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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
For Annual and Transition Reports to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark one)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1998 or
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from _______________________ to _______________
Commission file number 0-28362
ClearComm, L.P.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 66-0514434
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
221 Ponce de Leon Avenue
Suite 1401
Hato Rey, Puerto Rico 00917-1825
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (787) 756-0840
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The Registrant's outstanding securities consist of units of limited
partnership interests which have no readily ascertainable market value since
there is no public trading market for these securities on which to base a
calculation of aggregate market value.
Documents incorporated by reference. None.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I
Page
<S> <C> <C>
Item 1. Business.................................................................................. 3
Item 2. Properties................................................................................ 8
Item 3. Legal Proceedings......................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders....................................... 9
Part II
Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder
Matters................................................................................... 9
Item 6. Selected Financial Data................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Consideration and Results of
Operations................................................................................ 13
Item 8. Financial Statements and Supplementary Data............................................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 43
Part III
Item 10. Directors and Executive Officers of the Registrant........................................ 43
Item 11. Executive Compensation.................................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Managements........................... 46
Item 13. Certain Relationships and Related Transactions............................................ 47
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 48
SIGNATURES .......................................................................................... 50
</TABLE>
2
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PART I
ITEM 1. BUSINESS
General
ClearComm, L.P., a Delaware limited partnership (the "Partnership"),
was formed on January 24, 1995 under the name PCS 2000, L.P., to own and operate
broadband personal communications services ("PCS") licenses to be acquired in
auctions conducted by the Federal Communications Commission (the "FCC"). The
Partnership competed for PCS licenses in frequency Block C, set aside for
"designated entities" ("Entrepreneurs") that meet certain financial and equity
structure requirements and that qualify for certain benefits under rules,
regulations and policies of the FCC and related statutory provisions ("FCC
Rules").
The Partnership owns two C-Block PCS licenses covering the entire
island of Puerto Rico (the "Puerto Rico Licenses"). The Partnership expects to
build its PCS network in Puerto Rico and offer PCS services by the end of 1999.
The Partnership also owns five licenses in California (the "California
Licenses," and together with the Puerto Rico Licenses, the "Licenses"). SuperTel
Communications Corp., the general partner of the Partnership (the "General
Partner") is actively engaged in the pursuit of business alliances and strategic
partners to develop the California Licenses.
The Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") provides that the Partnership will terminate on
December 31, 2005. The Partnership will dissolve on such date (unless terminated
earlier or unless the Partnership Agreement is amended to change such date). The
General Partner anticipates that it will have developed the Licenses by such
date, and depending upon business considerations, will have restructured itself
or transferred or sold the Licenses and its PCS operations.
Markets
The following table sets forth as of December 31, 1998, with respect to
each Market in which the Partnership owns a PCS license, the estimated persons
of population ("POPs").
-------------------------------------------------------------
Market Name POPs*
-------------------------------------------------------------
San Juan, PR 2,170,250
-------------------------------------------------------------
Mayaguez-Aguadilla, PR 1,325,600
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Modesto, CA 418,980
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Visalia-Porterville, CA 413,390
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Redding, CA 253,260
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Merced, CA 192,710
-------------------------------------------------------------
Eureka, CA 142,580
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Total: 4,916,770
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----------
* Based on the 1990 census figures used by the FCC.
3
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Company Strategy in Puerto Rico
Through its wholly-owned subsidiary, NewComm Wireless Services, Inc.
("NewComm"), the Partnership intends to build a high quality digital wireless
telecommunications network to serve the Puerto Rico markets, and become a
leading provider of PCS in Puerto Rico. The Partnership owns two C-Block PCS
licenses covering the entire island of Puerto Rico which contains approximately
3.8 million contiguous POPs. The Partnership believes that Puerto Rico is a
unique, attractive market for the development of a wireless telecommunications
business due to its (i) current low penetration rate of wireless
telecommunications service relative to most other U.S. markets, particularly in
the consumer market segment; (ii) attractive competitive environment, with only
three currently operating wireless service providers; (iii) high population
density in key markets yielding efficiencies in marketing and network deployment
costs; and (iv) low teledensity rate and unmet demand for basic telephone
service relative to other U.S. markets.
To build and operate its Puerto Rico network, the Partnership entered
into a Joint Venture Agreement, dated February 4, 1999 (the "TLD Agreement")
with Telefonica Larga Distancia de Puerto Rico, Inc. ("TLD"). TLD is a
subsidiary of Telefonica Internacional, S.A. which is a member of the Telefonica
S.A. group (the "Telefonica Group"), Spain's largest traded company and one of
the world's largest telecommunication companies. Pursuant to the terms of the
TLD Agreement, the Partnership transferred the Puerto Rico Licenses and
associated business plans and studies to NewComm. TLD invested approximately
$19.96 million in NewComm and received a convertible promissory note (the
"Note") and is entitled to select a director for one of the five NewComm board
of director seats (the "Board"). The Note is convertible into 49.9% of NewComm's
equity. The Note cannot be converted, however, until the FCC authorizes TLD to
hold more than a 25% equity interest in NewComm. Once the Note is converted, TLD
will be entitled to three of six Board positions. NewComm and TLD will enter
into a management agreement whereby TLD will provide day-to-day management
services for NewComm, subject to the supervision of NewComm's Board. TLD also
received an option (the "Option") to buy an additional 0.2%, which would bring
its ownership to 50.1%, subject to a third-party valuation and FCC approval. The
Option cannot be exercised prior to January 22, 2002, unless the ownership
restrictions on the Puerto Rico Licenses are eliminated by the FCC. NewComm,
however, has the option to buyout TLD in the last year before the restrictions
on the Puerto Rico Licenses lapse.
The Partnership's Puerto Rico PCS operations will operate under the
image and brand of TLD, and will benefit from the experience and knowledge of
the Telefonica Group. The Partnership is planning to be commercially in service
in Puerto Rico by the second half of this year with a state-of-the-art CDMA
(Code Division Multiple Access) network that will be combined with the
telecommunications services that are already being offered in Puerto Rico to TLD
customers. TLD offers a variety of telecommunications services in Puerto Rico
ranging from long distance for local clients and "carriers" to data transmission
and internet. Since February 1999, it has also been offering intra-island
telephone services.
Work on the PCS network began during the first quarter of 1999. NewComm
is finalizing an agreement with Lucent Technologies, Inc. ("Lucent") to build
an island wide PCS network within 12 months. The build out costs represent an
investment of approximately $100 million which, as a turn-key project, includes
the operation and maintenance of the network by Lucent during the first year.
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Competition
The success of the Partnership's PCS business in Puerto Rico will
depend upon its ability to compete with the two cellular operators, at least
three other PCS licensees and potential future wireless communications providers
in the Puerto Rico market. The Partnership expects that the existing cellular
providers will upgrade their networks to provide comparable services in
competition with the Partnership. The Partnership will also face competition
from other existing communications technologies such as conventional mobile
telephone service, specialized mobile radio ("SMR") and enhanced specialized
mobile radio ("ESMR"). The Partnership believes that ESMR will have a limited
competitive impact against PCS, particularly in the consumer mass market sector,
largely because of technical limitations and limited bandwidth. In the future,
PCS could potentially compete more directly with traditional landline telephone
service providers and other technologies including mobile satellite systems. In
addition, the availability of new spectrum (such as wireless communications
service and general wireless communications services and resale opportunities)
and the entry of new participants, may result in increased competition in the
Puerto Rico market.
Regulation
Overview
In 1993, Congress adopted the Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") which, among other things, mandated Auctions for the
award of certain FCC licenses, including PCS licenses. Pursuant to authority
granted to the FCC by the Reconciliation Act, the FCC awarded PCS licenses
through a process of competitive bidding auctions in which there were multiple
applications for the same license (the "Auctions").
PCS is a radio-based transmission technology which, like cellular
technology, uses the same frequencies repeatedly in a multiple-transmitter cell
design. Since PCS will be digital, it is capable of numerous advanced service
features, including caller-ID, voice-prompting, voice-recognition, scrambled
(secure) calling, message and image delivery, intelligent call transfer and
follow-me calling, single number service (the same number can be assigned to
multiple PCS telephones in different locations) and auto-trace of crank callers.
In addition, if such features are incorporated into a given PCS network, PCS
subscribers will have E-mail access and personal computer compatibility.
Frequency Blocks
The FCC has divided PCS into six frequency blocks, designated Blocks A
through F, such that there are six overlapping licenses in each market in each
geographic area of the country. Blocks A, B and C are 30 MHz blocks, and Blocks
D, E and F are 10 MHz blocks. The FCC has created new C2 blocks of 15 MHz in
certain markets including Puerto Rico. See "Item 1 -- Reconsideration Order."
Entrepreneur Classes and Economic Preferences
Block C and F licenses were reserved for Entrepreneurs meeting certain
limiting criteria set forth in FCC Rules. Entrepreneurs were granted a set of
economic preferences in the
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Auctions. Under FCC Rules, an Entrepreneur is defined as an entity that,
together with its affiliates and persons or entities that hold attributable
interests in such entity and their affiliates, has less than (i) $500 million of
assets, and (ii) $125 million of annual gross revenue over the prior two years.
In addition, FCC Rules define three classes of Entrepreneurs, with each class
eligible for different economic preferences in the Blocks C and F Auctions. The
Partnership's Entrepreneur qualification is as a "Small Business," which is an
entity that has less than $40 million of aggregate annual gross revenue averaged
over the last three years.
Small Businesses are entitled to make interest-only payments for the
first six years and can amortize interest and principal over the remaining four
years of the license term. The interest rate applicable to Small Businesses is
the 10-year treasury note rate at the date of grant of the license. In addition,
Small Businesses were entitled to a bidding credit of 25%. In March 1997, the
FCC issued an order suspending indefinitely interest payments on all Block C
licenses; however, interest continued to accrue. Ultimately, in accordance with
the FCC procedures specified in the FCC's March 24, 1998 Order on
Reconsideration of the Second Report and Order (the "Reconsideration Order"),
the Partnership commenced interest payments during July, 1998.
Build-Out Requirements
All PCS license holders are required to meet certain requirements
imposed by the FCC relating to the provision of service in each license area.
Block C license holders must provide coverage to one-third of the POPs in each
license service area within five years of license grant and two-thirds of the
POPs in each license service area within ten years of license grant. These
periods were rescheduled by the FCC to begin on June 8, 1998. Failure to comply
with the build-out requirements could subject the Partnership to license
forfeiture or other penalties, and may have a material adverse effect on the
financial condition of the Partnership.
Reconsideration Order
The Reconsideration Order provided the following options designed to
assist C Block licensees in obtaining financing to build their systems:
DISAGGREGATION. This option allowed a C Block licensee to elect to
disaggregate all of its 30 MHz licenses within a major trading area
("MTA") and return 15 MHz of each license to the FCC in exchange for
forgiveness of 50% of the outstanding debt associated with those
licenses. For licensees who elected to disaggregate, there were two
options: resume payments on the disaggregated licenses under the terms
of the installment payment plan or prepay the outstanding loan balance
on the disaggregated license. Licensees who elected to continue
installment payments for the disaggregated licenses received a total
credit equal to 70% of the original down payment made on the 30 MHz
disaggregated licenses. One half of the credit would be applied as a
down payment on the outstanding debt and 40 percent of the downpayment
associated with the disaggregated spectrum returned to the FCC could be
used to prepay the interest that had accrued during the payment
suspension period or reduce principal at the licensee's option.
Licensees who elected to prepay outstanding debt on the disaggregated
licenses received a credit equal to 85% of the original down payment
made on the 30 MHz disaggregated
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licenses. Consistent with the prepayment option for 30 MHz licenses,
this credit represented 70% of the down payment associated with the 15
MHz returned spectrum.
AMNESTY. This option allowed a C-Block licensee to surrender any of its
licenses, so long as all licenses within an MTA were returned in
exchange for the FCC forgiving all outstanding debt on the returned
licenses. For licenses that were returned, the licensee had two
choices: (i) the licensees could opt to re-bid on those licenses in the
reauction; or (ii) the licensee could opt to forgo the opportunity to
re-acquire its returned licenses in exchange for a credit of 70% of the
down payment already made on the returned licenses. The same choice had
to be made for all licenses within an MTA. The 70% credit had to be
used to prepay either a 30 MHz or 15 MHz disaggregated licenses
retained by the licensee.
PREPAYMENT. This option allowed a C-Block licensee to prepay any of its
outstanding notes and the interest accrued from the date of the
conditional license grant through the election date would be forgiven.
Also, licensees could surrender licenses and use 70% of their total
down payments as a credit towards the prepayment of any of the licenses
they retained. The licensee had to pay off the outstanding principal
debt obligations for all basic trading area ("BTA") licenses it held
within a single MTA and prepay as many of its notes it desires. The
remaining 30% of the down payments plus any unapplied portions of the
first 70% of the down payments were not returned. The licensee is not
allowed to rebid in the reauction for any of the licenses surrendered,
and cannot acquire these licenses in the secondary market for a period
of two years from the reauction commencement start date which was March
23, 1999.
On June 8, 1998, the date established by the FCC to file the elections
available to C Block licensees under the Reconsideration Order, the Partnership
made the following elections on its licenses:
o The following licenses were returned to the FCC under the
amnesty choice: Bakersfield, CA, Boise-Nampa, ID; Fresno, CA;
Lewinston-Moscow, ID; Logan, UT; Provo - Orem, UT; Reno, NV
and Salt Lake City, UT. As a result the entire outstanding
debt on these markets was forgiven, amounting to $179,368,965
of principal and $13,861,237 in accrued interest.
o For the remaining Western licenses the election made was to
disaggregate (return 15 MHz of the original 30 MHz). The funds
available as the result of the amnesty indicated above were
utilized to prepay the remaining licenses. As a result the
following licenses are now paid for in its entirety: Eureka,
CA; Merced, CA: Modesto, CA; Redding, CA; and
Visalia-Porterville all are part of the San Francisco MTA.
o For the Puerto Rico licenses, the Partnership elected to
disaggregate (return 15 MHz of the original 30 MHz). This
decision resulted in a reduction in debt of $51,339,555 in
principal and $3,967,407 of accrued interest.
