U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB/A-1
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934
21ST CENTURY WIRELESS GROUP, INC.
(Name of Small Business Issuer in its charter)
Nevada 41-1824951
(State or Other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
406 Gateway Boulevard, Burnsville, MN 55337
(Address of principal executive offices) (Zip Code)
(Issuer's Telephone Number: (612) 890-8800 )
Securities to be registered under Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is to
to be so registered be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
(Title of Class)
[NOTE: PURSUANT TO INSTRUCTION E OF THE GENERAL INSTRUCTION TO FORM
10-SB, THE ISSUER HAS ELECTED TO PROVIDE INFORMATION IN PART I IN ACCORDANCE
WITH ALTERNATIVE 2. ITEMS IN PART I ARE NUMBERED AS IN FORM 10-SB BUT HAVE
TITLES AS IN FORM
1-A, Model B]
PART I
Item 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
21ST CENTURY WIRELESS GROUP, INC. (the "Company") was incorporated in
Nevada as a shell corporation in 1994. The Company was incorporated at the
direction of members of the Management Committee of Twin Cities 3rd Mobile
Associates, a California general partnership ("TC3M"), to be used as a vehicle
for converting TC3M from a partnership to a corporation. The Company had no
assets or operations of any type until completion of TC3M's bankruptcy
proceeding (described below). Except as otherwise indicated or required by the
context, the term "Company" refers to 21st Century Wireless Group, Inc. and its
predecessor, TC3M.
TC3M was formed in 1993 by a group of promoters (the "Promoters") who
sold general partnership interests in TC3M to approximately 1,080 investors (the
"Investors") located in approximately 47 states, raising a total of $13,200,000.
The primary Promoter was Digital Communications, Inc. ("DCI"), a Nevada
corporation. DCI acted through a number of its officers, directors and
salespersons and through a number of other companies with which it contracted to
promote the sale of interests in TC3M. In connection with the formation of TC3M,
the Promoters transferred to TC3M cash of $2,500,000 and a 75% interest in
certain operating assets (described below). The Promoters retained the remaining
cash of $10,700,000 paid by the Investors and also retained for themselves a 25%
interest in all of the operating assets transferred to TC3M. The fair market
value of the 75% interest in the operating assets transferred to TC3M was
approximately $3,645,000
At the initial partnership meeting in November 1993, the Investors
elected a management committee (the "Management Committee") to manage the
business of TC3M. The Management Committee was specifically charged with
developing a business plan for TC3M and determining a basis for converting TC3M
into a limited liability entity.
The Management Committee determined that the original business plan for
TC3M described by the Promoters in the offering materials sent to Investors was
not workable. In particular, the Management Committee determined that the
equipment and technology touted by the Promoters as the means to convert the
TC3M system into a "digital" system with greatly enhanced capacity and signal
quality was not yet proven. Further, the Management Committee determined that
the cost of converting to digital technology once it became available would be
several times more expensive than represented by the Promoters. TC3M did not
have the necessary financial resources to pursue the conversion and had, and
still has, no realistic means of obtaining financing. Accordingly, the
Management Committee developed a revised business plan (described below) to
guide the future activities of TC3M.
The Management Committee also determined that TC3M should join in and
support a class action lawsuit (the "Class Action Lawsuit") against the
Promoters. The Class Action Lawsuit is described in Part II, Item 2.
Converting TC3M from a general partnership, which imposed full
liability on each Investor as a general partner, to a limited liability entity,
which would limit the personal exposure of each Investor, proved to be a
difficult task. After other approaches to attaining limited liability status
proved unworkable, several Investors filed an involuntary bankruptcy petition
against TC3M in the United States Bankruptcy Court for the Southern District of
Texas sitting in Houston, Texas (Case Number 95-41371-H3-11). On May 16, 1995,
the Bankruptcy Court entered its order for relief permitting the involuntary
bankruptcy case against TC3M to proceed.
By order dated November 22, 1995 and entered on November 24, 1995,
TC3M's Plan of Reorganization was approved by the Bankruptcy Court. The approval
order is now final. The Plan of Reorganization provides generally for a
continuation of TC3M's business by the Company. Pursuant to the Plan of
Reorganization, all assets of TC3M have been transferred to the Company in
exchange for shares of the Company's Common Stock, $0.001 par value per share,
plus warrants to purchase additional shares of Common Stock. TC3M has been
liquidated and, in connection with the liquidation, each Investor will receive
shares of Common Stock and warrants in proportion to the Investor's investment
in TC3M. Common Stock and warrants will also be issued under the Plan in
connection with the SMC acquisition (see discussion below in this Item under
"Acquisition of SMC and Peacock") and to certain members of the management of
TC3M and the Company (described below in Part I, Item 4). The shares of Common
Stock and warrants issued to Investors, to the management of TC3M and the
Company and in connection with the SMC acquisition are described below in this
Item.
BUSINESS OF ISSUER
The Company's principal business is providing telecommunication
services in the Minneapolis-St. Paul, Minnesota, metropolitan area. The Company
operates under specialized mobile radio ("SMR") licenses issued by the Federal
Communications Commission ("FCC"). The Company services approximately 4,000
subscribers on 58 SMR channels providing coverage in the Twin Cities area
(Minneapolis and St. Paul).
SMR provides communications services to vehicle-mounted and handheld
portable telephones and two-way radio units. Most SMR operators, including the
Company, transmit at high power from a tall antenna or a tall building. The
maximum signal range that an SMR operator can have is set by the FCC so that the
signal of one SMR operator does not interfere with the signal of an operator
using similar frequencies in an adjacent territory. The Company has a maximum
signal range radius of approximately 35 miles from each of its tower sites. In
light of the FCC restrictions on signal range, the Company cannot appreciably
increase its signal range without acquiring additional channels in adjacent
territories.
Although SMR operators can offer SMR service to virtually any customer,
the Company's subscribers are primarily business entities. A typical user of the
Company's services would be a company operating a fleet of vehicles which uses
the Company's services to communicate with the vehicles. The Company
concentrates on dispatch services at this time. The Company derives its revenues
primarily from access and airtime charges for SMR system usage. The Company also
provides ancillary services such as the sales and service of SMR communication
devices and the lease and sublease of excess antenna space.
SMR was created in 1970 when the FCC reallocated 115 MHz of radio
spectrum in the 800/900 MHz bands from use by the federal government and UHF
television to land mobile service use. 50 MHz were allocated for cellular mobile
telephone service and 46MHz were allocated for private mobile radio services,
including SMR. The remaining 19MHz were divided among six different mobile radio
services. Today the wireless telephone industry is principally made up of
cellular and SMR systems. SMR systems became operational in 1974 and have been
used primarily to meet the mobile communications needs of small and medium sized
businesses.
SMR is an alternative to cellular mobile telephone service, especially
for high-volume subscribers. It provides subscribers with both telephone
interconnect (mobile to public switched telephone network) and dispatch (base to
fleet) mobile communications. With its current equipment, the Company's SMR
system cannot effectively compete with the clarity and flexibility of cellular
systems, especially in urban areas where cellular systems have adequate
transmitters. The Company's SMR system has significant advantages over cellular
systems in two respects, however. First, in rural areas, the Company's
high-powered antennas permit it to provide service in areas not easily served
with low-powered cellular systems. Second, users who have a high volume of
relatively short transmissions find that SMR charges are much less than cellular
charges for comparable services.
SMR operators, including the Company, offer a broad range of mobile
communications services, including telephone interconnect, dispatch, data
transmission, and telemetry services.
The SMR system operated by the Company consists of the FCC channels,
several base station transmitters, several antennas and other radio equipment.
The Company's SMR system operates as follows: A subscriber sends a voice or data
message using the subscriber's 2-way mobile radio. The Company receives the
message through one of its antennas. The Company then completes the transmission
of the message either by routing it through the public telephone lines to the
intended recipient or by re-transmitting it through the Company's antennas to
the recipient's radio. All of the Company's equipment is analog equipment rather
than digital equipment.
Twenty out of the Company's 21 SMR systems are trunked radio systems,
which maximize the number of users that can be supported. A trunked system
automatically searches for an open channel among all of the trunked channels for
each transmission. This search capability allows more users to be served per
radio channel because the probability that all channels in a large system will
be in use at one time is lower than the probability that a single given channel
will be in use. The number of channels that can be trunked together is limited
both by the capacity of individual pieces of transmitting equipment and by FCC
regulations. The Company currently trunks up to 20 channels together in urban
areas and a lesser number in rural areas. The capacity of a trunked 20-channel
system is approximately 400 radio units (depending upon the volume of usage of
each unit) for telephone interconnect and approximately 1600 units for dispatch
services (again depending upon the volume of usage of each unit). The efficiency
of trunked systems generally increases as additional channels are added to the
system.
The SMR industry in major metropolitan areas is currently characterized
by a shortage of channels and a resulting emphasis on dispatch service.
Traditional dispatch subscribers, such as taxicab and construction companies,
generally communicate in shorter transmissions than the telephone interconnect
firms. Accordingly, the economics of these SMR systems have dictated that more
dispatch units than telephone interconnect units be accommodated on them.
SMR operators in rural areas and small and medium-sized cities
typically have adequate channels available to them. This greater channel
availability enables SMR operators in these markets to provide telephone
interconnect services comparable to cellular mobile phone service to more users.
As a result, SMR operators in these areas have attracted a broad cross section
of subscribers. Many SMR subscribers in rural areas have limited cellular
service available to them or perceive a better value in SMR services.
STRATEGY
The Company's strategy is to concentrate on providing SMR services in
rural areas and small and medium-sized cities in the heartland of the United
States. This is the area from the Canadian border to the Gulf of Mexico,
generally following the Mississippi River. The Company's goal is to develop a
seamless area of coverage ("footprint") from Minnesota to Louisiana. The Company
plans to focus on these markets because, based on the experience of its officers
and of the members of it Board of Directors in the SMR industry, it believes
that in these markets (a) competition from other SMR operators and cellular
mobile telephone operators is less intense, (b) usage rates per capita are
higher and (c) SMR systems can be acquired at prices that are lower per channel
and per subscriber than in major metropolitan areas.
The Company's business strategy includes the following elements:
* Expansion of Footprint. The Company seeks to expand within its
existing markets and into contiguous or nearby markets both through
acquisition and startup operations. A continued expansion of its
footprint will enable the Company to offer users a substantially
greater coverage area than its competitors. The Company's wide-area
coverage will also allow it to meet the mobile telephone needs of large
wireless communications users, to provide service in areas not
currently covered by cellular operators and to capture a greater share
of the roaming charges from subscribers of other SMR systems. (Roaming
charges are paid when a subscriber travels from one SMR system to
another.)
* Internal Growth. Once the Company acquires SMR systems, it believes
it can add subscribers at a relatively low incremental cost. In
addition, the Company seeks to improve average revenues per subscriber
and resulting profitability by focusing its marketing efforts on
telephone interconnect services and increasing the use of airtime
charges.
* Operating Efficiencies. The Company believes that the SMR business
involves significant economies of scale that enable larger SMR
providers to generate higher levels of profitability. By consolidating
fragmented SMR operations, the Company hopes to achieve efficiencies in
administrative services, bulk equipment purchases and resource
utilization. Any resulting economies of scale would enhance overall
profitability and enable the Company to compete aggressively on price
with other wireless communications providers.
ACQUISITION OF SMC AND PEACOCK
The Company has entered into an agreement to purchase substantially all
of the assets of an SMR operation similar to that operated by the Company from
Alan Hansel and Southern Minnesota Communications ("SMC"). Mr. Hansel
individually owns a portion of the SMC operations and indirectly owns the
remainder of the operations through his wholly-owned corporation, Southern
Minnesota Communications, Inc. SMC's operations are located primarily in
southern Minnesota and in adjacent portions of Wisconsin and Iowa. The SMC
operational area is directly to the south of the Company's main operational
territory in Minneapolis-St. Paul. A copy of the SMC purchase agreement is
included with this Registration Statement as Exhibit 8.2, which is hereby
incorporated by reference. Prior to the negotiation of the SMC purchase
agreement, neither TC3M nor the Company had any affiliation with SMC.
The SMC operation currently has approximately 2,000 customers. SMC has
63 SMR channels and transmits from 27 towers using analog equipment. The
purchase price for the SMC operation is $500,000 in cash and approximately 10%
of the common stock of the Company. The Company will pay the cash purchase price
from its cash resources and will issue the stock portion of the purchase price
under the terms of the Plan of Reorganization. In connection with its due
diligence review of the assets and operations of SMC, the Company has determined
that up to 15 of licenses to be transferred by SMC may not be eligible for
transfer under FCC regulations. The Company is working with SMC to identify
acceptable replacement channels or to reduce the purchase price by a pro rata
amount.
The Company has also entered into an agreement to purchase 100% of the
stock of Peacock's Radio and Wild's Computer Service, Inc. ("Peacock"). Peacock
operates an SMR operation similar to that operated by the Company in the
Memphis, Tennessee area. The majority of the Peacock stock is currently owned by
John Peacock and Johnny Wild. A copy of the Peacock purchase agreement is
included with this Registration Statement as Exhibit 8.3, which is hereby
incorporated by reference. Peacock filed a voluntary Chapter 11 bankruptcy
petition under the United States Bankruptcy Code in 1992. The bankruptcy case
was completed in 1993. Prior to the negotiation of the Peacock purchase
agreement, neither TC3M nor the Company had any affiliation with Peacock.
The Peacock operation currently has approximately 1,200 customers.
Peacock has 90 SMR channels and transmits from 20 towers using analog equipment.
The purchase price for the Peacock operation is $800,000, all of which will be
paid in common stock of the Company The stock to be issued to pay the purchase
price will not be issued under the Plan of Reorganization.
Final completion of both the SMC acquisition and the Peacock
acquisition is subject to satisfaction of a number of conditions, including
receipt of final FCC approval and completion of due diligence with respect to
the assets and operations to be purchased. The Peacock acquisition is subject to
the further condition that trading commence in the Company's Common Stock.
In connection with the SMC and Peacock acquisitions, Alan Hansel, a
principal of SMC, will become a vice president and director of the Company and
John Peacock, a principal of Peacock, will become a vice president and director
of the Company. The terms of the proposed employment contracts with Mr. Hansel
and Mr. Peacock are described in Item 3 below under the heading "Employment
Agreements."
SALES AND MARKETING
Historically, the Company used independent agents to market the
Company's SMR services. Substantially all of the Company's arrangements with
these independent marketers have been informal, unwritten agreements. These
independent marketers do not sell exclusively for the Company and are free to
sell for competitors of the Company. The Company believes, however, that the
independent marketers that sell for the Company perform a majority of their
sales for the Company.
With its proposed SMC and Peacock acquisitions (see discussion above in
this Item under "Acquisition of SMC and Peacock"), the Company will acquire an
internal sales staff to market the Company's products and services in some
areas. The Company will continue to use independent marketers for a substantial
portion of its sales.
PRODUCTS
The Company has on-going plans to upgrade its products or services and
add new products and services to enhance its existing system as necessary to
meet competitive challenges and adopt technical advances. The types of
enhancements planned by the Company include installing transmitting equipment
upgrades when made available by suppliers, offering improved hand-held units to
customers as those units become available, and, subject to FCC approval,
acquiring additional licenses that become available, moving channels from one
portion of the Company's system to another to make the best use of channel
capacity, adding height to towers to increase signal range and moving towers to
optimize signal coverage.
The Company anticipates that the planned enhancements will not involve
any substantial change to its existing system or services, will not require a
substantial use of the Company's cash resources and will not require the Company
to raise additional capital.
Major technical enhancements to the Company's SMR equipment to convert
the system from an analog system to a digital system may make substantially
enhanced services available in the future. A digital system could permit the
Company to provide a substantially improved signal quality while at the same
time accommodating additional customers without additional FCC licenses. Major
enhancements of this type are not currently feasible for the Company and none is
planned. There can be no assurance that the Company will ever be able to make
these major enhancements.
COMPETITION
The Company faces competition in each of its market areas from other
entities offering both SMR and other communication services. Competitors include
providers of hard-wire transmission (including fiber optic service and
traditional telephone service), cellular systems, personal communications
systems, other SMR operators and satellite communications. Some of these
competing products are currently in place; others are only in the proposal or
development stages. The Company anticipates that competition will be less
intense in the rural areas serviced by the Company where the high fixed costs of
installing new technological equipment is a substantial barrier to competition.
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements and changes in consumer preferences and expectations. Accordingly,
the Company expects competition in the wireless communications industry to be
dynamic and intense as a result of the entrance of new competitors and the
development of new technologies, products and services.
Continuing technological advances in telecommunications and new FCC
policies that encourage the development of new technologies make it impossible
to predict the extent of future competition. The FCC has adopted rules that
authorize the award of a "pioneer's preference" to companies that develop
certain new communications technologies. Such a preference may encourage the
development of new technologies that compete with SMR service. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is possible that some portion of the spectrum
that is reallocated will be used to create new services that will compete with
the Company's services.
The Company anticipates that market prices for wireless communications
services generally will decline in the future based upon increased competition.
The Company will compete to attract and retain customers principally on the
basis of services and enhancements, its customer service, the size and location
of its service areas and pricing. The Company's ability to compete successfully
will also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could adversely
affect the Company's profitability. Many of the Company's competitors may have
better access than the Company to the capital and technology necessary to
compete in the industry.
SOURCES OF SUPPLIES
The Company obtains transmitting equipment and two-way radio units from
several different sources. Primary suppliers include Motorola, E.F. Johnson
Company and Ericsson. The Company does not have written supply agreements or
contracts with any of these suppliers. The Company does not anticipate that it
will become unduly dependent on any single supplier but it does currently obtain
more than 10% of its equipment from E.F. Johnson Company.
REGULATION
The Company holds FCC licenses to provide SMR services. These licenses
are indispensible to the Company's operations. So long as the Company complies
with applicable FCC rules and regulations, the Company anticipates that its FCC
licenses effectively have an indefinite duration. The Company's FCC licenses and
operations are subject to extensive FCC regulations. The Company believes that
it is in compliance with FCC regulations in all material respects. If the
Company fails to maintain substantial compliance with FCC regulations, it could
lose its FCC licenses.
The Company's leased and owned transmission towers are subject to
substantial safety and land use regulations. The Company believes it is in
substantial compliance with all such regulations.
TRADENAMES
The Company operates under a number of trade names including "21st
Century Wireless" and "Minnesota Wireless." The Company believes that it has the
legal right to use these trade names in its service areas. The "Minnesota
Wireless" name is held by TC3M, Incorporated, a Minnesota corporation all of the
stock of which is owned by the Company. TC3M, Incorporated has authorized the
Company to use the "Minnesota Wireless" name without charge. None of the
Company's existing trade names is crucial to the Company's operations. As noted
in Part II, Item 2, TC3M, Incorporated has commenced and successfully resolved a
lawsuit to challenge an infringing use of the "Minnesota Wireless" name.
RESEARCH AND DEVELOPMENT
The Company has not engaged in any substantial research and development
activities in the last two years.
ENVIRONMENTAL REGULATION
The Company does not incur any substantial costs in maintaining
compliance with applicable federal, state and local environmental laws.
EMPLOYEES
Upon completion of the SMC and Peacock acquisitions (see discussion
above in this Item under "Acquisition of SMC and Peacock"), the Company will
have approximately 24 full-time employees, of which 8 will be associated with
the SMC operations and 10 will be associated with the Peacock operations. None
of the Company's employees is subject to a collective bargaining agreement and
the Company's management considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns one small parcel of land on which a transmission tower
owned by the Company is located. The Company leases an additional parcel on
which a second transmission tower owned by the Company is located. The Company
also leases antenna space on four transmission towers owned by others. The
leases have the following terms:
Location Initial Term Renewal Options
- -------- ------------ ---------------
Bloomington, MN 4/94 - 4/97 Multiple 3-year
options
Elk River, MN Unwritten; month-to-month Not applicable
Minneapolis, MN
(Norwest Tower) 1/95 - 12/99 Multiple 1-year
options
Minneapolis, MN
(Multifoods Tower) 8/94 - 7/97 No renewal options
Woodbury, MN Unwritten; month-to-month Not applicable
The leased real estate and antenna spaces are subject to cancellation but the
Company does not believe any of the leases are in danger of being terminated.
The Company conducts its management operations out of leased office facilities
of approximately 2,465 square feet located at 406 Gateway Boulevard, Burnsville,
Minnesota. A copy of the office lease is attached as Exhibit 6.3 hereto, which
is hereby incorporated by reference. The Company previously leased office space
in Edina, Minnesota. A copy of that lease is attached as Exhibit 6.2. hereto,
which is hereby incorporated by reference. The Company's financial obligations
under its leases are described in Footnote 6 to Exhibit FS.1 hereto, which is
hereby incorporated by reference.
Upon acquisition of SMC (see discussion in Part I, Item 1 under
"Acquisition of SMC and Peacock"), the Company will acquire, directly or
indirectly, 17 owned and 10 leased transmission sites throughout southern
Minnesota and adjoining states. Similarly, upon completion of the acquisition of
Peacock, the Company will acquire, directly or indirectly, 8 owned and 12 leased
antenna sites in the Memphis, Tennessee area.
The Company believes that its properties are suitable and adequate for
the Company's current operations and are adequate to accommodate the Company's
anticipated growth. The Company currently leases and subleases excess space on
some of its antenna sites to third parties. The Company anticipates continuing
to use excess space in this manner but does not anticipate that the revenues
generated in this manner will have a substantial impact on its financial
operations. The Company anticipates that the SMC and Peacock acquisitions will
add suitable and adequate properties to serve the additional business that will
be acquired in those acquisitions.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information with respect to each of the
officers and directors of the Company.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH COMPANY
(DATE OF ELECTION OR APPOINTMENT
NAME AGE AND TERM)
- ---- --- ---------------------------------
<S> <C> <C>
Kenneth B. Thomson, C.P.A. 53 Chairman of the Board and Chief
Financial Officer
Date elected: 11/15/95
Term on Board expires: 1998
James E. LaFayette 57 Director and President
Date elected: 11/15/95
Term on Board expires: 1996
Thomas Venable 35 Director and Secretary
Date elected: 11/15/95
Term on Board expires: 1997
Rodney H. Hutt 46 Executive Vice President and
Chief Operating Officer
Date elected: 11/15/95
Alan M. Hansel 56 Director and Vice President(1)
John Peacock 56 Director and Vice President(2)
Galen L. McCord 51 Director
Date elected: 11/15/95
Term on Board expires: 1998
Mark E. Seely 30 Director
Date elected: 11/15/95
Term on Board expires: 1996
William J. Wiley 49 Director
Date elected: 11/15/95
Term on Board expires: 1996
Clair A. Hill 87 Director
Date elected: 11/15/95
Term on Board expires: 1998
</TABLE>
(1) Pursuant to the Asset Purchase Agreement among the Company, SMC and Mr.
Hansel, Mr. Hansel will become a vice president and director of the
Company only upon completion of SMC acquisition (see discussion in Part
I, Item 1 under "Acquisition of SMC and Peacock").
(2) Pursuant to the Stock Purchase Agreement among the Company, Peacock and
the shareholders of Peacock, Mr. Peacock will become a vice president
and director of the Company only upon completion of Peacock acquisition
(see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock").
Kenneth B. Thomson became Chairman of TC3M on November 1, 1993 at the
formation of TC3M. Mr. Thomson is a Certified Public Accountant. Prior to 1990,
Mr. Thomson was the owner and president of Kenneth B. Thomson, Inc., P.C., a
public accounting firm. From 1990 to 1995, Mr. Thomson was a comptroller for AVA
Vending, Inc, a vending machine supply company located in Texas. Since 1990 Mr.
Thomson has been a part-time comptroller (currently 2 days a month) for Griffin
Oil Company, a wholesale and retail oil and gasoline distributor located in
Texas. In addition, since 1994, Mr. Thomson has been a part-time manager and
comptroller (currently 3 days a month) of Shelby County Feed Partners, Ltd., a
retail feed, fertilizer and garden supply company located in Texas. Mr. Thomson
devotes approximately 40-60 hours per week to Company business.
James E. LaFayette became Secretary of TC3M on November 1, 1993 at the
formation of TC3M. From 1994 through the date hereof, Mr. LaFayette has devoted
his efforts full time to the operations of TC3M and the Company. From 1992 to
1994, Mr. LaFayette was a self-employed communications consultant and stock
broker. From 1984 to 1991, Mr. LaFayette was a Sales Vice President with Pacific
Bell, a Pacific Telesis telecommunications company located in California.
Thomas M. Venable became Treasurer of TC3M on November 1, 1993 at the
formation of TC3M. From October 1991 to October 1993, Mr. Venable was a regional
sales manager for Beyond, Inc., an electronic messaging software development
company headquartered in Cambridge, MA. From July 1993 to July 1994, Mr. Venable
was a principal of Electronic Commerce, Inc., an electronic messaging consulting
company located in Eden Prairie, MN. From November 1993 to the present, Mr.
Venable has been employed as a regional sales manager for WorldTalk Corporation,
headquartered in Santa Clara, CA. WorldTalk provides consulting services to
businesses across the country to permit communication among non-integrated
E-Mail systems. Mr. Venable devotes approximately four hours per week to Company
business.
Rodney H. Hutt became executive vice president and chief operating
officer of TC3M in 1994 and will retain those offices with the Company. From
1992 to 1994, Mr. Hutt was employed as a Director of North American sales for
the E.F. Johnson Company. From 1984 to 1992, Mr. Hutt was employed as a sales
person and regional sales manager for Motorola Communications & Electronics,
Inc. Both E.F. Johnson and Motorola manufacture and sell communications
equipment, including SMR equipment.
Alan M. Hansel has been president and owner of Southern Minnesota
Communications for more than 25 years. His company is described in Part I, Item
1 under "Acquisition of SMC and Peacock."
John Peacock has been president of Peacock's Radio and Wild's Computer
Service, Inc. for the past 15 years. His company is described in Part I, Item 1
under "Acquisition of SMC and Peacock."
Galen L. McCord became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1992, Mr. McCord has been the
owner and an officer of the Wireless Office, a company located in Rocklin,
California, which provides cellular, SMR, mobile office and other wireless
communication services throughout Northern California. Since 1994, Mr. McCord
has been president of Totally Wireless Communications, a telecommunications
development company, headquartered in Rocklin, California.
Mark E. Seely became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1987, Mr. Seely has served on
active duty in a number of different capacities for the United States Navy. Mr.
Seely is currently serving in San Diego as a supply and maintenance manager for
shipboard weapons systems and radar equipment.
William J. Wiley became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1993, Mr. Wiley has been a Vice
President and Director of St. Louis-based Information Engineering, Inc. In
addition, from 1987 to the present, Mr. Wiley has been an owner and technical
consultant to Field Engineering Support Services located in Florissant, MO. Both
of Mr. Wiley's companies design, install and maintain radio communication
equipment and systems.
Clair A. Hill became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1981, Mr. Hill has been
employed as a special consultant to CH2M Hill, a world-wide civil engineering
firm of engineers, scientists, planners and economists headquartered in Denver,
Colorado.
One-third of the directors of the Company are elected each year to
serve three-year terms or until their successors are duly elected and qualified.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
In connection with the operation of TC3M, and as approved by the
Bankruptcy Court, directors and officers of the Company have been awarded Common
Stock in the Company in compensation for work performed by them for TC3M. The
number of shares to be issued to each is listed in the chart below. (See
"Executive Security Plan"). These officers and directors also received
reimbursement for expenses and a $500 per day payment from TC3M while traveling
on TC3M business. In addition, the Company intends to enter into an Executive
Security Plan, substantially in the form of Exhibit 6.1, which is hereby
incorporated by reference, with certain of its officers and directors.
21ST CENTURY WIRELESS GROUP, INC. is newly formed and did not begin to
compensate its executive officers or directors until January 1, 1996. The
Company anticipates that the base compensation of its three highest paid
executive officers and all officers and directors as a group in 1996 will be as
follows:
Name of Capacity In Which Possible
Individual or Remuneration Incentive
Identity of Group Will be Received Base Salary Bonus
- ----------------- ---------------- ----------- -----
Kenneth B. Thomson Chairman & CFO $ 48,000 $ 48,000
James E. LaFayette Director & President $ 48,000 $ 48,000
Rodney H. Hutt Executive Vice President $ 75,000 $ 9,000
& General Manager
All Officers & Directors as a group (10 persons) $293,000 $105,000
There are no other compensation plans or arrangements with any of the
executive officers except that (i) pursuant to the Plan of Reorganization, each
officer and director who is an Investor received his pro rata share of the
Common Stock and warrants to purchase Common Stock issued to Investors, but
solely in his capacity as an Investor, (ii) Mr. Venable will be entitled to
reasonable hourly compensation for the work he actually performs for the Company
as secretary and (iii) the Company has issued stock to certain officers and
directors under the Executive Security Plan as described below.
