-----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, G64L7M+DbgikjEISYW5Wnm74Emq9ISjPKy3nhwxW0K1JxxMbT8rvMw8t5hQYTRUH nnykSroxw6Th1AlvA8msJA== 0001047469-99-036932.txt : 19991227 0001047469-99-036932.hdr.sgml : 19991227 ACCESSION NUMBER: 0001047469-99-036932 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURFONE AMERICA INC CENTRAL INDEX KEY: 0000929425 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 954622822 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 033-83526 FILM NUMBER: 99718023 BUSINESS ADDRESS: STREET 1: 1801 ROBERT FULTON DRIVE STREET 2: SUITE 400 CITY: RESTON STATE: VA ZIP: 20191 BUSINESS PHONE: 3102085589 MAIL ADDRESS: STREET 1: 1801 ROBERT FULTON DRIVE STREET 2: SUITE 400 CITY: RESTON STATE: VA ZIP: 20191 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGY INC DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19970313 10KSB 1 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to ________ Commission file number: 33-83526 SECURFONE AMERICA, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 34-1833574 - -------------------------------- ---------------------------------------- (State of Incorporation) I.R.S. Employer Identification No.) 8080 DAGGET ST., SUITE 220 SAN DIEGO, CALIFORNIA 92111 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 619-677-5580 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 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 requirement for the past 90 days. Yes / / No /X/ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B 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-KSB or any amendment to this Form 10-KSB. /X/ State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of filing. COMMON STOCK, $0.001 PAR VALUE: $7,894,088 (AS OF JULY 1, 1999) - -------------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. COMMON STOCK, $0.001 PAR VALUE PER SHARE: 10,775,169 (AS OF JULY 1, 1999) - -------------------------------------------------------------------------------- Transitional Small Business Disclosure Format: Yes / / No /X/ SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I............................................................................................................1 ITEM 1. BUSINESS.............................................................................................1 OVERVIEW.......................................................................................................1 WIRELESS PRODUCTS IN 1998......................................................................................3 PRODUCTS LINES.................................................................................................4 THE TARGET MARKET..............................................................................................5 DISTRIBUTION...................................................................................................5 MARKET ROLL-OUT................................................................................................5 COMPETITION....................................................................................................6 LICENSES.......................................................................................................6 EMPLOYEES......................................................................................................6 GOVERNMENT REGULATION..........................................................................................6 SERVICE MARKS AND TRADEMARKS...................................................................................7 ITEM 2. PROPERTIES...........................................................................................7 ITEM 3. LEGAL PROCEEDINGS....................................................................................7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................8 PART II...........................................................................................................9 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................9 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................9 OVERVIEW.......................................................................................................9 RECENT EVENTS.................................................................................................10 RESULTS OF OPERATIONS:........................................................................................13 FISCAL 1998 COMPARED TO FISCAL 1997...........................................................................13 LIQUIDITY AND CAPITAL RESOURCES...............................................................................15 SEASONALITY...................................................................................................15 TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS................................................................15 YEAR 2000.....................................................................................................16 FORWARD-LOOKING STATEMENTS....................................................................................16 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................................................18 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................18 PART III.........................................................................................................19 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................................19 ITEM 10. EXECUTIVE COMPENSATION..............................................................................21 OPTION GRANTS IN 1998.........................................................................................22 OPTION EXERCISES IN 1998 AND VALUES AT 1998 YEAR-END..........................................................22 LONG-TERM INCENTIVE AND PENSION PLANS.........................................................................22 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................23 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................24 PART IV..........................................................................................................26 ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....................................26 (a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:...................................................26 (b) REPORTS ON FORM 8-K:......................................................................................26 (c) EXHIBITS:.................................................................................................26
- -------------------------------------------------------------------------------- Page i SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. OVERVIEW THE COMPANY SecurFone America, Inc. (the "Company") was organized in 1996 to develop and market prepaid wireless products and services in various markets throughout the United States. In late 1998, the Company established a new strategic objective of refocusing the Company's mission to pursue new complimentary Internet-related and e-commerce opportunities. In 1999, the Company has actively implemented its new mission by, among other actions, selling a portion of the Company's business no long deemed essential for the new strategy and purchasing a company whose business thrust is in line with the new strategy. On January 30, 1999, the Company executed an agreement with Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain prepaid cellular assets to Teledata for cash and Teledata common stock. The transaction was closed on April 22, 1999. Under the terms of the agreement, SecurFone sold its wholly-owned subsidiary, SecurFone, Inc., to Teledata for $498,000 in cash, 600,000 shares of Teledata common stock, and the option to sell the stock back to Teledata at a price of $2.50 per share effective one year from the date of the transaction if the market price of the Teledata stock is less than $2.50 per share. The asset sale improved the Company's balance sheet and was consistent with the Company's new business objective of pursuing opportunities in the Internet and electronic commerce markets. On May 7, 1999, the Company executed an agreement to acquire all outstanding common stock of IXATA.COM, Inc. ("IXATA.COM"), a privately held provider of Internet-based information and electronic commerce services targeting the travel industry. The acquisition was finalized on July 1, 1999 and is consistent with the Company's new business objectives. The Company is now operating IXATA.COM as a wholly-owned subsidiary and plans to significantly expand IXATA.COM's operations to offer new enhanced information services in the travel market, targeting existing and new corporate clients. By closing the IXATA.COM acquisition, the Company has established itself as a provider of Internet-based, electronic commerce services in rapidly growing market for travel information services, serving an expanding base of more than twenty major Fortune 500 firms and other organizations. IXATA.COM's principal service, RFP Express, integrates a user-friendly, Internet-based interface with a sophisticated data-warehousing system, interactive telephone and fax technology to deliver automated solutions for creating, sending, receiving and managing the preferred lodging programs request for proposal process in the hospitality services market ("RFP process"), typically involving hundreds or, in some cases, thousands of properties worldwide. By automating the users' RFP business process, and also providing user-friendly Internet access to a sophisticated data warehousing system, RFP Express, provides dramatic cost savings to users, typically 70% or more compared to costs for manual processes. Pricing for RFP Express includes an annual subscription fee and transaction fees for each RFP handled. The Internet-based, electronic commerce and operational platforms developed to support the RFP Express offering can be used to address similar needs in other vertical markets. On August 1, 1997, SecurFone, Inc. was acquired by Material Technology, Inc. (formerly Tensiodyne Scientific Corporation) and became a publicly traded company. The Company's principal executive offices are located at 8080 Dagget Street, Suite 220, San Diego, California 92111, and its telephone number is (888) 773-4729. THE COMPANY'S BUSINESS CASE FOR NEW ELECTRONIC COMMERCE AND INTERNET BUSINESS DIRECTIONS Since inception, the Company has primarily pursued opportunities in the prepaid wireless services market. The Company developed several unique products to address the prepaid wireless services market and had achieved some success in 1998. However, the emergence of new competition, industry price reductions and other margin pressures - -------------------------------------------------------------------------------- Page 1 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- in the prepaid wireless services market suggested that significant additional investment would be required to achieve the business scale required to create significant shareholder value. Recognizing the explosive growth of the Internet, and the long term prospects for integrating new wireless and Internet-based services, in late 1998 the Company established a new business objective to pursue new opportunities in the Internet and electronic commerce markets. In 1998, the consumer segment of electronic commerce consumer retailing revenues totaled $7.8 billion, with business-to-business e-commerce service revenues estimated at $43 billion, according to a recent study by Forrester Research, a leading information industry consulting firm. By the year 2003, business-to-business e-commerce is expected to increase ten-fold, to $1.3 trillion, representing about 9% of all projected US trade in the year 2003. The recently-closed acquisition of IXATA.COM is the Company's initial step in entering the market for business-to-business, Internet-based electronic commerce services, which management believes is the optimum strategy to deliver substantial value to the Company's shareholders. Another key element in SecurFone's new growth strategy is to focus on next generation, "pro-active" electronic commerce solutions which employ e-commerce solutions to address labor intensive processes, rather than to solely displace paper-based solutions. Management believes such pro-active e-commerce solutions, which go well beyond today's basic electronic cataloging, web portals and web-based ordering services, will change users' business processes, create significant operating efficiencies and dramatically reduce users' costs. More importantly, management believes such pro-active e-commerce services will play a key role in the future market for business-to-business e-commerce services described above. IXATA.COM, Inc.'s RFP Express Service represents a pro-active e-commerce service which, in management's view, is ideally positioned to meet the needs of the travel services market. IXATA.COM's expanding client base of more than 20 major firms, includes recent sign-ons such as Sears & Roebuck, Proctor & Gamble, Church of Latter Day Saints, and Adams Mark Hotels demonstrate strong, growing market acceptance for the Company's e-commerce services. The Company is now expanding its management team and plans to secure new financing to support both expansion of the IXATA.COM revenue base, as well as development of new enhancements and related Internet-based services targeting the travel and hospitality sectors. While the outlook for Internet-based, electronic commerce services is impressive, there can be no assurances that the Company will secure the additional investment capital needed to succeed in this highly competitive, rapidly changing and technology driven market, nor are there any assurances that the Company's initial acquisition of IXATA.COM will be successful. Investors should carefully review the risk factors described in this document and other documents filed by the Company with the Securities and Exchange Commission. See "Management Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements." THE COMPANY'S PREPAID WIRELESS SERVICE TARGET MARKETS AND PRODUCTS IN 1998 The U.S. wireless communications market acquired its 50 millionth subscriber in July of 1996. Of the applications for services submitted each year, approximately 35% are declined for reasons of poor credit. This indicates that there are in excess of 17.5 million unfulfilled potential wireless service users. The Company developed three main products to meet this need: - - BUY-THE-MINUTE-TM- ("BTM") -- a software modified cellular phone for which the Company provides underlying national airtime, activation, and administrative services for distribution to the end user. - - SFA LOCAL NETWORK SOLUTION ("SFN") -- the product offered to end users for which the Company telephonically connects directly to the underlying wireless service provider to accomplish call routing and completion. - - CARRIER NETWORK SERVICES ("CNS") -- a wholesale prepaid wireless platform service that the Company sells directly to wireless carriers that do not want to create their own platform. - -------------------------------------------------------------------------------- Page 2 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- See "-- The Product" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Product Lines." The Company only began full-scale operations in the first quarter of 1998. Its total gross revenues from prepaid cellular operations during 1998 were $367,358. This amount represents initial beta testing of sales and distribution channels without significant marketing or promotional expenditures, other than industry trade shows for the purpose of distribution recruitment. In the third quarter 1998, the Company developed a business plan showing the investment required to develop a full-scale program for commercial product launch and broad marketing and distribution program in 1999. In late 1998, the Company substantially completed development of all major aspects of its prepaid wireless network infrastructure, with the exception of several administrative enhancements that required additional funding. However, ongoing development of technical aspects of the Company's business will be necessary to keep pace with industry standard technical requirements. WIRELESS PRODUCTS IN 1998 In 1998, the Company identified and designed products and services that comprise each of the components required to deliver a competitive prepaid wireless solution. Prepaid wireless products allow consumers to purchase wireless airtime, like cellular airtime minutes, in advance, eliminating the need for service providers to require security deposits, credit checks or term contracts. Recent advances in telephony hardware and software have made instantaneous processing of a "prepaid" call possible without inconveniencing the subscriber with call routing delays. According to industry analysts, the "prepaid" method of payment is expected to constitute a significant percentage of total U.S. wireless revenues in the short-term future. The critical components of the Company's wireless solution are: - - A patent-pending telephony switch platform technology. - - 24 hour/7 days-a-week bilingual customer service. - - Full-service marketing support programs. - - A nationwide network of cellular resale agreements. The Company has filed for patent protection of its engineering design for call routing. This telephony software and routing system enables the Company to convert conventional wireless telephony call routing to prepaid call routing with no modification to either the subscriber's handset or the underlying service provider's main switching facility. The Company maintained a customer service and activation center in Miami, Florida to perform all activation and customer inquiry functions necessary to support the Company's products and services. Additionally, the Company developed a complete, turnkey point of sale and retail display packaging to support distribution and retail efforts. This includes product displays, posters, brochures and packaging that are all designed to enhance the consumers understanding of the benefits of the Company's prepaid product. In order to effect prepaid wireless activations on a national basis, the Company entered into cellular resale agreements with GTE Corporation, Ameritech Corporation, Bell Atlantic Mobile, BellSouth Mobile Data, Inc., AT&T Wireless Services and AirTouch Communications. See "-- Distribution." The Company offered prepaid services that utilize both prevalent prepaid technologies: handset and switch-based. The Company knows of no other Company that currently offers both technologies on a broad basis. - - SWITCH-BASED. Allows any cellular phone to be used on the prepaid network. Special call routing directs the signal to a debit platform which checks the amount of prepaid time available to the customer before the call is completed. The Company's SFN product utilizes this technology. - -------------------------------------------------------------------------------- Page 3 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- - - HANDSET-BASED. All debit functions are performed by software that resides in a specially modified handset. No special network routing is required, permitting rapid initial roll-out to target markets prior to the implementation of a switch-based solution. The Company's BTM product is a handset-based solution. Given the Company's refocused business objectives in late 1998, the Company's products in 1999 will be significantly changed. New products will include IXATA.COM's existing Internet-based e-commerce service, RFP Express, which provides automated solutions for creating, sending, receiving and managing the RFP process, typically involving hundreds or, in some cases thousands of properties worldwide. By automating the users' RFP business process, and also providing user-friendly Internet access to a sophisticated data warehousing system, RFP Express, provides dramatic cost savings to users. Pricing for RFP Express includes annual subscription fees and transaction fees for each RFP handled. Management believes the Internet-based, electronic commerce and operational platforms developed to support the RFP Express offering can be used to address similar needs in other vertical markets. PRODUCT LINES In 1998, the Company offered three main products: - - BUY-THE-MINUTE-TM- -- a software modified handset for which the Company provides underlying national airtime, activation, and administrative services for end users. Uniden Corp. manufactures the handset and U.S./Intelicom Inc. provides the handset software. This product is offered for distribution by Brightpoint, Inc., the nation's leading wholesaler of wireless handsets, and gives the Company immediate national exposure that would otherwise require an extended period of time to develop. The Company reduced barriers to market entry by achieving a market presence without the need for fixed land line telephony because the debiting software resides directly in the handset. - - SFA LOCAL NETWORK SOLUTION -- the Company's flagship product that telephonically connects directly to the underlying wireless service provider to accomplish call routing and completion. The advantages of this method of prepaid service provisioning are numerous, including: - Any handset in the market, digital or analog, can be used by consumers to access the Company's service platform. - The Company originates and terminates each call along its own network configuration which generates significant incremental cost savings and increased revenue from inherent service components such as long distance termination, voicemail and local call termination. - The Company can provide other telephony services, such as local and long distance prepaid service, informational services and enhanced calling options within the same platform. - - CARRIER NETWORK SERVICES -- the wholesale prepaid wireless platform service that the Company sells directly to wireless carriers that do not wish to create their own platform. In many cases, it becomes a cost-justifiable decision for a medium to small domestic wireless carrier to out source value-added and hardware/software defined ancillary product offerings to an outside vendor. CNS is a robust, competitive and scalable prepaid service platform that enables any carrier to bring a prepaid product to market in a significantly shorter period of time than an in-house solution, enabling the carrier to focus on marketing and sales efforts. In 1999, the Company plans to build on the strong market acceptance for IXATA.COM's RFP Express to develop several related e-commerce services targeting both existing and new customers, as well as potential strategic alliance partners. Building on the information repository features available to IXATA.COM customers, the Company will also explore new data mining and related business opportunities in 1999 and beyond. Since the Company does retain wireless industry experience and some wireless assets, management plans to explore to what extent new initiatives in the wireless Internet services market should be pursued, and evaluate possible entry strategies in this market. No plans are currently in place to pursue these opportunities and there can be no assurances that the Company will secure additional investment capital needed to succeed in this market. Investors should carefully review the risk factors described in this document and other documents filed by the Company with the - -------------------------------------------------------------------------------- Page 4 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- Securities and Exchange Commission. See "Management Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements." THE TARGET MARKET In 1998, the Company targeted wireless market segments to maximize its primary goals of rapid deployment and market share acquisition. The credit denied, credit challenged and first time users who are resisting long-term contracts for service are considered the largest and most rapidly growing segment of the Company's target cellular market. The Company has identified market segments through available demographic and market research analyses and uses this research to target retail locations, agents and distributors. With the Company's refocused business objectives in 1999, the Company will target Fortune 1000 companies and major organizations for supporting preferred rate lodging programs using the RFP Express service and other upcoming e-commerce services. DISTRIBUTION In 1998, the Company used two principal methods of distribution for prepaid wireless products and services: - - SFA NETWORK SERVICES -- a service bureau of prepaid wireless communications services which are sold directly to carriers and resellers that wish to offer their own prepaid wireless products. - - BUY-THE-MINUTE-TM- -- a consumer-ready cellular phone/airtime bundle which is sold directly to local, regional and national retail distribution channels. The Company entered into distribution agreements with approximately 250 independent dealers. The Company also entered into regional master distributor agreements with communications service providers in Cleveland, Miami, San Diego, and San Francisco. In addition, the Company executed a national master distribution agreement with Brightpoint, Inc. ("Brightpoint"), a leading distributor of wireless communications equipment and accessories. For the new e-commerce and Internet-based services provided in 1999, the Company is using dedicated sales staff including a National Account Management structure to support marketing and client liaison activities with Fortune 1000 companies, major organizations, Global Distribution Service ("GDS") providers worldwide and strategic alliance partners. MARKET ROLL-OUT In 1998, the Company offered prepaid wireless service on a market by market basis. To initiate service in an area, the Company must balance costs for engineering, dedicated telephone trunk line and additional switch port capacity. To moderate associated expenses and balance these costs more closely with revenue goals, the Company maintained a carefully planned roll-out schedule to coordinate system expansion and minimize costs. In 1998, operational markets were as follows: Atlanta, Atlantic City NJ, Baltimore, Boston, Chicago, Cincinnati, Cleveland, Elberton GA, Houston, Indianapolis, Jacksonville, Lexington KY, Louisville, Memphis, Miami, Nashville, Newhaven CT, Bridgeport CT, Hartford CT, Waterbury CT, New York, Norfolk, Orlando, Philadelphia, Pittsburgh, Richmond, San Diego, San Francisco, Tampa, and Washington DC. In addition, markets may be opened in areas of the country as requested by our distributors pending availability of the underlying service facilities and an business assessment of the opportunities presented. - -------------------------------------------------------------------------------- Page 5 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- There can be no assurances that the Company will have sufficient finances to expand its markets in the planned time frame, or at all. In addition, the rapidly changing regulatory and competitive environment within which the Company operates has a significant impact on the Company's roll-out schedule. COMPETITION The distribution of telecommunications services is highly fragmented and competitive. Many of the Company's prepaid wireless service competitors are larger than the Company and have financial and other resources substantially greater than those of the Company. Prepaid wireless competition for the Company's products and services comes primarily from incumbent wireless carriers on a regional basis, and large cellular resellers on a national basis. Although several firms offer switch-based or handset-based prepaid products, the Company it not aware of any other national provider that offers both technologies. Handset-based competitors include Topp Telecom, Inc. with their TracFone product and Phillips Electronics North America with their ISIS debit handset product. Switch-based competitors include wireless carriers, Boston Technology, Inc., BCGI and Brite Voice Systems, Inc. With the Company's refocused business directions in 1999, new competition will be encountered from existing and emerging companies in the rapidly changing market for e-commerce and related Internet-based services for the travel and hospitality industry. LICENSES In 1997 and 1998, the Company sold licenses, representing the right to certain exclusive distribution arrangements in the total amount of $1.6 million. The licenses are defined and based on Metropolitan Statistical Areas and currently involve the cities of Houston, Boston, Chicago, Philadelphia, Washington, D.C. and New York City. The Company does not anticipate any significant revenue in 1999 will be derived from the sale of licenses. EMPLOYEES As of December 31, 1998, the Company employed 11 full-time and one part time staff in addition to contracted personnel. None of the Company's employees are covered under any collective bargaining agreement. The Company believes its relations with its employees to be strong. With the recently completed acquisition of IXATA.COM total headcount as of July 16, 1999 is 27 employees. GOVERNMENT REGULATION The telecommunications industry is undergoing significant changes. The Telecommunications Act of 1996 (the "Act") was signed into law on February 8, 1996. Congress and the Justice Department, through legislation and consent decrees, had previously overseen the deregulation of the long distance and equipment segments of the industry. The Act is intended to bring competition to local telephone service and provide the final step in the deregulation of the telecommunications industry in this country. The Company is regulated by various state Public Utility Commissions as well as the Federal Communications Commission. Although the Company is required to file and/or register with most states, most require a simple filing procedure with little or no actual qualifying tariff approval. The Company utilizes the services of an independent contractor to make and maintain all required filings. The Federal Communications Commission requires that the Company file and maintain a federally-mandated license in order for the Company to terminate domestic land line telephone calls overseas. The Company has filed and continues to maintain this license. Federal law requires the Company to collect a 3% federal telecommunications tax when service is sold by the Company to any party that is not a licensed reseller or provider of carrier telecommunications traffic. The Company - -------------------------------------------------------------------------------- Page 6 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- collects this tax consistent with regulatory requirements. There is currently proposed legislation in Congress to repeal this tax. SERVICE MARKS AND TRADEMARKS The Company has filed U.S. Service Mark Applications for "SecurFone" and "Buy-The-Minute." The statement of use for the SecurFone service mark was accepted by the Patent and Trademark Office in February 1998. The statement of use for the Buy-The-Minute service mark was filed recently and is awaiting acceptance. The "Buy-The-Minute" service mark was included in the assets sold to Teledata. The Company also relies on common law, including the law of unfair competition, to protect its service marks and services. The Company is not aware of any pending claims of infringement or other challenges to the Company's right to use its service marks. ITEM 2. PROPERTIES. At the end of 1998, the Company was headquartered in San Diego, California in a 3,700, square foot facility. The Company leased its headquarters at a cost of $3,530 per month. The Company also leased its customer service facilities in Miami, Florida for $700 per month, prior to its transfer to Teledata. Currently, the Company, including the IXATA.COM subsidiary, leases office space in San Diego for $2,300 per month. ITEM 3. LEGAL PROCEEDINGS. From time to time, the Company is involved in legal matters which are incidental to its operations. In the opinion of management, the ultimate resolution of these matters has not had a material adverse effect on the Company's financial condition or results of operations. Vortex Cellular, Inc. ("Vortex") filed a complaint (VORTEX CELLULAR, INC. (D.B.A. DIRECT MOBILE) V. SECURFONE AMERICA, INC., ET AL., No. 727443, Superior Court of California, County of San Diego) for breach of contract and open book account in the amount of $27,347.56 against SecurFone on January 20, 1999. Vortex is owned by William P. Stueber, II, the Company's former CEO. The complaint was dismissed without prejudice on March 4, 1999. On February 1, 1998, SecurFone granted to Wireless Depot, Inc., a Nevada corporation ("Wireless"), an exclusive license to market and sell products and services of SecurFone in the territory of New York City, New York (the "Territory"). Wireless paid to SecurFone a one-time royalty fee in the amount of $350,000. In addition, Wireless made a loan to SecurFone in the amount of $130,000. Under the terms of the license agreement, Wireless agreed to meet a minimum $1,000,000 annual revenue target. Wireless has not met the minimum target revenue requirements. The parties have agreed verbally to terminate the license agreement. While no legal action has been discussed or threatened, the parties are in dispute as to their respective rights and obligations under the license agreement. Currently, the parties are negotiating a settlement of all claims. The settlement may be resolved by the issuance to Wireless of restricted common stock of SecurFone. As of the time of this filing, the terms of the settlement agreement have not been finalized. On November 13, 1998, SecurFone terminated the employment of Glen Benton as the National Sales Manager. Subsequently, Mr. Benton filed a complaint with the California Department of Industrial Relations, Division of Labor Standards (case no. 99-04057), alleging that he was terminated for filing or threatening to file a compliant with the California Labor Commissioner. SecurFone considered the charges unsubstantiated and submitted a response to Mr. Benton's allegations with the California Department of Industrial Relations. On March 17, 1999, the California Department of Industrial Relations advised that the case is being closed without prejudice due to fact that Mr. Benton has abandoned his complaint. While administrative remedies within the state Department of Industrial Relations have been exhausted, Mr. Benton is entitled to pursue other rights and remedies if he so desires. - -------------------------------------------------------------------------------- Page 7 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- IDS Long Distance, Inc. v. SecurFone America, Inc., No. 98-14325 CA 01, Circuit Court, Dade County, Florida. IDS filed a complaint for breach of contract in excess of $15,000. against SecurFone on June 25, 1998. On July 24, 1998, the court approved a stipulation of settlement between the parties, whereby IDS agreed to accept in full and final settlement of its claims the sum of $30,000 payable in three (3) installment payments. On November 16, 1998, the judgment was satisfied. SecurFone is in the process of negotiating a payment in the amount of $25,000 in full satisfaction of long outstanding debt with American Express. As of the date of this filing, a settlement agreement with American Express is still being negotiated. On October 24, 1997, SecurFone entered into a Compromise and Settlement Agreement with Performance Printing Corporation ("Performance"), whereby, among other things, SecurFone issued in favor of Performance a promissory note in the principal amount of $31,921.30, together with 6% interest thereon, in total satisfaction of a trade debt. The promissory note provided for 24 equal monthly payments in the amount of $1,407.73, beginning on October 24, 1997 with the last payment date of September 24, 1999. SecurFone has failed to make its scheduled payments for the months of March, April and May 1999. Performance has threatened to exercise its remedies available to it under the terms of the promissory note. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the last quarter of 1998. - -------------------------------------------------------------------------------- Page 8 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the Nasdaq Over-the-Counter Market and has been quoted on the Nasdaq Electronic Bulletin Board under the symbol "SFAI." The following table lists the high and low closing price of the Company's Common Stock for each quarter of 1997 and 1998. The information included in the table represents prices between dealers exclusive of retail mark-up, mark-down and may not necessarily represent actual transactions.
