMRS rather than as PMRS, the Company, which holds its FCC authorizations through a wholly-owned subsidiary, Teletrac License, Inc., would be subject to the foreign ownership restrictions under the Communications Act that apply to the parent corporations of CMRS licensees. Under this restriction, non-U.S. persons would not be permitted to hold, directly or indirectly, in the aggregate, more than 25% of the ownership or 25% of the voting rights in the Company, absent a waiver or determination by the FCC that a higher level of foreign ownership would be in the public interest. Although the Company is controlled by U.S. citizens, non-U.S. persons currently hold slightly more than 25% of the ownership of the Company. If the FCC were to reclassify its multilateration LMS as CMRS at a time when the Company's level of foreign ownership or foreign voting rights exceeded 25%, the Company would be required to obtain a public interest determination from the FCC approving its level of foreign ownership or to restructure its ownership to meet the 25% benchmark. World Trade Organization ("WTO") agreements and the FCC's implementing rules are intended to open additional opportunities for foreign investments by WTO member countries in U.S. entities that control CMRS licenses. The FCC's implementation of the WTO agreements would require the Company, if its services were classified as CMRS and its foreign ownership exceeded the benchmark to obtain a public interest determination from the FCC. Technical Requirements Multilateration LMS systems must use equipment that is "type-accepted" by the FCC. Under the type-acceptance procedure, the FCC confirms that the model of equipment proposed for use in a particular radio service conforms to the technical requirements for the service as specified in the FCC's rules. All equipment used by the Company that is required to be type-accepted has been type-accepted. Multilateration LMS systems operate on frequencies that have been allocated to LMS by the FCC on a secondary basis. This means that LMS operations cannot cause interference to, and may be required to accept interference from, users of those same or adjacent frequencies in the industrial, scientific, and medical radio service and in the Federal government's radio location service. In addition, under Part 15 of the FCC's rules, certain unlicensed radio devices (such as spread spectrum devices used for local area networks) operate on the same or adjacent frequencies as LMS systems. Although multilateration LMS systems generally have priority in the use of their frequencies over such Part 15 devices, the FCC's rules provide a "safe harbor" for the operation of Part 15 devices in LMS spectrum. If a Part 15 device is operated in a manner that satisfies those safe harbor requirements (which were designed to avoid or minimize the risk of interference to LMS services), an LMS system that 16 nonetheless suffers interference from such a Part 15 device may have no recourse other than to negotiate with the Part 15 user on methods for eliminating or reducing the interference. In addition, as a condition of the LMS license, the FCC has stated that operators of new LMS systems must perform testing to demonstrate that the system does not cause unacceptable interference to Part 15 devices. To date, the FCC has specifically declined to specify the nature of such testing and how they might be used to determine whether the multilateration LMS system is causing unacceptable interference to Part 15 devices. The FCC has indicated that the purpose of the testing is to ensure that multilateration LMS licensees take efforts to minimize interference to existing Part 15 devices when designing and constructing their systems; Part 15 devices remain secondary to multilateration LMS operations. Current FCC Applications and Proceedings The Company may have various site-specific applications pending before the FCC from time to time in the ordinary course of business and in connection with the sale of its Miami and Orlando networks and associated FCC licenses to Ituran USA. Other Proceedings. Other proceedings pending from time to time at the FCC may affect the business and operations of the Company, including but not limited to, (i) changes in spectrum allotments and usage restrictions that may permit the operation of terrestrial location-related services in other bands; (ii) changes in FCC rules and policies governing interconnection with the switched telephone network; (iii) rule making proceedings to develop the rules and policies that will govern the auction of the LMS spectrum; (iv) changes in the general licensing rules and policies of the FCC affecting LMS applications; and (v) changes in FCC regulatory policies generally governing the land mobile communication services. The Company cannot predict when the FCC will act on any of these matters or what effect such action may have on its business. Employees At December 31, 1999, the Company had approximately 230 employees. Substantially all of the Company's employees are full-time. The Company's employees are not unionized and the Company believes that its relations with its employees are good. Item 2. DESCRIPTION OF PROPERTIES As of December 31, 1999, the Company had approximately 295 site and tower leases for the operation of its transmitters and other equipment on commercial broadcast towers and at other fixed sites. The Company believes that in general the terms of its leases are competitive based on market conditions. The Company believes its facilities are suitable and adequate for its purposes. The Company relocates its transmission and receiver sites from time to time and does not anticipate any material problems in obtaining and retaining site and tower leases in the future. 17 Item 3. LEGAL PROCEEDINGS Prior to the acquisition of AirTouch Teletrac, PacTel Teletrac (predecessor to AirTouch Teletrac) brought an action before the United States Patent and Trademark Trial and Appeal Board against T.A.B. Systems ("TAB") opposing TAB's registration of the mark "Teletrak." The Trademark Trial and Appeal Board granted PacTel Teletrac's motion for summary judgment, but summary judgment was reversed by the U.S. Court of Appeals for the Federal Circuit. TAB then filed an infringement action against PacTel Teletrac, the Company and other parties in the U.S. District Court for the Central District of California. On December 22, 1997, the District Court granted summary judgment in favor of the Company. This decision has been appealed by TAB to the U.S. Court of Appeals for the Ninth Circuit. Such an appeal was pending as of the date the Company filed its bankruptcy petition. The Bankruptcy Court has issued an order permitting the Ninth Circuit appeal to proceed. Under the terms of the Asset Purchase Agreement between AirTouch Teletrac and the Company, AirTouch Teletrac must pay the costs of any litigation relating to this matter and must indemnify the Company against any losses relating thereto. AirTouch Teletrac has notified the Company that it intends to continue to litigate this matter on its own behalf as well as on behalf of the Company, and that it will bear the cost of such litigation. There can be no assurance that AirTouch Teletrac will be successful in such litigation or that AirTouch Teletrac will honor its indemnification obligations (including any costs or losses relating to a change of name, if required as a result of the litigation). The Company is engaged in litigation in Bankruptcy Court with Milgo Solutions f/k/a Raycal-Datacom, Inc. ("Milgo") and Newcourt Leasing, Inc. ("Newcourt"), regarding certain telecommunications equipment which the Company believes it purchased from Milgo. Milgo and Newcourt have asserted that the Company did not purchase this equipment, and allege that the Company holds same pursuant to one or more leases. In the event Milgo and Newcourt prevail in this litigation, the Company may be obligated for the full, remaining amounts due on account of these purported leases, which are asserted to exceed $2.1 million, rather than for the amounts payable to these parties under the Company's confirmed Plan of Reorganization. Discovery has commenced with respect to this matter, but has not yet been concluded. The Company is also a defendant in an American Arbitration Association proceeding brought by Star Trac, Inc. ("Star Trac") on or about February 23, 2000. Star Trac asserts that the Company breached the dealer agreement between the parties and seeks actual and puntive damages. The Company denies the claims asserted by Star Trac and believes that these claims were discharged by the bankruptcy proceeding and are therefore without merit. The Company intends to defend vigorously against these claims. The Company is from time to time subject to claims and suits arising in the ordinary course of business. The Company is not currently a party to any proceeding which, in management's opinion, is likely to have a material adverse effect on the Company's business. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 18 PART II Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS There is no established trading market for the Company's Common Stock. The Company has not paid any cash dividends to the holders of its equity securities. The ability of the Company to pay dividends is restricted by the Indenture dated September 29, 1999 between the Company and HSBC Bank USA, as Trustee, which governs the 9% Senior Notes due September 30, 2004. Item 6. SELECTED FINANCIAL DATA Set forth below are selected historical financial data of the Company and its predecessors. Certain of such historical financial and operating data have been derived from the audited consolidated financial statements of the Company and its predecessors as of and for the periods noted. The data contained in the following table should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Company's and its predecessors' audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. On September 29, 1999, the Company's Plan of Reorganization was declared effective (the "Reorganization"). For the three months ended December 31, 1999, the Company has adopted Fresh Start Accounting in accordance with the AICPA's Statement of Position No. 90-7 ("SOP 90-7"). As a result all financial statements presented for periods prior to September 29, 1999 are reflected as those of the predecesor company. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Consolidated Financial Statements". 19
Predecessor The Company ----------------------------------------------------------- ----------- Nine Three Months Months Twelve Months Ended Ended Ended ----------------------------------------------------------- ----------- 12/31/95(1) 12/31/96(2) 12/31/97 12/31/98 9/30/99 12/31/99 (In thousands) (In thousands) Statement of Operations Data: Revenues ...................... $ 13,244 $ 15,957 $ 24,821 $ 28,615 $ 25,337 $ 7,570 Operating Expenses: Cost of revenues ............ 4,323 7,031 11,660 13,469 7,186 2,162 Selling, general and administrative .............. 23,674 20,186 35,373 40,842 21,690 5,813 Refrequencing costs(3) ...... 5,936 1,340 1,110 390 -- -- Restructuring charge ........ -- -- -- 19,668 -- -- Depreciation and amortization 4,458 1,254 2,679 5,781 4,341 328 Asset impairment(4) ......... 10,967 -- -- -- -- -- -------- -------- -------- ------- -------- -------- Total operating expenses ...... 49,358 29,811 50,822 80,150 33,217 8,303 -------- -------- -------- -------- -------- -------- Operating Loss ................ (36,114) (13,854) (26,001) (51,535) (7,880) (733) Interest Expense ............ (21,239) (109) (6,374) (14,501) (7,735) (900) Other ....................... (27) 171 2,620 2,616 913 27 Reorganization Costs(5) -- -- -- -- (1,322) -- Gain on Debt Discharge/Reorg.(5) -- -- -- -- 123,775 -- -------- -------- -------- ------- -------- -------- Net Income (Loss).............. $(57,380) $(13,792) $(29,755) $(63,420) $ 107,751 $ (1,606) ======== ======== ======== ======== ======== ======== Predecessor The Company --------------------------------------------------------------------- ------------ December 31, December 31, December 31, December 31, September 30, December 31, 1995 1996 1997 1998 1999 1999 (In thousands) (In thousands) Balance Sheet Data: Cash and cash equiva- lents ............. $ -- $ 27,639 $ 41,481 $ 5,954 $ 3,119 $ 1,270 Restricted cash and investments ........ -- 1,256 36,692 22,023 -- -- Total assets ....... 11,137 53,713 132,362 77,397 24,899 22,873 Long-term debt ..... 226,101 1,615 100,326 101,215 15,426 15,426 Preferred stock .............. -- 33,340 38,920 54,068 -- -- Stockholders' equity (deficit) ... $(241,418) $ 7,111 $ (20,556) $ (89,932) $ 2,363 $ 757
- - ------------ (1) Represents financial and operating data of AirTouch Teletrac for the period January 1, 1995 through December 28, 1995, the date on which AirTouch Teletrac was dissolved. (2) The Company acquired the assets of AirTouch Teletrac on January 17, 1996, the effective date of the Acquisition. From December 29, 1995 to January 16, 1996, the business was operated by AirTouch Services, successor to AirTouch Teletrac. The results of operations of AirTouch Services for such period were not material and are not included herein. 20 (3) Refrequencing costs are certain costs accrued in connection with the conversion of vehicle location units to a new frequency band plan mandated by the FCC. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business-Regulation-Frequency Conversion." (4) Asset impairment for 1995 resulted from the Acquisition, in which the assets of AirTouch Teletrac were sold for approximately $11.0 million less than the historical book value of such assets recorded by AirTouch Teletrac. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." (5) Pursuant to the Reorganization, certain indebtedness of the Company was discharged in exchange for cash, and/or new indebtedness, and/or new equity interests and certain indebtedness was reinstated. See Note 3 to the Consolidated Financial Statements for further discussion of the Reorganization. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW The Company is a leading national provider of vehicle location and fleet management services in metropolitan areas. The Company currently groups its operations primarily into two divisions: commercial fleet management and consumer vehicle services. The commercial fleet management division provides products and services that allow fleet operators to increase driver productivity, improve customer service, limit unauthorized vehicle use, and reduce driver overtime. The consumer vehicle services division provides real-time stolen vehicle recovery, vehicle location, and roadside assistance. Management's Discussion and Analysis of Financial Condition and Results of Operations contain statements regarding matters that are not historical facts, but rather are forward-looking statements. These statements are based on current financial and economic conditions and current expectations and involve risk and uncertainties. The Company's actual results may differ materially from the results discussed in forward-looking statements. There can be no assurance that the Company's future operations will generate operating or net income. Factors that might cause such a difference include, but are not limited to, the "Risk Factors" set forth in the Company's Registration Statement on Form S-1. On September 15, 1999, the Company's Plan of Reorganization was confirmed by the United States Bankruptcy Court and it was effective on September 29, 1999 (the "Reorganization"). As a result of the Reorganization, the recording of the restructuring transaction and the implementation of Fresh Start Accounting, the Company's results of operations after September 30, 1999 (the cutoff date used for financial reporting purposes) are not comparable to results reported in prior periods. The twelve-month information provided below for the year 1999 does not comply with SOP 90-7 requirements for companies upon emergence from bankruptcy, which requirements call for separate reporting for the newly reorganized company and the predecessor company. To facilitate a meaningful comparison of the Company's year-to-date operating performance in fiscal years 1999 and 1998, the following discussion of results of operations on a consolidated basis is presented on a traditional comparative basis for all periods. 21 TWELVE MONTHS ENDED 12/31/99 12/31/98 12/31/97 Proforma OPERATING REVENUES: Service revenue $21,296,671 $ 18,028,832 $12,924,261 Equipment revenue 8,531,404 10,585,835 11,896,861 Other revenue 3,078,667 - - ---------- ------------ ----------- Total operating revenues 32,906,742 28,614,667 24,821,122 OPERATING EXPENSES: Cost of service revenue 3,208,951 4,206,939 2,839,292 Cost of equipment revenue 6,138,824 9,261,564 8,820,791 Selling, general and administrative 21,480,659 30,217,327 24,630,448 Engineering 6,013,065 9,105,332 7,367,702 Research & development costs 9,574 1,519,613 3,374,247 Refrequency costs - 390,000 1,110,166 Restructuring charge & other - 19,667,557 - Depreciation and amortization 4,668,644 5,781,103 2,679,243 ----------- ------------ ------------ LOSS FROM OPERATIONS (8,612,975) (51,534,768) (26,000,767) OTHER EXPENSE (INCOME): Interest expense 8,635,018 14,501,454 6,373,706 Interest and other income (939,838) (2,616,394) (2,619,409) ----------- ------------ ------------ LOSS BEFORE REORGANIZATION (16,308,155) (63,419,828) (29,755,064) REORGANIZATION COSTS 1,321,746 - - GAIN ON DEBT DISCHARGE/REORGANIZATION 123,774,589 - - ----------- ------------ ------------ NET INCOME (LOSS) BEFORE INCOME TAXES 106,144,688 (63,419,828) (29,755,064) PROVISION FOR INCOME TAXES - - - ----------- ------------ ------------ NET INCOME (LOSS) $106,144,688 $(63,419,828) $(29,755,064) =========== ============ =========== PREFERRED DIVIDENDS $ 4,145,596 $ 5,839,674 $ 4,950,000 ----------- ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $101,999,092 $(69,259,502) $(34,705,064) ============ ============= ============ 22 RESULTS OF OPERATIONS In 1999, the Company elected to change the recording of "units" which represented a separate count for a VLU and a messaging unit to "vehicle applications" which combines any messaging units and the VLU. As such, comparisons to 1999 are reflected using vehicle applications. This change did not impact the Company's financial accounting. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998. OPERATING REVENUES. Total operating revenues for 1999 were $32.9 million, compared to $28.6 million in 1998, an increase of 15%. Service revenues, which include revenues from both sold units and rental units, increased to $21.3 million in 1999 from $18.0 million in 1998, an increase of 18%. The average commercial service revenue per vehicle application increased to $30.95 in December 1999 from $24.99 in December 1998 as a result of an increase in both ancillary services and monthly airtime rates. Equipment revenues decreased to $8.5 million for the year ended December 31, 1999 from $10.6 million for the year ended December 31, 1998, principally due to lower gross sales over the period. Gross commercial sales (installations) decreased to 13,561 vehicle applications for the year ended December 31, 1999 from 20,600 vehicle applications for year ended December 31, 1998 due to fewer sales personnel. Average equipment revenue per vehicle application increased to $629.11 for 1999 from $513.88 for 1998 mostly due to a reduction in discounting. Equipment rental revenues, which are included in total equipment revenues, increased to approximately $826,000 for the twelve months ended December 31, 1999 from $573,000 for the twelve months ended December 31, 1998. COST OF SERVICE REVENUES. Cost of service revenues includes the direct cost of providing service (network telephone, billing, roadside assistance and bad debt expense). Cost of service revenues decreased to $3.2 million for the twelve months ended December 31, 1999 from $4.2 million for the twelve months ended December 31, 1998. The reduction is a reflection of the sale of the New York and Washington D.C./Baltimore networks to Ituran USA and the shutting down of the San Francisco/Sacramento network. COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the direct cost of equipment provided to customers, installation and other direct ancillary equipment. Cost of equipment revenues decreased to $6.1 million for the twelve months ended December 31, 1999 from $9.3 million for the twelve months ended December 31, 1998. Cost of equipment revenues includes a one-time charge to write down inventory by approximately $1.1 million at the end of 1998. SELLING, GENERAL AND ADMINISTRATIVE, ENGINEERING, AND RESEARCH AND DEVELOPMENT EXPENSES. Selling, general and administrative, engineering, and research and development expenses decreased by $13.3 million, from $40.8 million for the twelve months ended December 31, 1998 to $27.5 million for the twelve months ended December 31, 1999. The Company reduced expenses through significant reductions in personnel along with the shutting down of the San Francisco/Sacramento network and sale of the New York and Washington D.C./Baltimore networks. The Company had virtually no research and development expense in 1999, compared with $1.5 million in 1998. 23 REFREQUENCY COSTS. Refrequency costs accrued for the twelve months ended December 31, 1998 was $0.4 million. The accrual reflects a change in estimate for the total refrequency liability. RESTRUCTURING CHARGE AND OTHER. The Company charged $19.7 million for the twelve months ended December 31, 1998. The charge was the result of management and organizational changes designed to improve profitability, increase customer focus, and decrease customer cancellations by becoming technologically neutral. The Company no longer plans to open new markets using its proprietary RF networks and has written-down assets and the costs of deinstalling those assets amounting to $17.3 million. The Company has terminated its agreement with its VLU supplier and was subject to a penalty and write-off totaling $1.4 million of VLU's that are not on the correct frequency. The Company cancelled its revolving credit agreement and expensed the deferred costs of $0.8 million. The Company also expensed deferred costs of $0.2 million for certain RF related projects. DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased for the twelve months ended December 31, 1999 to $4.7 million from $5.8 million for the twelve months ended December 31, 1998, primarily due to depreciation on fewer assets due to the sale of the New York and Washington D.C. networks to Ituran USA and the shutting down of the San Francisco/Sacramento network as well as lower costs bases resulting from Fresh Start Accounting beginning on October 1, 1999. OPERATING LOSSES. Operating losses incurred by the Company were $8.6 million for the twelve months ended December 31, 1999, as compared to $51.5 million for the twelve months ended December 31, 1998, for the reasons discussed above. INTEREST EXPENSE. Interest expense was $8.6 million for the twelve months ended December 31, 1999, compared to $14.5 million for the twelve months ended December 31, 1998. The decrease relates to the cancellation of the Predecessor Company's old senior note as part of the Reorganization as well as reduced interest expense on the new debt instruments. REORGANIZATION COSTS. Reorganization costs were $1.3 million for the twelve months ended December 31, 1999. These costs are mainly professional fees paid to effect the Reorganization. GAIN ON DEBT DISCHARGE/REORGANIZATION. The gain on debt discharge and reorganization was $123.8 million for the twelve months ended December 31, 1999. See Note 3 to the Consolidated Financial Statements for a description of the gain. NET INCOME (LOSS). For the reasons discussed above there was net income of $105.6 million for the twelve months ended December 31, 1999, compared to a net loss of $63.4 million for twelve months ended December 31, 1998. TAX BENEFIT. No tax benefit has been recognized for any period due to the uncertainty of net operating loss carry-forward utilization. 