EMPLOYMENT AGREEMENTS
The Company anticipates that it will enter into an employment contract
with Alan Hansel as a vice president of engineering in connection with the SMC
acquisition (see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock"). Mr. Hansel's contract will provide for base compensation of
approximately $72,000 and will, subject to certain termination rights, run for
three years from the date of execution.
The Company anticipates that it will enter into an employment contract
with John Peacock as a vice president of FCC licensing in connection with the
Peacock acquisition (see discussion in Part I, Item 1 under "Acquisition of SMC
and Peacock"). Mr. Peacock's employment contract will provide for base
compensation of approximately $40,000 and will, subject to certain termination
rights, run until all deferred payments under the Peacock purchase contract have
been paid.
Neither of the employment contracts with Mr. Hansel or Mr. Peacock has
yet been written or signed.
SHARES TO BE ISSUED TO OFFICERS AND DIRECTORS UNDER EXECUTIVE SECURITY PLAN AND
FOR SERVICES PROVIDED TO TC3M
1. Executive Security Plan. Under the Executive Security Plan, a copy
of which is attached hereto as Exhibit 6.1 and hereby incorporated by reference,
the Company will issue a total of 100,000 shares of Common Stock to the persons
who have provided management services to TC3M and to the Company. The President
of the Company appointed a committee consisting of Kenneth Thomson, Thomas
Venable and Clair Hill to determine the allocation of the Common Stock among the
participants. All participants in the Executive Security Plan voted to approve
the allocation that was made by the committee. Subject to the restrictions on
sale imposed by Rule 144 (see discussion in Part II, Item 1), the stock issued
under the Executive Security Plan will be freely tradeable by the participants
in the Plan. The number of shares to be issued to each participant who is an
officer or director of the Company is noted in the chart below.
2. Additional Shares Issued For TC3M Services. Each of the directors of
the Company provided a substantial amount of services to TC3M without
compensation prior to and during TC3M's bankruptcy case. Other members of the
TC3M Management Committee who are not directors of the Company also provided
such services without compensation. The extent of the services required from
these individuals far exceeded the services that the Promoters originally
projected would be required. The shares to be issued for TC3M services are
intended to provide some compensation to the recipients without depleting the
cash resources of the Company.
3. General Discussion. The total number of shares of Common Stock that
will be issued to the Company's officers and directors under the Executive
Security Plan and for work performed for TC3M is as follows:
Shares Issued Shares Issued
Under Security For TC3M
Name Position Held Plan Services
---- ------------- ---- --------
Kenneth B. Thomson Chairman of the Board & CFO 20,288 12,500
James E. LaFayette Director and President 20,288 12,500
Thomas M. Venable Director and Secretary 8,927 5,500
Galen L. McCord Director 8,927 5,500
Mark E. Seely Director 8,927 5,500
William J. Wiley Director 8,927 5,500
Clair A. Hill Director 6,087 3,750
Other persons who are not officers or directors of the Company, but who provided
management services to TC3M or the Company, received, in the aggregate, 17,629
shares under the Executive Security Plan and 8,250 shares for services provided
to TC3M. Compensation of Directors
COMPENSATION OF DIRECTORS
The Company anticipates compensating the members of its Board of
Directors as follows. Directors of the Company who are salaried employees (Mr.
Thomson and Mr. LaFayette) will not be entitled to any compensation for their
service as directors. Directors of the Company who are not salaried employees
(including Mr. Venable) will be paid the following compensation for service as
directors in 1996: (i) 1,000 unregistered shares of the Company's Common Stock
to be issued at the end of 1996 assuming that the director remains a director
during all of 1996; (ii) $500 for each day spent attending Board meetings; (iii)
reimbursement of normal expenses incurred in providing service as a director;
and (iv) an option to purchase 1,000 unregistered shares of the Company's Common
Stock.
The options issued to non-employee Directors under clause (iv) of the
immediately preceding paragraph may be exercised at any time within 10 years of
issuance at an option price equal to the closing bid price of the Common Stock
on the later of the date of issuance of the option or the date the Common Stock
first trades on a national, regional or over-the-counter stock exchange.
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS.
The following table sets forth certain information regarding shares of
the Company's Common Stock that will be held by (i) each person known by the
Company to own more than 10% of the Company's outstanding Common Stock, (ii)
each executive officer and director of the Company, and (iii) all officers and
directors of the Company as a group upon completion of the Plan of
Reorganization. Each person will have sole voting and investment power with
respect to the shares listed.
NUMBER OF
PERCENT OF SHARES SUBJECT
NAME AND NUMBER OF CLASS TO OUTSTANDING
ADDRESS OF OWNER SHARES OWNED(1) OWNED(2) WARRANTS(3)
Kenneth B. Thomson 34,788 1.74% 6,900
P.O. Box 2730
Texas City, TX 77592-2730
James E. LaFayette 33,788 1.69% 6,800
2419 Alamo Glen Dr.
Danville, CA 94526
Thomas M. Venable 15,427 0.77% 3,100
World Talk
5200 W. 73rd St
Edina, MN 55429
Rodney H. Hutt 3,600 0.18 None
406 Gateway Boulevard
Burnsville, MN 55337
Galen L. McCord 15,927 0.79% 3,200
152 Kenmas Ave
Auburn, CA 95603
Mark E. Seely 15,427 0.77% 3,000
9277 Carthay Circle
Spring Valley, CA 91977
William J. Wiley 15,427 0.77% 3,100
1778 Stilton Ct
Florissant, MO 63031
Clair A. Hill 11,837 0.59% 2,400
920 Sierra Vista Dr.
Redding, CA 96001
Alan M. Hansel(4) 201,000 10.00% 40,200
c/o Southern Minnesota
Communications
615 5th Ave. S.W
Waseca, MN 56093
John Peacock(5) Unknown(5) Unknown(5) None
c/o Radio & Wild's
Computer Service, Inc.
310 E. Polk St.
West Memphis, AR 72301
All officers 347,221 17.27% 68,700
and directors as
a group (10 persons)
(1) Includes shares of Common Stock, if any, acquired as an Investor.
(2) Assumes completion of SMC acquisition but not the Peacock acquisition
(see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock").
(3) For description of warrants, see Part I, Item 7.
(4) Mr. Hansel will receive shares and warrants and become an officer and
director only upon completion of the SMC acquisition (see discussion in
Part I, Item 1 under "Acquisition of SMC and Peacock").
(5) Mr. Peacock will receive shares and become an officer and director only
upon completion of the Peacock acquisition (see discussion in Part I,
Item 1 under "Acquisition of SMC and Peacock"). Mr. Peacock will
receive his pro rata share (42%) of all shares issued to current
Peacock shareholders. The total number of shares issued to Peacock
shareholders will be determined by dividing $800,000 by the closing bid
price of the Common Stock on the first day of public trading.
ITEM 6. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
TRANSACTIONS WITH INSIDERS
Except as described below, in the past two years the Company has not
had any significant transactions with any director or executive officer of the
Company, any person nominated for election as a director, any significant
shareholder or any member of the immediate family of any of the foregoing.
As described in Part I, Item 4, the Company has issued shares of Common
Stock to certain insiders for services provided to TC3M and the Company.
As described in Part I, Item 1, the Company has entered into purchase
agreements with SMC and Peacock. In connection with those acquisitions, the
Company proposes to add Alan Hansel and John Peacock as directors and each will
become a substantial shareholder as described in Part I, Item 5. Because the
proposed acquisitions of SMC and Peacock were first agreed to prior to the
commencement of TC3M's bankruptcy case, SMC and Peacock each held claims in the
bankruptcy case based on their uncompleted agreements. TC3M's Plan of
Reorganization provides for completion of both acquisitions by the Company as
TC3M's successor-in-interest.
TC3M did employ Lawrence Venable, an Investor and the father of Thomas
Venable (a director), as a manager for nine months in 1994. Mr. Venable's total
compensation was $58,500, which was comparable to salaries paid by similar
companies for similar services. In addition, TC3M employed Field Engineering
Support Services, a company with which William Wiley (a director) is affiliated,
to perform some technical services for TC3M at Field Engineering's standard
rates. The total compensation paid to Field Engineering was $7,500.
TRANSACTIONS WITH PROMOTERS
The Promoters of TC3M entered into an Asset Purchase Agreement
(described in Part I, Item 1) with TC3M pursuant to which a substantial portion
of the Company's operating assets were transferred to TC3M along with $2,500,000
out of the net sales proceeds of the sale of the partnership interests. Pursuant
to the Asset Purchase Agreement, the Promoters retained a 25% interest in the
assets transferred. The Company believes that the Promoters added an undisclosed
profit of at least $5,000,000 when they calculated the amount to be charged to
TC3M for the assets under the Asset Purchase Agreement and retained the
$5,000,000 profit for their own benefit. TC3M and the Investors are engaged in a
class action lawsuit with the Promoters described in Part II, Item 2.
ITEM 7. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 500,000 shares of Undesignated
Stock, with no designated par value. In connection with the Reorganization, the
Company will issue 2,010,000 shares of Common Stock and warrants to purchase an
additional 402,000 shares of Common Stock. No shares of Undesignated Stock are
currently outstanding.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. Holders of Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors out of assets
legally available therefor and to share ratably in the assets of the Company
upon liquidation, subject to rights of holders of Undesignated Stock, if any.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the Articles of Incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Upon the issuance of the
Common Stock described herein, the Company's directors and officers will own
approximately 7.9% of the Common Stock. Upon completion of the SMC acquisition
(see discussion in Part I, Item 1 under "Acquisition of SMC and Peacock"), the
Company's directors and officers will own approximately 17.2% of the Common
Stock. This percentage will increase upon completion of the Peacock acquisition
(see discussion in Part I, Item 1 under "Acquisition of SMC and Peacock").
Accordingly, the Company's directors and officers have, and will continue to
have, significant voting influence in connection with election of the directors
of the Company and other aspects of the Company's business and affairs.
WARRANTS
Each share of Common Stock issued under the Company's Plan of
Reorganization is accompanied by warrants to purchase additional Common Stock.
The description of the warrants herein is subject to the detailed provisions of
the Warrant Agreement between the Company and the Warrant Agent, an unexecuted,
draft copy of which is filed herewith as Exhibit 3.1 and incorporated herein by
reference. For each full partnership unit in TC3M owned by an Investor, the
Investor will receive 1,000 shares of Common Stock and 2 warrants, each of which
will entitle the holder to purchase an additional 100 shares of Common Stock.
Shares of Common Stock to be issued to management and in connection with the SMC
acquisition (see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock") are also accompanied by warrants to purchase a number of shares of
Common Stock equal to 20% of the number of shares to which they relate.
The warrant exercise price will be based on a Reference Price equal to
the lesser of (a) the opening offer price set by the Company's management with
the advice of market makers on the first day of public trading of the Common
Stock or (b) the closing bid price for the Common Stock on that first day of
public trading. The "first day of public trading" will be the day when a trade
of the Company's Common Stock is first executed through a member of the National
Association of Securities Dealers, Inc. As soon as possible after the first day
of public trading, the Company will inform all registered holders of warrants of
(a) the duration of the exercise period and (b) the Reference Price. The
exercise price per share will be 85% of the Reference Price if the warrant is
exercised within 90 days after the first day of public trading and 100% of the
Reference Price if the warrant is exercised more than 90 but not more than 180
days after the first day of public trading.
Each warrant is exercisable by surrendering the warrant prior to
expiration at the offices of the Warrant Agent accompanied by payment of the
full purchase price by cashier's or certified check. A warrant is not
exercisable in part. The warrants are not subject to redemption by the Company.
The warrants are entitled to certain anti-dilution adjustments under certain
circumstances as described in the Warrant Agreement. All nonexercised warrants
expire 180 days after the first day of public trading of the Company's Common
Stock.
Because there has been no established public market for the Common
Stock, the Company is unable to predict the effect that the exercise of warrants
may have on the prevailing market price of the Common Stock. Nevertheless, if a
substantial amount of Common Stock is issued upon exercise of warrants or if
there is a perception that a substantial number of warrants might be exercised,
there could be an adverse effect on the market price of the Common Stock if and
when a public market exists.
The warrants are transferable but will not be listed on any stock
exchange. The holders of warrants are not entitled to vote, receive dividends or
exercise any of the rights of holders of Common Stock for any purpose.
UNDESIGNATED STOCK
The Articles of Incorporation of the Company permit the Board of
Directors to establish other classes of stock from the Undesignated Stock from
time to time with such terms, including preferences as to dividends and
liquidation rights, as the Board of Directors shall deem appropriate.
LIMITATION ON LIABILITY
The Articles of Incorporation provide that no director of the Company
will be liable to the Company or its shareholders for monetary damages for
breach of a fiduciary duty as a director, except for (i) any acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law and
(ii) approval of certain unlawful dividends.
ANTITAKEOVER PROVISIONS
As described in following paragraphs, certain provisions of Nevada law
and the Articles of Incorporation and Bylaws of the Company could have the
effect of discouraging certain attempts to acquire the Company, including a
hostile takeover, or to remove incumbent management even if some or a majority
of the Company's shareholders were to deem such an attempt to be in their best
interest, including an attempt that might result in the payment of a premium
over the market price for the shares of Common Stock held by the Company's
shareholders.
Section 78.335 of the Nevada Revised Statutes ("Nevada Law") provides
that directors may be removed only by the affirmative vote of the holders of at
least two-thirds of the voting power of all of the outstanding shares of Common
Stock entitled to vote for the election of directors. In addition, vacancies,
whether created by resignation, death, removal or an increase in the number of
directors, may be filled by a vote of a majority of directors then in office,
even though less than a quorum. The foregoing provisions could prevent
shareholders from removing incumbent directors and filling the resulting
vacancies with their own nominees.
Section 78.438 of Nevada Law generally prohibits any shareholder that
purchases 10% or more of the Company's voting shares (an "interested
shareholder") from entering into any business combination with the Company
within three years following such interested shareholder's share acquisition
date, unless the business combination is approved by the Board of Directors of
the Company before the interested shareholder's share acquisition.
The issuance of Undesignated Stock by the Company may have the effect
of delaying, deferring, or preventing a change in control of the Company without
further action by the shareholders of the Company. Undesignated Stock issued
with voting, conversion, or redemption rights may adversely affect the voting
power of the holders of Common Stock and could discourage any attempt to obtain
control of the Company. As of the date hereof, the Board of Directors has not
authorized any series of Undesignated Stock and currently has no plan or
intention to issue any Undesignated Stock.
TRANSFER AND WARRANT AGENT
The Transfer Agent for the Common Stock and the Warrant Agent is Nevada
Agency & Trust Co., 50 West Liberty Street, Reno, NV 89501.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company is newly formed and prior to the filing of this
Registration Statement, there has been no public trading market for the
Company's Common Stock. Following effectiveness of this Registration Statement,
the Company intends to apply for listing of its Common Stock on the Nasdaq
Small-Cap Market ("Nasdaq") under the symbol TCWG. In order to be approved for
listing, the Company must satisfy several criteria and, to maintain the listing,
must continue to satisfy additional criteria related to financial performance
and trading price.
The Nasdaq Small-Cap Market criteria for initial and continued listing
include:
Initial Continued
Listing Listing
Minimum Total Assets: $4,000,000 $2,000,000
Minimum Capital and Surplus: $2,000,000 $1,000,000
Minimum Number of Shares not
Held by Insiders: 100,000 100,000
Market Value of Shares not
Held by Insiders: $1,000,000 $200,000
Minimum Number of
Shareholders: 300 300
Minimum Bid Price
Per Share: $3.00 $1.00
Minimum Number of
Market Makers: 2 2
There can be no assurance that the Company will be able to qualify for,
or, if it qualifies, to maintain, a listing on Nasdaq.
In connection with the implementation of the Company's Plan of
Reorganization (including the completion of the SMC acquisition and the issuance
of shares to the Company's management), the Company will issue shares of Common
Stock and warrants to purchase shares of Common Stock to the Investors and to
certain members of management. Upon completion of the SMC acquisition (see
discussion in Part I, Item 1 under "Acquisition of SMC and Peacock"), the
Company proposes to issue shares of Common Stock and warrants to purchase Common
Stock to Alan Hansel. The Company will have approximately 1,100 holders of
record of its Common Stock.
The 2,010,000 shares of the Company's Common Stock to be issued to the
Investors, the Company's management and SMC under the Company's Plan of
Reorganization and the 402,000 shares of Common Stock that may be issued upon
exercise of the warrants also being issued pursuant to the Plan of
Reorganization are exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of the provisions of Section 1145 of
the United States Bankruptcy Code. Accordingly, such shares and warrants will be
freely transferable without restriction or further registration under the
Securities Act, except for any such shares or warrants that are issued to an
"affiliate" of the Company (as defined under the Securities Act). Shares of
Common Stock and warrants issued to an affiliate of the Company will be deemed
restricted securities as defined in Rule 144 under the Securities Act. The
Company has not agreed to register under the Securities Act the Common Stock
that it will issue in connection with the Peacock acquisition (see discussion in
Part I, Item 1 under "Acquisition of SMC and Peacock"). Accordingly, the Common
Stock issued in connection with the Peacock acquisition will be restricted
securities as defined in Rule 144.
Restricted securities may not be sold unless they are registered under
the Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144, as currently in effect.
Under Rule 144, any sale of restricted securities is subject to a number of
restrictions unless another exemption applicable to the sale is available.
Generally, any person who holds restricted securities that were acquired and for
which full consideration was paid at least two years prior to the proposed sale
may sell within any three-month period, a number of shares of Common Stock that
does not exceed the greater of (i) 1% (approximately 20,100 shares following
initial issuance of shares in the Reorganization) of the then outstanding shares
of Common Stock of the Company or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. All shares of
Common Stock held by an affiliate are also subject to such volume restrictions.
Sales under Rule 144 are also subject to certain requirements regarding manner
of sale, notice and availability of current public information about the
Company. A person who at the time of the sale has not been an affiliate of the
Company for at least three months and whose shares were acquired and for which
full consideration was paid at least three years prior to any proposed sale is
entitled to sell such shares under Rule 144 without regard to the volume
limitations or other requirements described above.
Because there has been no established public market for the Common
Stock, the Company is unable to predict the effect that sales made under Rule
144, or otherwise, may have on the prevailing market price of the Common Stock.
Nevertheless, sales of a substantial amount of Common Stock in the public market
or the perception that such sales might occur could adversely affect the market
price of the Common Stock if and when a public market exists.
The Company has never declared or paid any dividends on its Common
Stock. The Board of Directors currently intends to retain all earnings, if any,
for use in the Company's business for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors. If the Company enters into any substantial
lending transaction in the future, the lender may restrict the Company's ability
to declare or pay dividends.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently not a party to, and its properties are not
currently the subject of, any material pending legal proceedings.
In September 1994, four TC3M Investors, proposing to represent a class
consisting of all of the Investors, and TC3M commenced an action in the United
States District Court, District of Minnesota (Civil Case No. 4-94-833) against
several corporations and individuals who participated in the selling of TC3M
general partnership units to Investors. The defendants (the "Promoters") include
Digital Communications, Inc. and Digital Communications of Denver, Inc. and
several of their officers and directors. TC3M seeks monetary damages and the
proposed class seeks monetary damages and a right of rescission.
The plaintiffs have alleged that the Promoters acted illegally and
wrongfully in connection with the formation of TC3M and the sale of equity
interests in TC3M. The Plaintiffs have reached a preliminary settlement with
certain of the Promoters pursuant to which the settling Promoters will forgo 92%
of the 25% interest in TC3M's assets retained by them in exchange for warrants
to purchase up to 40,000 shares of the Common Stock of the Company at a price
equal to the initial price of the Common Stock on the first day of public
trading. The warrants will expire three years after the first day of public
trading. A settlement with the remaining Promoters in which all retained
interests will be relinquished in exchange for equity securities in the Company
is also being pursued. As of the date of this filing, no settlement has been
approved by the court. While the Company has not formally been substituted for
TC3M as a plaintiff in the lawsuit, the Company did acquire TC3M's rights in the
lawsuit under the Plan of Reorganization and is pursuing the settlement for
itself and for TC3M.
In December, 1995, TC3M, Incorporated commenced an action in United
States District Court, District of Minnesota, against an entity known as
"Minnesota Wireless Communications, Inc." claiming that the entity's use of the
"Minnesota Wireless" name infringes on TC3M, Incorporated's tradename. TC3M,
Incorporated has requested that the Court issue an injunction against use of the
infringing name. The injunction has been issued.
As described above in Part I, Item 1, TC3M was the subject of a
bankruptcy proceeding under which the Plan of Reorganization has been finally
approved. The Company acquired its assets from TC3M in accordance with the
provisions of the Plan of Reorganization in that bankruptcy proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below, is information regarding all sales of securities by
the Company during the last three years.
A. Pursuant to the Plan of Reorganization the Company will issue
2,010,000 shares of Common Stock and warrants to purchase 402,000 shares of
Common Stock to the Investors, members of the Company's management and SMC. The
Company claims the exemption provided by Section 1145 of the United States
Bankruptcy Code for these transactions.
The securities issued by the Company pursuant to the Plan of
Reorganization are as follows:
1. 1,650,000 shares of Common Stock and warrants to purchase an
additional 330,000 shares of Common Stock to TC3M which, in
turn, will distribute such shares and warrants to the
Investors. Each Investor will receive 1,000 shares of Common
Stock and warrants to purchase an additional 200 shares of
Common Stock for each full partnership unit in TC3M owned by
that Investor.
2. 159,000 shares of Common Stock and warrants to purchase an
additional 31,800 shares of Common Stock to officers and
directors of the Company and the TC3M Management Committee.
3. 201,000 shares of Common Stock and warrants to purchase an
additional 40,200 shares of Common Stock to SMC or its
principals when the SMC acquisition is completed.
In consideration for the issuance of such shares of Common Stock and warrants,
TC3M transferred substantially all of its assets to the Company. No underwriter
participated or will participate in the issuance of the foregoing Common Stock
or warrants.
B. The units of general partnership interest in TC3M were sold to the
approximately 1,080 Investors by the Promoters between February 1993 and October
1993. Investors, located in approximately 47 states, paid an aggregate purchase
price of $13,200,000. The TC3M partnership interests were not registered under
the Securities Act. The Promoters have contended that because the units were
general partnership interests they were not securities. TC3M and the Investors
have disputed this contention.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 78.751 of Nevada Law the officers and directors of the
Company are entitled to indemnification for certain claims brought against them,
subject to certain restrictions. In general, indemnification applies to any
civil, criminal, administrative or investigative proceeding in which an officer
or director of the Company is made a party or is threatened to be made a party
by reason of the fact that he or she was an officer or director.
If the officer or director prevails in the proceeding and shows that he
or she acted in good faith and in a manner believed to be in, or not opposed to,
the best interests of the Company, the officer or director will be entitled to
be paid by the Company for all expenses, including attorneys' fees, actually and
reasonably incurred in the proceeding. If the officer or director does not
prevail in the proceeding but is nevertheless able to show that he or she acted
in good faith and in a manner believed to be in, or not opposed to, the best
interests of the Company, the Company may, but is not required to, indemnify the
officer or director. In any proceeding against an officer or director by, or on
behalf of, the Company, the ability and obligation of the Company to indemnify
the officer or director is further restricted by statute.
PART F/S
The Company was organized for the purpose of serving as a successor in
interest to the business of TC3M. Accordingly, combined audited financial
statements for the Company and TC3M are included in this Registration Statement.
The audited financial statements of the Company and TC3M for 1994 and 1995 and
the unaudited financial statements of the Company for the first three months of
1996 are filed as Exhibit FS.1 hereto, and hereby incorporated by reference.
Since the dates of those financial statements there have not been any
material subsequent events or contingencies, significant dispositions or
business purchases or any material accounting changes except that the Company
for itself and for TC3M continues to pursue settlement of the lawsuit brought by
TC3M and its Investors against the Promoters. (See Part II, Item 2).
Also attached as exhibits, and incorporated by reference, are financial
statements of SMC (Exhibit FS.2) and Peacock (Exhibit FS.3) and pro forma
combined condensed financial statements (Exhibit FS.4) showing the effect of the
SMC and Peacock acquisitions on the operations of the Company.
The financial statements presented for Peacock and SMC are unaudited
because audited financial statements are not available for the year ended
December 31, 1995 and because the Peacock and SMC acquisitions are not of a
magnitude to require presentation of audited financial statements under the
standards established in Item 310 of Regulation S-B. The pro forma condensed
combined financial statements showing the impact of the SMC and Peacock
acquisitions are unaudited.
INDEX TO FINANCIAL STATEMENTS
FS.1 21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
Independent Auditor's Report
Combined balance sheets as of December 31, 1995 and March 31, 1996
(unaudited)
Combined statements of operations for the years ended December 31,
1994 and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)
Combined statements of changes in equity for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1995 and
1996 (unaudited)
Combined statements of cash flows for the years ended December 31,
1994 and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)
Notes to combined financial statements
FS.2 ALAN M. HANSEL D/B/A SMC
Balance sheets (unaudited) as of December 31, 1995 and March 31, 1996
Statements of operations and proprietor's capital (unaudited) for the
year ended December 31, 1995 and the three months ended March 31,
1996
Statements of cash flows (unaudited) for the year ended December 31,
1995 and the three months ended March 31, 1996
Notes to unaudited financial statements
FS.3 PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
Balance sheets (unaudited) as of December 31, 1995 and March 31, 1996
Statements of operations and retained earnings (unaudited) for the
year ended December 31, 1995 and the three months ended March 31,
1996
Statements of cash flows (unaudited) for the year ended December 31,
1995 and the three months ended March 31, 1996
Notes to unaudited financial statements
FS.4 21ST CENTURY WIRELESS GROUP, INC.
Unaudited pro forma combined condensed financial statements
Unaudited pro forma combined condensed balance sheet as of
December 31, 1995
Unaudited pro forma combined condensed statement of operations for
the year ended December 31, 1995
PART III
Item 1. LIST OF EXHIBITS
The following is a list of all Exhibits attached to this Registration
Statement. An index to the Exhibits showing the sequential page numbers is
provided below as the first sheet to the separately bound book of Exhibits.
EXHIBIT
* 2.1 Articles of Incorporation of the Company, as amended
* 2.2 By-Laws of the Company
* 3.1 Specimen Certificate of Common Stock
* 3.2 Form of Warrant Agreement
6.1 Executive Security Plan
* 6.2 Former Office Lease dated July 29, 1994 for previous
executive offices
6.3 Office Lease dated March 6, 1996 for executive
offices
* 8.1 Plan of Reorganization of TC3M
* 8.2 Asset Purchase Agreement With Alan Hansel and
Southern Minnesota Communications, Inc. dated
February 9, 1996
* 8.3 Stock Purchase Agreement With Peacock's Radio &
Wild's Computer Service Inc, dated January 11, 1996
* Filed Previously
Item 2. DESCRIPTION OF EXHIBITS
See Item 1.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amended registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
21ST CENTURY WIRELESS GROUP, INC.
Date June , 1996 By
Kenneth B. Thomson
Chairman of Board and Chief
Financial Officer
INDEPENDENT AUDITOR'S REPORT
Management Committee
21st CENTURY WIRELESS GROUP, INC. and
Twin Cities 3rd Mobile Associates
Burnsville, Minnesota
We have audited the accompanying combined balance sheet of 21ST CENTURY WIRELESS
GROUP, INC. and TWIN CITIES 3RD MOBILE ASSOCIATES (a California general
partnership) as of December 31, 1995, and the related combined statements of
operations, changes in equity and cash flows for the years ended December 31,
1994 and 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of 21ST CENTURY
WIRELESS GROUP, INC. and TWIN CITIES 3RD MOBILE ASSOCIATES as of December 31,
1995, and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 29, 1996, except for the first paragraph of Note 8,
for which the date is March 15, 1996
FS.1
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED BALANCE SHEETS
December 31, March 31,
ASSETS 1995 1996
---------- ----------
Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 763,822 $ 568,456
Accounts receivable 29,635 61,630
Inventories 22,864 25,866
Prepaid expenses and other 8,461 26,493
---------- ----------
TOTAL CURRENT ASSETS 824,782 682,445
---------- ----------
PROPERTY AND EQUIPMENT 963,524 1,021,325
---------- ----------
OTHER ASSETS
Intangible assets, net of accumulated amortization
of $292,934 and $342,017, respectively 2,992,380 2,963,067
Prepaid acquisition costs and other 168,041 179,103
---------- ----------
3,160,421 3,142,170
---------- ----------
$4,948,727 $4,845,940
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $ 71,145 $ 216,221
Accrued expenses 5,830 2,956
Accrued compensation 388,875 --
---------- ----------
TOTAL CURRENT LIABILITIES 465,850 219,177
---------- ----------
COMMITMENTS AND CONTINGENCIES
EQUITY
Partnership capital 4,482,877 --
Common stock ($.001 par value, 25,000,000
shares authorized, 1,709,000 issued) -- 1,709
Additional paid-in capital -- 4,870,043
Accumulated deficit -- (244,989)
---------- ----------
4,482,877 4,626,763
---------- ----------
$4,948,727 $4,845,940
========== ==========
</TABLE>
See notes to combined financial statements.