1998 1997 HIGH LOW HIGH LOW First Quarter................ $ 6.120 $ 3.000 $ 5.37 $ 4.25 Second Quarter............... 5.593 4.00 5.00 4.50 Third Quarter................ 5.312 1.218 25.00 4.62 Fourth Quarter............... 1.281 0.156 15.00 10.00
As of July 1, 1999 there were approximately 435 stockholders of record of the Common Stock of the Company. The Company has never paid cash dividends on its Common Stock. The Company intends to retain earnings, if any, to finance the growth and development of its business and does not anticipate paying any cash dividends in the foreseeable future. Any future dividends will depend on the earnings, capital requirements and financial condition of the Company, and on other factors that the Company's Board of Directors may consider relevant. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following describes certain factors which produced changes in the results of operations of SecurFone America, Inc. (the "Company") during the twelve months ended December 31, 1998 ("Fiscal 1998") and as compared with the twelve months ended December 31, 1997 ("Fiscal 1997") as indicated in the Company's Consolidated Financial Statements. The following should be read in conjunction with the Consolidated Financial Statements and related notes. Historical results of operations are not necessarily indicative of results for any future period. All material inter-company transactions have been eliminated in the results presented in this Annual Report. Certain matters discussed in this Annual Report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance or achievements may differ significantly from the results, performance, or achievements expressed or implied in these forward-looking statements. See "--Forward-Looking Statements." OVERVIEW The Company develops and markets prepaid wireless products and services in various markets throughout the United States. The Company only began full-scale operations in the first quarter of 1998. The Company has substantially completed development of all major aspects of its prepaid wireless network systems and previously planned to implement the marketing and sales programs necessary to create a sustainable revenue base. The Company also plans to develop the necessary back office and administrative support systems to support the business. Significant additional funding will be required to support these new activities - -------------------------------------------------------------------------------- Page 9 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- The products and services that the Company developed during its start-up phase were initially introduced to a limited number of U.S. cities to fully test the network, administrative, engineering and marketing infrastructure prior to full-scale roll-out. The Company invested significant capital and effort to develop its network, software, routing and carrier interface technology, for the hiring and development of an experienced management team, and the initial introduction of services to the roll-out markets. The Company may, from time to time, make increasing expenditures to expand its available network capacity as demand increases. The ability of the Company to meet its business growth objectives will depend on securing substantial new funding for advertising and promotion activities, as well as funding for securing new distribution channels. To effectively manage the Company's growth and maintain quality controls over its services and network, the Company must also expand its internal management, technical and accounting systems, all of which will require substantial investment. RECENT EVENTS MANAGEMENT CHANGES William P. Stueber, II, Chief Executive Officer and a Director, left the Company to pursue other interests effective October 31, 1998. The Company has negotiated a settlement with Mr. Stueber to resolve all outstanding obligations related to his prior employment by the Company. On September 11, 1998, the Company's Chief Operating Officer and a Director, Derek M. Davis, resigned to pursue other interests. Mr. Davis agreed to be available to Company executives for a period of two months, without compensation, in order to ensure a smooth transition of tasks and responsibilities to his replacement. Effective February 1, 1998, Michael Lee, the Company's Chief Financial Officer and a Director, resigned. Mr. Lee's departure was by mutual agreement with the Company's Board of Directors. Steven L. Wasserman, Secretary and Director, resigned from his position as a Director to pursue other interests effective April 30, 1999. Mr. Wasserman continues as Secretary of the Company. Paul B. Silverman executed an employment agreement assuming the role of Chief Executive Officer effective November 1, 1998, and was elected a Director on December 11, 1998. Andrew H. Kent joined the management team as Director, Business Development effective November 1, 1998. In that position, Mr. Kent reported to the Chief Executive Officer and played a key role in reshaping the Company's overall business strategy to pursue new e-commerce and Internet-related business opportunities. In June 1999, Mr. Kent was appointed Vice President and Chief Financial Officer for the Company and appointed to serve as a Director. (For additional information on management changes, see "Directors and Officers of the Registrant"). On July 1, 1999, the Company further expanded the management team and appointed three new Directors, including one new outside Director. The new Directors include Robert Steiner and Fred Gluckman, senior officers and co-founders of the newly-acquired IXATA.COM subsidiary, and Paul Hatch, an SEC attorney and Senior Vice President at Edelman Public Relations, a Washington, DC-based public relations firm. NEW STRATEGIC DIRECTIONS In late 1998, the Company established the strategic objective of pursuing new complimentary Internet-related and e-commerce opportunities. On January 30, 1999, the Company executed a previously announced agreement with Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain prepaid cellular assets sold to Teledata for cash and Teledata common stock. The sale is consistent with the Company's objectives of improving the financial position of the Company and pursuing planned new business directions. See "Sale of Selected Assets and Lines of Business". Consistent with the Company's new business objectives, on May 7, 1999, the Company executed a letter of intent to acquire all outstanding common stock of IXATA.COM, a privately held provider of Internet-based, automated systems and related information services designed to automate redundant, labor-intensive processes in the travel industry. IXATA.COM's current principal product is RFP Express-SM-, an Internet-based software system that - -------------------------------------------------------------------------------- Page 10 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- automates the preferred lodging programs proposal process in the hospitality services market. Current prospects and customers for the RFP Express-SM- service include corporate users, travel planners, and Global Distribution Service ("GDS") providers. Interim and long term funding to support IXATA.COM's national rollout will be provided by SecurFone. The acquisition was finalized on July 1, 1999. The Company has established IXATA.COM, Inc. as a wholly-owned subsidiary and plans to significantly expand IXATA.COM's operations to offer new enhanced, Internet-based, information services in the travel market, targeting existing and new corporate clients. The acquisition of IXATA.COM is consistent with the Company's new objective of pursuing innovative, high potential Internet-related, value-added `transactional' business opportunities. The Company believes IXATA.COM's technology and resources will make an important contribution to support other new Internet-related initiatives the Company plans to pursue. The Company is now further expanding its management team and planning to secure new financing to support both expansion of the IXATA.COM. revenue base, as well as development of new enhancements and related Internet-based services targeting the travel and hospitality sectors. There can be no assurances that the Company will obtain the financing necessary to fund its expansion plans. UPCOMING IXATA.COM PRODUCTS AND SERVICES IXATA.COM's premier product, RFP Express-SM-, integrates a sophisticated data-warehousing system, interactive telephone and fax technology and user-friendly, Internet-based interface to deliver solutions providing dramatic cost savings for corporate users. RFP Express-SM- enables travel managers to conduct large scale preferred lodging programs request for proposal process in the hospitality services market ("RFP process"), on an automated, efficient basis using global Internet services. RFP Express-SM- distributes RFPs to a substantial number of hospitality properties, automatically tracks and records the RFP responses, provides automatic reminders to entities who failed to respond, allows the travel manager to negotiate submitted responses, provides automated acceptance or rejection letters and creates a searchable, real-time data warehouse based on responses. While Internet services are the primary transport mode for RFP Express-SM-, the system also interfaces transparently to existing fax and e-mail systems, further expanding the market opportunity and providing a smooth transition to existing operating environments. NEW FUNDING Recognizing that new funding is essential to meet the Company's core business objectives as well as expand into new business areas, the Company has pursued several options. On June 16, 1998, the Company executed a Letter of Intent with Young Management Group ("YMG") for securing new capital, and agreeing to the planned acquisition of SCIES, Inc. ("SCIES"), a privately-held, development stage provider of Internet telephony software, systems and services that is headquartered in Reston, Virginia. Structure of the final funding provided by YMG was contingent upon completion of a definitive business agreement between the Company and YMG. On August 1, 1998, YMG declined to meet its funding obligation payable at that date and the funding agreement was terminated. Total funds provided to the Company by YMG during May through July 1998 were $115,000, and were recorded as loans to the Company. To further improve the Company's financial position, in May 1999 the YMG loan was converted to equity. See "Conversion of Existing Debt to Equity." The planned acquisition of SCIES has not yet been completed. See "Other Information." On November 17, 1998, the Company entered into a relationship with the Strategica Group for investment banking services and bridge funding. For services rendered, Strategica was issued 41,665 shares of the Company's unregistered common stock and received a cash payment of $2,500. Due to delays encountered in securing new funding, the Company, on January 11, 1999, terminated its business relationship with Strategica and elected to - -------------------------------------------------------------------------------- Page 11 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- pursue other new funding alternatives. To support the Company's new refocused business objectives in late 1998, the Company pursued the sale of selected assets as described below. On February 4, 1999, the Company executed a Purchase Agreement with All Points Telecom, Inc. ("APT"), a privately-held telecommunications firm, whereby APT would acquire a controlling interest in the Company through the purchase of 4.5 million shares of the Company's common stock from Montpilier Holdings, Inc. ("Montpilier"). Montpilier is the principal stockholder of the Company and is owned indirectly by Michael M. Grand, a Director of the Company. Under the terms of the agreement, APT would also loan up to $1.8 million at the time of closing to the Company. The proceeds of this loan would be used to repay existing debt and provide additional working capital to meet the Company's growth needs. On April 12, 1999, the Company rejected a modified APT proposal, the Company and APT terminated discussions and the Company elected to pursue other alternatives. SALE OF SELECTED ASSETS AND LINES OF BUSINESS On January 30, 1999, the Company executed a previously announced agreement with to sell certain prepaid cellular assets to Teledata for cash and Teledata common stock. On April 22, 1999, the Company executed a final agreement to sell all outstanding shares of a wholly-owned subsidiary of the Company, SecurFone, Inc., to Teledata for $498,000 in cash, 600,000 shares of Teledata unregistered common stock, and the option to sell the stock back to Teledata at a price of $2.50 per share effective one year from the date of the transaction if the market price of the Teledata stock is less than $2.50 per share. SecurFone, Inc. assets include certain cellular service resale agreements, the Company's Miami customer service center, rights to the Buy-The-Minute-TM- ("BTM") product and selected distribution channels. Under the terms of the agreement, the Company will continue to offer prepaid cellular services and may establish resale and joint service arrangements to serve selected markets. The sale was consistent with the Company's planned strategy of refocusing its business objectives to pursue new e-commerce and Internet-based business opportunities to create significant shareholder value. The Company plans to continue to offer prepaid wireless services, focusing on higher margin opportunities, primarily through resale. MATERIAL TECHNOLOGIES STOCK TRANSFER On August 1, 1997, SecurFone, Inc. was acquired by Material Technology, Inc. ("Matech I") (formerly Tensiodyne Scientific Corporation) and became a publicly-traded corporation. In connection with the transaction, the Company retained 560,000 shares of Material Technologies, Inc. ("Matech II") Class A Common Stock. In July, 1997, Sherman Baker and certain Matech I shareholders associated with Mr. Baker (the "Baker Group") disputed the distribution of Matech II shares issued to Robert M. Bernstein, the Chief Executive Officer and major shareholder of Matech I. As a result of Mr. Baker's claims and demand, SecurFone delayed finalizing the July 31, 1997 transaction until all disputes between Matech I and its shareholders were resolved. On October 22, 1997, the Baker Group filed a claim against Mr. Bernstein for breach of contract and for inducing the group to enter into an exchange agreement in connection with the SecurFone transaction. As a result of the Baker Group's claims against Mr. Bernstein and in order to close the SecurFone transaction, Mr. Bernstein placed 150,000 of his personally-held SecurFone shares in escrow subject to a resolution of the Baker Group's claims. SecurFone also withheld payment of $50,000 and executed a $50,000 promissory note (the "Note") with a demand for payment contingent on, among other items, the release of all claims from the Baker Group toward SecurFone. The 560,000 shares of Matech II stock held by SecurFone were pledged as collateral on the Note. On July 31, 1998, the Baker Group entered into a settlement agreement with Mr. Bernstein and Matech II and on August 18, 1998, the Baker Group filed a Release of Claims against SecurFone. Pursuant to the original transaction, Matech II was entitled to the balance of $50,000 owed by SecurFone, and demanded payment, on October 5, 1998. The SecurFone Board of Directors reviewed the situation on October 9, 1998, and determined that given the illiquidity of the Matech II stock, and the current financial obligations of the Company, it was in the Company's best interests to allow Matech II to acquire the pledged stock in cancellation of the Note. - -------------------------------------------------------------------------------- Page 12 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- On October 9, 1998, Matech II served notice to SecurFone of its default on the Note. On October 19, 1998, SecurFone returned to Matech II the 560,000 shares of its common stock which were pledged as collateral on the Note and the Note was cancelled. CONVERSION OF EXISTING DEBT TO EQUITY In 1999, agreement was secured from several existing note holders to convert existing debt to unregistered shares of SecurFone common stock. On May 19, 1999, Young Management Group was issued 59,266 unregistered shares of the Company's common stock to eliminate total debts of $118,532, including notes of $115,000, and Michael Gilburd was issued 12,500 unregistered shares of the Company's common stock to eliminate total debts of $25,000. ADDITIONAL ISSUANCE OF SECURITIES For rendering brokering services and as a part of the transaction to purchase IXATA.COM, the Company agreed to pay Global One, Inc. ("Global"), 600,000 shares of restricted common stock of the Company. Global is an international business corporation in Nevis, British Virgin Islands. As of July 1, 1999, the date the purchase agreement was finalized, these 600,000 shares have not been issued. The Company intends to issue the shares to Global in the third quarter of 1999. RESULTS OF OPERATIONS: FISCAL 1998 COMPARED TO FISCAL 1997 REVENUES The Company only began full-scale operations in the first quarter of 1998; accordingly, a detailed comparison of revenues between Fiscal 1997 and Fiscal 1998, with the exception of licensing income as discussed below, is not meaningful. Prepaid cellular revenues for Fiscal 1998 increased to $367,358 from $88,431 in Fiscal 1997. The increase was as a result of the Company introducing its switch-based prepaid cellular product in the 30 markets, up from offering service in just four markets in 1997. COST OF GOODS SOLD Total cost of goods sold for Fiscal 1998 increased to $476,728 from $65,547 in Fiscal 1997 primarily due to the Company introducing the sale of its SFN switch-based product. GROSS PROFIT/MARGIN Gross profit for Fiscal 1998 decreased to a loss of $109,370 from profits of $22,884 in Fiscal 1997 primarily due to the high fixed portion of cost of goods associated with the introduction and market roll-out of the Company's SFN switch-based product. OPERATING EXPENSES Selling, general and administrative expenses increased to $2,437,287 in Fiscal 1998 from $1,859,418 in Fiscal 1997. The increase in selling, general and administrative expenses was primarily due to the hiring and development of an experienced management team. The wages and associated taxes in Fiscal 1998 increased to $763,402 from $377,066 in Fiscal 1997. Consulting, legal and professional fees increased to $328,059 in Fiscal 1998 from - -------------------------------------------------------------------------------- Page 13 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- $246,151 in Fiscal 1997 due to the Company's increased need for assistance in technological developments, new product development, accounting regulations and Public Utilities Commission, Federal Communications Commission and Securities and Exchange Commission requirements. Marketing-related expenses, including advertising, printing and tradeshows, decreased in Fiscal 1998 to $77,029 from $285,367 in Fiscal 1997. In addition, the Company recorded amortization and depreciation expenses of $329,559 in Fiscal 1998 versus $120,678 in Fiscal 1997. Operating expenses decreased to $4,057,287 in Fiscal 1998 from $6,163,784 in Fiscal 1997. In addition to the increase in selling, general and administrative expenses discussed above, the decrease in operating expenses was due to a $1,620,000 non-cash expense associated with stock-based compensation in Fiscal 1998 as compared to $4,327,250 non-cash expense associated with stock-based compensation in Fiscal 1997. At various dates in August, October and November 1997, the Company granted stock options to purchase 430,900 shares of Common Stock under the Company's two stock option plans. According to generally accepted accounting principles, these shares were recorded as a stock-based compensation expense of $1,227,250 with a corresponding entry to the paid-in capital -- stock options granted account. On December 3, 1997, the Company issued 620,000 contingent shares of Common Stock pursuant to various employment, retainer, consulting and fee agreements. As of December 31, 1997, all conditions of the share issuance had been met which resulted in an accounting cost entry of $3,100,000 being added to operating expenses and corresponding entries being made to the common stock and additional paid-in capital accounts. In January 1998, the Company granted stock options to the Company's former President, William Stueber, to purchase 400,000 shares of Common Stock. These shares were recording as a stock-based compensation expense of $1,620,000 with a corresponding entry to the paid-in capital -- stock options granted account. The net loss for Fiscal 1998 was, however, reduced by a $50,000 realized gain on the disposition of marketable securities that the Company held which resulted in a comprehensive loss of $4,304,943 or $0.72 per share as compared to $4,771,669 or $0.95 per share for Fiscal 1997. OTHER EXPENSES Interest expense increased to $288,286 in Fiscal 1998 from $68,021 in Fiscal 1997 due to the Company's purchase of computer hardware under a capital lease agreement and the payment of interest to investors who have obtained letters of credit on behalf of the Company which are posted with the Company's underlying telephony service providers for the purpose of provisioning service to initial roll-out markets. Additionally, the Company took a one time Fiscal 1997 loss of $48,980 for efforts expended on SecurFone New York, Inc. ("SFNY"), a licensee. In August 1996, the Company entered into a licensing agreement with SFNY. As part of the agreement, the Company paid for various start up costs of SFNY. Shortly thereafter, SFNY defaulted under the terms of the licensing agreement and ceased operations. As a result, the monies paid by the Company to SFNY were written off as a one-time charge to income. NETWORK INFRASTRUCTURE AND COSTS To provide services, the Company purchases many requisite underlying component network telephony services from various vendors. Some of these vendors operate in a highly competitive and minimally regulated environment, others either exist as monopolies, part of an oligopoly or otherwise in an environment of little competition in a service segment that is heavily regulated. 1997 brought severe and wide sweeping change to much of the telephony industry. As a consequence, the Company has been afforded the opportunity to competitively seek bids for many of its requisite underlying service components. In 1998 the Company began, and will continue to implement, an initiative to significantly lower costs to provide service and ensure a purchasing environment of multiple, redundant vendors for each category of purchase service. The overall result of this initiative should be to increase the gross profit margins of each of the Company's product offerings - -------------------------------------------------------------------------------- Page 14 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The Company has incurred significant operating and net losses as a result of the development and operation of its service platform and supporting networks. The Company expected that such losses would continue to increase as the Company focused on the development, construction and expansion of its service platform and underlying networks and expands its customer base. Cash provided by operations would not be sufficient to fund the expansion of the product offerings and resultant subscriber base. The Company is continually reviewing various sources of additional financing to fund its growth. As of December 31, 1998, the Company had received advances in the amount of $1,427,029 from private investors. The Company is required by underlying wireless carriers to post irrevocable letters of credit to secure the purchase of airtime. Prompt payment history, as well as overall financial condition will also effect each carrier's decision to stabilize, increase or eliminate these financial guarantees. The Company has an agreement with two investors that may obtain letters of credit of up to $1.0 million that are secured by their personal assets (the "LC Agreement"). These investors have renewed the LC Agreement through April 1, 1999. As compensation for their initial agreement to provide letters of credit, the Company issued warrants to these investors to purchase a total of 225,000 shares of Common Stock (the "LC Warrants"). In connection with the renewal of the LC Agreement, the Company issued a total of 35,000 additional shares of Common Stock to these investors. An amount of $35,000 was recorded as interest expense in the third quarter of 1998 for the issuance of the shares. An additional $35,000 interest expense will be recorded in each of the next two quarterly periods to fully reflect the cost of the issuance of the 35,000 shares. At December 31, 1998, the Company had cash and cash equivalents of $1,532. In addition, the Company had accounts receivable totaling $3,519 from the sale of the Company's switch-based debit cellular product. Net cash used by operating activities was $1,451,213 in Fiscal 1998 compared to $221,840 in Fiscal 1997. Net cash used in investing activities in Fiscal 1998 was $12,212 used to purchase equipment as compared with $154,108 in Fiscal 1997. Net cash provided by financing activities in Fiscal 1998 totaled $1,457,450 which consisted primarily of $1,280,699 in proceeds from notes payable to the Company from private investors as compared with $328,836 in Fiscal 1997 which consisted primarily of capital contributions of $120,000 and proceeds from capital lease of $159,650. In order to continue at its current rate of network development and expansion, the Company would require additional, non-revenue related financing of approximately $1.25 million for 1999 to fund operating losses and to purchase additional computer hardware and software which would allow the Company to increase its call capacity and efficiency. The Company would also require an additional letter of credit facility of $2.0 million to secure the necessary air time from underlying carriers in order to support the proposed market roll-out and expansion. The Company is continuing negotiations to secure this additional funding from all possible sources. See "-Recent Events - New Funding." Long-term liquidity will depend on the Company's ability to obtain long-term financing and attain profitable operations. SEASONALITY Sales of the Company's products and services are generally not seasonal, with the exception of December, which typically provides a modest increase in volume due to holiday purchases. Local wireless carrier credit policies, penetration rates and promotional efforts primarily dictate sales levels. TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS Income taxes are provided for based on earnings reported for financial statement purposes pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109. The provision for income taxes differs from the amounts currently payable because of timing differences in the recognition of certain income and expense items for financial and tax reporting purposes. SFAS 109 uses the asset and liability method to account for income taxes which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax basis and financial reporting basis of assets and liabilities. An - -------------------------------------------------------------------------------- Page 15 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- allowance has been provided for by the Company which reduced the tax benefits accrued by the Company for its net operating losses to zero, as it cannot be determined when, or if, the tax benefits derived from these operating losses will materialize. In February 1997 the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." This statement establishes a different method of computing net income per share than was required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS 128, the Company is required to present both basic net income per share and diluted net income per share. The Company adopted SFAS 128 in the first quarter of 1998 and all historical net income per share data presented is restated to conform to the provisions of SFAS 128. Effective December 1, 1998, the Company retroactively changed its method of recognizing start-up costs to conform with a recent pronouncement of the American Institute of Certified Public Accountants ("AICPA"), Statement of Position ("SOP") 98-5 Reporting on the Costs of Start-Up Activities. The Company previously amortized these costs over a five-year period beginning January 1, 1997, using the straight-line method. The new pronouncement requires start-up costs to be expensed as incurred. As a result, the cumulative effect of applying the new method retroactively as of January 1, 1997 was charged to 1998 earnings as required by SOP 98-5. The effect of the change decreased amortization and net income for the three months and twelve months ended December 31, 1998 by $46,638 and $261,293 respectively. YEAR 2000 The Company utilizes two different computer systems. The network telephony system used in call routing and rating consists of three components, presently the Bull Mini Computer, Apex interactive voice response ("IVR") unit which is Intel based, and accounting and debit software. According to the vendor, the Bull and Apex IVR are presently Year 2000 compliant. The Company recently upgraded the accounting and debit software to INFORMIX, which is Year 2000 compliant, in late 1998. The Company's administrative computer network utilizes accounting, database, and computational software that are all Year 2000 compliant according to management's recent discussions with its vendors. As a result, management does not anticipate any material adverse effect to the operations of the Company with respect to the Year 2000 problem. While the Year 2000 considerations are not expected to materially impact the Company's internal operations, they may have an effect on some of the Company's customers and suppliers, and thus indirectly affect the Company. Generally, the Company requires its key vendors and suppliers to certify they are Year 2000 compliant. With respect to other vendors and suppliers with which the Company's systems interface and exchange data, the Company expects to initiate communication on an ongoing basis to discuss their Year 2000 compliance. The Company has not determined the exact costs and expenses it expects to incur relating to preparation of its systems for the Year 2000. Based on current assessments and compliance plans in process, the Company does not expect that the Year 2000 issue, including the cost of making its critical systems and applications compliant, will have a material effect on its business operations, or its financial position or results of operations. However, if appropriate modifications are required by the Company's key suppliers and vendors, and if those modifications are not made on a timely basis, the Company's actual costs or timing for Year 2000 compliance may differ materially from current estimates. There can be no assurance that the systems of other parties upon which the Company relies will be converted on a timely basis. It is not possible to quantify the aggregate cost to the Company with respect to customers and suppliers with Year 2000 problems, although the Company does not anticipate it will have a material adverse impact on its business. FORWARD-LOOKING STATEMENTS Statements that are not historical facts, including statements about the Company's confidence in its prospects and strategies and its expectations about expansion into new markets, growth in existing markets, and the Company's ability to attract new sources of financing, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: - -------------------------------------------------------------------------------- Page 16 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- - - NEW BUSINESS VENTURE. The Company has limited prior operating history. The likelihood of the success of the Company must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new businesses, and the competitive environment in which the Company operates. Therefore, there can be no assurances that future revenues from sales of the Company's product will occur or be significant or that the Company will be able to sell its products at a profit. Future revenues and profits, if any, will depend on various factors, including, but not limited to, the successful commercialization of the Company's products and successfully implementing its planned marketing strategies. - - INSUFFICIENT CAPITAL TO CONTINUE OPERATIONS. As the Company continues to implement its business, present sources of financing will not be adequate to support the Company's increased cash needs. Furthermore, the Company's entry into new Internet and electronic commerce business areas will create additional demands for investment capital. If the Company fails to obtain necessary short-term financing, it will not be able to continue operations. Long-term liquidity will depend on the Company's ability to obtain long-term financing and attain profitable operations. - POSSIBLE DELISTING. Because of recent changes in the Nasdaq listing rules, the Company's Common Stock could be delisted from trading on the Nasdaq Over-the-Counter Bulletin Board Service, unless the Company makes required filings with the Securities and Exchange Commission. If the Company's stock were to be delisted, there would be no public market for the stock and stockholders would be unable to liquidate their investment. Although the Company intends to make the required filings with the Securities and Exchange Commission and retain its stock listing on the Nasdaq Bulletin Board, there can be no assurances that it will be able to do so. - - DEPENDENCE ON NEW PRODUCT INTRODUCTION AND COMMERCIALIZATION. The concept of and the technology to manufacture, operate and market Internet-based electronic commerce and prepaid cellular services have only been recently developed. Although the Company believes that there is a large market for its product, there can be no assurance that the Company will be successful in the introduction of its new product. The Company's successful entry into the Internet and electronic commerce markets in 1999 will also depend on the rapid introduction and commercialization of new products and services in a highly competitive and rapidly changing global market. To achieve success in this environment, the Company may have to overcome significant technological and marketing hurdles which may not be currently foreseen. Since the Company may be pursuing innovative, new applications in the Internet and electronic commerce markets, there may be little direct operating history on which to base assumptions as to practicality, market acceptability, sales volume and profitability. - - COMPETITION. The Internet-based electronic commerce and prepaid cellular industries have become increasingly competitive due to the entry of large, well financed service providers into the market. Other potential competitors include companies with substantially greater financial and marketing resources than those of the Company. In the Internet and electronic commerce markets, while the market has shown strong growth, there are numerous, well-funded competitors as well. No assurance can be given that competitors possessing greater financial resources than the Company will not be able to develop a product which is more appealing or offer similar products at lower prices than those of the Company. The Company may not be able to operate successfully in this competitive environment. - - DEPENDENCE ON UNDERLYING CELLULAR AND LONG DISTANCE CARRIERS. The Company is currently dependent on a limited number of domestic wireless and long distance carriers to provide access for its services. Although the Company believes that it currently has sufficient access to transmission facilities and long distance networks on favorable terms, and believes that its relationships with carriers is satisfactory, an increase in the rates charged by carriers would have a adverse effect on the Company's operating margins. Failure to obtain continuing access to such facilities and networks on favorable terms, would also have a material adverse effect on the Company, including the possibility that the Company may need to significantly curtail or cease its prepaid cellular services operations or to develop its own capabilities at a cost in excess of the Company's ability to fund such undertakings. - -------------------------------------------------------------------------------- Page 17 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- - - DEPENDENCE ON INTERNET. The Company is currently dependent on the Internet as an access and transmission medium to provide its services. Although the Company believes that the acceptability and usability of the Internet will increase over time, any increase in the rates charged by Internet service providers, carriers or decreased use of the Internet for electronic commerce transactions, resulting in a decreased usage of the Internet would have a material adverse effect on the Company's operating margins. Failure to promote Internet access as the preferred means of accessing the Company's service could also have a material adverse effect on the Company, including the possibility that the Company may need to significantly curtail or cease its Internet based e-commerce operations or to develop its own capabilities at a cost in excess of the Company's ability to fund such undertakings. - - REGULATORY ENVIRONMENT, UNFORESEEN COSTS AND REGULATION. Currently, both land line and wireless telephony are undergoing rapid and drastic regulatory changes. Furthermore, Internet-based electronic commerce is under increased scrutiny by regulatory agencies and may also undergo rapid and drastic regulatory changes. The Company's products have components that are regulated by both state and federal regulatory agencies. There can be no assurances that one or more services currently offered by the Company will not be negatively impacted by newly-created or interpreted regulation. These and other risks described in this Annual Report must be considered by any investor or potential investor in the Company. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Attached to this Annual Report and filed as a part of this Annual Report are the Consolidated Financial Statement and Financial Statement Schedule required by Regulation S-X. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. - -------------------------------------------------------------------------------- Page 18 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information about the directors and executive officers of the Company as of July 1, 1999 is included below.