24 Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. OPERATING REVENUES. Total operating revenues for 1998 were $28.6 million, compared to $24.8 million in 1997, an increase of 15%. Service revenues, which include revenues from both sold units and rental units, increased to $18.0 million in 1998 from $12.9 million in 1997, an increase of 40%, primarily due to an increase in the number of commercial units in service, to 88,652 at December 31, 1998 from 65,930 at December 31, 1997. Also, the average commercial service revenue per unit increased to $17.56 in December 1998 from $17.26 in December 1997 as a result of an increase in both ancillary services and monthly airtime rates. Equipment revenues decreased to $10.6 million for the year ended December 31, 1998 from $11.9 million for the year ended December 31, 1997, principally due to the introduction of the Company's rental program in the first quarter of 1998. Gross commercial sales (installations) increased to 36,010 units for the year ended December 31, 1998 from 30,579 units for year ended December 31, 1997. COST OF SERVICE REVENUES. Cost of service revenues includes the direct cost of providing service (network telephone, billing, roadside assistance and bad debt expense). Cost of service revenues increased to $4.2 million for the twelve months ended December 31, 1998 from $2.8 million for the twelve months ended December 31, 1997. Cost of service revenues increased primarily in network telephone costs from new market build-out. COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the direct cost of equipment provided to customers, installation and other direct ancillary equipment. Cost of equipment revenues increased to $9.3 million for the twelve months ended December 31, 1998 from $8.8 million for the twelve months ended December 31, 1997. Cost of equipment revenues decreased primarily as a result of the Company's rental program and a one-time charge to write down inventory by approximately $1.1 million at the end of 1998. SELLING, GENERAL AND ADMINISTRATIVE, ENGINEERING, AND RESEARCH AND DEVELOPMENT EXPENSES. Selling, general and administrative, engineering, and research and development expenses increased by $5.4 million, to $40.8 million for the twelve months ended December 31, 1998 from $35.4 million for the twelve months ended December 31, 1997 related to the Company's expansion. The Company expensed $1.5 million in the twelve months ended December 31, 1998 relating to research and development, compared with $3.4 million in 1997. 25 REFREQUENCY COSTS. Refrequency costs accrued for the twelve months ended December 31, 1998 was $0.4 million, compared to $1.1 million in 1997. The accrual, reflects a change in estimate for the total refrequency liability. RESTRUCTURING CHARGE AND OTHER. The Company charged $19.7 million for the twelve months ended December 31, 1998. The charge was the result of management and organizational changes designed to improve profitability, increase customer focus, and decrease customer cancellations by becoming technologically neutral. The Company no longer plans to open new markets using its proprietary RF networks and has written-down assets and the costs of deinstalling those assets amounting to $17.3 million. The Company has terminated its agreement with its VLU supplier and was subject to a penalty and write-off of VLU's that are not on the correct frequency totaling $1.4 million. The Company cancelled its revolving credit agreement and expensed the deferred costs of $0.8 million. The Company also expensed deferred costs of $0.2 million for certain RF related projects. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased for the twelve months ended December 31, 1998 to $5.8 million from $2.7 million for the twelve months ended December 31, 1997, primarily due to depreciation on additional assets related to the new market build-out and additional infrastructure in existing markets. OPERATING LOSSES. Operating losses incurred by the Company were $51.5 million for the twelve months ended December 31, 1998, as compared to $26.0 million for the twelve months ended December 31, 1997, for the reasons discussed above. INTEREST EXPENSE. Interest expense was $14.5 million for the twelve months ended December 31, 1998 compared to $6.4 million for the twelve months ended December 31, 1997, and primarily relates to the senior notes. NET LOSS. For the reasons discussed above net loss increased to $63.4 million for twelve months ended December 31, 1998 from $29.8 million for twelve months ended December 31, 1997. TAX BENEFIT. No tax benefit has been recognized for any period due to the uncertainty of net operating loss carry-forward utilization. LIQUIDITY AND CAPITAL RESOURCES Capital expenditures were $2.2 million for the twelve months ended December 31, 1999, primarily for the development of the Company's internal software and database platforms. The Company currently expects that its aggregate capital expenditures will be less than $2.0 million for 2000. These capital expenditures will consist primarily of costs associated with internal software development, the maintenance of existing markets, and other capital improvements. The Company, as part of the Reorganization, granted an option to Ituran USA to purchase the networks in Miami and Orlando. The option was exercised by Ituran USA and that transaction is expected to close in April 2000. The proceeds from the sale will be approximately $4.0 million. 26 As a result of the Reorganization, the Company has outstanding an aggregate of $15,000,000 Senior Notes with a 9% interest rate due September 30, 2004 (the "Senior Notes"). The Senior Notes have a deferred interest election provision whereby the Company may elect to pay interest by the issuance of Deferred Interest Notes with a 12% interest rate due September 30, 2004. The Company has also issued an aggregate of $3,000,000 Senior Secured Notes with a 10% interest rate due September 30, 2000 (the "Senior Secured Notes"). The Company plans to repay the Senior Secured Notes with the proceeds of the sale of the Miami and Orlando networks to Ituran USA. The Company believes, based on its business plan, that it has sufficient capital in both the short and long-term to meet its business objectives, using both the available cash and the Company's positive working capital position. However, there is no assurance that the Company will not need additional capital in the future. YEAR 2000 COMPLIANCE AND EXPENDITURES The Company's program to address the Year 2000 issue consisted of assessing, testing and implementing any changes as necessary. The Company did not suffer any system or Year 2000 problems, nor has the Company been affected to date by any third party relationships. The Company did not incur any significant changes to its results of operations from increased costs. The Company was not effected by any significant changes in the Company's customers buying patterns and has not seen an increase in returns in year 2000. We can provide no assurance that all supplier and customer Year 2000 compliance plans were successfully completed. We are not aware of any problems with any of our suppliers, customers or third-party providers that would negatively impact our operations or adversely affect our business. INFLATION The Company believes that to date inflation has not had a material effect on its results of operations. Although inflation may in the future effect the cost of VLU and messaging units sold by the Company, the Company expects that technology and engineering improvements are likely to offset any foreseeable cost increases. 27 FASB PRONOUNCEMENTS See "Recent Accounting Pronouncements" in Note 2 to the Consolidated Financial Statements. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company does not hold any market risk sensitive instruments for trading or other purposes. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements listed in the accompanying Index to Consolidated Financial Statements which appear elsewhere in this Annual Report. Information required by the schedules called for under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 28 TELETRAC, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.....................................30 Consolidated Balance Sheets as of December 31, 1999 and 1998....................................................................31 Consolidated Statements of Operations for the three months ended December 31, 1999, nine months ended September 30, 1999 and the years ended December 31, 1998 and 1997.............................33 Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended December 31, 1999, nine months ended September 30, 1999 and the years ended December 31, 1998 and 1997.............................34 Consolidated Statements of Cash Flows for the three months ended December 31, 1999, nine months ended September 30, 1999 and the years ended December 31, 1998 and 1997.............................35 Notes to Consolidated Financial Statements...................................36 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Teletrac, Inc.: We have audited the accompanying consolidated balance sheets of Teletrac, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the three months ended December 31, 1999, the nine months ended September 30, 1999, and the years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully described in Note 3 to the consolidated financial statements, effective September 29, 1999, the Company emerged from protection under Chapter 11 of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed by the Bankruptcy Court on September 15, 1999. In accordance with AICPA Statement of Position 90-7, the Company adopted Fresh Start Accounting whereby its assets, liabilities and new capital structure were adjusted to reflect estimated fair values as of September 30, 1999. As a result, the consolidated financial statements for the periods subsequent to September 30, 1999 reflect the Successor Company's new basis of accounting and are not comparable to the Predecessor Company's pre-reorganization consolidated financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Teletrac, Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the three months ended December 31, 1999, the nine months ended September 30, 1999, and the years ended December 31, 1998 and 1997, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP San Diego, California March 20, 2000 30 TELETRAC, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
NEW COMPANY PREDECESSOR DECEMBER 31, DECEMBER 31, ASSETS 1999 1998 -------------- --------------- CURRENT ASSETS: Cash and cash equivalents $ 1,270,065 $ 5,953,505 Accounts receivable, less allowances of $1,874,717 and $983,154 2,752,173 4,608,619 at 1999 and 1998, respectively Inventories 4,411,507 8,319,016 Prepaid expenses and other 936,691 1,483,843 Short-term portion of restricted investments - 6,125,000 -------------- --------------- Total current assets 9,370,436 26,489,983 -------------- --------------- RESTRICTED INVESTMENTS, HELD TO MATURITY - 22,023,208 PROPERTY AND EQUIPMENT, net 7,740,758 19,135,386 INVENTORIES, LONG-TERM 2,977,650 3,435,700 LICENSES AND OTHER, net of accumulated amortization of $4,830 and $468,141 at 1999 and 1998, respectively 380,190 6,312,294 ACCOUNTS RECEIVABLE-EQUIPMENT LEASING 2,404,249 - -------------- --------------- Total assets $ 22,873,283 $ 77,396,571 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable - trade $1,009,529 $1,505,499 Accrued expenses 2,562,014 3,103,998 Current portion of long-term obligations 3,118,733 1,246,999 Accrued interest - 6,125,000 Refrequency liability - 64,469 -------------- ---------------- Total current liabilities $ 6,690,276 $ 12,045,965 LONG-TERM OBLIGATIONS 15,425,695 101,215,414 -------------- ---------------- Total liabilities 22,115,971 113,261,379 -------------- ---------------- 31 REDEEMABLE PREFERRED STOCK: Preferred Stock, Series A redeemable cumulative, 15% dividend, 190,477 shares authorized and 190,476.19 shares issued and outstanding - 44,033,500 Preferred Stock, Series A-1 undesignated, 190,477 shares authorized, none issued or outstanding - - Preferred Stock, Series B redeemable, 400,000 shares authorized and 132,506 shares issued and outstanding - 10,034,181 -------------- ---------------- Total redeemable preferred stock - 54,067,681 -------------- ---------------- STOCKHOLDERS' EQUITY (DEFICIT): Common stock, Class A, $.01 par value, 507,934 shares authorized and 249,000 issued and outstanding - 2,490 Common stock, Class B, $.01 par value, 70,000 shares authorized and none issued or outstanding - - Common stock, $.01 par value, 20,000,000 shares authorized and 10,000,000 shares issued and outstanding 100,000 - Warrants, 3,800,000 warrants to purchase 3,800,000 shares of common stock; 468,000 7,039,954 Additional paid-in capital 1,795,512 10,775,955 Accumulated deficit (from 1999 for the Reorganized Company) (1,606,200) (107,750,888) -------------- ---------------- Total stockholders' equity (deficit) 757,312 (89,932,489) -------------- ---------------- Total liabilities and stockholders' equity (deficit) $ 22,873,283 $ 77,396,571 ============== ================
The accompanying notes are an integral part of these consolidated financial statements. 32 TELETRAC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NEW COMPANY PREDECESSOR ----------------- ----------------- ------------- -------------- 12/31/99 9/30/99 12/31/98 12/31/97 ----------------- ----------------- ------------- -------------- OPERATING REVENUES: Service revenue $ 5,556,162 $ 15,740,509 $ 18,028,832 $12,924,261 Equipment revenue 1,713,900 6,817,504 10,585,835 11,896,861 Other revenue 300,000 2,778,667 - - ----------------- ---------------- ------------- -------------- Total operating revenues 7,570,062 25,336,680 28,614,667 24,821,122 OPERATING EXPENSES: Cost of service revenue 672,312 2,536,639 4,206,939 2,839,292 Cost of equipment revenue 1,489,765 4,649,059 9,261,564 8,820,791 Selling, general and administrative 4,554,442 16,926,217 30,217,327 24,630,448 Engineering 1,251,785 4,761,280 9,105,332 7,367,702 Research & development costs 7,233 2,341 1,519,613 3,374,247 Refrequency costs - - 390,000 1,110,166 Restructuring charge & other - - 19,667,557 - Depreciation and amortization 327,513 4,341,131 5,781,103 2,679,243 ----------------- ---------------- ------------- -------------- LOSS FROM OPERATIONS (732,988) (7,879,987) (51,534,768) (26,000,767) OTHER EXPENSE (INCOME): Interest expense 900,141 7,734,877 14,501,454 6,373,706 Interest and other income (26,929) (912,909) (2,616,394) (2,619,409) ----------------- ---------------- ------------- -------------- LOSS BEFORE REORGANIZATION (1,606,200) (14,701,955) (63,419,828) (29,755,064) REORGANIZATION COSTS - 1,321,746 - - GAIN ON DEBT DISCHARGE/REORGANIZATION - 123,774,589 - - ----------------- ---------------- ------------- -------------- NET INCOME (LOSS) BEFORE INCOME TAXES (1,606,200) 107,750,888 (63,419,828) (29,755,064) PROVISION FOR INCOME TAXES - - - - ----------------- ---------------- ------------- -------------- NET INCOME (LOSS) $(1,606,200) $107,750,888 $(63,419,828) $(29,755,064) ================= ================ ============= ============== PREFERRED DIVIDENDS - 4,145,596 5,839,674 4,950,000 ----------------- ---------------- ------------- -------------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $(1,606,200) $103,605,292 $(69,259,502) $(34,705,064) ================= ================ ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. 33 TELETRAC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Additional Retained Class A Class B Par $.01 Warrants Paid-In Capital (Deficit) Total -------- ------- -------- --------- --------------- ----------- ----------- BALANCE, December 31, 1996 $ 2,490 $ - $ - $- $ 21,684,094 $ (14,575,996) $ 7,110,588 Push down of warrant proceeds related to senior debt - - - 7,039,954 - - 7,039,954 Cost of issuance of preferred stock, Series A - - - - (1,438) - (1,438) Net loss - - - - (29,755,064) (29,755,064) Preferred stock dividends - - - - (4,950,000) - (4,950,000) -------- -------- -------- --------- ------------- ------------ ----------- BALANCE, December 31, 1997 2,490 - - 7,039,954 16,732,656 (44,331,060) (20,555,960) Cost of issuance of preferred stock, Series B - - - - (117,027) - (117,027) Net loss (63,419,828) (63,419,828) Preferred stock dividends - - - - (5,839,674) - (5,839,674) -------- -------- -------- --------- ------------- ------------ ----------- BALANCE, December 31, 1998 2,490 - - 7,039,954 10,775,955 (107,750,888) (89,932,489) Net income - - - - - 107,750,888 107,750,888 Preferred stock dividends (4,145,596) - (4,145,596) Gain on debt discharge (2,490) - - (7,039,954) (6,630,359) - (13,672,803) Issuance of common stock $.01 par - - 100,000 - 1,795,512 - 1,895,512 Issuance of warrants - - - 468,000 - - 468,000 -------- -------- -------- --------- ------------- ------------ ----------- BALANCE, September 30, 1999 - - 100,000 468,000 1,795,512 - 2,363,512 Net loss - - - - - (1,606,200) (1,606,200) -------- -------- -------- --------- ------------- ------------ ----------- BALANCE, December 31, 1999 $ - $ - $ 100,000 $ 468,000 $ 1,795,512 $ (1,606,200) $ 757,312 ======== ======== ======== ========= ============= ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 34 TELETRAC, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NEW COMPANY PREDECESSOR -------------------- ----------------------------------------------- DECEMBER 31, 1999 9/30/99 12/31/98 12/31/97 -------------------- ----------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $(1,606,200) $107,750,888 $(63,419,828) $(29,755,064) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 327,513 4,341,131 5,781,103 2,679,243 Accretion of discount on senior notes - 196,853 192,399 293,331 (Gain)/Loss on assets disposed/sold - 0 128,699 - Accrued interest on warrants 468,000 - - - Loss on assets from restructuring - 0 19,667,557 - Gain on debt discharge - (123,774,589) - - Changes in assets and liabilities (1,069,499) 1,580,763 (3,499,728) (6,525,674) Refrequency liability - (58,184) (3,012,402) (4,157,287) Accrued interest on senior secured notes 337,500 - 204,167 5,920,833 -------------------- ---------------- -------------- -------------- Total adjustments 63,514 (117,714,026) 19,461,795 (1,789,554) -------------------- ---------------- -------------- -------------- Net cash used in operating activities (1,542,686) (9,963,138) (43,958,033) (31,544,618) -------------------- ---------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 5,254 10,500 - - Acquisition of property and equipment (247,260) (1,189,983) (12,013,902) (11,059,260) Acquisition of other intangible assets - (705,596) (1,095,690) (175,375) Acquisition of Airtouch Teletrac - - - (1,000,000) -------------------- ---------------- -------------- -------------- Net cash used in investing activities (242,006) (1,885,079) (13,109,592) (12,234,635) -------------------- ---------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of preferred stock, Series B, net - - 9,820,980 - Proceeds from issuance of senior notes - 3,000,000 - 100,090,976 Restricted investments - 6,503,863 12,715,006 (40,856,887) Credit facility - - (2,254) (962,268) Capital lease payments (63,887) (490,507) (993,339) (650,999) -------------------- ---------------- -------------- -------------- Net cash provided by (used in) financing activities (63,887) 9,013,356 21,540,393 57,620,822 -------------------- ---------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,848,579) (2,834,861) (35,527,232) 13,841,569 CASH AND CASH EQUIVALENTS, beginning of period 3,118,644 5,953,505 41,480,737 27,639,168 -------------------- ---------------- -------------- -------------- CASH AND CASH EQUIVALENTS, end of period $ 1,270,065 $ 3,118,644 $ 5,953,505 $ 41,480,737 ==================== ================ ============== ============== SUPPLEMENTAL DISCLOSURE: Interest paid $ 432,141 $ 6,509,877 $15,070,874 $ 229,650 Capital lease obligations entered into for equipment $ 74,755 $ 21,516 $ 2,210,210 $ 1,436,264
The accompanying notes are an integral part of these consolidated financial statements. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS: Teletrac, Inc., a Delaware corporation, through its wholly-owned subsidiary, Teletrac License, Inc. (collectively, the "Company"), controls licenses issued by the Federal Communications Commission (FCC) to construct and operate radio location networks for the purpose of locating, tracking and communicating with commercial fleet and consumer vehicles as a result of its acquisition of AirTouch Teletrac. As of December 31, 1999, the Company operated in twelve metropolitan markets: Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco, San Diego, Sacramento, Washington D.C./Baltimore and New York. The Company also uses its proprietary location systems to provide vehicle location and stolen vehicle recovery services to consumers in its Los Angeles and Miami markets. The networks consist primarily of antennas, transmission and receiving equipment, customer-owned vehicle locating units (VLUs) that receive and transmit signals, and operating centers that interpret and relay the transmissions. 2. ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company services the commercial market for use in fleet management and the consumer market for individual vehicle tracking. The commercial systems include VLUs, computer hardware, and vehicle tracking software. On January 1, 1997, the Company changed revenue recognition on sales of commercial systems from recognition upon shipment of the system to recognition of revenue upon installation of the system, which more appropriately matches customer acceptance and payment. The commercial service fee revenues are recognized monthly as the services are provided. The VLUs for the consumer market are sold along with monthly service contracts. Service revenues for the consumer market may be paid in advance and are recognized monthly as earned. Unearned service fees of approximately $87,000 and $93,000 in 1999 and 1998, respectively, are recorded as deferred revenue and are included in accrued expenses in the accompanying consolidated balance sheets. 36 Cash and Cash Equivalents The Company considers cash investments, which consist primarily of investments in commercial paper purchased with a maturity of three months or less to be cash and cash equivalents. The carrying amounts approximate fair value due to the short maturities of these instruments. Inventories Inventories consist of VLUs, computer systems and other receiving and transmitting equipment held for sale. Inventories are stated at the lower of cost or market using the first-in, first-out method of valuation. Inventories consist of the following at December 31, 1999 and 1998 (in thousands): 1999 1998 New Company Predecessor ----------- ----------- Vehicle location units $ 5,538 $ 8,178 Messaging units 945 1,921 Computers and software 328 208 Other inventory (net of reserve) 578 1,448 ------------ ----------- Total inventory 7,389 11,755 ------------ ----------- Less: long-term inventory 2,978 3,436 ------------ ----------- Current Portion $ 4,411 $ 8,319 ============ =========== In connection with a supply agreement with a vendor, the Company was required to purchase minimum quantities of VLU's. These purchase requirements resulted in inventory quantities which exceed the next year's anticipated demand. The Company does not have plans to alter its technology in its existing markets. Accordingly, quantities in excess of one year's anticipated demand have been classified as long-term inventory in the accompanying consolidated balance sheet. Property and Equipment The Company provides for depreciation expense using the straight-line method over five to seven years for all categories other than leasehold improvements, which are depreciated over 39 years. Property and equipment are recorded at cost. In accordance with Fresh Start Accounting, property and equipment were reflected at fair market values based on the equity valuation of the Company as of September 30, 1999. December 31 (In thousands) ----------------------------------- 1999 1998 New Company Predecessor ----------- ----------- System Equipment $5,803 $16,868 Automobiles 118 529 Furniture & Fixtures 667 2,439 Computer Equipment and Software 1,372 5,343 Leasehold Improvements 101 244 Construction in Progress 3 839 ----------- ----------- Total Property & Equipment 8,064 26,262 Accumulated Depreciation (323) (7,126) ----------- ----------- Net Property & Equipment $7,741 $19,136 =========== =========== 37 Maintenance and repair expenses are charged to operations as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. Other Assets Licenses represent a long-term intangible asset that allows FCC authorization to broadcast at designated frequencies. They are amortized using the straight-line method over 15 years. FCC license terms are for 5-year periods with unlimited options to renew for subsequent 5-year periods. These licences were revalued as part of Fresh Start Accounting. Long-Lived Assets The Company periodically evaluates the recoverability of its long-lived assets based on expected undiscounted cash flows and recognizes impairments, if any. Stock-Based Compensation The Company measures compensation expense for its stock-based employee and non-employee directors compensation plan using the intrinsic value method and provides pro forma disclosures of net loss as if the fair value method had been applied in measuring compensation expense. Income Taxes Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities applying tax regulations existing at the end of the reporting period. The Company has fully reserved its deferred tax asset, principally the net operating loss carry-forward generated as of December 31, 1999 and 1998. Recent Accounting Pronouncements In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 ("SFAS No. 137"), an amendment of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 137 is effective for fiscal years beginning after June 15, 2000. The Company does not believe the adoption of SFAS No. 137 will have a material effect on the Company's consolidated results of operations or financial condition. In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Management believes that their revenue recognition policies comply with the applicable provisions of SAB 101. 