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
Year Ended Three Months
December 31, Ended March 31,
------------------------------ ------------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 277,829 $ 509,778 $ 97,987 $ 159,543
COST OF REVENUE 50,568 97,952 19,590 84,719
----------- ----------- ----------- -----------
GROSS PROFIT 227,261 411,826 78,397 74,824
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 44,020 82,865 20,500 16,892
General and administrative 409,027 904,847 199,156 226,728
Partnership management fees 530,761 142,363 38,825 --
----------- ----------- ----------- -----------
983,808 1,130,075 258,481 243,620
----------- ----------- ----------- -----------
OPERATING LOSS (756,547) (718,249) (180,084) (168,796)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 66,737 52,159 4,533 7,214
Legal fees (93,440) (118,206) (47,210) (83,407)
Restructuring expenses -- (62,541) (25,528) --
----------- ----------- ----------- -----------
(26,703) (128,588) (68,205) (76,193)
----------- ----------- ----------- -----------
NET LOSS ($ 783,250) ($ 846,837) ($ 248,289) ($ 244,989)
=========== =========== =========== ===========
</TABLE>
See notes to combined financial statements.
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
21st CENTURY WIRELESS GROUP, INC.
Twin Cities --------------------------------------------------------
3rd Mobile Additional
Associates Shares Paid-in Accumulated
Capital Issued Amount Capital Deficit Equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 6,112,964 -- $ -- $ -- $ -- $ 6,112,964
Net loss (783,250) -- -- -- -- (783,250)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 5,329,714 -- -- -- -- 5,329,714
Net loss (846,837) -- -- -- -- (846,837)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 4,482,877 -- -- -- -- 4,482,877
Conversion of partnership
capital to common stock
(unaudited) (4,482,877) 1,650,000 1,650 4,481,227 -- --
Issuance of common stock for
accrued compensation
(unaudited) -- 59,000 59 388,816 -- 388,875
Net loss for three months
ended March 31, 1996
(unaudited) -- -- -- -- (244,989) (244,989)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1996
(unaudited) $ -- 1,709,000 $ 1,709 $ 4,870,043 ($ 244,989) $ 4,626,763
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to combined financial statements.
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
Year Ended Three Months
December 31, Ended March 31,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($ 783,250) ($ 846,837) ($ 248,289) ($ 244,989)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 52,057 115,853 27,963 30,000
Amortization 114,021 178,913 48,811 49,083
Interest income amortized on short-
term investments (24,428) -- -- --
Changes in operating assets and
liabilities:
Accounts receivable (33,260) 3,625 (11,778) (31,995)
Inventories -- (22,864) -- (3,002)
Prepaid expenses and other 10,520 1,169 7,450 (18,032)
Accounts payable 19,947 33,073 (96,702) 145,076
Accrued expenses -- 5,830 -- (2,874)
Accrued compensation 300,000 88,875 32,000 --
----------- ----------- ----------- -----------
Net cash used by
operating activities (344,393) (442,363) (240,545) (76,733)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of short-term
investments 1,600,000 -- -- --
Purchases of property and equipment (363,069) (252,115) (43,313) (87,801)
Proceeds from sale of property and
equipment 125,000 -- -- --
Expenditures for intangible assets (200,176) (66,547) -- (19,770)
Expenditures for prepaid acquisition
costs and other -- (168,041) -- (11,062)
----------- ----------- ----------- -----------
Net cash provided (used)
by investing activities 1,161,755 (486,703) (43,313) (118,633)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 817,362 (929,066) (283,858) (195,366)
CASH AND CASH EQUIVALENTS
Beginning of period 875,526 1,692,888 1,692,888 763,822
----------- ----------- ----------- -----------
End of period $ 1,692,888 $ 763,822 $ 1,409,030 $ 568,456
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
At December 31, 1994, property and equipment of $113,093 was acquired
through open accounts payable, which were paid in 1995.
During the three months ended March 31, 1996, the Company issued stock as
payment for accrued compensation totaling $388,875.
See notes to combined financial statements.
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Description of the Company and Summary of Significant Accounting Policies
The Company
Twin Cities 3rd Mobile Associates, a California general partnership (the
Partnership), doing business as Minnesota Wireless, is a provider of
Specialized Mobile Radio (SMR) wireless communications in Minnesota. 21st
CENTURY WIRELESS GROUP, INC. (21st CENTURY) was formed as a result of the
bankruptcy proceedings described in Note 3. As of December 31, 1995, 21st
CENTURY had 25,000,000 shares of $.001 par value common stock authorized
and no shares issued or outstanding. Effective January 1, 1996, all
assets and liabilities of the Partnership were transferred to 21st
CENTURY in exchange for 1,650,000 shares of its common stock and warrants
to purchase 330,000 shares of additional common stock in 21st CENTURY.
The Partnership was dissolved upon the distribution of the stock to the
partners.
The combined financial statements (the Company) include the operations of
the Partnership through December 31, 1995, and the operations of 21st
CENTURY beginning January 1, 1996. The Company began operations on June
6, 1994, and currently services approximately 4,000 subscriber units on
58 SMR channels in the Minneapolis and St. Paul, Minnesota area.
Use of Estimates
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect certain reported amounts and
disclosures at the date of and during the combined financial statements
reporting periods. Actual results could differ from these estimates. The
most significant areas which require the use of management's estimates
relate to the initial appraisal values assigned to property and equipment
and intangible assets, depreciable lives for property and equipment, and
amortization periods for intangible assets.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Property and Equipment
Property and equipment are stated at the lower of cost or fair market
value at the time of acquisition, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten years.
Intangible Assets
Intangible assets are recorded at the lower of cost or fair market value
at the time of acquisition, less accumulated amortization. Intangible
assets are amortized using the straight-line method over their estimated
useful lives of twenty years for FCC licenses and three to ten years for
other intangible assets.
Income Taxes
Income and losses of the Partnership are reported on the tax returns of
the individual partners. Accordingly, no provision for income taxes is
included in these combined financial statements.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited combined financial statements
for the three months ended March 31, 1995 and 1996, are presented on a
basis consistent with the audited combined financial statements and
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
2. Formation of Partnership -
During 1993, Digital Communications, Inc. (DCI) purchased certain radio
frequencies and transmitting equipment in the Twin Cities metropolitan
area. To finance the acquisition, DCI sold 1,650 units to approximately
1,100 partners of the Partnership at $8,000 per unit. In October 1993,
DCI transferred cash to the Partnership totaling $2,500,000, a 75%
interest in 57 radio channels, Federal Communication Commission (FCC)
licenses, and transmitting equipment, as well as all related Partnership
units. The FCC approved the transfer of the 57 radio channel licenses to
the Partnership in June 1994.
Subsequent to the transfer, the management of the Partnership determined
that the fair market value of the assets received from DCI, excluding
cash, was substantially less than the value represented by DCI (see Note
8). The Federal Trade Commission requested an independent appraisal to
determine the value of the assets acquired from DCI. The appraised value
of the Partnership's 75% interest in the assets transferred, excluding
cash, was estimated to be $3,645,000, using the discounted cash flow
method. The appraisal was based on various assumptions including, among
others, a 15% discount rate, converting to a digital system originally
scheduled to be operational at the beginning of 1996 (which has been
delayed), obtaining $22,500,000 of capital (75% equity and 30% debt) to
build the system, paying operating expenses and debt obligations, and a
residual value in the year 2003 based on ten times that year's operating
cash flow.
Capital contributions recorded by the Partnership reflect a reduction to
the amount paid by the individual investors to DCI as follows:
Unaudited
-------------
Total Partnership units sold by DCI
(1,650 units at $8,000 per unit) $ 13,200,000
Reduction of assets received by the Partnership
to fair market value 7,055,000
-------------
Capital contributed to the Partnership $ 6,145,000
=============
3. Bankruptcy Proceedings -
On February 24, 1995, several partners in the Partnership filed a
petition for involuntary reorganization under Chapter 11 of the United
States Bankruptcy Code. The bankruptcy court granted a petition for an
order for relief in the bankruptcy proceedings on May 16, 1995, and
signed the order confirming the Debtor's Plan of Reorganization,
effective November 24, 1995. Pursuant to the Debtor's Plan of
Reorganization, 21st CENTURY was formed. Effective January 1, 1996, all
assets and liabilities of the Partnership were transferred to 21st
CENTURY in exchange for 1,650,000 shares of common stock. The Partnership
then distributed the stock and warrants to purchase 330,000 additional
shares of common stock in 21st CENTURY to the partners and dissolved the
Partnership. This reorganization into a publicly traded corporate entity
allows the new corporation a method to finance future acquisitions of
other SMR frequencies in targeted markets, which is necessary to expand
the marketplace that the Company currently operates.
In connection with the bankruptcy proceedings, the Partnership incurred
legal and professional fees totaling $62,541 which are included on the
1995 combined statement of operations as restructuring expenses.
4. Property and Equipment -
Property and equipment consist of the following:
December 31, March 31,
1995 1996
(Unaudited)
---------- ----------
Land $ 12,000 $ 12,000
Transmission equipment 1,042,122 1,092,195
Office furniture and equipment 77,312 115,040
---------- ----------
1,131,434 1,219,235
Less accumulated depreciation 167,910 197,910
---------- ----------
$ 963,524 $1,021,325
========== ==========
In 1994, the Partnership purchased substantially all of the assets of a
company for $250,000. Concurrently, the Partnership sold various
equipment received to another company for $125,000. The Partnership
allocated the net amount of the transaction to the assets retained,
resulting in no gain or loss on the transaction.
5. Related Party Transactions -
The Partnership reimbursed the nine members of the Management Committee
for expenses and per diem while conducting Partnership business. Payments
to the Management Committee for 1994 and 1995 were $180,289 and $187,065
(including $96,500 and $45,500 of per diem), respectively.
The Partnership agreed to compensate the Management Committee for 8,300
hours spent on the business operations of the Partnership during 1994 and
1995. The Management Committee accepted 41,500 shares of common stock in
21st CENTURY, with a fair market value of $332,000 at the time of the
agreement, in lieu of cash payments. The accompanying combined financial
statements include $300,000 and $32,000 as compensation for Management
Committee time incurred in 1994 and 1995, respectively. The bankruptcy
court approved the amounts of compensation.
Later in 1995, various Management Committee members agreed to devote
their efforts to the Partnership's bankruptcy proceedings and filings
with the Securities and Exchange Commission (SEC). The members accepted
17,500 shares of common stock in 21st CENTURY, with a fair market value
at the time of the agreement totalling $56,875, as compensation for these
services.
6. Leases -
The Company leases space for its transmission equipment and office space
under operating leases which expire at various dates through December
1999.
At December 31, 1995, the approximate future minimum rental commitments
under noncancellable leases are as follows:
Year Amount
---- -----------
1996 $ 115,500
1997 100,600
1998 91,400
1999 95,100
============
$ 402,600
Rent expense was approximately $77,800 and $159,600 for 1994 and 1995,
respectively.
7. Commitments and Contingencies -
Purchase Agreements
Subsequent to December 31, 1995, 21st CENTURY signed purchase agreements
with two companies to acquire additional licenses and other business
assets to expand the current market segment of the Company. The Purchase
agreements require that certain conditions be met, including
reorganization of the Partnership as a publicly traded corporate entity.
One agreement requires cash payments totaling $500,000 over two years
plus common stock equivalent to 10% of the value of 21st CENTURY on the
first day the stock is listed on a public exchange. The other agreement
requires $800,000 in non registered common stock of 21st CENTURY at the
stock price on the date of the transfer of assets. At December 31, 1995,
other assets includes payments of $105,000 made in connection with the
agreements (of which $25,000 is nonrefundable) plus $60,861 of other
costs associated with these acquisitions.
Credit Risk
The Company maintains its cash and cash equivalents in bank deposit
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. Management
believes it is not exposed to any significant risk on cash and cash
equivalents.
Executive Security Plan
The Company established an executive security plan to provide incentives
for retaining a select group of employees who contribute materially to
the future business success of the Company. Under this plan the Company
authorized and expects to issue a total of 100,000 shares of common stock
in 1996 to employees who provide management services to the Company.
8. Class Action Lawsuit -
The Partnership and its partners commenced a class action lawsuit against
DCI and others involved in promoting the Partnership. The lawsuit alleged
various illegal acts in the promotion and sale of the Partnership units.
In March 1996, management reached a settlement with DCI, subject to
approval by a federal judge. Terms of the settlement include recovery of
23% of the remaining 25% interest in the assets retained by DCI in
exchange for warrants to purchase 40,000 shares of 21st CENTURY common
stock. The warrants are exercisable for three years after initial public
trading at the average closing bid price during the first 30 days of
trading. Once approved by the federal judge, this settlement will
increase the Partnership's total assets by approximately $1,118,000.
Digital Communications of Denver, Inc., a related party of DCI, claims to
own the 2% excluded from this settlement. The combined financial
statements do not reflect the effects of this proposed settlement. 21st
CENTURY intends to account for this settlement, when finalized, as
additional paid-in capital.
The 1994 and 1995 combined financial statements of operations include
legal fees for litigation against DCI and related matters of $93,440 and
$118,206, respectively, which are classified as other expense.
9. Filing with the Securities and Exchange Commission -
On February 13, 1996, 21st CENTURY filed Form 10-SB "General Form for
Registration of Securities of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934" with the SEC. This filing
requests registration of 2,010,000 shares of common stock and warrants
for the purchase of 402,000 shares of common stock of 21st CENTURY. When
registered, most of these shares and warrants will be used to satisfy all
Partnership claims resulting from the bankruptcy proceedings (Note 3),
acquire the assets of companies under purchase agreements (Note 7), pay
accrued obligations to the Management Committee (Note 5), and acquire
most of the remainder interest in assets (Note 8).
FS.2
ALAN M. HANSEL
d/b/a SMC
BALANCE SHEETS
(Unaudited)
December 31, March 31,
ASSETS 1995 1996
-------- --------
CURRENT ASSETS
Cash $ -- $ 2,964
Accounts receivable, net of allowance for doubtful
accounts of $20,000 6,980 10,516
Advance to owner 50,000 --
Prepaid expenses -- --
-------- --------
TOTAL CURRENT ASSETS 56,980 13,480
PROPERTY AND EQUIPMENT 540,227 524,574
-------- --------
$597,207 $538,054
======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Checks issued in excess of deposits $ 465 $ --
Current maturities of long-term debt 54,599 54,599
Accounts payable 10,714 3,652
Accrued expenses 1,508 6,634
Advance from 21st CENTURY 50,000 --
-------- --------
TOTAL CURRENT LIABILITIES 117,286 64,885
LONG-TERM DEBT, net of current maturities 117,520 117,520
PROPRIETOR'S CAPITAL 362,401 355,649
-------- --------
$597,207 $538,054
======== ========
See notes to unaudited financial statements.
ALAN M. HANSEL
d/b/a SMC
STATEMENTS OF OPERATIONS AND PROPRIETOR'S CAPITAL
(Unaudited)
Three
Year Ended Months Ended
December 31, March 31,
1995 1996
--------- ---------
REVENUE $ 316,444 $ 52,578
COST OF REVENUE 40,708 21,884
--------- ---------
GROSS PROFIT 275,736 30,694
--------- ---------
OPERATING EXPENSES
Selling 4,109 6,104
General and administrative 183,064 31,342
--------- ---------
187,173 37,446
--------- ---------
OPERATING INCOME (LOSS) 88,563 (6,752)
--------- ---------
OTHER INCOME (EXPENSE)
Office rent income 23,700 --
Interest expense (14,553) --
--------- ---------
9,147 --
--------- ---------
NET INCOME (LOSS) 97,710 (6,752)
PROPRIETOR'S CAPITAL
Beginning of period 307,971 362,401
Proprietor's withdrawals (43,280) --
--------- ---------
End of period $ 362,401 $ 355,649
========= =========
See notes to unaudited financial statements.
<TABLE>
<CAPTION>
ALAN M. HANSEL
d/b/a SMC
STATEMENTS OF CASH FLOWS
(Unaudited)
Three
Year Ended Months Ended
December 31, March 31,
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 97,710 ($ 6,752)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 62,615 15,653
Changes in operating assets and liabilities:
Accounts receivable 5,306 (3,536)
Deposit 5,000 --
Accounts payable and accrued expenses 9,972 (1,936)
--------- ---------
Net cash provided by operating activities 180,603 3,429
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (86,057) --
Proceeds from sale of property and equipment 3,108 --
Advance to owner (50,000) --
--------- ---------
Net cash used by investing activities (132,949) --
--------- ---------
FINANCING ACTIVITIES
Decrease in checks issued in excess
of deposits (11,505) (465)
Proceeds from long-term debt 27,000 --
Payments on long-term debt (69,869) --
Advance from proposed purchaser 50,000 --
Capital withdrawals (43,280) --
--------- ---------
Net cash used by financing activities (47,654) (465)
--------- ---------
NET INCREASE IN CASH -- 2,964
CASH
Beginning of period -- --
--------- ---------
End of period $ -- $ 2,964
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 13,888 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The Company incurred a note payable to purchase property and
equipment $ 45,000
</TABLE>
See notes to unaudited financial statements.
ALAN M. HANSEL
d/b/a SMC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
Nature of Business
Alan M. Hansel, d/b/a SMC, a proprietorship (the Company), is primarily a
provider of Specialized Mobile Radio (SMR) and Land Mobile Radio (LMR)
wireless communications in Southeastern Minnesota and also sells and
services wireless radios. The Company services approximately 1,500
subscriber units on 63 SMR channels and 73 (LMR) channels.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the financial statement reporting periods. Actual results
could differ from these estimates.
Personal Assets, Liabilities and Income Taxes
The financial statements of the Company do not include the nonbusiness
assets, liabilities, revenues and expenses of the proprietor, including
the obligation or provision for income taxes on the net income.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized. Revenues received in advance are deferred and recognized over
the service period.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
ranging from three to ten years.
Unaudited Financial Statements
In the opinion of management, the unaudited financial statements for the
three months ended March 31, 1996 reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation.
The results of operations for the three months ended March 31, 1996, are
not necessarily indicative of the results to be expected for the entire
year.
2. Property and Equipment -
Property and equipment consist of the following:
December 31, March 31,
1995 1996
-------- --------
Land $ 44,281 $ 44,281
Buildings and improvements 177,000 177,000
Equipment 761,658 761,658
Vehicles 6,044 6,044
-------- --------
988,983 988,983
Less accumulated depreciation 448,756 464,409
-------- --------
$540,227 $524,574
======== ========
3. Long-Term Debt -
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
-------- --------
<S> <C> <C>
Long-term debt consists of the following:
Prime plus 2% note payable to
individuals, collateralized
by real estate, due in monthly
installments of $1,335,
including interest, through December 2002 $ 85,626 $ 85,626
8% note payable to individuals, collateralized by real
estate, due in monthly installments of $546, including
interest, through October 2005 44,506 44,506
Prime plus 2.5% note payable to bank, collateralized
by substantially all assets of the Company, due in monthly
installments of $1,200, including interest,
through December 1996 14,853 14,853
10.5% revolving note payable to bank, collateralized by
substantially all assets of the Company, due in monthly,
installments of $1,031 including interest, through
December 1997 12,210 12,210
Prime plus 2% note payable to bank, collateralized
by equipment, due on demand 14,924 14,924
-------- --------
172,119 172,119
Less current maturities 54,599 54,599
-------- --------
$117,520 $117,520
======== ========
</TABLE>
The prime rate was 8.5% at December 31, 1995
Future maturities of long-term debt are as follows:
Year Amount
---- ------
1996 $ 54,599
1997 13,659
1998 14,792
1999 16,021
2000 17,349
Thereafter 55,699
-----------
$ 172,119
===========
4. Lease Commitments -
The Company leases space for its transmission equipment under operating
leases which expire at various dates through April 2000. Some of the
leases offer free SMR use to the lessor, valued at approximately $8,900,
in exchange for a lease on the space for the transmission equipment. Many
of the leases also contain terms of perpetuity or continual renewal,
subject to termination by either party with sufficient notice.
Future minimum lease payments are as follows:
Year Amount
---- ------
1996 $ 5,700
1997 3,000
1998 2,400
1999 1,200
2000 100
----------
$ 12,400
==========
Rent expense was approximately $26,900 for the year ended December 31,
1995.
5. Related Party Transactions -
The Proprietor of the Company is also the sole owner of a corporation
which sells and services two-way and mobile radios. The corporation rents
office space at two facilities owned by the Company. Rent expense charged
the corporation by the Company for the year ended December 31, 1995 and
for the three months ended March 31, 1996, totaled $23,700 and $6,000,
respectively. The Company was also charged by the corporation $12,000 and
$3,000 for the year ended December 31, 1995 and for the three months
ended March 31, 1996, respectively, as a salary reimbursement for
corporate employees who perform services for the Company.
6. Proposed Sale of Proprietorship -
On February 9, 1996, the Company signed a purchase agreement to sell
certain of its business assets to 21st CENTURY WIRELESS GROUP, INC. The
purchase agreement is contingent upon both parties meeting certain
conditions. The agreement required a $50,000 deposit upon signing the
letter of intent, subsequent cash payments of $450,000 over two years,
and common stock equal to 10% of the outstanding stock of the new public
corporation to be formed by the purchaser. If the conditions of the
agreement are not met, the Company is entitled to keep $25,000 of the
deposit.
FS.3
<TABLE>
<CAPTION>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
BALANCE SHEETS
(Unaudited)
December 31, March 31,
ASSETS 1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,841 $ 7,584
Accounts receivable (no allowance for doubtful accounts) 65,949 72,896
Inventories 179,697 179,697
Other current assets 20,253 19,853
-------- --------
TOTAL CURRENT ASSETS 269,740 280,030
PROPERTY AND EQUIPMENT 69,055 65,054
-------- --------
$338,795 $345,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,381 $ 11,902
Accounts payable 33,949 43,425
Accrued expenses 9,632 12,045
-------- --------
TOTAL CURRENT LIABILITIES 55,962 67,372
-------- --------
LONG-TERM DEBT, net of current maturities 114,566 114,128
-------- --------
STOCKHOLDERS' EQUITY
Common stock 25,000 25,000
Retained earnings 143,267 138,584
-------- --------
168,267 163,584
-------- --------
$338,795 $345,084
======== ========
</TABLE>
See note to unaudited financial statements.
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
Three
Year Ended Months Ended
December 31, March 31,
1995 1996
--------- ---------
REVENUE $ 712,465 $ 170,615
COST OF REVENUE 425,518 111,533
--------- ---------
GROSS PROFIT 286,947 59,082
--------- ---------
OPERATING EXPENSES
Selling 9,685 2,656
General and administrative 267,959 58,124
--------- ---------
277,644 60,780
--------- ---------
INCOME (LOSS) FROM OPERATIONS 9,303 (1,698)
OTHER EXPENSES 8,366 2,985
--------- ---------
NET INCOME (LOSS) 937 (4,683)
RETAINED EARNINGS
Beginning of period 142,330 143,267
--------- ---------
End of period $ 143,267 $ 138,584
========= =========
See note to unaudited financial statements.
<TABLE>
<CAPTION>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Three
Year Ended Months Ended
December 31, March 31,
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 937 ($ 4,683)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 20,000 4,001
Changes in operating assets and
liabilities:
Accounts receivable 68,424 (6,947)
Inventories (87,617) --
Other current assets 5,303 400
Accounts payable (16,372) 9,476
Accrued expenses (19,011) 2,413
--------- ---------
Net cash provided (used) by operating activities (28,336) 4,660
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (35,714) --
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt 110,000 --
Payments on long-term debt (49,732) (917)
--------- ---------
Net cash provided (used) by financing activities 60,268 (917)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,782) 3,743
CASH AND CASH EQUIVALENTS
Beginning of period 7,623 3,841
--------- ---------
End of period $ 3,841 $ 7,584
========= =========
</TABLE>
See note to unaudited financial statements.
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
NOTE TO UNAUDITED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
Nature of Business
Peacocks Radio & Wilds Computer Service, Incorporated (the Company), is a
provider of Specialized Mobile Radio (SMR) wireless communications in
Memphis, Tennessee. The Company services approximately 1,000 subscriber
units on 90 SMR channels in the Memphis area.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the financial statement reporting periods. Actual results
could differ from these estimates.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized and for sales of equipment when delivered.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at the lower of cost or fair market
value at the time of acquisition, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten years.
Unaudited Financial Statements
In the opinion of management, the unaudited financial statements for the
year ended December 31, 1995 and for the three months ended March 31,
1996, reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation.
The results of operations for the three months ended March 31, 1996, are
not necessarily indicative of the results to be expected for the entire
year.
Disclosures
Other disclosures required by generally accepted accounting principles
are not readily available.
FS.4
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of
December 31, 1995 and the related unaudited pro forma combined condensed
statement of operations for the year then ended, represent a combination of the
audited financial statements of 21st CENTURY WIRELESS GROUP, INC. (21st CENTURY)
and Twin Cities 3rd Mobile Associates (TC3M) and the unaudited financial
statements of Alan M. Hansel d/b/a SMC (SMC) and Peacock's Radio & Wild's
Computer Service, Incorporated (Peacock), as if 21st CENTURY, TC3M, SMC and
Peacock had been combined since January 1, 1995. The acquisition of SMC is
treated as a purchase and the acquisition of Peacock is treated as a pooling for
accounting purposes.
21st CENTURY was formed as a result of the bankruptcy proceedings described in
the notes to the 21st CENTURY financial statements. As of December 31, 1995,
21st CENTURY had 25,000,000 shares of $.001 par value common stock authorized
and no shares issued or outstanding. Effective January 1, 1996, all assets and
liabilities of TC3M were transferred to 21st CENTURY in exchange for 1,650,000
shares of its common stock and warrants to purchase 330,000 shares of additional
common stock in 21st CENTURY. TC3M was dissolved upon the distribution of the
stock to the Partners.
The following statements do not purport to be indicative of the results that
would have been achieved if the assets of TC3M had been transferred to 21st
CENTURY and the acquisitions of SMC and Peacock had been consummated as of
January 1, 1995, or the results that may be achieved in the future. These
statements should be read in conjunction with the audited financial statements
of 21st CENTURY and TC3M and the unaudited financial statements of SMC and
Peacock, all appearing elsewhere in this Registration.
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1995
Peacock's
21st Alan M. Radio & Wild's
CENTURY Hansel Computer
WIRELESS d/b/a Service, Pro Forma
GROUP, INC. SMC Incorporated Adjustments Combined
----------- --- ------------ ----------- --------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS $ 824,782 $ 56,980 $269,740 ($ 17,286)(a) $ 984,216
(150,000)(b)
PROPERTY AND EQUIPMENT 963,524 540,227 69,055 350,481 (b) 1,857,623
(65,664)(c)
INTANGIBLE AND OTHER ASSETS 3,160,421 -- -- 795,516 (b) 3,896,111
(59,826)(c)
---------- -------- -------- -------
$4,948,727 $597,207 $338,795 $853,221 $6,737,950
========== ======== ======== ======== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES $ 465,850 $117,286 $ 55,962 ($ 57,520)(a) $ 881,578
300,000 (b)
LONG-TERM DEBT -- 117,520 114,566 (126,688)(a) 105,398
EQUITY 4,482,877 362,401 168,267 166,922 (a) 5,750,974
695,997 (b)
(125,490)(c)
$4,948,727 $597,207 $338,795 $ 853,221 $6,737,950
========== ======== ======== ======== ==========
</TABLE>
(a) To remove assets and liabilities excluded from the purchase of SMC as if
the acquisition occurred on January 1, 1995.
(b) To reflect the purchase of SMC as if the acquisition occurred on January
1, 1995.
(c) To record additional depreciation and amortization on SMC assets and
expense to direct costs related to the Peacock acquisition.