- ----------------------------------------------------------------------------------------------------- DIRECTOR OR NAME AGE POSITION OFFICER SINCE - --------------------------------------------------------------------------------------------------------- Derek Davis 34 Chief Operating Officer and Director (Resigned September 11, 1998) June 1996 - --------------------------------------------------------------------------------------------------------- Fred Gluckman 49 Executive Vice President, Technology and Automation IXATA.COM and Director July 1999 - --------------------------------------------------------------------------------------------------------- Michael M. Grand 59 Director April 1997 - --------------------------------------------------------------------------------------------------------- Paul Hatch 47 Director July 1999 - --------------------------------------------------------------------------------------------------------- Andrew H. Kent 35 Vice President and Chief Financial Officer and Director June 1999 - --------------------------------------------------------------------------------------------------------- Michael Lee Chief Financial Officer and Director (Resigned February 20, 1998) June 1996 - --------------------------------------------------------------------------------------------------------- Paul B. Silverman 55 Chief Executive Officer and Director November 1998 - --------------------------------------------------------------------------------------------------------- Robert Steiner 44 Executive Vice President, Marketing, IXATA.COM and Director July 1999 - --------------------------------------------------------------------------------------------------------- William P. Stueber, II 38 President and Director (Resigned October 31, 1998) April 1996 - --------------------------------------------------------------------------------------------------------- Steven L. Wasserman 45 Secretary and Director (Resigned as Director April 30, 1998) April 1996 - ---------------------------------------------------------------------------------------------------------
The following describes the business background and the experience of each of the directors and executive officers of the Company: DEREK M. DAVIS became Chief Operating Officer of the Company in June 1996 and interim Chief Financial Officer in February 1998. From March 1993 until June 1996, Mr. Davis was Director of Operations of Central Communications Corporation, a company engaged in the construction and operation of 220 MHz Specialized Mobile Radio systems. From December 1990 until September 1991, Mr. Davis was a financial analyst for Rovic Diamonds, a diamond mining company. On September 11, 1998, Mr. Davis resigned to pursue other interests. Mr. Davis agreed to be available to Company executives for a period of two months, without compensation, in order to ensure a smooth transition of tasks and responsibilities to his replacement. FRED GLUCKMAN is Executive Vice President, Technology and Automation of the Company's IXATA.COM subsidiary and was appointed a Director of the Company July 1, 1999. Mr. Gluckman is a co-founder of IXATA.COM. Since 1994, Mr. Gluckman was co-founder and CEO of Tel.n.Form, Inc., a privately-held provider of automated sales lead and related information to auto dealerships and financial institutions. Through Mr. Gluckman's many joint ventures, Mr. Gluckman has gained a reputation as one of the leading experts in the use of automation to eliminate costly, redundant business processes. Born in Israel and raised in Canada, Mr. Gluckman holds a Bachelor of Science degree from McGill University. MICHAEL M. GRAND has been a director of the Company since its inception. Mr. Grand is an attorney practicing in the areas of commercial and real estate law. He is a member of the Michigan bar. Mr. Grand is the President and sole shareholder of Parthenon Holdings, L.L.C., a holding company which is the sole shareholder of Montpilier Holdings, Inc. ("Montpilier"), a holding company and a significant stockholder of the Company. PAUL HATCH was appointed as a member of the Company's Board of Directors on July 1, 1999. Mr. Hatch is currently Senior Vice President at Edelman Public Relations Worldwide where he directs the firm's state and local programs practice. Mr. Hatch has more than 25 years experience in political campaigns, public affairs and - -------------------------------------------------------------------------------- Page 19 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- communications. Mr. Hatch's background includes serving as the Executive Director of the Republican Governors' Association (RGA), working closely with the nation's 32 Republican governors and their staffs. Mr. Hatch also served as the deputy political director of the Republican National Committee (RNC). Mr. Hatch has represented Anderson Consulting, Laidlaw, IMG. US West Communications, Texaco, 3M, the National Education Association, Microsoft, CSX Transportation Co., Northwest Airlines, and other Fortune 500 clients. Mr. Hatch currently provides support services to the RGA, the RNC, as well as Republican Leadership in the U.S House of Representatives. Prior to joining the RGA, Mr. Hatch resided in Salt Lake City, practiced Law, specializing in Securities law and regulated industries, and served as a special assistant Attorney General. Mr. Hatch studied Finance and Economics at University of Utah and obtained a Juris Doctor Degree from the University's College of Law in 1978. MICHAEL LEE became Chief Financial Officer and a Director of the Company in June 1996. Mr. Lee is a certified public accountant and member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants. Mr. Lee has been a tax partner since October 1993 at Bober, Markey & Company, a large regional public accounting firm. Previously Mr. Lee has worked at Grant Thornton International LLP, one of the world's largest public accounting firms. Effective February 20, 1998, Michael Lee, the Company's Chief Financial Officer and a Director resigned. Mr. Lee's departure was by mutual agreement with the Company's Board of Directors. ANDREW H. KENT joined the management team as Director, Business Development effective November 1, 1998. In the new position, Mr. Kent reports to the Chief Executive Officer and played a key role in reshaping the Company's overall business strategy to pursue new e-commerce and Internet-related business opportunities. On June 30, 1999, Mr. Kent was appointed Vice President and Chief Financial Officer, reporting to the Chief Executive Officer. Mr. Kent was also elected to serve on the Company's Board of Directors on June 30, 1999. PAUL B. SILVERMAN became Chief Executive Officer of the Company in November 1998 and a director in December 1998. Since January 1997, Mr. Silverman has been Chairman of the Board and Chief Executive Officer of SCIES, Inc., a global Internet telephone systems and services company. From 1990 to 1996, Mr. Silverman was Chief Executive Officer of JMS North America, Inc. (formerly James Martin Strategy, Inc.), an international management consulting and engineering company. Previously, Mr. Silverman held senior management consulting positions with Coopers & Lybrand and Booz Allen and Hamilton. Mr. Silverman's background also includes more than 20 years experience in senior engineering, marketing and international business development positions with major information industry firms including Satellite Business Systems (division of IBM), GTE, Xerox and RCA Global Communications, Inc. ROBERT STEINER is Executive Vice President Marketing of the Company's IXATA.COM subsidiary and was appointed a Director of the Company on July 1, 1999. Mr. Steiner is a co-founder of IXATA.COM. From 1991 to 1994, Mr. Steiner was founder and Managing Partner of Smith, Steiner & Thomas, one of the largest travel management consulting companies in the world. Mr. Steiner's background also includes serving as Manager, Corporate Procurement for Northrop Corporation, and a Contracting Officer within the United States Air Force. Mr. Steiner holds a BA in Economics from the University of California, and an MBA from Pepperdine University. WILLIAM P. STUEBER, II became CEO, President and a Director of the Company in June 1996. Since 1983, he has been the President of Vortex Cellular, Inc., a cellular activating and consulting company doing business as Direct Mobile ("Direct Mobile"). Mr. Stueber is also an exclusive agent of Bell Atlantic NYNEX Mobile. Effective October 31, 1998, Mr. Stueber left the Company to pursue other interests. The Company has negotiated a settlement with Mr. Stueber to resolve all outstanding obligations related to his prior employment by the Company. See "Employment Agreements." STEVEN L. WASSERMAN has been Secretary and was a Director of the Company since its inception. Mr. Wasserman is an attorney and a partner of the law firm of Kohrman Jackson & Krantz P.L.L., Cleveland, Ohio. He also serves as Secretary and a director of INTEK Global Corporation, a wireless service and technology company. Mr. Wasserman is a member of the bars of Ohio and Florida. Mr. Wasserman was a principal of the law corporation of Honahan, Harwood, Chernett & Wasserman, LPA, Cleveland, Ohio, from 1983 to September 1994. Mr. - -------------------------------------------------------------------------------- Page 20 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- Wasserman resigned his position as a Director to pursue other interests effective April 30, 1999. Mr. Wasserman continues as Secretary of the Company. MEETINGS OF THE BOARD OF DIRECTORS The Board of Directors met four times and acted by written consent eight times in 1998. During 1998, all members of the Board of Directors participated in each Board meeting. DIRECTOR COMPENSATION Members of the Board of Directors are not compensated for their services as directors. The SecurFone America, Inc. 1997 Directors' Option Plan (the "Directors' Option Plan") provides for the automatic "formula" grant to each director of an option to purchase 50,000 shares of the Company's common stock, $0.001 par value per share (the "Common Stock"), on the date of his or her initial election to the Board of Directors. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of the Company's Common Stock, to file with the Securities and Exchange Commission ("SEC") the initial reports of ownership and reports of changes in ownership of the Common Stock. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all ss. 16(a) forms they file. Based solely on filings received by the Company, the Company is not aware of any delinquent ss. 16(a) filings in 1998. ITEM 10. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table summarizes the compensation paid by the Company since its inception to Paul B. Silverman, the Company's President and Chief Executive Officer, and William P. Stueber, II, the former President, the only executive officer whose total annual salary exceeded $100,000 in 1998.
- ---------------------------------------------------------------------------------------- ANNUAL COMPENSATION ----------------------- LONG-TERM NAME FISCAL COMPENSATION ALL OTHER YEAR SALARY OPTION AWARDS COMPENSATION - ---------------------------------------------------------------------------------------- Paul B. Silverman 1998 $ 23,080 (4) -- $ 84,991 (3) 1997 -- -- -- 1996 -- -- -- - ---------------------------------------------------------------------------------------- William P. Stueber, II 1998 $152,308 -- -- 1997 $ 39,358 (1) $50,000 $105,000 (2) 1996 -- -- $ 55,000 (2) - ----------------------------------------------------------------------------------------
(1) $11,666 of this amount was earned by Mr. Stueber in 1997, but payment was deferred pursuant to the terms of his employment agreement. See "Employment Agreements." (2) The listed amounts were paid to Direct Mobile for consulting services provided to the Company in 1996 and before Mr. Stueber joined the Company in 1997. Mr. Stueber is the President and sole owner of Direct Mobile. - -------------------------------------------------------------------------------- Page 21 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- (3) The listed amount was paid to Paul Silverman and SCIES, Inc. for consulting services provided to the Company in 1998 and before Mr. Silverman joined the Company in 1998. Paul B. Silverman is Chief Executive Officer of SCIES. Mr. Silverman currently retains a 40 % ownership interest in SCIES. Of this amount, $11,535 for consulting services, was earned by Mr. Silverman in 1998, but payment was deferred. (4) $23,080 of this amount was earned by Mr. Silverman in 1998, but payment was deferred. OPTION GRANTS IN 1998 The following table summarizes information concerning options granted during 1998 to Mr. Silverman and Mr. Stueber:
- ------------------------------------------------------------------------------------------------------- PERCENT OF SHARES OF TOTAL OPTIONS NAME COMMON STOCK GRANTED TO EXERCISE MARKET VALUE UNDERLYING EMPLOYEES IN PRICE PER PER SHARE ON EXPIRATION OPTIONS FISCAL 1998 SHARE DATE OF GRANT DATE - ------------------------------------------------------------------------------------------------------- William P. Stueber, II 400,000 72.3% $0.10 $4.05 1/06/08 (1) - ------------------------------------------------------------------------------------------------------- 100,000 27.3% $0.10 $0.53 12/01/08 Paul B. Silverman 50,000 $0.28 $0.28 12/11/08 - -------------------------------------------------------------------------------------------------------
(1) 50,000 of these options were exercised in 1998. The remainder of the options were subsequently cancelled in 1999 pursuant to a settlement agreement between the Company and Stueber. See "Employment Agreements." OPTION EXERCISE IN 1998 AND VALUES AT 1998 YEAR-END The following table summarizes information with respect to the unexercised options held by Mr. Silverman and Mr. Stueber as of December 31, 1998. Also reported are values of "in-the-money" options, that is, the amount by which the exercise price of the option is exceeded by the last sale price of the Common Stock on December 26, 1998, the last day on which a sale occurred before year-end.
- ------------------------------------------------------------------------------------------------------------------ SHARES NUMBER OF SHARES VALUE OF UNEXERCISED ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS NAME ON REALIZED OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998 EXERCISE -------------------------------------------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------------------ William P. Stueber, II 50,000 $138,750 50,000 (1) -- $ 0 -- 350,000 (1) $19,600 - ------------------------------------------------------------------------------------------------------------------ 50,000 0 $ - Paul B. Silverman 100,000 -- $ 5,600 - ------------------------------------------------------------------------------------------------------------------
(1) These options have been subsequently cancelled in 1999 pursuant to a settlement agreement between the Company and Stueber. See "Employment Agreement." LONG-TERM INCENTIVE AND PENSION PLANS The Company does not have any long-term incentive, pension or similar plans. - -------------------------------------------------------------------------------- Page 22 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- EMPLOYMENT AGREEMENTS The Company executed an employment agreement with Mr. Silverman on November 1, 1998 to serve as Chief Executive Officer. Mr. Silverman's salary compensation is $150,000, increasing to $180,000 per year after the Company secures minimum new funding of $750,000. Mr. Silverman also received options to acquire 100,000 shares of the Company's Common Stock upon execution of the employment agreement, and additional options for 300,000 shares directly linked to the Company's ability to meet specified market capitalization targets and financial milestones. On December 11, 1998, Mr. Silverman was appointed a director of the Company and granted options to purchase 50,000 shares of Common Stock under the Directors' Option Plan. Effective November 1, 1997, the Company entered into an employment agreement with Mr. Stueber to act as President. The agreement was for a term of one year with automatic annual renewals unless either party terminated the agreement. Mr. Stueber left the Company to pursue other interests effective October 31, 1998. Mr. Stueber's employment agreement provided for an annual salary of $250,000, of which $15,000 was payable monthly. The agreement provided that the deferred portion of Mr. Stueber's salary would become payable upon the earlier of a determination by the Board of Directors of the Company that the Company had sufficient revenues or capital or May 1, 1998. After May 1, 1998, Mr. Stueber agreed to continue to defer the deferred portion of his salary until the Company had sufficient revenues or capital to pay Mr. Stueber. In addition, Mr. Stueber was granted an option to purchase 400,000 shares of Common Stock at an exercise price of $0.10 per share on January 6, 1998, pursuant to the agreement. The agreement provided that if Mr. Stueber was terminated or left the employment of the Company, his salary would continue for a period of three or six months depending upon the reason for the termination of his employment. Pursuant to the employment agreement, Mr. Stueber has agreed not to compete with the Company for a period of one year after the termination of his employment. On February 8, 1999, the Company executed a settlement agreement with Mr. Stueber to resolve all outstanding claims related to his prior employment by the Company and cancel his outstanding options for $50,000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table includes, as of July 1, 1999, information regarding the beneficial ownership of the Company's Common Stock, by each stockholder known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, each director and executive officer of the Company, Mr. Stueber, the Company's former President, and all directors and executive officers as a group.
- ------------------------------------------------------------------------------------- BENEFICIAL OWNERSHIP (2) -------------------------------------------- NAMES AND ADDRESS (1) SHARES PERCENTAGE - ------------------------------------------------------------------------------------- Andreoli Family Trust (3) 1,761,875 16.4% - ------------------------------------------------------------------------------------- Fred Gluckman (4) 1,761,875 16.4% - ------------------------------------------------------------------------------------- Robert Steiner 516,250 4.8% - ------------------------------------------------------------------------------------- William P. Stueber, II (5) 0 0.0% - ------------------------------------------------------------------------------------- Andrew H. Kent (6) 20,000 0.2% - ------------------------------------------------------------------------------------- Paul B. Silverman (7) 150,000 1.4% - ------------------------------------------------------------------------------------- Paul Hatch 0 0.0% - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 23 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- Steven L. Wasserman (8) 100,000 0.9% - ------------------------------------------------------------------------------------- Michael M. Grand (9) 4,550,000 42.0% - ------------------------------------------------------------------------------------- All directors and executive officers As a group (seven individuals) (10) 7,098,125 64.3% - -------------------------------------------------------------------------------------
(1) Unless otherwise indicated, the address of each of the beneficial owners is c/o SecurFone America, Inc., 8080 Dagget, Suite 220, San Diego, California 92111. (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is considered to be the beneficial owner of securities that can be acquired by such person within 60 days from July 1, 1999 upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by that person (but not those held by any other person) and which are exercisable within 60 days from July 1, 1999 have been exercised. (3) Andreoli Family Trust's address is 3131 Liberty Circle South, Las Vegas, NV 89121. (4) These shares are held by the Gluckman Family Trust of which Mr. Gluckman is the trustee. (5) Mr. Stueber address c/o Direct Mobile Vortex Cellular, 14 E. Main Street, Somerville, NJ 08876. (6) Includes options to purchase 20,000 shares of Common Stock. (7) Includes an option to purchase 100,000 shares of the Company's Common Stock granted upon execution of Mr. Silverman's employment agreement. Does not include an option to purchase 50,000 shares of Common Stock granted under the Directors' Option Plan, which are not presently exercisable, or options to acquire up to an additional 300,000 shares of Common Stock contingent upon the Company's ability to meet specified market capitalization and financial milestones which have not yet been reached. (8) Includes (i) an option to purchase 50,000 shares of Common Stock granted under the Directors' Option Plan and (ii) 50,000 shares of Common Stock held by Kohrman Jackson & Krantz P.L.L. Mr. Wasserman is a partner of the law firm of Kohrman Jackson & Krantz P.L.L., which provides legal services to the Company. (9) Includes (i) an option to purchase 50,000 shares of Common Stock granted under the Directors' Option Plan and (ii) 4,500,000 shares of Common Stock held by Montpilier. Montpilier is wholly owned by Parthenon Holdings, L.L.C., of which Mr. Grand is the sole shareholder. (10) Includes options to purchase a total of 270,000 shares of Common Stock ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On August 1, 1997, SecurFone, Inc. was acquired by Material Technology, Inc. (formerly Tensiodyne Scientific Corporation) and became a publicly-traded corporation. Material Technology, Inc. issued 4,500,000 shares of its common stock to Montpilier in exchange for all of the outstanding capital stock of SecurFone, Inc. Montpilier is the principal stockholder of the Company and is owned indirectly by Michael M. Grand, a director of the Company. On June 12, 1998, the Company executed a term sheet for the acquisition of SCIES, Inc. ("SCIES"), a global Internet telephone systems and services company. The term sheet calls for the Company to issue shares of unregistered Common Stock to purchase SCIES and a funding commitment for the Company from third parties. - -------------------------------------------------------------------------------- Page 24 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- Paul B. Silverman, Chief Executive Officer of the Company, is Chief Executive Officer of SCIES. Mr. Silverman currently retains a 40 % ownership interest in SCIES. The acquisition of SCIES has not yet been completed and there is no assurance the transaction will be completed in the future. Steven L. Wasserman, a former director and the present Secretary of the Company, is a partner of the law firm of Kohrman Jackson & Krantz P.L.L., which provides legal services to the Company. - -------------------------------------------------------------------------------- Page 25 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: PAGE Independent Auditors' Report.........................................................F-1 Consolidated Balance Sheet at December 31, 1998 and 1997.............................F-2 Consolidated Statements of Operations for the twelve months ended December 31, 1998 and 1997......................................................F-3 Consolidated Statement of Cash Flows for the twelve months ended December 31, 1998 and 1997......................................................F-4 Consolidated Statement of Common Stockholders' Equity for the twelve months ended December 31, 1998, 1997 and 1996.........................................F-5 Notes to Consolidated Financial Statements...........................................F-6
There are no other accounting schedules required by applicable accounting regulations of the Securities and Exchange Commission. (b) REPORTS ON FORM 8-K: The Company did not file any Forms 8-K during the quarter ended December 31, 1998. (c) EXHIBITS:
--------------------------------------------------------------------------- 2.1 Stock Purchase Agreement among Montpilier Holdings, Inc., SecurFone America, Inc., Material Technology, Inc. and Robert M. Bernstein dated as of February 17, 1997, (incorporated by reference to the Company's Form 10-K filed by the Company for the fiscal year end 1996) --------------------------------------------------------------------------- 3.1 The Company's Amended and Restated Certificate of Incorporation (incorporated by reference to the Company's S-1 Registration Statement as filed with the Securities and Exchange Commission (File No. 33-83526)) --------------------------------------------------------------------------- 3.2 The Company's Bylaws (incorporated by reference to the Company's S-1 Registration Statement as filed with the Securities and Exchange Commission (File No. 33-83526)) --------------------------------------------------------------------------- 4.1 Class A Convertible Preferred Stock Certificate of Designations (incorporated by reference to the Company's S-1 Registration Statement as filed with the Securities and Exchange Commission (File No. 33-83526)) 4.2 Class B Convertible Preferred Stock Certificate of Designations (incorporated by reference to the Company's S-1 Registration Statement as filed with the Securities and Exchange Commission (File No. 33-83526)) --------------------------------------------------------------------------- 10.1 The Company's 1997 Stock Option Plan (incorporated by reference to the Company's S-8 Registration Statement as filed with the Securities and Exchange Commission (File No. 333-40379)) --------------------------------------------------------------------------- 10.2 The Company's 1997 Director's Stock Option Plan (incorporated by reference to the Company's S-8 Registration Statement as filed with the Securities and Exchange Commission (File No.333-40379)) --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 26 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- 10.3 Employment Agreement, effective as of October 24, 1997, between the Company and Derek Davis (incorporated by reference to the Company's S-8 Registration Statement as filed with the Securities and Exchange Commission (File No. 333-40379)) --------------------------------------------------------------------------- 10.4 Executive Employment Agreement, entered into as of November 1, 1997, between William P. Stueber, II and the Company --------------------------------------------------------------------------- 10.5 Settlement Agreement and Mutual Release, entered into between William P. Stueber, II and the Company --------------------------------------------------------------------------- 10.6 Executive Employment Agreement, entered into as of November 1, 1998, between Paul B. Silverman and the Company --------------------------------------------------------------------------- 10.7 Purchase Agreement, dated February 1999, between the Company and Teledata World Services, Inc. --------------------------------------------------------------------------- 10.8 Security Agreement, dated February 1999, between the Company and Teledata World Services, Inc. --------------------------------------------------------------------------- 10.9 Secured Promissory Note in the original principal amount of $248,000, dated February 1999, of the Company payable to Teledata World Services, Inc. --------------------------------------------------------------------------- 10.10 First Amendment to Purchase Agreement, dated April 15th 1999, between Teledata World Services, Inc. and the Company --------------------------------------------------------------------------- 10.11 Stock Purchase Agreement, by and among the Company, Montpiler Holdings, Inc., IAXATA.COM, Inc., and all of the shareholders of IXATA, dated July 1, 1999 (incorporated by reference to the Company's 8-K Current Report as filed with the Securities and Exchange Commission on July 20, 1999 (File No. 033-83526)) --------------------------------------------------------------------------- 10.12 Voting agreement, by and among the Company and certain stockholders of the Company, dated July 1, 1999 (incorporated by reference to the Company's 8-K Current Report as filed with the Securities and Exchange Commission on July 20, 1999 (File No. 033-83526)) --------------------------------------------------------------------------- 23.1 Consent of Conte Co., CPA, Inc. --------------------------------------------------------------------------- 24.1 Reference is made to the Signatures section of this Report for the Power of Attorney --------------------------------------------------------------------------- 27.1 Financial Data Schedule --------------------------------------------------------------------------- ---------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Page 27 SECURFONE AMERICA, INC. Annual Report on Form 10-KSB For the Year Ended December 31, 1998 - -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURFONE AMERICA, INC. By: /s/ Paul B. Silverman ------------------------ Paul B. Silverman, Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints each of Steven L. Wasserman and Christopher J. Hubbert, his true and lawful attorney-in-fact, each acting alone, with full powers of substitution, and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments, to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes, each acting alone, may lawfully do or cause to be done by virtue hereof. 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.