38 Fair Value of Financial Instruments Statement of Financial Accounting Standards No.107 ("SFAS No. 107"), "Disclosures about Fair Value of Financial Instruments" requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: the carrying amount reported on the balance sheet approximates the fair value for cash, short-term borrowings and current maturities of long-term obligations; and the fair value for the Company's fixed rate long-term obligations is estimated based on the current rates offered to the Company for obligations of the same remaining maturities. Based on the above, the amount reported on the balance sheet approximates the fair value. Reclassification Certain amounts previously reported in the 1998 financial statements have been reclassified to conform with the 1999 presentation. 3. FINANCIAL REORGANIZATION: On June 9, 1999 the Company filed for voluntary protection under Chapter 11 of the U.S. Bankruptcy Code. On September 15, 1999, the Company's Plan of Reorganization was confirmed by the United States Bankruptcy Court and it was effective on September 29, 1999 (the "Reorganization"). Pursuant to the Reorganization, certain indebtedness of the Company was discharged in exchange for cash, and/or new indebtedness, and/or new equity interests, certain indebtedness was reinstated, certain claims were settled, executory contracts and unexpired leases were assumed or rejected, certain prepetition claims were discharged, and the new members of the new Board of Directors of the Company were designated. The Company distributed to creditors approximately $21.6 million in restricted cash, $0.2 million in unrestricted cash, $15.0 million principal amount of its 9% Senior Notes due September 30, 2004 (the "Senior Notes"), equity securities consisting of 10 million shares of new common stock and 800,000 warrants, each of which is convertible into one share of new common stock at an exercise price of $7.40 per share. In order to fund operations of the Company post Reorganization, the Company issued an aggregate of $3.0 million principal amount of 10% Senior Secured Notes due September 30, 2000 (the "Senior Secured Notes"). The Senior Secured Notes have quarterly interest payments and also have 3,000,000 detachable warrants, each of which is convertible into one share of new common stock at an exercise price of $0.05 per share. These warrants have been valued at $468,000 and have been amortized to interest expense in the accompanying statement of operations. 39 The Company had completed network construction and expanded coverage from 7 to 12 metropolitan markets and has grown its customer base and the number of units in service from 54,430 to over 97,000. However, because of a lack of capital, the Company was unable to fund all of its continuing obligations. During the course of 1998 the Company's liquidity became increasingly tight. In October of 1998, some of the Company's existing investors invested an additional $10.0 million of capital in a second round of preferred equity. The $10.0 million was anticipated to be the first traunche of what was anticipated to be $20.0 million total financing. This brought the combined total of equity financing raised by the Company to approximately $68.0 million. The Company continued to attempt to raise the incremental $20.0 million and retained the services of Donaldson, Lufkin, Jenrette ("DLJ") to assist in the process. DLJ and the Company contacted a number of potential new investors including equity investors, senior debt investors, and potential merger and/or strategic partner candidates to determine interest in a possible transaction with the Company. DLJ and the Company were unsuccessful in this process. Consequently, in February of 1999, DLJ and the Company opened discussions with the holders of its $105.0 million in 14% Senior Secured Notes. The Company updated the Senior Note holders on the progress to date on the financing and solicited dialogue on options available to the Company and the willingness of the Senior Note holders to support the Company in those efforts. The bankruptcy process began June 9, 1999, when the Company filed a Prenegotiated Plan of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of the U.S. Bankruptcy Code. The Senior Note holders, equity holders, and Company management participated in drafting the Prenegotiated Plan of Reorganization. Upon emerging from bankruptcy, the Company's 14% Senior Secured Notes were cancelled. In addition, the Company's preferred stock, common stock, warrants, and stock options were cancelled. In connection therewith, the Company issued new debt and equity securities as mentioned above. The Company, as part of the Reorganization, granted an option to Ituran USA to purchase the networks in Miami and Orlando. The option was exercised by Ituran USA and that transaction is expected to close in April 2000. The proceeds from the sale will be approximately $4.0 million. 4. FRESH START ACCOUNTING: As of September 30, 1999, the Company adopted Fresh Start Accounting in accordance with AICPA Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Fresh Start Accounting resulted in material changes to the consolidated balance sheet, including valuation of assets, intangible assets, and liabilities at fair market value and valuation of equity based upon the appraised reorganization value of the ongoing business. The Company's reorganization equity value of $2.3 million was based on an equity valuation performed by an independent firm in accordance with standards established by the American Society of Appraisers and submitted to the court as part of the Plan of Reorganization. The equity valuation resulted in a lower value than the historical carrying value of the net assets. As such, the difference was applied as a reduction to the carrying values of long-term assets. 40 The following sets forth the results of Fresh Start Accounting:
Predecessor Reorganization and Fresh Start Reorganized Company Adjustments Company ------------------------------ September 30, 1999 Debit Credit September 30, 1999 ------------------ ----- ------ ------------------ ASSETS Total current assets $34,675,005 $ - $22,344,345 (a) $12,330,660 Property and equipment (net) 17,510,571 - 9,598,966 (b) 7,911,605 Long-term receivables 853,499 - - 853,499 Other assets 3,965,779 - 162,129 (c) 3,803,650 ----------- ----------- ----------- ----------- $57,004,854 $ - $32,105,440 $24,899,414 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $707,862 $600,000 (d) $ - $107,862 Accounts payable & other accrued liabilities 6,373,676 - 628,669 (e) 7,002,345 ------------ ----------- ----------- ----------- Total current liabilities 7,081,538 600,000 628,669 7,110,207 Total noncurrent liabilities 109,484,499 109,058,804 (f) 15,000,000 (g) 15,425,695 Stockholders' equity (deficit): Preferred stock 58,213,276 58,213,276 (h) - - Common stock 2,490 2,490 (i) 100,000 (j) 100,000 Warrants 7,039,954 7,039,954 (i) 468,000 (k) 468,000 Additional paid-in capital 6,630,360 6,630,360 (l) 1,795,512 (j) 1,795,512 Retained earnings (deficit) (131,447,263) 10,382,952 (m) 141,830,215 (n) - ------------- ------------ ----------- ----------- $57,004,854 $191,927,836 $159,822,396 $24,899,414 ============= ============ ============ ===========
41 Explanations of the above adjustments are as follows: a) To remove the restricted cash of $21,644,345 that was paid to the 14% Senior Secured Note holders and an adjustment of $700,000 to accounts receivable for realizability due to the Reorganization. b) To adjust the property and equipment to estimated current fair value and to decrease the identifiable assets by the reorganization value less the identifiable assets. c) To decrease the intangible assets by the amount in excess of the reorganization value. d) To reflect the cancellation of debtor-in-possession financing and issuance of new current obligations. e) To adjust current liabilities to fair market value. f) Remove old Senior Note, remove accrued interest on 14% Senior Secured Notes, remove cancelled debts and remove accrued interest on debtor-in-possession financing. g) To reflect the issuance of the 9% Senior Notes. h) To reflect the cancellation of the Series A, A-1 and B preferred stock. i) To reflect cancellation of the Class A and B common stock and predecessor warrants. j) To reflect the issuance of 10,000,000 shares of new common stock (par value $0.01) at estimated fair market value. k) To record new warrants on $3,000,000 10% Senior Secured Notes. l) To reflect the elimination of stockholders' equity of the Predecessor Company. m) Remove positive accumulated earnings after posting gain from debt discharge and reorganization charges n) Post debt discharge and reorganization gain against retained deficit. 42 5. REORGANIZATION COSTS: In accordance with SOP 90-7, expenses of the Predecessor Company resulting from the Reorganization are reported separately as reorganization items in the accompanying consolidated statement of operations, and are summarized below: Nine Months Ended September 30, 1999 ------------------ Legal Fees $1,245,029 Court Fees 27,500 Printing Fees 49,217 ------------ $1,321,746 ============ 6. LONG-TERM OBLIGATIONS: Long-term obligations consist of the following as of December 31: 1999 1998 ---- ---- 9% Senior Notes due to a bank, principal and interest due September 30, 2004, secured by Teletrac's Assets $15,000,000 $ -- 10% Senior Secured Notes due to a bank, principal due September 30, 2000, quarterly interest payments of $74,863, secured by Teletrac's Assets 3,000,000 -- 14% Senior Secured Notes due to a bank, principal due August 1, 2002, semiannual interrest due February and August -- 98,445,776 Capital leases 544,428 4,016,637 ----------- ----------- 18,544,428 102,462,413 less current portion 3,118,733 1,246,999 ----------- ------------ $15,425,695 $101,215,414 =========== ============ 43 The Company holds leases on automobile, furniture, telephone and frequency receiving and transmitting equipment for periods greater than one year. Principal maturities of long-term obligations as of December 31, 1999 follows: Fiscal year ending ------------------ 2000 $3,118,733 2001 330,057 2002 72,939 2003 22,699 2004 15,000,000 Thereafter - ----------- TOTAL: $18,544,428 =========== 7. STOCKHOLDERS' EQUITY: Common Stock The Company's authorized capital stock consists of 20,000,000 shares of common stock, par value $0.01 per share. The holders of the common stock are entitled to one vote per share on all matters on which stockholders are entitled to vote. The holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors. Stock Options The Company has reserved 1,346,071 shares of common stock for issuance pursuant to the exercise of nonqualified and incentive stock options under its 1999 Stock Option and Restricted Stock Purchase Plan (the "Plan"). The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost has been recognized in 1999. The exercise price of the options is $0.16 and was determined based on the equity valuation of the Company during the Reorganization. As of December 31, 1999, options to purchase 1,216,750 shares were granted, and 28,250 forfeited, leaving options to purchase 1,188,500 shares outstanding. SFAS No. 123 "Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and, if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. Adoption of FASB Statement No. 123 is optional, however, pro forma disclosures as if the Company had adopted the cost recognition method are required. Had compensation cost for stock options awarded under the Plan been determined consistent with FASB Statement No. 123, the effect to net income and earnings per share would have been immaterial. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models also require the input of highly subjective assumptions such as expected option life and expected stock price volatility. Because the Company's employee stock-based compensation plan has characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, the Company believes that the existing option valuation models do not necessarily provide a reliable single measure of the fair value of awards from those plans. 44 The fair value at date of grant for options granted during fiscal 1999 were $.04 and were estimated using the Black-Scholes option pricing model with the following assumptions: (i) weighted average dividend yield of 0.00%, (ii) weighted average volatility of 1.0% for fiscal year 1999, (iii) expected life of three to five years and (iv) risk-free interest rate of 5.8%. Predecessor Company Options The Predecessor Company reserved 68,457 shares of nonqualified and incentive stock options under three plans, the 1995 Stock Option Plan (the "1995 Plan"), the 1996 Stock Option Plan (the "1996 Plan") and the 1998 Stock Option Plan (the 1998 Plan). The Predecessor Company applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost had been recognized in 1998 and 1997. Had compensation cost been recognized in accordance with Financial Accounting Standards Board Statement No. 123, "Accounting for Stock Based Compensation," the Predecessor Company's reported net loss would have increased by approximately $1,400 and $247,000 for the years ended 1998 and 1997, respectively. Under each plan, the exercise prices were determined based on the grant date and were equal to the fair market value of the shares as determined by the board of directors. The term of the options under each plan were not to exceed ten years from the grant date. Under each plan, one-third of each grant vested per year over a three-year period at different pricing tiers. The following represents the exercise prices over the three-year vesting period of the options under each plan based on the respective grant period stated: Price Grant ------------------------------------ Plan Date Tier 1 Tier 2 Tier 3 - - ---------- ------------------------ ---------- ---------- ---------- 1995 January 1, $100.00 $125.00 $150.00 1995 November 18, 220.00 275.00 330.00 1996 January 6, 175.00 218.75 262.50 1996 November 18, 220.00 275.00 330.00 1998 January 6, 220.00 275.00 330.00 The following table represents the total number of option shares granted and forfeited under all plans for the twelve months ended December 31, 1998 and 1997: 45 Weighted- Average Exercise Shares Price --------- ------------- Outstanding at December 31, 1996 43,060 $125 Granted 8,251 265 Forfeited (16,046) 126 ------- Outstanding at December 31, 1997 35,265 157 ------ Granted 24,428 275 Forfeited (5,626) 244 ------- Outstanding at December 31, 1998 54,067 201 ====== The exercisable options at December 31, 1998, were 21,216, ranging in price from $100 to $330 and having a weighted average exercise price of $132. The exercisable options at December 31, 1997, were 13,504, ranging in price from $100 to $330 and having a weighted average exercise price of $125. Had all qualified options been excercised at the end of each fiscal year presented, the gross proceeds would have been approximately $2.8 million and $1.7 million in 1998 and 1997, respectively. The weighted average fair value of the options granted during 1998 and 1997 was $0 and $200, respectively. The weighted average contract life was 7 years at December 31, 1998 and 1997. 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 the 1998 and 1997 grants: Options Options Granted in Granted in 1997 1998 -------------- -------------- Volatility -% -% Dividend yield -% -% Risk-free interest rate 5.52 to 5.72% 5.89 to 6.46% Expected option life 7 years 7 years 8. REFREQUENCING LIABILITY: In 1995 the FCC issued an order which required the Company to relocate its existing operating frequency from a portion of the 925 MHz band to a portion of the 927 MHz band. As a result, the Company has recorded a liability, including $5,936,000 assumed in the Acquisition, for the cost of implementing the order so that the Company can continue to deliver its contractual service obligation to its customers. The Company revised its estimate and recorded approximately an additional $0.4 million and $1.1 million liability in 1998 and 1997, respectively. 46 9. EMPLOYEE BENEFIT PLANS: The Company sponsors a defined-contribution profit sharing 401(k) plan (the "401(k) Plan") which covers all full-time employees. The benefits of the 401(k) Plan are based on years of service, the employee's compensation, employee contributions and earnings of plan assets. The Company's funding policy is to contribute an amount equal to $0.50 for every dollar contributed by the employees up to $1,000 annually. The Company has accrued approximately $164,536 and $207,000 during 1999 and 1998, respectively. 10. INCOME TAXES: Deferred income taxes are provided for temporary differences between the financial accounting basis and tax basis of assets and liabilities and temporary differences in reporting income and expense. The Company's Net Operating Losses ("NOL's") and Alternative Minimum Tax ("AMT") NOL's total approximately $47,055,725 and $41,243,152, respectively, for 1999. However, the utilization of these NOL's is limited under Internal Revenue Code Section 382. On September 29, 1999 the Company reorganized under Chapter 11 of the Bankruptcy Code (the "Reorganization"). Pursuant to the Reorganization, the Company incurred a greater than fifty percent ownership change, thereby, subjecting the NOL's to the Section 382 limitation. The Company estimates that only $6.2 million of NOL's are available to be utilized to offset future taxable income due to the Section 382 limitations. The components of net deferred tax assets (liabilities) are as follows (in thousands):
Three Months Ended Nine Months Ended Twelve Months Ended Twelve Months Ended December 31, 1999 September 30, 1999 December 31, 1998 December 31, 1997 ----------------- ------------------ ------------------- ------------------- DEFERRED TAX ASSETS: Net Operating Loss Carry-forwards $2,486 $ 880 $38,396 $17,130 ------ ------ ------- ------- Reserves and Accruals 785 588 - - Depreciation 2,591 2,591 (559) (577) Other 330 290 277 239 ------ ------ ------- ------- Net deferred tax assets 6,192 4,349 38,114 16,792 Tax asset reserve (6,192) (4,349) (38,114) (16,792) ------ ------ ------- ------- Net deferred taxes $ - $ - $ - $ - ====== ====== ======= =======
47 11. COMMITMENTS AND CONTINGENCIES: The Company has operating leases for office space and antenna sites for periods greater than one year. Minimum payments under such operating leases are as follows (in thousands): Year Ending ----------- 2000 $ 1,551 2001 1,219 2002 586 2003 170 2004 32 Thereafter 125 -------- $ 3,683 ======== 12. RESTRUCTURING CHARGE In the fourth quarter of 1998, the Company recorded a restructuring charge of approximately $19.7 million. The charge was the result of management and organizational changes designed to improve profitability, increase customer focus, and decrease customer cancellations by becoming technologically neutral. The major components of the charge are as follows (in thousands): Write-down RF network assets in unopened markets $16,562 VLU Contract Termination Costs 1,373 Deinstallation Costs 809 Revolver Cancellation 752 Abandoned RF Projects 172 ------- Total $19,668 ======= The Company no longer plans to open new markets using its proprietary RF networks and has written down assets and the costs of deinstalling those assets. The Company has terminated its agreement with its VLU supplier and was subject to a penalty and write-off of VLU's that are not on the correct frequency. The Company cancelled its revolving credit agreement and expensed the deferred costs of the facility. The Company also expensed deferred costs of certain RF related projects. As of December 31, 1999, no costs remain accrued for the Reorganization. 48 13. LEGAL PROCEEDINGS Prior to the acquisition of AirTouch Teletrac, PacTel Teletrac (predecessor to AirTouch Teletrac) brought an action before the United States Patent and Trademark Trial and Appeal Board against T.A.B. Systems ("TAB") opposing TAB's registration of the mark "Teletrak." The Trademark Trial and Appeal Board granted PacTel Teletrac's motion for summary judgment, but summary judgment was reversed by the U.S. Court of Appeals for the Federal Circuit. TAB then filed an infringement action against PacTel Teletrac, the Company and other parties in the U.S. District Court for the Central District of California. On December 22, 1997, the District Court granted summary judgment in favor of the Company. This decision has been appealed by TAB to the U.S. Court of Appeals for the Ninth Circuit. Such an appeal was pending as of the date the Company filed its bankruptcy petition. The Bankruptcy Court has issued an order permitting the Ninth Circuit appeal to proceed. Under the terms of the Asset Purchase Agreement between AirTouch Teletrac and the Company, AirTouch Teletrac must pay the costs of any litigation relating to this matter and must indemnify the Company against any losses relating thereto. AirTouch Teletrac has notified the Company that it intends to continue to litigate this matter on its own behalf as well as on behalf of the Company, and that it will bear the cost of such litigation. There can be no assurance that AirTouch Teletrac will be successful in such litigation or that AirTouch Teletrac will honor its indemnification obligations (including any costs or losses relating to a change of name, if required as a result of the litigation). The Company is engaged in litigation in Bankruptcy Court with Milgo Solutions f/k/a Raycal-Datacom, Inc. ("Milgo") and Newcourt Leasing, Inc. ("Newcourt"), regarding certain telecommunications equipment which the Company believes it purchased from Milgo. Milgo and Newcourt have asserted that the Company did not purchase this equipment, and allege that the Company holds same pursuant to one or more leases. In the event Milgo and Newcourt prevail in this litigation, the Company may be obligated for the full, remaining amounts due on account of these purported leases, which are asserted to exceed $2.1 million, rather than for the amounts payable to these parties under the Company's confirmed Plan of Reorganization. Discovery has commenced with respect to this matter, but has not yet been concluded. The Company is also a defendant in an American Arbitration Association proceeding brought by Star Trac, Inc. ("Star Trac") on or about February 23, 2000. Star Trac asserts that the Company breached the dealer agreement between the parties and seeks actual and puntive damages. The Company denies the claims asserted by Star Trac and believes that these claims were discharged by the bankruptcy proceeding and are therefore without merit. The Company intends to defend vigorously against these claims. 49 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The board of directors and the executive officers of the Company and their ages as of December 31, 1999, are as follows: Name Age Position - - ----- --- -------- Steven D. Scheiwe 39 Chief Executive Officer, General Counsel and Director Alan B. Howe 38 Chief Financial Officer, Vice-President of Finance and Corporate Development Charles Scheiwe 33 Controller Kenneth A. Wiesner 36 Vice-President of Customer Operations Paul M. Albert, Jr. 57 Director Mark E. Holliday 31 Director Neil Subin 35 Director R. Ted Weschler 38 Director Steven D. Scheiwe, the Chief Executive Officer and General Counsel of Teletrac, served as General Counsel and Secretary of Teletrac from November 1995 through September 1999. He also served as General Counsel and Secretary of Premiere Page, Inc. ("Premiere Page"), a leading Southeast paging company, from its 1988 start up as well as the predecessor companies to Premiere Page. He was actively involved in raising capital, developing real estate, and managing human resources. Mr. Scheiwe received his B.A. from the University of Colorado in 1982 and a J.D. degree from Washburn University in 1986. Alan B. Howe, the Chief Financial Officer, Vice-President of Finance and Corporate Development of Teletrac, joined Teletrac in November 1995 from Wireless Co., L.P., where he served as Director of Corporate Development. Wireless Co., a joint venture of Sprint, TCI, Comcast and Cox Cable, successfully acquired multiple personal communication system licenses throughout the United States. Prior to his affiliation with Wireless Co., Mr. Howe held various finance positions at Sprint in its Wireless Task Force and Corporate Treasury Group. Before joining Sprint, Mr. Howe was an assistant Vice-President at Manufacturers Hanover Trust. He received an M.B.A. from Indiana University, Graduate School of Business, and a B.A. from the University of Illinois. Charles Scheiwe has served as Controller of Teletrac since 1995, in which position he has been responsible for the Company's back office operations, including accounting, billing and information systems. Mr. Scheiwe, a certified public accountant, joined Teletrac in 1995 from Pentapage, where he served as its Controller. Prior to Pentapage, Mr. Scheiwe held various positions at Premiere Page from 1989 through 1995. Mr. Scheiwe received his B.A./B.S. from the University of Colorado in 1989. 