No pro forma adjustment was made for income taxes as 21st CENTURY will not
realize the benefit of the historical losses.
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Peacock's
21st Alan M. Radio & Wild's
CENTURY Hansel Computer
WIRELESS d/b/a Service, Pro Forma
GROUP, INC. SMC Incorporated Adjustments Combined
----------- --- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUE $ 509,778 $ 316,444 $ 712,465 $ -- $ 1,538,687
COST OF REVENUE 97,952 40,708 425,518 -- 564,178
---------- -------- --------- -------- ----------
GROSS PROFIT 411,826 275,736 286,947 -- 974,509
OPERATING EXPENSES 1,130,075 187,173 277,644 125,490 (a) 1,720,382
---------- -------- --------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS (718,249) 88,563 9,303 (125,490) (745,873)
OTHER INCOME (EXPENSES) (128,588) 9,147 (8,366) -- (127,807)
---------- -------- --------- -------- ----------
NET INCOME (LOSS) ($846,837) $ 97,710 $ 937 ($125,490) ($ 873,680)
========== ======== ========= ======== ==========
</TABLE>
(a) To record additional depreciation and amortization on SMC assets and expense
direct costs related to the Peacock acquisition.
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
- -----------------------------------
Twin Cities Third Mobile
Associates, a California general
partnership, and Thomas Brockway,
Sophia W. Norman, Paula Kristian,
and Ronald T. Berger, individually
and on behalf of all similarly
situated,
Civil No.: 4-94-833
Plaintiffs,
vs. CLASS ACTION
Digital Communications, Inc., a THIRD AMENDED COMPLAINT
Nevada corporation, Digital
Communications of Denver, Inc., JURY TRIAL DEMANDED
a Colorado corporation, Qualified
Pensions, Inc., a California
corporation, Howard Newman, an
individual, Dave Rolfe,
a/k/a John David Rolfe, an
individual, Leonard B. Evans,
an individual, Jerald L. Woods,
an individual, Don Rabbitt, an
individual, James Leonard, an
individual, Brian J. O'Shaughnessy,
an individual, and Lawson Kerster,
a/k/a Don Kerster, an individual,
Defendants.
- -----------------------------------
Plaintiffs Twin Cities Third Mobile Associates ("TC3M"), Thomas
Brockway, Sophia W. Norman, Paula Kristian and Ronald T. Berger (collectively
the "Plaintiffs"), for their Complaint against the Defendants, hereby state and
allege as follows:
JURISDICTION
1. This action arises under the Securities Act of 1933, 15 U.S.C. SS.
77a-77aa; the Securities Exchange Act of 1934, 15 U.S.C. 78a-78jj; the Organized
Crime Control Act of 1970, Racketeer Influenced and Corrupt Organizations, 18
U.S.C. 1961, et seq.; the Minnesota Uniform Securities Act, Minn. Stat. SS.
80A.01-80A.31; the similar Acts and/or state statutes of various other states;
and the common law of the State of Minnesota and the foregoing states.
2. Subject matter jurisdiction is invoked pursuant to 15 U.S.C. SS.
77b; 15 U.S.C. SS. 78aa; 28 U.S.C. SS. 1331; 28 U.S.C. SS. 1337; 18 U.S.C. SS.
1964; and this Court's supplemental jurisdiction pursuant to 28 U.S.C. SS. 1367.
PARTIES
PLAINTIFFS
3. Plaintiff TC3M is a California general partnership organized under
the laws of the State of California which purchased certain telecommunications
assets from Defendant Digital Communications, Inc. TC3M's principal place of
business is located in the State of Minnesota.
4. Plaintiff Thomas Brockway is a resident and citizen of the State of
Minnesota who purchased one (1) of the so-called "partnership units" (the
"Units") in TC3M from Defendant Digital Communications, Inc.
5. Plaintiff Sophia W. Norman is a resident and citizen of the State of
Ohio who purchased one and one-half (1-1/2) Units in TC3M from Defendant Digital
Communications, Inc.
6. Plaintiff Paula Kristian is a resident and citizen of the State of
North Carolina who purchased three (3) Units in TC3M from Defendant Digital
Communications, Inc.
7. Plaintiff, Ronald T. Berger is a resident and citizen of the State
of Washington who purchased one (1) Unit of TC3M from Digital Communications,
Inc. However, Mr. Berger was solicited to purchase his TC3M Unit by a sales
representative located in Denver, Colorado, who, on information and belief, was
employed by Digital Communications of Denver, Inc.
8. Plaintiffs Thomas Brockway, Sophia Norman, Paula Kristian and Ronald
T. Berger bring this action on behalf themselves and, pursuant to Fed. R. Civ.
P. 23(b)(3), on behalf of all others similarly situated, namely, those persons
who suffered loss or damages by reason of having purchased Units in TC3M from
Defendant Digital Communications, Inc. during the period from approximately
January, 1993 to approximately October, 1993. All such persons are collectively
referred to herein as the "Class."
(a) There are over a thousand Class members and it is impracticable to
bring them all before this Court.
(b) Plaintiffs are Class members and their interests and the interests
of other Class members are identical. Plaintiffs and their counsel will fairly
and adequately protect the interests of the Class.
(c) Questions of law and fact common to the Class are presented herein
primarily including the following: whether the statements and omissions referred
to herein were materially false or misleading; the duty owed by the Defendants
to the Class; and the measure of damages.
(d) The questions of law and fact common to the Class predominate over
any question affecting individual members.
(e) A class action is superior to other available methods for the fair
and efficient adjudication of the controversy, in that the interest of a member
of the Class in individually controlling the prosecution of a separate action
for himself is negligible, since the amount of damage each individual investor
sustained is generally insufficient to warrant the institution and prosecution
of an individual action for the recovery of such damages, and suits and various
parts and different jurisdictions of the country for the same relief will be
avoided, thus easing the burden of litigation for the courts and preventing the
risk of inconsistent or varying adjudications with respect to the individual
members of the Class which would establish incompatible standards of conduct for
the parties opposing the Class. There are no unusual difficulties likely to be
encountered in the management of this Class action.
THE DCI DEFENDANTS
9. Defendant Digital Communications, Inc. ("DCI"), was incorporated
under the laws of the State of Nevada on February 18, 1993. DCI's principal
place of business is Encino, California. Employees and agents of DCI offered and
sold securities to the Class during 1993 and further purchased certain assets
for TC3M and sold them to TC3M.
10. Defendant Howard Newman ("Newman") is a shareholder and director of
DCI, and was the president and chief executive officer of DCI at all times
herein relevant. Upon information and belief, Newman is a resident and citizen
of the State of Nevada.
11. Defendant Dave Rolfe, also known as John David Rolfe ("Rolfe"), was
the chief operating officer of DCI at all times herein relevant. Upon
information and belief, Rolfe is a resident and citizen of the State of
California.
12. Defendant Don Rabbitt ("Rabbitt") was the general manager and/or
vice president and/or president of DCI at all times herein relevant. Upon
information and belief, Rabbitt is a resident and citizen of the State of
California.
13. Defendant Leonard B. Evans ("Evans"), upon information and belief,
was the technical director of DCI who participated in negotiating DCI's sales to
TC3M at all times herein relevant. Upon further information and belief, Evans is
a resident and citizen of the State of California.
14. Defendant James Leonard ("Leonard"), upon information and belief,
was the legal counsel to DCI at all times herein relevant. Upon further
information and belief, Leonard is a resident and citizen of the State of
California.
15. DCI, Newman, Rolfe, Rabbitt, Evans and Leonard are collectively
referred to herein as "DCI Defendants."
THE DCID DEFENDANTS
16. Defendant Digital Communications of Denver, Inc. ("DCID"), was
incorporated under the laws of the State of Colorado on February 25, 1993.
DCID's principal place of business is in Denver, Colorado. Employees and agents
of DCID solicited Class members and others to purchase securities sold by DCI
and represented itself as a branch sales office of DCI.
17. Defendant Jerald L. Woods ("Woods") is the incorporator of DCID and
until March 5, 1993, was its sole shareholder and director. From March 2, 1993
until September 3, 1993, Woods was a 50% shareholder and served as one of DCID's
two directors. Woods also served as DCID's president until he resigned effective
September 30, 1993. Upon information and belief, Woods is a resident and citizen
of the State of Colorado.
18. Defendant Brian J. O'Shaughnessy ("O'Shaughnessy") is one of the
founders of DCID. At least as of March 2, 1993, O'Shaughnessy became a 50%
shareholder of DCID and served as one of DCID's two directors. O'Shaughnessy
also served as DCID's vice president and/or secretary from and after March 1993.
O'Shaughnessy also served as manager of DCI's Brentwood, California office from
February to June 1993. Upon information and belief, O'Shaughnessy is now a
resident and citizen of the State of Colorado.
19. Defendant Lawson Kerster, also known as Don Kerster ("Kerster")
acquired Defendant Woods' shares in DCID beginning in or before May 1993. From
and after May 1993 he also served as DCID's general manager. Upon information
and belief, Kerster is a resident and citizen of the State of Colorado.
20. DCID, Woods, O'Shaughnessy and Kerster are collectively referred to
herein as "DCID Defendants."
QUALIFIED PENSIONS, INC. (QPI)
21. Defendant Qualified Pensions, Inc. ("QPI"), is a corporation
incorporated under the laws of the State of California having its principal
place of business in the State of California. QPI participated with DCI and DCID
in the sale of securities to Class members who are participants in tax-qualified
retirement plans. QPI acted as a fiduciary when handling the investments of
these Class members.
FACTUAL BACKGROUND
THE DCI DEFENDANTS OFFERED AND SOLD
TC3M "UNITS" TO PLAINTIFFS
22. Defendants Newman, Rolfe and Rabbitt formed Defendant DCI in
January 1993. At all times herein material, DCI transacted business under its
own name, and under the name "SMR Digital Communications, Inc."
23. Between February 1993 and October 1993, DCI conducted a nationwide
telemarketing operation through which it offered and sold to the general public
a total of 1650 TC3M general partnership "Units" at a cost of $8,000 per Unit.
The ostensible purpose for the TC3M offering was to obtain the capital needed to
acquire existing Twin Cities SMR businesses (FCC licenses, transmission sites
and broadcast equipment used primarily for 2-way radio dispatch services) and to
convert the existing analog systems into an integrated "digital mobile network"
capable of competing in the Twin Cities cellular phone market.
24. DCI produced the following promotional materials which describe the
TC3M business venture and explain how interested investors can purchase TC3M
partnership "Units": (1) a sales brochure captioned "Twin Cities Third Mobile";
(2) an Original Offering Memorandum for 937 TC3M "Units" (expiring July 31,
1993); (3) a revised brochure captioned "Twin Cities 3rd Mobile"; (4) a
"congratulations" letter to TC3M investors from DCI; (5) an Offering Memorandum
for 1650 TC3M "Units" terminating September 30, 1993; (6) a "Summary Overview"
of the Offering of 1650 TC3M "Units" dated June 2, 1993; (7) a "congratulations"
letter to TC3M investors from DCI; (8) an Agreement of General Partnership in
TC3M; and (9) a signature page to the Agreement of General Partnership.
25. Between February and October 1993, DCI owned or leased a corporate
office at 16530 Ventura Boulevard, Encino, California, and a branch sales office
at 11990 San Vicente Boulevard, Brentwood, California. DCI also leased 1-800
access numbers for each of the foregoing office locations.
26. Sometime after January 1993, DCI began to run "infomercials" on
nationally syndicated radio and television programs in which DCI solicited the
general public to invest in wireless communication ventures and urged them to
seek further information by calling one or more of DCI's 1-800 access numbers.
27. At various times between February 1993 and October 1993, DCI
employed numerous telemarketing personnel who were assigned to work at DCI's
Encino and Brentwood sales offices. DCI hired and trained its telemarketing
personnel to respond to calls received from persons dialing the aforementioned
DCI 1-800 access numbers. DCI's telemarketing personnel were supplied with
copies of DCI's TC3M promotional materials as well as a "sales manual" which
they used in connection with the promotion and sale of TC3M "Units." The DCI
telemarketing personnel were instructed to forward DCI's promotional materials
to persons expressing an interest in the TC3M offering. DCI paid the
telemarketing personnel commissions based on completed sales of TC3M "Units."
28. Defendants Newman, Rolfe and Rabbitt, or persons acting at their
direction or under their immediate supervision and control;
(a) designed the "infomercials" and arranged for their broadcast
on national radio and television;
(b) created and/or prepared the TC3M promotional materials;
(c) hired, trained and supervised the telemarketing personnel who
responded to 1-800 calls and arranged the delivery of the
foregoing promotional materials to TC3M investors;
(d) managed the day-to-day operations of DCI's telemarketing
offices including maintenance of 1-800 numbers and the
collection, storage and retrieval of sales data.
29. Defendants Newman, Rolfe and Rabbitt received compensation for
their efforts in the form of salary, commissions and/or other benefits in an as
yet undetermined amount. Said Defendants also retained for DCI a 25% interest in
the SMR Systems.
30. Defendant Evans participated in the acquisition of the SMR systems
and in the preparation of the DCI offering materials insofar as they relate or
refer to the SMR system acquisitions, and to the feasibility and cost of
converting the SMR systems to an integrated "digital mobile network." Evans also
knew of and approved the distribution of the offering materials to prospective
purchasers (including Plaintiffs), and he personally responded to telephone
inquiries from Class members in which he confirmed the statements about the cost
of the conversion to "digital."
31. Upon information and belief, Defendant Leonard participated in the
plan to form TC3M and sell "Units" to the general public without registering the
offering and without making the disclosures required in connection with such
registration.
DCID DEFENDANTS PARTICIPATED IN THE OFFER AND
SALE OF TC3M UNITS TO PLAINTIFFS WHO WERE SOLICITED
BY DCID'S SALES AGENTS
32. Defendant Jerald Woods formed Defendant DCID in February 1993 for
the purposes of participating in the TC3M offering. Between February and October
1993, DCID conducted business under its own name and under the names "Digital
Communications, Inc." and/or "SMR Digital Communications, Inc."
33. On March 2, 1993, DCID entered into an "Independent Contracting and
Consulting Agreement" with DCI (d/b/a SMR Digital Communications, Inc.),
pursuant to which DCID agreed to participate in the TC3M offering in exchange
for 30% of the payments received from the TC3M investors who were serviced by
DCID.
34. Between February 1993 and October 1993, DCID leased business
premises at 4155 East Jewell, Denver, Colorado, and employed numerous
telemarketing personnel (a/k/a "sales agents") to respond to calls from persons
who dialed DCI's 1-800 access numbers. DCID supplied its sales personnel with
copies of DCI's aforementioned TC3M promotional materials and with other
training materials which the telemarketing staff used in connection with their
promotion of the TC3M "Units." DCID, with DCI's authorization, instructed the
DCID telemarketing staff to have DCI's promotional materials mailed to
prospective purchasers from DCI's corporate office in Encino, California.
35. DCID maintained the telephone lines used by its telemarketing staff
and also maintained the computer and other office equipment and clerical staff
needed to coordinate DCID activities (i.e. telephone inquiries, responses,
mailings of promotional materials, sales, receipts and commissions), with
similar activities being carried out by DCI.
36. DCI's brochure captioned "Twin Cities 3rd Mobile" and DCI's revised
brochure captioned "Twin Cities 3rd Mobile" both identify DCID's Denver office
as a DCI branch office; and DCI authorized DCID's telemarketing personnel to
identify themselves as DCI sales agents.
37. Defendants Woods and O'Shaughnessy, or persons acting at their
direction, or under their immediate supervision and control:
(a) Formed DCID for the purpose of participating in the TC3M
offering;
(b) negotiated and approved the agreement to use DCID as DCI's
selling agent in connection with the TC3M offering;
(c) managed DCID's day-to-day operations;
(d) hired, trained and supervised DCID telemarketing staff;
(e) coordinated DCID's sales operations with the sales operations
conducted by DCI at its California sales offices; and
(f) authorized and approved the delivery of DCI's promotional
materials to all TC3M investors who were served by DCID
telemarketing staff.
38. As an inducement to participate in the TC3M offering, DCI assigned
to Defendants Woods and O'Shaughnessy ". . . one (1) point each of the
twenty-five (25) points retained by SMR in the [TC3M] partnership project."
Defendants Woods and O'Shaughnessy also received a salary, commissions and/or
other payments and benefits from the aforesaid 30% commission which DCI paid to
DCID.
39. Defendant Kerster was initially hired as a DCID sales agent, but
after about March 1993, he served as "sales manager" in charge of hiring,
training, supervising and monitoring all DCID telemarketing personnel. Kerster
personally prepared sales "scripts" for use by the DCID telemarketing staff. He
also reviewed and explained DCI's promotional materials, and authorized and
directed DCID's telemarketing staff to distribute these materials to prospective
investors.
40. As compensation for his services in connection with the TC3M
offering, Kerster received an "override commission" on all sales of TC3M "Units"
to persons serviced by DCID.
41. The forgoing DCID Defendants participated in and received financial
benefits from the sale of TC3M Units to Plaintiff Ronald T. Berger and
approximately one-third of the Plaintiff Class.
QPI PARTICIPATED IN THE SALE OF TC3M "UNITS" TO PLAINTIFFS
WHO USED IRA OR OTHER TAX QUALIFIED PENSION FUNDS
42. In order to obtain TC3M investors whose only source of funds was
their IRA or other tax qualified pension, the DCI Defendants enlisted the aid of
Defendant QPI.
43. QPI agreed to participate in the sale of TC3M Units by accepting
and processing purchases of TC3M Units as part of an IRA or other tax qualified
plan.
44. QPI supplied DCI with forms that QPI required for such investments
and authorized DCI to distribute them to prospective purchasers.
45. QPI co-signed with DCI in the partnership agreements of investors
who purchased through QPI.
46. QPI participated in and received compensation for participating in
the sale of TC3M Units to Plaintiffs Brockway, Kristian and approximately
one-third of the members of the Plaintiff Class.
THE DCI DEFENDANTS USED THE TC3M
GENERAL PARTNERSHIP AS A VEHICLE TO DEFRAUD PLAINTIFFS
47. Defendants Newman, Rolfe and Rabbitt formed TC3M as a "general
partnership" effective February 1, 1993.
48. The TC3M "Agreement of General Partnership" which is co-signed by
DCI represents that persons purchasing TC3M "Units" are associating themselves
(a) to acquire and operate a specialized mobile radio system known as SMR in
Minneapolis/St. Paul, Minnesota; (b) to acquire all equipment or assets
necessary to operate such systems and "convert to digital"; and (c) to carry out
the business of ownership, management and operation of the acquired system.
49. While purporting to seek the funds to finance the foregoing
business venture, the DCI Defendants engaged in a general solicitation of
investors including persons unsophisticated in general business matters who had
no experience in the SMR or wireless communications industry and who expected to
spend no time managing TC3M's business.
50. The named Plaintiffs and, on information and belief, the vast
majority of the Class of TC3M purchasers they seek to represent, have no
training or experience in the field of SMR or wireless communication; and only
limited or unrelated experience in business management in general.
(a) Plaintiff Paula Kristian is 42 years old. She resides in
Raleigh, North Carolina. Since January 1992, Ms. Kristian has been
engaged in the practice of traditional Chinese medicine. She has
received college degrees in health education and language. She has no
prior training or experience in SMR or wireless communication; nor has
she had any prior training or experience in business management in
general.
(b) Plaintiff Sophia W. Norman is 74 years of age. She has
resided in Canton, Ohio her entire life. Apart from occasional
housekeeping jobs, Ms. Norman has not been employed outside the home.
She attended high school but has no training or experience in SMR or
wireless communication; nor has she had any prior training and
experience in business management in general.
(c) Plaintiff Thomas Brockway is 44 years old. He resides in
St. Paul, Minnesota and since June 1971, has been employed by U.S. West
in a marketing capacity. Mr. Brockway has a college degree but has no
prior training or experience in SMR or wireless communication. Mr.
Brockway has never owned or managed a business.
(d) Plaintiff Ronald T. Berger is 41 years old. He resides in
Yakima, Washington, and is currently employed as a real estate agent
and has prior work experience as a permit agent for Shell Oil Co. Mr.
Berger has a high school degree but has no prior training or experience
in SMR or wireless communication or business management generally.
51. Due to their lack of training and experience in wireless
communications and/or business management, the named Plaintiff's and the vast
majority of Class members were rendered incapable of exercising the powers
normally possessed by a general partner.
52. The named Plaintiffs and the vast majority of the Class they seek
to represent, intended to, and did in fact, rely on the entrepreneurial and
managerial efforts of others to produce a return on their investment in TC3M.
53. The formation of TC3M as a general partnership, and the sale of
general partnership interests to Plaintiffs, was part of a scheme, device or
artifice to defraud Plaintiffs and evade compliance with applicable state and
federal securities laws.
DCI Fraudulently Concealed
the Risks of General Partnership
54. Defendants Newman, Rolfe and Rabbitt knew that by using the TC3M
partnership as a vehicle to obtain funds from the general public, they would
subject TC3M's investors to needless risks associated with general partnership.
55. Defendants Newman, Rolfe and Rabbitt caused DCI and DCID
telemarketing personnel to make the following misrepresentations or omissions
intended to conceal the risks of general partnership:
(a) That investors need not obtain the advice of an attorney,
accountant or other investment adviser before becoming a TC3M
"partner."
(b) That the integrated SMR systems to be acquired by TC3M were,
and would continue to be, managed by Motorola Inc., the
premier manufacturer of wireless communication equipment,
including equipment used in "digital SMR systems."
(c) That DCI itself was competent to manage the integrated SMR
system and oversee the digital "build out;" and that DCI would
be involved in TC3M's management in order to insure the
capital appreciation of DCI's 25% retained interest in TC3M.
(d) That DCI had already obtained one or more offers to purchase
the TC3M assets at a price which would generate an immediate
and substantial profit without risk to the investors and
without the need for any management effort by the investors.
(e) That TC3M could be and would be converted to a corporation or
other limited liability structure at the first partnership
meeting.
(f) That TC3M's partners would not risk personal liability because
the value of TC3M's assets (the SMR licenses, transmission
cite and broadcast equipment) greatly exceeded the amount of
any foreseeable partnership liability.
(g) That the TC3M partners' risk of personal liability for
partnership debts was or would be covered by insurance at no
additional cost to the partners.
DCI Retained Complete Control of Crucial Aspects
of TC3M'S Operations
56. During the nine months between the effective date of the formation
of the TC3M partnership (February 1, 1993) and the date of the first partnership
meeting (scheduled 30-60 days after completion of the TC3M offering and actually
held on October 31, 1993), the DCI Defendants reserved to themselves the
exclusive authority and responsibility to use partnership funds to complete the
following tasks:
a) Locate, evaluate and acquire from existing SMR operators in
the Twin Cities area, FCC licenses, transmission sites and
broadcast equipment of a type and quantity sufficient to meet
TC3M's stated objectives;
b) Integrate the existing SMR licenses, transmission sites and
broadcast equipment into a single area-wide analog SMR System
capable of generating an immediate positive cash flow;
c) Obtain from digital equipment manufacturers and/or others
knowledgeable in the field the technical designs or plans
(including construction and equipment specifications) needed
to convert the integrated analog SMR System into a "digital
mobile network" capable of serving 40,000 end users within one
to five years;
d) Obtain construction bids or other proposals by which the
foregoing manufacturers would agree to implement their digital
conversion plans at a cost of $2.5 million or less.
57. It was expressly understood and agreed that DCI would be TC3M's
exclusive agent for the purpose of selecting, purchasing and integrating the SMR
licenses, transmission sites and analog broadcast equipment needed for the
success of the TC3M venture; and that the TC3M partners would have no authority
to remove DCI as its agent or modify the terms of DCI's agency. DCI would be the
sole and exclusive manager of TC3M and would be answerable only to itself.
58. It was further understood and agreed that, from and after the date
of the initial partnership meeting, the management and control of the
partnership's business would be exclusively in the hands of a management
committee; that DCI would continue to be involved, and that the individual
partners would not be required or able to participate except with respect to
organizational changes of the type that normally require shareholder vote in the
case of a corporation, or a limited partner vote in the case of limited
partnership.
DCI Misrepresented the Need to Register
the TC3M "Units" as Securities
59. The TC3M "Units" are "Investment Contracts" pursuant to which the
individual Plaintiffs and other Class members invested their money in a common
enterprise with the expectation of profits to be derived from the
entrepreneurial and management efforts of others.
60. The DCI promotional materials which Defendants Newman, Rolfe and
Rabbitt prepared and caused to be distributed to Plaintiffs, falsely represent
that DCI'S widespread promotion and sale of investment contracts in the form of
TC3M partnership "Units" need not be registered with the United States
Securities Exchange Commission and/or State securities regulators.
61. Notwithstanding DCI's receipt, beginning at least in May 1993, of
formal notices that the sales of TC3M "Units" violated state laws prohibiting
the sale of unregistered securities, DCI continued to distribute promotional
materials misrepresenting the need for registration while failing to disclose
said notices of violation.
62. Defendants DCI, Newman, Rolfe and Rabbitt made the foregoing
misrepresentations or omissions of fact regarding the need for registration of
TC3M "Units" as securities in order to evade the securities laws and to avoid
disclosure of their scheme to obtain partnership funds by fraud.
The DCI Defendants Fraudulently
Misappropriated Partnership Funds
63. On March 1, 1993, DCI registered to do business under the name
"Twin Cities 3rd Mobile Associates."
64. Between February 1993 and October 1993, the DCI Defendants
collected $13.2 million in TC3M partnership funds.
65. Upon receipt of payments made to TC3M, Defendants Newman and
Rabbitt delivered TC3M certificates for Units sold to Plaintiffs, and signed the
certificates as the authorized agent of TC3M.
66. Upon information and belief, prior to October 30, 1993, Defendants
Newman, Rolfe and Rabbitt, and no one else, each had signature authority on all
TC3M bank accounts and on any other account into which TC3M partnership funds
were deposited.
67. Upon information and belief, between February 1993 and October 30,
1993, Defendants Newman, Rolfe and Rabbitt directed or approved the disbursement
of $10,700,000 of TC3M's partnership funds (i.e. 80% of the partners' capital
contributions).
68. The TC3M Offering Memorandum represents that all but $2,640,000 of
the funds obtained from TC3M investors would be used to purchase and enhance the
SMR systems that DCI would acquire for TC3M, and that DCI would retain a 25%
interest.
69. Rather than use TC3M'S money to acquire the SMR systems as
represented, the Defendants DCI, Newman, Rolfe and Rabbitt misappropriated and
misused at least $5 million of TC3M'S money to, among other things, pay DCI's
unauthorized commissions and expenses; and to make unauthorized payments to
Defendant DCID.
70. Upon information and belief, the Defendants DCI, Newman, Rolfe and
Rabbitt also used TC3M'S money to acquire interests in SMR systems in Memphis,
Omaha and New Orleans, and to cover costs or liabilities incurred by DCI in
connection with the promotion and sale of other general partnerships formed by
DCI as part of similar schemes to defraud investors.
71. At times not currently known to Plaintiffs, but ending at some time
during 1993, DCI did contract to purchase the SMR licenses and transmitting
equipment of several existing Twin Cities SMR business that controlled a
combined total of 57 SMR channels (the "Purchased Assets"). But after DCI had
acquired the Purchased Assets, which it held in trust for TC3M, DCI and
Defendants Newman, Rolfe and Rabbitt intentionally delayed and withheld the
transfer of some or all of the Purchased Assets to TC3M from approximately
October 31, 1993, until approximately June of 1994.
72. Defendants DCI, Newman, Rolfe and Rabbitt delayed the transfer of
the Purchased Assets to prevent TC3M and the Class members from knowing the true
value of the Purchased Assets. If TC3M and the Class members had known the true
value, DCI's ability to sell SMR systems in other areas of the country would
have been impaired. TC3M incurred substantial additional and unnecessary
out-of-pocket expenses to compel DCI to complete the transfer of the Purchased
Assets.
THE DCI DEFENDANTS, THE DCID DEFENDANTS AND QPI MADE
MATERIAL MISREPRESENTATIONS AND OMITTED MATERIAL FACTS
IN CONNECTION WITH THEIR SALE OF TC3M "UNITS."
73. In order to induce Plaintiffs Brockway, Kristian, Norman, Berger
and the Class of TC3M purchasers they seek to represent to invest in TC3M, the
Defendants made written and oral statements which contained material
misrepresentations or omitted material facts.
The DCI Defendants and DCID Defendants Misrepresented
the Use of TC3M Offering Proceeds.