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As a result of the foregoing, the Partnership recorded a license cost
forfeiture of $10,989,972 after disaggregation, prepayment, and amnesty options
offered by the FCC. In addition, $2,281,758 was available as a prepayment credit
and was applied to accrued interest balance. This decision resulted in a
substantial reduction in debt, the regular quarterly interest installments of
$5,035,284 are now $834,268 and the suspension interest installments of
$2,993,199 are now $210,706.
Employees
The Partnership had three employees in California and two employees in
Puerto Rico until August 1998. As of December 31, 1998, the Partnership has one
employee who is located in Puerto Rico.
ITEM 2. PROPERTIES
The Partnership leases office space in Hato Rey, Puerto Rico. The
Partnership expects NewComm will embark on a build-out phase which includes
leasing sites where its telephone switching equipment, relay stations and other
equipment will be located.
ITEM 3. LEGAL PROCEEDINGS
In 1996, the Partnership, through its bidding agent inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia) (the "Bidding Error"). The Bidding Error resulted
in the following claims and actions: (i) on June 6, 1996, the Partnership filed
suit in San Juan, Superior Court for the Commonwealth of Puerto Rico and
attached the account which held approximately $6.5 million which would be
payable to Romulus Telecommunications, Inc. ("Romulus") under its agreement with
the Partnership (the "Romulus Account"); (ii) on July 26, 1996, Romulus and Mr.
Easton each filed a demand for arbitration with the American Arbitration
Association (the "AAA") at its Miami, Florida office seeking to arbitrate all
matters relating to the Bidding Error, including the attachment of the Romulus
account; (iii) on January 27, 1997, in the Superior Court of the State of
California for the County of San Mateo, the trustee of the SDE Trust (a
shareholder in Unicom Corporation) filed a complaint for damages of $300 million
and equitable relief against Unicom Corporation, the former general partner of
the Partnership, the General Partner, the Partnership and certain officers and
directors, trustees of trusts holding Unicom shares and attorneys for breach of
fiduciary duty; and (iv) the Partnership was subject to three petitions to deny
the award of any of the Licenses to the Partnership.
On November 16, 1998, the parties to the above referenced actions
entered into a settlement agreement (the "Settlement Agreement") whereby all
such actions were settled. The Memorandum Opinion and Order approving the
Settlement Agreement was released on January 11, 1999 and became effective on
February 11, 1999. Pursuant to the Settlement Agreement, the Partnership
received $1,513,000 in cash from the Romulus Account and was released of
approximately $500,000 in payables owed to Romulus. Also pursuant to the
Settlement Agreement, the General Partner issued 19,600 shares of its voting
common stock to the Breen Family Trust and 15,900 shares of non-voting Class A-1
common stock to the California Theological Charitable Trust, Inc. All the
parties to the Settlement Agreement released each other from all claims, both
past and future.
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In addition, two separate civil actions were filed in the Circuit Court
of the State of Oregon for Multnomah County that have now been consolidated. The
first was filed in November 1996 and amended in August 1997. The second was
filed in August 1997. In both cases certain officers, directors, employees, and
consultants of the General Partner, as well as persons unrelated to the General
Partner and the Partnership have been named as defendants. Both lawsuits alleged
certain securities law violations, common law fraud, and activities violating
Oregon's racketeering laws in connection with the Partnership's initial sale of
Units. In February 1998, the court dismissed the racketeering claim dismissed
the other claims in August 1998. On or about October 20, 1998, the Partnership
was notified that the plaintiffs had filed a request for arbitration of some of
these claims underlying these actions with the American Arbitration Association.
In addition, the plaintiffs have noticed an appeal of the dismissal order. The
Partnership believes the suit is without merit and is vigorously defending this
lawsuit.
Further, on February 4, 1999, the Partnership and NewComm filed an
application with the FCC for a pro forma assignment of the Puerto Rico Licenses
to NewComm, and the FCC granted the application on February 18, 1999. On
March 22, 1999, Centennial Communications Corp. ("Centennial") filed a Petition
for Reconsideration (the "Petition") with the FCC seeking to rescind the
assignment of the Licenses to NewComm or to stay the effectiveness of the
assignment pending resolution of the issues raised in the Petition. Centennial
alleges that there are facts warranting an investigation into whether TLD is
exercising de facto, if not de jure, control over the Puerto Rico NewComm
licenses in violation of the FCC's broadband PCS DE rules. The Partnership
believes that all of its actions were in conformity with FCC rules, and that the
allegations are without merit. The Partnership will vigorously oppose the
Petition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no trading market for the Units, and it is unlikely that a
trading market will exist at any time in the future. Any transfer of the Units
is severely restricted by certain conditions outlined in the Partnership
Agreement, and requires the consent of the General Partner which can be withheld
in the General Partner's sole reasonable discretion.
As of December 31, 1998 only the General Partner holds a general
partnership interest and 1,634 Investors hold an aggregate of 2,826.1 Units of
limited partnership interest.
There have been no cash distributions to the Investors to date. The
following summary of certain allocation provisions of the Partnership Agreement
is entirely qualified by reference to the Partnership Agreement, which is filed
as an Exhibit to this Form 10-K. As a general rule, the General Partner shall
cause the Partnership to make distributions, if any, of cash flow received from
operations of the Partnership which the General Partner, in its sole discretion,
determines to distribute to Investors ("Cash Flow"). All distributions will be
made 75% to the Investors and 25% to the General Partner. Distributions to the
Investors shall be made in proportion to the
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number of Units held by each Investor on the last day of the calendar quarter to
which such distribution relates.
The availability of Cash Flow for distribution to the Investors is
dependent upon the Partnership earning more than its expenses. No assurance can
be given that income in any year will be sufficient to generate Cash Flow for
distribution to the Investors or that there will not be cash deficits. Further,
because operating expenses are subject to increases, and increases in revenue
from Partnership operations may be subject to market limitations, income from
the Partnership in any year may not be sufficient to generate Cash Flow.
Net losses from operations of the Partnership will be allocated as
follows: first, to the Investors to offset any profits previously allocated to
the Investors, and second, 75% to the Investors in accordance with the number of
Units held by each Investor and 25% to the General Partner. The gain from a
financing, refinancing, sale or other disposition of the Partnership's assets
(or from similar capital transactions) (collectively, "Capital Transactions")
will be allocated 75% to the Investors and 25% to the General Partner. The loss
from a Capital Transaction will be allocated in the same way that net losses
from the Partnership's operations are allocated. Further adjustments to capital
accounts may be required and are authorized by the Partnership Agreement to
comply with the provisions of any future Internal Revenue Service regulations.
The Partnership may realize net proceeds (that is, proceeds available
after the payment of certain fees and expenses including payments to the General
Partner or its affiliates) from a Capital Transaction. No assurance can be
given, however, as to the availability of a Capital Transaction or the amount of
net cash proceeds therefrom. Any amounts received by the Partnership which
constitute amounts derived from a Capital Transaction, will be treated as being
received from operations of the Partnership and will be distributed to Investors
only if the General Partner determines to do so.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the years ended December 31, 1997 and December 31,
1998
The following table summarizes selected consolidated financial data of
the Partnership from the period from inception (January 24, 1995) to December
31, 1995, and from January 1, 1996 to December 31, 1996, from January 1, 1997 to
December 31, 1997, and from January 1, 1998 to December 31, 1998. This
information should be read in conjunction with the Partnership's consolidated
financial statements and related notes thereto and management discussion
contained herein.
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Statement of Operations Data
<TABLE>
<CAPTION>
January 24, 1995
(Date of Inception)
to December 31, December 31, December 31, December 31,
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Revenues:
Interest Earnings...................... $ 1,469,099 $ 66,767 $ 495,614 $ 324,232
----------- ------------ ------------ ------------
Total Expenses:
Consulting and legal services rendered
by related parties (1)................. 6,756,250 744,862 8,291,492 757,785
Management Fee to General Partner...... 513,288 424,334 369,643 360,452
Other Legal Fees....................... 368,704 1,283,356 1,546,887 1,833,402
Miscellaneous Consulting Services...... 325,604 557,353 1,506,310 254,726
Travel................................. 118,850 282,890 421,048 325,844
Insurance.............................. 32,000 133,784 130,332 130,132
Salaries and bonuses................... 68,769 730,828 1,331,605
Other Administrative Expenses.......... 183,890 443,381 708,242
Omaha Withdrawal Fee................... 1,257,771
Norfolk Bid Withdrawal................. 3,273,374
Forfeiture Imposed by FCC.............. 1,000,000
Settlement credit on legal disputes.... (2,090,876)
Norfolk bid withdrawal credit.......... (2,848,374)
License cost forfeiture after
disaggregation, prepayment and amnesty
options offered by FCC................. 10,989,972
----------- ------------ ------------ ------------
Subtotal:................................... $ 8,183,465 $ 9,141,614 $ 13,439,921 $ 11,752,910
----------- ------------ ------------ ------------
Net Income (Loss)........................... $(6,714,366) $ (9,074,847) $(12,944,307) $(11,428,678)
=========== ============ ============ ============
Net Income (Loss) Attributable to General
Partner..................................... $(1,678,592) $ (2,268,712) $ (3,236,077) $ (2,857,169)
=========== ============ ============ ============
Net Income (Loss) Attributable to
Unitholders ($1,933.49) in 1995, ($2,609.71)
in 1996, ($3,495.94) in 1997 and ($3,033.08)
in 1998 per Unit respectively............... $(5,035,774) $ (6,806,135) $ (9,708,230) $ (8,571,509)
=========== ============ ============ ============
</TABLE>
- ---------------
(1) The 1997 includes payments of $6,511,250 to Romulus for its services in
preparation of the Application and bidding at Auctions, see "Item 13 -
Payments to Romulus," and other consulting fees.
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Balance Sheet Data
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents......... $ 2,727,541 $ 2,492,851 $ 9,761,729 $ 4,246,412
Prepaid Expenses.................. 69,000 100,538 108,700 125,388
Accounts Receivable............... -- -- -- 1,633,024
Deposits.......................... 50,000,000 45,468,855 --
Restricted Cash................... 6,511,250 6,511,250 --
Other Assets...................... 0 14,535 80,258 18,495
PCS Licenses...................... 270,245,139 64,757,512
Deposits.......................... 25,000
----------- ----------- ------------ -----------
Total:............................ $59,334,791 $54,588,029 $280,220,826 $70,780,831
=========== =========== ============ ===========
LIABILITIES AND PARTNERS'
CAPITAL:
Accounts Payable and Accrued
Liabilities....................... $ 836,657 $ 287,242 $ 2,069,520 $ 1,398,231
Current Accrued Interest-FCC...... 4,399,837 919,450
License Loan Payable.............. 231,415,989 37,550,348
Unitholders' Equity (2,604.5
Units in 1995, 2,719.6 Units
in 1996, 2,825.9 Units in 1997
and 2,826.1 Units in 1998; and
1 general partnership interest)... $58,498,134 $52,300,787 $ 42,335,480 $30,912,802
----------- ----------- ------------ -----------
Total:............................ $59,334,791 $54,588,029 $280,220,826 $70,780,831
=========== =========== ============ ===========
Book Value Per Unit............... $ 22,452 $ 19,224 $ 14,976 $ 10,934
=========== =========== ============ ===========
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Partnership was formed in January 1995 and is managed by the
General Partner. The Partnership was organized to acquire, own and operate PCS
licenses in frequency Block C, and to take advantage of the benefits that the
FCC has set aside for Entrepreneurs. The Partnership's income to date has
consisted only of interest earnings as the Partnership was awarded the Licenses
on January 22, 1997 and has not yet established operations. The Partnership
entered into the TLD Agreement with TLD on February 4, 1999, whereby the
Partnership contributed its Puerto Rico Licenses to its wholly owned
subsidiary NewComm and TLD contributed $19.96 million in capital.
Results of Operations - 1998 Compared to 1997
Revenues
The Partnership's sole source of revenue continued to be interest
income for the year ended December 31, 1998. Interest income for this year was
$324,232. In 1997, the Partnership had interest earnings of $495,614. The
decrease in interest earnings is primarily due to a decrease in interest rates
and a reduction in available cash used to pay the Partnership expenses.
Expenses
Expenses for the year ended December 31, 1998 totaled $11,752,910. This
amount included an accrual for $360,452 of expenses to be reimbursed to the
General Partner, including its management fee, and a license cost forfeiture of
$10,989,972 after disaggregation, prepayment, and amnesty options offered by the
FCC.
Expenses for the year ended December 31, 1997 totaled $13,439,921. This
amount included an accrual for $369,643 of expenses to be reimbursed to the
General Partner, including its management fee. Also 1997 expenses include the
$6,511,250 classified in the 1996 financial statements as Restricted Cash
expensed in 1997 and advanced to Romulus under its agreement with the
Partnership.
Expenses for the year ended on December 31, 1998 are lower than the
expenses for the same period of 1997 because the 1998 expenses include a
$2,090,876 credit in connection with the Settlement Agreement and a $2,848,374
credit in connection with the Norfolk bid withdrawal penalty net of the license
cost forfeiture referenced above.
Liquidity and Capital Resources
As of December 31, 1998, the Partnership had assets totaling
$70,780,381, consisting of $4,246,412 in cash and cash equivalents, $1,630,024
in accounts receivable, $125,388 in prepaid expenses, $64,757,512 in PCS
Licenses, including $8,782,000 in capitalized interest, $18,495 in other assets,
and current liabilities of $2,317,681. As of December 31, 1997, the Partnership
had assets totaling $280,220,826, consisting of $9,761,729 in cash and cash
equivalents, $108,700 in prepaid expenses, $270,245,139 in PCS Licenses,
including $25,672,000 in capitalized interest, $25,000 in deposits, $80,258 in
other assets and current liabilities of $6,469,357 and long-term liabilities due
to the FCC including accrued interest of $231,415,989. The Partnership assets
decreased during 1998 because of the return and the disaggregation of certain
PCS licenses pursuant to the Reconsideration Order. See "Item 1 -
Reconsideration Order."