50 Kenneth A. Wiesner, the Vice-President of Customer Operations, is responsible for product distribution, product maintenance and service implementation. He also manages field operations, national support and national help desk support. Prior to joining Teletrac, Mr. Wiesner served as Regional Vice-President of Premiere Page from 1995 through 1997, in which position his responsibilities included overall sales growth, proper maintenance of the Premiere System, and management of the Customer Services Department. Mr. Wiesner received his B.A./B.S. from the University of Missouri and an M.B.A. in Finance from Rockhurst University in Kansas City, Missouri. Paul M. Albert, Jr. has served as a director of EarthWatch Incorporated since June 1999. Since December 1996, Mr. Albert has been retained as a consultant and/or employee of The Globecon Group, a financial services consulting company and also serves as an independent finance and capital market consultant to corporate clients. Prior to such time, from September 1996 to November 1996, Mr. Albert served as a consultant to Eccles Associates, Inc., a financial consulting company working primarily with multinational financial institutions in developing countries. From September 1983 to February 1996, he served as a Managing Director, Investment Banking of Prudential Securities, Inc., a financial services company. Mr. Albert received an A.B. degree from Princeton University in 1964 and an M.B.A. degree from Columbia University Graudate School of Business in 1970. Mark E. Holliday founded and has been the Managing Director of Heartland Capital Corp. ("Heartland") since 1995. Heartland is a private hedge fund focusing primarily on financially distressed companies. Prior to forming Heartland, Mr. Holliday was affiliated with Option Opportunities and Continental Partners. Mr. Holliday is a graduate of Northwestern University. Neil Subin is the Managing Director of Trendex Capital Management, a private hedge fund focusing primarily on distressed and bankrupt companies. Prior to forming Trendex Capital Management in 1991, Mr. Subin was affiliated with Oppenheimer & Co. Mr. Subin currently is a member of the Board of Directors of Nucentrix Broadband Networks, Inc., a provider of wireless broadband network and multichannel subscription television services, located in Plano, Texas. Mr. Subin received a Bachelor of Arts degree from Brooklyn College in 1985. 51 R. Ted Weschler is the Managing Partner of Peninsula Capital Advisors, LLC, a private investment management firm in Charlottesville, Virginia, a position he has held since January 1, 2000. Mr. Weschler previously served as an executive officer of Quad-C, Inc. ("Quad-C") since its formation in 1989. Quad-C is a Charlottesville, Virginia-based investment firm that primarily engages in the acquisition of businesses in partnership with company management. Mr. Weschler is currently a director of Nucentrix Broadband Networks, Inc., a provider of wireless broadband network and multichannel subscription television services, located in Plano, Texas; WSFS Financial Corporation, a thrift holding company based in Wilmington, Delaware; Deerfield Healthcare Corporation, a provider of adult day care; Virginia National Bank, a national banking association and NWS Holdings, a national furniture retailer. Prior to the formation of Quad-C, Mr. Weschler was employed by W.R. Grace & Co., focusing on acquisition and divestiture activities associated with W.R. Grace's restaurant, retail, healthcare, natural resources and chemical operations. Mr. Weschler received a Bachelor of Science degree in Economics with concentrations in Finance and Accounting from The Wharton School of the University of Pennsylvania in 1983. The executive officers of the Company are elected by the Board of Directors and serve at its discretion. Pursuant to the Plan of Reoganization, effective September 29, 1999, the Board of Directors was replaced with a new Board. The current Board of Directors shall serve until the first annual meeting of stockholders of Teletrac after the Reoganization or their earlier resignation or removal in accordance with the Charter or Teletrac's by-laws, as the same may be amended from time to time. Thereafter, all directors are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Directors do not receive an annual retainer or meeting attendance fees. However, the Company reimburses non-management directors for expenses incurred in attending meetings of the Board of Directors. During 1999, the Board of Directors held two meetings. The only standing committees of the Board of Directors are the Audit Committee and the Compensation Committee. During 1999, the members of the Audit Committee were Mark Holliday, Neil Subin and Paul Albert. The Audit Committee periodically consults with the Company's management and independent public accountants on financial matters, including the Company's internal financial controls and procedures. The Audit Committee held one meeting in 1999. During 1999, the members of the Compensation Committee were Steven Scheiwe, Neil Subin and Ted Weschler. The Compensation Committee approves compensation arrangements for the Company's executive officers and administers the Company's stock option plans. The Compensation Committee held two meetings in 1999. 52 Item 11. EXECUTIVE COMPENSATION The following table sets forth certain compensation information as to the Chief Executive Officer and the four other highest paid executive officers of the Company for the fiscal year ended December 31, 1999: LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS --------------------------------- ----------------- SECURI- ALL NAME AND YEAR SALARY BONUS OTHER TIES OTHER PRINCIPAL ($) ($) ANNUAL UNDER- COMPEN- POSITION COMPEN- LYING SATION SATION OPTIONS ($) (#) - - ---------- ---- ------- ----- ------- ------- ------- Sarto, John(1) 1997 N/A N/A N/A N/A N/A Chairman of 1998 233,133 50,000 The Board Chief Executive 1999 95,996 125,000 -0- Officer Steven D. Scheiwe 1997 125,130 30,467 -0- 1,000 Chief Executive Officer 1998 143,830 34,890 -0- 1,000 General Counsel 1999 188,861 15,925 1,000 Lawrence P. Jennings(2) 1997 169,130 29,652 - -0- 1,000 Vice President of Operations 1998 169,130 25,234 -0- 1,000 1999 70,470 107,707 -0- 1,000 Alan B. Howe 1997 114,128 28,450 - -0- 1,000 Vice President of Finance and Corporate Development 1998 131,124 43,940 -0- 1,000 1999 156,724 13,163 -0- 1,000 Kenneth A. Wiesner 1997 124,950 23,195 - -0- 1,000 Vice Prsident of Customer Operations 1998 124,950 53,295 -0- 1,000 1999 150,799 19,390 -0- 1,000 - - ----------- (1) John Sarto resigned from the Company on April 15, 1999. (2) Lawrence P. Jennings resigned from the Company on June 15, 1999. 53 Employment Agreements The four most senior officers of the Company (the "Principal Officers") have employment agreements with the Company (the "Employment Agreements") for a period of two years commencing on September 29, 1999. The Employment Agreements all provide the same terms, other than salary and position, for each of the Principal Officers. Steven D. Scheiwe's employment agreement defines his position as Chief Executive Officer, Vice President, General Counsel and Secretary of the Company and provides for a salary of $210,000 per annum. Alan B. Howe's employment agreement defines his position as Chief Financial Officer and Vice President of Finance and Corporate Development of the Company and provides for a salary of $174,000 per annum. Charles Schiewe's employment agreement defines his position as Controller and provides for a salary of $140,000 per annum. Kenneth A. Weisner's employment agreement defines his position as Vice President of Customer Operations of the Company and provides for a salary of $174,000 per annum. In addition to base compensation, the Employment Agreements also provide that each Principal Officer is eligible for a bonus of $75,000 for the fiscal year ending December 31, 1999 if the Company meets the target objectives established by the Board. The bonus which each Principal Officer shall receive during the remainder of his employment term shall be established by the Compensation Committee of the Board of Directors and shall be based on target performance objectives set by the Compensation Committee. The Employment Agreements also grant each of the Principal Officers options to purchase 75,000 shares of Common Stock of the Company pursuant to the Company's stock option plan, which is described below. The Employment Agreements contain a provision stating that in the event that the employee is terminated other than for cause, or in the event that all or a majority of the stock or the assets are sold to a purchaser, he shall be entitled to severance compensation equal to the lesser of (i) one year's base salary or (ii) the amount of the base salary for the remaining term of his employment agreement. The Employment Agreements also include a confidentiality provision which survives the employee's termination indefinitely and a non-competition provision which remains in effect for a period of two years after the employee's termination. 401(k) Plan The Company maintains a 401(k) Savings Plan for its full-time employees which permits employee contributions up to 15% of annual compensation to the plan on a pre-tax basis. In addition, the Company may make a matching contribution of up to 50% of each participating employee's annual compensation, not to exceed $1,000, before taxes. The Company may also make additional discretionary contributions to the plan in any plan year up to the annual 401(k) plan contribution limits as defined in the Internal Revenue Code of 1986, as amended. The plan is administered by the Compensation Committee. For the plan year ended December 31, 1999, the Company has accrued an aggregate of approximately $110,000 for matching contributions to the plan in 1999. 54 Stock Option Plan In connection with the Reorganization, on September 29, 1999, the Company adopted the 1999 Stock Option and Restricted Stock Purchase Plan (the "Plan") in order to provide incentives to attract, retain and motivate highly competent persons as officers, non-employee directors and key employees of the Company by providing them with options to purchase new Common Stock of the Company. Additionally, the Plan is intended to assist in further aligning the interests of the Company's directors, officers, key employees and consultants to those of its stockholders. The Plan provides for the granting of "non-qualified stock options" and "incentive stock options" to acquire Common Stock of the Company and the granting of rights, or "awards" to purchase Common Stock of the Company subject to certain restrictions. The Plan is administered by the Compensation Committee of the Board of Directors of the Company, which has the sole authority under the Plan to: (i) select the employees who will be granted options or awards to purchase Common Stock, (ii) designate whether options will be granted as incentive stock options or as non-qualified stock options; (iii) establish the number of shares of Common Stock that may be issued under each option or award; (iv) determine the time and the conditions subject to which options may be exercised in whole or in part and awards may be made; (v) determine the amount and the form of the consideration that may be used to purchase shares of Common Stock upon exercise of an option or award; (vi) impose restrictions and/or conditions with respect to shares of Common Stock acquired upon exercise of an option or award; (vii) determine the circumstances under which shares of Common Stock acquired upon exercise of any option or award may be subject to repurchase by the Company; (viii) determine the circumstances and conditions subject to which shares acquired upon exercise of an option or award may be sold or transferred; (ix) establish a vesting provision for any option or award relating to the time or circumstance when an option or award may be exercised; (x) accelerate the time when outstanding options may be exercised; and (xi) establish any other terms, restrictions and/or conditions applicable to any option or award not inconsistent with the provisions of the Plan. The purchase price of Common Stock upon exercise of incentive stock options must not be less than the fair market value of the Common Stock at the date of the grant or, in the case of incentive stock options issues to holders of more than 10% of the outstanding Common Stock, 110% of the fair market value. The maximum terms of the incentive stock options is ten years, or five years in the case of 10% shareholders. The aggregate fair market value, on the date of the grant, of the stock for which incentive stock options are exercisable for the first time by an employee during any calendar year may not exceed $100,000. Options granted under the Plan are generally nontransferable by the optionee and must be exercised by the optionee during the period of the optionee's employment or service with the Company and within the optionee's lifetime or within a specified period following termination of employment or service or the optionee's death. 55 The Company is currently authorized to issue an aggregate 1,500,000 shares under the Plan and has reserved 1,346,071 shares for issuance pursuant to the exercise of nonqualified and incentive stock options. The exercise price of the options is $0.16 and was determined based on the equity valuation of the Company during the Reorganization. As of December 31, 1999, options to purchase 1,216,750 shares were granted, and 28,250 forfeited, leaving options to purchase 1,188,500 shares outstanding. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the information regarding the beneficial ownership of the Company's Common Stock, par value $0.01 per share, as of December 31, 1999 by (i) certain stockholders or groups of related stockholders who, individually or as a group, are the beneficial owners of 5% or more of the Common Stock, (ii) the Chief Executive Officer of the Company, the four other most highly compensated executive officers of the Company and the directors of the Company and (iii) the executive officers and directors of the Company as a group. SHARES BENEFICIALLY PERCENTAGE NAME AND ADDRESS OWNED (1) OWNERSHIP (2) - - ----------------- --------------- ------------- Principal Stockholders: TD Securities (USA) Inc. . . . . . . . . . . . . 848,787 8.5% 31 West 52nd Street New York, NY 10019-6101 Capital Research . . . . . . . . . . . . . . . . 1,890,480 18.9% 135 South State College Blvd. Brea, CA 92821 Equitable Life Assurance Society . . . . . . . . 501,556 5.0% 1345 Avenue of the Americas, 37th Floor New York, NY 10105 Miller, Lloyd I Funds. . . . . . . . . . . . . . 599,936 6.0% 4550 Gordon Drive Naples, FL 34102 Lutheran Brotherhood . . . . . . . . . . . . . . 1,157,436 11.6% 625 Fourth Avenue South Minneapolis, MN 55415 Aspen Partners . . . . . . . . . . . . . . . . . 1,906,444 19.1% 1114 Avenue of the Americas, 38th Floor New York, NY 10036 Executive Officers and Directors: Neil Subin . . . . . . . . . . . . . . . . . . . 127,379 1.3% 56 - - ------------- (1) Unless otherwise indicated, the entities and individuals identified in this table have sole voting and investment power with respect to all shares set forth in the table. (2) The percentages shown are based on 10,000,000 shares of Common Stock outstanding on December 31, 1999. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a)(1 and 2) Financial Statements. See Index to Consolidated Financial Statements herein. (3) Exhibits: Exhibit Number Description 2.1 The Company's Second Amended Plan of Reorganization, dated as of August 4, 1999 and effective as of September 29, 1999 (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on September 30, 1999). 3.1 Amended and Restated Certificate of Incorporation of the Company as filed with the Secretary of State of Delaware on September 29, 1999 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on September 30, 1999). 3.2 By-laws of the Company adopted on September 29, 1999 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.1 Form of Indenture between the Company and HSBC Bank USA with respect to the 9% Note due 2004 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.2 Form of 9% Note Due 2004 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.3 Form of Deferred Interest Note (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.4 Form of Senior Secured Note and Class A Warrant Purchase Agreement among the Company and the several Purchasers named in Schedule I thereto (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed on September 30, 1999). 57 4.5 Form of 10% Senior Secured Note due 2000 (incorporated by reference to Exhibit 4.5 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.6 Form of Class A Stock Purchase Warrant (incorporated by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.7 Form of Security Agreement between the Company and the several Purchasers on the signature page thereto (incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.8 The Company and its Subsidiaries 1999 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 4.9 to the Company's Current Report on Form 8-K filed on September 30, 1999). 4.9 Form of Class B Stock Purchase Warrant (incorporated by reference to Exhibit 4.10 to the Company's Current Report on Form 8-K filed on September 30, 1999). 10.1 Mobile Data Terminal Purchase Agreement, dated as of February 8, 1996, between Micronet, Inc. and the Company. *10.2 Amendment to Mobile Data Terminal Purchase Agreement, dated September 20, 1999, between Micronet, Inc. and the Company. 10.3 Employment Agreement, dated as of September 29, 1999, between Steven D. Scheiwe and the Company. 10.4 Employment Agreement, dated as of September 29, 1999, between Alan Howe and the Company. 10.5 Employment Agreement, dated as of September 29, 1999, between Charles Scheiwe and the Company. 10.6 Employment Agreement, dated as of September 29, 1999, between Kenneth Weisner and the Company. 21.1 Subsidiaries of the Registrant. 27 Financial Data Schedule. - - ----------- * Certain confidential portions have been omitted from this Exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2. (b) Reports on Form 8-K filed during the last quarter of the fiscal year ended December 31, 1998: None. 58 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. Date: March 30, 2000 TELETRAC, INC. By: /s/ STEVEN D. SCHEIWE --------------------------------------- Steven D. Scheiwe Chief Executive Officer, General Counsel and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - - --------------- ----- ----- /s/ ALAN B. HOWE Chief Financial Officer, Vice- March 30, 2000 - - ----------------------- President of Finance and Corporate Alan B. Howe Development /s/ CHARLES SCHEIWE Controller March 30, 2000 - - ----------------------- Charles Scheiwe /s/ KENNETH A. WIESNER Vice-President of Customer March 30, 2000 - - ----------------------- Relations Kenneth A. Wiesner /s/ PAUL M. ALBERT, JR. Director March 30, 2000 - - ----------------------- Paul M. Albert, Jr. /s/ MARK E. HOLLIDAY Director March 30, 2000 - - ----------------------- Mark E. Holliday /s/ NEIL SUBIN Director March 30, 2000 - - ----------------------- Neil Subin /s/ R. TED WESCHLER Director March 30, 2000 - - ----------------------- R. Ted Weschler EX-10.1 2 EX-10.1 Exhibit 10.1 MOBILE DATA TERMINAL PURCHASE AGREEMENT This Mobile Data Terminal Purchase Agreement (this "Agreement") by and between Teletrac Inc., 7391 Lincoln Way, Garden Grove, California 92641 ("Teletrac") and Micronet Ltd., 7 Hashalom Road, Tel-Aviv, Israel 67892 ("Micronet"), is made effective as of the 8th day of February, 1996. The parties hereby agree as follows: 1. Agreement to purchase and sell. 1.1 Sale of products. Teletrac shall purchase from Micronet a minimum of 2,000 Terminals, and Micronet shall sell to Teletrac a minimum of 2,000 Terminals, on the terms set forth herein and on the attached purchase order #000036. Terminals are defined as Micronet's production level Net-950 Mobile Data terminals. The description and technical, engineering, and operational specifications for the Termi nals and the protocol (the "Specifications") are set forth in Appendix "A", all of the terms of which are incorporated herein by this reference. Micronet shall imprint serial numbers (including bar coded serial numbers) on the back panel of each Terminal, and shall print, in white, "Net-950" on each Terminal. 1.2 Initial Order. Teletrac hereby places a firm and irrevocable order for 2,000 Terminals from Micronet (the "Initial Order"), all of which will be purchased in accordance with the terms and conditions of this agreement. 1.3 Subsequent Orders. After the Initial Order for 2,000 Terminals ordered hereunder have been purchased, orders for additional Terminals shall be in writing and shall specify arrival dates of not less than 10 weeks from delivery of the order to Micronet. Micronet may, by written notification delivered to Teletrac within 10 working days of Micronet Receipt of a subsequent order, elect not to fill the subsequent order. If Micronet does not notify Teletrac of its election to not fill the subsequent order, the order shall be filled as described in this paragraph 1.3 and in accordance with the other terms of this Agreement. All subsequent orders shall be for at least 1000 Terminals per order. The prices set forth in paragraph 3.1 shall apply to subsequent orders, but shall be subject to an annual increase on each anniversary of the effective date of this Agreement, in an amount equal to the increase in the U.S. Consumer Price Index ("CPI") over the prior 12-month period. Micronet shall use its reasonable efforts to expeditiously fill subsequent orders. 1.4 Purchase Orders. Purchase orders will be issued by Teletrac for purposes of administration of delivery and quantity schedules. No term or condition of any purchase order shall supersede the terms and conditions of this agreement. In the event of any conflict between the terms of any purchase order and this Agreement, the terms of this Agreement shall control. Micronet shall promptly honor and fulfill all purchase orders in accordance with the terms and conditions of this Agreement. 2. Quality Control. 2.1 Development. Micronet acknowledges and agrees that Teletrac is not a participant in the development of the Terminals and is not liable for the design, any design defects, product liability, strict liability (i.e, liability without fault), or failure of the Terminals to meet the Specifications. 2.2 Test Units. Teletrac acknowledges that it has been supplied 10 test units and that it has tested these units and found them acceptable and conforming to the specifications and that the plastics and graphics are also acceptable. Teletrac confirms that Micronet may proceed with production units based on these test units. The test units shall be included in the count of Spare terminals as defined in Paragraph 5.2. 2.3 Acceptance/Rejection of Terminals. Within two weeks of receipt, Teletrac shall inspect all incoming Terminals (each shipment of Terminals shall be referred to as a "Lot") to insure compliance with the Specifications. Teletrac may reject the total lot received (if more than 20% of the Lot does not comply with Specifications), or portions of the Lot, as to those Terminals that do not comply with Specifications. Teletrac shall inspect Terminals on a sampling basis. Rejected Terminals shall be promptly returned to Micronet; provided, however, that rejected Terminals shall be Held so that they can be shipped in bulk, and will be shipped to Micronet not more frequently than once per month. Micronet shall bear all costs of freight, duty, insurance and other costs incurred in returning the Terminals to Micronet and shipping new Terminals to replace the rejected Terminals to Teletrac. Micronet acknowledges and agrees that timely receipt of conforming Terminals is critical to Teletrac and that Teletrac shall suffer severe damages if substantial numbers of Terminals are non-conforming. The parties recognize that the full impact of such breach would be very difficult to assess and it would be difficult to fix the actual amount of damages. Therefore, to avoid possible disputes, the parties agree that if more than 20% of a Lot is rejected and returned, Micronet shall pay to Teletrac liquidated damages of US $ 2.00 per rejected Terminal per day beginning after the tenth day following Micronet's receipt of each non-conforming Terminal unit replaced. This amount shall be invoiced and paid by Micronet within 30 calendar days of receipt of invoice. If not paid by Micronet, the amount shall be applied against monies owed for Terminals. The amount established under this paragraph for liquidated damages represents a reasonable attempt by the parties to state an amount that bears a reasonable relationship to actual damages and does not constitute a penalty. Notwithstanding anything in this paragraph to the contrary, Teletrac shall specify the reasons for the rejection and give Micronet an opportunity to discuss the rejection prior to imposition of the liquidated damages described in this paragraph. 