74. The TC3M offering memorandum begins with a chart on page 1 which
shows a total Contribution of $13,200,000 for 1650 TC3M "Units." The same chart
shows only $2,640,000 of this money being spent on "offering costs," with
$8,060,000 to be used to cover the "license and system costs" -- i.e., the cost
of the SMR licenses and related equipment which DCI was to acquire with funds
obtained from TC3M investors.
75. In fact, the cost of acquiring all 57 SMR channels was $3,040,000.
The balance of the offering proceeds ($5,020,000) was misappropriated by
Defendants as aforesaid. This misappropriated amount was in addition to the
$2,640,000 which the offering memorandum says will be spent on "offering costs."
76. The TC3M "Partnership Agreement" includes an "Asset Purchase
Agreement" which states that DCI will retain a 25% interest in TC3M's assets as
and for compensation for DCI's promotional efforts; but none of the offering
materials disclose DCI's additional retention of $5,020,000 that was intended
for "license and system costs."
77. The statement that DCI retain a 25% interest, without reference to
the foregoing misappropriation is, in light of the circumstances in which it was
made, misleading.
78. DCI, Newman, Rolfe and Rabbitt, or persons acting at their
direction or under their supervision and control, prepared and published the
Offering Memorandum and Partnership Agreement containing the forgoing material
misrepresentations and omissions.
79. Defendants DCI, Newman, Rolfe and Rabbitt or persons acting at
their direction or under their supervision and control, caused these materials
to be distributed to Plaintiffs Brockway, Kristian, Norman, Berger and all other
TC3M purchasers.
80. Defendants DCID, Woods, O'Shaughnessy and Kerster, or persons
acting at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and approximately one-third of
the TC3M purchasers.
81. By the foregoing misrepresentations and/or omissions of material fact
regarding the use of offering proceeds, the aforesaid Defendants vastly and
falsely understated the risk associated with the purchase of TC3M "Units."
82. Plaintiffs Brockway, Kristian, Norman, Berger and the Class of TC3M
purchasers they seek to represent purchased TC3M Units in reliance on the truth
and accuracy of the foregoing statements regarding use of TC3M offering
proceeds.
83. Based upon the foregoing statements, Plaintiffs Brockway, Kristian,
Norman, Berger and the Class of TC3M purchasers they seek to represent,
reasonably believed that $10,560,000 of the $13,200,000 in TC3M offering
proceeds (i.e., 80% of each partners capital contribution) would be capitalized
in "the form of partnership assets and operating cash; and that only $2,640,000
(20% of the partners capital contribution) would be consumed in offering costs."
84. In truth and fact, only $4,780,000 (i.e, 75% of the assets costing
$3,040,000 plus $2,500,000 cash) was actually "capitalized," which represents
only about 36% of the partners capital contribution.
The DCI and DCID Defendants Misrepresented
the Fair Market Value of TC3M Assets.
85. DCI's "Summary Overview" of the TC3M offering contains the
following statement under the heading Current Value: "While recognizing and
evaluating the assets being offered to TC3M through direct comparison to recent
selling prices of cellular and SMR operations is only approximate, it is
interesting to note: . . . Fleet Call acquired DisCom's east coast SMR business
and Spectrum coverage at just under $7,000 per end user. If we use these figures
as an indicator of current value, the SMR system in Minneapolis/St. Paul could
well be worth between $24 and $35 million in today's market." (Emphasis added).
86. DCI's Summary Overview also states under the heading Security &
Control: "You are purchasing a portion of a specialized mobile radio company.
Based on the acquisition described above, the 57 channel dispatched business
could be appraised at $24 to $35 million. The general partner's 75% share would
be at least $18 million."
87. The true market value of TC3M's assets (the SMR licenses,
transmission sites and broadcast equipment) was approximately what DCI had
recently paid to acquire them.
88. The foregoing statements regarding the fair market value were made
in reckless disregard of the facts, known to Defendants Newman, Rolfe and
Rabbitt, including the actual cost of acquisition. Said Defendants had no
reasonable basis for their statement that the aforesaid TC3M's assets had a fair
market value 8 to 10 times their actual cost.
89. By alluding to SMR channels sold in other markets and under
differing circumstances without disclosing the recent acquisition cost of TC3M's
assets, the foregoing statements omit material facts needed to make the
statements made regarding "comparable" sales, in light of the circumstances in
which they were made, not misleading.
90. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction and under their supervision and control, created, prepared and
published the Summary Overview containing the foregoing material
misrepresentations and omissions.
91. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at the
direction or under their supervision and control, caused the "Summary Overview"
containing the foregoing material misrepresentations and omissions to be
distributed to Plaintiffs Brockway, Kristian, Norman, Berger and all other
TC3M purchasers.
92. Defendants DCID, Woods, O'Shaughnessy and Kerster or persons acting
at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and approximately one-third of
the TC3M purchasers.
93. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class of TC3M purchasers they seek to represent, relied on the truthfulness
and accuracy of the foregoing statements regarding the market value of TC3M's
assets when they purchased their "Units" in TC3M.
94. Based upon the foregoing statements regarding the current market
value of TC3M's assets, Plaintiffs Brockway, Kristian, Norman, Berger and the
Class of TC3M purchasers they seek to represent, reasonably believed that the
assets of TC3M had a current fair market value greatly in excess of the amount
of their total investment.
DCI and DCID Misrepresented DCI'S Abilities,
As Well As the Capabilities of Existing
SMR Digital Technology
95. DCI's original marketing brochure captioned "Twin Cities 3rd Mobile
states: "by enhancing specialized mobile radio (SMR) with 'digital,' it will
increase the number of mobile phone users on the system ten fold and
(effectively) offer a third cellular-type mobile phone service, where only two
companies now exist." (Emphasis added).
96. DCI's Offering Memorandum for 937 TC3M "Units" (expiring July 31,
1993) states: "The [digital mobile] services are expected to include enhanced
2-way radio dispatch and paging and will also interconnect with the switched
public telephone system and will be comparable to in quality and features to
that provided by cellular telephone operations . . . the company's mobile
telephone services are expected to be competitive with those offered by cellular
mobile telephone providers in terms of quality of service, features offered,
pricing of system, access and air time utilization with comparable capability
and size of subscriber Units." (Emphasis added).
"The company believes that the quality of its digital mobile network
will permit it to provide service competitive with cellular telephone service in
Minneapolis/St. Paul . . . [T]he company expects to be able to provide, in that
market, not only enhanced radio dispatch and paging service, but also mobile
telephone service which is competitive with that provided by cellular operators
in the same market." (Emphasis added).
97. DCI's "Summary Overview" states: the principles [sic], management,
sales representatives, technical and customer service staff [of DCI] bring
together the vast store of knowledge and the network of industry professionals
necessary to locate, purchase, package, market and facilitate the development of
[digital mobile radio] projects in prime urban markets." (Emphasis added).
98. Defendants Newman, Rolfe and Rabbitt, or persons acting at their
direction or under their supervision and control created, prepared and produced
the TC3M Brochure, Offering Memorandum and Summary Overview containing the
foregoing statements with the intention of distributing it to prospective TC3M
purchasers.
99. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction or under their supervision and control, caused the TC3M
Brochure, Offering Memorandum and Summary Overview, to be distributed to
Plaintiffs Brockway, Kristian, Norman, Berger and/or other members of the Class
of TC3M purchasers they seek to represent.
100. Defendants DCID, Woods, O'Shaughnessy and Kerster or persons
acting at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and/or other persons whose
purchase of TC3M Units was solicited by DCID.
101. At the time that Defendants Newman, Rolfe and Rabbitt prepared and
distributed the forgoing promotional materials, they knew (a) that they had no
basis, in actual experience on which to claim that existing digital mobile
technology was capable of converting TC3M's analog SMR systems into a viable
competitor in the cellular phone market, and (b) that none of the principals or
staff of DCI had the technical expertise, experience or knowledge to convert the
existing SMR analog systems to a "digital mobile network".
102. Plaintiffs Brockway, Kristian, Norman, Berger and/or other members
of the Class they seek to represent relied on the truth and accuracy of the
statement contained in the forgoing promotional material when they purchased
their TC3M "Units."
103. Based on the forgoing statements regarding the competence of DCI
and the capacity of existing "digital" technology, Plaintiffs reasonably
believed that their investment in TC3M would result in a "Third Mobile Network"
capable of competing in the cellular phone market.
DCI and DCID Defendants Misrepresented
the Cost of Converting to a "Digital Mobile Network"
104. The "Agreement of General Partnership" states that it is the
purpose of the TC3M partnership to acquire existing SMR systems in
Minneapolis/St. Paul and to "convert to digital".
105. The Offering Memorandum, under the heading Cost of Infrastructure
contains the following statement: "The cost of the infrastructure comprising
base station radio transmitters and receivers and related equipment, digital
switches and site preparation and installation services -- for the company's
initial network in Minneapolis/St. Paul is estimated to be approximately
$2,500,000 . . . "
106. The chart on page 1 of the Offering Memorandum states that
$2,500,000 will be spent on the aforementioned "digital buildout".
107. Defendants DCI, Newman, Rolfe, Rabbitt and Evans, or persons
acting at their direction or under their supervision and control, created and
produced the Agreement of General Partnership and Offering Memorandum containing
the forgoing statements.
108. Defendants DCI, Newman, Rabbitt and Rolfe, or persons acting at
their direction or under their supervision and control, caused the forgoing
Agreement of General Partnership and Offering Memorandum to be distributed to
Plaintiffs Brockway, Kristian, Norman, Berger and all other members of the Class
they seek to represent.
109. Defendants DCID, Woods, O'Shaughnessy and Kerster or persons
acting at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and approximately one-third of
the TC3M purchasers.
110. The true cost of constructing the planned "digital mobile network"
from the existing TC3M's existing SMR systems was and is between $15 and 30
million.
111. At the time they prepared and distributed the forgoing promotional
materials to Plaintiffs, Defendants DCI, Newman, Rolfe, Rabbitt and Evans knew
and Defendants DCID, Woods, O'Shaughnessy and Kerster either knew or should have
known, that the true cost of converting TC3M's existing SMR systems into a
"digital mobile network" greatly exceeded $2,500,000.
112. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class they seek to represent relied upon the truth and accuracy of the
forgoing statements regarding the cost of converting to "digital" at the time
they purchased their TC3M Units.
113. Based upon the forgoing statements, Plaintiffs Brockway, Kristian,
Norman, Berger and the members of the Class they seek to represent were
fraudulently induced to believe and reasonably did believe (a) that the cost of
converting TC3M's existing SMR systems to "digital" was approximately
$2,500,000; (b) that the $2,500,000 in offering proceeds that was allocated to
"digital buildout" would be sufficient, and (c) that additional capital would
not be required to complete the conversion to "digital."
The DCI and DCID Defendants Misrepresented
Existing Facts and Conditions on Which they Based
their Cash Distribution Projections.
114. Among the TC3M promotional materials which were prepared and
distributed to investors by DCI is a green, heavy-gauge document containing
capital appreciation and cash distribution projections (herein "Greensheet").
115. The Greensheet purports to project TC3M's operations over a
five-year period during which TC3M's SMR customers are projected to increase
from 8,000 "end users" in year one, to 40,000 "end users" in year five.
116. Under the heading Cash Distributions, the Greensheet shows a
return, in year one, of $2,618 for each $8,000 partnership "Unit;" $7,848 in
year three, and $13,900 in year five. The total "cash distribution" for each
$8,000 partnership "Unit" for five years is $39,270 (almost five times the
$8,000 investment).
117. A note at the bottom of the Greensheet states that the forgoing
projections are ". . . based on industry averages and certain assumptions
generally accepted by industry analysts."
118. The forgoing cash distribution projections are based on a revenue
projection that assume an average SMR subscriber fee of approximately $100 a
month.
119. The foregoing projections of the annual return per $8,000 "Unit"
also assume that revenues will be increased by the planned digital buildout
without additional investment or financing.
120. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction or under their control, prepared the forgoing projections and
produced the Greensheet for use in promoting the sale of TC3M Units.
121. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction or under their supervision and control, caused the Greensheet to
be distributed to Plaintiffs Brockway, Kristian, Norman, Berger and all other
TC3M purchasers.
122. Defendants DCID, Woods, O'Shaughnessy and Kerster or persons
acting at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and approximately one-third of
the TC3M purchasers.
123. At the time the forgoing Defendants prepared and/or distributed
the Greensheet to Plaintiffs, they knew or should have known (a) that the
average monthly fee paid by the SMR customers of the businesses acquired by TC3M
was approximately $10.50 and that the industry average monthly fee for systems
serving a normal SMR customer mix was substantially less than $100, and (b) that
significant increases in revenue could not be derived from the planned "digital
buildout" without substantial amounts of additional capital.
124. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class of TC3M purchasers they seek to represent relied upon the truth and
accuracy of the forgoing statements when they purchased their TC3M Units.
125. Based upon the forgoing statements, Plaintiffs Brockway, Kristian,
Norman, Berger and the members of the Class of TC3M purchasers they seek to
represent were falsely induced to believe and reasonably did believe that they
would promptly receive substantial cash distributions in return for their
investment without further capital infusion into the TC3M venture.
The DCI and DCID Defendants Misrepresented
the Existing Facts and Conditions on Which
they Based their Capital Appreciation Projections.
126. The Greensheet also contains a chart headed "Equity Projections"
which purports to project increases in the equity value of the TC3M partnership
over a period of five years. The Greensheet states that the "total equity value"
of the TC3M partnership will increase from $50,688,000 in year one to
$253,440,000 in year five.
127. The TC3M offering materials that were produced and distributed by
DCI contain the following additional statements:
TC3M's business plan includes intentionally conservative projections
based upon market surveys and indicates that the partners' equity in the company
will be worth eleven times the initial investment the third year of digital
operations, growing to nineteen times the capital contributions by the close of
year five;
DCI anticipates that TC3M will grow to $192 million company by year
three and $320 million or more by the end of the fifth year of operation.
128. According to a note at the bottom of the Greensheet, the projected
equity values are ". . . based on industry averages and certain assumptions
generally accepted by the industry analysts."
129. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction or under their supervision and control prepared the forgoing
promotional materials for use in promoting the sale of TC3M "Units."
130. Defendants DCI, Newman, Rolfe, Rabbitt, or persons acting at their
direction or under their supervision and control, caused the forgoing
promotional materials including the Greensheet to be distributed to Plaintiffs
Brockway, Kristian, Norman, Berger and all other TC3M purchasers.
131. Defendants DCID, Woods, O'Shaughnessy and Kerster or persons
acting at their direction or under their supervision and control, caused these
materials to be distributed to Plaintiff Berger and approximately one-third of
the TC3M purchasers.
132. At the time for forgoing promotional materials were prepared
and/or distributed to Plaintiffs, the forgoing Defendants knew, or should have
known, and failed to disclose, (a) that SMR "digital mobile network" did not
have a commercially viable track record on which to base future equity
projections, and (b) that Defendants' assumptions about the valuation of SMR
digital mobile networks properties did not have general acceptance among
industry analysts.
133. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class of TC3M purchasers they seek to represent relied on the truth and
accuracy of the forgoing statements when they purchased their TC3M Units.
134. Based on Defendants' statements regarding the projected equity
value of an investment in TC3M, Plaintiffs Brockway, Kristian, Norman, Berger
and the members of the Class of TC3M purchasers they seek to represent were
fraudulently induced to believe, and reasonably did believe (a) that Defendants'
had based their projections on an existing market for SMR "digital mobile
networks" and (b) that Defendants' projections regarding equity appreciation
were based on generally accepted standards applicable to SMR digital mobile
networks.
DCI, DCID, and QPI Misrepresented Investments
in TC3M as being "IRA Approved".
135. DCI's "procedures" for "How to Get Involved" in the TC3M Venture
contain the statement: "If you wish to participate with IRA, SEP or Keogh funds,
you will need to fill out the enclosed forms to open an account at Qualified
Pensions, Inc. (QPI)."
136. QPI's "Investment Authorization" form contains the following
statement applicable to investments in general partnerships: "QPI will review
the investment to ensure its compliance with government regulations with respect
to prohibited transactions . . ."
137. Defendants DCI, Newman, Rolfe and Rabbitt, or persons acting at
their direction or under their control, prepared DCI's statement of "procedures"
and distributed it along with QPI's "investment authorization" form to
Plaintiffs Brockway, Kristian, Norman, Berger and all other TC3M purchasers.
138. Defendant QPI prepared QPI's investment authorization form and
either caused the distribution to Plaintiffs or knew of and approved its
distribution by DCI and/or DCID as aforesaid.
139. DCI and/or DCID telemarketing personnel acting at the direction or
under the supervision and control of the forgoing Defendants, represented to
certain members of the Class of TC3M purchasers, that their investments in TC3M
"Units" were "IRA approved."
140. When contacted by certain members of the Class of TC3M purchasers,
QPI representatives stated that QPI approved the purchase of TC3M "Units" for
IRA or other tax qualified plans.
141. The Agreements of General Partnership that were forwarded to
Plaintiffs Brockway and Kristian and approximately one-third of the members of
the Class they seek to represent, were co-signed by QPI acknowledging that their
investments in TC3M had been accepted and approved by QPI as part of their IRA
or other tax qualified plan.
142. The purchase of TC3M "Units" is not IRA approved. In fact, under
federal and state tax laws and regulations, investments structured as general
partnership interests are undesirable investments for tax-qualified retirement
plans.
143. At the time the foregoing written and oral statements were made or
distributed to Plaintiffs, the aforesaid Defendants knew, or should have known
that investments in TC3M "Units" were not "IRA approved." Said Defendants also
knew, or should have known, but failed to inform Plaintiffs, that general
partnership interests are not appropriate investments for IRA's or other tax
qualified plans.
144. Plaintiffs Brockway, Kristian, and approximately one-third of the
members of the Class they seek to represent relied on the truth and accuracy of
the forgoing statements when they purchased their TC3M "Units" using IRA
"rollover" funds.
145. Based upon the foregoing statements, Plaintiffs Brockway and
Kristian, and approximately one-third of the Class of TC3M purchasers they seek
to represent were fraudulently induced to believe, and reasonably did believe
(a) that their investments in TC3M were "IRA approved" and (b) that TC3M "Units"
could be purchased with "rollover" IRA funds without adverse tax consequences.
CAUSES OF ACTION
Count One - Employment of Device, Scheme or
Artifice to Defraud
(Violation of Section 10[b] of the Securities Exchange Act,
15 U.S.C. SS. 78j[b]; and SEC Rule 10b-5 17 C.F.R. SS. 240.10b-5)
146. Defendants DCI, Newman, Rolfe, Rabbitt and Leonard, by engaging in
the conduct described in paragraphs 22-31 and 47-72 and Defendants DCID, Woods,
O'Shaughnessy and Kristian, by engaging in the conduct described in paragraphs
32-41 and 47-72, (which conduct involved use of the means of transportation or
communication in interstate commerce or the mails) have directly or indirectly,
with scienter, (1) employed devices, schemes or artifices to defraud and/or (2)
engaged in transactions, practices or courses of business which operated or
would operate as a fraud or deceit upon Plaintiffs TC3M and/or Plaintiffs
Brockway, Kristian, Norman, Berger and each member of the Class of TC3M
purchasers they seek to represent.
147. By reason of the foregoing, Defendants DCI, Newman, Rolfe and
Rabbitt, and Defendants DCID, Woods, O'Shaughnessy and Kerster, and each of
them, violated Section 10(b) of the Exchange Act, 15 U.S.C. SS. 78j(b), and Rule
10b-5 promulgated thereunder, 17 C.F.R. SS. 240.10b-5.
148. The aforesaid Defendants, and each of them, are jointly and
severally liable to TC3M and to Plaintiffs, Brockway, Kristian, Norman, Berger
and the members of the Class they seek to represent, for the damages caused by
the aforesaid violation in an amount which has not yet been determined.
Count Two - Offer and Sale of Securities Without
Federal Securities Registration
(Violations of Section 5[a] and 5[e] of the Securities Act,
15 U.S.C. SS. 77e[a] and 77e[c])
149. Defendants DCI, Newman, Rolfe, Rabbitt and Leonard, by engaging in
the conduct described in paragraphs 22-31 and 47-72 and Defendants DCID, Woods,
O'Shaughnessy and Kerster, by engaging in the conduct described in paragraphs
32-41 and 47-72 made use of the means or instruments of transportation or
communication in interstate commerce or of the mails to offer to sell or to sell
securities in the form of investment contracts; and said Defendants carried such
securities or caused them to be carried through the mails or in interstate
commerce, for the purpose of delivery after sale.
150. No registration statement has been filed with the United States
Securities Exchange Commission, nor has any such registration statement been in
effect with respect to such securities.
151. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class they seek to represent, each completed their purchase of such
securities from the aforesaid Defendants as of the date of the closing of the
TC3M offering on September 30, 1993.
152. The aforesaid Defendants are jointly and severally liable to
Plaintiffs Brockway, Kristian, Norman, Berger and the members of the Class that
seek to represent the consideration they paid for such securities with interest
thereon upon tender of such securities.
Count Three - Sale of Securities by Means of
Untrue Statements or Omission of Material Facts
(Violation of 1933 Act Section 12[2] 15 U.S.C. 77l[2])
153. Defendants DCI, Newman, Rolfe, and Rabbitt, by engaging in the
conduct described in paragraphs 22-31 and 73-145; Defendant Evans by engaging in
the conduct described in paragraphs 30 and 104-113; Defendants DCID, Woods,
O'Shaughnessy and Kerster, by engaging in the conduct described in paragraphs
32-41 and 73-145; and Defendant QPI, by engaging in the conduct described in
paragraphs 42-46 and 135-145; made use of the means or instruments of
transportation or communication in interstate commerce or of the mails to offer
for sale or sell securities in the form of investment contracts by means of a
prospectus and by oral communications which include untrue statements of
material fact or omit to state material facts necessary in order to make the
statements, in light of the circumstances in which they were made, not
misleading.
154. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class they seek to represent purchased securities which were offered for
sale and sold by said Defendants. Plaintiffs' purchases were completed as of the
closing of the TC3M offering on September 30, 1993.
155. Plaintiffs Brockway, Kristian, Norman, Berger and the members of
the Class they seek to represent did not know of the aforesaid
misrepresentations of the untruth or omissions of material fact.
156. By reason of the foregoing, the aforesaid Defendants are liable to
the named Plaintiffs and each member of the Class they seek to represent for the
consideration they paid for such securities with interest upon tender of such
securities.
Count Four - Obtaining Money by Means of Untrue
Statements or Omissions of Material Fact Made In
Connection with the Sale of Securities
(Alternate Violation of Exchange Act Section 10[b]
15 U.S.C. SS. 78j[b], and SEC Rule 10b-5 17 C.F.R. SS. 240.10b-5)
157. Defendants DCI, Newman, Rolfe and Rabbitt, by engaging in the
conduct described in paragraphs 22-31 and 73-145; Defendant Evans, by engaging
in the conduct described in paragraph 30 and 104-113; Defendants DCID, Woods,
O'Shaughnessy and Kerster, by engaging in the conduct described in paragraphs
32-41 and 73-145; and Defendant QPI, by engaging in the conduct described in
paragraphs 42-46 and 135-145, (which conduct includes use of the means or
instruments of transportation or communication in interstate commerce and/or the
mails), have, directly or indirectly with scienter, obtained money or property
by means of untrue statements of material fact or omissions to state material
facts necessary to make the statements they made, in light of the circumstances
in which they were made, not misleading.
158. By reason of the foregoing, all of the above-named Defendants
violated Section 10(b) of the Exchange Act, 15 U.S.C. SS. 78j(b), and Rule 10b-5
promulgated thereunder, 17 C.F.R. SS. 240.10b-5.
159. Plaintiffs Brockway, Kristian, Norman, Berger and the member of
the Class they seek to represent, purchased TC3M "Units" in reliance upon the
aforesaid untrue statements or material omissions of fact.
160. The above referenced Defendants and each of them are jointly and
severally liable to Plaintiffs Brockway, Kristian, Norman, Berger and the
members of the Class they seek to represent, for the damages caused by their
purchase of TC3M "Units" in an amount which has not yet been determined.
Count Five -- Controller Liability
161. Plaintiffs reallege all of the allegations contained in Paragraphs
1 through 153 herein and incorporate the same by reference as if set forth in
full herein.
162. Defendants Newman, Rolfe and Rabbitt exercised control over DCI.
163. Defendants Woods, O'Shaughnessy and Kerster exercised control over
DCID.
164. Pursuant to Section 15 of the Securities Act of 1933, 15 U.S.C.
SS. 77, and Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. SS.
78t(a), Defendants Newman, Rolfe and Rabbitt; and Defendants Woods,
O'Shaughnessy and Kerster jointly and severally liable with DCI and DCID for DCI
and DCID's violations of Section 12(1) and 12(2) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the
Securities Exchange Commission.
Count Six -- Racketeer Influenced and Corrupt
Organizations Act (RICO)
165. By engaging in the conduct described in SS. 22-145, all of the
aforesaid Defendants have, on numerous occasions, engaged in conduct which
violates the Securities Act of 1933 and the Securities Exchange Act of 1934.
166. By engaging in the conduct described in SS. 22-31 and 46-72,
Defendants DCI, Newman, Rolfe and Rabbitt, on numerous occasions, used and
caused to be used mail depositories of the United States Postal Service by both
placing and causing to be placed letters and other mailable matter in the
depositories and by removing and causing to be removed letters and other
mailable matter from the depositories, each such use of the mails in connection
with the schemes and artifices to defraud and to obtain money by means of false
pretenses constituting a separate and distinct violation of 18 U.S.C. SS. 1341.
167. Defendants DCI, Newman, Rolfe and Rabbitt, on numerous occasions,
used and caused to be used wire communications in interstate commerce, by both
making and causing to be made wire communications, each such use of a wire
communication in connection with the schemes and artifices to defraud and obtain
money by means of false pretenses constituting a separate and distinct violation
of 18 U.S.C. SS. 1343.
168. Defendants DCI, Newman, Rolfe and Rabbitt, on numerous occasions,
caused and induced persons to travel in interstate commerce, and transported or
caused to be transported goods and monies of the value of Five Thousand Dollars
($5,000) or more in interstate commerce, each such use of interstate commerce in
the execution or concealment of the scheme or artifice to defraud constituting a
separate and distinct violation of 18 U.S.C. SS. 2314.
169. The activities of the Defendants in the formation and execution of
the scheme to defraud Class members had a pervasive and debilitating impact on
the efforts of said Class members to participate and compete successfully in
investment opportunities in the various States of the United States. The assets
of Class members were diverted to serve the interests of others and not those of
the Class; and additional services and assets have been required to sustain the
value of the Class members' investment in the Units. Class members have been and
are being required to pay more for their participation in these investment
opportunities and they are being deprived of the opportunity to invest in other
business ventures.
170. The Class members are "persons" within the meaning of 18 U.S.C.
SS. 1961(3) and 1964(c).
171. The Defendants are "persons" within the meaning of 18 U.S.C.
SS. 961(3) and 1962 (c) and (d).
172. The association in fact between DCI, DCID and the individual named
Defendants is an "enterprise" within the meaning of 18 U.S.C. 1961(4) and
SS. 1962(c) and (d).
173. The Defendants were employed by or associated with an enterprise
engaged in, and the activities of which affected, interstate commerce within the
meaning of 18 U.S.C. SS. 1962(c) and (d).
174. With respect to the investment in TC3M Units, the aforesaid
Defendants conspired to, within the meaning of 18 U.S.C. SS. 1962(d) and did
conduct or participate, directly or indirectly, in the conduct of the affairs of
an enterprise in a fashion prohibited by 18 U.S.C. SS. 1962(c) through a pattern
of activity defined by 18 U.S.C. SS. 1961(1)(B) and (5), to-wit:
(a) Multiple instances of Federal securities law - violations.
(b) Multiple instances of mail fraud in violation of 18 U.S.C.
SS. 1341;
(c) Multiple instances of wire fraud in violation of 18 U.S.C.
SS. 1343; and
(d) Multiple instances of transportation fraud in violation of
18 U.S.C. SS. 2314.
175. The Class members were directly and distinctly injured by
Defendants in their investment opportunities in an amount yet to be determined
by reason of a violation of 18 U.S.C. 1962(c) and (d) committed by Defendants.
Count Seven -- Failure to Obtain
State Registration Statements
176. The TC3M Units sold to the Class members are securities as defined
in the Minnesota Uniform Securities Act, and the state law of the various other
states in which Defendants sold Units.