13
<PAGE>
Results of Operations - 1997 Compared to 1996
Revenues
The Partnership's sole source of revenue continued to be interest
income for the year ended December 31, 1997. Interest income for this year was
$495,614. In 1996, the Partnership had interest earnings of $66,767. The
increase in interest earnings is primarily due to the FCC refunding to the
Partnership approximately $11,039,543, which the Partnership had placed on
deposit with the FCC in connection with the acquisition of its PCS licenses and
the interest earned by the additional capital invested by the limited partners
during 1997.
Expenses
Expenses for the year ended December 31, 1997 totaled $13,439,921. This
amount included an accrual for $369,643 of expenses to be reimbursed to the
General Partner, including its management fee. Also 1997 expenses includes the
$6,511,250 classified in the 1996 financial statements as Restricted Cash
expensed in 1997 under the Services Agreement and advanced to Romulus. Expenses
for the period ended December 31, 1996 were $9,141,614. The 1996 expenses
includes the Omaha withdrawal fee of $1,257,771, the Norfolk bid withdrawal fee
of $3,273,374, the $1,000,000 forfeiture imposed by the FCC, and the management
fee of the General Partner. Expenses for the year ended on December 31, 1997 are
higher than the expenses for the same period of 1996 because the 1997 expenses
include the amount expensed under the Services Agreement advanced to Romulus.
Liquidity and Capital Resources
As of December 31, 1997, the Partnership had assets totaling
$280,220,826, consisting of $9,761,729 in cash and cash equivalents, $108,700 in
prepaid expenses, $270,245,139 in PCS Licenses, including $25,672,000 in
capitalized interest, $25,000 in deposits, $80,258 in other assets and current
liabilities of $6,469,357 and long-term liabilities due to the FCC including
accrued interest of $231,415,989. As of December 31, 1996, the Partnership had
assets totaling $54,588,029, consisting of $2,492,851 in cash and cash
equivalents, $45,468,855 on deposit with the FCC, prepaid expenses of $100,538,
other assets of $14,535, $6,511,250 in restricted cash and current liabilities
of $2,287,242. The Partnership assets increased during 1997 because of the
issuance of PCS licenses on January 22, 1997 and additional capital invested by
its existing investors.
During the year ended on December 31, 1997 the Partnership raised
$2,979,000 of additional capital from two capital offerings the first one
commenced September 30, 1996 and ended on January 22, 1997 the amount raised in
1997 was $1,050,000. In addition on March 26, 1997, the Partnership commenced a
second capital offering to its existing investors of one-fifth units at a price
of $6,000 per one fifth-unit. This offering ended on October 30, 1997 and the
Partnership sold 323.5 one-fifth Units for an aggregate price of $1,929,000.
14
<PAGE>
Results of Operations - 1996 Compared to 1995
Revenues
The Partnership's sole source of revenue was interest income for the
year ended December 31, 1996. In 1995, the Partnership had interest earnings of
$1,469,099. Interest income for 1996 was $495,614. Interest income in 1997 was
greater because the Partnership had invested the capital contributions of its
Investors until it placed its $50 million deposit with the FCC in November 1995.
Expenses
Expenses for the year ended December 31, 1996 totaled $9,141,614.
General and administrative expenses for the period that ended December 31, 1995
were $8,183,465, which included amounts paid to Romulus under Services Agreement
and the expenses and the management fee of the General Partner. Expenses for the
year that ended December 31, 1996 were higher than the expenses for the same
period of 1995 because the 1996 expenses includes the Omaha withdrawal fee of
$1,257,771, the Norfolk bid withdrawal fee of $3,273,374, the $1,000,000
forfeiture imposed by the FCC, and related legal fees and certain consulting
expenses amounting to $1,373,547 which were incurred in connection with the
result of the Bidding Error.
Liquidity and Capital Resources
As of December 31, 1996, the Partnership had assets totaling
$54,588,029, consisting of $2,492,851 in cash and cash equivalents, $45,468,855
($50 million less bid withdrawal penalty) on deposit with the FCC, $6,511,250 in
restricted cash, $100,538 in prepaid expenses, $14,535 in equipment and current
liabilities of $2,287,242. As of December 31, 1995, the Partnership had assets
totaling $59,334,791, consisting of $2,727,541 in cash and cash equivalents, $50
million on deposit with the FCC, other assets of $96,000, $6,511,250 in
restricted cash and current liabilities of $836,657. The Partnership assets
decreased during 1996 because of expenses associated with securing the Licenses
and a forfeiture and bid withdrawal penalty associated with the Bidding Error.
During 1995, the Partnership assets increased as the result of the Private
Placement begun in 1995, which ended during the fourth quarter of 1995.
Year 2000 Disclosure
The Partnership is aware of the Year 2000 ("Y2K") problem, which is the
result of a widespread programming technique that causes computer systems to
identify a date based on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19." As a result, the year 2000
would be stored at "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
such as computer databases ("IT Systems"), and non-information technology
systems, such as elevators ("Non-IT System") to produce incorrect data or cease
operating completely.
As the Partnership does not yet have operations, it has minimal IT and
non-IT systems. The Partnership has retained a certified Y2K consultant who has
reviewed the Partnership's IT and non-IT systems, and will issue a certificate
to certify that those systems are Y2K compliant.
15
<PAGE>
All of the equipment required to build out the Puerto Rico network will
be purchased from third party vendors. The Partnership will require such
suppliers to warrant that products sold or licensed to the Partnership are Y2K
compliant.
Since the Partnership does not yet have operations, total costs
incurred to date specifically associated with becoming Y2K compliant have not
been material. The total estimated specific costs of becoming Y2K compliant is
not material.
Once the Partnership begins operations, it recognizes that the Y2K
problem will impose certain risks, including the possibility of a failure of the
Partnership's signal, computer, and non-information technology systems. Such
failures could have a material adverse effect upon the Partnership and may cause
systems malfunctions, signal loss, incorrect or incomplete transaction
processing, the inability to reconcile accounting books and records, and the
inability for the Partnership to manage its business. In addition, the
Partnership, once it begins operations, can be materially and adversely affected
by failures of third parties to become Y2K compliant. The failure of third
parties with which the Partnership then has financial or operational
relationships such as network maintenance contractors, roaming partners, handset
and accessory providers, financial institutions, payroll contractors, regulatory
agencies and utility companies, to become Y2K compliant in a timely manner could
result in material adverse effects on the Partnership's results of operations.
16
<PAGE>
The Partnership's expectations about future costs and timely completion
of its Y2K modifications are subject to uncertainties that could cause actual
results to differ materially from what has been discussed above. Factors that
could influence the amount of future costs and the effective timing of
remediation efforts include the success of the Partnership in identifying non-IT
Systems and IT Systems that contain two-digit year codes, the nature and amount
of programming and testing required to upgrade or replace each of the affected
systems and equipment, the nature and amount of testing, verification, the rate
and magnitude of related labor costs, and the success of the Partnership's
suppliers, in addressing the Y2K issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
ClearComm, L.P.
---------------
Report of Independent Accountants 19
Consolidated Statements of Assets, Liabilities and Partners' Capital as
of December 31, 1997 and 1998 20
Consolidated Statement of Revenues and Expenses for years ended
December 31, 1996, 1997 and 1998 and period from inception to
December 31, 1998 21
Consolidated Statement of Cash Flows for years ended December 31, 1996,
1997 and 1998 and period from inception to December 31, 1998 22
Consolidated Statement of Changes in Partners' Capital Accounts from
inception to December 31, 1998 23
Notes to Consolidated Financial Statements 24
SuperTel Communications Corp.
-----------------------------
Report of Independent Accountants 34
Balance Sheet for December 31, 1997 and 1998 35
Statement of Revenues and Expenses and deficit for the years ended
December 31, 1997 and 1998 36
Statement of Cash Flows for the years ended December 31, 1997 and 1998 37
Notes to Financial Statements 38
</TABLE>
All financial schedules have been omitted because they are not
applicable or because the information required is included in the
financial statements or notes thereto
17
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Report and Consolidated Financial Statements
December 31, 1998 and 1997
18
<PAGE>
Report of Independent Accountants
To the Partners of ClearComm, L.P.
In our opinion, the accompanying consolidated statement of assets, liabilities
and partners' capital, and the related consolidated statements of revenues and
expenses, of cash flows and of changes in partners' capital accounts present
fairly, in all material respects, the financial position of ClearComm, L.P. (the
Partnership), a development stage enterprise, at December 31, 1998 and 1997 and
the results of its operations and its cash flows for the years ended December
31, 1998, 1997 and 1996, and for the period from inception (January 24, 1995)
through December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes, examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has not yet obtained the
financing required to develop and construct the infrastructure necessary to
begin commercial operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 5, 1999
Stamp 1537595 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
19
<PAGE>
<TABLE>
<CAPTION>
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statements of Assets, Liabilities and Partners' Capital
December 31, 1998 and 1997
- ----------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,246,412 $ 9,761,729
Accounts receivable, including $1,551,362
from related parties 1,633,024
Prepaid expenses 125,388 108,700
------------ ------------
Total current assets 6,004,824 9,870,429
============ ============
Licenses, including capitalized interest of $8,782,000
(1997 - $25,672,000) 64,757,512 270,245,139
Other assets 18,495 105,258
------------ ------------
$ 70,780,831 $280,220,826
============ ============
Liabilities and Partners' Capital
Current liabilities:
Accounts payable and accrued liabilities $ 352,670 $ 1,195,145
Accounts payable for legal fees, including
$68,460 to related parties (1997 - $63,329) 633,021 184,257
Accounts payable to related parties 412,540 690,118
Accrued interest - FCC 919,450 4,399,837
------------ ------------
Total current liabilities 2,317,681 6,469,357
------------ ------------
Long-term liabilities:
Notes payable - FCC 37,126,985 216,856,476
Accrued interest - FCC 423,363 14,559,513
------------ ------------
Total long-term liabilities 37,550,348 231,415,989
------------ ------------
Commitments and contingencies (Notes 8 and 9)
------------ ------------
Partners' capital:
Limited partners' capital (2,826.1 units issued
and outstanding in 1998 and 2,825.9 in 1997) 70,975,000 70,969,000
General partners' capital 100,000 100,000
Undistributed losses accumulated during
development stage (40,162,198) (28,733,520)
------------ ------------
Total partners' capital 30,912,802 42,335,480
============ ============
Total liabilities and partners' capital $ 70,780,831 $280,220,826
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statement of Revenues and Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
January 24, 1995
Year ended Year ended Year ended (inception) to
December 31, December 31, December 31, December 31,
1998 1997 1996 1998
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 324,232 $ 495,614 $ 66,767 $ 2,355,712
------------ ------------ ------------ ------------
Expenses:
Consulting and legal services
rendered by related parties 757,785 8,291,492 744,862 16,550,389
Settlement credit on legal disputes
with related parties (2,090,876) (2,090,876)
Management fee to General Partner 360,452 369,643 424,334 1,667,717
Other legal fees 1,833,402 1,546,887 1,283,356 5,032,349
Consulting services 254,726 1,506,310 557,353 2,643,993
Travel 325,844 421,048 282,890 1,148,632
Insurance 130,132 130,332 133,784 426,248
Salaries and bonuses 1,331,605 730,828 2,062,433
Other administrative expenses 708,242 443,381 183,890 1,404,282
Bid withdrawal penalty (Omaha, Nebraska) 1,257,771 1,257,771
Bid withdrawal penalty (credit) (Norfolk,
Virginia) (2,848,374) 3,273,374 425,000
Forfeiture imposed by the FCC 1,000,000 1,000,000
License cost forfeiture after
disaggregation, prepayment
and amnesty options offered
by the FCC 10,989,972 10,989,972
------------ ------------ ------------ ------------
11,752,910 13,439,921 9,141,614 42,517,910
------------ ------------ ------------ ------------
Net loss $(11,428,678) $(12,944,307) $ (9,074,847) $(40,162,198)
============ ============ ============ ============
Net loss attributable to general Partner $ (2,857,169) $ (3,236,077) $ (2,268,712)
============ ============ ============
Net loss attributable to limited
Partners ($3,033.08, $3,495.94,
and $2,609.71 per limited
partnership unit in 1998, 1997 and
1996, respectively) $ (8,571,509) $ (9,708,230) $ (6,806,135)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended January 24, 1995
December 31, December 31, December 31, (inception) to
1998 1997 1996 December 31, 1998
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(11,428,678) $(12,944,307) $ (9,074,847) $(40,162,198)
------------ ------------ ------------ ------------
Adjustments to reconcile net loss for the period
to net cash used by operating activities:
Depreciation 71,625 26,192 97,817
License cost forfeited after disaggregation,
prepayment and amnesty options offered
by the FCC 10,989,972 10,989,972
Increase in accounts receivable (1,633,024) (1,633,024)
Decrease (increase) in prepaid expenses 8,312 (8,163) (4,538) (100,389)
Increase in deposits (25,000) (25,000)
Decrease in bank overdraft (46,173)
(Decrease) increase in payable to FCC (1,000,000) 1,000,000
(Decrease) increase in accounts payable
and accrued liabilities (842,475) 990,218 74,293 352,670
Increase (decrease) in accounts payable
for legal fees 448,764 (256,590) 440,847 633,021
(Decrease) increase in accounts payable
to related parties (277,578) 48,650 (18,382) 412,540
------------ ------------ ------------ ------------
Total adjustments 8,765,596 (224,693) 1,446,047 10,727,607
============ ============ ============ ============
Net cash used by operating activities (2,663,082) (13,169,000) (7,628,800) (29,434,591)
============ ============ ============ ============
Cash flows from investing activities:
FCC auction deposit returned (paid) 11,039,543 (38,960,457)
Bid withdrawal (credit) payment (2,848,374) 4,531,145 1,682,771
Other assets (9,861) (91,915) (14,535) (116,311)
------------ ------------ ------------ ------------
Net cash (used) provided by
investing activities (2,858,235) 10,947,628 4,516,610 (37,393,997)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Capital investment by partners 6,000 2,979,000 2,952,500 71,150,000
Capital repurchased from partner (75,000) (75,000)
Decrease in restricted cash 6,511,250
------------ ------------ ------------ ------------
Net cash provided by financing
activities 6,000 9,490,250 2,877,500 71,075,000
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (5,515,317) 7,268,878 (234,690) 4,246,412
------------ ------------ ------------ ------------
Cash and cash equivalents at beginning of
period 9,761,729 2,492,851 2,727,541
============ ============ ============ ============
Cash and cash equivalents at end of period $ 4,246,412 $ 9,761,729 $ 2,492,851 $ 4,246,412
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
CLEARCOMM, L.P.