3. Payment. 3.1 Price. The purchase price for each Terminal (including bracket and screws) shall be U.S. $ 215 (two hundred and fifteen) per unit (the "Purchase Price"). The Purchase Price includes packaging, export duties, Israeli taxes, and handling costs. Except as otherwise provided herein, Teletrac is responsible for insurance and shipping costs and shall select the carrier. Teletrac is also responsible for import duties and U.S. taxes, provided that Micronet includes with each shipment a "Country of Origin Certificate (Form A)". 3.2 Invoicing. Invoices for Terminals shall contain, at a minimum, the Purchase Price in U.S. dollars, purchase order number, invoice date, quantity, description, invoice number, reference to this Agreement, ship to name and address, remit to name and address and method and name of carrier. 2 3.3 Terms of Payment. Down Payment. Teletrac, by Bank wire transfer, shall make a down payment to Micronet's account in the amount of U.S. $ 86,000 (eighty six thousands) within 4 business days of the effective date of this Agreement. Micronet shall Invoice Teletrac for this amount. The down payment shall be applied towards the last shipment payment. Payments for all other shipments, as per paragraph 4 below, will be made by wire transfer immediately prior to each delivery. 4. Shipment. 4.1 Shipment Terms. Unless Teletrac notifies Micronet otherwise, as provided in Paragraph 12.2, Teletrac hereby orders 2,000 Terminals to be shipped to Teletrac's facility described in paragraph 4.3, on the dates set forth in the following Shipment Schedule: Number of Terminal Terminals Type Date shipped to Teletrac Facility 300 Net-950 Within 35 calendar days after effective date. 450 Net-950 Within 14 calendar days thereafter 1,250 Net-950 Within 60 Calendar days thereafter Note: Micronet is allowed to accelerate shipments without limitation on quantities and Teletrac is owed to payment terms as specified in Paragraph 3.3 above. Shipment dates are conditional on Teletrac complying on time with payment terms of paragraph 3.3 above. 4.2 Late Deliveries. Micronet acknowledges and agrees that time is of the essence in shipment of the Terminals and Teletrac shall suffer severe damages if conforming Terminals are not shipped in accordance with the Shipment schedule. The parties recognize that the full impact of such a breach would be very difficult to assess and it would be difficult to fix the actual amount of damages. Therefore to avoid possible disputes the parties agree that if the shipment schedule slips by more than 15 working days due to Micronet's failure to ship conforming Terminals, a late charge of U.S. $ 2.00 (two) per terminal per working day shall be imposed until the breach is cured; provided, however,that the late charges for orders shipped under the Initial Order shall not exceed $ 60,000. The late charge will be invoiced by Teletrac and paid by Micronet within 30 calendar days of date of invoice. If not paid by Micronet, the amount shall be applied against monies owed for terminals. The amount established under this paragraph for liquidated damages represents a reasonable attempt by the parties to state an amount that bears a reasonable relationship to actual damages and does not constitute a penalty. 3 4.3 Rescheduling Shipment Dates Teletrac allows Micronet to accelerate shipment dates and to deliver Teletrac bigger quantities than those stipulated in Paragraph 4.1 above. 4.4 FOB Point. All Terminals are F.O.B Ben-Gurion Airport, Israel, unless Teletrac notifies Micronet that Terminals are to be sent by ship rather than air. Shipment address is Teletrac location at 7391 Lincoln Way, Garden Grove, California 92641. 4.5 Title, Risk of Loss, Insurance. Title to the Terminals and risk of loss or damage shall pass from Micronet to Teletrac upon Micronet's delivery to the carrier at the F.O.B. point. 4.6 Method of shipment. Micronet shall at its sole expense, provide for all crating, packaging and packing in shipping containers that are designed to provide adequate protection for the Terminals during shipping. Each Terminal is to be bundled with its necessary bracket and screws and washers, appropriately protected. Terminals shall be packaged in bulk in quantities of up to 50. 5. Warranty and Service Terms. 5.1 Warranty Terms. Micronet hereby warrants the Terminals to be in full compliance with the Specifications and to be free from defects in workmanship and materials (the "Warranty") for the shorter of two years from the date of arrival at Teletrac's facility or one year after the Terminals have been delivered by Teletrac to a third party customer ("the warranty period"). Teletrac will provide Micronet with monthly reports containing the serial numbers of all terminals delivered to customers during the preceding month. Micronet also warrants the merchantability and fitness for use of the terminals. Terminals that are repaired or replaced during the Warranty Period shall be warranted for the longer of the period of time remaining under the original warranty period or 90 working days. Micronet hereby (a) consents to Teletrac's right at Teletrac's option to assign the warranty, or the remaining portion thereof, to Teletrac's customers, and (b) agrees to perform the obligations described in this paragraph 5 for the benefit of such customers. During the Warranty Period Micronet shall bear all out of pocket costs to repair or replace defective Terminals, including, without limitation, all costs of returning the Terminals to Micronet and shipping repaired or replaced Terminals to Teletrac. 5.2 Procedures. Micronet shall, at its cost, manufacture and ship to Teletrac, with the first shipment, 10 additional terminals. These along with the 10 approved test units will serve as "Spare Terminals". Teletrac shall as necessary, replace defective Terminals with Spare Terminals, or replace parts from the Spare Terminals, accumulating the defective Terminals until the earlier of (a) 10 defective Terminals are being held, or (b) 3 months have passed since Teletrac's last shipment of defective Terminals to Micronet. Teletrac will then notify Micronet by FAX of the number of defective Terminals it will ship to Micronet. Within 3 working days of receipt of Teletrac's FAX stating the number of defective Terminals being shipped, Micronet shall (a) provide Teletrac a Return Material Authorization ("RMA") number by FAX and (b) ship to Teletrac's California facility an equal number of replacement Terminals to be used as Spare Terminals. Spare Terminals will not be used for any purpose other than as replacement for defective Terminals. The procedures described in this paragraph shall apply to service during the Warranty and thereafter, except that post-warranty repairs will be subject to the charges described in paragraphs 5.5 4 and 5.6 below. RMA numbers must be used in all correspondence with Micronet and must be clearly marked on all packages and boxes shipped to Micronet. Defective Terminals shall be sent to: MICRONET LTD 7 HASHALOM ROAD TEL-AVIV, ISRAEL 67892 Or if after May 1st 1996 to: MICRONET LTD IRIS BUILDING, 27 HAMETZUDA ST AZUR, ISRAEL 58001 5.3 Time of repair or replace. If the number of defective Terminals exceeds the number of Spare Terminals held by Teletrac, the additional defective Terminals shall be repaired or replaced by Micronet within 14 working days, plus transit time from Micronet to Teletrac, from the date the defective Terminals are delivered to Micronet. Micronet acknowledges and agrees that time is of the essence in Teletrac's receipt of repaired or replaced Terminals. 5.4 Failures. The failure rate will be considered too high if it exceeds any of the following: (a) 20% of the units in a single shipment fail the acceptance tests; (b) 10% (cumulative) delivered within a 12 month period fail the acceptance tests; or (c) 20% of the units delivered to customers and in warranty do not function in full compliance with the specifications. Malfunctions falling under the limitations in section 5.8 shall not be counted as failures. If the failure rate is too high Micronet shall use its best efforts to make required engineering or production changes as promptly as possible to prevent the continued occurrence of such failures. Teletrac may require a total recall of Terminals if such step is appropriate. Micronet shall not be liable for consequential damages or lost profits or loss of business opportunity by a third party customer. 5.5 Post-Warranty Repair. For 12 months following the termination of the Warranty Period, Terminals shall be repaired for U.S. $ 50.00 per hour. Parts shall be billed at Micronet's then prevailing rates. After this 12 month period, parts and labor shall be charged at Micronet's then prevailing rates, not to exceed the annual increase in the U.S CPI over the prior 12-month period. Repaired Terminals shall be in full compliance with the Specifications and will be free from defects in material and workmanship for 90 working days from the date the repaired Terminals or Replacement Terminals have been delivered to Teletrac or to Teletrac's customer. 5.6 Freight and other costs after Warranty Period. After the Warranty period, Teletrac shall bear all costs of shipping defective Terminals to Micronet and cost of returning the repaired or replaced Terminals to Teletrac or Teletrac's customer. Teletrac is responsible, on its own or through a qualified independent contractor, for installation, deinstallation, and reinstallation of all Terminals after the Warranty Period. 5.7 Continuing availability and corrections. Micronet shall, for a period of five years from the effective date of this Agreement, maintain a repair facility in Tel-Aviv or another location that is no more costly to ship to and will require no longer transit periods than the Tel-Aviv facility and shall for the 5 same period, maintain service and repair capability, including spare parts availability. Upon the termination of the Warranty Period, Micronet shall, at its cost, perform the following services for a period of two years and six months from the effective date of this Agreement: (a) correct any original design or manufacturing defects that were not detected prior to shipment of the production Terminals if such defects can be corrected on a reasonable basis; and (b) correct any firmware defects within 30 days of notification of such defects. Micronet shall, for a period of 5 years from the effective date of this agreement, correct other defects in the Terminals (including the firmware) and work with Teletrac on modifications and enhancements to the design and performance of the Terminals (including the firmware) at the presently existing hourly rate for Micronet's personnel, plus an annual percentage increase equal to the increase in the U.S. CPI over the prior 12-month period. The terms of this Paragraph 5 shall survive the termination of this agreement. 5.8 Limitations on Warranty. This warranty shall not apply to Terminals which have been subject to accident, improper storage, mishandling, unauthorized alteration, misuse, vandalism, neglect or which have not been properly installed or maintained. 6. Teletrac's Name and Trade Marks. Micronet shall not print or use the Teletrac name, logo, or other trade marks, service marks, trade names, or similar indicia which Teletrac owns or becomes licensed or sub-licensed to use (the "Teletrac Marks"). Micronet acknowledges that Teletrac is the owner of the Teletrac Marks and that Micronet has no interest in or right to use the Teletrac Marks. 7. No Consequential Damages. Without affecting Micronet's right to claim ordinary damages for Teletrac's breach hereunder, in no event shall Teletrac be liable for incidental, consequential or special damages, including, without limitation, frustration of economic or business expectations, loss of profits, or loss of sales, arising under or related to this Agreement or by reason of Teletrac's purchase or failure to purchase Terminals hereunder. 8. Indemnification 8.1 Micronet's Indemnification for Actions. On demand, Micronet shall indemnify, defend and hold harmless Teletrac and each corporation, partner, affiliate, subsidiary, parent, joint venture, officer, agent, employee, director, shareholder, representative, successor and assign of Teletrac (collectively, the "Indemnified Teletrac Parties") from and against all claims, liabilities, obligations, damages, losses, deficiencies, costs, payments and expenses (including, without limitation, court costs and reasonable attorney's fees), lawsuits, actions and other proceedings, judgments and awards (collectively, "Claims") including without limitation claims of personal injury and death (a) to the extent that such Claims result from or arise directly or indirectly, out of any act or omission of Micronet, or Micronet's agents or employ ees, in connection with this Agreement or services provided hereunder, and (b) any Claims that arise out of the failure of Micronet's Terminals, including, without limitation, Claims of product liability, strict liability, design defect, or third party Claims of breach of Warranty (collectively, "Product Claims"); provided, however, that Micronet shall not indemnify Teletrac for Claims that arise out of the failure of Teletrac's installation, radiolocation system or services. 6 8.2 Teletrac's Indemnification. On demand, Teletrac shall indemnify, defend and hold harmless Micronet and each corporation, partner, affiliate, subsidiary, parent, joint venture, officer, agent, employee, director, shareholder, representative, successor and assign of Micronet from and against all Claims, including, without limitation, Claims of personal injury and death (a) to the extent that such Claims result from or arise, directly or indirectly, out of any act or omission of Teletrac, or Teletrac's agents or employees, in connection with this Agreement or services provided hereunder; provided, however, that Teletrac shall not indemnify Micronet for Product Claims, or Claims that arise out of the failure of Micronet's Terminals. 8.3 Proprietary Rights Indemnification. On demand, Micronet shall indemnify, defend and hold harmless, Teletrac from and against any Claims resulting or arising from or in connection with the violation or infringement of any third party's trade secrets, proprietary information, trademarks, copyrights or patent rights ("Proprietary Rights Claims") in connection with services, work or Terminals provided by Micronet under this agreement; provided, however, that Micronet shall not be required to indemnify Teletrac against any Proprietary Rights Claims from third parties arising out of Specifications provided by Teletrac. If Teletrac is enjoined or otherwise prevented by any administrative or legal order from using or selling the Terminals due to such a violation or alleged violation, Micronet shall take such action as is necessary to clear the infringement claim, as follows: (a) Replace the Terminals, without additional charge, with a compatible, functionally equivalent and non infringing product; (b) Modify the Terminals to avoid the infringement; (c) Obtain a license for Micronet's continued use of the Terminals and pay any fee required for such license; or (d) If none of the foregoing alternatives is available despite Micronet's best efforts, Micronet shall repurchase such Terminals from Teletrac at the price Teletrac paid Micronet, and Teletrac shall sell such Terminals to Micronet at such price, without waiving any other rights, remedies or claims for damages Teletrac may have at law, in equity or under this agreement. 8.4 Survival. The parties' obligations to indemnify as described in this Paragraph 8 shall survive the expiration or termination of this Agreement by either party for any reason. 8.5 Cooperation. Each party agrees to promptly notify the other of any Claim and to cooperate fully in the defense thereof or any negotiations related thereto, and neither shall enter into any settlement without the consent of the other party. 9. Rights and Obligations 9.1 Non infringement. Micronet represents that it owns or has the right to use (and Teletrac hereby grants to Micronet the right to use, for the purpose specified herein, Teletrac's Specifications) all technology, know how, copyright, trademark, patent, and intellectual property rights used in producing the Terminals or as are otherwise necessary to consummate the transactions contemplated by this Agreement. 7 9.2 Micronet's Design Rights. (a) Teletrac shall not duplicate or reverse engineer Micronet's proprietary circuitry, firmware, software, or circuit diagrams used in the design and manufacture of the Terminals ("Micronet's Design"). Micronet acknowledges that Micronet's Design does not include Teletrac's Specifications, which are the proprietary property of Teletrac. (b) Teletrac shall not provide a Terminal to any third party manufacturer for purposes of duplicate or reverse engineering Micronet's Design. Micronet acknowledges that Teletrac has no control over the conduct of any third party manufacturer or other party and is not liable therefor. (c) Teletrac shall not provide to a third party manufacturer copies of correspondence or documentation written or prepared by Teletrac and provided to Micronet in connection with Micronet's design. Teletrac may distribute its Specifications. (d) Teletrac shall not provide to a third party manufacturer copies of correspondence or documentation (including mock-ups, designs, diagrams, charts, and reports) written or prepared by Micronet and provided to Teletrac in connection with Micronet's Design; provided, however, that Teletrac may distribute materials intended for use by installers, service providers, and end users (including service manuals installation documents, and manuals intended for product and users). 10. Insurance. At all times during the term of this agreement, Micronet, at its sole expense, shall maintain in full force and effect a policy of commercial general liability insurance, including coverage against claims for Bodily Injury, Personal Injury, Property Damage and Advertizing Injury caused by or occurring in conjunction with the operation of Micronet's business including all activities authorized or required to be performed under this Agreement. Such insurance coverage shall designate ATT and its agents, employees, general partners, officers and directors as Additional Insureds and shall be maintained under one or more policies of insurance from an insurance company(s) satisfactory to Teletrac and shall provide a minimum liability protection of $ 1000,000.00 per occurrence for bodily and personal injury or death, $ 1,000,000.00 per occurrence for property damage and $ 1,000,000.00 per occurrence for product liability. Micronet shall give Teletrac prompt written notice of any material modification, cancellation/ or non-renewal of any insurance required by this agreement. Teletrac may terminate this Agreement immediately without notice to Micronet if any insurance required by this Agreement is canceled. 11. Notices Any notice, request or demand required to be made or given hereunder by any party must be in writing and shall be deemed to be duly given or made one day after it has been sent by air courier; upon telephonic confirmation of receipt if sent by fax; or ten days after it was mailed if mailed by prepaid, registered or certified mail addresses of the parties set forth below, or at such other address as has been given by either party to the other in writing in accordance with the terms of this Agreement. TELETRAC INC. 7391 Lincoln Way Garden Grove, CA 92641 MICRONET LTD 7 HASHALOM ROAD TEL-AVIV, ISRAEL 67892 8 Or if after May 1st 1996 to: MICRONET LTD IRIS BUILDING, 27 HAMETZUDA ST AZUR, ISRAEL 58001 12. Termination This agreement may be terminated as set forth below: 12.1 Termination Without Cause. Following the fulfillment of Teletrac's obligations pertaining to the Initial Order, Teletrac may terminate this Agreement, without cause, and cancel any orders for any additional Terminals that have been ordered but not shipped, upon 90 days' prior written notice. 12.2 For Breach. The appropriate party may, by written notice to the other, terminate this Agreement without prejudice to any rights that it may have, whether under the provisions of this agreement (including Teletrac's rights to liquidated damages, as set forth in Paragraphs 2.4 and 4.2), in law or in equity, or otherwise, upon the occurrence of any of the following events: (a) By Teletrac, if Micronet fails to meet any dates set forth in the Shipment Schedule, following 30 days written notice and opportunity to cure within such notice period; or (b) By Teletrac, if (a) 20% or more of the terminals received in a single shipment or (b) 10% (cumulative) delivered within a 12 month period or (c) 20% of the units delivered to customers and in warranty; do not function in substantial compliance with the Specifications, following 30 days' written notice and opportunity to cure within such notice; or (c) By Teletrac, if a government agency with jurisdiction over the operation, function, production or sale of the Terminals or over Teletrac's services or operations (by way of an example, but not limited to, the Federal Communication Commission) has determined that the Terminal is defective; or (d) Except for the breaches described in subparagraphs 12.2(a), (b) or (c), by either party, if there is a material breach or default in the other's performance of its obligations hereunder, following 30 day's written notice and opportunity to cure within such notice period; or (e) By either party, if the other party files or has filed against it a petition under any bankruptcy or insolvency act or has appointed a trustee, receiver, or liquidator of its properties. 13. Arbitration. All disputes that may arise in connection with this Agreement that are not adjusted by the parties themselves shall be submitted to binding arbitration in Los Angeles, California under the rules and regulations then prevailing of the American Arbitration Association. Teletrac shall select one arbitrator, Micronet shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. All costs of arbitration, including each party's attorneys' fees shall be paid by the non-prevailing party. The award shall be binding and conclusive on each of the parties and may be used on or enforced by the party in whose favor it runs in a court of competent jurisdiction in Los Angeles, California (including the United States District Court for the Central District of California). Pending resolution of any dispute, if requested in writing by Teletrac, Micronet shall proceed diligently with the performance of its obligations hereunder, including the shipment of 9 Terminals, and Teletrac shall make payment therefor on the basis set forth in the applicable paragraphs of this agreement. 14. Force Majeure. If an event of force majeure, including but not limited to acts of God, flood, earthquake, landslide, fire, war, blockage, requisition of vessel, or aircrafts, explosion, governmental request, order or regulations or any other unforeseeable causes or circumstances beyond the control of Micronet, and without its fault or negligence, directly affects the ability of Micronet to manufacture and ship the Terminals then Micronet shall not be liable in damages for its delay in performing its obligations hereunder, on a day for day basis as to the days of force majeure; provided however, that Micronet shall promptly fulfill its obligations under this agreement after the force majeure ceases. If an event of force majeure occurs which will prevent Micronet from shipping the Terminals for more than 120 calendar days, Teletrac shall have the automatic and immediate right to obtain a complete and accurate set of design and production technology documents sufficiently detailed to enable a third party to manufacture the Terminals. ("Technology Documents"). The Technology Documents shall be revised and updated as changes are made to the Terminals or the manufacturing process during the term of this agreement. 15. Miscellaneous Provisions 15.1 Relationship of parties. This agreement does not constitute partnership or joint venture between Teletrac and Micronet. Both parties acknowledge that the relationship of Micronet to Teletrac shall be one of an independent contractor. 