177. At no time have the TC3M Units been classified as exempt
securities under the Securities Act of 1933, the Minnesota Uniform Securities
Act, or the state law of the various other states in which Defendants sold
Units; nor were their sales classified as exempt under either the Securities Act
of 1933, the Minnesota Uniform Securities Act, or the state law of the various
other states in which the Defendants sold Units.
178. Neither preceding the sales, nor during negotiation of the sales,
did the DCI Defendants procure an express or implied authorization from the
Securities Commissioner of any state to sell the Units.
179. At no time did the DCI Defendants comply with the requirements of
the Minnesota Uniform Securities Act, the regulations promulgated under the
Minnesota Uniform Securities Act, or any of the various other states' laws and
regulations with respect to the sale or offering for sale of the Units by filing
in the office of the commissioner any statements or documents as required by law
of the individual states in which the Units were sold.
180. By engaging in the conduct described in SS. 22-41 and 47-72, the
DCI and DCID Defendants sold unregistered securities in violation of the
Minnesota Uniform Securities Act and the securities laws of other states in
which TC3M "Units" were sold.
Count Eight -- Unlawful Sales of Securities Under State Law
181. The untrue statements and omissions described above constitute
violations of Minn. Stat. SS. 80A.01 and 80A.03, and the similar statutes of the
various other states in which Defendants sold Units.
182. By virtue of Defendants' violations of Minn. Stat. SS. 80A.01 and
80A.03, and the similar statutes of the various other states in which Defendants
sold Units, the Class members have been damaged in an undetermined amount in
excess of $50,000.
Count Nine -- State Law Controller Liability
183. Defendants Newman, Rolfe, Rabbitt, Leonard, O'Shaughnessy and
Kerster exercised control over Defendant DCI.
184. Defendants Woods, O'Shaughnessy and Kerster exercised control over
Defendant DCID.
185. Defendants QPI, Newman, Rolfe, Evans, Woods, Rabbitt, Leonard,
O'Shaughnessy and Kerster materially aided in the above-described acts of DCI
and DCID that constitute violations of state security laws.
186. Pursuant to Minn. Stat. SS. 80A.23, subd. 3, and the similar
statutes of the various other states in which Defendants sold Units, Defendants
Newman, Rolfe, Rabbitt, Woods, O'Shaughnessy, Kerster and DCI and DCID are
jointly and severally liable to Plaintiff for an undetermined amount in excess
of $50,000, for DCI and DCID's state security law violations.
Count Ten -- Common Law Fraud
187. Plaintiffs reallege all of the allegations in Paragraphs 1 through
179 herein and incorporate the same by reference as if set forth in full herein.
188. The DCI and DCID Defendants either knew or, pursuant to reasonable
investigation, should have known that their statements described above were
false and that the facts which they omitted were necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
189. The false misrepresentations and omissions concerned material
facts.
190. The misrepresentations and omissions were made with the intention
to induce the Class members to act in reliance upon them.
191. The Class members believed and justifiably relied on the
misrepresentations and omissions made by DCI, DCID, and the individual
Defendants.
192. As a direct and proximate result of the misrepresentations and
omissions made by DCI, DCID, and the individual Defendants, the Class members
have suffered damages in an undetermined amount in excess of $50,000.
Count Eleven -- Mismanagement
193. Plaintiffs reallege all of the forgoing allegations and
incorporate the same by reference as if set forth in full herein.
194. The managerial conduct of Defendants Newman, Rolfe and Rabbitt
towards the members of the Class including, but not limited to, the
misrepresentations and omissions, was negligent.
195. By virtue of the negligence of Defendants Newman, Rolfe and
Rabbitt towards the Class, the Class members have been damaged in an
undetermined amount in excess of $50,000.
Count Twelve -- Breach of Fiduciary Duty by QPI
196. Plaintiffs reallege all of the forgoing allegations and
incorporate the same by reference as if set forth in full herein.
197. At all times relevant hereto, the Class members lacked the
knowledge and sophistication in matters relating to investments in the Units.
198. Many of the Class members are participants in tax-qualified
retirement plans such as pension and profit-sharing trusts and individual
retirement accounts.
199. DCI required that all such Class members purchase Units
through QPI.
200. The Class members who purchased Units through QPI were encouraged
to and did, in fact, repose complete confidence and trust in QPI to handle their
investments in the Units.
201. The acts of QPI set forth above worked a constructive fraud on the
Class members, thereby constituting a breach of their fiduciary duty to said
Class members.
202. QPI's handling of the Class members' investments showed complete
indifference to, and conscious disregard for, the best interests of the Class.
QPI's conduct was in reckless disregard of the Class members' rights with full
realization of the probable results.
203. As a direct and proximate result of QPI's breach of fiduciary
duty, the Class members have suffered damages in an undetermined amount in
excess of $50,000.
Count Thirteen -- Breach of Duty by DCI
204. Plaintiff's reallege all of the forgoing allegations and
incorporate the same by reference as if set forth in full herein.
205. As set forth in detail above, DCI undertook to acquire the
Purchased Assets for TC3M with the intent to create a new network of SMR
licenses in the Twin Cities. DCI overstated the cost of the Purchased Assets and
willfully and intentionally delayed and withheld the transfer of some or all of
the Purchased Assets to TC3M from approximately October 31, 1993, until
approximately June of 1994. DCI delayed the transfer of said assets to prevent
TC3M and the Class members from knowing the true value of the Purchased Assets.
206. Despite DCI's express representations that the Purchased Assets
could be converted into a new network of SMR licenses, TC3M has since determined
that the technology to convert the Purchased Assets to an enhanced digital
system is not yet fully tested or available and that if and when such technology
is available it will cost at least five to ten times the amount represented by
DCI.
207. By its conduct DCI breached its contractual and fiduciary duties
to TC3M with respect to the Purchased Assets.
208. As a direct and proximate result of DCI's breach of its
contractual and fiduciary duties, TC3M has suffered damages in an undetermined
amount in excess of $50,000.
JURY DEMAND
Plaintiffs demand trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for judgment as follows:
1. Awarding money damages in an amount yet to be determined in favor of
Plaintiffs Thomas Brockway, Sophia W. Norman, Paula Kristian and Ronald T.
Berger individually and all others similarly situated and against DCI and DCID
jointly and severally;
2. Awarding Plaintiffs Thomas Brockway, Paul Kristian, Sophia Norman
and Ronald T. Berger and the members of the Class they represent the
consideration they paid for their TC3M "Units" with interest upon tender of such
securities.
3. Awarding money damages in an amount yet to be determined in favor of
Plaintiffs Thomas Brockway, Sophia W. Norman, Paula Kristian, and Ronald T.
Berger individually and all others similarly situated and against Defendants
Howard Newman, Dave Rolfe, Leonard B. Evans, Gerald L. Woods, Don Rabbitt, James
Leonard, Brian J. O'Shaughnessy and Lawson Kerster, jointly and severally;
4. Awarding money damages in an amount yet to be determined in favor of
Plaintiffs Thomas Brockway, Sophia W. Norman, Paula Kristian and Ronald T.
Berger individually and all others similarly situated and against Defendant QPI;
5. Awarding money damages in an amount yet to be determined in favor of
Plaintiff TC3M and against Defendant DCI;
6. Awarding Plaintiffs treble damages pursuant to 18 U.S.C. 1964(c);
7. Awarding Plaintiffs punitive damages;
8. Awarding Plaintiffs their costs and disbursements herein, including
reasonable attorneys' fees;
9. Declaring that DCI's 25% retained interest in the Purchased Assets
is invalid, void and of no effect, and that TC3M is the sole owner of the
Purchased Assets; and
10. Awarding Plaintiffs such other and further relief which this Court
deems just and equitable.
Dated: July 28, 1995.
MOSS & BARNETT
A Professional Association
By /s/ Thomas R. Sheran
Thomas R. Sheran #100213
Kevin M. Busch #134028
Klay C. Ahrens #236913
Attorneys for Plaintiffs
4800 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4129
Telephone: (612) 347-0300
Plaintiffs:
Twin Cities Third Mobile
Associates, a California general
partnership, and Thomas Brockway,
Sophia W. Norman, Hilda M. Reiser,
and Paula Kristen, individually
and on behalf of all similarly
situated,
Defendants:
Digital Communications, Inc., a
Nevada corporation, Digital
Communications of Denver, Inc.,
a Colorado corporation, Qualified
Pensions, Inc., a California
corporation, Howard Newman, an
individual, Dave Rolfe,
a/k/a John David Rolfe, an
individual, Leonard B. Evans,
an individual, Jerald L. Woods,
an individual, Don Rabbitt, an
individual, James Leonard, an
individual, Brian J. O'Shaughnessy,
an individual, and Lawson Kerster,
a/k/a Don Kerster, an individual,
CERTIFICATE OF SERVICE
I hereby certify that on the 28th day of July, 1995, I served the
foregoing PLAINTIFFS' THIRD AMENDED COMPLAINT on Defendants Digital
Communications, Inc., Digital Communications of Denver, Inc., Qualified
Pensions, Inc., Howard Newman, Leonard B. Evans, Dave Rolfe (a/k/a John David
Rolfe) Gerald L. Woods, Don Rabbitt, James Leonard, Brian J. O'Shaughnessy and
Lawson Kerster (a/k/a Don Kerster) by causing true and correct copies thereof to
be deposited in the United States mails, first class postage prepaid, addressed
to:
Joel M. Kozberg, Esq.
GRADSTEIN, LUSKIN & VAN DALSEM
6380 Wilshire Boulevard
Suite 1106
Los Angeles, California 90048
Darwin J. Poyfair, Esq.
FREEBORN & PETERS
Suite 2600
950 Seventeenth Street
Denver, Colorado 80202-2826
Philip Zywiciel, Esq.
P.O. Box 1949
Big Bear City, CA 92314
James M. Leonard, Esqu.
Suite 645
11845 West Olympic Boulevard
Los Angeles, CA 90064
Jerald L. Woods
3773 Cherry Creek N Drive, #615
Denver, CO 80209
Allen I. Saeks, Esq.
LEONARD, STREET AND DEINARD
Suite 2300
150 South Fifth Street
Minneapolis, MN 55402
William Domnarski, Esq.
514 Grain Exchange Building
400 S 4th Street
Minneapolis, MN 55415
Frank A. Taylor, Esq.
POPHAM HAIK SCHNOBRICH &
KAUFMAN LTD.
3300 Piper Jaffray Tower
222 S 9th ST
Minneapolis, MN 55402
/s/ Joan M. Schinella
Joan M. Schinella
ACKNOWLEDGMENT
OF
EXECUTIVE SECURITY PLAN
OF
21ST CENTURY WIRELESS GROUP, INC.
I acknowledge that as a Key Officer of the 21st Century Wireless Group,
Inc. (the "Company"), and a Person on the Management Committee of the former
entity, Twin Cities 3rd Mobile Associates, a California General Partnership,
that the following have been offered an opportunity to participate as a Member
in the Executive Security Plan:
Kenneth B. Thomson 20,366 Shares
James E. Lafayette 20,366 Shares
Galen L. McCord 8,961 Shares
William J. Wiley 8,961 Shares
Mark E. Seely 8,961 Shares
Thomas M. Venable 8,961 Shares
Stephen Pidgeon 8,146 Shares
Clair A. Hill 6,110 Shares
Steve Schwartz 4,638 Shares
1-2-96 /s/ James E. Lafayette
Date James E. Lafayette
PARTICIPATION AGREEMENT
FOR
EXECUTIVE SECURITY PLAN
OF
21ST CENTURY WIRELESS GROUP, INC.
I acknowledge that, as a Key Officer of the 21ST CENTURY WIRELESS
GROUP, INC. (the "Company"), and a Person on the Management Committee of the
former entity, Twin Cities 3rd Mobile Associates, a California General
Partnership, I have been offered an opportunity to participate as a Member in
the Executive Security Plan described in the attached document. I have elected
to participate in the Plan as outlined below.
I further acknowledge that neither the Company nor any of its officers,
employees or agents has any responsibility whatsoever for any changes which I
may make in other personal plans or programs as a result of my decision
regarding the Plan and they are fully released to such extent, and I understand
that the Plan referred to in the attached Agreement may be terminated at any
time, at the sole discretion of the Company, except a Member shall have those
rights provided for in Article 3 and 4 of said Plan, to the extent such may be
applicable to him at the time of such termination.
1. Supplemental Benefit:
Subject to the provisions of Section 4.1 of the Plan, this supplement
is to provide benefits to Member for his continued employment and effort to
place stock of the Company in the public market.
The Company has issued to Member 20,366 share(s) of restricted common
stock of 21ST CENTURY WIRELESS GROUP, INC. Restriction to be removed on the date
on which Company stock becomes publicly traded stock.
2. Member hereby designates as Primary Beneficiary under this
Agreement. (Give name and relationship of Employee):
THE LAFAYETTE TRUST - James & Mary Trustees
Member hereby designates as Secondary Beneficiary under this Agreement:
Children of James E. & Mary A. LaFayette
The term Beneficiary, as used herein, shall mean the Primary Beneficiary if such
Primary Beneficiary survives Member by at least 30 days, and shall mean the
Secondary if Primary Beneficiary does not survive Member by at least 30 days,
and shall mean the estate of Member if neither Primary Beneficiary nor Secondary
Beneficiary survives Member by at least 30 days. Member shall have the right to
change the designation of Primary Beneficiary and/or Secondary Beneficiary from
time to time in such manner as shall be required by the Company, it being agreed
that no change in Beneficiary shall be effective until acknowledged in writing
by the Company.
4. Notices to Member shall be sent as follows:
Name James E. LaFayette
Street Address or
Post Office Box Number ___________________
City and State ____________________
Zip ___________
EXECUTED on January 2, 1996.
MEMBER: 21ST CENTURY WIRELESS GROUP, INC.
/s/ James E. LaFayette By: /s/ Thomas M. Venable - Secretary
(Signature) for President
James E. Lafayette
________________________
(Social Security Number)
EXECUTIVE SECURITY PLAN
OF
21ST CENTURY WIRELESS GROUP, INC.
The purpose of the Executive Security Plan of 21ST CENTURY WIRELESS
GROUP, INC. is to provide incentives for retaining a select group of employees
who contribute materially to the continued growth, development and future
business success of 21ST CENTURY WIRELESS GROUP, INC.
ARTICLE 1. DEFINITIONS
For the purpose of the Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following meanings:
1.1 "Beneficiary" shall mean the person or persons or the estate of a
Member entitled to receive any benefits under this Plan.
1.2 "Board of Directors" shall mean the Board of Directors of 21ST
CENTURY WIRELESS GROUP, INC.
1.3 "Chief Executive Officer" shall mean the Chief Executive Officer of
21ST CENTURY WIRELESS GROUP, INC.
1.4 "Committee" shall mean the Administrative Committee appointed to
manage and administer the Plan in accordance with the provisions of Articles 16
and 17 hereof.
1.5 "Company" shall mean the 21ST CENTURY WIRELESS GROUP, INC.
1.6 "Employee" shall mean a person who is in the regular full-time
employment of the Company as determined by the personnel rules and practices of
the Company. The term does not include persons who are retained by the Company
as consultants only. It also shall mean a person who was on the Management
Committee of the former entity (Twin Cities 3rd Mobile Associates a California
General Partnership).
1.7 "Member" shall mean an employee who is a participant in the Plan.
1.8 "Plan" shall mean the Executive Security Plan of 21ST CENTURY
WIRELESS GROUP, INC.
1.9 "Public Traded Stock" shall mean common stock of 21ST CENTURY
WIRELESS GROUP, INC. which is registered and authorized to be traded on a
recognized public stock exchange or recognized market (e.g.: NASDAQ).
1.10 "Participation" shall mean the form of agreement entered into
between the Company and a Member.
1.11 "Retirement" shall mean Members voluntary severance from
employment with the Company.
1.12 "TC3M" shall mean Twin Cities 3rd Mobile Associates, a California
General Partnership.
Masculine pronouns wherever used shall include feminine pronouns and the
singular shall include the plural.
ARTICLE 2. ELIGIBILITY AND MEMBERSHIP
2.1 To become a Member of the Plan, an Employee must be selected by the
Committee which in its sole discretion will determine eligibility and admittance
standards in accordance with the purposes of the Plan.
2.2 In order to become a Member, an Employee selected by the Committee
must, by completing and returning to the Committee a Participation Agreement,
elect to participate in the Plan and agree to the terms thereof The Employee
shall designate a Beneficiary to receive benefits arising under the Plan. The
Beneficiary may be a designated person or persons, provided that, if more than
one person is named, the Employee shall indicate the shares and/or precedence of
each person. A Member may retain the right to change the named Beneficiary and
designate any such change from time to time in such a manner as prescribed by
the Committee.
ARTICLE 3. DEATH BENEFIT
3.1 If a Member dies before his 65th birthday, and the Plan is in
effect at such time, the Company will pay or cause to be paid to Member's
Beneficiary or to Member's estate for distribution or estate settlement purposes
in the amount or amounts set forth in the Member's Participation Agreement and
as therein specified, at such time that the Member would have been entitled to
such benefits had he survived to such time.
3.2 The Company will pay or cause to be paid such death benefit only
if, at the time of Member's death prior to age 65. (i) he was an active Employee
of the Company, or was then on authorized leave of absence, or was an individual
of TC3M, and (ii) his Participation Agreement had been kept in force until the
time of death.
ARTICLE 4. SUPPLEMENTAL BENEFIT AT TIME OF VESTING
4.1 If a Member is an active Employee of the Company or was then on
authorized leave of absence, or was an individual of TC3M, such time as the
Company issues Publicly Traded Stock, and if the Plan and his Participation
Agreement are in force at such time, the Company will pay or cause to be paid to
such Member, as a Supplemental Benefit, the amount or amounts set forth in his
Participation Agreement.
4.2 If a Member dies after becoming entitled to a Supplemental Benefit
payment under Section 4.1, and before such payment or all such payments are
made, any remaining Supplemental Benefit payments shall be made to the Member's
Beneficiary or to Member's estate for distribution or estate settlement purposes
as may be directed by such Member.
ARTICLE 5. METHOD OF PAYMENT
Any benefit payable by the Company or caused to be paid by the Company
pursuant to the provision of Article 4 of this Plan shall be paid in
consideration for and in the amount stated in the applicable section of the
Member's participation Agreement.
ARTICLE 6. VESTING
Each Member entitled to benefits under the Plan will be fully vested at
the date on which Company Stock becomes Publicly Traded Stock.
ARTICLE 7. NO TAX REPRESENTATIONS
The Company makes no representation or warranty with respect to income,
estate, or gift tax consequences that may arise in connection with the payment
of any benefit provided for under the Plan to a Member, his estate or
Beneficiary, and regardless of whether any such benefit payment is made in a
single lump sum amount or is paid or payable in installments or is received
directly or indirectly from the Company or otherwise.
ARTICLE 8. MEMBER CONTRIBUTIONS
No Member of the Plan shall be required to make any contribution to the
cost of the Plan.
ARTICLE 9. LEAVE OF ABSENCE
If a Member is authorized by the Company for any reason, including
military, medical or other, to take a leave of absence from employment, such
Member shall continue to participate in the Plan unless the Committee
specifically elects to terminate his participation.
ARTICLE 10. COMPANY OBLIGATIONS
Any Company obligation and liability for payments pursuant to Articles
3 or 4 of this Plan shall be general corporate obligations only. No trust or
other specific fund or funds of the Company shall be designated or set aside for
payment of any benefits due under the Plan.
ARTICLE 11. TERMINATION OF EMPLOYMENT
The Plan and Participation Agreement, either singly or collectively, do
not in any way obligate the Company to continue the employment of a Member with
the Company, nor does either limit the right of the Company to terminate a
Member's employment with the Company at any time and for any reason. Termination
of a Member's employment within the Company for any reason except retirement,
whether by action of the Company or Member, shall immediately terminate his
participation in the Plan and his Participation Agreement and all further
obligations of either party hereunder, except as may be provided in Article l3
below. In no even shall the Plan or the Participation Agreement, either singly
or collectively, by their terms or implications constitute an employment
contract of any nature whatsoever between the Company and a Member.
ARTICLE 12. TERMINATION OF PARTICIPATION
A Member reserves the right to terminate his participation in the Plan
and his Participation Agreement at his election at any time by giving the
Company not less than 3O days written notice of such termination prior to the
anniversary date of his participation in the Plan.
ARTICLE 13. TERMINATION, AMENDMENT, MODIFICATION, OR SUPPLEMENT OF PLAN
13.1 The Company reserves the right to terminate, amend, modify or
supplement this Plan, wholly or partially, from time to time, and at any time.
The Company likewise reserves the right to terminate, amend. modify or
supplement any Participation Agreement, wholly or partially, from time to time,
and at any time. Such right to terminate, amend, modify or supplement the Plan
or Participation Agreement shall be exercised from the Company by the Committee,
provided, however, that:
(a) No action to terminate the Plan shall be taken until after
not less than 30 days prior written notice shall have been given to
each party to be affected thereby, and
(b) The Committee shall take no action to terminate the Plan
or a Participation Agreement with respect to a Member or his
Beneficiary after the payment of any benefits pursuant to Article 3 or
Article 4 of this Plan has commenced and not been paid in full.
13.2 Upon termination of this Plan or any Participation Agreement,
respectively, be either the Committee or a Member in accordance with the
provisions for such termination, neither the Plan nor the Participation
Agreement shall be of any further force and effect and no party shall have any
further obligation under either this Plan or any Participation Agreement so
terminated.
ARTICLE 14. OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Member and his Beneficiary under the Plan
are in addition to any other benefits available to such Member under any other
plan or program of the Company for its employees, and, except as many otherwise
be expressly provided for, the Plan shall supplement and shall not supersede,
modify or amend any other plan or program of the Company or a Member.
ARTICLE 15. RESTRICTIONS ON ALL ALIENATION OF BENEFITS
Subject to the provision of Article 5, no right or benefit under the Plan or a
Participation Agreement shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void. No
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts. liabilities, or torts of the person entitled to such benefit.
If any Member or Beneficiary under the Plan should become bankrupt or attempt to
anticipate. alienate, sell, assign, pledge, encumber or charge any right to a
benefit hereunder, then such right or benefit, at the discretion of the
Committee, shall cease and terminate, and in such event. the Committee may hold
or apply the same or any part there thereof for the benefit of such Member or
Beneficiary, his or her spouse, children, or other dependents, or any of them.
in such manner and in such portion as the Committee may deem proper.
ARTICLE 16. ADMINISTRATION OF THE PLAN
16.1 The general administration of this Plan, as well as construction
and interpretation thereof, shall be vested in the Committee, the number and
members of which shall be designated and appointed from time to time by, and
shall serve at the pleasure of, the Chief Executive Officer. Any Member of the
Committee may resign by notice in writing filed with the Secretary of the
Committee. Vacancies shall be filled promptly by the Chief Executive Officer,
but any vacancies remaining unfilled for 90 days may be filled by a majority
vote of the remaining members of the Committee. Each person appointed a member
of the Committee shall signify his acceptance by filing a written acceptance
with the Secretary of the Committee.
16.2 The Chief Executive Officer shall designate one of the members of
the Committee as Chairman and shall appoint a Secretary who need not be a member
of the Committee. The Secretary shall keep minutes of the committee's
proceedings and all data, records and documents relating to the Committee's
administration of the Plan. The Committee may appoint from its number such
subcommittees with such powers as the Committee shall determine and may
authorize one or more members of the Committee or any agent to execute or
deliver any instrument or make any payment on behalf of the Committee.
16.3 All resolutions or other actions taken by the Committee shall be
by the vote of a majority of those present at a meeting at which a majority of
the members are present, or in writing by all the members at the time in office
if they act without a meeting.
16.4 Subject to the Plan, the Committee shall from time to time
establish rules, forms and procedures for the administration of the Plan. Except
as herein otherwise expressly provided, the Committee shall have the exclusive
right to interpret the Plan and to decide any and all matters arising thereunder
or in connection with the administration of the plan, and it shall endeavor to
act, whether by general rules or by particular decisions, so as not to
discriminate in favor of or against any person. Such decisions, actions and
records of the Committee shall be conclusive and binding upon the Company and
all persons having or claiming to have any right or interests in or under the
Plan.
16.5 The members of the Committee and the officers and directors of the
Company shall be entitled to rely on all certificates and reports made by any
duly appointed accountants, and on all opinions given by any duly appointed
legal counsel. Such legal counsel may be counsel for the Company.
16.6 No member of the Committee shall be liable for any act or omission
of any other member of the Committee, nor for any act or omission on his own
part, excepting only his own willful misconduct. The Corporation shall indemnify
and save harmless each member of the Committee against any and all expenses and
liabilities arising out of membership on the Committee, excepting only expenses
and liabilities arising out of his own willful misconduct. Expenses against
which a member of the Committee shall be indemnified hereunder shall include,
without limitation, the amount of any settlement or judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted, or a proceeding brought or settlement thereof. The foregoing right of
indemnification shall be in addition to any other rights to which any such
member maybe entitled as a matter of law.
16.7 In addition to the powers hereinabove specified, the Committee
shall have the power to compute and certify under the Plan the amount and kind
of benefits from time to time payable to Members and their Beneficiaries and to
authorize all disbursements for such purposes.
16.8 To enable the Committee to perform its functions, each Company
shall supply full and timely information to the Committee on all matters
relating to the compensation of all Members, their retirement, death or other
cause for termination of employment, and such other pertinent facts as the
Committee may require.
ARTICLE 17. SETTLEMENT OF DISPUTES
If a dispute arises regarding the rights of a Member or Beneficiary
under the terms of this Plan, the decision of the Administrative Committee shall
be final and binding subject to review as provided below. The Administrative
Committee shall provide a notice in writing to any person whose claim for
benefits under this Plan has been denied, setting forth the specific reasons for
such denial, specific references to the Plan provisions on which the denial was
based and an explanation of the procedure for review of the denial. Such person,
or his duly authorized representative, may appeal to the Chief Executive Officer
a written request for review within 60 days after receiving notice of the
denial. The request for review shall set forth all grounds on which it is based,
together with supporting facts and evidence which the claimant deems pertinent,
and the Chief Executive Officer shall give the claimant the opportunity to
review pertinent documents in preparing the request. The Chief Executive Officer
may require the claimant to submit such additional facts, documents or other
material as it deems necessary or advisable in making the review. Within 60 days
after the receipt of the request for review, the Chief Executive Officer shall
communicate to the claimant in writing its decision, and if the Chief Executive
Officer confirms the denial, in whole or in part, the communication shall set
forth the reasons for the decision and specific references to the Plan
provisions on which the decision is based. In the event any dispute arises as to
persons to whom payments of the funds or other property should be made under the
Plan, the Administrative Committee may withhold any such payments or delivery
until such dispute has been determined by a court of competent jurisdiction or
shall have been settled by the parties concerned.
ARTICLE 18. MISCELLANEOUS
18.1 Any notice which shall be or may be given under the Plan or a
Participation Agreement shall be in writing and shall be mailed by United States
mail, postage prepaid. If notice is to be given to the Company, such notice
shall be addressed to the Company at 6955 Washington Avenue South, Edina,
Minnesota 55439, marked for the attention of the Secretary, Administrative
Committee, Executive Security Plan, or if notice to a Member, addressed to the
address shown on such Member's Participation Agreement.
18.2 Any party may, from time to time change the address to which
notices shall be mailed by giving written notice of such new address.
18.3 The Plan shall be binding upon the Company and its successors and
assigns, and upon a Member, his beneficiary, assigns, heirs, executors, and
administrators.
18.4 The Plan and Participation Agreement shall be governed and
construed under the laws of the State of Nevada as in effect at the time of
their adoption and execution, respectively.
ADOPTED by 21st Century Wireless Group, Inc., as of the 2nd day of
January, 1996.
ATTEST: 21ST CENTURY WIRELESS GROUP, INC.
/s/ Thomas M. Venable By /s/ James E. LaFayette
(Secretary) President
EXHIBIT 6.3
KRAUS-ANDERSON
GATEWAY BUSINESS PARK
LEASE AGREEMENT
21st Century Wireless Group, Inc.