(a development stage enterprise)
Consolidated Statement of Changes in Partners' Capital Accounts
- -------------------------------------------------------------------------------------------------------------------------
Limited Partners General
Units Amount Partner Total
----- ------ ------- -----
<S> <C> <C> <C> <C>
Capital invested 2,604.5 $65,112,500 $ 100,000 $65,212,500
Share of undistributed losses -- (5,035,774) (1,678,592) 6,714,366
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1995 2,604.5 60,076,726 (1,578,592) 58,498,134
======= ========== ========== ==========
Repurchase of limited partners units (3.0) (75,000) (75,000)
Capital invested in 1996 118.1 2,952,500 2,952,500
Share of undistributed losses (6,806,135) (2,268,712) (9,074,847)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1996 2,719.6 56,148,091 (3,847,304) 52,300,787
======= ========== ========== ==========
Capital invested in 1997 106.3 2,979,000 2,979,000
Share of undistributed losses (9,708,230) (3,236,077) (12,944,307)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1997 2,825.9 49,418,861 (7,083,381) 42,335,480
======= ========== ========== ==========
Capital invested in 1998 0.2 6,000 6,000
Share of undistributed losses (8,571,509) (2,857,169) (11,428,678)
------- ----------- ------------ -----------
Balance (deficit) at December 31, 1998 2,826.1 $40,853,352 $ (9,940,550) $30,912,802
======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Reporting Entity and Summary of Significant Accounting Policies
ClearComm, L.P. (the "Partnership"), a development stage enterprise, is
a limited partnership organized on January 24, 1995 under the laws of
the State of Delaware. The Partnership was formed to file applications
with the Federal Communications Commission ("FCC") under personal
communications service ("PCS") frequency Block C, originally restricted
to minorities, small businesses and designated entities, to become a
provider of broadband PCS. The Partnership will terminate on December
31, 2005, or earlier upon the occurrence of certain specified events as
detailed in the Partnership Agreement. The Partnership has not yet
generated revenues from commercial operations.
In 1996, the Partnership's former general partner, Unicom Corporation,
sold its interest in the Partnership to SuperTel Communications Corp.
("SuperTel"), a Puerto Rico corporation (the "General Partner"). The
General Partner's total share of the income and losses of the
Partnership is 25% as per the Partnership's Agreement. Approximately
1,600 limited partners also invested in the Partnership through a
private placement.
As discussed in Note 6, on January 22, 1997, the Partnership was
granted the PCS Block C licenses for Puerto Rico and certain western
states of the United States.
During 1997 the Partnership organized the following wholly-owned
subsidiaries: ClearComm West, LLC, ClearCorp., LLC, CommClear, LLC and
ClearComm de Puerto Rico. These companies are also in a development
stage and their assets, liabilities and expenses have been included in
the Partnership's financial statements. All significant intercompany
accounts and transactions have been eliminated.
On March 3, 1999, the Partnership entered into a Joint Venture
Agreement with Telefonica Larga Distancia De Puerto Rico, Inc. ("TLD").
Among the most important provisions of this Joint Venture Agreement are
the following:
o The Partnership transfered all of its Puerto Rico Licenses,
including its related FCC debt to NewComm Wireless Services, Inc.
("NewComm"), a newly organized company owned by the Partnership.
o TLD contributed approximately $20 million dollar to NewComm by means
of a secured convertible promissory note payable ("promissory
note"). The promissory note is secured by a security agreement
pursuant to which a security interest is imposed upon NewComm
assets, a Partnership's guarantee and a pledge agreement.
o Once certain regulatory and other requirements are met, the note
will be exchanged for NewComm's common stock shares representing
approximately 49.9% of NewComm equity. TLD has the option to buy
an additional .2%, which would bring its ownership to 50.1%,
subject to certain conditions.
o Entered into certain management and technology transfer agreements.
24
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
The following unaudited proforma information shows how the
Partnership's balance sheet at December 31, 1998 would have been
affected if this transaction had taken place as of such date:
<TABLE>
<CAPTION>
Amount Proforma Adjusted
as reported adjustment balance
<S> <C> <C> <C>
Cash $ 4,246,412 $19,960,000 $24,206,412
Secured convertible promissory
note payable 19,960,000 19,960,000
</TABLE>
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Basis of Accounting and Fiscal Year
The Partnership's records are maintained on the accrual basis of
accounting for financial reporting and tax purposes. The fiscal year of
the Partnership ends on December 31.
Cash Equivalents
The Partnership considers all highly liquid investment instruments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents at December 31, 1998 consist of shares in
a money market account of $4,217,000 (1997 - $9,737,000).
PCS Licenses
PCS licenses are recorded at cost, and will be amortized over the
estimated life of the licenses (forty years) once the PCS network is
ready for its intended use. The licenses expire in January 2007,
however, FCC rules provide for renewal expectancy provisions. The
Company expects to exercise the renewal provisions. The Partnership
will capitalize the interest related to the debt pertaining to the PCS
licenses during the network construction period.
Other Assets
Other assets consist of computer and office equipment and are carried
at cost. Major additions or renewals which extend the useful lives of
the respective assets are capitalized, while repairs and maintenance
are charged to expense as incurred. When equipment is retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is credited or
charged to income.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. Net Loss Per Limited Partnership Unit
25
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Net loss per limited partnership unit is computed by dividing net loss
for the period by the weighted-average number of limited partnership
units outstanding during the period which for 1998 was 2,826 (2,777 and
2,608 in 1997 and 1996, respectively).
Fair Value of Financial Instruments
The carrying amount of the Partnership's financial instruments (cash
and cash equivalents, accounts payable and accrued liabilities) are
considered reasonable estimates of fair value due to the short period
to maturity.
Management believes, based on current interest rates that the fair
value of its notes and interest payable to the FCC approximates the
carrying amount.
Reclassifications
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation.
2. Financing Requirements
The Partnership has no revenues (other than interest income) and is
likely to incur operating losses after commencing commercial operations
until such time as its subscriber base generates revenue in excess of
the Partnership's expenses. Development of a significant subscriber
base is likely to take time, during which the Partnership must finance
its operations by other means than its revenues. Consequently,
following the grant of the licenses, the Partnership needs additional
debt or equity financing to develop and construct the infrastructure
necessary to operate wireless telephone systems, introduce and market a
new range of service offerings on a commercial basis and otherwise
operate its licensed PCS systems.
As discussed in Note 1, the Partnership entered into a joint venture
agreement with TLD. TLD is a licensed telecommunication carrier engaged
in business in Puerto Rico, has a subscriber base and is part of a
major telecommunication company in Spain. Management believes that the
joint venture with TLD is a major step toward obtaining the financing
required to develop and construct the infrastructure necessary to
commence commercial operations.
Each of the Partnership's C-Block licenses is subject to an FCC
requirement that the Partnership construct network facilities that
offer coverage to at least one-third of the population in the market
covered by such license within five years following the grant of the
applicable license and to at least two-third of the population within
ten years following the grant. Although the Partnership's buildout plan
calls for to exceed these minimum requirements, failure to comply with
these requirements could result in the revocation of the related
licenses or the imposition of fines on the Partnership by the FCC.
Therefore, delays in constructing its PCS network could have a material
adverse effect on the Partnership's financial conditions and results of
operations.
26
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
3. Bid Withdrawal Payment and Penalty
In 1996, the Partnership, through its bidding agent, inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia). Although the Partnership withdrew the
bid immediately, the FCC could have imposed a substantial penalty for
withdrawal of the then highest submitted bid, which penalty is based on
the difference between the bid withdrawn and the eventual highest bid.
The General Partner met with FCC officials and filed a petition for a
waiver of the penalty or, in the alternative, a substantial reduction
in the penalty amount, as the FCC's rules were intended to deter
frivolous and manipulative bids, and not errors.
On December 20, 1996, the FCC issued an order (the "Order") resolving
the request for waiver of the related bid withdrawal payment for the
license applicable to Round 11 of the Broad Band PCS Block C auction
(Norfolk, Virginia) for which the FCC ordered the Partnership to pay a
penalty of approximately $3,273,000. This Order also assessed a bid
withdrawal payment of approximately $1,258,000 for license B332 (Omaha,
Nebraska) for the Broad Band PCS Block C auction. In accordance with
the Order, these amounts were deducted from the Partnership's deposit
with the FCC. In addition to the December 20, 1996 Order, the FCC
issued a Notice of Apparent Liability and Forfeiture dated January 22,
1997, finding the Partnership liable for $1,000,000 for
misrepresentations made to the FCC Commission by its bidding agent.
These amounts were charged to operations in 1996.
On May 19, 1998, the Partnership filed a request with the FCC for
further reduction in the penalty amount. On June 12, 1998, the FCC
granted the Partnership's request for reduction of the penalty payment
to $425,000. The reduction in the penalty of approximately $2,850,000
was credited to operations in 1998.
The Partnership and its General Partner filed several actions in court
to recover from the bidding agent the FCC assessments made in
connection with the bidding error as well as other related expenses
incurred. One of the actions filed resulted in the attachment by the
Partnership of a $6.5 million escrow account deposited in the name of
the bidding agent, Romulus Telecommunications, Inc. ("Romulus"), with a
local bank, which would have been payable upon obtaining the PCS
licenses.
On November 16, 1998 (the "Effective Date"), the Partnership, SuperTel,
Romulus and other parties signed a Settlement Agreement (the
"Settlement Agreement"). The Settlement Agreement seeks to resolve
certain legal actions, claims and controversies among the parties. On
January 11, 1999, the FCC approved the Settlement Agreement which
provides, among other things, for the following:
1. At closing date, Romulus and all other appropriate parties shall
cause to pay the Partnership from the escrow trust account
maintained in Romulus' name the amount of $1,500,000.
27
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
2. SuperTel will issue to the Breen Family Trust 19,600 shares of its
voting Common Stock pursuant to the terms of certain warrant
agreement.
3. From the Effective Date, no additional shares of stock of
SuperTell shall be issued except with the written consent of at
least 60% of the voting securities of SuperTel.
4. SuperTel shall not enter into any contract, whether written or
oral, providing for the employment of any person or the engagement
of any person as a consultant for an amount in excess of $100,000
per year, except that two such contracts may provide for payment
up to $150,000 per year, without first obtaining a super majority
consent; provided however that this limitation shall not apply to
officers and employees of SuperTel as of September 1, 1998.
5. In exchange for all the interests held in Unicome by the SDE
Trust, the California Theological Charitable Trust and California
Theological Charitable Trust, Inc. ("CTCT"), SuperTel shall issue
to CTCT, 15,900 shares of non-voting Class A-1 common stock
representing 15.9 percent equity interest in SuperTel. The stock
will be non-voting, but will be equal in all other respects to the
existing common stock of SuperTel.
6. The parties and other signatories to the Settlement Agreement
release each other from various claims and causes of action.
On February 23, 1999, the Partnership collected the $1,500,000 from
Romulus. This amount plus certain accounts payable to Romulus deemed
settled have been recorded as a settlement credit in the accompanying
statement of revenues and expenses for the year ended December 31,
1998.
4. Partners' Capital
At December 31, 1998, the limited partners' capital consisted of
2,826.1 units (consisting of 2,601.5 units and 1,123 one-fifth units)
(1997 - 2,825.9 units, consisting of 2,601.5 units and 1,122 one-fifth
units) distributed among approximately 1,600 limited partners.
The Partnership Agreement provides that the Partnership may sell
additional limited partnership interests after the initial offering to
raise additional equity.
Cash flow received from normal operations of the Partnership which the
general partner, in its sole discretion, determines to distribute to
the investors of the Partnership, will be distributed 75% to the
limited partners and 25% to the general partner. The operating losses
of the Partnership for federal income tax purposes will be allocated
first to the partners as necessary to offset any profits previously
allocated to them until each partner has cumulative losses equal to
cumulative profits previously allocated to each partner, and second,
75% to the limited partners in accordance with the number of units held
by each limited partner and 25% to the general partner; provided,
however, that any losses that would have the effect of causing or
increasing a partner's capital account deficit will be allocated first,
pro rata to the other partners in accordance with their respective
share of partnership distributions, and second, when such allocations
can be made without increasing a partner's capital account deficit, to
the general partner.
28
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
5. Related Party Transactions
In 1998, the Partnership incurred legal and consulting expenses paid to
limited partners and members of the Board of Directors and shareholders
of the General Partner amounting to approximately $1,428,000 (1997 -
$8,291,000 including $6.5 million recognized as a result of obtaining
the PCS licenses; 1996 - $745,000).
The Partnership Agreement, as amended, provides for payment of a
management fee to its General Partner, equal to the reasonable costs of
operating the business of the Partnership, plus 10% of such aggregate
amount, which fee shall be payable monthly, on the first day of each
month during the year. Expenses reimbursed include, but are not limited
to, compensation costs and expenses related to the officers, directors,
and employees in the performance of their duties. In connection with
this agreement, the General Partner billed approximately $360,000 in
1998 (1997 - $370,000; 1996 - $424,000) for these services.
During the year ended December 31, 1997, the General Partner issued
5,600 shares of its restricted voting common stock to certain employees
and consultants of the Partnership at no cost. The shares were issued
by the General Partner in consideration of their valuable collaboration
in obtaining the Partnership's PCS licenses. These individuals were not
employees of the General Partner at the time the services were
provided. The fair value, of the shares granted is deemed insignificant
and, therefore, has not been recognized.
During the year ended December 31, 1998 approximately $670,000 of
severance charges related to certain terminated employees were charged
to operations. This amount is included in salaries and bonuses in the
accompanying statement of revenues and expenses.