15.2 Governing Law. This agreement and any dispute or claim arising from this Agreement shall be governed, construed and interpreted in accordance with the laws of the state of California without regard to any rule of conflicts of law. 15.3 Jurisdiction. The parties hereby consent to the personal jurisdiction of an arbitrator or court located in Los Angeles, California and of the United States District Court for the Central District of California. It is the specific intent of the parties that this Agreement not be construed in accordance with or governed by the laws of Israel and that Israeli courts have no jurisdiction over this Agreement or any dispute or claim arising from this agreement except as may be necessary to enforce an award of the arbitrator or court. The parties expressly agree that the United Nations Conventions on Contracts for the International Sale of Goods and the Hague Convention shall not apply to the construction or interpretation of this Agreement or affect any of its provisions. Initials /s/ AH Initials ------------- ----------- 15.4 Assignment. Micronet shall not assign, transfer, or sell any of the rights of Teletrac hereunder without the prior permission of Teletrac. 15.5 No Waiver. Failure of Teletrac to insist upon strict performance of any of the terms, conditions, provisions, or specifications within this Agreement, or the delay in exercising any of its remedies, shall not constitute a waiver of such terms, conditions, provisions, or Specifications or a waiver of any default. 10 15.6 Survival of Obligations. Obligations under this Agreement which by their nature would continue beyond termination or expiration of this Agreement, including by way of illustration only and not limitation, paragraphs related to Warranty and Indemnification, shall survive termination or expiration of this Agreement by either party for any reason. 15.7 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties as to the subject matter of this Agreement and supersedes all previous written or oral communications, representations or agreements. This Agreement may not be modified except by written instrument executed by both parties. 15.8 Remedies. All remedies available to either party for breach of this Agreement are cumulative and may be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed an election of such remedy to the exclusion of other remedies. 15.9 Headings. The paragraph headings used in this Agreement are for convenience of reference only and shall not in any way limit or amplify the terms and provisions hereof, nor enter into the interpretation of this Agreement. 15.10 Binding Agreement. The persons executing this Agreement on behalf of the parties have been duly and validly authorized to do so, and this Agreement is a valid and binding obligation of the parties. 15.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. 15.12 Severability. If any terms of this Agreement shall be unlawful, void or unenforceable, such term shall be deemed omitted to the extent prohibited or invalid, but the remainder of this Agreement shall not be invalidated and shall be given effect as far as possible. If any term hereof is found by a court or arbitrator to be overbroad, such term shall be limited to the extent required to make it enforceable. 15.13 Dollars. All money amounts specified in this Agreement are in U.S dollars. Executed as of the day and year first above written. Teletrac Inc. By: Steven D. Scheiwe Title: Secretary Signature: /s/ Steven D. Scheiwe --------------------------- Micronet Ltd. By: Eli Nahum Title: Vice President Engineering Signature: /s/ Eli Nahum --------------------------- 11 EX-10.2 3 EX-10.2 [**** Certain confidential portions have been omitted and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2.] Exhibit 10.2 September 20th 1999 Ref: 2432 AMENDMENT FOR: Net-955 Mobile Data Terminal Purchase Agreement The following will amend the existing agreement, between Teletrac Inc. and Micronet Ltd for the purchasing of Mobile Data Terminals as originally signed by both parties on February 8th 1996. This amendment is in pursuance of Teletrac's purchase order number 10062 dated September 16th 1999 and Emails from August 3, 10, 26 1999 by Mr. Chuck Scheiwe applying for additional **** Net-955 MDTs to be supplied on an equal monthly basis starting January 15 th 2000 through December 15 th 2000. This amendment will become effective and part of the existing agreement between Teletrac Inc. and Micronet upon authorized signatures by both parties and will supersede the previous amendment of September 21 st 1997. Teletrac Inc. Micronet Ltd. By: Chuck Scheiwe By: Eli Nahum ------------------------ ------------------------ Title: Controller Title: Vice President Engin. --------------------- ---------------------- Signature: /s/ Chuck Scheiwe Signature: /s/ Eli Nahum ----------------- ------------------ 1. AGREEMENT TO PURCHASE AND SELL. 1.1 SALE OF PRODUCTS. "Teletrac shall purchase from Micronet a minimum of **** terminals and Micronet shall sell to Teletrac a minimum of **** terminals, on the terms set forth herein and on the attached purchase order #10062 dated September 16 th 1999 Terminals are defined as Micronet's production level Net-955 Mobile Data Terminal and are based on the upgraded version of the previous purchased Net-950 Mobile Data Terminal. Supplies of the Net-955 Mobile Data Terminals shall be produced in accordance to the prototypes of 200 units already tested and approved by Teletrac for serial production. Description, technical engineering, and operational specifications for the Net-955 Terminal and the protocol (the "Specifications") are set forth in Appendix "A" titled Ver. A Dated Dec. 21 st 1998. Micronet shall imprint serial numbers (including bar-coded serial numbers) on the back panel of each Terminal, and shall print, in white, "Net-955" on each Terminal. 1.2 INITIAL ORDER. "Teletrac hereby places an order for **** Terminals from Micronet (the "Initial Order"), of these, the order for the first **** units is firm and irrevocable. All of these terminals will be purchased in accordance with the terms and conditions of the existing agreement from February 8 th 1996 and this amendment. "CANCELLATION. Teletrac has the option to cancel all or part of the remaining **** units ordered by advanced written notice 3 months prior to delivery schedule ("Timely Cancellation") or with 2 month prior notice ("Late Cancellation"). Teletrac will pay a compensation fee for cancelled units as specified in Paragraph 3.1. 1.3 "INCREMENTAL ORDERS. Within the time period of the Initial Order for **** Terminals, ordered hereunder, incremental orders for additional Terminals shall be in writing and shall specify arrival dates of not less than 12 weeks from delivery of the order to Micronet. All incremental orders shall be for at least **** terminals per order and shall be filled in accordance with this amendment and the other terms of the existing agreement. SUBSEQUENT ORDERS. AFter the Initial Order of **** Terminals, ordered hereunder, have been purchased and supplied, subsequent orders for additional Terminals shall be in writing and shall specify arrival dates of not less than 12 weeks from delivery of the order to Micronet. Micronet may, by written notification delived to Teletrac within 10 working days of Micronet receipt of a subsequent order, elect not to fill the subsequent order. If Micronet does not notify Teletrac of its election to not fill the subsequent order, the order shall be filled as described in the existing agreement. All subsequent orders shall be for at least **** Terminals per order. The rest of this paragraph remains unchanged. 3. PAYMENT 3.1 PRICE "The purchase price of each Terminal (including backet and screws) shall be: $ **** F.O.B. Israel. Compensation Fee: $ U.S. **** per unit for unit not delivered due to Timely Cancellation. $ U.S. **** per unit for unit not delivered due to Late Cancellation. The rest of this paragraph remains unchanged. 3.3 Terms of Payment Teletrac, by Bank wire transfer, shall make a down payment to Micronet's account in the amount of: U.S. $ **** (**** Dollars) as specified below: $**** no later than October 1 st 1999. $**** no later than November 1st 1999. Total: $**** Note: The down payment is a ****% of 3 month purchase sum. Incremental orders shall require ****% down payment to be credited upon payment of balance due prior to actual delivery. Payments in full for all shipments, as per paragraph 4 below will be made by wire transfer immediately prior to each delivery. Payment for the last delivery will include any cancellation fees and credit for the initial down payment. 4. SHIPMENT 4.1 SHIPMENT TERMS. Unless Teletrac notifies Micronet otherwise, as provided in Paragraph 12.2 or 1.2 Teletrac hereby orders **** Terminals to be shipped to Teletrac's facility described in paragraph 4.4, on the dates set forth in the following Shipment Schedule: Number of Terminal Date shipped to Teletrac Terminals Type Facility **** Net-955 January 15th 2000 **** Net-955 February 15th 2000 **** Net-955 March 15th 2000 **** Net-955 April 15th 2000 **** Net-955 May 15th 2000 **** Net-955 June 15th 2000 **** Net-955 July 15th 2000 **** Net-955 August 15th 2000 **** Net-955 September 15th 2000 **** Net-950 October 15th 2000 **** Net-950 November 15th 2000 **** Net-950 December 15th 2000 TOTAL: **** MDTs First Note of the original agreement: "Micronet is allowed to accelarate shipments . . . . . . .. in Paragraph 3.3 above." is cancelled. Shipments dates are conditional on Teletrac complying on time with payment terms of paragraph 3.3 above. 4.3 RESCHEDULING SHIPMENTS DATES This paragraph is no longer valid. APPENDIX A MESSAGE DATA TERMINAL (MDT) NET-955 SPECIFICATIONS Ver. A, December 21, 1998 Teletrac, Inc. Proprietary 1. SCOPE This document defines the specifications of the Message Data Terminal (MDT) to be integrated with the Telectrac system Vehicle Location Units (VLUs). **** [22 pages redacted and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2.] EX-10.3 4 EX-10.3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of September 29, 1999, by and between TELETRAC, INC., a Delaware corporation (the "Company"), and STEVEN D. SCHEIWE (the "Employee"). W I T N E S S E T H: WHEREAS, the Company is seeking confirmation pursuant to Section 1129 of the Bankruptcy Code, 11 U.S.C. S.1129, of a Second Amended Plan of Reorganization of the Company (the "Plan of Reorganization"); and WHEREAS, the Company desires to induce the Employee to enter into employment with the Company commencing on the Effective Date (the "Effective Date") of the Plan of Reorganization as defined therein for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter provided, the term of the Employee's employment under this Agreement shall initially be for a period beginning on the Effective Date hereof and ending twenty four months after the Effective Date. Thereafter, this Agreement will continue in full force and effect from year to year unless terminated by either the Employee or the Company by written notice given to the other not later than two months before the end of the year of such termination. The period from the date hereof until the date the Employee's employment hereunder is terminated (whether twenty four months after the Effective Date or earlier or later as provided herein) is hereinafter called the "Employment Term." 1 3. DUTIES. The Employee shall be employed as the Chief Executive Officer, a Vice President, General Counsel and Secretary of the Company, shall faithfully and competently perform such duties as are specified in the Bylaws of the Company and shall also perform and discharge such other executive employment duties and responsibilities consistent with his position as the current Chief Executive Officer, a Vice President, General Counsel and Secretary as the Board of Directors of the Company may from time to time reasonably prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe; provided, however, that if compliance with this requirement would require the Employee to relocate more than 40 miles from his current home in the San Diego, California area, the Employee will only be required to relocate on such terms and to such location as is mutually acceptable to the Employee and the Company. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, personal affairs or non-profit public service activities, the Employee shall devote his full time during normal business hours throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. 4. SALARY, BONUS AND STOCK OPTION. (a) Salary. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of two hundred ten thousand dollars ($210,000) (said amount, together with any increases thereto as provided in this Section 4(a), being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals (but in no event less frequently than monthly) in accordance with the Company's payroll practices from time to time in effect. The Salary payable to the Employee pursuant to this Section 4(a) may be increased as determined from time to time by the Compensation Committee of the Board of Directors of the Company in its sole discretion. (b) BONUS. The Employee shall be eligible to receive bonus compensation from the Company in respect of the fiscal year ending December 31, 1999 and each fiscal year (or portion thereof) occurring during the Employment Term. The Employee shall be eligible to receive bonus compensation in the amount of $75,000 for the fiscal year ending December 31, 1999 if the Company shall have met the target performance objectives established by the Board. The amount of bonus compensation the Employee shall be eligible to receive during the balance of the Employment Term shall be determined by the Compensation Committee of the Board of Directors of the Company and shall be based on target performance objectives set by the Compensation Committee of the Board of Directors of the Company. Any bonus payable hereunder shall be paid as promptly as practicable as determined by the Board of Directors in its sole discretion. 2 (c) WITHHOLDING, ETC. The payment of any Salary and bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. (d) STOCK OPTION. (i) Effective the Effective Date, the Company shall grant to the Employee a stock option, pursuant to the Teletrac, Inc. and its Subsidiaries 1999 Stock Option and Restricted Stock Purchase Plan (the "Stock Option Plan") to purchase an aggregate 75,000 shares, subject to adjustment as provided therein, of Common Stock, $.01 par value, of the Company. Such option is intended to the maximum extent permissible to qualify as a "incentive stock option" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended. Such option shall be at the purchase price and subject to the other terms and conditions provided in stock option agreement between the Company and the Employee substantially in the form attached hereto as Exhibit A. (ii) The Employee shall be eligible to receive additional incentive stock options and/or non-qualified stock options in accordance with the Stock Option Plan to the extent and in the manner as determined by the Compensation Committee of the Board of Directors. 5. OTHER BENEFITS. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to four weeks' annual paid vacation; (iv) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; and (v) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's policies applicable thereto. 6. CONFIDENTIAL INFORMATION. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company, its subsidiaries and affiliates (collectively, the "Companies"), including but 3 not limited to (i) business plans, operating plans, marketing plans, financial reports, operating data, budgets, wage and salary rates, pricing strategies and information, terms of agreements with suppliers or customers and others, customer lists, patents, devices, software programs, reports, correspondence, tangible property and specifications owned by or used in the businesses of one or more of the Companies, (ii) information pertaining to future developments such as, but not limited to, research and development, future marketing, distribution, delivery or merchandising plans or ideas, and potential new business locations, and (iii) other tangible and intangible property, which are used in the business and operations of the Companies but not made publicly available. The information and trade secrets relating to the business of the Companies described hereinabove in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee) or (y) that the Employee receives on a nonconfidential basis from a source (other than the Company, its affiliates or representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to the Companies or any of them. (b) The Employee hereby assigns to the Company, in consideration of his employment, all Confidential Information developed by or otherwise in the possession of the Employee at any time during the Employment Term, whether or not made or conceived during working hours, alone or with others, which relates, directly or indirectly, to businesses or proposed businesses of any of the Companies, and the Employee agrees that all such Confidential Information shall be the exclusive property of the Companies. Upon request of the Board of Directors of the Company, the Employee shall execute and deliver to the Companies any specific assignments or other documents appropriate to vest title in such Confidential Information in the Companies or to obtain for the Companies legal protection for such Confidential Information. (c) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by applicable law or judicial process, but only after notice to the Company of the Employee's intention to do so and opportunity for the Company to challenge or limit the scope of the disclosure. (d) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. 4 (e) The Employee agrees that upon termination of his employment by the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information, documents, correspondence, notebooks, reports, computer programs and all other materials and copies thereof (including computer discs and other electronic media) relating in any way to the business of the Companies in any way developed or obtained by the Employee during the period of his employment with the Company. (f) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement and shall terminate three years after the termination of the Employment Term. (g) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. TERMINATION. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) death of the Employee; (ii) termination of the Employee's employment hereunder by the Employee at any time for "good reason" (as defined below); (iii) termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement), other than "good reason" as contemplated by clause (ii) above; (iv) termination of the Employee's employment hereunder by the Company because of the Employee's inability to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (v) termination of the Employee's employment hereunder by the Company at any time "for cause" (as defined below), such termination to take effect immediately upon written notice from the Company to the Employee; and (vi) termination of the Employee's employment hereunder by the Company at any time, other than (x) termination by reason of disability or incapacity as contemplated by clause (iv) above or (y) termination by the Company "for cause" as contemplated by clause (v) above. 5 (b) In the event that the Employee's employment is terminated pursuant to clause (i), (ii), (iv) or (vi) of Section 7(a) above, or in the event of a Change in Control (as defined below), the Company shall pay to the Employee, as severance pay or liquidated damages or both, during the twelve-month period immediately following such termination, the amount of Salary that the Employee would have otherwise been entitled to receive during such twelve-month period had the Employee's employment not been so terminated; provided, however, that no such payment shall be due (i) in the event such termination occurs as a result of a notice of termination given by the Company or by the Employee in connection with a failure to renew this Agreement as provided in Section 2 or (ii) in the event the Employee is terminated solely from his position as Chief Executive Officer and maintains his position as a Vice President, General Counsel and Secretary and all other terms and conditions of this Agreement remain in full force and effect. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and bonus as shall have been determined to be due by the Board of Directors and, in each case, remained unpaid as of the date of said cessation and (ii) such other amounts, if any, which may be then otherwise payable to the Employee from the Company's benefits plans or reimbursement policies. The termination of this Agreement shall not relieve the Employee of any liability for any willful breach hereof. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. (e) For purposes of this Agreement, the following definitions shall apply: (i) The term "good reason" shall mean only the following: (1) material default by the Company in the performance of its obligations hereunder, or (2) material diminishment of the duties, position or responsibilities of the Employee hereunder (provided that, in either such case, the Employee shall have provided the Board of Directors of the Company with written notice of such default or other event and a reasonable opportunity to discuss the matter with the Employee, followed by a notice that the Employee adheres to his position and a reasonable opportunity to cure); (ii) The term "cause" shall mean only the following: (1) conviction of the Employee of having committed a felony, (2) acts of dishonesty or moral turpitude by the Employee that are materially detrimental to the Company and/or its affiliates, (3) acts or omissions by the Employee that the Employee knew were likely to materially damage the business of the Company and/or any affiliate of the Company whose business, operations, assets or properties are material to the Company, (4) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, his obligations hereunder, or willful and material breach by the Employee 6 of the terms hereof or (5) failure by the Employee to obey the reasonable and lawful orders of the Board of Directors that are consistent with the provisions of this Agreement (provided that, in the event such failure shall not also constitute "cause" under any of clauses (1) through (4) above, the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a notice that the Board of Directors adheres to its position and a reasonable opportunity to comply with such orders). It is understood and agreed that the performance of the Company, whether financial, operational or otherwise, shall not (in the absence of "cause" as provided in clauses (1) through (5) above) constitute "cause." (iii) "Change of Control" shall mean the acquisition of (a) beneficial ownership of more than 50% of the voting equity securities of the Company or any successor to the Company (by merger or otherwise) or (b) all or substantially all the assets of the Company, by any person or entity (including, without limitation, any group within the meaning of Section 13(d)(3) of the Securities Exchange Act, as amended). 8. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. COMPETITION, ETC. (a) During the Employment Term and during the two-year period following the end of the Employment Term for any reason whatsoever, provided that payments, if any, required pursuant to Section 7(b) hereof are made in full and in a timely fashion: (i) the Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization which engages in competition with the Company or any of its affiliates in any State where any business shall be carried on (or formally contemplated to be carried on) by the Company or any of its affiliates during the Employment Term or as of the end of the Employment Term, as the case may be, provided, however, that the provisions of this Section 9(a)(i) shall not be deemed to prohibit (A) the Employee's ownership of not more than five percent (5%) of the total shares of all classes of stock outstanding of any publicly held company, or ownership, whether through 7 direct or indirect stock holdings or otherwise, of one percent (1%) or more of any other business or (B) non-profit public service activities, as contemplated by Section 3 hereof; and (ii) the Employee will not directly or indirectly induce or attempt to induce any employee of the Company or any affiliate of the Company to leave the employ of the Company or such affiliate, or in any way interfere with the relationship between the Company or any such affiliate and any employee thereof. (b) For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its affiliates, if such person or entity in any way conducts, operates, carries out or engages in (i) the business of vehicle location and fleet management services or related services and supplies, or (ii) such other business or businesses as the Company may conduct in the future in such geographical area or areas as such business or businesses are conducted. (c) For purposes of this Section 9, no company or entity that may be deemed to be an affiliate of the Company solely by reason of its being controlled by, or under common control with, any of the Investors or their respective affiliates other than the Company, will be deemed to be an affiliate of the Company. (d) In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its affiliates. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement, except as otherwise expressly provided herein. (e) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. BINDING EFFECT. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the 8 Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 12. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13. SEVERABILITY. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. TELETRAC, INC. By /s/ ALAN HOWE ------------------------- Name: Alan Howe Title: Chief Financial Officer /s/ STEVEN D. SCHEIWE ------------------------- Steven D. Scheiwe 10 EX-10.4 5 EX-10.4 EXHIBIT 10.4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of September 29, 1999, by and between TELETRAC, INC., a Delaware corporation (the "Company"), and ALAN HOWE (the "Employee"). W I T N E S S E T H: WHEREAS, the Company is seeking confirmation pursuant to Section 1129 of the Bankruptcy Code, 11 U.S.C. S.1129, of a Second Amended Plan of Reorganization of the Company (the "Plan of Reorganization"); and WHEREAS, the Company desires to induce the Employee to enter into employment with the Company commencing on the Effective Date (the "Effective Date") of the Plan of Reorganization as defined therein for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter provided, the term of the Employee's employment under this Agreement shall initially be for a period beginning on the Effective Date and ending twenty-four months after the Effective Date. Thereafter, this Agreement will continue in full force and effect from year to year unless terminated by either the Employee or the Company by written notice given to the other not later than two months before the end of the year of such termination. The period from the date hereof until the date the Employee's employment hereunder is terminated (whether twenty-four months after the Effective Date or earlier or later as provided herein) is hereinafter called the "Employment Term." 1 3. DUTIES. The Employee shall be employed as the Chief Financial Officer and Vice President of Finance and Corporate Development of the Company, shall faithfully and competently perform such duties as are specified in the Bylaws of the Company and shall also perform and discharge such other executive employment duties and responsibilities consistent with his position as the current Chief Financial Officer and Vice President of Finance and Corporate Development as the Board of Directors and the Chief Executive Officer of the Company may from time to time reasonably prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe; PROVIDED, HOWEVER, that if compliance with this requirement would require the Employee to relocate more than 40 miles from his current home in the San Diego, California area, the Employee will only be required to relocate on such terms and to such location as is mutually acceptable to the Employee and the Company. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, personal affairs or non-profit public service activities, the Employee shall devote his full time during normal business hours throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. 4. SALARY, BONUS AND STOCK OPTION. (a) SALARY. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of one hundred seventy four thousand dollars ($174,000) (said amount, together with any increases thereto as provided in this Section 4(a), being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals (but in no event less frequently than monthly) in accordance with the Company's payroll practices from time to time in effect. The Salary payable to the Employee pursuant to this Section 4(a) may be increased as determined from time to time by the Compensation Committee of the Board of Directors of the Company in its sole discretion. (b) BONUS. The Employee shall be eligible to receive bonus compensation from the Company in respect of the fiscal year ending December 31, 1999 and each fiscal year (or portion thereof) occurring during the Employment Term. The Employee shall be eligible to receive bonus compensation in the amount of $75,000 for the fiscal year ending December 31, 1999 if the Company shall have met the target performance objectives established by the Board. The amount of bonus compensation the Employee shall be eligible to receive during the balance of the Employment Term shall be determined by the Compensation Committee of the Board of Directors of the Company and shall be based on target performance objectives set by the Compensation Committee of the Board of Directors of the Company. Any bonus payable hereunder shall be paid as promptly as practicable as determined by the Board of Directors in its sole discretion. 2 (c) WITHHOLDING, ETC. The payment of any Salary and bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. (d) STOCK OPTION. (i) Effective the Effective Date, the Company shall grant to the Employee a stock option, pursuant to the Teletrac, Inc. and its Subsidiaries 1999 Stock Option and Restricted Stock Purchase Plan (the "Stock Option Plan") to purchase an aggregate 75,000 shares, subject to adjustment as provided therein, of Common Stock, $.01 par value (the "Common Stock"), of the Company. Such option is intended to the maximum extent permissible to qualify as a "incentive stock option" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended. Such option shall be at the purchase price and subject to the other terms and conditions provided in stock option agreement between the Company and the Employee substantially in the form attached hereto as Exhibit A. (ii) The Employee shall be eligible to receive additional incentive stock options and/or non-qualified stock options in accordance with the Stock Option Plan to the extent and in the manner as determined by the Compensation Committee of the Board of Directors. 5. OTHER BENEFITS. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to three weeks' annual paid vacation; (iv) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; and (v) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's policies applicable thereto. 6. CONFIDENTIAL INFORMATION. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company, its subsidiaries and affiliates (collectively, the "Companies"), including but 3 not limited to (i) business plans, operating plans, marketing plans, financial reports, operating data, budgets, wage and salary rates, pricing strategies and information, terms of agreements with suppliers or customers and others, customer lists, patents, devices, software programs, reports, correspondence, tangible property and specifications owned by or used in the businesses of one or more of the Companies, (ii) information pertaining to future developments such as, but not limited to, research and development, future marketing, distribution, delivery or merchandising plans or ideas, and potential new business locations, and (iii) other tangible and intangible property, which are used in the business and operations of the Companies but not made publicly available. The information and trade secrets relating to the business of the Companies described hereinabove in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee) or (y) that the Employee receives on a nonconfidential basis from a source (other than the Company, its affiliates or representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to the Companies or any of them. (b) The Employee hereby assigns to the Company, in consideration of his employment, all Confidential Information developed by or otherwise in the possession of the Employee at any time during the Employment Term, whether or not made or conceived during working hours, alone or with others, which relates, directly or indirectly, to businesses or proposed businesses of any of the Companies, and the Employee agrees that all such Confidential Information shall be the exclusive property of the Companies. Upon request of the Board of Directors of the Company, the Employee shall execute and deliver to the Companies any specific assignments or other documents appropriate to vest title in such Confidential Information in the Companies or to obtain for the Companies legal protection for such Confidential Information. (c) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by applicable law or judicial process, but only after notice to the Company of the Employee's intention to do so and opportunity for the Company to challenge or limit the scope of the disclosure. (d) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. 4 (e) The Employee agrees that upon termination of his employment by the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information, documents, correspondence, notebooks, reports, computer programs and all other materials and copies thereof (including computer discs and other electronic media) relating in any way to the business of the Companies in any way developed or obtained by the Employee during the period of his employment with the Company. (f) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement and shall terminate three years after the termination of the Employment Term. (g) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. TERMINATION. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) death of the Employee; (ii) termination of the Employee's employment hereunder by the Employee at any time for "good reason" (as defined below); (iii) termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement), other than "good reason" as contemplated by clause (ii) above; (iv) termination of the Employee's employment hereunder by the Company because of the Employee's inability to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (v) termination of the Employee's employment hereunder by the Company at any time "for cause" (as defined below), such termination to take effect immediately upon written notice from the Company to the Employee; and (vi) termination of the Employee's employment hereunder by the Company at any time, other than (x) termination by reason of disability or incapacity as contemplated by clause (iv) above or (y) termination by the Company "for cause" as contemplated by clause (v) above. 5 (b) In the event that the Employee's employment is terminated pursuant to clause (i), (ii), (iv) or (vi) of Section 7(a) above, and in the event of a Change in Control (as defined below) the Company shall pay to the Employee, as severance pay or liquidated damages or both, during the twelve-month period immediately following such termination, the amount of Salary that the Employee would have otherwise been entitled to receive during such twelve-month period had the Employee's employment not been so terminated; PROVIDED, HOWEVER, that no such payment shall be due (i) in the event such termination occurs as a result of a notice of termination given by the Company or by the Employee in connection with a failure to renew this Agreement as provided in Section 2 or (ii) in the event the Employee is terminated solely from his position as Chief Financial Officer and maintains his position as Vice President of Finance and Corporate Development and all other terms and conditions of this Agreement remain in full force and effect. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and bonus as shall have been determined to be due by the Board of Directors and, in each case, remained unpaid as of the date of said cessation and (ii) such other amounts, if any, which may be then otherwise payable to the Employee from the Company's benefits plans or reimbursement policies. The termination of this Agreement shall not relieve the Employee of any liability for any willful breach hereof. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. (e) For purposes of this Agreement, the following definitions shall apply: (i) The term "good reason" shall mean only the following: (1) material default by the Company in the performance of its obligations hereunder, or (2) material diminishment of the duties, position or responsibilities of the Employee hereunder (provided that, in either such case, the Employee shall have provided the Board of Directors of the Company with written notice of such default or other event and a reasonable opportunity to discuss the matter with the Employee, followed by a notice that the Employee adheres to his position and a reasonable opportunity to cure); (ii) The term "cause" shall mean only the following: (1) conviction of the Employee of having committed a felony, (2) acts of dishonesty or moral turpitude by the Employee that are materially detrimental to the Company and/or its affiliates, (3) acts or omissions by the Employee that the Employee knew were likely to materially damage the business of the Company and/or any affiliate of the Company whose business, operations, assets or properties are material to the Company, (4) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, his obligations hereunder, or willful and material breach by the Employee 6 of the terms hereof or (5) failure by the Employee to obey the reasonable and lawful orders of the Board of Directors that are consistent with the provisions of this Agreement (provided that, in the event such failure shall not also constitute "cause" under any of clauses (1) through (4) above, the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a notice that the Board of Directors adheres to its position and a reasonable opportunity to comply with such orders). It is understood and agreed that the performance of the Company, whether financial, operational or otherwise, shall not (in the absence of "cause" as provided in clauses (1) through (5) above) constitute "cause." (iii) "Change of Control" shall mean the acquisition of (a) beneficial ownership of more than 50% of the voting equity securities of the Company or any successor to the Company (by merger or otherwise) or (b) all or substantially all the assets of the Company, by any person or entity (including, without limitation, any group within the meaning of Section 13(d)(3) of the Securities Exchange Act, as amended). 8. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; PROVIDED, HOWEVER, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. COMPETITION, ETC. (a) During the Employment Term and during the two-year period following the end of the Employment Term for any reason whatsoever, provided that payments, if any, required pursuant to Section 7(b) hereof are made in full and in a timely fashion: (i) the Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization which engages in competition with the Company or any of its affiliates in any State where any business shall be carried on (or formally contemplated to be carried on) by the Company or any of its affiliates during the Employment Term or as of the end of the Employment Term, as the case may be, PROVIDED, HOWEVER, that the provisions of this Section 9(a)(i) shall not be deemed to prohibit (A) the Employee's ownership of not more than five percent (5%) of the total shares of all classes of stock outstanding of any publicly held company, or ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more 7 of any other business or (B) non-profit public service activities, as contemplated by Section 3 hereof; and (ii) the Employee will not directly or indirectly induce or attempt to induce any employee of the Company or any affiliate of the Company to leave the employ of the Company or such affiliate, or in any way interfere with the relationship between the Company or any such affiliate and any employee thereof. (b) For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its affiliates, if such person or entity in any way conducts, operates, carries out or engages in (i) the business of vehicle location and fleet management services or related services and supplies, or (ii) such other business or businesses as the Company may conduct in the future in such geographical area or areas as such business or businesses are conducted. (c) For purposes of this Section 9, no company or entity that may be deemed to be an affiliate of the Company solely by reason of its being controlled by, or under common control with, any of the Investors or their respective affiliates other than the Company, will be deemed to be an affiliate of the Company. (d) In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its affiliates. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement, except as otherwise expressly provided herein. (e) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. BINDING EFFECT. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the 8 Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 12. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13. SEVERABILITY. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. TELETRAC, INC. By /s/ STEVEN D. SCHEIWE ---------------------- Name: Steven D. Scheiwe Title: Chief Executive Officer /s/ ALAN HOWE ---------------------- Alan Howe 10 EX-10.5 6 EX-10.5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of September 29, 1999, by and between TELETRAC, INC., a Delaware corporation (the "Company"), and CHARLES SCHEIWE (the "Employee"). W I T N E S S E T H: WHEREAS, the Company is seeking confirmation pursuant to Section 1129 of the Bankruptcy Code, 11 U.S.C. S.1129, of a Second Amended Plan of Reorganization of the Company (the "Plan of Reorganization"); and WHEREAS, the Company desires to induce the Employee to enter into employment with the Company commencing on the Effective Date (the "Effective Date") of the Plan of Reorganization as defined therein for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter provided, the term of the Employee's employment under this Agreement shall initially be for a period beginning on the Effective Date and ending twenty-four months after the Effective Date. Thereafter, this Agreement will continue in full force and effect from year to year unless terminated by either the Employee or the Company by written notice given to the other not later than two months before the end of the year of such termination. The period from the date hereof until the date the Employee's employment hereunder is terminated (whether twenty-four months after the Effective Date or earlier or later as provided herein) is hereinafter called the "Employment Term." 1 3. DUTIES. The Employee shall be employed as the Controller of the Company, shall faithfully and competently perform such duties as are specified in the Bylaws of the Company and shall also perform and discharge such other executive employment duties and responsibilities consistent with his position as the Controller as the Board of Directors and the Chief Executive Officer of the Company may from time to time reasonably prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe; PROVIDED, HOWEVER, that if compliance with this requirement would require the Employee to relocate more than 40 miles from his current home in the San Diego, California area, the Employee will only be required to relocate on such terms and to such location as is mutually acceptable to the Employee and the Company. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, personal affairs or non-profit public service activities, the Employee shall devote his full time during normal business hours throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. 4. SALARY, BONUS AND STOCK OPTION. (a) SALARY. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of one hundred forty thousand four hundred dollars ($140,400) (said amount, together with any increases thereto as provided in this Section 4(a), being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals (but in no event less frequently than monthly) in accordance with the Company's payroll practices from time to time in effect. The Salary payable to the Employee pursuant to this Section 4(a) may be increased as determined from time to time by the Compensation Committee of the Board of Directors of the Company in its sole discretion. (b) BONUS. The Employee shall be eligible to receive bonus compensation from the Company in respect of the fiscal year ending December 31, 1999 and each fiscal year (or portion thereof) occurring during the Employment Term. The Employee shall be eligible to receive bonus compensation in the amount of $75,000 for the fiscal year ending December 31, 1999 if the Company shall have met the target performance objectives established by the Board. The amount of bonus compensation the Employee shall be eligible to receive during the balance of the Employment Term shall be determined by the Compensation Committee of the Board of Directors of the Company and shall be based on target performance objectives set by the Compensation Committee of the Board of Directors of the Company. Any bonus payable hereunder shall be paid as promptly as practicable as determined by the Board of Directors in its sole discretion. 2 (c) WITHHOLDING, ETC. The payment of any Salary and bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. (d) STOCK OPTION. (i) Effective the Effective Date, the Company shall grant to the Employee a stock option, pursuant to the Teletrac, Inc. and its Subsidiaries 1999 Stock Option and Restricted Stock Purchase Plan (the "Stock Option Plan") to purchase an aggregate 75,000 shares, subject to adjustment as provided therein, of Common Stock, $.01 par value (the "Common Stock"), of the Company. Such option is intended to the maximum extent permissible to qualify as a "incentive stock option" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended. Such option shall be at the purchase price and subject to the other terms and conditions provided in stock option agreement between the Company and the Employee substantially in the form attached hereto as Exhibit A. (ii) The Employee shall be eligible to receive additional incentive stock options and/or non-qualified stock options in accordance with the Stock Option Plan to the extent and in the manner as determined by the Compensation Committee of the Board of Directors. 5. OTHER BENEFITS. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to three weeks' annual paid vacation; (iv) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; and (v) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's policies applicable thereto. 6. CONFIDENTIAL INFORMATION. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company, its subsidiaries and affiliates (collectively, the "Companies"), including but 3 not limited to (i) business plans, operating plans, marketing plans, financial reports, operating data, budgets, wage and salary rates, pricing strategies and information, terms of agreements with suppliers or customers and others, customer lists, patents, devices, software programs, reports, correspondence, tangible property and specifications owned by or used in the businesses of one or more of the Companies, (ii) information pertaining to future developments such as, but not limited to, research and development, future marketing, distribution, delivery or merchandising plans or ideas, and potential new business locations, and (iii) other tangible and intangible property, which are used in the business and operations of the Companies but not made publicly available. The information and trade secrets relating to the business of the Companies described hereinabove in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee) or (y) that the Employee receives on a nonconfidential basis from a source (other than the Company, its affiliates or representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to the Companies or any of them. (b) The Employee hereby assigns to the Company, in consideration of his employment, all Confidential Information developed by or otherwise in the possession of the Employee at any time during the Employment Term, whether or not made or conceived during working hours, alone or with others, which relates, directly or indirectly, to businesses or proposed businesses of any of the Companies, and the Employee agrees that all such Confidential Information shall be the exclusive property of the Companies. Upon request of the Board of Directors of the Company, the Employee shall execute and deliver to the Companies any specific assignments or other documents appropriate to vest title in such Confidential Information in the Companies or to obtain for the Companies legal protection for such Confidential Information. (c) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by applicable law or judicial process, but only after notice to the Company of the Employee's intention to do so and opportunity for the Company to challenge or limit the scope of the disclosure. (d) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. 