Phase III, Suite 304
LEASE AGREEMENT
GATEWAY BUSINESS PARK
TABLE OF CONTENTS
ARTICLE 1
PREMISES AND TERM.................................................1
ARTICLE 2
LEASEHOLD IMPROVEMENTS............................................2
ARTICLE 3
RENT AND SECURITY DEPOSIT.........................................2
ARTICLE 4
COMMON AREAS AND OPERATING EXPENSES...............................3
ARTICLE 5
TAXES.............................................................5
ARTICLE 6
REPAIRS AND MAINTENANCE...........................................6
ARTICLE 7
UTILITIES.........................................................6
ARTICLE 8
USE...............................................................7
ARTICLE 9
ALTERATION........................................................8
ARTICLE 10
SIGNS.............................................................8
ARTICLE 11
LIENS AND ENCUMBRANCES............................................9
ARTICLE 12
INDEMNITY.........................................................9
ARTICLE 13
INSURANCE........................................................10
ARTICLE 14
FIRE AND OTHER CASUALTY..........................................11
ARTICLE 15
EMINENT DOMAIN...................................................11
ARTICLE 16
ASSIGNMENT AND SUBLETTING........................................12
ARTICLE 17
ACCESS TO PREMISES...............................................12
ARTICLE 18
REMEDIES.........................................................12
ARTICLE 19
SURRENDER OF POSSESSION..........................................14
ARTICLE 20
SUBORDINATION....................................................15
ARTICLE 21
NOTICES..........................................................15
ARTICLE 22
ESTOPPEL CERTIFICATE.............................................16
ARTICLE 23
QUIET ENJOYMENT..................................................16
ARTICLE 24
SUBSTITUTION OF LEASED PREMISES..................................16
ARTICLE 25
GENERAL
EXHIBITS
A Complex Site Plan
B Complex Legal Description
C Plans and Specifications
C-1 Landlord/Tenant Cost of Leasehold Improvement
D Sign Criteria
E Brokers
F Additional Provisions
GATEWAY BUSINESS PARK LEASE AGREEMENT
THIS LEASE, is made this 6th day of March, 1996, by and between
Kraus-Anderson, Incorporated, a Minnesota Corporation (the "Landlord") having an
address at 4220 West Old Shakopee Road, Bloomington, Minnesota 55437 and 21st
Century Wireless Group, Inc., a Nevada corporation (the "Tenant"), having an
address at 6955 Washington Avenue South, Edina, Minnesota 55439.
ARTICLE 1
PREMISES AND TERM
Section 1. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, those certain premises known and designated as Bay Number 304 shown
outlined in red on Exhibit A attached hereto and made a part hereof (the "Leased
Premises") in that certain building located at 406 Gateway Boulevard
Burnsville, Minnesota 55337 (the "Building") situated on the land legally
described in Exhibit B attached hereto and made a part hereof (the "Land"), said
leasing being upon all of the terms, covenants and conditions herein contained.
The term "Complex" as used herein, means the Land, together with the Buildings,
and Common Areas (as hereafter defined) and other improvements located thereon.
The Leased Premises are more particularly described as follows:
(a) Approximately 2,465 net rentable square feet of office space;
(b) Approximately 0 net rentable square feet of service space;
(c) Approximately 2,465 total net rentable square feet, which
square footage shall be used to compute Tenant's pro rata
share of the operating expenses, shared utilities and taxes as
set forth more fully hereinafter. At such time as the actual
square footage in the Leased Premises is known, the futures
set forth above and Tenant's pro rata share shall be adjusted
to reflect the same.
For purposes of the Lease, "Tenant's Proportionate Share" shall mean the
proportion of the total net rentable square feet of the Premises to the total
net rentable square feet of the Complex. Based on the square footages set forth
above, Tenant's Proportionate Share is 3.58%.
Section 2. To Have And To Hold the Leased Premises unto Tenant for a term of
Three (3) years commencing on the 1st day of April, 1996 (the "Commencement
Date"), and ending on the 31st day of March, 1999, unless sooner terminated as
hereinafter provided (the "Term"). SEE ALSO EXHIBIT F, ADDITIONAL PROVISIONS.
Section 3. In the event the Leased Premises should not be ready for occupancy or
Landlord for any reason is unable to deliver possession thereof by the
Commencement Date, Landlord shall not be liable nor responsible for any claims,
damages or liabilities in connection therewith or by reason thereof and this
Lease shall remain in full force and effect. Tenant shall not be liable for rent
until Landlord delivers possession of the Premises to Tenant provided, however,
the Term shall not be extended by a delay in the delivery of possession to
Tenant.
ARTICLE 2
LEASEHOLD IMPROVEMENTS
Section 1. Construction by Landlord of leasehold improvements to the Premises
shall be substantially completed in accordance with the plans and specifications
(the "Plans") attached hereto as Exhibit C on or before the Commencement Date,
provided that if construction is delayed because of changes, deletions or
additions in construction requested by Tenant, strikes, lockouts, casualties,
acts of God, war, equipment, material or labor shortages, governmental
regulations or control, adverse weather conditions or other causes beyond the
control of Landlord, the construction time period shall be extended for the
amount of time Landlord is so delayed. As used herein, "Substantial Completion"
shall mean that the leased Premises are fully completed except for so-called
"punch list" items, none of which materially interfere with Tenant's use and
occupancy of the Leased Premises for the conduct of its business.
Section 2. Landlord shall notify Tenant as soon as the Leased Premises are
Substantially Complete. In the event that there is a dispute as to whether or
not the Premises are Substantially Complete, the dispute shall be resolved by
the architect who prepared the Plans. Taking of possession by Tenant shall be
deemed conclusively to establish that the Premises have been completed in
accordance with the Plans, except for any "punch list" items agreed upon buy
Landlord and Tenant. If Landlord gives possession prior to the Commencement Date
to enable Tenant to fit the Leased Premises to its use, such occupancy shall be
subject to all the terms and conditions of this Lease and Tenant shall pay
Landlord Base Rent pro rated for the period of occupancy prior to the
Commencement Date. By taking possession, Tenant acknowledges that no
representations as to the condition of the Premises or promises to alter,
remodel or improve the Leased Premises have been made by the Landlord except as
set forth in the Plans. Tenant further acknowledges that the Leased Premises, as
constructed or to be constructed, satisfy all of Tenant's special suitability
factors, if any.
Section 3. Landlord shall pay for the cost to construct only those leasehold
improvements as specifically described on attached Exhibit C-1. Tenant shall pay
Landlord within ten (10) days of written notice of the cost incurred to
construct all other leasehold improvements not specifically listed on Exhibit
C-1 as landlord's responsibility and the increased cost, if any, for all change
orders pertaining to the work described upon Exhibit C.
ARTICLE 3
RENT AND SECURITY DEPOSIT
Section 1. Annual Base Rent ("Annual Base Rent") shall be payable by Tenant in
equal monthly installments ("Monthly Base Rent"), on or before the first day of
each month in advance, at the office of Landlord designated in the first
paragraph of this Lease or at such other place designated by the Landlord
without prior notice or demand therefor and without any deduction or set-off
whatsoever. Annual Base Rent shall be Nineteen Thousand Seven Hundred Twenty and
no/100 Dollars ($19,720.00)and the Monthly Base Rent shall be One Thousand Six
Hundred Forty-Three and 33/ 1 00 Dollars ($1,643.33). Monthly Base Rent for any
partial month during the term shall equal 1/30 of the Monthly Base Rent for each
day in such partial month and shall be payable on or before the first day of
such partial month.
Section 2. All rental and other sums payable hereunder by Tenant which are not
paid within five (5) days after the same are due shall bear interest from the
date due to the date paid at the rate of eighteen percent (18%) per annum or the
highest rate permitted by law, whichever is less. In addition to the above, if
Tenant fails to pay Monthly Base Rent within ten (10) days after the same is due
and payable, Tenant shall pay Landlord a service charge (covering administrative
and overhead expenses) equal to four percent (4%) of each Monthly Base Rent
payment for each month or partial month such payment(s) are not paid.
Section 3. Tenant agrees to pay as additional rent ("Additional Rent"), Tenant's
proportionate share of operating expenses pursuant to Article 4 hereof and of
Taxes, Repairs and Maintenance and Utilities pursuant to Articles 5, 6 and 7
hereof, and such other amounts as are required to be paid by Tenant pursuant to
this Lease.
Section 4. Tenant has deposited with Landlord the sum of $ 2,358.18 as security
for the faithful performance and observance by Tenant of the terms of this
Lease. If Tenant defaults in any of the terms of this Lease, Landlord may apply
the whole or any part of the security deposit for the payment of any Monthly
Base Rent or Additional Rent or any other sum as to which Tenant is in default
or for any sum which Landlord may expend by reason of Tenant's default,
including but not limited to, any damages or deficiency in the reletting of the
Leased Premises. If any portion of said security is so applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the security deposit to its original amount
and Tenant's failure to do so shall be a default under this Lease. Landlord
shall not be required to keep this security deposit separate from its general
funds and may use such funds for any purpose. Tenant shall not be entitled to
interest on such deposit. In the event that Tenant shall fully and faithfully
comply with all of the terms, provisions, covenants and conditions of this the
security shall be returned to Tenant on the last day of the term of this Lease.
ARTICLE 4
COMMON AREAS AND OPERATING EXPENSES
Section 1. The term "Common Areas" shall mean that portion of the Complex
designated by Landlord from time to time for the common use of all tenants,
including, but not limited to the driveways and parking areas. Landlord reserves
the unrestricted right to (i) change the design or size of the Building, the
driveways, parking areas, and identity and type of tenancies; (ii) add buildings
and other structures to the Complex; (iii) contract for mutual easement rights
with adjoining landowners who shall thereafter, along with their employees,
customers and invitees, use the Common Areas in common with Tenant and all
tenants of Landlord, and their employees, customers, and invitees to the extent
of adjoining landowners' contract rights; (iv) use portions of the Commons Areas
for uses which may be of interest to all or part of the general public; and (v)
close portions of the Common Areas from time to time for repairs, to prevent
accruing of public rights therein and for any other legitimate purpose; provided
only that the size of the Premises, reasonable access to the Leased Premises and
minimum parking facilities as required by governmental authorities having
jurisdiction shall not be substantially or materially impaired, subject to the
provision of Article 14 hereof.
Section 2. Landlord grants Tenant, its employees, customers, and invitees, the
nonexclusive right during the term of this Lease to use the Common Areas from
time to time designated, such use to be in common with Landlord and all tenants
of Landlord, its and their employees, customers and invitees. Tenant shall not
at any time interfere with the rights of Landlord, other tenants, adjoining
landowners, its and their employees, customers and invitees, to use any part of
the Common Areas.
Section 3. Landlord agrees to manage, operate, maintain and repair all Common
Areas. The manner in which such areas and facilities shall be maintained and the
expenditures therefor shall be at the sole discretion of Landlord, who shall
have the right to adopt and promulgate reasonable nondiscriminatory rules and
regulations, from time to time, including the right to designate parking areas
for the use of employees of tenants of the Complex and to restrict such
employees from parking areas designated exclusively for visitors.
Section 4. The term "Lease Year" shall mean that period from the Commencement
Date to the next succeeding anniversary date of the Commencement Date and
successive twelve (12) month periods thereafter. If the Commencement Date is on
a date other than the first day of a month, then the first Lease Year shall
include the period from the Commencement Date to the first day of the first
calendar month after the Commencement Date. The last Lease Year shall be the
period from the end of the preceding Lease Year to the date of the termination
of this Lease.
Section 5. Tenant agrees to pay Tenant's Proportional Share of all expenditures
incurred by Landlord in the ownership, operation, maintenance, repair and
replacement of the Complex and the personal property, fixtures, machinery,
equipment, systems and apparatus located in or used in connection with the
Complex ("Operating Expenses"), including but not limited to:
(i) costs and expenses of maintaining, repairing and replacing
landscaping, plantings, shrubbery and planters;
(ii) costs and expenses of operating, maintaining, repairing and
replacing of paving, curbs, sidewalks, walkways, roadways,
parking surfaces, drainage, machines and equipment and
lighting facilities;
(iii) management fees;
(iv) utilities not charged directly to tenants as set forth in
Article 7 hereof;
(v) common garbage pick-up charges if arranged by Landlord
pursuant to Article 8 hereof;
(vi) insurance (including hazard, liability and rent insurance);
(vii) security expenses;
(viii) all taxes as defined in Article 5;
(ix) interior and exterior maintenance, repair and replacement
expenses including maintenance of signs as set forth in
Article 10 hereof, and
(x) expenses related to maintenance, repair and replacement of the
Common Areas;
(xi) expenses of maintenance, repair and replacement of the
Building, HVAC, roof and structural portions of the Building
as set forth in Article 6 hereof, and
(xii) amortization of capital improvements (including interest
expenses incurred or to be incurred by Landlord) made to
reduce operating costs, and amortization of major repairs
(including interest expenses incurred or to be incurred by
Landlord) made to extend the life of or otherwise repair and
maintain the Building, or a component of the Building or the
Common Areas, in accordance with generally accepted
operational and maintenance procedures.
Tenant shall pay with its Monthly Base Rent such amount as the Landlord
reasonably estimates for the Tenant's Proportionate Share of Operating Expenses,
which amount shall be deemed to be Additional Rent due under this Lease. As soon
as the actual Operating Expenses can be verified, the Landlord shall notify
Tenant of (i) the actual Operating Expenses for the preceding calendar year (ii)
the additional amount due from Tenant for Tenant's Proportionate Share of the
Operating Expenses during such period, if any, and (iii) any credit the Tenant
is entitled to as a result of the payment of the estimated Operating Expenses.
Tenant shall pay the additional amount due Landlord, if any, on the due date for
the next installment for Monthly Base Rent following such notice. Any
overpayment shall be credited against the next payment due from Tenant.
Section 6. For the purpose of calculating Tenant's Proportionate Share for a
fractional Lease Year, each day of the Tenant's occupancy shall be regarded as
one three-hundred sixty-fifth of a full year's share, and the Tenant shall be
considered as in "occupancy" during the full period of the Term falling within
such fractional Lease Year. If the term of this Lease expires before the
Operating Expenses for the then current calendar year have been ascertained,
then notwithstanding the foregoing, no adjustments shall be made between
Landlord and Tenant during the last year of the Lease Term.
ARTICLE 5
TAXES
Section 1. "Taxes" means all real estate taxes and installments of special
assessments on the Complex which are due and payable during the Term and all
other taxes or other governmental impositions which are levied upon or assessed
against the Building, the Complex or the Landlord and relating to the Term,
including but not limited to gross receipt taxes, taxes on rentals (not
including federal or state income, inheritance, gift or estate taxes), taxes in
lieu of real estate taxes or special assessments, or taxes arising by reason of
the occupancy, use or possession of the Leased Premises. Landlord shall pay, in
the first instance, all taxes. Tenant shall reimburse Landlord for Tenant's
proportionate share of such payments of taxes as part of the Operating Expenses
pursuant to Article 4 of the Lease.
ARTICLE 6
REPAIRS AND MAINTENANCE
Section 1. Landlord shall keep the foundations, exterior walls (except plate
glass or other special breakable materials used in structural portions), and
roof in good repair, and if necessary or required by proper governmental
authority, make modifications or replacements thereof (subject to Tenant
reimbursing the Landlord for Tenant's proportionate share of all such cost
incurred by Landlord pursuant to Article 4 hereof), except that Landlord shall
not be required to make any such repairs, modifications or replacement which
become necessary or desirable by reason of the negligence of Tenant, its agents,
servants, employees, customers or invitees. Landlord shall keep and maintain in
good repair the heating, ventilating and air conditioning system (the "HVAC")
serving the Leased Premises. The total cost to Landlord of providing routine
preventative maintenance for all of the HVAC units serving the Complex shall be
charged back to all the tenants in the Complex as part of Operating Expenses
pursuant to Article 4 of this Lease, and Tenant shall pay Landlord Tenant's
proportionate share of such costs in accordance with the terms of said Article.
Notwithstanding the foregoing, Tenant shall pay to Landlord within five (5) days
after demand therefor, all costs incurred by Landlord in maintaining, repairing,
and replacing the HVAC units serving Tenant's particular Leased Premises beyond
such routine preventative maintenance. SEE ALSO EXHIBIT F - ADDITIONAL
PROVISIONS.
Section 2. Tenant shall keep the Leased Premises in good, clean, safe and
habitable condition, ordinary wear and tear excepted, in accordance with all
applicable laws, ordinances, rules, requirements and regulations of all
governmental authorities and agencies having jurisdiction over the Premises.
Tenant shall, at its sole cost and expense, make all needed repairs and
replacements, except for repairs and replacements required to be made by
Landlord under the provisions of Section 1 of this Article. Without limiting the
foregoing, it is understood that Tenant's responsibilities therein include the
maintenance, repair and replacement of all window coverings, lighting, plumbing,
and other electrical, mechanical and electromotive equipment and fixtures and
all utility repairs in ducts, conduits, pipes and wiring, and any sewer stoppage
located in, under and above the Premises. Tenant shall, at its own cost and
expense, promptly replace with glass of the same quality, any cracked or broken
glass including plate glass or glass or other special breakable materials used
in structural portions, and any interior and exterior windows and doors in the
Leased Premises. If specifically required by Landlord, Tenant shall maintain a
policy or policies of insurance in acceptable companies insuring Landlord and
Tenant, as their interests may appear, against breakage of all such glass in the
Leased Premises. If any repairs required to be made by Tenant hereunder are not
made within ten (10) days after written notice delivered to Tenant by Landlord,
Landlord may, at its option, make such repairs without liability to Tenant for
any loss or damage which may result to its stock or business by reason of such
repairs; and Tenant shall pay to Landlord upon demand, the cost of such repairs
pursuant to Article 18, Section 4 hereof. SEE ALSO EXHIBIT F-ADDITIONAL
PROVISIONS.
ARTICLE 7
UTILITIES
Section 1. Tenant shall pay, when due, all charges for heating, air
conditioning, electricity, gas, water and sewer services furnished to the Leased
Premises throughout the term of this Lease. If any such utilities are not
separately metered to Tenant, Landlord shall, in the first instance, pay for the
same and Tenant shall reimburse Landlord for Tenant's share (reasonably
estimated by Landlord) as part of Operating Expenses pursuant to Article 4
hereof.
Section 2. Landlord shall cause to be furnished electrical facilities to provide
sufficient power for typewriters and other office machines of similar low
electrical consumption, but not including electricity required for electronic
data processing equipment, special lighting in excess of building standard, and
any other item of electrical equipment which singly consumes more than .5
kilowatts per hour at rated capacity or requires a voltage other than one
hundred twenty (120) volts single phase. Tenant agrees to pay for all special
requirements for utilities such as gas, steam, water, electricity and other
services to the Leased Premises and for all alterations or modifications
required in connection therewith. If Tenant installs any electrical equipment
that overloads the power lines to the Building, Tenant shall, at its own
expense, make whatever changes are necessary to avoid such overload and to
comply with the requirements of insurance underwriters and insurance rating
bureaus and governmental authorities having jurisdiction over the Leased
Premises.
Section 3. Landlord shall not be liable in damages or otherwise if the
furnishing by Landlord or by any other supplier of any utility or other service
to the Leased Premises shall be interrupted or impaired by fire, repairs,
accident or by any causes beyond Landlord's reasonable control. Such
interruption of service shall never be deemed an eviction or disturbance of
Tenant's use and possession of the Leased Premises or any part thereof or
relieve Tenant from performance of Tenant's obligations under this Lease.
ARTICLE 8
USE
Section 1. The Leased Premises may be used only for general office use (subject
always to the provisions of Section 2 of this Article 8) and for no other
purposes. Tenant agrees to conduct its business at all times in good faith, and
in a high grade and reputable manner. Tenant shall promptly comply with all
present and future laws, ordinances, rules, requirements and regulations of all
governmental authorities and agencies and insurance companies affecting the
Leased Premises or Tenant's business therein. No part of the Leased Premises
shall be used for any purpose which will interfere with the general safety,
comfort and convenience of the Landlord and other tenants of the Complex. Tenant
shall permit no waste nor damage to the Leased Premises.
Section 2. Tenant shall, not without Landlord's prior written consent, conduct
any auction, fire, closing out or bankruptcy sales in or about the Leased
Premises nor obstruct the Common Areas or use the same for business or display
purposes. Tenant shall not abuse the Building, other improvements, fixtures or
personal property constituting the Complex (including, without limitation,
walls, ceilings, partitions, floors and wood, stone and iron work), nor make or
permit any noise or odor objectionable to the public, to other occupants of the
Building or the Complex or to the Landlord to emit from the Premises; nor
create, maintain or permit a nuisance thereon; nor do any act tending to injure
the reputation of the Complex; nor where loading and delivery facilities are
provided, use or permit to be used entrances for delivery or pick-up of
merchandise or supplies to or from the Leased Premises, or permit trucks or
other delivery vehicles while being used for any such purposes to be parked at
any place within the Complex except such facilities as are specifically provided
for such purpose. Tenant shall keep the loading platform areas allowed for use
of Tenant clean and free from rubbish and dirt at all times. Tenant shall, in
accordance with rules and regulations established by Landlord from time to time,
store all trash and garbage in an orderly fashion and will arrange for regular
pick-up of same at the Tenant's expense, provided, however, Landlord shall have
the option upon thirty (30) days prior written notice to Tenant to arrange for
garbage pickup and charge the cost therefor as part of Operating Expenses.
Section 3. Tenant shall not place a load upon any floor of the Leased Premises
which exceeds the load per square foot which such floor is then designed to
carry and which is then allowed by law. All business machines and equipment and
all other mechanical equipment installed and used by Tenant in the Leased
Premises shall be properly shielded and be so placed, equipped, installed, and
maintained by Tenant at Tenant's own cost and expense in settings of cork,
rubber, or spring-type vibration-eliminators or in such other manner as Landlord
may reasonably direct so as to be sufficient to eliminate the transmission of
noise, vibration, electrical or other interference from the Leased Premises to
any other area of the Building. Tenant shall not use the roof or the air rights
above the Leased Premises.
ARTICLE 9
ALTERATIONS
Section 1. Tenant shall not make any repairs, alterations or additions to the
Leased Premises or make any contract therefore without first procuring
Landlord's written consent thereto and delivering to Landlord the plans and
specifications, copies of the proposed contracts, evidence that Tenant can pay
for such improvements, necessary permits, indemnification against liens, costs,
damages and expenses and satisfactory proof that workmen are union workers, as
Landlord may require. All work done in connection with any repairs, replacements
or alterations shall be performed with new materials and strictly in accordance
with the plans and specifications as approved by Landlord. All alterations,
additions, improvements and fixtures including, but not limited to, floor
covering affixed to the floor or track lighting affixed to the ceiling including
fixtures therefor, other than trade fixtures which may be made or installed by
either of the parties hereto upon the Leased Premises and which in any manner
are attached to the floors, walls or ceilings shall, at the termination of this
Lease, become the property of Landlord, and shall remain upon and be surrendered
with the Premises as a part thereof, without damage or injury. All fixtures
installed by Tenant shall be new. Tenant shall not install any exterior light or
plumbing fixtures, shades or awnings, or make any exterior decoration or
painting, or build any fence, or make any changes to the exterior of the
Building.
ARTICLE 10
SIGNS
Section 1. Except to the extent permitted by Landlord's sign criteria contained
in this Article and set forth in attached Exhibit D, Tenant shall not erect or
install any exterior window or door signs, advertising media or window lettering
or placards or other signs or install any interior window or door signs,
advertising media or window or door lettering or placards or other signs without
Landlord's prior written consent.
Section 2. Landlord may install, at Landlord's expense, one or more monument
signs identifying the Complex. The maintenance of said monument signs shall be
included in Operating Expenses pursuant to Article 4 hereof.
Section 3. Tenant shall install Tenant's personal sign upon the exterior of the
building in accordance with the terms of this Section 3, provided that Tenant
has obtained Landlord's prior written consent thereto. Tenant shall design,
procure, and install Tenant's sign at Tenant's sole cost and expense, and Tenant
shall indemnify landlord against all costs and liabilities incurred in
connection therewith. Landlord shall maintain said sign and include such
maintenance in Operating Expenses pursuant to Article 4 hereof. In the event
Tenant fails to install its signage on the exterior of the Building within
thirty (30) days after the Commencement Date, Landlord shall have the right to
install such signage and Tenant shall pay to Landlord upon demand the cost of
such installation pursuant to Article 18, Section 4 hereof Tenant's sign shall
conform to the standards established for the Complex by Landlord from time to
time, and Landlord shall furnish Tenant, at Tenant's request, an example of
signage acceptable to the Landlord. At the expiration of the Term, whether by
lapse of time or otherwise, Tenant shall remove Tenant's sign from the exterior
of the Building and restore the exterior of the Building to substantially the
same condition existing immediately prior to the installation of Tenant's sign,
ordinary wear and tear excepted, all at Tenant's sole cost and expense.
ARTICLE 11
LIENS AND ENCUMBRANCES
Section 1. Tenant agrees to promptly pay all sums of money with respect to any
labor, service, or materials supplied, or equipment furnished to Tenant in, at
or about the Leased Premises, or furnished to Tenant's agents, employees,
contractors or subcontractors which may be secured by any mechanics,
materialmen, suppliers or other type of lien against the Premises or any
interest therein. In the event any such lien shall be filed, Tenant shall,
within twenty-four (24) hours of receipt thereof, give notice to Landlord of
such lien and Tenant shag, within ten (10) days after receiving notice of the
filing of the lien, bond against or discharge such lien. Failure of Tenant to
bond against or discharge the lien shall constitute a default under this Lease
and in addition to any other right or remedy of Landlord, Landlord may but shall
not be obligated to discharge the same of record by paying the amount chimed to
be due, and the amount so paid by landlord and all costs and expenses incurred
by Landlord therewith, including reasonable attorney's fees shall be due and
payable by Tenant to Landlord on demand pursuant to Article 18, Section 4
hereof.
Section 2. Nothing in this Lease shall be construed as a consent on the part of
Landlord so as to subject Landlord's estate in the Premises to any lien or
liability under the lien laws of the State in which the Leased Premises are
located.
ARTICLE 12
INDEMNITY
Section 1. Tenant agrees to indemnify and save Landlord harmless against any and
all claims, demands, damages, costs and expenses, including reasonable
attorney's fees, arising from the conduct or management of the business conduct
by Tenant or from any breach or default on the part of Tenant in the performance
of any covenant or agreement on the part of Tenant to be performed pursuant to
the terms of this Lease, or from any act or negligence of Tenant, its agents,
contractors, servants, employees, invitees, sublesses, or licensees, in or about
the Leased Premises, or the Complex, and the loading platform area allocated to
the use of Tenant. Landlord shall not be liable and Tenant waives all claims for
damage to person or property sustained by Tenant or Tenant's employees, agents,
servants, contractors, sublesses, invitees, and customers resulting from the
Building or the Complex becoming out of repair or by reason of any equipment or
appurtenances thereunto appertaining becoming out of repair, or resulting from
any accident in or about the Leased Premises, the Building or the Complex or
resulting directly or indirectly from any act or neglect of any other tenant in
the Complex. All property belonging to Tenant or any occupant of the Leased
Premises shall be there at the risk of Tenant or such person only, and Landlord
shall not be liable for damage thereto or theft or misappropriation thereof.
ARTICLE 13
INSURANCE
Section 1. Tenant shall not carry any stock of goods or do anything in or about
the Leased Premises which shall in any way tend to increase insurance rates on
the Leased Premises, the Building or the Complex. If Landlord shall consent to a
use which causes an increase in insurance rates, Tenant agrees to pay as
Additional Rent any increase in premiums for insurance resulting from the
business carried on in the Premises by Tenant.
Section 2. Tenant agrees to procure and maintain a policy or policies of
liability insurance, at its own cost and expense, insuring Landlord and Tenant
from all claims, demands or actions for injury, death or property damage
sustained by one or more persons as the result of any one occurrence in an
amount of not less than One Million Dollars ($1,000,000) made by or on behalf of
any person or persons, firm or corporation arising from, related to or connected
with the Leased Premises or the conduct and operation of Tenant's business in
the Leased Premises, which insurance shall be primary coverage and shall not be
contributory with other similar liability insurance carried by Landlord. Tenant
shall carry like coverages against loss or damage by boiler or internal
explosion by boilers, if there is a boiler in the Leased Premises.
Section 3. Tenant shall maintain at its own cost and expense, fire and extended
coverage, vandalism, malicious mischief and special extended coverage insurance
in an amount adequate to cover the cost of replacement of all leasehold
improvements, including, without limitation, leasehold improvements pursuant to
attached Exhibit C, wall coverings, floors, furnishings, decorations, fixtures,
alteration, changes and additions and other improvements in the Leased Premises
in the event of a loss, in companies and in form acceptable to Landlord. The
insurance which the Tenant agrees to carry in this Section shall insure the
fully insurable value of all such leasehold improvements in the Leased Premises,
whether the same have been paid for entirely or partially by Landlord.