/s/ PAUL B. SILVERMAN Chief Executive Officer August 20, 1999 - -------------------------- (principal executive officer) Paul B. Silverman /s/ Andrew H. Kent Chief Operating Officer, Chief Financial Officer August 20, 1999 - -------------------------- and Director (principal financial officer) Andrew H. Kent /s/ Michael M. Grand Director August 20, 1999 - -------------------------- Michael M. Grand /s/ Fred Gluckman Director August 20, 1999 - -------------------------- Fred Gluckman /s/ Paul Hatch Director August 20, 1999 - -------------------------- Paul Hatch /s/ Robert Steiner Director August 20, 1999 - -------------------------- Robert Steiner
- -------------------------------------------------------------------------------- Page 28 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Securfone America, Inc. and Subsidiary We have audited the accompanying consolidated balance sheet of Securfone America, Inc. and Subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of income, cash flows and stockholders' equity for the years ended December 31, 1998 and 1997. These consolidated financial statements are the responsibility of Securfone America, Inc. and Subsidiary management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Securfone America, Inc. as of December 31, 1998 and 1997, and the results of their operations and their cash flows in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Securfone America, Inc. and Subsidiary will continue as a going concern. As discussed in Note 13 to the financial statements, Securfone America, Inc. and Subsidiary have suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Conte Co., CPA, Inc. Norton, Ohio August 30, 1999 F-1 SECURFONE AMERICA, INC. AND SUBSIDIARY (FORMERLY MATERIAL TECHNOLOGY, INC.) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS
12-31-98 12-31-97 ----------------- ---------------- Current Assets Cash & Cash Equivalents $1,532 $7,507 Accounts Receivable, Less Allowance for Doubtful Accounts of $43,568 and $0 7,138 35,104 Royalties Receivable 0 100,000 Prepaid Expenses 35,000 0 Inventory 0 22,153 ----------------- ---------------- Total Current Assets 43,670 164,764 ----------------- ---------------- Fixed Assets Property and equipment, net of accumulated depreciation 174,936 230,989 ----------------- ---------------- Other Assets Note Receivable, including accrued interest 0 89,353 Intangible assets, net of accumulated amortization 0 261,293 Deposits 1,225 1,225 ----------------- ---------------- Total Other Assets 1,225 351,871 ----------------- ---------------- TOTAL ASSETS $219,831 $747,624 ----------------- ---------------- ----------------- ---------------- LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Current portion of obligations under capital leases $47,449 $44,471 Accounts Payable 489,400 159,701 Accrued Payroll 111,544 11,334 Notes Payable 275,000 0 Accrued Interest on Notes Payable 80,267 0 Current Portion LT Debt 16,356 0 Other Accrued Liabilities 0 1,833 ----------------- ---------------- Total Current Liabilities 1,020,016 217,339 ----------------- ---------------- Long-Term Liabilities Note Payable 1,358,696 77,997 Obligations under capital leases 59,311 86,369 ----------------- ---------------- Total Long-Term Liabilities 1,418,007 164,366 Deferred Royalty Revenue 0 100,000 ----------------- ---------------- Total Liabilities 2,438,023 481,705 ----------------- ---------------- Stockholders' Equity Common Stock-Securfone America, Inc. 6,092 5,620 $.001 Par Value, Authorized 100,000,000 Shares, Outstanding 5,620,216 Shares @ December 31, 1997 and 6,091,881 Shares @ December 31, 1998 Paid-in Capital 4,363,315 4,190,180 Paid-in-Capital - Stock Options 2,874,475 1,227,250 Retained Earnings (Deficit) (9,462,074) (5,157,131) Accumulated Deficit ----------------- ---------------- Total Stockholders' Equity (2,218,192) 265,919 ----------------- ---------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $219,831 $747,624 ----------------- ---------------- ----------------- ----------------
See Notes to Financial Statements F-2 SECURFONE AMERICA, INC. AND SUBSIDIARY (FORMERLY MATERIAL TECHNOLOGY, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED
12-31-98 12-31-97 ----------------- ------------------ REVENUES CELLULAR SERVICES $367,358 $88,431 ----------------- ------------------ TOTAL REVENUES 367,358 88,431 ----------------- ------------------ COST OF GOODS SOLD CELLULAR AIR TIME 346,582 63,265 CELLULAR CALLING CARDS 0 2,282 LANDLINE 124,465 0 OTHER 5,681 0 ----------------- ------------------ TOTAL COST OF GOODS SOLD 476,728 65,547 ----------------- ------------------ GROSS PROFIT (LOSS) (109,370) 22,884 OPERATING EXPENSES SELLING, GENERAL, AND ADMINISTRATIVE 2,437,287 1,859,418 STOCK-BASED COMPENSATION 1,620,000 4,327,250 ----------------- ------------------ INCOME (LOSS) FROM OPERATIONS (4,166,657) (6,163,784) OTHER INCOME (EXPENSE) INTEREST INCOME 0 9,116 ROYALTY REVENUE 100,000 1,500,000 REALIZED STOCK GAINS (LOSSES) 50,000 0 INTEREST EXPENSE-CAPITAL LEASE (11,879) (10,750) INTEREST EXPENSE-LETTERS OF CREDIT (196,140) (57,271) INTEREST EXPENSE N/P (80,267) 0 LOSS ON ABANDONMENT OF LICENSING AGREEMENT 0 (48,980) ----------------- ------------------ TOTAL OTHER INCOME (EXPENSE) (138,286) 1,392,115 ----------------- ------------------ NET INCOME (LOSS) ($4,304,943) ($4,771,669) ----------------- ------------------ ----------------- ------------------ NET INCOME (LOSS) PER SHARE - PRIMARY ($0.72) ($1.06) ----------------- ------------------ ----------------- ------------------ WEIGHTED AVG. COMMON SHARES OUTSTANDING 5,949,174 4,520,090 ----------------- ------------------ ----------------- ------------------
See Notes to Financial Statements F-3 SECURFONE AMERICA, INC. AND SUBSIDIARY (FORMERLY MATERIAL TECHNOLOGY, INC.) CONDSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWELVE MONTHS ENDED
12-31-98 12-31-97 ---------------- ------------------ Cash Flows from Operating Activities: Net Loss ($4,304,943) ($4,771,669) ---------------- ------------------ Adjustments to reconcile net loss to net cash used by operating activities: Depreciation & Amortization 68,266 120,679 Stock Options Granted & Contingent Shares Issued 1,620,000 4,327,250 Decrease (Increase) in Accounts Receivable 27,966 (35,104) Decrease (Increase) in Notes Receivable 89,353 116,480 Decrease (Increase) in Prepaid Expenses (35,000) 0 Decrease (Increase) in Royalties Receivable 100,000 150,000 Decrease (Increase) in Inventory 22,153 (22,153) Decrease (Increase) in Intangibles and Other Assets 261,293 (76,822) (Decrease) Increase in Current portion of Long-Term debt 16,356 0 (Decrease) Increase in Accounts Payable 329,699 106,332 (Decrease) Increase in Deferred Royalty Revenue (100,000) (150,000) (Decrease) Increase in Accrued Expenses 178,644 13,167 (Decrease) Increase in Notes Payable 275,000 0 ---------------- ------------------ Total Adjustments 2,853,730 4,549,829 ---------------- ------------------ Net Cash Used by Operating Activities (1,451,213) (221,840) ---------------- ------------------ Cash Flows from Investing Activities: Purchase of Property and Equipment (12,212) (154,108) ---------------- ------------------ Net Cash Used in Investing Activities (12,212) (154,108) ---------------- ------------------ Cash Flows from Financing Activities: Contribution to Capital 196,700 120,000 Proceeds from Capital Lease 0 159,650 Repayments Under Capital Lease (47,449) (28,811) Increase in Long Term Notes Payable 1,280,699 77,997 Stock Options Exercised & Contingent Shares Issued 27,500 0 ----------------- ------------------ Net Cash Provided in Financing Activities 1,457,450 328,836 ---------------- ------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS (5,975) (47,112) BEGINNING BALANCE-CASH AND CASH EQUIVALENTS 7,507 54,619 ---------------- ------------------ ENDING BALANCE-CASH AND CASH EQUIVALENTS $1,532 $7,507 ---------------- ------------------ ---------------- ------------------
Supplemental Disclosures: Cash payments for: Interest $288,286 -------- -------- See Notes to Financial Statements F-4 SECURFONE AMERICA, INC. AND SUBSIDIARY (FORMERLY MATERIAL TECHNOLOGY, INC.) CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY DECEMBER 31, 1998
Years Ended December 31, 1998 1997 1996 -------------------------------------------------- Common Stock Balance at beginning of year $5,620 $3 Stock options granted and shares issued 472 41,790 $3 Stock repurchased (36,173) -------------------------------------------------- Balance at end of year 6,092 5,620 3 -------------------------------------------------- Paid-in Capital Balance at beginning of year 5,417,430 975,797 Additions to Capital 1,820,360 4,441,633 975,757 -------------------------------------------------- Balance at end of year 7,237,790 5,417,430 975,757 -------------------------------------------------- Retained Earnings (Deficit) Balance at beginning of year (5,157,131) (385,462) Net income (loss) (4,304,943) (4,771,669) (385,462) -------------------------------------------------- Balance at end of year (9,462,074) (5,157,131) (385,462) -------------------------------------------------- Total Common Stockholders' Equity ($2,218,192) $265,919 $590,298 -------------------------------------------------- --------------------------------------------------
See Notes to Financial Statements F-5 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by SecurFone America, Inc. and Subsidiary are set forth below: BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of SecurFone America,Inc. and its wholly owned subsidiary, SecurFone, Inc. (collectively referred to as the "Company"). Intercompany transactions and balances have been eliminated in the consolidated financial statements. NATURE OF OPERATIONS SecurFone America, Inc., and its wholly owned subsidiary, SecurFone, Inc., are principally engaged in the sale and licensing of prepaid cellular phone services. The Company provides these services in various markets; and in other markets, licenses the Company's resources to unrelated parties. When a license is sold, the Company agrees to provide exclusivity to the licensor for the Company's network based debit product in certain licensed areas. On August 1, 1997, the Company completed a reverse merger with Material Technology, Inc. (Formerly Tensiodyne Scientific Corporation) and became a publicly traded corporation. MANAGEMENT On September 11, 1998, the Company's Chief Operating Officer and a Director, Derek M. Davis, resigned to pursue other interests. Mr. Davis agreed to be available to Company executives for a period of two months, without compensation, in order to ensure a smooth transition of tasks and responsibilities to his replacement. William P. Steuber, II, Chief Executive Officer and a Director, left the Company to pursue other interests effective October 31, 1998. Subsequent to year end, the Company has negotiated a settlement with Mr. Steuber to resolve all outstanding obligations related to his prior employment by to the Company. Paul B. Silverman executed an employment agreement assuming the role of Chief Executive Officer effective November 1, 1998. F-6 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Mr Silverman was subsequently elected a Director of the Company on December 11, 1998. On November 1, 1998, Andrew H. Kent joined the management team as Director of Business Development and was later appointed Chief Financial Officer of the Company in June of 1999. CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash accounts in two commercial banks. Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up to $100,000. INVENTORY Inventories are valued on the first in, first out (FIFO) method, at cost. There is no inventory account balance at December 31, 1998. PROPERTY AND EQUIPMENT The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is calculated using accelerated depreciation for both financial reporting and income tax purposes. As of December 31, 1998 and 1997 depreciation expense of $50,506 and $71,055, respectively was charged to operations. FINANCIAL INSTRUMENTS As collateral for performance and advances on long-term contracts, the Company has stand-by Letters of Credit that it can issue. The Company has an agreement with investors that may obtain Letters of Credit which are secured by their personal assets through their personal banks. As of December 31, 1998, the Company had stand-by letters of credit that it could issue for up to $1,000,000. The amount available to said investors for stand-by letters of credit at December 31, 1998 is $133,900. As of December 31, 1998 and 1997, interest expense of $196,140 and $56,250 was charged to operations. The Company's cash, accounts receivable, notes payable, and long-term debt at December 31, 1998 are all valued at appropriate current market rates and appear stated at fair value as governed by Statement of Financial Accounting Standards No. 131 (SFAS 131). F-7 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) REVENUE AND EXPENSE RECOGNITION The Company recognizes revenue from sales of cellular air time, net of an allowance for uncollectible amounts, when substantially all significant services to be provide by the Company have been performed. Expenses are recognized in the period in which they are incurred. INTANGIBLE ASSETS Intangible assets are comprised of various costs incurred by the Company as part of the start-up phase of operations. The Company began amortizing these costs over a five year period as of January 1, 1997, using the straight-line method. As of December 31, 1997, $49,624 in amortization expense of organizational costs had been charged to operations. However, due to the Company adopting AICPA Statement of Position 98-5 (SOP 98-5), these costs were expensed at December 31, 1998 in accordance with APB Opinion No. 20. The balance of the organization costs of $199,109 was charged to Selling, General & Administrative expense. BUSINESS SEGMENTS Statement of Financial Accounting Standards No. 131 (SFAS 131) indicates the need for disclosure of a company's sales in different market segments. The Company had sales of its prepaid cellular air time in the domestic, U.S. market only. USE OF ESTIMATES In preparing the Company's financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - ROYALTIES RECEIVABLE AND DEFERRED ROYALTY REVENUE Royalties receivable and deferred royalty revenue at December 31, 1997 represents the portion of total revenue from initial license sales attributable to services required to be provided by the Company that have not yet been performed. These accounts have no balance at December 31, 1998. F-8 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and 1997 is comprised of the following:
1998 1997 -------- --------- Office Equipment $ 35,043 $ 22,929 Computer Software 88,901 88,802 Computer Hardware 190,373 190,373 -------- --------- 314,317 302,104 Accumulated Depreciation (139,381) (71,115) -------- --------- $174,936 $230,989 -------- --------- -------- ---------
NOTE 4 - CAPITAL LEASE In March, 1997, the Company entered into a sale-leaseback arrangement which is being accounted for as a capital lease. Under the agreement, the Company sold certain equipment and leased it back for a period of 48 months, at which time the Company will repurchase the equipment from the lessor. Minimum future lease payments under non-cancelable capital leases for the next five years are as follows: 1999 47,449 2000 47,449 2001 and thereafter 11,862 -------- Total minimum future Lease payments $106,760 -------- --------
NOTE 5 - OFFICE LEASE OBLIGATIONS In September of 1997, the Company entered into a lease agreement for a period of three years for the San Diego office. The future lease payments for the remaining two years of the agreement are as follows: 1999 45,800 2000 31,680 ------- Total minimum future Lease payments $77,480 ------- -------
F-9 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 6 - COMMON STOCK At December 31, 1996, 30,000 shares of SecurFone America, Inc.'s stock were authorized and 3,000 shares were issued and outstanding. On March 5, 1997, an additional 4,700,000 shares were authorized by the Board of Directors. On March 6, 1997 the shareholders of SecurFone America, Inc. approved a stock split of 1,333.33 to 1 shares, increasing the 3,000 shares issued and outstanding to 4,000,000 shares with a par value of $.01 per share. The amount of $39,970 was transferred from the paid-in-capital account to common stock account to record the split. All per share amounts have been restated to reflect this stock split. Prior to the reverse merger between SecurFone America, Inc. and Material Technology, Inc., Material Technology, Inc. had as of July 31, 1997 100,000,000 shares authorized and 5,000,000 with a reverse split of 1 for 10 resulting in 500,216 shares issued and outstanding. Also, Material Technology issued an additional 4,500,000 shares on July 31, 1997 for a total of 5,000,216 shares issued and outstanding. On August 1, 1997, SecurFone America, Inc completed a reverse merger with Material Technology Inc. whereby 4,000,000 shares issued and outstanding of SecurFone America, Inc. were exchanged for 4,500,000 shares issued of Material Technology, Inc. As a result of the reverse merger, there were 5,000,216 shares issued and outstanding and 100,000,000 shares authorized. The amount of $36,173 was transferred from the common stock account to the additional paid in capital account to reflect the par value change from $.01 to $.001 per share. Total shares registered with S-8 registration on November 13, 1997 under the 1997 Stock Option Plan was 1,000,000 shares and 250,000 shares under the 1997 Director Stock Option Plan. At various dates in August, October and November 1997, stock options were granted under the two stock option plans totaling 430,900 shares consisting of 300,000 shares at an option price of $1.00 per share and 130,900 shares at an option price of $2.50 per share. These options are exercisable during 1998. These shares are recorded as Selling, General & Administrative (S, G&A) expense in the amount of $1,227,250 and additional paid in capital - stock options at the grant date in accordance with Statement of Financial Accounting Standards NO. 123 (SFAS 123) "Accounting for Stock-Based Compensation". F-10 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 6 - COMMON STOCK (Continued) On December 3, 1997, the Company (SecurFone America, Inc. formerly Material Technology, Inc.) issued 620,000 contingent shares of common stock with a par value of $.001 per share registered with the S-8 filing. These shares were issued pursuant various employment, retainer, consulting and fee agreements. As of December 31, 1997 all conditions of these shares have been met and $3,100,000 is recorded as S, G & A expense, and common stock and additional paid in capital accounts at the issue date. On January 6, 1998, the Company granted stock options under the 1997 Stock Option Plan of 400,000 shares at an option price of $.10 per share. These options are exercisable immediately and are recorded as $1,620,000 Selling, General & Administrative (SG&A) expense and additional paid in capital- stock options at the grant date in accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123) "Accounting for Stock Based Compensation." On March 19, 1998, an additional 345,000 shares were issued as the result of the following transactions: 225,000 shares of stock issued pursuant to warrants exercised by the individuals providing credit accommodations in connection with letters of credit issued by the Company; 120,000 shares issued as a result of two stock subscriptions in private placement. On May 12, 1998, 35,000 shares were issued in connection with credit accommodations provided to the Company by investors as discussed in Note 1. On August 6, 1998, 50,000 shares were issued on the exercise of vested stock options with $4,950 recorded as additional paid in capital - stock options. On November 17, 1998, 41,665 shares of common stock were issued as payment of legal fees with $33,290 recorded as paid in capital. As of December 31, 1998, and June 28, 1999, there are 100,000,000 shares of common stock authorized and 6,091,881 shares issued and outstanding at a par value of $.001 per share. Per Statement of Financial Accounting Standards, SFAS 128, the Company is required to present both basic and diluted earnings per share figures. However, diluted earnings per share (EPS) numbers were not reported in the financial statements for 1997 or 1998 as the net loss would cause anti-dilution in the EPS figures. F-11 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 7 - NOTES PAYABLE The Company maintains several short-term and long-term notes payable. As of December 31, 1998, there is a balance of $275,000 in the short-term notes payable account. The balance of $1,358,696 in the long-term notes payable account is made up of various notes including one to Krystal Systems, Inc. in the form of a 12% convertible debenture due 2001 in the original principal amount of $1,000,000 plus $22,029 in additional loans, bringing the total amount owed to Krystal Systems at 12-31-98 to $1,022,029. This entire balance is included in the long-term notes payable balance given above. During 1998, $80,267 was charged to interest expense on all notes payable. NOTE 8 - INCOME TAXES Income taxes are provided based on earnings reported for financial statement purposes pursuant to the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109). The provision for income taxes differs from the amounts currently payable because of timing differences in the recognition of certain income and expense items for financial and tax reporting purposes. SFAS 109 uses the asset and liability method to account for income taxes which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax basis and financial reporting basis of assets and liabilities. An allowance has been provided for by the Company which reduced the tax benefits accrued by the Company for its net operating losses to zero, as it cannot be determined when, or if, the tax benefits derived from these operating losses will materialize. NOTE 9 - RELATED PARTIES An officer of the Company is also a partner in the law firm which represents the Company in its legal matters. The Company's Chief Executive Officer and Chief Financial Officer have an account payable from the Company. Montpilier Holdings, Inc. is the principal stockholder of the Company and is owned indirectly by Michael M. Grand, a director of the Company. F-12 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 10 - LOSS ON ABANDONMENT OF LICENSING AGREEMENT In August, 1996, the Company entered into a licensing agreement with SecurFone New York, Inc. (SFNY). As part of the agreement, the Company forwarded monies to SFNY to cover various start up costs. Shortly afterward, SFNY fell into default under the terms of the licensing agreement and ceased operations. The monies paid by the Company to SFNY were written off as a one-time charge to income in 1997 of $48,980. NOTE 11 - SUBSEQUENT EVENTS On January 30, 1999, the Company executed an agreement with Teledata World Services, Inc. ("Teledata"), a publicly traded company, whereby certain prepaid cellular assets would be sold to Teledata for cash and Teledata common stock. Under the agreement, Teledata would acquire all outstanding shares of Securfone, Inc., a wholly owned operating subsidiary of the Company for $498,000 and 600,000 shares of unregistered Teledata common stock and the option to sell the stock back to Teledata at a price of $2.50 per share effective one year from the date of the transaction if the market price of the Teledata stock is less than $2.50 per share. As of April 22, 1999, the deal was completed. The Company currently has Letters of Credit posted on its behalf to support Carrier Reseller Agreements in the amount of $1,000,000 as more specifically described in Note 1. None of these Letters of Credit are in default. The Letters of Credit will remain in place until at least April 1, 1999, provided Teledata pays $7,500 per month to the issuers or obligors on the Letters of Credit. The Company further represents that it will extend the Letters of Credit for a period of one year until April 1, 2000, provided that Teledata continues to pay the carrying charges of $7,500 per month, pays any and all bank extension fees, and either puts up additional collateral to support the Letters of Credit in the amount of $250,000, or enters into a mutually agreeable "Lock-Box" arrangement for the payment of carrier charges. On February 8, 1999, the Company executed a settlement agreement with former Chief Executive Officer and Director William P. Steuber, II. This agreement resolved all outstanding Company obligations related to his employment with the Company in exchange for a payment of $50,000. This payment was made in April of 1999 in the form of a note payable issued to Mr. Steuber. On May 7, 1999, the Company executed a letter of intent to acquire all outstanding stock of IXATA.COM, Inc. ("IXATA") and acquire fiduciary control of the company. IXATA is a F-13 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 11 - SUBSEQUENT EVENTS - Continued privately-held provider of Internet based, automated systems and related information services designed to automate redundant, labor intensive processes in the travel industry. Upon completion of the proposed transaction, Securfone will acquire all outstanding stock of IXATA in a planned tax-free stock swap. The Company will in turn provide ongoing, immediate funding for IXATA for operations and business expansion. IXATA will operate as a wholly owned subsidiary of the Company, and Securfone America, Inc. will be renamed IXATA.COM. This transaction closed as of July 1, 1999. On May 12 and May 19, 1999, the Company sold an additional 12,500 and 59,266 shares of Securfone par value $.001 Common Stock for $25,000 and $118,532, respectively per stock subscription agreements. NOTE 12 - CONTINGENCIES In November 1996, the Company entered into an agreement with Associated Barter Services, Inc. ("ABS") under which ABS agreed to arrange for advertising services for the Company. The Company agreed to issue shares of the Company's common stock in exchange for these services. The Company negotiated an amendment to the agreement on June 30, 1998. The amendment gives ABS 61,522 shares of Securfone common stock as payment in full of its barter obligation to ABS for $307,608 of the Barter Credit utilized by Securfone. Additional stock will be issued to ABS if the unused portion of Barter Credit is utilized by Securfone. The 61,522 shares were issued to ABS on June 30, 1999. On or about August of 1998, American Express Travel Services asserted a claim against the Company for unpaid credit card charges in the approximate amount of $63,000. These charges were incurred by the Company's former Chief Financial Officer in the course of his employment with the Company. The Company has asserted as a defense that the charges were not properly authorized and has attempted to settle the dispute through negotiation. American Express has agreed to accept the sum of $25,000 in full settlement of this account, subject to certain conditions including the settlement of another account in the name of the Company's former Chief Financial Officer. There can be no assurance that the settlement will be completed, and American Express has given no indication of when or if it will initiate a complaint to recover the claimed amount. F-14 SecurFone America, Inc. and Subsidiary (Formerly Material Technology, Inc.) Notes to Financial Statements December 31, 1998 and 1997 NOTE 12 - CONTINGENCIES (Continued) The Company has been advised by Bell Atlantic that it is obligated for an unpaid account in the sum of $6,534 for service fees and related charges. Bell Atlantic has indicated that it intends to initiate a complaint to recover the amount claimed. NOTE 13- GOING CONCERN As the Company continues to implement its business plan, there exists the possibility that present and planned sources of cash flow will not be adequate to support the Company's increased needs with respect to cash and cash flow burdens. The additional possibility exists that present and planned sources of revenue will not be sufficient enough to the point that ongoing operations may cease to exist. Currently, management is pursuing additional sources of debt and equity financing, as well as additional sales. The Company's ability to continue as a going concern is contingent upon these factors. F-15 EX-10.4 2 EX 10-4 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 1st day of November, 1997 between WILLIAM P. STUEBER, II, (the "Executive"), whose address is Fourteen East Main Street, Somerville, NJ 08876 and SECURFONE AMERICA, INC., a Delaware corporation ("SecurFone" or "Company") whose address is 5850 Oberlin Street, Suite 220, San Diego, CA 92121. RECITALS: WHEREAS, SecurFone wishes to obtain the services of the Executive; and WHEREAS, the Executive desires to obtain employment with SecurFone pursuant to the terms of this Agreement; NOW THEREFORE, in consideration of the mutual promises contained herein and other consideration the receipt and sufficiency of which is hereby acknowledged, the Executive and SecurFone agree as follows: 1. EMPLOYMENT. As of the date of this Agreement, SecurFone will employ the Executive as President and Chief Executive Officer of SecurFone, in accordance with the terms and conditions set forth herein. SecurFone will also use its best efforts to cause its stockholders to elect Executive to the Board of Directors of SecurFone. 2. DUTIES. The Executive will devote not less than 40 hours per week or 90% of his business time and best efforts to the business of SecurFone and its related organizations performing such duties as are customary to his position and as may be reasonably requested by the Chairman or Board of Directors of SecurFone. The Executive will at all times conduct himself in conformity with the policies of SecurFone. The Executive is required to perform the following duties and responsibilities: a. Development and implementation of the SecurFone's business plan for sales and marketing of prepaid cellular telephone services; b. Negotiate and obtain resale agreements with cellular, paging and PCS carriers in markets designated by SecurFone's Board of Directors or Chief Executive Officer; c. Negotiate switch platform vendor agreements to provide advance switching and voice processing services and access to domestic and international long distance telephone services; d. Negotiate with banks and clearing vendors for indirect channel fund processing; e. Advise and direct key personnel hiring to implement the SecurFone business plan; and f. Provide overall operational supervision to the SecurFone business on a daily basis. SecurFone acknowledges that Executive will not be required to relocate his residence to fulfill his employment duties hereunder. SecurFone acknowledges that Executive has certain existing business which imposes preexisting obligations with certain cellular companies, which Stueber shall disclose to SecurFone in writing prior to the execution of this Agreement (the "Pre-Existing Obligations"). Executive represents that (i) the Pre-Existing Obligations will not affect his ability to discharge his obligations to SecurFone hereunder, and (ii) that he will not renew any of the Pre-Existing Obligations, or create any new obligations of a similar nature, without first obtaining the consent of SecurFone. In reliance on the foregoing representations, SecurFone agrees to allow Executive to continue to fulfill the Pre-Existing Obligations, so long as the representations remain true and correct in all material respects. 