6. Licenses and Long-Term Notes Payable
On January 22, 1997, the Partnership was granted the PCS Block C
licenses for $344,293,125. A down payment, or 10% of the bid amount,
was deducted by the FCC from the deposit held.
The remaining balance or $309,863,813 consisted of 10 year notes due to
the FCC bearing interest at 6.5% and guaranteed by the licenses
obtained. In accordance with industry practice, the Partnership
recorded the licenses and the related debt at a net present value of
$210,143,476. Based on the Partnership's estimates of borrowing costs
for debt similar to that issued by the FCC, the Partnership used a 13%
discount rate. At December 31, 1997, the notes payable to the FCC were
presented net of a discount of approximately $93,007,000.
The original payment term provided for paying only interest for the
first six years starting in April 1997 and both interest and principal
for the remaining four years starting in April 2003. In March 1997, the
FCC suspended the deadline for commencing the payments. The Company
accrued the interest on the notes.
In September 1997, the FCC ended the suspension and established March
31, 1998 as the deadline to resume payments. The FCC also adopted
certain options designed to assist Block C licensees in obtaining
financing and building their systems. On March 24, 1998, the FCC issued
a new order (the "March FCC Order") establishing new options and June
8, 1998 and July 31, 1998, as the dates for making an election on the
options and the deadline to resume payments, respectively.
29
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
On June 8, 1998, the Partnership elected the following options:
1. Returned eight licenses the Partnership held in the western states
of the United States with an approximately undiscounted cost of
$199,299,000 and the FCC forgave the undiscounted debt related to
these licenses amounting to approximately $179,369,000. A credit
of approximately $17,000,000 resulting from this election was used
by the Partnership to prepay the debt of other licenses the
Partnership held in the western states of the United States.
2. Disaggregated and prepaid the remaining five licenses the
Partnership held in the western states of the United States. As a
result, the Partnership returned 15 MHz in Licenses with an
approximately undiscounted cost of $15,453,000 and the FCC forgave
fifty percent of the related undiscounted debt or $13,908,000. The
outstanding undiscounted debt on the 15 MHz licenses retained of
approximately $13,908,000 was prepaid with the credit received on
the licenses returned in (1) above.
3. Disaggregated the Puerto Rico licenses. As a result, the
Partnership returned 15 MHz in licenses with an approximately
undiscounted cost of $57,044,000 and the FCC forgave fifty percent
of the related undiscounted debt or approximately $51,340,000. A
credit of approximately $2,282,000 resulting from this election
was applied by the FCC to the interest accrued.
As result of the elections made by the Partnership, the FCC
forfeited approximately $10,990,000 which has been charged to
operations in 1998.
The notes payable to the FCC are payable as follows:
o Quarterly interest payments of $834,268 through January 2003.
o Quarterly principal and interest payments of $3,669,768 from
April 2003 through January 2007.
At December 31, 1998, future principal installments due on notes
payable to the FCC are as follows:
Year Amount
2003 $ 10,872,000
Thereafter 40,467,555
------------
51,339,555
Less - Discount (14,212,570)
---- ------------
$ 37,126,985
============
30
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
7. Income Tax
The Partnership, as a limited partnership, is not subject to income tax
and the tax effect of its activities accrues to the partners.
Taxable income to the General and Limited Partners differs from that
reported in the statement of revenues and expenses mainly due to
different treatment of operational expenses incurred since inception
for tax and book purposes. Since the partnership has not operated any
PCS licenses yet, all operating expenses were deferred for tax purposes
creating a temporary difference for the partners.
These expenses will be amortized over a period not exceeding 5 years.
The taxable income for the partners is determined as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss per books $(11,428,678) $(12,944,307) $(9,074,847)
Add - Operating expenses deferred until
The Partnership begins operations 11,752,910 13,439,921 9,141,614
------------ ------------ -----------
Taxable income $ 324,232 $ 495,614 $ 66,767
============ ============ ===========
</TABLE>
Total operating expenses deferred through December 31, 1998 amounted to
approximately $42.3 million. There are no other significant differences
between taxable income for the partners and the net loss reported in
the statement of revenues and expenses.
8. Contingency
In November 1996, certain limited partners of the Partnership filed a
suit in the Circuit Court of the State of Oregon against the
Partnership, the General Partner, certain of their officers, directors,
employees and consultants. The suit alleges that defendants employed
misstatements and omissions of fact in connection with the sale of
limited partnership units of the Partnership and seeks the return of
the investment of $25,000 per unit for approximately 22 units, plus
interest and attorney fees. In August 1997 a suit brought by
approximately 30 additional plaintiffs was filed. The two suits contain
virtually identical allegations and were consolidated for all purposes.
On April 1998, the Court entered an order dismissing both cases. In one
pre-trial ruling, a judge dismissed plaintiffs' racketeering claims.
Plaintiffs have filed a notice of appeal to the Oregon Court of
Appeals. In addition, plaintiffs have filed a demand for arbitration
with the American Arbitration Association ("AAA"). The AAA has ruled,
over plaintiffs' objections, that the arbitration should proceed in
Puerto Rico.
The Partnership intends to resist vigorously plaintiffs' arbitration
claims. The Partnership's insurance carrier has assumed responsibility
for the expenses associated with these cases. Management believes,
based on the opinion of legal counsel, that the final outcome of the
above legal actions will not have a material adverse effect on the
Partnership's financial statements.
31
<PAGE>
CLEARCOMM, L.P.
(a development stage enterprise)
Notes to Consolidated Financial Statements - (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
9. Commitments
The Partnership leases an office facility under a month by month lease
agreement. Rent expense for the year ended December 31, 1998 was
approximately $225,000 (1997 - $100,000, 1996 - $12,000).
10. Supplementary Cash Flows Information
Non-cash investing and financing activities during 1998 include the
following:
o Capitalization of interest paid with FCC disaggregation and bid
withdrawal credits of approximately $3,335,000.
o Capitalization of interest not yet paid of approximately
$1,191,000.
o Forgiven FCC notes payable and accrued interest after
disaggregation, prepayment and amnesty options elected for
approximately $160,301,000 and $15,826,000, respectively.
o Payment of FCC notes payable with FCC amnesty credit of
approximately $13,908,000.
During the year ended 1997, the Partnership acquired licenses with
notes payable amounting to $210,143,476 and capitalized interest not
yet paid of approximately $25,672,000.
32
<PAGE>
SUPERTEL
COMMUNICATIONS CORP.
Report and Financial Statements
December 31, 1998 and 1997
33
<PAGE>
Report of Independent Accountants
To the Board of Directors of
SuperTel Communications Corp.
In our opinion, the accompanying balance sheet and the related statements of
revenues and expenses and deficit and of cash flows present fairly, in all
material respects, the financial position of SuperTel Communications Corp. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 5, 1999
Stamp 1537594 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
34
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Balance Sheet
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
Assets
<S> <C> <C>
Assets:
Cash $ 4,143 $ 291
Accounts receivable from affiliated company 103,057 150,604
--------- ---------
Total assets $ 107,200 $ 150,895
========= =========
Liabilities and Stockholders' Deficiency
Liabilities:
Accounts payable to officers and directors $ 369 $ 71,619
Accounts payable to affiliated company 30,997 30,997
Income tax payable 5,090 3,714
Note payable to affiliate, including accrued
interest of $17,749 (1997 - $10,749) 117,749 110,749
--------- ---------
Total liabilities 154,205 217,079
========= =========
Contingencies (Note 9)
--------- ---------
Stockholders' deficiency:
Common stock, no par value, 100,000 shares authorized
86,000 shares issued and outstanding 1,000 1,000
Accumulated deficit (48,005) (67,184)
--------- ---------
Total stockholders' deficiency (47,005) (66,184)
--------- ---------
Total liabilities and stockholders' deficiency $ 107,200 $ 150,895
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Statement of Revenues and Expenses and Deficit
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
---- ----
Revenues:
Management fees $ 360,452 $ 369,643
--------- ---------
Expenses:
Directors' fees 278,680 284,000
Salaries -- 4,167
Travel expenses 40,970 37,755
Interest expense 7,000 7,000
Other general and administrative expenses 8,033 10,118
--------- ---------
Total expenses 334,683 343,040
========= =========
Income before income taxes 25,769 26,603
Provision for income taxes (6,590) (5,400)
--------- ---------
Net income 19,179 21,203
Deficit at beginning of period (67,184) (88,387)
--------- ---------
Deficit at end of period $ (48,005) $ (67,184)
========= =========
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Statement of Cash Flows
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,179 $ 21,203
-------- --------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Decrease (increase) in accounts receivable
from affiliated Company 47,547 (48,650)
(Decrease) increase in accounts payable (64,250) 19,064
Increase in income tax payable 1,376 437
-------- --------
Total adjustments (15,327) (29,149)
======== ========
Net cash provided (used) by operating activities and
net increase (decrease) in cash 3,852 (7,946)
Cash at beginning of period 291 8,237
-------- --------
Cash at end of period $ 4,143 $ 291
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Reporting Entity and Summary of Significant Accounting Policies
Reporting Entity
SuperTel Communication Corp. (the "Company" ) was organized on June 7,
1996 under the laws of Puerto Rico. It was created to serve as General
Partner of ClearComm, L.P. (the "Partnership"), a development stage
enterprise.
Most of the Company's transactions are related to the administration of
the Partnership, a limited partnership organized on February 14, 1995
under the laws of the State of Delaware, for which the Company serves
as the general partner since June 18, 1996. On January 22, 1997, the
Partnership was granted the PCS Block C licenses for Puerto Rico and
certain western states of the United States. On March 3, 1999, the
Partnership entered into a Joint Venture Agreement with Telefonica
Larga Distancia Puerto Rico, Inc. ("TLD"). Among the most important
provisions of this Joint Venture Agreement are the following:
o The Partnership transfered all of its Puerto Rico Licenses,
including its related FCC debt to NewComm Wireless Services, Inc.
("NewComm"), a newly organized company owned by the Partnership.
o TLD contributed approximately $20 million dollar to NewComm by
means of a secured convertible promissory note payable
("promissory note"). The promissory note is secured by a security
agreement pursuant to which a security interest is imposed upon
NewComm assets, a Partnerhip's guarantee and a pledge agreement.
o Once certain regulatory and other requirements are met, TLD will
own approximately 49.9% of NewComm equity. TLD has the option
to buy an additional .2%, which would bring its ownership to
50.1%, subject to certain conditions.
o Entered into certain management and technology transfer
agreements.
The Company is entitled to 25% of all distributions made by the
Partnership.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles. The following summarizes the
most significant accounting policies followed in the preparation of the
accompanying financial statements:
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers highly liquid investments with maturity of three
months or less, at the time of purchase, to be cash equivalents. No
cash equivalents were held by the Company at December 31, 1998 and
1997.
38
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Income Taxes
Income taxes are reported under the liability method of accounting for
income taxes. Deferred tax assets and liabilities are recorded for the
expected future tax consequences of temporary differences that have
been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, all expected future events other
than enactments of changes in law or rates are considered. A valuation
allowance is recognized for any deferred tax asset for which, based on
management's evaluation, it is more likely than not (a likelihood of
more than 50%) that some portion or all the deferred tax asset will not
be realized.
2. Investment Partnership
Originally the Company acquired its investment in the Partnership for
$100,000. Such investment is carried at equity and was written-down to
zero in 1996. As of December 31, 1998, the Company's investment in the
undistributed losses of the Partnership amounted to approximately
$9,940,000 (1997 -$7,083,000).
3. Related Party Transactions
The partnership agreement with ClearComm, L. P., as amended, provides
for payment of a management fee to its general partner, equal to the
reasonable costs of operating the business of the Partnership, plus 10%
of such aggregate amount, which fee shall be payable monthly, on the
first day of each month during the year. Expenses reimbursed include,
but are not limited to, compensation costs, and expenses related to
officers, directors, and employees in the performance of their duties.
During 1998, fees billed amounted to approximately $360,000 (1997 -
$370,000).
As explained in Note 6, during 1997 certain employees and consultants
of the Partnership were granted shares of the Company's common stock.
All other related party transactions are advances from/to affiliated
companies made in the ordinary course of business.
4. Note Payable
Note payable consists of a nonrecourse promissory note due to an
affiliate amounting to $100,000, bearing interest at 7%, and due on
June 18, 2003.
5. Income Tax
Under the provisions of the Puerto Rico Tax law, the loss on the
investment in partnership is not deductible until it is finally
determined that the investment is worthless for tax purposes. No
deferred tax asset has been recognized for this loss due to its
uncertainty.
39
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
6. Capital
The Company is authorized to issue 1,000 shares of restricted
non-voting preferred stock without par value. The preferred shares are
divided into classes, from A to J with 100 shares each class and upon
their issuance the Company has the option to redeem them at their
issuance price plus accrued dividends. At December 31, 1998, none of
the preferred shares had been issued.
At December 31, 1998 and 1997 the Company has 19,600 warrants
outstanding. Each warrant has the right to buy a share of the Company's
restricted voting common stock at the nominal value of ten cents (See
Note 8).
On January 25, 1999, the Company's certificate of incorporation was
amended to divide its 100,000 restricted voting common stock authorized
shares into (i) 84,100 shares of restricted voting common stock (the
"Common Stock") without par value and (ii) 15,900 shares of restricted
non-voting shares without par value, designated Class A-1 shares (the
"Class A-1 shares"). The Class A-1 shares shall be identical in all
respects to the rights, restrictions and limitations of the Common
Stock, except that the Class A-1 shares shall not vote on any matters
which are submitted by shareholder vote.
During the year ended December 31, 1997, the Company issued 5,600
shares of its restricted voting common stock to certain employees and
consultants of the Partnership at no cost in consideration of their
valuable collaboration in obtaining the Partnership PCS licenses. These
individuals were not employees of the Company at the time the services
were provided. The fair value, of the shares granted is deemed
insignificant and, therefore, has not been recognized.
7. Supplemental Cash Flow Information
During the year ended December 31, 1998, the Company paid income tax
amounting to approximately $5,200 (1997 - $5,000).
During the year ended December 31, 1997, the Company issued 5,600
shares of common stock at no cost.