Section 4. All insurance to be maintained by Tenant shall not be subject to
cancellation except after at least ten (10) days prior written notice to
Landlord, and the policy or policies, or a duly executed certificate or
certificates for the same, together with satisfactory evidence of the payment of
premium thereon shall be deposited with Landlord on or before the Commencement
Date and upon any renewal of said insurance not less than thirty (30) days prior
to the expiration of the term of such coverage.
Section 5. If Tenant fails to comply with the requirements of this Article 13,
Landlord may obtain such insurance and keep the same in effect and Tenant shall
pay Landlord the premium cost thereof on demand pursuant to Article 18, Section
4, hereof.
ARTICLE 14
FIRE OR OTHER CASUALTY
Section 1. If the Complex shall be partially or totally destroyed by any fire or
other casualty so as to become partially or totally untenantable, the same shall
be repaired at the expense of Landlord, unless Landlord shall elect not to
rebuild, as provided in Section 2 hereof. Whether or not Landlord elects to
restore the Leased Premises and/or the Building, Tenant's monthly installments
of Base Rent shall abate during such period of time as the Leased Premises are
untenantable in the proportion that the untenantable portion of the Leased
Premises bears to the entire Leased Premises. Landlord's obligation to repair or
rebuild pursuant to this Article shall be limited to the basic Building, the
Common Areas, and HVAC systems. In no event in the case of any such destruction
shall Landlord be required to repair or replace Tenant's stock in trade,
leasehold improvements, fixtures, furniture, furnishings or floor coverings and
equipment. Tenant covenants to make such repairs and replacements.
Section -2. If the Complex, including Common Area, shall be destroyed or so
damaged by fire or other casualty as to render more than fifty percent (50 %)
thereof untenantable, or if the unexpired term of this Lease is two (2) years or
less on the date of any destruction or damage, then Landlord may, if it so
elects by notice in writing within sixty (60) days after such destruction or
damage, terminate this Lease. The above shall apply whether or not any part of
the Premises is damaged or destroyed.
ARTICLE 15
EMINENT DOMAIN
Section 1. If the whole of the Premises shall be taken under the power of
Eminent Domain, then the term of this Lease shall cease as of the day possession
shall be taken by the public authority and Monthly Base Rent and Additional Rent
shall be paid up to such date.
Section 2. In the event more than ten percent (10%) of the Land be so taken, the
Landlord shall have the right to terminate this Lease, with the rent adjustments
as provided in Section 19 by giving Tenant written notice of termination within
sixty (60) days after the taking of possession by the public authority.
Section 3. If any floor area of the Leased Premises or forty percent (40%) or
more of the parking area portions of the Common Area shall be so taken, then
Landlord or Tenant shall have the right to either terminate this Lease, upon
notice in writing to the other party thereto within (30) days after the taking
of possession by the public authority. In the event this Lease is not
terminated, all of the terms herein provided shall continue in effect except
that the Base Rent and Additional Rent shall abate in the proportion that the
taken portion of the Leased Premises bears to the entire Premises and Landlord
shall make all necessary repairs or alterations as provided in Article 14,
Section 2 to the extent reasonably possible to restore the Building to a
complete architectural unit.
Section 4. All damages awarded for such taking under the power of Eminent
Domain, whether for the whole or a part of the Premises, the Building, the Land
or the Complex shall be the property of Landlord, whether such damages shall be
awarded as compensation for diminution in value of the leasehold or to the fee
of the Leased Premises; provided, however, that Landlord shall not be entitled
to any separate award made to Tenant for depreciation of and cost of removal of
stock and fixture, as wen as any relocation award for its tenancy.
ARTICLE 16
ASSIGNMENT AND SUBLETTING
Section 1. Tenant shall not assign, sell, mortgage, pledge, or in any manner
transfer this Lease or any interest therein, nor sublet the Premises or any part
or parts thereof, nor permit occupancy by anyone without the prior written
consent of Landlord. Consent by Landlord to one or more assignments of this
Lease or to one or more sublettings, sales, mortgages, pledges or other
transfers of the Lease Premises shall not operate as a waiver of Landlord's
rights under this Article. Tenant shall promptly pay to Landlord as Additional
Rent hereunder any rent or other payments pursuant to any sublease which exceeds
the amounts payable hereunder and any other consideration paid or to be paid by
reason of the assignment or sublease. No assignment or sublease shall release
Tenant of any of its obligations under this Lease or be construed or taken as a
waiver of any of Landlord's rights hereunder. For the purposes hereof, if Tenant
is a corporation or partnership or other entity, any change in the ownership or
effective control of Tenant shall be deemed to be an assignment which shall
require Landlord's consent as above set forth. The acceptance of rent from
someone other than Tenant shall not be deemed to be a waiver of any of the
provisions of this or consent to any assignment of this Lease or subletting of
the Leased Premises.
ARTICLE 17
ACCESS TO PREMISES
Section 1. Landlord shall have the right to enter the Leased Premises at au
reasonable times for the purpose of inspecting the same or of making repairs,
additions or alterations thereto or to the Building or for the purpose of
exhibiting the same to prospective tenants, purchasers or others. Landlord shall
not be liable to Tenant in any manner for any expense, loss or damage by reason
thereof, nor shall exercise of such right be deemed an eviction or disturbance
of Tenant's right of possession.
ARTICLE 18
REMEDIES
Section 1. In the event Tenant shall:
(a) fail to pay any installment of Base Rent, Additional Rent or
any other charges payable under this Lease within five (5)
days after the same shall become due;
(b) do any of the following or allow any of the following to
occur: (i) if the Tenant shall file in any court a petition in
bankruptcy or insolvency or for reorganization, or for
arrangement or for the appointment of a receiver or trustee of
all or a portion of the Tenant's property, or (ii) if an
involuntary petition of any kind referred to in subdivision
(i) of this Section shall be filed against the Tenant, and
such petition shall not be vacated or withdrawn within thirty
(30) days after the date of flag thereof, or (iii) if the
Tenant shall make an assignment for the benefit of creditors,
or (iv) if the Tenant shall be adjudicated a bankrupt; or (v)
if a receiver shall be appointed for the property of the
Tenant by order of a court of competent jurisdiction (except
where such receiver shall be appointed in an involuntary
proceeding, if he shall not be withdrawn within thirty (30)
days from the date of appointment); or
(c) fail to keep or perform any of the other terms, conditions or
covenants of this Lease to be kept or performed by Tenant for
more than thirty (30) days after notice of such failure shall
have been given to Tenant; or
(d) vacate or abandon (not operate its business in the Leased
Premises for ten (10) consecutive days) the Premises;
then Landlord, in addition to any other rights or remedies it may have, shall
have the right to (i) terminate this Lease in which event the Term shall expire
and terminate with the same force and effect as though the date set forth in
said notice were the date originally set forth herein and fixed for the
expiration of the Term; provided, however, that Tenant shall remain liable as
hereinafter set forth; or (ii) re-enter the Leased Premises and dispossess
Tenant and/or other occupants of the Premises, remove all property from the
Premises and store the same in a public warehouse or elsewhere at the cost of
and for the account of Tenant and hold the Premises as hereinafter provided,
without becoming liable for any loss or damage which may be occasioned thereby,
Tenant agreeing that no such reentry or taking possession of the Premises by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease, such right however, being continuously reserved by Landlord.
Section 2. In the event Landlord elects to re-enter the Leased Premises,
Landlord may, but shall not be obligated to, (i) make such alterations and
repairs as necessary in order to relet the Leased Premises, and (ii) relet the
Leased Premises or any part thereof for such term or terms (which may be for a
term extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Landlord, in its sole discretion, may
deem advisable. Upon each such reletting, all rentals received by the Landlord
for such reletting shall be applied, first, to the payment of any indebtedness
other than Monthly Base Rent and Additional Rent due hereunder from Tenant to
Landlord; second, to the payment of any costs and expenses of such reletting,
including brokerage fees and attorney's fees and the costs of such alterations
and repairs; third, to the payment of Monthly Base Rent and Additional Rent due
and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future Monthly Base Rent and Additional Rent as the same
may become due and payable hereunder. If such rental received from such
reletting during any month after the payment of the amounts set forth in the
previous sentence is less than the amount of rent to be paid during that month
by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shag be calculated and paid monthly. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. No such re-entry or taking
possession of the Leased Premises by Landlord shall be construed as an election
on its part to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction. Unless otherwise ordered, the issuance of a writ of
restitution for the Premises shall not be construed as a termination of the
Lease.
Section 3. Should Landlord at any time terminate this Lease for any default by
Tenant, in addition to any other remedies Landlord may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such default,
including the cost of recovering the Premises, reasonable attorney's fees, and
the worth at the time of such termination of the excess, if any, of the amount
of rent and charges equivalent to Monthly Base Rent and Additional Rent reserved
in this Lease for the remainder of the Term over the then reasonable rental
value of the Premises for the remainder of the Term, all of which amounts shall
be immediately due and payable from Tenant to Landlord.
Section 4. If Tenant defaults in the performance of any of Tenant's obligations
under this Lease, and Landlord elects or is compelled to pay any sum of money to
cure said default, after notice Tenant shall immediately pay Landlord an amount
equal to Landlord's costs in curing said default, with interest thereon at the
rate of eighteen percent (18%) per annum, or the highest rate permitted by law,
whichever is less, from the date of payment by Landlord.
ARTICLE 19
SURRENDER OF POSSESSION
Section 1. At the expiration of the Term or sooner termination of this Lease,
Tenant shall surrender the Leased Premises broom clean and in good condition and
repair, reasonable wear and tear and loss by fire or insured casualty excepted.
If the Leased Premises be not surrendered at the end of the Term or the sooner
termination of this Lease, Tenant shall indemnify and hold harmless Landlord
against loss or liability resulting from delay by Tenant in so surrendering the
Premises. Tenant shall promptly surrender all keys for the Leased Premises to
Landlord at the place then fixed for payment of Monthly Base Rent.
Section 2. In the event Tenant remains in possession of the Leased Premises
after the expiration of the tenancy created hereunder without the consent of
Landlord and without execution of a new lease, it shall be deemed to be
occupying the Leased Premises as a tenant from month-to-month, at twice the
Monthly Base Rent and subject to all the other conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month-to-month
tenancy.
Section 3. At the expiration of the Term or sooner termination of this Lease,
Tenant shall remove Tenant's personal property and trade fixtures incident to
Tenant's business. Tenant shall repair any injury or damage to the Leased
Premises which may result from removal of trade fixtures, and shall restore the
Leased Premises to the same condition as prior to the installation thereof,
ordinary wear and tear excepted. If Tenant does not remove Tenant's trade
fixtures from the Premises as aforesaid, Landlord may, at its option, remove the
same (and repair any damage occasioned thereby) and dispose thereof or deliver
the same to any other place of business of Tenant or warehouse the same, and
Tenant shall pay the cost of such removal, repair, delivery and warehousing to
Landlord on demand pursuant to Article 18, Section 4 hereof, or Landlord may
treat such trade fixtures as having been conveyed to Landlord with this @ as a
Bill of Sale without further payment or credit by Landlord to Tenant.
Section 4. Upon the expiration of the tenancy hereby created, if Landlord so
requires in writing, Tenant shall promptly remove such of the leasehold
improvements included in the Plans, any change orders to the Plans, and any
alterations, additions, improvements and fixtures constructed subsequent to the
Commencement Date of this Lease and designated in said request, and repair any
damage occasioned by such removals at Tenant's expense, and in default thereof,
Landlord may effect such removals and repairs, and Tenant shall pay Landlord the
cost thereof on demand pursuant to Article 18, Section 4 hereof.
Section 5. During the last year of the Term, Landlord shall have the right to
place and maintain a "For Rent" sign in or on the Premises. During the last
ninety (90) days of the term of this Lease, if during or prior to that time
Tenant vacates the Premises, Landlord shall have the right to decorate, remodel,
repair, alter or otherwise prepare the Premised for new occupancy.
ARTICLE 20
SUBORDINATION
Section 1. Tenant agrees that this Lease shall be subordinate to any mortgages
or trust deeds that are now or may hereafter be placed upon the Leased Premises
and to any and all advances to be made thereunder, and to the interest thereon,
and all renewals, replacements and extensions thereof. Tenant further agrees
that upon notification by Landlord to Tenant, this Lease shall be or become
prior to any mortgages or trust deeds that are now or may hereafter be placed on
the Premises. Tenant shall execute and deliver whatever instruments may be
required for the above purposes, and failing to do so within (10) days after
demand in writing, does hereby make, constitute and irrevocably appoint Landlord
as Tenant's attorney-in-fact and in its name, place and stead so to do (which
power of attorney is coupled with an interest) and Tenant shall be fully bound
by any such statement executed by Landlord on Tenant's behalf to the same extent
as if Tenant had executed, acknowledged and delivered the same.
Section 2. Tenant shall, upon demand, in the event of the sale or assignment of
Landlord's interest in the Building or the Complex or in the event any
proceedings are brought for the foreclosure of, or in the event of exercise of
the power of sale under any mortgage, trust deed, or other financing instrument,
made by the Landlord covering the Premises, attorn in writing to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
ARTICLE 21
NOTICES
Section 1. Whenever under this Lease provision is made for notice of any kind,
such notice shall be in writing and shall be deemed sufficient to Tenant if
actually delivered to Tenant or sent by registered or certified mail, return
receipt requested, postage prepaid, to the last Post Office address of Tenant
furnished to Landlord for such purpose, or to the Leased Premises; and to
Landlord if actually delivered to Landlord or if sent by or certified mail,
return receipt requested, postage prepaid, to the Landlord at the address
furnished for such purpose, or to the place then fixed for the payment of rent.
If the holder of record of any mortgage or ground lessor's interest covering the
Leased Premises shall have given prior written notice to Tenant that it is the
holder of said mortgage or lessor's interest and such notice includes the
address at which notices to such mortgagee or ground lessor are to be sent, then
Tenant agrees to give to such party or parties notice simultaneously with any
notice given to Landlord to correct any default of Landlord as hereinabove
provided and agrees that such party or parties shall have the right, within
thirty (30) days after receipt of said notice, to correct or remedy such default
before Tenant may take any action under this Lease by reason of such default.
ARTICLE 22
ESTOPPEL CERTIFICATE
Section 1. Within ten (10) days after written notice from the Landlord , Tenant
shall provide an estoppel certificate to Landlord and such other party as is
directed by the Landlord certifying: (a) that this Lease is in full force and
effect and that it has not been assigned, modified, supplemented or amended in
any way (or identifying any assignment, modification, supplement or amendment);
(b) the date of commencement and expiration of the Term; (c) that this Lease is
in full force and effect and that there are no defenses or offsets thereto (or
stating those claimed by Tenant); (d) the amount of Monthly Base Rent or
Additional Rent that has been paid in advance and the amount of security that
has been deposited with the Landlord; (e) the date to which Monthly Base Rent or
Additional Rent have been paid under this Lease; and (f) such other information
as is reasonably necessary to be provided Landlord. Tenant hereby irrevocably
appoints Landlord as its attorney-in-fact to execute such a certificate in the
event the Tenant shall fail to do so within ten (10) days of the Landlord's
notice (which power of attorney is coupled with an interest) and Tenant shall be
fully bound by any such statement executed by Landlord on Tenant's behalf to the
same extent as if Tenant had executed, acknowledged and delivered the same.
ARTICLE 23
QUIET ENJOYMENT
Section 1. Landlord covenants that it has full right and authority to enter into
this for the full Term. Landlord further covenants that Tenant, upon performing
the covenants and agreements of this Lease to be performed by said Tenant, will
have, hold and enjoy quiet possession of the Premises.
ARTICLE 24
SUBSTITUTION OF LEASED PREMISES
Section 1. At any time after the execution of this Lease, Landlord may
substitute for the Leased Premises other premises in the Complex (the `New
Premises") in which event the New Premises shall be deemed to be the Leased
Premises for all purposes hereunder, provided:
(a) The total net rentable square feet in the Leased Premises is
less than ten thousand (10,000) square feet;
(b) The New Premises shall be similar in area and appropriateness
for Tenant's purposes;
(c) Any such substitution is effected for the purpose of
accommodating a tenant that will occupy all or a substantial
portion of the rentable area of which the Leased Premises are
a part.
ARTICLE 25
GENERAL
Section 1. Nothing contained herein shall be deemed or construed by anyone as
creating the relationship of principal and agent or of partnership or of joint
venture between the parties hereto.
Section 2. The various rights and remedies contained in this Lease shall not be
considered as exclusive of any other right or remedy, but shall be construed as
cumulative and shall be in addition to every other remedy now or hereafter
existing at law, in equity, or by statute. No delay or omission of the right to
exercise any power by either party shall impair any such right or power, or
shall be construed as a waiver of any default or as acquiescence therein. One or
more waivers of any covenant, term or condition of this Lease by either party
shall not be construed by the other party as a waiver of a subsequent breach of
the same covenant, term or condition. The consent or approval by either party to
or of any at by the other party of a nature requiring consent or approval shall
not be deemed to waive or render unnecessary consent to approval of any
subsequent similar act. Landlord shall not be deemed to have waived any
provision of this Lease until expressed in writing and signed by Landlord.
Section 3. The headings of the several articles contained herein are for
convenience only and do not define, limit or construe the contents of such
articles.
Section 4. The covenants, agreements and obligations herein contained, except as
herein otherwise specifically provided, shall extend to, bind and inure to the
benefit of the parties hereto and their respective personal representatives,
heirs, successors and assigns. Landlord, at any time and from time to time, may
make an assignment of its interest in this Lease, and, in the event of such
assignment and the assumption by the assignee of the covenants and agreements to
be performed by Landlord herein, Landlord and its successors and assigns (other
than the assignee of this Lease) shall be released from any and all liability
hereunder.
Section 5. Whenever a period of time is herein provided for either party to do
or perform any act or thing that party shall not be liable or responsible for
any delays, and applicable periods for performance shall be extended
accordingly, due to strikes, lockouts, riots, acts of God, shortages of labor or
materials, national emergency, acts of a public enemy, governmental
restrictions, laws or regulations or any other cause or causes, whether similar
or dissimilar to these enumerated, beyond its reasonable control. The provisions
of this Section 6 shall not operate to excuse Tenant from prompt payment of
Monthly Base Rent, Additional Rent or other monetary payments required by the
terms of this Lease.
Section 6. This Lease shall not be recorded by either party. A short form of
lease suitable for recording in the office of the Court Recorder or Registrar of
Titles office shall be executed and delivered at the request of either party at
the expense of the requesting party.
Section 7. No payment by Tenant or receipt by Landlord of a lesser amount than
the amount then due under this Lease shall be deemed to be other than on account
of the earliest portion thereof due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance due or pursue any other
remedy provided in this Lease.
Section 8. Each of the parries represents and warrants that there are no claims
for brokerage commissions or finder's fees in connection with the execution of
this Lease, except as listed on Exhibit E attached hereto, and each of the
parties agrees to indemnify the other against, hold it harmless from, all
liabilities arising from any such claim for which such party is responsible
(including, without limitation, the cost of counsel fees in connection
therewith) except as listed on Exhibit E attached hereto.
Section 9. Unenforceability of any provision contained in this Lease shall not
affect or impair the validity of any other provision of this Lease.
Section 10. The laws of the state in which the Complex is located shall govern
the validity, performance and enforcement of this Lease.
Section 11. All of the exhibits set forth in the Table of Contents are hereby
incorporated herein by reference and are construed as part of this Lease.
Section 12. In the event that two or more individuals, corporations,
partnerships or other entities (or any combination of two or more thereof) shall
sign this Lease as Tenant, the liability of each such individual, corporation,
partnership or other entity to perform all obligations hereunder shall be deemed
to be joint and several. In like manner, in the event that the Tenant named in
this Lease shall be a partnership or other business association, the members of
which are, by virtue of statute, or general law, subject to personal liability,
then and in that event, the liability of each such member shall be deemed to be
joint and several.
Section 13. Tenant hereby covenants, warrants and represents that by executing
this Lease and by the operation of the Premises under this Lease, it is not
violating, has not violated and will not be violating any restrictive covenant
or agreement contained in any other lease or contract affecting the Tenant or
any affiliate, associate or any other person or entity with whom or with which
Tenant is related or connected financially or otherwise. Tenant hereby covenants
and agrees to indemnify and save harmless Landlord any future owner of the fee
or any part thereof, any mortgagee thereof against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses, including
attorneys' fees, paid, suffered or incurred by them or any of them as a result
of any breach of the foregoing covenant. Tenant's liability under this covenant
extends to the acts and omissions of any sub-tenant, and any agent, servant,
employee or licensee of any sub-tenant of Tenant.
Section 14. Anything in this Lease to the contrary notwithstanding and provided
that a waiver of subrogation is available to the Landlord and the Tenant as part
of the insurance they are required to maintain hereunder and the same win not
affect the releaser's ability to recover under such policies in the event of any
loss, Landlord and Tenant each hereby waives any and all rights of recovery,
claim, action or cause-of-action, against the other, its agents (including
partners, both general and limited), officers, directors, shareholders or
employees, for any loss or damage that may occur to the Leased Premises, or any
improvements thereto, or the Complex or any improvement thereto, or any property
of such party therein, by reason of fire, other casualty, the elements or any
other cause which could be insured against under the terms of standard fire and
extended coverage insurance policies, regardless of cause or origin, including
negligence of the other party hereto, its agents, officers or employees, and
covenants that no insurer shall hold any right of subrogation against such other
party.
Section 15. The submission of this document for examination and negotiation does
not constitute an offer to lease, or a reservation of, or option for, the Leased
Premises and this document shall become effective and binding only upon the
execution and delivery hereof by Landlord and Tenant. All negotiations,
considerations, representations and understandings between Landlord and Tenant
are incorporated herein and may be modified or altered only by agreement in
writing between Landlord and Tenant and no act or omission of any employee or
agent of Landlord or of Landlord's broker, if any, shall alter, change or modify
any of the provisions hereof.
Section 16. If the Landlord or any successors-in-interest shall be an
individual, joint venture, tenancy in common, firm, or partnership, general or
limited, there shall be no personal liability on such individual or on the
members of such joint venture, tenancy in common, firm or partnership or on such
joint venture, tenancy in common, fm, or partnership, in respect to any of the
covenants or conditions of this lease, and in the event of any default or breach
by Landlord with respect to any of the terms, covenants and conditions of this
Lease to be observed, honored or performed by Landlord, Tenant shag look solely
to the estate and property of Landlord in the Complex for the collection of any
judgment (or any other judicial procedures requiring the payment of money by
Landlord) and no other property or assets of Landlord shall be subject to levy,
execution, or other procedures for satisfaction of Tenant's remedies.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as of
the day and year first above written.
LANDLORD Kraus-Anderson, Incorporated
By: /s/ Burton F. Dahlberg
Burton F. Dahlberg
Its: President
TENANT 21st Century Wireless Group, Inc.
By: /s/ Rodney H. Hutt
Rodney H. Hutt
Its: Executive Vice President/
General Manager
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 6th day of March,
1996, by Burton F. Dahlberg, the President of Kraus-Anderson, Incorporated, A
Minnesota corporation, on behalf of the corporation.[LANDLORD]
(stamp)
/s/ Marilyn A. Pantera
Notary Signature
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 5th day of March,
1996, by Rodney H. Hutt, the Executive Vice President of 21st Century Wireless
Group, Inc., a Nevada corporation, on behalf of the corporation.[TENANT]
(stamp)
/s/ Kathleen R. O'Konski
Notary Signature
EXHIBIT A - COMPLEX SITE PLAN
[graphic of of Gateway Business Park - Phase III site plan]
EXHIBIT B
COMPLEX LEGAL DESCRIPTION
GATEWAY III
Lot 3, Block 1, Gateway Business Park, according to the recorded plat thereof,
Dakota County, Minnesota.
Together with rights of ingress and egress over and across Outlot A, Gateway
Business Park, according to the recorded plat thereof, Dakota County, Minnesota.
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
EXHIBIT C
PLANS AND SPECIFICATIONS
Space to be delivered to Tenant in an "as-is" condition. Landlord warrants that
all mechanical and electrical servicing the leased premises are in good working
condition at the time of occupancy.
LANDLORD'S AND TENANT'S CONSTRUCTION:
Tenant hereby acknowledges and agrees that it is aware of the requirements set
forth in the Americans with Disabilities Act 42 U. S. C. Secs. 12101-12213 (the
"ADA") and warrants that all construction done by Tenant in connection with the
terms and conditions of this lease, both in the first instance and subsequently
throughout the term of this Lease, shall be in compliance with the requirements
of the ADA. If the Landlord grants its consent to proposed changes to be made by
the Tenant in the leased premises, the granting of such consent by the Landlord
will not mean that the Tenant's proposed changes necessarily comply with the
ADA; the question of compliance is the Tenant's responsibility.
Tenant shall hold Landlord harmless and shall protect and defend Landlord in any
cause of action brought against Landlord or to which Landlord is a defendant,
arising out of alleged violations of the ADA., wherein, by the provisions of
this Lease, Tenant was obligated to and failed to comply with any provision of
the ADA.
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
EXHIBIT C-1
LANDLORD/TENANT COST OF LEASEHOLD IMPROVEMENTS
The plans and specifications set forth in the attached Exhibit C represent all
of the leasehold improvements to be installed in the leased premises. The
Landlord's sole liability for said leasehold improvements shall be to furnish
and install, at Landlord's sole cost and expense, all leasehold improvements set
forth in Exhibit C, except those certain leasehold improvements more fully
described immediately below. Any and all leasehold improvements contained in the
plans and specifications attached hereto as Exhibit C which are not expressly
enumerated below will be the sole responsibility and liability of Landlord.
Landlord may post the demised premises to prevent the imposition of mechanic's
lien in a manner consistent with the terms hereof.
1. INTENTIONALLY DELETED
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
EXHIBIT D
SIGN CRITERIA
SIGN CRITERIA FOR GATEWAY BUSINESS PARK
1. Each tenant shall be allowed to display the name of its business and a
logo. No additional signage will be permitted.
2. All lettering shall be handel gothic upper and lower case.
3. Upper case lettering may be 20" or 15" depending upon the length of
tenant's sign band.
4. All lettering will be margined left and will begin four feet (4") from
the edge of the tenant's sign band. A minimum right hand margin of four
feet (4") shall also be maintained.
5. All letters and logos shall be fabricated from .090 aluminum and have a
depth of 2".
6. All letters and logos shall be painted white polyurethane Mathews
42-202.
7. Letter spacing shall be per drawing #87-171-XS.
8. Shop drawings must be approved by the developer, in writing, before
signs are installed.
9. City permits must be obtained for all signs.
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
EXHIBIT E
BROKERS
INTENTIONALLY DELETED
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
EXHIBIT F
ADDITIONAL PROVISIONS
ARTICLE 1, SECTION 2 - EARLY OCCUPANCY:
Tenant shall have the right to use and occupy the leased premises for the period
from the date the lease is fully executed and a lease is delivered to Tenant,
until the commencement of the lease term (the "Early Occupancy Period").
Tenant's use and occupancy of the leased premises during the Early Occupancy
Period, shall be governed by all the terms and conditions of this lease
including, but not limited to, the payment by Tenant of all charges for utility
services furnished to the leased premises; provided, however, that Tenant shall
not owe or pay Landlord any sums for Monthly Base Rent or Additional Rent
associated with the leased premises during said Early Occupancy Period.
ARTICLE 6, SECTION 1 - REPAIRS AND MAINTENANCE:
Tenant shall hire an independent HVAC contractor to inspect the HVAC equipment
and make recommendations as to any reasonably needed repairs. Landlord reserves
the right to hire its own independent HVAC contractor to render an opinion of
the same. In the event opinions of Tenant's and Landlord's HVAC contractors
conflict, a third independent HVAC contractor shall be hired, mutually agreed
upon and paid for by Tenant and Landlord, to render a third and final opinion.
Landlord shall perform such initial repairs, if any, at Landlord's sole cost and
expense.
ARTICLE 6. SECTION 2 - REPAIRS AND MAINTENANCE:
Tenant shall not be responsible for the repairs, service, replacement and
maintenance for lighting, plumbing and other electrical, mechanical and
electromotive equipment and fixtures and utility repair in ducts, conduits,
pipes and wiring, and any sewer stoppage located in under and above the Leased
Premises exclusively serving a neighboring tenant's premises for reasons not
resulting from the negligence of Tenant, its agents, contractors, servants,
employees, invitees, subleases, or licensees.
TO BE ATTACHED TO AND BECOME A PART OF THAT CERTAIN LEASE AGREEMENT COVERING
SPACE IN THE GATEWAY BUSINESS PARK