3. COMPENSATION. For the performance of his duties during the term of this Agreement, the Executive will earn a monthly salary of $20,833, of which $15,000 will be payable monthly. The parties agree that the balance of such monthly salary shall be accrued and deferred without interest and shall be payable upon the earlier of (i) a determination by the Board of Directors that the Company has sufficient revenues or capital, or (ii) May 1, 1998. 4. STOCK OPTION BENEFIT. The Company shall grant to the Executive a Non-Qualified Stock Option for 400,000 Shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors and approved by the Company's Shareholders. The exercise price of the Option shall be $0.10 per Share. The Option shall be issued to Executive on January 6, 1998. On or before January 20, 1998, the Company shall file a Registration Statement to register the Shares underlying the Option on a Form S-8 Registration Statement (or other applicable form as may then be required for such registration) at the sole expense of the Company, and shall diligently proceed to complete such registration. Executive shall cooperate with the Company in any such registration and shall execute such documents as may be requested by the Company so as to file and effectuate such registration. 5. BENEFIT PLANS. During the term of this Agreement, Executive shall be entitled to participate in all employee benefit plans which are maintained or established by the Company from time to time and which cover SecurFone's senior executives, provided he satisfies any applicable eligibility requirements therefor. Executive acknowledges the right of the Company to amend or terminate such plans at any time in the exercise of its discretion. Executive further acknowledges that the Company may wish to maintain insurance on his life for its benefit and agrees to submit to any physical examination which may be required in order to obtain such insurance. SecurFone has no current employee benefit plan in existence. Executive shall receive four (4) weeks paid vacation per year, commencing six (6) months from the date of this Agreement. 2 6. EXPENSES. The Executive will be reimbursed for all reasonable expenses incurred by him in performing his duties hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by SecurFone. 7. TERMINATION OF EMPLOYMENT. a. DEATH; DISABILITY. In the event of Executive's death or Disability (as hereinafter defined), his employment with the Company shall be deemed terminated as of the end of the month in which such death or Disability occurs, and all rights, duties and obligations of the parties hereunder shall thereupon cease, except that in the case of the termination due to Disability, Executive's obligations under Section 11 shall continue. For purposes of this Section, Disability shall be deemed to have occurred if (a) Executive shall be unable to perform his duties on an active full-time basis by reason of disability or impairment of health for a period of at least one hundred eighty (180) consecutive calendar days or (b) the Company shall have received a certificate from a physician reasonably acceptable to both the Company and Executive (or his representative) to the effect that Executive is incapable of reasonably performing services under this Agreement in accordance with past practices. b. BY COMPANY FOR GOOD CAUSE. Executive's employment with the Company may be terminated at the option of and by written notice from the Company if the Board of Directors of the Company shall find Good Cause for termination. For purposes of this Agreement, Good Cause shall mean only (i) Executive's willful failure to perform his duties under this Agreement within a reasonable period of time after receipt of written notice from the Company setting forth in reasonable detail the duties which Executive has failed to perform and the corrective actions expected of him; (ii) a breach of Executive's duty of loyalty to the Company, including but not limited to a breach of Executive's obligations under Sections 10 or 11 below; (iii) indictment for, conviction of, or written confession to a crime against the Company or a crime which otherwise materially adversely affects Executive's ability to perform his obligations under this Agreement, any business relationship which the Company maintains or the general reputation and good will of the Company; or (iv) Executive shall have been found by the Board of Directors of the Company to have been repeatedly and excessively using alcohol, drugs and/or any other intoxicating or controlled substance. Upon any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except that the Company shall fulfill its obligations to Executive under Section 8 hereof, and except for Executive's obligations under Sections 10 and 11 hereof. c. BY COMPANY WITHOUT GOOD CAUSE. The Company may also terminate Executive's employment at any time by written notice without Good Cause, whereupon all rights, obligations and duties of the parties hereunder shall immediately cease, except that the Company shall fulfill its obligations to Executive under Section 8 hereof, and except for Executive's obligations under Section 11 hereof. 3 d. BY EXECUTIVE FOR GOOD REASON. Executive may terminate his employment with the Company upon not less than sixty (60) days advance written notice for "Good Reason." Upon the effective date of any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except that (i) the Company shall fulfill its obligations to Executive under Section 8(a) hereof, (ii) the Company shall fulfill its obligations to Executive under Section 8(b) hereof, and (iii) Executive's obligations under Section 11 hereof shall remain effective. For purposes of this Agreement, the Executive will have "Good Reason" if (iv) the Board of Directors of SecurFone shall fail to re-elect, or shall remove Executive from the office of President and Chief Executive Officer of SecurFone, (v) the Board of Directors of SecurFone shall make significant negative change in the nature of scope of the authorities, powers, functions or duties of Executive hereunder, (vi) the Company shall fail to pay when due any compensation provided for in this Agreement and such failure is not corrected within ninety (90) days after notice thereof to the Company by the Executive, provided however, that the Company's failure to pay compensation when due shall not be considered Good Reason until April 1, 1998, or (vii) any pattern of conduct done with the approval of the Board of Directors of the Company which impedes the Executive in the exercise of his authorities, powers, functions or duties, hereunder in the manner in which they would normally be exercised by the President and Chief Executive Officer. e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his employment with the Company upon not less than sixty (60) days advance written notice. Upon the effective date of any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except for Executive's obligations under Sections 10 and 11 hereof; provided, however, that the Company shall be required to fulfill the obligations set forth in Section 8 hereof. The Company shall not be prohibited from terminating Executive under Section 7(c) above following receipt of a notice of termination from Executive, subject to its obligations thereunder. 8. TERMINATION COMPENSATION. a. SEVERANCE PAY. If Executive's employment is terminated pursuant to Section 7(c) or 7(d), Executive shall be entitled to the continued payment of the monthly salary described in Section 3 above for a period of six (6) months following such termination. If Executive's employment is terminated pursuant to Section 7(b) or 7(e), Executive shall be entitled to the continued payment of the monthly salary described in Section 3 above for a period of three (3) months following such termination. b. ACCELERATED PAY. Notwithstanding Section 8(a), in the event of termination of Executive all compensation then due and owing and all amounts then accrued to Executive shall become due and payable upon the effective date of Executive's termination. 9. TERM. This Agreement will continue in effect from the date hereof until November 1, 1998 unless sooner terminated under Section 7 hereof. The Agreement shall automatically renew from year to year unless either party gives no less than thirty (30) days and no more than ninety (90) days notice of its/his intent not to renew this Agreement. 4 10. NON-COMPETITION. a. RESTRICTIONS. As consideration for the compensation and benefits to be provided to the Executive under this Agreement, and as an additional incentive for Executive to enter into this Agreement, the Executive will not during the term of this Agreement and for a period of twelve (12) months thereafter if Executive's employment is terminated pursuant to Section 7(b) or 7(e), directly or indirectly, for himself or for others, in any state of the United States or in any foreign country where SecurFone or any of its Affiliates (as defined below) is then conducting the Business (as defined below) or has, during the previous twelve (12) months, conducted the business: (1) engage in the Business; (2) render advice, consultation, or services to or otherwise assist any other person or entity who competes, directly or indirectly, with SecurFone or any of its Affiliates; (3) transact any business in any manner pertaining to suppliers or customers of SecurFone or any of its Affiliates which, in any manner, would have, or is likely to have, an adverse effect upon the conduct of the Business of SecurFone or any of its Affiliates; or (4) induce any employee, agent or representative of SecurFone or any of its Affiliates to terminate his or her employment with SecurFone or such Affiliate. b. DEFINITIONS. For the purposes of this Section 10, the "Business" will mean the business activities of SecurFone and its Affiliates in sales and marketing or prepaid cellular telephone and related services using a prepaid telephone card or related wireless communications technology providing access to a national or local prepaid cellular network with advance switching and voice processing services carried on within a 100 mile radius of any facility or office operated or maintained by SecurFone or any of its Affiliates. The term "Affiliates" shall mean any entity controlling, controlled by or under common control with SecurFone, including, but not limited to, SecurFone divisions and subsidiaries, and any licensee, franchisee or agent of SecurFone products or services. c. REASONABLENESS; ENFORCEMENT. The Executive understands that the foregoing restrictions may limit his ability to engage in certain business pursuits during the period provided for above, but acknowledges that he will receive sufficiently higher remuneration and other benefits from SecurFone hereunder than he would otherwise receive to justify such restriction. The Executive acknowledges that he understands the effect of the provisions of this Section 10, that he has had reasonable time to consider the effect of the provisions of this Section 10, and that he was encouraged to and had an opportunity to consult an attorney with respect to these provisions. SecurFone and the Executive consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a Court of competent 5 jurisdiction, the parties intend for such restrictions to be modified by such Court so as to be reasonable and enforceable and, as so modified by the Court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by Executive, SecurFone will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof and SecurFone will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 11. CONFIDENTIAL INFORMATION. a. PROHIBITION ON DISCLOSURE OR USE OF CONFIDENTIAL INFORMATION. The Executive will at all times keep and maintain Confidential Information (as defined below) confidential and will not, at any time, either during or subsequent to his employment with SecurFone, either directly or indirectly, use any Confidential Information for his own benefit, or otherwise divulge, disclose, or communicate any Confidential Information to any person or entity in any manner whatsoever, other than employees or agents of SecurFone or its Affiliates who have a need to know such information, and then only to the extent necessary to perform their responsibilities an behalf of SecurFone or its Affiliates. b. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information" will mean any and all information (excluding information in the public domain) relating to the Business, including, without limitation, all patents and patent applications; copyrights (whether registered or to be registered in the United States or elsewhere) which are applied for, issued to or owned by SecurFone or any of its Affiliates; inventions; trade secrets; computer programs; engineering and technical data; drawings or designs; manufacturing techniques; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity and location of all past, present and prospective customers. c. ENFORCEMENT. The Executive's obligations contained in this Section 11 are of a special and unique character which gives them a peculiar value to SecurFone. The parties recognize that SecurFone cannot be reasonably or adequately compensated in damages alone in an action at law should the Executive breach such obligations. The Executive therefore expressly agrees that, in addition to any other rights or remedies which SecurFone may possess, it will be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions, without bond or other security, in the event of any actual or threatened breach of such obligations by the Executive, in order to enforce this Section 11. 12. SUCCESSORS. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of SecurFone, except that Executive's right to receive compensation may be assigned by Executive, in writing. Any amounts payable after the death of the Executive shall be paid to the executor or administrator of his estate. This Agreement will inure to the benefit of and be binding upon SecurFone, its Affiliates and their successors and assigns. 6 13. INDEMNIFICATION. The Certificate of Incorporation of the Company provides, in Article VII thereof, captioned "Indemnification," that the Company shall indemnify certain persons under certain conditions. A copy of said Article VII is attached hereto as Exhibit A. The Company agrees that the Executive shall be a person covered by the attached Article VII, that the Executive shall be entitled to the benefit of all of the provisions of Article VII, and that such provisions shall remain in full force and effect with respect to the Executive throughout the term of this Agreement, without regard to any amendment to Article VII which might be adopted after the date hereof. The Company agrees that to the extent the Company's obligations under this paragraph are insurable, the Company agrees to purchase insurance, in the amount of $2,500,000 to secure the Company's obligations hereunder. 14. TIME. The parties acknowledge that time is of the essence in the performance of the obligations of each party hereto, and that the timely performance of such obligations is a pre-condition to the continuation of the obligations of the other party. 15. EUROPE. The parties acknowledge that the Executive is not being compensated pursuant to the terms of this Agreement for any efforts he might expend on behalf of the Company or its affiliates in Europe, and that they intend to address compensation for such efforts in either a separate agreement or in a subsequent addendum hereto. 16. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. Any action brought to enforce this Agreement or to seek relief based upon any provision of it will be brought in a court of competent jurisdiction in the State of Delaware. 17. MERGER. This Agreement supersedes any and all prior agreements, whether written or oral, with respect to the Executive's employment by SecurFone or any of its Affiliates and contains all of the promises, representations, warranties and agreements between the parties with respect to such employment. 18. MODIFICATION. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties or their respective successors. 19. NOTICES. All notices or other communications hereunder will be in writing and will be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, to the following: If to the Executive: William P. Stueber, II Fourteen East Main Street Somerville, NJ 08876 7 If to SecurFone: SecurFone America, Inc. 5850 Oberlin Street, Suite 220 San Diego, CA 92121 With a copy to: John A. Hutchings, Esq. Dill Dill Carr Stonbraker & Hutchings, P.C. 455 Sherman Street, Suite 300 Denver, CO 80203 Any party may from time to time change its address for purposes of this Agreement by giving notice of such change to the other party, but no such change will be deemed effective, until actually received by the party to whom it is directed. Notice and communications under this Agreement will be effective when actually received by the party to whom they are directed. IN WITNESS WHEREOF the parties have executed this Agreement the day and year written above. SECURFONE AMERICA, INC. a Delaware Corporation By: /s/ Steven L. Wasserman ------------------------ Its: Secretary ----------------------- /s/ William P. Stueber, II --------------------------- WILLIAM P. STUEBER, II 8 EX-10.5 3 EX 10-5 SETTLEMENT AGREEMENT AND MUTUAL RELEASE KNOW ALL MEN BY THESE PRESENTS, that this agreement is entered into by and between SECURFONE AMERICA, INC. AND ITS SUBSIDIARIES ("SECURFONE"), a Delaware corporation, MONTPILIER HOLDINGS, INC. ("MONTPILIER"), a Nevada corporation, and William P. Stueber, II ("Stueber"). W I T N E S S E T H WHEREAS, beginning in 1996, Stueber developed a business plan for a pre-paid cellular network and communication service which was presented to SecurFone and its principals for potential investment and/or purchase; and WHEREAS, as a result of negotiations between SecurFone and Stueber, the parties entered into certain Executive Employment Agreements dated August 1, 1996 and November 1, 1997; and WHEREAS, pursuant to Stueber's Executive Employment Agreement, dated November 1, 1997, Stueber was granted an option to purchase 400,000 shares of SecurFone common stock; Stueber was also granted an option to purchase 50,000 shares of SecurFone common stock pursuant to SecurFone's 1997 Directors' Stock Option Plan; and in addition Stueber claims a right or option to receive a portion of the SecurFone common stock owned by Montpilier; and WHEREAS, Stueber has initiated litigation against SecurFone on behalf of Vortex Cellular, Inc. dba Direct Mobile, and has threatened other litigation arising from the aforementioned Employment Agreements and other dealings by and among the parties; and WHEREAS, the parties hereto have agreed to settle and resolve all claims and disputes which exist or may exist in the future between or among them subject to the terms and conditions set forth therein. NOW, THEREFORE, in consideration of the payment by SecurFone or Montpilier to Stueber of the sum of Fifty Thousand Dollars ($50,000), and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. On or before April 1, 1999, SecurFone or Montpilier will wire transfer the sum of $50,000 to such account as designated by Stueber. Stueber shall provide wiring instructions to SecurFone on or before March 26, 1999 designating the recipient of such payment. 2. Upon receipt of the settlement funds set forth in Paragraph 1 above, Stueber agrees to cause the dismissal of the pending complaint captioned VORTEX CELLULAR, INC. VS. SECURFONE AMERICA, INC. pending in the Superior Court of California, County of San Diego, Case No. 727443. 3. Upon receipt of the settlement funds set forth in Paragraph 1 above, Stueber agrees, for himself, each of his heirs, executors, administrators and assigns, to release and forever discharge SecurFone and Montpilier together with their respective subsidiaries, shareholders, officers, directors and affiliates, and their respective agents, attorneys and employees, from and against any and all claims, actions, demands and suits of any and all descriptions, known or unknown arising out of or in any manner connected with Stueber's employment or business relationship with SecurFone or Montpilier. Stueber's release shall include but not be limited to any claims arising from his Employment Agreements with SecurFone and the stock option agreement relating thereto, and Stueber further agrees to execute such documents and other instruments reasonably required by SecurFone or Montpilier to effectuate the provisions of this Agreement. 4. In consideration of Stueber's release and the other terms and conditions of this Agreement, SecurFone and Montpilier, together with their subsidiaries, shareholders, officers, directors and affiliates, and their respective agents, attorneys and employees, hereby release and forever discharge Stueber and his heirs, executors, administrators and assigns, from and against any and all claims, actions, demands and suits of any and all descriptions, known or unknown arising out 2 of or in any manner connected with Stueber's employment or business relationship with SecurFone or Montpilier. 5. This Agreement and the covenants and conditions contained herein shall not be deemed as an admission of liability or acknowledgment of any responsibility be any party to another, and that in the event the payment due Stueber as provided in Paragraph 1 is not made in accordance with the terms hereof, then in such event this Agreement shall be null and void and the parties are free to pursue such claims and actions as they may deem appropriate. 6. The parties hereto acknowledge that this Agreement is executed of their own free will and desire and that each party has had the opportunity to consult with legal counsel prior to execution of this Agreement. 7. This Agreement and the obligations of the parties shall be governed and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of law. 8. This Agreement shall enure and be binding upon the parties, and their respective heirs and assigns. This Agreement may be executed in counterparts, each of which shall constitute an original, but all such counterparts shall together constitute but one and the same instrument. Further, a facsimile signature shall be deemed an original. [THIS SPACE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the said parties have hereunto executed this agreement as of the day and year set forth below. SECURFONE AMERICA, INC. By: /s/ Steven L. Wasserman ---------------------------------- Its: Secretary ---------------------------------- MONTPILIER HOLDINGS, INC. By: /s/ Steven L. Wasserman ---------------------------------- Its: Secretary ---------------------------------- /s/ William P. Stueber, II ------------------------------------ WILLIAM P. STUEBER, II, individually and on behalf of Vortex Cellular, Inc. dba Direct Mobile 4 EX-10.6 4 EX 10-6 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 1st day of November, 1998 between Paul B. Silverman, (the "Executive"), whose address is 9520 Center Street, Vienna, VA 22181, and SecurFone America, Inc., a Delaware corporation ("SecurFone" or "Company") whose address is 5850 Oberlin Street, Suite 220, San Diego, CA 92121. RECITALS: WHEREAS, SecurFone wishes to obtain the services of the Executive; and WHEREAS, the Executive desires to obtain employment with SecurFone pursuant to the terms of this Agreement; NOW THEREFORE, in consideration of the mutual promises contained herein and other consideration the receipt and sufficiency of which is hereby acknowledged, the Executive and SecurFone agree as follows: 1. EMPLOYMENT. As of November 1, 1998, SecurFone will employ the Executive as Chief Executive Officer of SecurFone. The Executive will also continue to serve as Chief Executive Officer of SCIES, Inc. which will be established as a wholly owned subsidiary of SecurFone upon completion of a merger agreement now being finalized. SecurFone will also use its best efforts to cause its stockholders to elect Executive to the Board of Directors of SecurFone. 2. DUTIES. The Executive will devote his full time efforts to the business of SecurFone and its related organizations performing such duties as are customary to his position and as may be reasonably requested by the Chairman or Board of Directors of SecurFone. The Executive will at all times conduct himself in conformity with the policies of SecurFone. The Executive is required to perform the following duties and responsibilities: a. Develop and manage relationships with financial institutions and funding sources to meet company's funding needs and maximize shareholder value; b. Develop and implement SecurFone's strategic plan for securing a leadership position in the market for wireless and related communications services; c. Assume overall management and fiduciary responsibility for SecurFone's consolidated business operations; d. Identify and pursue new acquisition targets which are consistent with SecurFone's strategic plan and maximize shareholder value; e. Develop an overall management and organizational plan to meet the company's business needs; f. Provide overall operational direction to the SecurFone business on a daily basis. 3. COMPENSATION. For the performance of his duties during the term of this Agreement, the Executive will earn an annual salary of $150,000 of which the annualized salary will be payable on a weekly basis. The parties agree that after the Company receives additional new funding of not less than $750,000, secured from external sources, the Executive will earn an annual salary of $180,000 of which the annualized salary will be payable on a weekly basis. The Executive will also receive an allowance of up to $600 per month for a company car. 4. STOCK OPTION BENEFIT. The Company will grant both Qualified and Non-Qualified Stock Options which will be granted based upon the Executive's successful performance, and the ability of the Company to meet specified objectives. The option schedule is set forth below. a. The Company shall grant to the Executive a Non-Qualified Stock Option for 100,000 Shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors and approved by the Company's Shareholders. The exercise price of the Option shall be $0.10 per Share. The Option shall be issued to Executive on December 1, 1998. This Option shall vest immediately and is exercisable anytime in the next five years. b. Consistent with the terms and conditions of the existing Director compensation plan, the Company shall grant to the Executive, Options for 50,000 shares of the Company's Common Stock upon the Executive's election to serve as a Director. The exercise price of the Option shall be $1.00 per Share. c. The Company shall grant to the Executive Qualified Incentive Option for 100,000 Shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors and approved by the Company's Shareholders. The exercise price of the Option per Share is to be determined, but in no case more than current market price upon the effective date of this agreement. The Option shall be issued to Executive upon closing a minimum total funding commitment of $1.0 million in cash, debt or equity funding from external sources. This Option is exercisable anytime in the next five years. d. The Company shall grant to the Executive Qualified Incentive Option for 100,000 shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors and approved by the Company's Shareholders. The exercise price of the Option per Share is to be determined, but in no case more than current market price upon the effective date of this agreement. The Option shall be issued to Executive upon SecurFone achieving a minimal market capitalization of $30 2 million based on the closing market prices for a five day period. This Option is exercisable anytime in the next five years. e. The Company shall grant to the Executive Qualified Incentive Option for 100,000 Shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors and approved by the Company's Shareholders. The exercise price of the Option per Share is to be determined, but in no case more than current market price upon the effective date of this agreement. The Option shall be issued to Executive within seven days after the Company reports positive cash flow from operations for a minimum 60 day period. This Option is exercisable anytime in the next five years. 5. BENEFIT PLANS. During the term of this Agreement, Executive shall be entitled to participate in all employee benefit plans which are maintained or established by the Company from time to time and which cover SecurFone's senior executives, provided he satisfies any applicable eligibility requirements therefor. Executive shall be entitled to participate in other cash and stock incentives as granted at the discretion of the Board of Directors based on achieving selected milestones. Executive acknowledges the right of the Company to amend or terminate such plans at any time in the exercise of its discretion. Executive further acknowledges that the Company may wish to maintain insurance on his life for its benefit and agrees to submit to any physical examination which may be required in order to obtain such insurance. SecurFone has no current employee benefit plan in existence. Executive shall receive four (4) weeks paid vacation per year, commencing upon execution date of this Agreement. 6. EXPENSES. The Executive will be reimbursed for all reasonable expenses incurred by him in performing his duties hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by SecurFone. 7. TERMINATION OF EMPLOYMENT. a. DEATH; DISABILITY. In the event of Executive's death or Disability (as hereinafter defined), his employment with the Company shall be deemed terminated as of the end of the month in which such death or Disability occurs, and all rights, duties and obligations of the parties hereunder shall thereupon cease, except that in the case of the termination due to Disability, Executive's obligations under Section 11 shall continue. For purpose of this Section, Disability shall be deemed to have occurred if (a) Executive shall be unable to perform his duties on an active full-time basis by reason of disability or impairment of health for a period of at least one hundred eighty (180) consecutive calendar days or (b) the Company shall have received a certificate from a physician reasonably acceptable to both the Company and the Executive (or his representative) to the effect that Executive is incapable of reasonably performing services under this Agreement in accordance with past practices. 