8. Bid Withdrawal Payment and Penalty
In 1996, the Partnership, through its bidding agent, inadvertently
submitted to the FCC an erroneous bid for one of the PCS licenses being
auctioned (Norfolk, Virginia). Although the Partnership withdrew the
bid immediately, the FCC could have imposed a very substantial penalty
for withdrawal of the then highest submitted bid, which penalty is
based on the difference between the bid withdrawn and the eventual
highest bid. The Company filed a petition for a waiver of the penalty
or, in the alternative, a substantial reduction in the penalty amount,
as the FCC's rules were intended to deter frivolous and manipulative
bids, and not errors.
On December 20, 1996, the FCC issued an order (the "Order") resolving
the request for waiver of the related bid withdrawal payment for the
license applicable to Round 11 of the Broad Band PCS Block C auction
(Norfolk, Virginia) for which the FCC ordered the Partnership to pay a
penalty of approximately $3,273,000. This Order also assessed a bid
withdrawal payment of approximately $1,258,000 for license B332 (Omaha,
Nebraska) for the Broad Band PCS Block C auction. In accordance with
the Order, these amounts were deducted from the Partnership's deposit
with the FCC. In addition to the December 20, 1996 Order, the FCC
issued a Notice of Apparent Liability and Forfeiture dated January 22,
1997, finding the Partnership liable for $1,000,000 for
40
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
misrepresentations made to the FCC Commission by its bidding agent.
These amounts were charged to operations by the Partnership in 1996.
On May 19, 1998, the Partnership filed a request with the FCC for
further reduction in the penalty amount. On June 12, 1998, the FCC
granted the Partnership's request for reduction of the penalty payment
to $425,000. The reduction in the penalty of approximately $2,850,000
was credited to operations by the Partnership in 1998.
The Partnership and its General Partner filed several actions in court
to recover from the bidding agent the FCC assessments made in
connection with the bidding error as well as other related expenses
incurred. One of the actions filed resulted in the attachment by the
Partnership of a $6.5 million escrow account deposited in the name of
the bidding agent, Romulus Telecommunications, Inc. ("Romulus"), with a
local bank which would have been payable upon obtaining the PCS
licenses.
On November 16, 1998 (the "Effective Date"), the Company, the
Partnership, Romulus and other parties signed a Settlement Agreement
(the "Settlement Agreement"). The Settlement Agreement seeks to resolve
certain legal actions, claims and controversies among the parties. On
January 11, 1999, the FCC approved the Settlement Agreement which
provides, among other things, for the following:
1. At closing date, Romulus and all other appropriate parties shall
cause to pay to the Partnership, from the escrow trust account
maintained in Romulus' name the amount of $1,500,000.
2. The Company will issue to the Breen Family Trust 19,600 shares of
its voting Common Stock pursuant to the terms of certain warrant
agreement.
3. From the Effective Date, no additional shares of stock of the
Company shall be issued except with the written consent of at
least 60% of the voting securities of the Company.
4. The Company shall not enter into any contract, whether written or
oral, providing for the employment of any person or the engagement
of any person as a consultant for an amount in excess of $100,000
per year, except that two such contracts may provide for payment
up to $150,000 per year, without first obtaining a super majority
consent; provided however that this limitation shall not apply to
officers and employees of the Company as of September 1, 1998.
5. In exchange for all the interests held in Unicom by the SDE Trust,
the California Theological Charitable Trust and California
Theological Charitable Trust, Inc. ("CTCT"), the Company shall
issue to CTCT, 15,900 shares of non-voting Class A-1 common stock,
representing 15.9 percent equity interest in the Company. The
stock will be non-voting, but will be equal in all other respects
to the existing common stock of the Company.
6. The parties and other signatories to the Settlement Agreement
release each other from various claims and causes of action.
On February 23, 1999, the Partnership collected the $1,500,000 from
Romulus.
41
<PAGE>
SUPERTEL COMMUNICATIONS CORP.
Notes to Financial Statements -- (Continued)
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
9. Contingencies
In November 1996, certain limited partners of the Partnership filed a
suit in the Circuit Court of the State of Oregon against the Company,
the Partnership and certain of their officers, directors, employees and
consultants. The suit alleges that defendants employed misstatements
and omissions of fact in connection with the sale of limited
partnership units of the Partnership and seeks the return of the
investment of $25,000 per unit for approximately 22 units, plus
interest and attorney fees. In August 1997 a suit brought by
approximately 30 additional plaintiffs was filed. The two suits contain
virtually identical allegations and were consolidated for all purposes.
On April 1998, the Court entered an order dismissing both cases. In one
pre-trial ruling, a judge dismissed plaintiffs' racketeering claims.
Plaintiffs have filed a notice of appeal to the Oregon Court of
Appeals. In addition, plaintiffs have filed a demand for arbitration
with the American Arbitration Association ("AAA"). The AAA has ruled,
over plaintiffs' objections, that the arbitration should proceed in
Puerto Rico.
The Company intends to resist vigorously plaintiffs' arbitration
claims. The Partnership's insurance carrier has assumed responsibility
for the expenses associated with these cases. Management believes,
based on the opinion of legal counsel, that the final outcome of the
above legal actions will not have a material adverse effect on the
Company's financial statements.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
SuperTel Communications Corp. was incorporated in Puerto Rico in June
1996 for the purpose of acting as the general partner of the Partnership (the
"General Partner"). SuperTel was structured to ensure that the Partnership would
receive the maximum benefits eligible to Entrepreneurs. The Partnership has one
employee and is managed and controlled by the Board of Directors and executive
officers of the General Partner.
Fred H. Martinez, Director and Chairman of the Board, age 54, has been chairman
of the board of trustees of the University of Puerto Rico from 1993 to the
present. During 1977 to 1979, Mr. Martinez was director of the Puerto Rico
Income Tax Bureau, member of the Governor's Economic Advisory Council, chairman,
Committee on Section 936, Government of Puerto Rico, assistant secretary of the
treasury, Internal Revenue, PR Treasury Department (1978- 1979), president, Tax
Committee, PR Chamber of Commerce (1978-1979). In 1993 he was chairman of the
board of the Solid Wastes Management Authority, Government of PR. Mr. Martinez
has extensive experience in contract negotiations, corporate and tax law, and in
directing major institutions. He holds a B.S. in Economics from Villanova
University (1967), an LL.B. (law) from the University of Puerto Rico (1971), and
an LL.M (taxation) from Georgetown University (1972).
Javier O. Lamoso, President, age 34, has had extensive experience in the
telecommunications industry and has been responsible for developing, negotiating
and overseeing numerous strategic operational, economic and political aspects of
the cellular telephone industry, including cell-site acquisition, environmental
impacts, leasing contractual arrangements and inter-company relations with other
operating telecommunications organizations, including interexchange carriers and
local telephone companies. Until recently, Mr. Lamoso acted as counsel to the
Puerto Rico Cable Operators Association in various matters which include the
negotiation of rates and levies and the drafting of new legislation. From 1986
to 1987 Mr. Lamoso held a non-legal position in the corporate finance department
of Simpson, Thacher & Bartlett, and was involved with the 1987 successful
external debt restructuring of Chile. He holds a B.A. in Political Science/
Economics from Fordham University (1986), and a J.D. in law from the University
of Puerto Rico (1990).
Richard Reiss, Director and Treasurer, age 51, has been president of his own
business consulting firm since 1979, specializing in financial and management
matters. Mr. Reiss has long experience in developing, structuring and managing
corporate equity and debt placements, and in the overseeing and management of
substantial businesses. Formerly Mr. Reiss was chief financial officer and chief
operating officer of Bacardi Corporation. He has been a member of the Board of
Directors of Banco Santander, Puerto Rico for 18 years. Since February 1996, Mr.
Reiss has been a member of the Board of Directors of Pepsi Cola Puerto Rico
Bottling Co., Inc Mr. Reiss is a certified public accountant and graduated magna
cum laude from the University of Puerto Rico with B.B.A. in business
administration.
43
<PAGE>
Gary H. Arizala, Director, age 60, is an entrepreneur and successful
businessman. Mr. Arizala has experience in the cellular telephone industry
serving as chairman of United Cellular Associates from 1988 to the present and
of Aikane Cellular from 1991 to the present. In these capacities he directed the
executive committee activities to oversee the development of the ME-3 RSA
cellular telephone system which was successfully acquired by Telephone & Data
Systems in early 1994. In 1972 Mr. Arizala founded Alphabetland Preschool and
Kindergarten, which he owns and operates. Alphabetland provides high-quality
child care and preschool education services to 350 to 400 families annually
through four child care centers located on Oahu, Hawaii, and employs
approximately 60 people. From 1963 to 1971, Mr. Arizala was an assistant civil
engineer with the State of California responsible for utilities relocation for
the State Water Project. His duties included negotiating plans and agreements
with Southern California Edison, Southern California Gas, the United State
Forest Service among other major private and public agencies. He is on the
Guardian Advisory Council of the National Federation of Independent Businesses
Hawaii Chapter, and an active member of the Chamber of Commerce and Small
Business Hawaii organizations. Mr. Arizala holds a B.S. in Civil Engineering
from the University of Hawaii (1963).
Margaret W. Minnich, Director, age 44, has held management and supervisory
positions in finance and accounting over a 15-year period in the non-profit,
manufacturing and public accounting field. She has been a member of the board of
several privately-held companies and a private foundation for over seven years.
From 1992 to the present, she has worked for The California Wellness Foundation
and since December 1997 is serving as Treasurer and Chief Financial, and is
responsible for all financial reporting, accounting, budgeting and tax functions
including investment performance and asset allocation review of a $750 million
investment portfolio, and managing cash flow for an annual budget exceeding $45
million. From 1984 through 1990, Ms. Minnich held several key positions with
MICOM Communications Corporation, including manager of financial planning where
she directed all accounting and financial functions. From 1981 to 1984, Ms.
Minnich was a senior accountant with Ernst & Young, Los Angeles, specializing in
electronics, aerospace and heavy industry fields. Ms. Minnich is a member of the
California Society of Certified Public Accountants, the Southern California
Association for Philanthropy, and serves on the boards of The Wharton Foundation
and The Wealden Company. She holds a B.A. in Philosophy from the University of
Southern California (1978) and an MBA in accounting from USC (1981).
Lawrence Odell, Director and Secretary, age 50, is the co-managing partner of
Puerto Rico's third largest law firm with substantial expertise in the fields of
corporate finance, administrative law, securities and banking. He is a member of
the Trial Lawyers Association of America, served as a member of the
Inter-American Law Review from 1973 to 1974, and has written for that
publication in the past. He holds a B.A. (1971) and a J.D. (1974) from the
Inter-American University of Puerto Rico, and an LL.M. in labor law from New
York University (1975). Mr. Odell has served in the capacity of secretary for
several major corporations, including Buenos Aires Embotelladora, S.A. (BAESA).
James T. Perry, Director, age 66, is a successful entrepreneur and businessman
with substantial experience in the real estate and retail foods industries.
Since 1993, Mr. Perry has purchased and sold a two-way radio license, and has
been involved in several wireless communication partnerships. From 1987 to 1993,
he has been general partner of Telenode Rincon, the original
44
<PAGE>
owner and developer of the RSA cellular telephone system for PR-1, which was
successfully acquired by Cellular Communications, Inc., as well as managing
other cellular telephone and telecommunications holdings. From 1959 to 1975, Mr.
Perry was the president and/or owner of several successful licensed real estate
firms including United Realty Group, Milwaukee, the largest black-owned real
estate firm in Wisconsin, and Perry and Sherard Realty, Milwaukee, which
specialized in rehabilitating and selling between 75 to 100 properties per year
utilizing a staff of approximately 30 people. From 1975 to 1992, Mr. Perry owned
and operated a McDonald's franchise in Saint Louis, Missouri, and was
responsible for all operations of this successful business. Mr. Perry served in
the U.S. Army in Korea, and has taken extensive courses in the fields of general
business and real estate. From 1988 to 1992 he was vice president of the Ronald
McDonald Children's Charities, and from 1980 to 1984 he served as a member of
the McDonald's Advertising Committee. His memberships include the board of
directors of the Skinker DeBaliviere Business Association, Hamilton Community
Schools, Saint Louis, and the admissions committee of the Milwaukee Board of
Realtors. He is a past president of the Urban Brokers Association, and a
director of the Multiple Listing Service.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon review of Forms 3, 4 and 5 and any amendments thereto
furnished to the Registrant pursuant to Rule 16a-3(e) of the Rules of the
Securities and Exchange Commission, the Registrant is not aware of any failure
of any officer or director of the General Partner or beneficial owner of more
than ten percent of the Units to timely file with the Securities and Exchange
Commission any Form 3, 4 or 5 relating to the Registrant for 1998.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership is managed by the General Partner's Board of Directors
and executive officers of the General Partner. The Partnership reimburses the
General Partner for all reasonable expenses incurred by it in connection with
managing the Partnership, including salaries and expenses of the General
Partner's employees who manage the Partnership.
The following Summary Compensation Table sets forth certain information
concerning the cash and non-cash compensation earned by or awarded to the chief
executive officer of the Partnership's General Partner and the other most highly
compensated executive officers who earned more than $100,000 in 1998.
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------- -------------
Securities
Fiscal Other Annual Underlying All Other
Name & Principal Position Year Salary($) Bonus($) Compensation ($) Options/SAR's Compensations ($)
- --------------------------------- ------ --------- -------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Javier Lamoso, President and 1998 $ 85,100 $ 0 $ 25,000(1) 0 $112,900(2)
Director 1997 $125,000 $ 0 $ 25,000(1) 0 $ 25,000(2)
1996 $125,000 $ 41,250 $ 25,000(1) 0 $ 0
John Duffy, Executive Vice 1998 $153,206 $ 0 $ 0 0 $300,000(5)
President, External Affairs(4) 1997 $150,000 $ 0 $ 0 0 $ 0
1996 $125,000 $112,250 $ 0 0 $ 0
Tyrone Brown, Senior Vice 1998 $ 0 $ 0 $221,066 0 $ 0
President, Regulatory (6)
</TABLE>
(1) Consists of director's fee in the amount of $25,000 per year.