4 (e) The Employee agrees that upon termination of his employment by the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information, documents, correspondence, notebooks, reports, computer programs and all other materials and copies thereof (including computer discs and other electronic media) relating in any way to the business of the Companies in any way developed or obtained by the Employee during the period of his employment with the Company. (f) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement and shall terminate three years after the termination of the Employment Term. (g) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. TERMINATION. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) death of the Employee; (ii) termination of the Employee's employment hereunder by the Employee at any time for "good reason" (as defined below); (iii) termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement), other than "good reason" as contemplated by clause (ii) above; (iv) termination of the Employee's employment hereunder by the Company because of the Employee's inability to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (v) termination of the Employee's employment hereunder by the Company at any time "for cause" (as defined below), such termination to take effect immediately upon written notice from the Company to the Employee; and (vi) termination of the Employee's employment hereunder by the Company at any time, other than (x) termination by reason of disability or incapacity as contemplated by clause (iv) above or (y) termination by the Company "for cause" as contemplated by clause (v) above. 5 (b) In the event that the Employee's employment is terminated pursuant to clause (i), (ii), (iv) or (vi) of Section 7(a) above, and in the event of a Change in Control (as defined below) the Company shall pay to the Employee, as severance pay or liquidated damages or both, during the twelve-month period immediately following such termination, the amount of Salary that the Employee would have otherwise been entitled to receive during such twelve-month period had the Employee's employment not been so terminated; PROVIDED, HOWEVER, that no such payment shall be due in the event such termination occurs as a result of a notice of termination given by the Company or by the Employee in connection with a failure to renew this Agreement as provided in Section 2. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and bonus as shall have been determined to be due by the Board of Directors and, in each case, remained unpaid as of the date of said cessation and (ii) such other amounts, if any, which may be then otherwise payable to the Employee from the Company's benefits plans or reimbursement policies. The termination of this Agreement shall not relieve the Employee of any liability for any willful breach hereof. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. (e) For purposes of this Agreement, the following definitions shall apply: (i) The term "good reason" shall mean only the following: (1) material default by the Company in the performance of its obligations hereunder, or (2) material diminishment of the duties, position or responsibilities of the Employee hereunder (provided that, in either such case, the Employee shall have provided the Board of Directors of the Company with written notice of such default or other event and a reasonable opportunity to discuss the matter with the Employee, followed by a notice that the Employee adheres to his position and a reasonable opportunity to cure); (ii) The term "cause" shall mean only the following: (1) conviction of the Employee of having committed a felony, (2) acts of dishonesty or moral turpitude by the Employee that are materially detrimental to the Company and/or its affiliates, (3) acts or omissions by the Employee that the Employee knew were likely to materially damage the business of the Company and/or any affiliate of the Company whose business, operations, assets or properties are material to the Company, (4) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, his obligations hereunder, or willful and material breach by the Employee of the terms hereof or (5) failure by the Employee to obey the reasonable and lawful orders of the Board of Directors that are consistent with the provisions of this Agreement (provided that, in the event such failure shall not also constitute "cause" under any of clauses (1) through (4) 6 above, the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a notice that the Board of Directors adheres to its position and a reasonable opportunity to comply with such orders). It is understood and agreed that the performance of the Company, whether financial, operational or otherwise, shall not (in the absence of "cause" as provided in clauses (1) through (5) above) constitute "cause." (iii) "Change of Control" shall mean the acquisition of (a) beneficial ownership of more than 50% of the voting equity securities of the Company or any successor to the Company (by merger or otherwise) or (b) all or substantially all the assets of the Company, by any person or entity (including, without limitation, any group within the meaning of Section 13(d)(3) of the Securities Exchange Act, as amended). 8. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; PROVIDED, HOWEVER, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. COMPETITION, ETC. (a) During the Employment Term and during the two-year period following the end of the Employment Term for any reason whatsoever, provided that payments, if any, required pursuant to Section 7(b) hereof are made in full and in a timely fashion: (i) the Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization which engages in competition with the Company or any of its affiliates in any State where any business shall be carried on (or formally contemplated to be carried on) by the Company or any of its affiliates during the Employment Term or as of the end of the Employment Term, as the case may be, PROVIDED, HOWEVER, that the provisions of this Section 9(a)(i) shall not be deemed to prohibit (A) the Employee's ownership of not more than five percent (5%) of the total shares of all classes of stock outstanding of any publicly held company, or ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of any other business or (B) non-profit public service activities, as contemplated by Section 3 hereof; and 7 (ii) the Employee will not directly or indirectly induce or attempt to induce any employee of the Company or any affiliate of the Company to leave the employ of the Company or such affiliate, or in any way interfere with the relationship between the Company or any such affiliate and any employee thereof. (b) For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its affiliates, if such person or entity in any way conducts, operates, carries out or engages in (i) the business of vehicle location and fleet management services or related services and supplies, or (ii) such other business or businesses as the Company may conduct in the future in such geographical area or areas as such business or businesses are conducted. (c) For purposes of this Section 9, no company or entity that may be deemed to be an affiliate of the Company solely by reason of its being controlled by, or under common control with, any of the Investors or their respective affiliates other than the Company, will be deemed to be an affiliate of the Company. (d) In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its affiliates. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement, except as otherwise expressly provided herein. (e) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. BINDING EFFECT. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 8 12. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13. SEVERABILITY. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. TELETRAC, INC. By /s/ STEVEN D. SCHEIWE ---------------------- Name: Steven D. Scheiwe Title: Chief Executive Officer /s/ CHARLES SCHEIWE ---------------------- Charles Scheiwe 10 EX-10.6 7 EX-10.6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of September 29, 1999, by and between TELETRAC, INC., a Delaware corporation (the "Company"), and KENNETH WEISNER (the "Employee"). W I T N E S S E T H: WHEREAS, the Company is seeking confirmation pursuant to Section 1129 of the Bankruptcy Code, 11 U.S.C. S.1129, of a Second Amended Plan of Reorganization of the Company (the "Plan of Reorganization"); and WHEREAS, the Company desires to induce the Employee to enter into employment with the Company commencing on the Effective Date (the "Effective Date") of the Plan of Reorganization as defined therein for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. TERM OF EMPLOYMENT. Unless earlier terminated as hereinafter provided, the term of the Employee's employment under this Agreement shall initially be for a period beginning on the Effective Date and ending twenty-four months after the Effective Date. Thereafter, this Agreement will continue in full force and effect from year to year unless terminated by either the Employee or the Company by written notice given to the other not later than two months before the end of the year of such termination. The period from the date hereof until the date the Employee's employment hereunder is terminated (whether twenty-four months after the Effective Date or earlier or later as provided herein) is hereinafter called the "Employment Term." 1 3. DUTIES. The Employee shall be employed as the Vice President of Customer Operations of the Company, shall faithfully and competently perform such duties as are specified in the Bylaws of the Company and shall also perform and discharge such other executive employment duties and responsibilities consistent with his position as the Vice President of Customer Operations as the Board of Directors and the Chief Executive Officer of the Company may from time to time reasonably prescribe. The Employee shall perform his duties at such places and times as the Board of Directors of the Company may reasonably prescribe; PROVIDED, HOWEVER, that if compliance with this requirement would require the Employee to relocate more than 40 miles from his current home in the Orange County, California area, the Employee will only be required to relocate on such terms and to such location as is mutually acceptable to the Employee and the Company. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, personal affairs or non-profit public service activities, the Employee shall devote his full time during normal business hours throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position. 4. SALARY, BONUS AND STOCK OPTION. (a) SALARY. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of one hundred seventy four thousand dollars ($174,000) (said amount, together with any increases thereto as provided in this Section 4(a), being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals (but in no event less frequently than monthly) in accordance with the Company's payroll practices from time to time in effect. The Salary payable to the Employee pursuant to this Section 4(a) may be increased as determined from time to time by the Compensation Committee of the Board of Directors of the Company in its sole discretion. (b) BONUS. The Employee shall be eligible to receive bonus compensation from the Company in respect of the fiscal year ending December 31, 1999 and each fiscal year (or portion thereof) occurring during the Employment Term. The Employee shall be eligible to receive bonus compensation in the amount of $75,000 for the fiscal year ending December 31, 1999 if the Company shall have met the target performance objectives established by the Board. The amount of bonus compensation the Employee shall be eligible to receive during the balance of the Employment Term shall be determined by the Compensation Committee of the Board of Directors of the Company and shall be based on target performance objectives set by the Compensation Committee of the Board of Directors of the Company. Any bonus payable hereunder shall be paid as promptly as practicable as determined by the Board of Directors in its sole discretion. 2 (c) WITHHOLDING, ETC. The payment of any Salary and bonus hereunder shall be subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans. (d) STOCK OPTION. (i) Effective the Effective Date, the Company shall grant to the Employee a stock option, pursuant to the Teletrac, Inc. and its Subsidiaries 1999 Stock Option and Restricted Stock Purchase Plan (the "Stock Option Plan") to purchase an aggregate 75,000 shares, subject to adjustment as provided therein, of Common Stock, $.01 par value (the "Common Stock"), of the Company. Such option is intended to the maximum extent permissible to qualify as a "incentive stock option" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended. Such option shall be at the purchase price and subject to the other terms and conditions provided in stock option agreement between the Company and the Employee substantially in the form attached hereto as Exhibit A. (ii) The Employee shall be eligible to receive additional incentive stock options and/or non-qualified stock options in accordance with the Stock Option Plan to the extent and in the manner as determined by the Compensation Committee of the Board of Directors. 5. OTHER BENEFITS. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to three weeks' annual paid vacation; (iv) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; and (v) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's policies applicable thereto. 6. CONFIDENTIAL INFORMATION. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company, its subsidiaries and affiliates (collectively, the "Companies"), including but 4 not limited to (i) business plans, operating plans, marketing plans, financial reports, operating data, budgets, wage and salary rates, pricing strategies and information, terms of agreements with suppliers or customers and others, customer lists, patents, devices, software programs, reports, correspondence, tangible property and specifications owned by or used in the businesses of one or more of the Companies, (ii) information pertaining to future developments such as, but not limited to, research and development, future marketing, distribution, delivery or merchandising plans or ideas, and potential new business locations, and (iii) other tangible and intangible property, which are used in the business and operations of the Companies but not made publicly available. The information and trade secrets relating to the business of the Companies described hereinabove in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee) or (y) that the Employee receives on a nonconfidential basis from a source (other than the Company, its affiliates or representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to the Companies or any of them. (b) The Employee hereby assigns to the Company, in consideration of his employment, all Confidential Information developed by or otherwise in the possession of the Employee at any time during the Employment Term, whether or not made or conceived during working hours, alone or with others, which relates, directly or indirectly, to businesses or proposed businesses of any of the Companies, and the Employee agrees that all such Confidential Information shall be the exclusive property of the Companies. Upon request of the Board of Directors of the Company, the Employee shall execute and deliver to the Companies any specific assignments or other documents appropriate to vest title in such Confidential Information in the Companies or to obtain for the Companies legal protection for such Confidential Information. (c) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by applicable law or judicial process, but only after notice to the Company of the Employee's intention to do so and opportunity for the Company to challenge or limit the scope of the disclosure. (d) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. 5 (e) The Employee agrees that upon termination of his employment by the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information, documents, correspondence, notebooks, reports, computer programs and all other materials and copies thereof (including computer discs and other electronic media) relating in any way to the business of the Companies in any way developed or obtained by the Employee during the period of his employment with the Company. (f) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement and shall terminate three years after the termination of the Employment Term. (g) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. TERMINATION. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) death of the Employee; (ii) termination of the Employee's employment hereunder by the Employee at any time for "good reason" (as defined below); (iii) termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement), other than "good reason" as contemplated by clause (ii) above; (iv) termination of the Employee's employment hereunder by the Company because of the Employee's inability to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (v) termination of the Employee's employment hereunder by the Company at any time "for cause" (as defined below), such termination to take effect immediately upon written notice from the Company to the Employee; and (vi) termination of the Employee's employment hereunder by the Company at any time, other than (x) termination by reason of disability or incapacity as contemplated by clause (iv) above or (y) termination by the Company "for cause" as contemplated by clause (v) above. 6 (b) In the event that the Employee's employment is terminated pursuant to clause (i), (ii), (iv) or (vi) of Section 7(a) above, and in the event of a Change in Control (as defined below) the Company shall pay to the Employee, as severance pay or liquidated damages or both, during the twelve-month period immediately following such termination, the amount of Salary that the Employee would have otherwise been entitled to receive during such twelve-month period had the Employee's employment not been so terminated; PROVIDED, HOWEVER, that no such payment shall be due in the event such termination occurs as a result of a notice of termination given by the Company or by the Employee in connection with a failure to renew this Agreement as provided in Section 2. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and bonus as shall have been determined to be due by the Board of Directors and, in each case, remained unpaid as of the date of said cessation and (ii) such other amounts, if any, which may be then otherwise payable to the Employee from the Company's benefits plans or reimbursement policies. The termination of this Agreement shall not relieve the Employee of any liability for any willful breach hereof. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. (e) For purposes of this Agreement, the following definitions shall apply: (i) The term "good reason" shall mean only the following: (1) material default by the Company in the performance of its obligations hereunder, or (2) material diminishment of the duties, position or responsibilities of the Employee hereunder (provided that, in either such case, the Employee shall have provided the Board of Directors of the Company with written notice of such default or other event and a reasonable opportunity to discuss the matter with the Employee, followed by a notice that the Employee adheres to his position and a reasonable opportunity to cure); (ii) The term "cause" shall mean only the following: (1) conviction of the Employee of having committed a felony, (2) acts of dishonesty or moral turpitude by the Employee that are materially detrimental to the Company and/or its affiliates, (3) acts or omissions by the Employee that the Employee knew were likely to materially damage the business of the Company and/or any affiliate of the Company whose business, operations, assets or properties are material to the Company, (4) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, his obligations hereunder, or willful and material breach by the Employee of the terms hereof or (5) failure by the Employee to obey the reasonable and lawful orders of the Board of Directors that are consistent with the provisions of this Agreement (provided that, in the event such failure shall not also constitute "cause" under any of clauses (1) through (4) 7 above, the Employee shall have received written notice of such failure and a reasonable opportunity to discuss the matter with the Board of Directors, followed by a notice that the Board of Directors adheres to its position and a reasonable opportunity to comply with such orders). It is understood and agreed that the performance of the Company, whether financial, operational or otherwise, shall not (in the absence of "cause" as provided in clauses (1) through (5) above) constitute "cause." (iii) "Change of Control" shall mean the acquisition of (a) beneficial ownership of more than 50% of the voting equity securities of the Company or any successor to the Company (by merger or otherwise) or (b) all or substantially all the assets of the Company, by any person or entity (including, without limitation, any group within the meaning of Section 13(d)(3) of the Securities Exchange Act, as amended). 8. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; PROVIDED, HOWEVER, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. COMPETITION, ETC. (a) During the Employment Term and during the two-year period following the end of the Employment Term for any reason whatsoever, provided that payments, if any, required pursuant to Section 7(b) hereof are made in full and in a timely fashion: (i) the Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization which engages in competition with the Company or any of its affiliates in any State where any business shall be carried on (or formally contemplated to be carried on) by the Company or any of its affiliates during the Employment Term or as of the end of the Employment Term, as the case may be, PROVIDED, HOWEVER, that the provisions of this Section 9(a)(i) shall not be deemed to prohibit (A) the Employee's ownership of not more than five percent (5%) of the total shares of all classes of stock outstanding of any publicly held company, or ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of any other business or (B) non-profit public service activities, as contemplated by Section 3 hereof; and 8 (ii) the Employee will not directly or indirectly induce or attempt to induce any employee of the Company or any affiliate of the Company to leave the employ of the Company or such affiliate, or in any way interfere with the relationship between the Company or any such affiliate and any employee thereof. (b) For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its affiliates, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its affiliates, if such person or entity in any way conducts, operates, carries out or engages in (i) the business of vehicle location and fleet management services or related services and supplies, or (ii) such other business or businesses as the Company may conduct in the future in such geographical area or areas as such business or businesses are conducted. (c) For purposes of this Section 9, no company or entity that may be deemed to be an affiliate of the Company solely by reason of its being controlled by, or under common control with, any of the Investors or their respective affiliates other than the Company, will be deemed to be an affiliate of the Company. (d) In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its affiliates. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement, except as otherwise expressly provided herein. (e) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 9 would be inadequate and, therefore, agrees that the Company and any of its affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 10. BINDING EFFECT. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 9 12. LAW GOVERNING. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13. SEVERABILITY. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 16. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. TELETRAC, INC. By /s/ STEVEN D. SCHEIWE ---------------------- Name: Steven D. Scheiwe Title: Chief Executive Officer /s/ KENNETH WEISNER ---------------------- Kenneth Weisner 11 EX-21.1 8 EX-21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT Teletrac License, Inc. EX-27 9 FINANCIAL DATA SCHEDULE
5 1 US DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 1,270,065 0 4,626,890 1,874,717 4,411,507 9,370,436 8,063,360 322,602 22,973,283 6,690,276 0 0 0 100,000 757,212 22,873,283 32,906,742 32,906,742 9,347,775 9,347,775 32,171,942 0 8,635,018 106,144,688 0 106,144,688 0 0 0 106,144,688 0 0
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