3 b. BY COMPANY FOR GOOD CAUSE. Executive's employment with the Company may be terminated at the option of and by written notice from the Company if the Board of Directors of the Company shall find Good Cause for termination. For purposes of this Agreement, Good Cause shall mean only (i) Executive's willful failure to perform his duties under this Agreement within a reasonable period of time after receipt of written notice from the Company setting forth in reasonable detail the duties which Executive has failed to perform and the corrective actions expected of him; (ii) a breach of Executive's duty of loyalty to the Company, including but not limited to a breach of Executive's obligations under Sections 10 or 11 below; (iii) indictment for, conviction of, or written confession to a crime against the Company or a crime which otherwise materially adversely affects Executive's ability to perform his obligations under this Agreement, any business relationship which the Company maintains or the general reputation and good will of the Company; or (iv) Executive shall have been found by the Board of Directors of the Company to have been repeatedly and excessively using alcohol, drugs and/or any other intoxicating or controlled substance. Upon any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except that the Company shall fulfill its obligations to Executive under Section 8 hereof, and except for Executive's obligations under Sections 10 and 11 hereof. c. BY COMPANY WITHOUT GOOD CAUSE. The Company may also terminate Executive's employment at any time by written notice without Good Cause, whereupon all rights, obligations and duties of the parties hereunder shall immediately cease, except that the Company shall fulfill its obligations to Executive under Section 8 hereof, and except for Executive's obligations under Section 11 hereof. d. BY EXECUTIVE FOR GOOD REASON. Executive may terminate his employment with the Company upon not less than sixty (60) days advance written notice for "Good Reason." Upon the effective date of any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except that (i) the Company shall fulfill its obligations to Executive under Section 8(a) hereof, (ii) the Company shall fulfill its obligations to Executive under Section 8(b) hereof, and (iii) Executive's obligations under Section 11 hereof shall remain effective. For purposes of this Agreement, the Executive will have "Good Reason" if (iv) the Board of Directors of SecurFone shall fail to reelect, or shall remove Executive from the office of Chief Executive Officer of SecurFone, or, upon completion of the planned SCIES merger, shall fail to reelect, or shall remove Executive Chief Executive Officer of SCIES, Inc., (v) the Board of Directors of SecurFone shall make a significant negative change in the nature of scope of the authorities, powers, functions or duties of Executive hereunder, (vi) the Company shall fail to pay when due any compensation provided for in this 4 Agreement and such failure is not corrected within ninety (90) days after notice thereof to the Company by the Executive, or (vii) any pattern of conduct done with the approval of the Board of Directors of the Company which impedes the Executive in the exercise of his authorities, powers, functions or duties, hereunder in the manner in which they would normally be exercised by the Chief Executive Officer. e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his employment with the Company upon not less than sixty (60) days advance written notice. Upon the effective date of any such termination all rights, obligations and duties of the parties hereunder shall immediately cease, except for Executive's obligations under Sections 10 and 11 hereof, provided, however, that the Company shall not be prohibited from terminating Executive under Section 7(c) above following receipt of a notice of termination from Executive, subject to its obligations thereunder. 8. TERMINATION COMPENSATION: SEVERANCE PAY. If Executive's employment is terminated pursuant to Section 7(c) or 7(d), Executive shall be entitled to the continued payment of the annual salary described in Section 3 above for a period of six (6) months following such termination. If Executive's employment is terminated pursuant to Section 7(b) or 7(e), Executive shall be entitled to the continued payment of the annual salary described in Section 3 above for a period of three (3) months following such termination. 9. TERM. This Agreement will continue in effect from the date hereof until October 1, 1999 unless sooner terminated under Section 7 hereof. The Agreement shall automatically renew from year to year unless either party gives no less than thirty (30) days and no more than ninety (90) days of its/his intent not to renew this Agreement. 10. NON-COMPETITION. a. RESTRICTIONS. As consideration for the compensation and benefits to be provided to the Executive under this Agreement, and as an additional incentive for Executive to enter into this Agreement, the Executive will not during the term of this Agreement and for a period of twelve (12) months thereafter if Executive's employment is terminated pursuant to Section 7(b) through 7(e), directly or indirectly, for himself or for others, in any state of the United States or in any foreign country where SecurFone or any of its Affiliates (as defined below) is then conducting the Business (as defined below) or has, during the previous twelve (12) months, conducted the business: (1) engage in the Business; 5 (2) render advice, consultation, or services to or otherwise assist any other person or entity who competes, directly or indirectly, with SecurFone or any of its Affiliates; (3) transact any business in any manner pertaining to suppliers or customers of SecurFone or any of its Affiliates which, in any manner, would have, or is likely to have, an adverse effect upon the conduct of the Business of SecurFone or any of its Affiliates; or (4) induce any employee, agent or representative of SecurFone or any of its Affiliates to terminate his or her employment with SecurFone or such Affiliate. b. DEFINITIONS. For purposes of this Section 10, the "Business" will mean the business activities of SecurFone and its Affiliates in sales and marketing of prepaid cellular telephone and related services using a prepaid telephone card or related wireless communications technology providing access to a national or local prepaid cellular network with advance switching and voice processing services carried on within a 100 mile radius of any facility or office operated or maintained by SecurFone or any of its Affiliates. The term "Affiliates" shall mean any entity controlling, controlled by or under common control with SecurFone, including, but not limited to, SecurFone divisions and subsidiaries, and any licensee, franchisee or agent of SecurFone products or services. c. REASONABLENESS; ENFORCEMENT. The Executive understands that the foregoing restrictions may limit his ability to engage in certain business pursuits during the period provided for above, but acknowledges that he will receive sufficiently higher remuneration and other benefits from SecurFone hereunder than he would otherwise receive to justify such restriction. The Executive acknowledges that he understands the effect of the provisions of the provisions of this Section 10, and that he was encouraged to and had an opportunity to consult an attorney with respect to these provisions. SecurFone and the Executive consider the restrictions contained in this Section 10 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a Court of competent jurisdiction, the parties intend for such restrictions to be modified by such Court so as to be reasonable and enforceable and, so as modified by the Court, to be fully enforced. In the event of a breach or threatened breach of this Section 10 by Executive, SecurFone will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof and SecurFone will be entitled to pursue such other remedies at law or in equity which it deems appropriate. 6 11. CONFIDENTIAL INFORMATION. a. PROHIBITION ON DISCLOSURE OR USE OF CONFIDENTIAL INFORMATION. The Executive will at all times keep and maintain Confidential Information (as defined below) confidential and will not, at any time, either during or subsequent to his employment with SecurFone, either directly or indirectly, use any Confidential Information for his own benefit, or otherwise divulge, disclose, or communicate any Confidential Information to any person or entity in any manner whatsoever, other than employees or agents of SecurFone or its Affiliates who have a need to know such information, and then only to the extent necessary to perform their responsibilities on behalf of SecurFone or its Affiliates. b. DEFINITION OF CONFIDENTIAL INFORMATION. "Confidential Information" will mean any and all information (excluding information in the public domain) relating to the Business, including, without limitation, all patents and patent applications; copyrights (whether registered or to be registered in the United States or elsewhere) which are applied for, issued to or owned by SecurFone or any of its Affiliates; inventions; trade secrets; computer programs; engineering and technical data; drawings or designs; manufacturing techniques; information concerning pricing and pricing policies; marketing techniques; suppliers; methods and manner of operations; and information relating to the identity and location of all past, present and prospective customers. c. ENFORCEMENT. The Executive's obligations contained in this Section 11 are of a special and unique character which gives him a peculiar value to SecurFone. The parties recognize that SecurFone cannot be reasonably or adequately compensated in damages alone in an action at law should the Executive breach such obligations. The Executive therefore expressly agrees that, in addition to any other rights or remedies which SecurFone may possess, it will be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions, without bond or other security, in the event of any actual or threatened breach of such obligations by the Executive, in order to enforce this Section 11. 12. SUCCESSOR. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of SecurFone, except that Executive's right to receive compensation may be assigned by Executive, in writing. Any amounts payable after the death of the Executive shall be paid to the executor or administrator of his estate. This Agreement will inure to the benefit of and be binding upon SecurFone, its Affiliates and their successors and assigns. 13. INDEMNIFICATION. The Certificate of Incorporation of the Company provides, in Article VII thereof, captioned "Indemnification," that the Company shall indemnify certain persons under certain conditions. A copy of said Article VII is attached hereto as Exhibit A. The Company 7 agrees that the Executive shall be a person covered by the attached Article VII, that the Executive shall be entitled to the benefit of all of the provisions of Article VII, and that such provisions shall remain in full force and effect with respect to the Executive throughout the term of this Agreement, without regard to any amendment to Article VII which might be adopted after the date hereof. The Company agrees that to the extent the Company's obligations under this paragraph are insurable, the Company agrees to purchase insurance, in the amount of $2,500,000 to secure the Company's obligations hereunder. 14. TIME. The parties acknowledge that time is of the essence in the performance of the obligations of each party hereto, and that the timely performance of such obligations is a precondition to the continuation of the obligations of the other party. 15. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. Any action brought to enforce this Agreement or to seek relief based upon any provision of it will be brought in a court of competent jurisdiction in the State of Delaware. 16. MERGER. This Agreement supersedes any and all prior agreements, whether written or oral, with respect to the Executive's employment by SecurFone or any of its Affiliates and contains all of the promises, representations, warranties and agreements between the parties with respect to such employment. 17. MODIFICATION. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties or their respective successors. 18. NOTICE. All notices or other communications hereunder will be in writing and will be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, to the following: If to the Executive: Paul B. Silverman 9520 Center Street Vienna, VA 22181 If to SecurFone: SecurFone America, Inc. 5850 Oberlin Street, Suite 220 San Diego, CA 92121 8 With a copy to: Ernest Stern, Esq. Piper & Marbury L.L.P. 1200 19th Street N.W. Washington, D.C. 20036 Steve Wasserman, Esq. Kohrman Jackson & Krantz P.L.L. 20th Floor, One Cleveland Center Cleveland, OH 44114 Any party may from time to time change its address for purposes of this Agreement by giving notice of such change to the other party, but no such change will be deemed effective until actually received by the party to whom it is directed. Notice and communications under this Agreement will be effective when actually received by the party to whom they are directed. IN WITNESS WHEREOF the parties have executed this Agreement the day and year written above. SECURFONE AMERICA, INC. a Delaware Corporation By: /s/ Steven L. Wasserman ------------------------------------ Its: Secretary ----------------------------------- /s/ Paul B. Silverman -------------------------------------- PAUL B. SILVERMAN 9 EX-10.7 5 EX 10-7 PURCHASE AGREEMENT This Agreement, dated this _ day of February, 1999, SECURFONE AMERICA, INC., a Delaware corporation (the "Seller") and TELEDATA WORLD SERVICES, INC., a Nevada corporation (the "Purchaser"). RECITALS WHEREAS, the Seller owns all of the issued and outstanding shares of capital stock of SecurFone, Inc., formerly known as SecurFone America, Inc., a Delaware corporation (the "Company"); WHEREAS, the Seller desires to sell and the Purchaser desires to buy such shares on the terms herein stated. NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Sale of Shares. The Seller shall sell and transfer to the Purchaser, and the Purchaser shall purchase and acquire from the Seller, all of the outstanding shares of the Company. 2. Purchase Price. The purchase price for all of the shares referenced in paragraph 1 is as follows: a) $498,000.00 cash, payable as follows: i) $198,000.00 paid to date; ii) $50,000.00 paid on January 28, 1999; iii) $50,000.00 paid on February 5, 1999; iv) $200,000.00 paid at closing date; v) All pre-closing advances [paragraphs 2(a)(i) - 2(a)(iii)] shall be the subject of a Promissory Note from Seller to Purchaser secured by a Security Agreement of even date herewith, pledging all assets of Seller as collateral for the Promissory Note. The Promissory Note and Security Agreement shall be cancelled upon closing. If transaction does not close for any reason whatsoever, the Promissory Note shall be due and payable on April 15, 1999. Page 1 of 10 b) 600,000 shares of stock of Purchaser delivered as follows: i) 100,000 shares issued to the Seller at closing (the "Closing Shares"); ii) 500,000 issued at closing to an escrow agent, chosen by mutual consent, for a period of six (6) months, subject to the terms of the true-up provisions contained in paragraph 12 hereof (the "Escrowed Shares"), provided that 200,000 shares of the Escrowed Shares shall be released from escrow ninety (90) days after the closing date if Seller has fulfilled its obligation to extend certain letters of credit for a twelve (12) month period as required in paragraph 5(t) hereof. iii) As to both the 100,000 Closing Shares and the 500,00 Escrowed Shares, Seller shall have the right to "put" those shares to the purchaser at the expiration of the twelve (12) months from closing at a total price of $1,500,000.00. If Seller shall elect to "put" any or all of the Closing Shares at this price, the Purchaser shall have the following options in its sole discretion to satisfy this "put": 1. Purchase such shares from Seller at a total price of $1,500,000.00; or 2. Issue such additional shares to Seller as to compensate Seller for the difference in the then current market price for such shares and the sum of $1,500,000.00. iv) All shares issued will be restricted pursuant to provisions of Rule 144 of the Securities and Exchange Commission; provided that the holding period for such shares shall commence on the closing date for purposes of Rule 144. 3. Closing Date. The closing shall take place on April 1, 1999, at the offices of the Purchaser in Atlanta, Georgia. At the closing, the Seller shall deliver to the Purchaser, free and clear of any and all claims, liens, charges and encumbrances, certificates for the Company's shares referred to in paragraph 1, in negotiable form. 4. Default by Seller. If the Seller shall fail or refuse to deliver any of the shares to the Purchaser at the closing, the Purchaser, without prejudice to its rights against the Seller, may refuse to consummate this Agreement and terminate all of its obligations hereunder. 5. Seller's Representations and Warranties. The Seller represents and warrants to the Purchaser as follows: Page 2 of 10 a) Corporate Action. The transactions contemplated by this Agreement have been duly authorized and approved on behalf of the Seller, and the Seller has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder; other than stockholder approval the proxies for which Seller will have properly mailed to its shareholder prior to closing. This Agreement constitutes a valid and binding agreement of the Seller enforceable in accordance with its terms. b) Corporate Status. The Company is, and will be on the closing date, a corporation duly organized, validly existing, and in good standing under the laws of Delaware; the copies of the Company's Certificate of Incorporation, and all amendments thereof to date, and of the Company's Bylaws as amended to date, certified by the Company's Secretary, which have been delivered to the Purchaser, are complete and correct as of the date of this Agreement. The Company is not licensed or qualified as a foreign corporation in any state. c) Common Shares. The aggregate number of shares that the Company is authorized to issue is __ common shares, $___ per share par value, all of which shares are issued and presently outstanding. All such shares have been validly issued and are fully paid and non-assessable. d) Title to Shares. The Seller is, and will be on the closing date, the owner, free and clear of any and all claims, liens, charges and encumbrances, of the number of the Company's shares set forth in subparagraph (c) of this paragraph; and on the closing date, Seller will be able to freely issue all such shares to Purchaser. e) Liabilities. The Company has no liabilities whatsoever as of the closing date, except as set forth on Exhibit "A" hereto. Debt. By closing date, Seller will have paid to Telecom Category Management, Inc. the amount of $13,750.00. g) Litigation. There is no litigation pending or threatened against the Company except as described on Exhibit "B." h) Taxes. All of the Company's tax returns have been filed as required by all applicable laws, and all taxes shown thereon have been paid when due. i) Title to Assets. The Company has good and marketable title to all its properties and assets. A true and correct listing of the Company's inventory and equipment is attached hereto as Exhibit "C." Page 3 of 10 j) FSP McLane Contract. Seller's distribution contract with FSP McLane has been properly assigned to the Company. k) No Inconsistent Obligations/No Violation. The Company is not, and will not on the closing date be, in default of any of its obligations or in violation of (i) its certificate of incorporation or bylaws or (ii) any unit writ, order, judgment, decree, law or ruling, which would have a material adverse effect on the Company. l) Employment Laws. The Company has complied with all material applicable federal and state laws relating to the employment of labor or benefits, including, without limitation, the provisions relating to wages, hours, collective bargaining, employee benefits and the payment of social security taxes, and is not liable for any arrears of wages, or any tax or penalties, for failure to comply with any of the foregoing. m) Obligations to the Seller. Any and all obligations of the Company to the Seller have been fully paid and satisfied. n) Intellectual Property. The Company has the means, rights and information required to manufacture, process, sell, offer for sale and use the items and perform the services as presently being manufactured, processed, offered for sale, sold, used or performed by the Company including, without limitation the successful operation of the prepaid cellular telephone system. o) Copyright. The Company owns and has copyrighted its Buy-the-Minute brand name. p) UPC Codes. The Company owns all UPC codes associated with the Buy-the Minute brand prepaid cards. q) Consents. The execution and delivery of this Agreement by the Seller and the consummation of the transactions contemplated by this Agreement do not require the consent, approval or action of any person, firm or other entity, or any public, governmental or judicial authority. r) Real Property. The Company owns no real property which is used or useable in the Company's business. s) Material Contracts. Exhibit "D" attached hereto contains a listing of all written or oral material contracts or commitments of the Company. t) Environrnental Laws. The Company (including its predecessors for whose acts and omissions it is responsible) have complied in all respects with all material applicable laws, rules, regulations and ordinances relating to pollution and environmental control. Page 4 of 10 u) Employment Contracts. There are no employment contracts between the Company and any individuals or entities except as provided on Exhibit "E" attached hereto. All employees except as noted on Exhibit "E" are "employees at will" as that term is defined under the applicable state law. v) Carrier Reseller Agreements. The Company currently has in place Carrier Reseller Agreements with each of the entities listed on Exhibit "F" hereof, and except as noted on Exhibit "F," none of these contracts are in default, and all charges pursuant to the Agreements have been paid in full. w) Letters of Credit. The Company currently has Letters of Credit posted on its behalf to support the Carrier Reseller Agreements described on Exhibit "F," in the amount of $1,000,000.000 as more specifically described on Exhibit "G" hereof. None of these Letters of Credit are in default. The Letters of Credit will remain in place until at least April 1, 1999, provided Purchaser pays $7,500.00 per month to the issuers or obligors on the Letters of Credit. The Seller further represents that it will extend the Letters of Credit for a period of one (1) year until April 1, 2000, provided that Purchaser: i) Continues to pay the carrying charges of $7,500.00 per month; ii) Pays any and all bank extension fees; and iii) Either puts up additional collateral to support the Letters of Credit in the amount of $250,000.00, or enters into a mutually agreeable "Lock-Box" arrangement for the payment of carrier charges. x) Brokers. No broker or finder has been employed the Seller in connection with the negotiations relative to this Agreement. All negotiations relative to this Agreement have been carried on directly by the Seller without the intervention of any third party other than legal counsel and accountants for the Seller and legal counsel and accountants for the Purchaser. y) Statements True and Correct. No representation or warranty made by the Seller nor any statement or certificate or instruction furnished to the Purchaser pursuant to this Agreement or in connection with the transactions contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained therein not misleading. 6. The Purchaser represents and warrants to and for the benefit of the Seller as follows: Page 5 of 10 a) Organization. The Purchaser is a corporation duly organized, validly existing and in good standing, under the laws of the State of Nevada with full power and authority to carry on the business in which it is engaged, to own the property owned by it and to perform its obligations under this Agreement. b) Corporate Action. The transactions contemplated by this Agreement have been duly authorized and approved on behalf of the Purchaser, and the Purchaser has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement constitutes a valid and binding agreement of the Purchaser enforceable in accordance with its terms. c) No Event of Breach or Default. The consummation of the transactions contemplated by this Agreement will not violate any Agreement, order, judgment or decree to which the Purchaser is a party or by which it is bound and will not violate any other restriction of any kind or character to which the Purchaser is subject. d) Broker. No broker or finder has been employed by the Purchaser in connection with the negotiations relative to this Agreement. All negotiations relative to this Agreement have been carried on directly by the Purchaser without the intervention of any third party other than legal counsel or accountants for the Purchaser and legal counsel and accountants for the Seller. 7. Compliance with Securities Laws. a) The Seller acknowledges that the shares of Purchaser's Stock to be delivered to the Seller pursuant to this Agreement has not been registered under the Federal Securities Act of 1933, as amended (the "1933 Act"), and that therefore the stock is not fully transferable except as permitted under various exemptions contained in the 1933 Act and the rules of the Securities and Exchange Commission interpreting the Act. The provisions contained in this Section are intended to ensure compliance with the 1933 Act. Purchaser acknowledges that the Seller is not presently in compliance with its filing requirements under the Securities Exchange Act of 1934. b) The Seller acknowledges being informed that the Purchaser's Stock must be held by the Seller indefinitely unless the Purchaser's Stock is registered for sale by such Seller under the 1933 Act or an exemption from such registration is available. Each Seller understands that any routine sale of the Purchaser Stock made in reliance upon Rule 144 of the Securities and Exchange Commission promulgated under the 1933 Act can be made only in limited amounts after the expiration of a period of one (1) year from the closing date and otherwise in accordance with the terms and conditions of Rule 144 and further understands that in the event that the exemption from registration provided by Rule 144 is not available, compliance with some other exemption under the 1933 Act will be required in the absence of registration. c) Purchaser may instruct its transfer agents not to transfer any of the Purchaser's Stock Page 6 of 10 unless such agents have been advised by Purchaser or otherwise have been satisfied the Seller seeking to transfer shares has complied with the provisions of this Section. 8. Conduct of Business Pending Closing. Prior to the closing Seller agrees that: a) Ordinary Course. The business of the Company will be conducted only in the ordinary and usual course consistent with past practices. b) Corporate Documents. No change will be made in the Certificate of Incorporation or the Bylaws of the Company. c) Stock Shares. No change will be made in the authorized corporate shares of the Company. d) Dividends. No dividend or other distribution or payment will be declared or made in respect of the shares of the Company, and the Company will not directly or indirectly redeem, purchase, or otherwise acquire any of such shares. e) Operations, Inspection. The Company will continue to operate its business in the manner heretofore operated by it. No contracts or purchase orders, other than in the ordinary and usual course of business consistent with past practices, will be entered into or delivered by the Company. Until the closing, representatives of the Purchaser shall have the right, during the normal business hours, to visit the offices of the Company and observe the operation of the business and shall have access to all of the Company's records. f) Casualty. The Company will keep all of its inventory and other property fully insured against any loss, either by fire, other casualty, or theft. If prior to the closing date such property is totally or substantially damaged by reason of fire or other casualty, or is lost by reason of theft, the Purchaser may, in the exercise of its sole discretion, terminate this Agreement and all moneys previously deposited by it with the Seller shall be refunded to it and all parties shall be released from any further liability hereunder. If the Purchaser elects to consummate this transaction despite such damage or loss, it shall receive the proceeds of any insurance paid by reason of such damage or loss. g) Employee Compensation. Without first receiving written approval from Purchaser, no increase will be made in the compensation payable or to become payable by the Company to any officer, employee, or agent, nor will any bonus payment or arrangement be made by the Company to or with any officer, employee, or agent, except bonus payments to employees (officers and agents excluded) in accordance with the established practice of the Company. h) Status Quo. The Company will use its best efforts to preserve its business organization, to keep available the services of its officers and other employees, and Page 7 of 10 to preserve friendly relations with its customers. 9. All existing Company bank accounts shall be transferred immediately to the Purchaser upon closing of this Agreement, together with any and all books and records of the Company. 