(2) Consists of $70,000 pursuant to the termination of his employment
agreement, $15,000 car allowance, and $27,900 other compensation in lieu of
salary.
(3) Consists of car allowance and other compensation.
(4) In November 1998, Mr. Duffy resigned as Executive Vice President, External
Affairs.
(5) Pursuant to the termination of his employment agreement, Mr. Duffy was paid
$300,000.
(6) On December 31, 1998, Mr. Brown's contract as Senior Vice President,
Regulatory expired.
Directors receive an annual fee of $25,000 each, other than the
Chairman of the Board, Mr. Martinez, who received an annual fee of $100,000 for
1998 and Mr. Odell, who receives an annual fee of $35,000. Effective the second
quarter of 1999, the director fees, including those for Mr. Martinez and Mr.
Odell are reduced by half. Directors are reimbursed for their reasonable
expenses in attending board meetings.
Mr. Daniel Parks resigned his position as General Counsel and director
on March 1, 1999. Pursuant to the termination of his employment agreement, Mr.
Parks will be paid $75,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Exclusive management and control of the Partnership's business is
vested in the General Partner. The Partnership has no employees and is managed
and controlled by the Board of Directors and executive officers of the General
Partner. The General Partner owns 100% of the Partnership's general partnership
interest. The shares of General Partner are held by certain individuals and
Puerto Rico trusts.
The following table sets forth, as of March 30, 1999, information with
respect to beneficial ownership of the Partnership's Units by: (i) all persons
known to the General Partner to be the beneficial owner of 5.0% or more thereof;
(ii)
46
<PAGE>
each Director of the General Partner; (iii) each of the executive officers of
the General Partner; and (iv) all executive officers and Directors as a group of
the General Partner. All persons listed have sole voting and investment power
with respect to their Units unless otherwise indicated.
<TABLE>
<CAPTION>
Name of Beneficial Owner Units Beneficially Owned Percentage Ownership
- ------------------------ ------------------------ --------------------
<S> <C> <C>
Fred H. Martinez(1) 1.4 *
Richard Reiss(2) 1.2 *
Javier O. Lamoso(3) 0 *
Gary H. Arizala(4) 2.4 *
Margaret W. Minnich(5) 0 *
James T. Perry(6) 2.4 *
Lawrence Odell(7) 1.4 *
All executive officers and directors of the
General Partner as a group (7 persons) 7.4 *
</TABLE>
- --------------
* Less than 1.0%.
(1) Mr. Martinez is Chairman of the Board of Directors of the General Partner.
Mr. Martinez and Mr. Odell are Trustees of Martinez Odell & Calabria
Pension Fund, which owns the Unit reflected in the table.
(2) Mr. Reiss is Treasurer of the General Partner and a member of the Board of
Directors.
(3) Mr. Lamoso is President and acting Chief Executive Officer of the General
Partner and a member of the Board of Directors.
(4) Mr. Arizala is a Director.
(5) Ms. Minnich is a Director. The Table does not include 12 Units held by The
Wealden Company, of which Ms. Minnich is a director and vice president,
and 4.0 Units held by J.B. Wharton, Jr. Residual Trust, of which Ms.
Minnich is co-trustee and a contingent beneficiary.
(6) Mr. Perry is a Director.
(7) Mr. Odell is a Director and Secretary of the General Partner. Mr. Martinez
and Mr. Odell are trustees of Martinez Odell & Calabria Pension Fund,
which owns the Units reflected in the table.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General Partnership Interest
SuperTel contributed $100,000, which entitled it to receive 100% of the
Partnership's general partner interest. The general partner interest entitles
the General Partner to 25% of the equity of the Partnership. See "Item 5."
47
<PAGE>
Management Fee
The Partnership Agreement provides that the General Partner is entitled
to reimbursement for all reasonable operating expenses, plus 10% of such amount.
The management fee is paid on a monthly basis. The total management fee for 1998
was $360,452.
Other Relationships and Transactions
Mr. Martinez and Mr. Odell are partners of Martinez, Odell & Calabria,
a law firm which provides legal services to the General Partner and the
Partnership.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Item 8 hereof)
ClearComm, L.P.
---------------
Report of Independent Accountants
Consolidated Statements of Assets, Liabilities and Partners' Capital as
of December 31, 1997 and 1998
Consolidated Statement of Revenues and Expenses for years ended
December 31, 1996, 1997 and 1998 and period from inception to
December 31, 1998
Consolidated Statement of Cash Flows for years ended December 31, 1996
1997 and 1998 and period from inception to December 31, 1998
Consolidated Statement of Changes in Partners' Capital Accounts from
inception to December 31, 1998
Notes to Consolidated Financial Statements
SuperTel Communications Corp.
-----------------------------
Report of Independent Accountants
Balance Sheet for December 31, 1997 and 1998
Statement of Revenues and Expenses and deficit for the years ended
December 31, 1997 and 1998
Statement of Cash Flows for the years ended December 31, 1997 and 1998
Notes to Financial Statements
48
<PAGE>
(2) Financial Statement Schedules
(3) Exhibits
Exhibit Number
- --------------
3.1 Agreement of Limited Partnership (Exhibit 3.1 of the
Registrant's Registration Statement on Form 10 (File No.
0-28362), effective June 28, 1996, is hereby incorporated by
reference)
10.1 Form of Services Agreement between PCS 2000, L.P. and Romulus
Telecommunications, Inc. (Exhibit 10.1 of the Registrant's
Registration Statement on Form 10 (File No. 0-28362),
effective June 28, 1996, is hereby incorporated by reference)
10.2 Asset Purchase Agreement, dated as of June 18, 1996, by an
between SuperTel Communications Corp. and Unicom Corporation
(Exhibit 10.2 of the Registrant's Registration Statement on
Form 10 (File No. 0-28362), effective June 28, 1996, is hereby
incorporated by reference)
10.3 Joint Venture Agreement, dated as of February 4, 1999, by and
between Telefonica Larga Distancia de Puerto Rico, Inc. and
ClearComm, L.P.
21 Subsidiaries of Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
1998.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ClearComm, L.P.
By: SuperTel Communications Corp.
General Partner
By: /s/ Javier Lamoso
------------------------------
Name: Javier Lamoso
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Capacity in
Signature Which Signed Date
--------- ------------ ----
<S> <C> <C>
/s/ Fred H. Martinez Director and Chairman of the Board March 31, 1999
- -----------------------
Fred H. Martinez
/s/ Javier O. Lamoso Director and President March 31, 1999
- -----------------------
Javier O. Lamoso
/s/ Richard Reiss Director and Treasurer March 31, 1999
- -----------------
Richard Reiss
/s/ Gary H. Arizala Director March 31, 1999
- -----------------------
Gary H. Arizala
/s/ Margaret W. Minnich Director March 31, 1999
- -----------------------
Margaret W. Minnich
/s/ Lawrence Odell Director March 31, 1999
- -----------------------
Lawrence Odell
/s/ James T. Perry Director March 31, 1999
- -----------------------
James T. Perry
</TABLE>
50
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Agreement of Limited Partnership (Exhibit 3.1 of the
Registrant's Registration Statement on Form 10 (File No.
0-28362), effective June 28, 1996, is hereby incorporated by
reference)
10.1 Form of Services Agreement between PCS 2000, L.P. and Romulus
Telecommunications, Inc. (Exhibit 10.1 of the Registrant's
Registration Statement on Form 10 (File No. 0-28362),
effective June 28, 1996, is hereby incorporated by reference)
10.2 Asset Purchase Agreement, dated as of June 18, 1996, by and
between SuperTel Communications Corp. and Unicom Corporation
(Exhibit 10.2 of the Registrant's Registration Statement on
Form 10 (File No. 0-28362), effective June 28, 1996, is hereby
incorporated by reference)
10.3 Joint Venture Agreement, dated as of February 4, 1999, by and
between Telefonica Larga Distancia de Puerto Rico, Inc. and
ClearComm, L.P.
21 Subsidiaries of Registrant
27 Financial Data Schedule
51
Exhibit 10.3
===============================================================================
JOINT VENTURE AGREEMENT
dated as of
February 4, 1999
by and between
TELEFONICA LARGA DISTANCIA DE PUERTO RICO, INC.
and
CLEARCOMM, L.P.
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. JOINT VENTURE........................................................................................2
Section 1.01 Articles of Incorporation..............................................................2
Section 1.02 The By-Laws............................................................................2
Section 1.03 CC's Capital Contribution..............................................................2
Section 1.04 TLD's Contribution.....................................................................2
Section 1.05 Additional Contributions...............................................................3
Section 1.06 Management Contract and Technology Transfer Agreement..................................6
Section 1.07 The Closing............................................................................6
ARTICLE II. STOCK TRANSFERS......................................................................................6
Section 2.01 Restrictions on Transfers and Issuance of Stock........................................6
Section 2.02 Right of First Refusal and Right to Join in Sale.......................................7
Section 2.03 Prohibited Transfers..................................................................10
Section 2.04 Certain Transfers Not Prohibited......................................................10
Section 2.05 Termination of Restrictions...........................................................10
ARTICLE III. CORPORATE GOVERNANCE................................................................................11
Section 3.01 Board of Directors....................................................................11
Section 3.02 Meetings of the Board of Directors....................................................12
Section 3.03 Indemnification.......................................................................12
ARTICLE IV. CORPORATE ACTION....................................................................................13
Section 4.01 Restricted Actions....................................................................13
Section 4.02 Deadlock..............................................................................14
ARTICLE V. BUY-OUT.............................................................................................14
Section 5.01 TLD Buy-Out...........................................................................14
Section 5.02 CC Buy-Out Event......................................................................16
ARTICLE VI. REGISTRATION RIGHTS.................................................................................18
Section 6.01 Required Registration.................................................................18
Section 6.02 Piggy-Back Registration...............................................................20
Section 6.03 "Market Stand-Off" Agreement..........................................................24
Section 6.04 Listing...............................................................................24
ARTICLE VII. ADDITIONAL COVENANTS................................................................................25
Section 7.01 Best Efforts..........................................................................25
Section 7.02 FCC Filing............................................................................25
Section 7.03 Filing of Documentation and Information...............................................25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.04 Nondisclosure of Confidential Information.............................................26
Section 7.05 Filing of Agreement...................................................................27
Section 7.06 Corporation Designee..................................................................27
Section 7.07 Attorneys and Auditors................................................................27
Section 7.08 Marketing.............................................................................28
Section 7.09 Oregon Litigation.....................................................................28
Section 7.10 Accrued Interest on the CC Debt.......................................................28
Section 7.11 Reservation of Common Stock...........................................................29
Section 7.12 Endorsement of Stock Certificates.....................................................29
ARTICLE VIII. REPRESENTATIONS AND WARRANTIES OF CC...............................................................30
Section 8.01 Existence and Power...................................................................30
Section 8.02 Corporate Authorization...............................................................30
Section 8.03 Governmental Authorization............................................................30
Section 8.04 Non-Contravention.....................................................................31
Section 8.05 Ownership.............................................................................31
Section 8.06 Finder's Fees.........................................................................31
Section 8.07 CC Debt...............................................................................32
Section 8.08 Litigation............................................................................32
ARTICLE IX. REPRESENTATIONS AND WARRANTIES OF TLD..............................................................32
Section 9.01 Organization and Existence............................................................32
Section 9.02 Corporate Authorization...............................................................32
Section 9.03 Governmental Authorization............................................................33
Section 9.04 Non-Contravention.....................................................................33
Section 9.05 Finder's Fees.........................................................................33
ARTICLE X. CONDITIONS TO CLOSING..............................................................................33
Section 10.01 Conditions to the Obligations of CC...................................................33
Section 10.02 Conditions to Obligation of TLD.......................................................34
ARTICLE XI. INDEMNIFICATION....................................................................................35
Section 11.01 TLD's and NewComm's Right to Indemnification..........................................35
Section 11.02 CC's and NewComm's Right to Indemnification...........................................36
Section 11.03 Notice................................................................................36
Section 11.04 Third-Party Claims....................................................................37
ARTICLE XII. DEFAULTS...........................................................................................38
Section 12.01 Defaults..............................................................................38
Section 12.02 Remedies..............................................................................39
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XIII. TERMINATION........................................................................................39
Section 13.01 Grounds for Termination...............................................................39
Section 13.02 Effect of Termination.................................................................40
ARTICLE XIV. MISCELLANEOUS......................................................................................41
Section 14.01 Survival..............................................................................41
Section 14.02 Notices...............................................................................41
Section 14.03 Amendments; No Waivers................................................................42
Section 14.04 Expenses..............................................................................42
Section 14.05 Successors and Assigns................................................................42
Section 14.06 Governing Law.........................................................................42
Section 14.07 Counterparts; Effectiveness...........................................................42
Section 14.08 Entire Agreement......................................................................43
Section 14.09 Captions; Definitions.................................................................43
Section 14.10 Dispute Resolution; Arbitration.......................................................43
Section 14.11 Third Party Beneficiaries; Parties Bound..............................................45
</TABLE>
<PAGE>
JOINT VENTURE AGREEMENT
This Agreement (this "Agreement") is entered into this 4th day of
February, 1999, by and between Telefonica Larga Distancia de Puerto Rico, Inc.,
a corporation organized under the laws of the Commonwealth of Puerto Rico,
herein represented by its General Manager, Jose Luis Fernandez, of legal age,
married, executive and resident of Rio Piedras, Puerto Rico (hereinafter,
"TLD"), and ClearComm, L.P., a limited partnership organized under the laws of
Delaware, herein represented by Javier O. Lamoso, of legal age, married,
executive and resident of Rio Piedras, Puerto Rico (hereinafter, "CC"), in its
capacity as President of CC's general partner SuperTel Communications Corp.
("SuperTel").