10. Conditions to Obligations of the Purchaser. All obligations of the Purchaser are subject to the fulfillment and satisfaction of each of the following conditions on or prior to the closing: a) Proceedings and Documents Satisfactory. All proceedings taken in connection with the consummation of the transactions contemplated herein and all documents and papers relating thereto shall be satisfactory to Purchaser and its counsel, and Purchaser and its counsel shall have timely received copies of such documents and papers, all in form and substance satisfactory to Purchaser and its counsel, as requested by Purchaser or its counsel in connection therewith. b) Representations and Warranties. The representations and warranties contained in Section 6 of this Agreement, and in any certificate, instrument, schedule, agreement or other writing delivered by or on behalf of the Company or the Seller in connection with the transactions contemplated by this Agreement shall be true and correct as of the date when made and shall be deemed to be made again at and as of the closing date and shall be true at and as of such time. c) Compliance with Agreements and Conditions. The Seller and the Company shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by each such party prior to or on the closing date. d) Certificate of the Seller. The Seller shall have delivered to the Purchaser a certificate, executed by the Seller, or on behalf the Seller, dated the closing date, certifying in such detail as the Purchaser may reasonably request as to the fulfillment and satisfaction of the conditions specified in subparagraphs (b) and (c) above. e) Consents. The Seller shall have delivered to the Purchaser such consents and approvals from third parties as are necessary in the Purchaser's reasonable opinion for the continuation in full force and effect after the Closing (a) of the Company's contracts and agreements; and (b) of the Company's business in the same manner as conducted prior to the Closing. f) Miscellaneous. Purchaser and its counsel shall have received such other opinions, certifications and documents from the Company or the Seller as Purchaser and its counsel may reasonably request. 11. Indemnification and True-Up. The Seller shall indemnify the Purchaser, its successors and assigns (the "Indemnities"), in respect of: (a) all liabilities of the Company of any nature, whether accrued, absolute, contingent, or otherwise, existing at closing, to the extent not Page 8 of 10 reflected on Exhibit "A" hereof; (b) any damage or deficiency resulting from any misrepresentation, breach of warranty, or nonfulfillment of any agreement on the part of the Seller, under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished to the Purchaser hereunder; and (c) all actions, suits, proceedings, demands, assessments, judgments, costs, and expenses incident to any of the foregoing (collectively, "Indemnified Losses"). The payment for Indemnified Losses described above shall be made by deducting from the Escrowed Shares such shares required to be sold at the end of the six (6) month Escrow Period to compensate Purchaser for its damages as stated above. For example, if the Indemnified Losses are determined by Purchaser to be $150,000.00 and the market price for the Purchaser's Stock at the end of the Escrow Period shall be $2.00 per share, the parties agree that the Escrow Agent shall disburse only 425,000 shares to Seller and shall return 75,000 shares to the Purchaser. 12. Injunction. The parties recognize that the rights conveyed herein are unique and that the failure to fulfill the obligations of this Agreement will cause irreparable injury to the other party. The parties agree that should it be proven that one party has defaulted hereunder, the injured party, in addition to other remedies provided by law, shall be entitled to a mandatory injunction, both temporarily and permanently, to restrain the defaulting party from failing to perform in accordance with the terms of this Agreement. 13. Survival of Representations. The Seller has not made any representation, warranty, or covenant not set forth herein, and this Agreement constitutes the entire agreement between the parties. All representations and warranties and agreements shall survive the closing and any examination or investigation at any time made by the Purchaser. 14. Benefit. This Agreement shall be binding upon, and inure to the benefit of, the respective legal representative, successors, and assigns of the parties. 15. Notices. All notices, requests, demands and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered or mailed first class, postage prepaid, to any Seller at the address furnished by such Seller to the Purchaser in writing. 16. Choice of Law and Jurisdiction. This Agreement has been executed in the State of Georgia and shall be construed in accordance with the laws of such state and from other agreements. The parties further agree that any action brought to enforce this Agreement shall be brought only in the state and federal courts in that state and the parties hereby irrevocably submit themselves to the exclusive jurisdiction of such courts. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 18. Actions Necessary to Complete Transaction. Each party hereby agrees to execute and deliver Page 9 of 10 all such other documents or instruments and to take any action as may be reasonably required in order to effectuate the transactions contemplated by this Agreement. 19. Waiver. Any waiver by either party of any breach of any term of condition of this Agreement shall not be deemed a waiver of any other breach of such term or condition, nor shall the failure of either party to enforce such provision constitute a waiver of such provision or of any other provision, nor shall such action be deemed a waiver or release of any other party for any claims arising out of or connected with this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. SELLER: PURCHASER: SECURFONE AMERICA, INC TELEDATA WORLD SERVICES, INC., a Nevada corporation By: /s/ Paul Silverman By: /s/ Tony Cullen -------------------------------- ------------------------------- Tony Cullen Its: Chief Executive Officer Its: President -------------------------------- ------------------------------- Page 10 of 10 EXHIBIT A LIABILITIES NONE EXHIBIT B NO LITIGATION PENDING EXHIBIT C SECURFONE MIAMI OFFICE INVENTORY LIST
Office Furniture Quantity Description of Item Item Cost Total Cost 1 Desk, Executive L shaped with return $799.00 $799.00 3 Desk, Work Centers w/key board holders $199.00 $597.00 1 Desk, Executive with right return $300.00 $300.00 1 Table, Lounge, round, light oak $160.00 $160.00 1 Microwave Cart, White $ 89.00 $89.00 1 File cabinet, Lateral 4 drawer, beige $579.00 $579.00 2 File cabinet, Lateral 2 drawer, beige $349.00 $758.00 2 File cabinet, letter size, 2 drawer $69.99 $138.00 1 Chair, Executive, high back with arms $149.00 $149.00 2 Chair, Executive with arms grey/black $99.00 $198.00 2 Chair, secretarial, grey/black $79.00 $158.00 - -------------------------------------------------------------------------------------------------------- TOTAL $3,925.00 Office Equipment & Software Quantity Description of Item 1 Telephone System, Comdial 8 lines $2,500.00 $2,500.00 6 Telephone Sets, Comdial, Black $250.00 $1,500.00 1 GE Refrigerator, 3.5 cubic ft. $159.00 $159.00 1 Sharp Microwave, white $149.00 $149.00 2 Computer, pentium 133 w/28.8 modems $1,200.00 $2,400.00 4 Monitors, Color, super vga $200.00 $800.00 2 Computer, 486 $800.00 $1,600.00 3 Fax machines, Hewlet Packard Office Jet $399.00 $1,197.00 1 Winfax for windows $100.00 $100.00 1 Procom-Plus for windows $200.00 $200.00 1 Bishop Books $250.00 $250.00 1 Dialogic Voice Systems $200.00 $200.00 1 Dialogic Voice Board $800.00 $800.00 I Act 3.4 for windows $150.00 $150.00 1 Back-up system, UPS $499.00 $499.00 1 Min Inventory & Cellular Activation Program $50,000.00 $50,000.00 - -------------------------------------------------------------------------------------------------------- TOTAL $62,504.00 Office Accessories Quantity Description of Items 1 Magnavox Radio & CD player $89.00 $89.00 1 Eureka Super Broom $49.00 $49.00 4 Staplers, swingline $12.00 $48.00 2 Calculator, desk top $25.00 $50.00 Calculator, desk top, small $12.00 $12.00 1 Frames, pictures & posters $35.00 $105.00 4 Plants w/ pots $25.00 $100.00 2 Boards $20.00 $40.00 Stationary supplies, tape dispensers, pencils, $200.00 $200.00 pens, markers, paper clip remover, Lounge supplies, coffee, creamer, sugars, cups $50.00 $50.00 - -------------------------------------------------------------------------------------------------------- TOTAL $743.00 - ------------------------------------------------------------------------------------------------------------------- GRAND TOTAL $67,172.00 - -------------------------------------------------------------------------------------------------------------------
EXHIBIT D NO MATERIAL CONTRACTS OTHER THAN THOSE LISTED IN EXHIBIT E & F EXHIBIT E EMPLOYEE CONTRACTS IVONNE SUAREZ Original employee contract dated April 1, 1996. Increase in salary dated September 1,1998. EXHIBIT F CARRIER RESELLER AGREEMENTS: Carrier Reseller Agreement between the Company and Airtouch Cellular dated October 1st, 1998. Carrier Reseller Agreement between the Company and Ameritech Cellular dated May 13th, 1998. Carrier Reseller Agreement between the Company and Bell Atlantic Mobile dated October 31st, 1997. Carrier Reseller Agreement between the Company and BellSouth Cellular Corporation dated October 13th ,1997. Carrier Reseller Agreement between the Company and GTE Wireless dated June 26th, 1997. Carrier Reseller Agreement between the Company and Mobile One Wireless Network dated November 1st, 1996. EXHIBIT G LETTERS OF CREDIT
Carrier Amount Bank/LC No Market Expiration - ---------------------------------------------------------------------------------------------------- $100,000.00 City Nat. S49678 All Markets 4/l/99 GTE $200,000.00 City Nat. 980403.OD.0414 All Markets 4/l/99 Ameritech $100,000.00 City National S49389 Chic./Detroit 4/1/99 Bell Atlantic Nynex $250,000.00 Union Bank 315S611076 All Markets 4/15/99 BellSouth Mobility $ 50,000.00 City Nat. 980402.OD.0409 Atlanta 4/1/99 BellSouth Mobility $ 3,750.00 City Nat. 980224.OD.0369 Atlanta 4/1/99 BellSouth Mobility $ 6,250.00 City Nat. 305S6111128 New Orleans 4/15/99 BellSouth Mobility $ 8,750.00 City Nat. S50010 FL 4/1/99 BellSouth Mobility $ 10,000.00 City Nat. 980813.OD.0517 FL 4/1/99 BeflSouth Mobility $ 8,750.00 City Nat. 980402.OD.0410 FL 4/l/99 BcIlSouth Mobility $ 10,000.00 City Nat. 971217.OD.0147 Miami 4/1/99 Airtouch Cellular $ 50,000.00 Union Bank - 315S611168 Los Angeles 4/15/99 Airtouch Cellular $ 18,600.00 Union Bank 315S611167 Phoenix 4/15/99 Mobile One $ 50,000.00 Union Bank - 315S610723 Miami 4/15/99 - ---------------------------------------------------------------------------------------------------- TOTAL: $866,100.00 TOTAL DOLLARS ALLOCATED FOR LCs: $866,100.00 ADDITIONAL DOLLARS AVAILABLE FOR LCs: $133,900.00 - -------------------------------------------------------------------------------- TOTAL: $1,000,000.00 - --------------------------------------------------------------------------------
EX-10.8 6 EX 10-8 SECURITY AGREEMENT This Agreement entered into this _ day of February, 1999, by and between SECURFONE AMERICA, INC., a Delaware corporation (the "Debtor"), whose principal office is at 5850 Oberlin Drive, Suite 220, San Diego, California 92121, and TELEDATA WORLD SERVICES, INC., a Nevada corporation with its principal office at 900 Circle 75 Parkway, Suite 205, Atlanta, Georgia 30339 ("Secured Party"), agree as follows: SECTION 1. CREATION OF SECURITY INTEREST. Debtor hereby grants to Secured Party a security interest in the property described in Section 2 of this Agreement (the "Collateral") to secure performance and payment of (i) that certain Promissory Note in the original amount of $298,000.00 dated February ___, 1999, executed by Debtor and payable to the order of the Secured Party (the "Note"); (ii) all subsequent advances under the Note; (iii) all renewals, extensions, and modifications of the Note; and (iv) all obligations and indebtedness of Debtor to Secured Party of whatever kind and however created, whether presently existing or hereafter arising. All of the foregoing obligations and indebtedness described in this Section 1 shall hereinafter be referred to as the "Secured Indebtedness," and the Note and all other documents evidencing or giving rise to the Secured Indebtedness shall hereinafter be referred to collectively as the "Security Instruments." SECTION 2. COLLATERAL. As collateral for the Secured Indebtedness, Debtor hereby assigns and grants to Secured Party a lien and security interest in all of the Debtor's following property, wherever located, and whether now owned or hereafter acquired or created: (a) Accounts, accounts receivable, reimbursement, notes, contracts, contract rights, chattel paper, cash, checks, drafts, documents, instruments, all rights of Debtor to receive payment in money or kind, and other evidence of indebtedness owed to Debtor, (b) Any and all equipment and inventory; (c) Customer lists, all documents containing the names, addresses, telephone numbers, and other information regarding the Debtor's customers, subscribers, tapes, programs, printouts, disks, and other material and documents relating to the recording, billing of analyzing of any of the foregoing, and any other right to payment; (c) Any and all contract and lease rights, including network contracts, customer contracts for the furnishing by Debtor of telecommunication services, and billing and collection contracts, whether evidenced by a document or otherwise; (d) All telephone account and accounts receivable arising from telecommunication services rendered to an end user prior to the sale, assignment, or transfer of such account (collectively the "End User Accounts") to a regional Bell operating company, a Bell operating company, local exchange company; credit card company or provider of local telephone services (each a "LEC") for billing and collection; and rights in and to any of the telephone receivables, debts, and other amounts payable to the Debtor by any LEC, and all cash and non-cash proceeds of the foregoing; (e) All records and documents relating to any of the foregoing including, without limitation, records of accounts whether in the form of writing, microfilm, microfiche, tape or electronic media; and (f) All products and proceeds (cash and non-cash) of all of the foregoing, and increases, accessions, renewals, replacements and substitutions of all of the foregoing. The inclusion of proceeds in this Agreement does not authorize Debtor to sell, dispose of or otherwise use the Collateral in any manner not specifically authorized by this Agreement. SECTION 3. DEBTOR'S REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants to Secured Party as follows: 3.1 CLEAR TITLE TO COLLATERAL. Debtor is the sole owner of the Collateral, having good and marketable title thereto, free and clear of any and all liens, encumbrances, claims, or rights of others created by any acts or omissions of Debtor, except for the security interest granted to Secured Party. 3.2 FIRST PRIORITY LIEN. This Agreement constitutes a valid and continuing lien on an security interest in the Collateral in favor of Secured Party, prior to all other liens, encumbrances, security interests and rights of others arising from any acts or omissions of Debtor, and is enforceable as such as against creditors of and purchaser from Debtor. SECTION 4. EVENTS OF DEFAULT. The following events are Events of Default: 4.1 FAILURE TO PAY. The Debtor does not pay when due any amount due under any of the Security Instruments or the Debtor otherwise breaches the provisions thereof, and the Debtor fails to cure such nonpayment or other breach within any cure period provided thereunder. 4.2 LIMITATIONS REGARDING COLLATERAL. The Debtor sells, transfers leases or otherwise disposes of any of the Collateral, or attempts, offers or contracts to do so, or Debtor creates, permits or suffers to exist any lien, security interest, encumbrance, claim or right in or to the Collateral other than those in favor of Secured Party (the "Other Encumbrances"). Debtor will, at Debtor's sole expense, defend the Collateral against and take such other action as is necessary to remove such Other Encumbrances and defend the right, title and interest of Secured Party in and to any of Debtor's rights to the Collateral, including without limitation any proceeds and products thereof, against the claims and demands of all persons. 4.3 MISREPRESENTATION. Any representation or warrant made by the Debtor herein or in any of the Security Instruments proves to have been untrue in any material respect, or any representation, statement (including Financial Statements), certificate or data furnished or made by the Debtor (or any officer, accountant or attorney of the Debtor) hereunder or under any of the Security Instruments proves to have been untrue in any material respect, as of the date as of which the facts therein set forth were stated or certified. 2 4.4 IMPAIRMENT OF COLLATERAL. Secured Party, in good faith, considers any Collateral to be unsafe or in such danger of misuse that Secured Party's prospect of or right to payment or performance under this Agreement or any instrument or agreement required hereunder or under any other agreement between Secured Party and Debtor is materially impaired. 4.5 CROSS DEFAULT. The Debtor breaches, defaults, or commits an event of default under any other agreement, document or instrument between Secured Party and Debtor and Debtor fails to cure such breach, default or event of default within any cure period provided thereunder. 4.6 CHANGE OF NAME OR CHIEF EXECUTIVE OFFICE. Debtor changes its name, or its Chief Executive Office, or changes its corporate structure in any way that would make filed financing statements misleading without giving Secured Party at least thirty (30) days advance written notice of such change or move, and ensuring that any steps necessary to continue the perfection and priority of Secured Party's security interest in the Collateral shall have been taken, all at Debtor's expense. 4.7 Opportunity to Cure. Any Event of Default described in Section 4.2 and 4.4 may be cured within five (5) calendar days after notice by Secured Party, which notice to Debtor may be verbal or written. SECTION 5. SECURED PARTY'S RIGHTS. 5.1 RIGHTS OF SECURED PARTY UPON DEFAULT. If there is an Event of Default which the Debtor fails to cure within any applicable cure period, the Secured Party may, at its option and at any time thereafter: (a) Declare the entire aggregate amount of the Secured Indebtedness then outstanding and the interest and other fees and expenses accrued thereon, and all other obligations of Debtor to Secured Party to be immediately due and payable without notice and without presentment, demand, protest, notice of protest, or other notice of default or dishonor of any kind, all of which are hereby expressly waived by the Debtor; (b) require Debtor to assemble the Collateral, including any books and records pertaining to the Collateral, and make them available to Secured Party at a place designated by Secured Party; (c) notify any account debtor, any buyers of the Collateral, and any other person of Secured Party's interest in the Collateral; (d) request confirmation from any account debtor of the status of the account upon which the account debtor is obligated; (e) without prior notice to Debtor, demand and collect any payments and proceeds of the accounts directly from the account debtors; (f) require Debtor to obtain Secured Party's prior written consent to any sale, agreement to sell, or other disposition of any Collateral; 3 (g) remedy any default or waive any default without waiving the default remedies and without waiving any other prior or subsequent default; (h) take such measures as Secured Party may deem necessary or advisable to take possession of, hold, preserve, process, assemble, insure, collect on, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of any Collateral; (i) endorse or sign the name of Debtor on all checks, drafts, collections, receipts and other documents, and taken possession of and open the mail addressed to Debtor and remove therefrom any payments and proceeds of the Collateral; (j) use or transfer, without any additional consideration to Debtor, any of Debtor's rights and interests in any intellectual property, including but not limited to patents, now owned or hereafter acquired by Debtor, if Secured Party deems such use or transfer necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, or otherwise dispose of, any Collateral; and (k) have a receiver appointed by any court of competent jurisdiction to take possession of and protect the value of the Collateral. Debtor hereby constitutes and appoints Secured Party as Debtor's attorney-in-fact to perform all acts and execute all documents in connection with the remedies described in this Agreement. This power of attorney is coupled with an interest and shall be irrevocable. 5.2 FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. At any time and from time to time, upon the written request of Secured Party, and at the sole expense of Debtor, Debtor promptly and duly shall execute, deliver and record any documents, instruments, agreements and amendments, and take all such flurther action as Secured Party may reasonably deem desirable in obtaining the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing statements or amendments under the applicable Uniform Commercial Code. Debtor hereby also authorizes Secured Party to file any such financing statement or amendment thereto, without the signature of Debtor, or with a copy or telecopy of Debtor's signature, to the extent permitted by applicable law, or to execute any financing statement or amendment thereof on behalf of Debtor as Debtor's attorney-in-fact. 5.3 RIGHTS UNDER UNIFORM COMMERCIAL CODE. Without limiting any of Secured Party's rights and remedies under this Agreement, Secured Party may enforce the security interest and other liens aiven hereunder, and under all Security Instruments and documents referred to herein or contemplated hereby, pursuant to the applicable Uniform Commercial Code and any other applicable law including all legal and equitable remedies available to lenders generally. 5.4 PAYMENTS OF TAXES AND INSURANCE. If Debtor fails to pay any taxes, assessments, insurance premiums, or other amounts due to third parties as required by Debtor on the Collateral, Secured Party may in its discretion, and without prior notice to Debtor make any such payment. Any payments made by Secured Party under this paragraph shall not constitute (i) an agreement by Secured Party to make similar payments in the future; or (ii) a waiver by Secured Party of any Event 4 of Default under this Agreement. Secured Party need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or lien, and the receipt of the notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. Debtor agrees to pay Secured Party, on demand, each payment made by Secured Party under this paragraph together with a late fee, if any, provided in the Service Agreement. 5.5 RIGHTS AND REMEDIES ARE CUMULATIVE. All rights and remedies provided herein are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy. 5.6 SELF-HELP REMEDIES. SECURED PARTY MAY ENFORCE ITS RIGHTS UNDER THIS AGREEMENT WITHOUT RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING, AND DEBTOR EXPRESSLY WAIVES, RENOUNCES, AND KNOWINGLY RELINQUISHES ANY LEGAL RIGHT WHICH MIGHT OTHERWISE REQUIRE SECURED PARTY TO ENFORCE ITS RIGHTS BY JUDICIAL PROCESS. NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT DEBTOR OR SECURED PARTY FROM RESORTING TO JUDICIAL PROCESS AT SUCH PARTY'S OPTION. 5.7 SALE OR DISPOSITION OF COLLATERAL. Without limiting the generality of the foregoing, if there is an Event of Default which the Debtor fails to cure within any applicable cure period, the Secured Party may, at its option and at any time thereafter, without further demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place and public or private sale) to or upon Debtor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Secured Party's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Secured Party shall have the right upon any such public sale or sales, and to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in Debtor. To the extent permitted by applicable law, Debtor waives all claims, damages, and demands against Secured Party arising out of the lawful repossession, retention or sale of the Collateral in accordance with the terms hereof. 5.8 NOTICE OF SALE. Debtor agrees that Secured Party need not give more than ten (10) days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. 5.9 APPLICATION OF SALE PROCEEDS. Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any or all of the Collateral or in any way relating to the rights of Secured Party hereunder, including reasonable attorneys' fees and legal expenses, to the payment in whole or in part of the Secured 5 Indebtedness to Debtor, in such order as Secured Party may elect, Debtor remaining liable for any deficiency remaining unpaid after such application and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency, and only after so applying such net proceeds and after the payment by Secured Party of any other amount required by any provision of law, including Section 9.504(l) of the Uniform Commercial Code, need Secured Party account for the surplus, if any, to Debtor. 5.10 INSPECTION OF RECORDS. Secured Party and any of its employees and agents may enter upon Debtor's premises at any reasonable time to inspect Debtor's books and records pertaining to the Collateral. 5. 11 NO CONSEQUENTIAL DAMAGE. SECURED PARTY SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT OR INCIDENTAL DAMAGES IN CONNECTION WITH THIS AGREENIENT OR THE COLLATERAL. 6.1 NOTICES. Any communications between the parties hereto to be given in writing shall be given by mailing the same, postage prepaid, or by telex, cable facsimile, overnight courier, or personal delivery, to each party at their addresses set forth below or to such other addresses as either party may in writing hereafter indicate. Any communication shall be effective upon the earlier of delivery or five (5) days after sending. ADDRESS FOR NOTICE AND COMMUNICATIONS ARE: If to the Secured Party: TeleData World Services, Inc. 900 Circle 75 Parkway Suite 205 Atlanta, Georgia 30339 If to the Debtor: SecurFone America, Inc. 5850 Oberlin Drive Suite 220 San Diego, CA 92121 or at such other address as any party may hereafter designate for itself by written notice to the other party in the manner herein described. 6.2 NO WAIVER; CUMULATIVE REMEDIES. Secured Party shall not be any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Secured Party. A waiver by Secured Party of any right or remedy hereunder or any one occasion shall not be construed as a bar to any right or remedy which Secured Party would otherwise have had on any future occasion. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. 6.3 SUCCESSORS AND ASSIGNS. All covenants and agreements herein contained by or on behalf of the Debtor shall bind its successors and assigns and shall inure to the benefit of the Secured 6 Party and its successors and assigns. Secured Party's rights under this Agreement or the indebtedness hereby secured may be assigned from time to time, and in any such case the assignee shall be entitled to all of the rights, privileges and remedies granted in this Agreement to Secured Party. Debtor may not assign this Agreement or any instruments or documents executed in connection herewith or any of the rights of Debtor hereunder without the prior written consent of Secured Party. 6.4 GOVERNING LAW. This Agreement shall be construed in accordance with an governed by the laws of the State of Georgia, without regard to the conflict of law provisions. 6.5 SEVERABILITY. In the event any one of more of the provisions contained in this Agreement, the Security Instruments, or in any other instrument or document referred to herein or executed in connection with or as security for the Service Agreement, shall, for any reason, be held to be invalid, illegal or unenforceable, such provision(s) shall not affect any other provision of this Agreement, the Service Agreement, the Security Instruments, or any other instrument or document referred to herein or executed in connection with or as security for the Service Agreement. 6.6 DEFINED TERMS. Unless otherwise defined in this Agreement, terms used in this Agreement which are defined in the applicable Uniform Commercial Code are used with the meanings as therein defined. 6.7 ENTIRE AGREEMENT. This Agreement and all instruments, agreements, and documents attached hereto, referred to herein or executed in connection herewith, integrate all the terms and conditions mentioned herein or incidental hereto, constitute the entire agreement between the parties with respect to the subject matter thereof, and supersede all prior discussions, negotiations and communication whether oral or written. Neither Secured Party nor Debtor shall be bound by any promises, representations, warranties, or affirmations not contained in this Agreement, in an agreement, instrument, or document attached hereto or referred to herein or executed in connection herewith. 6.8 PARAGRAPH HEADING. Paragraph headings are for reference only and shall not affect the interpretation or meaning of any provision of this Agreement. 6.9 ATTORNEYS' FEES. In the event Secured Party retains the services of an attorney to enforce any provision of the Service Agreement, this Agreement, or any other obligation of Debtor to Secured Party, Debtor agrees to pay reasonable attorneys' fees and other costs, expenses, and disbursements, incurred by Secured Party in connection therewith. 7 EXECUTED as of this _____ day of February, 1999. DEBTOR: SECURED PARTY: SECURFONE AMERICA, INC. TELEDATA WORLD SERVICES, INC. By: /s/ Paul B. Silverman By: /s/ Tony Cullen ---------------------- --------------------- Its: CEO Its: President and CEO ---------------------- --------------------- 8 ATTACHMENT A TO FINANCING STATEMENT As collateral for the Secured Indebtedness, Debtor hereby assigns and grants to Secured Party a lien and security interest in all of the Debtor's following property, wherever located, and whether now owned or hereafter acquired or created: 1. Accounts, accounts receivable, reimbursement, notes, contracts, contract rights, chattel paper, cash, checks, drafts, documents, instruments, all rights of Debtor to receive payment in money or kind, and other evidence of indebtedness owed to Debtor; 2. Any and all equipment and inventory; 3. Customer lists, all documents containing the names, addresses, telephone numbers, and other information regarding the Debtor's customers, subscribers, tapes, programs, printouts, disks, and other material and documents relating to the recording, billing of analyzing of any of the foregoing, and any other right to payment; 4. Any and all contract and lease rights, including network contracts, customer contracts for the furnishing by Debtor of telecommunication services, and billing and collection contracts, whether evidenced by a document or otherwise; 5. All telephone account and accounts receivable arising from telecommunication services rendered to an end user prior to the sale, assignment, or transfer of such account (collectively the "End User Accounts") to a regional Bell operating company, a Bell operating company, local exchange company; credit card company or provider of local telephone services (each a "LEC") for billing and collection; and rights in and to any of the telephone receivables, debts, and other amounts payable to the Debtor by any LEC, and all cash and non-cash proceeds of the foregoing; 6. All records and documents relating to any of the foregoing including, without limitation, records of accounts whether in the form of writing, microfilm, microfiche, tape or electronic media; and 7. All products and proceeds (cash and non-cash) of all of the foregoing, and increases, accessions, renewals, replacements and substitutions of all of the foregoing. EX-10.9 7 EX 10-9 $248,000.00 FEBRUARY ___, 1999 SECURED PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned, SecurFone America, Inc. (the "Maker") whose principal place of business is located at 5850 Oberlin Drive, Suite 220, San Diego, California 92121, hereby promises to pay to the order of TeleData World Services, Inc., a Nevada corporation (the "Holder"), at its offices at 900 Circle 75 Parkway, Suite 205, Atlanta, Georgia 30339, or at such place as the Holder may from time to time designate, the principal sum of Two Hundred Forty-Eight Thousand Dollars ($248,000.00), together with interest on such sum from the date hereof, payable as follows: (i) Interest shall accrue on the unpaid principal balance hereof from the date of this Note until paid in full at a rate equal to eight percent (8 %) per annum. If the Maker fails to pay to the holder any amounts owing to the Holder under this Note as of the due date, interest ("Post-Default Interest") on all outstanding unpaid amounts under this Note shall accrue at a rate equal to eighteen percent (18 %) per annurn from the original due date of such amount until all such amounts have been paid in full and shall be payable on demand. (ii) All outstanding principal and interest under this Note shall be due and payable upon the earlier on April 15, 1999. If the Maker fails to pay to the Holder when due any amounts owing to the Holder under this Note, or breaches any other terms of this Note or any other agreement with Holder (an "Event of Default"), the Holder may declare, by written notice, the entire principal amount then unpaid, together with all accrued interest, immediately due and payable. This Note is secured by Security Agreement of even date herewith between the parties. Maker agrees that any default under the Security Agreement shall constitute an Event of Default of this Note. If an Event of Default occurs and this Note is placed in the hands of an attorney for collection, or suit is filed hereon, or proceedings are had in bankruptcy, receivership, reorganization, or other judicial proceedings for the establishment or collection of any amount called for hereunder, or any amount payable or to be payable hereunder is collected through any such proceedings, the Maker agrees to pay attorneys' fees and collection fees to the Holder. Except as otherwise provided herein, Maker waives presentment, demand, protest and notice of dishonor. Failure by the Holder to exercise any of the rights or remedies set forth herein shall not constitute a waiver of the right to exercise the same or any other right of remedy at any subsequent time in respect to the same or any other event. The acceptance by the Holder of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing rights or remedies at that time or at any subsequent time, or nullify any prior exercise of any such right or remedy without the express written consent of the Holder. All amounts payable hereunder are payable in lawful money of the United States of America. It is expressly stipulated and agreed to be the intent of the Maker and the Holder to at all times comply with the applicable law now or hereafter governing the interest payable on this Note or the indebtedness evidenced hereby. If the applicable law as it is now or as it may be revised, repealed or judicially interpreted so as to render usurious any amount called for under this Note, or contracted for, charged, taken, reserved or received with respect to the indebtedness evidenced by this Note, or if the Holder's exercise of the option herein contained to accelerate the maturity of this Note or if any prepayment by the Maker results in the Maker having paid any interest in excess of that permitted by applicable law, then it is the Maker's and the Holder's express intent that all excess amounts theretofore collected by the Holder be credited on the principal balance of this Note (or, if this Note has been paid in full, refunded to the Maker), and the provisions of this Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. All notices and other communications required or permitted to be made to the Maker hereunder shall be made in writing and will be deemed delivered when received by Maker by messenger, telex, telecopier or mail at the following address or such other address as Maker may notify Holder in writing from time to time: SecurFone America, Inc. 5850 Oberlin Drive Suite 220 San Diego, California 92121 This Note shall be governed and construed in accordance with Georgia law without regard to conflicts of law principles. The terms of this Note shall be binding upon and inure to the benefit of the successors and assigns of the Maker and the Holder. Executed as of the date and year first above written. SECURFONE AMERICA, INC. By: /s/ Paul B. Silverman --------------------- Its: CEO --------------------- 2 EX-10.10 8 EX 10-10 FIRST AMENDMENT TO PURCHASE AGREEMENT THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made and entered into as of the 15th day of April, 1999 by and among TELEDATA WORLD SERVICES, INC., a Nevada corporation (the "Purchaser") and SECURFONE AMERICA, INC., a Delaware corporation (the "Seller"). RECITALS WHEREAS, the Purchaser and Seller made and entered into that certain Purchase Agreement (as further amended, modified, supplemented or restated from time to time, the "Purchase Agreement"); and WHEREAS, Purchaser and Seller wish to amend certain provisions of the Purchase Agreement and have agreed to such proposed amendments; NOW, THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: Article I Amendments 1.1 The first recital to the Purchase Agreement is hereby amended to delete the words "SecurFone, Inc., formerly known as SecurFone America, Inc." and insert in lieu thereof the words "SecurFone, Inc., a Delaware corporation and wholly-owned subsidiary of SecurFone Services, Inc., a Delaware corporation formerly known as SecurFone Inc. and formerly known as SecurFone America, Inc." 1.2 Paragraph 2(a) of the Purchase Agreement is hereby amended to delete the first sentence thereof and clauses (i) through (iv) thereof and substitute in lieu thereof the following: (a) $627,537.96 cash (of which $129,537.96 represents the payment by Purchaser of various costs of Seller or its affiliates) payable as follows: i) Previously paid on the following dates: 1. $65,000.00 paid on October 26, 1998; 2. $50,000.00 paid on November 19, 1998; 3. $40,000.00 paid on December 2, 1998; 4. $35,000.00 paid on December 14, 1998; 5. $8,000.00 paid on December 30, 1998; 6. $50,000.00 paid on February 1, 1999; 7. $55,671.84 paid on February 8, 1999; 8. $62,580.99 paid on March 31, 1999; 9. $5,671.84 paid on April 2, 1999; 10. $7,708.04 paid on April 5, 1999; 11. $66,961.44 paid on April 9, 1999; 12. $6,578.04 paid on April 12, 1999; and ii) $167,243.94 to be paid at closing; iii) Pre-closing advances in the amount of $298,000 shall be the subject of a Promissory Note from Seller to Purchaser secured by a Security Agreement of even date herewith, pledging all assets of Seller as Collateral for the Promissory Note. The Promissory Note and Security Agreement shall be cancelled upon closing. If the transaction does not close for any reason whatsoever, the Promissory Note shall be due and payable on April 15, 1999. 1.3 Paragraph 2(b)(ii) of the Purchase Agreement is hereby amended to delete the reference therein to "paragraph 12" and substitute in lieu thereof "paragraph 11." 1.4 Paragraph 2(b) of the Purchase Agreement is hereby deleted in its entirety and substituted in lieu thereof is the following: (a) 600,000 shares of the Common Stock of Purchaser (the "Shares") delivered at Closing subject to the terms of the true-up provisions contained in paragraph 12 hereof and the "Make-Whole" provisions of Section 1.3(c); i) All shares issued under this Agreement will be restricted pursuant to provisions of Rule 144 of the Securities and Exchange Commission and will bear a restricted stock legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR THE SECURITIES LAW OF ANY OTHER STATE AND ARE ISSUED AND SOLD IN RELIANCE UPON CERTAIN EXEMPTIVE PROVISIONS. SAID SECURITIES CANNOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED) EXCEPT PURSUANT TO EITHER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM UPON THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE 2 COMPANY AND ITS COUNSEL THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER ANY APPLICABLE LAWS." ii) Purchaser represents and warrants that under Rule 144 the holding period for the shares issued or issuable by Purchaser under this Agreement will commence on the Closing Date. 1.5 The Purchase Agreement is hereby amended to add the following new paragraph 1.3 (c): On the first anniversary of the Closing Date (the "Determination Date"), the fair market value of the Shares on such date shall be calculated by multiplying the number of Shares (adjusted for any stock splits or combination and including any Shares transferred to Purchaser in satisfaction of Seller's Indemnification obligations under Paragraph 11) by the Market Price per share. If the fair market value is less than $1,500,000 then Purchaser, at its election, shall within five business days thereafter (i) pay to Seller in cash the sum arrived at by subtracting the Fair Market Value of the Shares on the Determination Date from $1,500,000 (the "Make Whole Amount") or (ii) if the average daily trading volume of the Common Stock for the five trading days immediately preceding the Determination Date is at least 50,000 shares, issue to the Seller such number of shares of Common Stock determined by dividing the Make Whole Amount by the Market Price per share. 1.6 Paragraph 3 of the Purchase Agreement is hereby amended to delete the date "April 1, 1999": and insert in lieu thereof "April 15, 1999 or such other date as the parties may mutually agree". 1.7 Paragraph 5(c) of the Purchase Agreement is hereby amended to insert immediately preceding the words "Common Shares" the number "3,000" and to insert immediately preceding the words "per share" the following dollar amount: "$0.01". 1.8 Paragraph 5(w) of the Purchase Agreement is hereby deleted in its entirety and substituted in lieu thereof is the following: (w) Letters of Credit. The Company currently has letters of credit posted on its behalf to support the Carrier Reseller Agreements described on Exhibit "F", in the amount of $650,000.00, as more specifically described on Exhibit "G" hereof . True and correct copies of such Letters of Credit shall be delivered to Purchaser at Closing. None of these Letters of Credit are in default. The Letters of Credit will remain in place until at least April 1, 2000, provided Purchaser pays $4,875.00 per month or such lesser amount as may be due thereunder to the issuers or obligors on the Letters of Credit (such issuers or obligors hereinafter collectively, the "LOC Issuers" and individually, a "LOC Issuer"). The Seller further represents that it has caused the LOC Issuers to 3 issue such letters or extend the term of such Letters of Credit through until April 1, 2000 and that such Letters of Credit may not be revoked except pursuant to the conditions set forth therein, if any, and herein. Such Letters of Credit may not be terminated by Seller and Seller will take no action to cause any LOC Issuer to terminate such Letters of Credit so long as Purchaser: (i) Purchaser continues to pay the carrying charges of $4,875.00 (the "Carrying Charges") per month to Mr. Robert Freedman ("Freedman") who has provided collateral (in the form of one-year certificates of deposit) to the LOC Issuers or their successors or assigns; (ii) Purchaser has paid any and all bank extension fees, which fees are set forth on Exhibit "H"; and (iii) No claim arising after the Closing Date (as defined below) is made on the Letters of Credit in excess of the LOC Security. Purchaser shall deposit as soon as practicable following the Closing Date the sum of $162,500.00 (the "LOC Security") into an escrow account under an escrow agreement substantially in the form attached as Exhibit "I" hereto to fulfill its obligations to secure the reimbursement obligations of Seller under the Letters of Credit, but only from and to the extent the Letters of Credit are drawn upon by one or more Carriers as a result of Purchaser's failure to pay such Carriers under the Carrier Reseller Agreements for services rendered after April 15, 1999 or such later date as the purchase of the stock of the Company contemplated by the Agreement and this Amendment shall occur (such date hereinafter the "Closing Date"). Purchaser's obligations to finish and maintain the LOC Security shall terminate: (1) if the Letters of Credit are drawn upon with respect to (a) any obligations of Seller, the Company, SecurFone Services, Inc. or any of their Affiliates, arising prior to the Closing Date, or (b) any obligations of SecurFone America, Inc., SecurFone Services, Inc. or any of their Affiliates arising after the Closing Date; or (2) if an LOC Issuer is presented with a drawing which complies with all of the terms and conditions of the applicable letter of credit and such drawing is not honored or paid in full for any reason whatsoever. If, subsequent to the Closing Date, Purchaser and Seller agree in writing to any reduction in the LOC Amount, then the LOC Security shall be 4 reduced by $0.25 for each $1.00 reduction in the LOC Amount and Purchaser and Seller shall cause the excess and all earnings thereon to be returned to Purchaser. Notwithstanding anything above to the contrary, and so long as there shall not have been a draw on such Letters of Credit with respect to obligations of the Company to Carriers arising after the Closing Date, Purchaser shall be relieved of its obligation to deposit the LOC Amount in the Escrow Account and shall be entitled to withdraw all the LOC Security and all earnings thereon from the Escrow Account if Purchaser shall have established "lock box" agreements with each of the Carriers to which the Letters of Credit relate pursuant to which all or substantially all of (a) the amounts paid to Purchaser by its customers utilizing the applicable Carrier's network or services or (b) Purchaser's obligations to such Carriers are to be deposited pursuant to a lock box arrangement with, or in favor of, such Carrier over which such Carrier (or a servicing agent unaffiliated with the Purchaser or the Seller) may exercise custody and control of the funds deposited therein if an event of default shall occur under the applicable Carrier agreement. The lock box agreements shall contain such other terms which are acceptable to the applicable Carrier and if the terms of the lock box are agreed to by the applicable Carrier, then such terms shall conclusively be deemed acceptable to Seller in connection with Purchaser's satisfaction of its right hereunder to establish such lock box agreements to obtain the release of the LOC Security. In the event Purchaser is able to establish lock box agreements with some, but not all, of the Carriers, the LOC Security shall be reduced in proportion to the accounts to which the Letters of Credit relate. Similarly, if Letters of Credit have been drawn on to pay some Carriers and if lock box agreements have been established with respect to Carriers as to whose accounts no Letters of Credit have been drawn, the LOC Security shall be reduced to reflect such lock box agreements and returned to Purchaser but in no event shall the LOC Security be reduced below an amount equal to the aggregate amounts drawn under the Letters of Credit for which LOC Security has been deposited into the Escrow Account unless and until such amounts have been reimbursed by payment by the Company to the LOC Issuer or by application of some or all of the LOC Security. Notwithstanding any reduction or cancellation in the LOC Security, Purchaser will pay the Carrying Charges to Freedman through April 1, 2000 unless Freedman elects to liquidate the certificates of deposit currently securing the Letters of Credit. 1.9 Paragraph 5 of the Purchase Agreement is hereby amended to add the following additional representations and warranties: z) There are no Liabilities against, relating to or affecting the Company or any of its Assets. (aa) Authority. Each of the Seller, SecurFone Services, Inc. and the Company 5 had full corporate power and authority to effect the transfer of the Assets of SecurFone Services, Inc. to the Company and to perform its obligations in connection therewith and to consummate the transactions contemplated hereby and such transfer of the Assets of SecurFone Services, Inc. to the Company was duly and validly authorized by the Board of Directors of Seller, SecurFone Services, Inc. and the Company and, except as set forth below, no other corporate action of the part of Seller, SecurFone Services, Inc. or the Company or any class or series of its security holders (equity or debt) was necessary and the Board of Directors of each of the Seller, SecurFone Services, Inc. and the Company concluded that the consideration to be received by their respective corporations upon consummation of such transactions was fair from a financial point of view; PROVIDED, HOWEVER, that although the transactions contemplated hereby have been approved in an action by written consent by Montpilier Holdings, Inc., a holder of at least a majority of the issued and outstanding capital stock of Seller entitled to vote on such transactions, the stockholders of the Seller as a whole have not been informed of the action by written consent. Seller agrees to furnish notice of such action by written consent as soon as is reasonably practicable after the Closing Date. The asset transfer agreements have been duly and validly executed and delivered by Seller, SecurFone Services, Inc. and the Company and constitute legal, valid and binding obligations of Seller, SecurFone Services, Inc. and the Company enforceable in accordance with their respective terms. (bb) No Conflicts or Approvals Required. The execution and delivery by the Agreement whereby the Assets of SecurFone Services, Inc. were transferred to the Company did not and, on and immediately after the Closing Date, will not: (i) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the respective Certification of Incorporation and by-laws of the Seller, SecurFone Services, Inc. and the Company; (ii) conflict with or result in a material violation or material breach of any term or provision of any law, order or judgment applicable to Seller, SecurFone Services, Inc, or the Company or any of their respective Assets and Properties; (iii) (A) conflict with or result in a violation or material breach of, (B) constitute (with or without notice or lapse of time or both) a default under, (C) require Seller, SecurFone Services, Inc. or the Company to obtain any consent, approval or action of, make any filing with or give any notice to any person or entity as a result or under the terms of, (D) result in or give to any person or entity any right of 6 termination, cancellation, acceleration or modification in or with respect to, (E) result in or give to any person or entity any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (F) result in the creation or imposition of any lien upon the Company or any of its Assets under, any contract or license to which Seller, SecurFone Services, Inc. or the Company is a party or by which any of their respective Assets are bound; or (iv) require any consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity (including, without limitation, any Carrier or LOC Issuer on the part of Seller, SecurFone Services, Inc. or the Company in connection with the execution, delivery and performance of the transfer of the Assets of SecurFone Services, Inc. to the Company, or of this Agreement or the consummation of the transactions contemplated hereby or thereby, other than the filing of an information statement with the Securities and Exchange Commission. (cc) Legal Proceedings. (i) there are no actions, suits, proceedings, arbitrations or governmental or regulatory investigations or audits (individually and collectively, "Actions") pending or, threatened against, relating to or affecting Seller, SecurFone Services, Inc. or the Company or any of their respective Assets which (1) could result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or the transfer of assets by SecurFone Services, Inc. to the Company or otherwise result in a diminution of the benefits contemplated by this Agreement to Purchaser or the transfer of assets by SecurFone Services, Inc. to the Company, or (2) if determined adversely to Seller, SecurFone Services, Inc. or the Company, could be expected to result in (x) any injunction or other equitable relief against the Company that would interfere with its business or operations or (y) require the return or transfer of assets by the Company or result in an equitable or constructive trust being placed upon its assets; and (ii) there are no facts or circumstances known to Seller that could reasonably be expected to give rise to any Action that would be required to be disclosed pursuant to clause (i) above; and (iii) there are no orders or judgments outstanding against Seller, SecurFone Services, Inc. or the Company with respect to the matters contemplated by clauses (i) and (ii) above. (dd) No Fraudulent Conveyance. The transfer of assets by SecurFone, Inc. to the Company was not made with the intent to impede, hinder or defraud the creditors of the Seller and was made for adequate consideration. 7 1.10 Paragraph 6 of the Purchase Agreement is hereby amended to add the following new subparagraphs (e) and (f): (e) Market. Purchaser agrees to use its reasonable best efforts to maintain the listing of the Common Stock on the Nasdaq Over the-Counter Bulletin Board System, the Nasdaq Small Cap Market System, the Nasdaq National Market System or any principal national stock exchange, for a period of two years following the Closing Date or until such earlier date as Seller shall no longer own any of the Shares. (f) Purchaser has furnished Seller draft financial statements for the year ended December 31, 1997 and the nine months ended September 30, 1998. To the knowledge of Purchaser such draft financial statements are materially complete and materially accurate as of the dates thereof; except that Purchaser makes no representation or warranty as to the value of the capital stock of Worldwide Cellular, Inc. ("WWC") or the underlying assets of WWC acquired in connection therewith as of the respective dates of such draft financial statements and informs the Seller that Purchaser currently believes that such WWC stock and underlying assets have little or no value as of the date of this Agreement and Purchaser further believes that any audit of its financial statements for the year ended December 31, 1998 would contain a going concern qualification. Purchaser further makes no representation or warranty with respect to the assets, financial condition or results of operation of Purchaser since the respective dates of such draft financial statements. 1.11 Paragraph 11 of the Purchase Agreement is hereby amended by deleting such paragraph in its entirety and substituting the following in lieu thereof: 11. Indemnification and True-Up. The Seller shall indemnify the Purchaser, its successors and assigns (the "Indemnities"), in respect of (a) all liabilities of Seller, SecurFone Services, Inc. and the Company of any nature, whether accrued, absolute, contingent, or otherwise, existing at closing, to the extent not reflected on Exhibit "A" hereof; (b) any damage or deficiency resulting from any misrepresentation, breach of warranty, or non-fulfillment of any agreement on the part of the Seller, under this Agreement, or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished to the Purchaser hereunder; and (c) all actions, suits, proceedings, demands, assessments, judgments, costs, and expenses incident to any of the foregoing (collectively, "Indemnified Losses"). Upon notice by Purchaser to Seller of the amount of Purchaser's Indemnified Losses, Seller shall pay such losses first, from the Shares by redelivering such number of Shares which is equal to the Indemnified Losses in order to compensate Purchaser for its damages as stated above. To the 8 extent the Indemnified Losses cannot be satisfied by repayment of the Shares, Seller shall pay the Indemnified losses in cash. The total amount of Indemnified Loss payable by Seller under this Agreement shall not exceed $2,186,037.96. For purposes of this Section 11, the value of the Shares will be equal to the greater of $2.50 per share of the fair market value of the Shares calculated, as of the business day immediately preceding the date on which such payment is to be made by multiplying the number of shares to be redelivered to Purchaser by the Market Price of such Shares. For example, if the Indemnified Losses are determined by Purchaser to be $150,000.00 and the Market Price for the Purchaser's Stock is $3.00 per share, the parties agree that the Seller shall return 50,000 Shares to the Purchaser. Conversely, if the Market Price is $2.00 per share, then the Seller would return 60,000 shares ($150,000 / $2.50 = $60,000). 1.12 The Purchase Agreement is hereby amended to add the following new paragraph 20: Certain Definitions. For purposes of this Agreement, the following terms shall have the meaning ascribed to them below: "Affiliate" means any person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the person or entity specified. For purposes of this definition, control of a person or entity means the power, direct or indirect, to direct or cause the direction of the management and policies of such person or entity whether by contract or otherwise and, in any event and without limitation of the previous sentence, any person or entity owning ten percent (10%) or more of the voting securities of another person or entity shall be deemed to control that person or entity. "Assets" means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by the Company, including, without limitation, cash, cash equivalents, stocks, securities, evidences of indebtedness owing to the Company, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property. "Common Stock" means the common stock of TeleData World Services, Inc., par value $.001 per share or any successor security thereto. "Liabilities" means all obligations of any person or entity (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (including trade payables and other accruals incurred in the ordinary course of business, (iv) under capital leases, (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above 9 of any other person or entity, and (g) any other obligations and other liabilities of the person or entity (including, without limitation, as a successor to any person or entity, and, in the case of each of the clauses (i) through (vi) above, whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due). "Market Price" shall be determined on the basis of: (i) the average sale price of the Purchaser's Common Stock over the ten (10) trading days prior to the applicable calculation date on the principal stock exchange, or the National Association of Securities Dealers' Automated Quotation National Market System ("NASDAQ/NMS"), as the case may be, on which such Common Stock is then listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange or the NASDAQ/NMS, as the case may be, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the NASDAQ system or the National Quotation Bureau, Inc., (iii) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (iv) if there is no such firm, as furnished by any member of the National Association of Securities Dealers ("NASD") selected by the Purchaser which is not an Affiliate of the Purchaser or the Seller. 1.13 The Purchase Agreement is hereby amended to add the following new paragraph 21: Assignment: Seller may assign its obligations to sell the stock of SecurFone, Inc. to SecurFone Services, Inc., PROVIDED THAT all references herein to the other obligations of Seller shall be the joint and several obligations of SecurFone America, Inc. and SecurFone Services, Inc. 1.14 Exhibit "G" to the Purchase Agreement is hereby deleted in its entirety and such Exhibit "G" is replaced with Exhibit "G" attached to this Agreement. Article 2 Miscellaneous 2.1 EFFECTIVE DATE. The effective date the amendments to the Purchase Agreement set forth in this Amendment shall become effective as of the date first written above. 2.2 FEES AND EXPENSES. Each party hereto shall bear their own fees in connection with the preparation and execution of this Amendment. 2.3 NO OTHER CHANGES. Except as expressly amended hereby, all representations, warranties, terms, covenants and conditions of the Purchase Agreement and the other ancillary agreements contemplated thereby shall remain unamended and unwaived and shall continue in full force and effect. 10 2.4 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. (Signatures begin on next page) 11 WITNESS the hand and seal of each of the undersigned as of the date first written above. SECURFONE AMERICA, INC. By: /s/ Paul Silverman --------------------------------------------- Name: Paul Silverman Title: Chief Executive Officer SECURFONE SERVICES, INC. By: /s/ Paul Silverman --------------------------------------------- Name: Paul Silverman Title: Chief Executive Officer TELEDATA WORLD SERVICES, INC. By: /s/ Anthony W. Cullen --------------------------------------------- Name: Anthony W. Cullen Title: President and Chief Executive Officer 12 EX-23.1 9 EX 23-1 --------------------------------- CONTE CO., CPA, INC. --------------------------------- A PROFESSIONAL CORPORATION 4322 S. Cleveland-Massillon Road Norton, Ohio 44203-5732 216.825.3535 ! Fax: 216.825.0055 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Annual Report, United States Securities and Exchange Commission, of SecurFone America, Inc. of our report dated August 30, 1999 appearing in their form 10-KSB. /s/ Conte Co., CPA, Inc. Conte Co., CPA, Inc. Norton, OH August 30, 1999 EX-27.1 10 EX 27.1
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1,532 0 7,138 0 0 43,670 314,317 139,381 219,831 1,020,016 1,358,696 0 0 6,092 2,224,284 219,831 367,358 467,358 476,728 4,166,657 0 0 288,286 (4,304,943) 0 (4,304,943) 0 50,000 0 (4,304,943) (0.72) 0
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