WITNESSETH
WHEREAS, CC is the licensee of the personal communications service
("PCS") licenses for the 1902.5-1910.0 and 1982.5-1990.0 MHZ bands for the San
Juan, Puerto Rico (B488) and Mayaguez - Aguadilla - Ponce, Puerto Rico (B489)
Basic Trading Areas (collectively, the "Licenses") and of certain radio
frequency plans, transmission plans, business plans, preliminary engineering
design work, and other studies, plans or reports relevant to the operation a PCS
network in Puerto Rico (the "Other Assets");
WHEREAS, TLD is a licensed telecommunications carrier engaged in
business in Puerto Rico;
WHEREAS, CC and TLD are interested in jointly developing a 1900 MHZ
band PCS network in Puerto Rico (the "Network");
<PAGE>
- 2 -
NOW THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, and relying on each party's respective covenants, representations
and warranties, the parties agree as follows:
ARTICLE I. JOINT VENTURE
Section 1.01 Articles of Incorporation. CC has organized a corporation
under the Puerto Rico General Corporation Laws to develop and operate the
Network. The name of the corporation will be NewComm Wireless Services, Inc.
("NewComm"). The articles of incorporation of NewComm are attached as Exhibit A
hereof.
Section 1.02 The By-Laws. At the Closing Date, CC will cause the
adoption by NewComm of by-laws substantially in the form of Exhibit B hereof.
Section 1.03 CC's Capital Contribution. At the Closing Date, CC will
transfer all of its rights, title and interest to the Licenses and the Other
Assets to NewComm and NewComm will assume CC's debt with the Federal
Communications Commission ("FCC") (the "CC Debt") pursuant to an Assumption
Agreement in the form required by the FCC (the Licences and the Other Assets,
net of the CC Debt, the "CC Contribution"). In exchange for the CC Contribution,
NewComm will issue to CC 750 shares of its Class A Common Stock, par value one
cent ($0 .01) per share, constituting all of NewComm's issued and outstanding
shares of stock.
Section 1.04 TLD's Contribution. Concurrently with the CC Contribution,
TLD will transfer NINETEEN MILLION NINE HUNDRED SIXTY THOUSAND DOLLARS
($19,960,000.00) to NewComm in exchange for NewComm's Secured Convertible
Promissory
<PAGE>
- 3 -
Note, substantially in the form of Exhibit C hereof (the "Secured Convertible
Promissory Note"). In consideration of TLD's contribution, NewComm will also
execute and deliver a Security Agreement, substantially in the form Exhibit D
hereof and any other documents reasonably required to constitute, subject to the
CC Debt, a valid and enforceable preferential lien upon all of the tangible and
intangible assets and contractual rights of NewComm, including without
limitation the Licenses. In addition, CC will issue a Guarantee and a Pledge
Agreement, substantially in the form of Exhibits E and F hereof.
Section 1.05 Additional Contributions.
(a) CC and TLD shall cause NewComm to use its best efforts to secure
financing for the development and construction of the Network . The financing
shall be procured from sources available in the market, under such terms and
conditions as TLD may be able to obtain in its capacity as Manager under the
Management Agreement. In the event that, notwithstanding NewComm's best efforts,
the required financing is not obtained, CC and TLD shall have the option,
subject to any required FCC approval, to contribute the necessary funds to
NewComm, in the same proportion as their respective ownership of NewComm's
common stock (including the common stock into which the Secured Convertible
Promissory Note will be converted)(the "Additional Contribution") in exchange
for (i) NewComm's Class A or Class B Common Stock, par value one cent ($0.01)
per share, in an amount equal to the amount resulting from dividing the amount
of funds contributed by CC or TLD by the market value of each share of NewComm's
common stock agreed to by the parties (or if the parties are unable to agree on
such market value, determined as provided under Section 5.02 of this Agreement)
or (ii) a Promissory Note, substantially in the form of Exhibit G hereof, in
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a principal amount equal to the funds contributed (the "Promissory Note"), at
the option of CC and TLD, respectively; provided that, if any of the parties
does not exercise its option to contribute its share of the Additional
Contribution, the other party may elect to contribute all or a portion of such
party's share.
(b) Notwithstanding anything to the contrary provided in Sections
1.05(a), neither TLD nor CC shall make an Additional Contribution without the
consent of the other party (the "Diluted Party") to the extent that such
Additional Contribution results (or may result upon the conversion of the
Promissory Note) in reducing the percentage of NewComm's common stock held by
the Diluted Party to less than 40% of NewComm's issued and outstanding shares of
common stock taking into account the number of shares of NewComm common stock
issued in exchange for the Additional Contributions and/or the number of NewComm
shares into which the Promissory Note can be converted. The Diluted Party shall
not withhold its consent if it is demonstrated to the reasonable satisfaction of
the Diluted Party that the Additional Contribution is required to enable NewComm
to develop and operate the Network without materially adversely affecting
NewComm's financial condition, and that NewComm has been unable to secure
additional financing in place of the Additional Contribution.
(c) In the event that NewComm has the obligation to redeem the CC Debt
prior to its maturity, CC (and TLD, if at the time TLD is a shareholder of
NewComm) shall cause NewComm to borrow funds to redeem the CC Debt. In the event
that NewComm does not have the financial capacity to borrow such funds, or if
any such borrowing would materially adversely affect the financial condition of
NewComm, TLD and CC shall have the option, subject to any required FCC
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approval, to make an Additional Contribution to NewComm, in exchange for
NewComm's common stock or a Promissory Note, at the election of TLD and CC,
respectively, as provided in Section 1.05(a).
(d) In the event that the financing necessary to develop and construct
the Network is not secured and neither CC nor TLD exercises its option to make
an Additional Contribution to NewComm as provided in this Section 1.05, either
party may terminate this Agreement by giving written notice to the other party
and CC and TLD will dissolve NewComm. Upon such dissolution (i) CC shall receive
the Licenses and the Other Assets and shall assume the CC Debt; (ii) TLD shall
receive all remaining assets of NewComm or, at its option, shall receive the
cash and other liquid assets, other tangible assets selected by TLD (the
"Tangible Assets") and the proceeds from the assets sold by NewComm at TLD's
request, net of the unpaid purchase price of such assets, (the "Sold Assets");
(iii) TLD shall assume NewComm's liabilities consisting of the unpaid purchase
price of the Tangible Assets, (iv) CC shall reimburse TLD all principal and
interest payments made by NewComm on the CC Debt, (v) each of CC and TLD shall
be responsible for one half of all outstanding liabilities, other than
liabilities consisting of the unpaid purchase price of Tangible Assets and the
CC Debt, (vi) CC shall reimburse TLD an amount equal to one half of the amount
resulting after subtracting (A) the disbursements made to acquire the Tangible
Assets, (B) the proceeds from the sale of the Sold Assets, and (C) all principal
and interest payments made by NewComm on the CC Debt, from NewComm's
disbursements, and (vii) CC and TLD shall divide the retained earnings, if any,
of NewComm in proportion to their respective holdings of the common stock of
NewComm.
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Section 1.06 Management Contract and Technology Transfer Agreement. On
the Closing Date, CC shall cause NewComm to execute a Management Agreement with
TLD and a Technology Transfer Agreement with Telefonica Internacional, S.A.
substantially in the form of Exhibits H and I hereof (respectively, the
"Management Agreement" and the "Technology Transfer Agreement").
Section 1.07 The Closing. The closing of the transactions contemplated
hereunder shall take place at the offices of Axtmayer, Adsuar, Muniz & Goyco,
P.S.C., Hato Rey Towers, Suite 1400, Hato Rey, Puerto Rico, as soon as possible,
but in no event later than thirty (30) business days, after satisfaction or
waiver of the conditions set forth in Article X, or at such other time or place,
as CC and TLD may agree (the date of the closing, the "Closing Date").
ARTICLE II. STOCK TRANSFERS
Section 2.01 Restrictions on Transfers and Issuance of Stock.
(a) Neither CC nor TLD (upon becoming a shareholder of NewComm) will
Transfer (directly, indirectly or in bankruptcy) its NewComm stock (including
any interest in such stock and any contractual rights that may entitle the
holder to acquire any such stock or an interest therein), whether by operation
of law or otherwise, prior to the Restriction Expiration Date (as defined in
Section 2.02 of this Agreement). As used in this Agreement, the term "Transfer"
shall include any sale, pledge, gift, assignment or other disposition of or
encumbrance of NewComm's stock.
(b) Except pursuant to the conversion of the Secured Convertible
Promissory Note, the Promissory Note or the Class B Common Stock, or as
otherwise permitted under this Agreement,
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CC and TLD (upon becoming a shareholder of NewComm) will cause NewComm not to
issue any of its shares of common stock (directly, indirectly or in bankruptcy),
including any interest in any such shares or any contractual rights that may
entitle the holder to acquire any such shares of stock or any interest therein,
whether by operation of law or otherwise.
(c) In the event that any of the restrictions imposed in Sections
2.01(a) or 2.01(b) upon CC, TLD (upon becoming a shareholder of NewComm) or
NewComm may not be enforced, for any reason whatsoever, the Optionee (as defined
in Section 2.02 of this Agreement) shall have with respect to any Transfer by CC
or TLD, and any issuance by NewComm, of NewComm's stock prohibited by Section
2.01(a) or Section 2.01(b) the right of first refusal set forth in Section 2.02
of this Agreement. In any such event, if at the time of such Transfer the
Optionee is precluded from acquiring the NewComm stock because of (i) the
restrictions upon the transfer of control of the Licenses from SuperTel to
NewComm or the foreign ownership of the Licenses, imposed under the
Communications Act of 1934, as amended, or orders or regulations promulgated
thereunder, or (ii) the designated entity rules set out at 47 CFR 24.709, or any
successor provisions, the Optionee will be entitled to assign such right of
first refusal, in whole or in part, to any person. If the Optionee fails to
exercise the Option (as defined in Section 2.02(b) of this Agreement) the
transferee shall be subject to the obligations of a Third Party under Section
2.02(e) of this Agreement.
Section 2.02 Right of First Refusal and Right to Join in Sale. After
the ownership restrictions on the Licenses under the FCC designated entity rules
set out at 47 CFR Section 24.709, or any successor provisions, expire (the
"Restrictions Expiration Date"), CC or TLD (upon becoming a shareholder of
NewComm) (the "Transferring Shareholder") may Transfer any of its NewComm
<PAGE>
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stock to any third party if it receives a bona fide offer (the "Offer") from a
reputable, financially responsible person ("Third Party") which is acceptable to
it, and not less than thirty (30) days prior to the closing date of the proposed
sale, gives written notice thereof (the "Notice of Transfer") to the other party
(the "Optionee") subject to the provisions of this Section 2.02:
(a) The Notice of Sale shall state that a bona fide offer has been
received and shall contain all the terms and conditions of the Offer and a copy
of all supporting documents.
(b) The Optionee shall have the option (the "Option") for a period of
fifteen (15) days (the "Option Period ") after receipt of the Notice of Sale to
(i) if the Transfer is of all of the Transferring Shareholder's NewComm stock,
commit to purchase all, but not less than all, of the NewComm stock of the
Transferring Shareholder on the same terms and conditions as set forth in the
Offer, or (ii) if the Transfer is a sale or exchange of less than all of the
Transferring Shareholder's NewComm stock, elect to join in the sale or exchange;
in each case by delivering written notice of its election to the Transferring
Shareholder within the thirty (30) day period.
(c) If the Optionee elects to purchase the NewComm stock, the closing
of the purchase shall take place on the date designated as the closing date of
the Offer, but in no event later than fifteen (15) days after the expiration of
the Option Period, in the offices of NewComm, or at such other time and place as
may be mutually agreed upon in writing by the Transferring Shareholder and the
Optionee.
(d) If the Optionee elects to join in the sale or exchange, it will be
entitled to sell or exchange, pursuant to the terms of the Offer, a number of
shares of its NewComm common stock determined by multiplying the Applicable
Percentage times the number of shares of NewComm's
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common stock held by the Optionee. In such event, the Transferring Shareholder
shall use commercially reasonable efforts to obtain the agreement of the Third
Party to the participation of the Optionee in the sale or exchange, but if no
such agreement is obtained the Transferring Shareholder shall not transfer any
of such Transferring Shareholder's shares to the Third Party. For purposes of
this Section 2.02(d), the Applicable Percentage means a percentage determined by
dividing the number of shares of NewComm's common stock that the Transferring
Shareholder proposes to transfer by the number of NewComm's common stock held by
the Transferring Shareholder (including the number of shares of NewComm's common
stock into which any NewComm security held by the Transferring Shareholder may
be converted).
(e) In the event the Optionee (i) fails to exercise the Option within
the Option Period, or, (ii) after electing to purchase the Transferring
Shareholder's stock, fails to close the purchase hereunder (unless such failure
to close is attributable to the action or inaction of the Transferring
Shareholder), the Transferring Shareholder shall have the right to Transfer the
NewComm stock to the Third Party designated in the Notice of Transfer in
accordance with the terms of the Offer. However, as a condition to the
effectiveness of such transfer, the Third Party shall thereupon become a party
to this Agreement with the same rights and obligations of the Transferring
Shareholder and, shall confirm such fact by executing a counterpart of this
Agreement.
(f) The provisions of this Section 2.02 shall not be applicable to a
Transfer to a Permitted Transferee (as defined in Sections 2.04 of this
Agreement) or to a Qualified Public Offering (as defined in Section 2.04(a)(ii)
of this Agreement.
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Section 2.03 Prohibited Transfers. Notwithstanding anything to the
contrary provided in this Agreement, neither CC nor TLD (upon becoming a
shareholder of NewComm) will Transfer any of its shares of NewComm's stock, to
any person (other than CC or TLD) (i) that competes directly or indirectly with
NewComm in the "Business", or (ii) if such person's ownership of shares of
NewComm's stock would (A) breach the stock ownership limitations imposed upon
NewComm's stock by the United States federal communications laws or the rules
and regulations promulgated thereunder, or (B) accelerate the repayment of the
CC Debt. In addition, CC will not Transfer any of its shares of NewComm's stock
to any direct or indirect competitor of TLD in Puerto Rico and TLD will not
Transfer any of its shares of NewComm stock to any direct or indirect competitor
of CC. For purposes of this Agreement, "Business" shall mean the ownership or
operation of a personal communication service network in Puerto Rico directly or
through any Affiliate (as such term is defined in Section 2.04(a)(i) of this
Agreement).
Section 2.04 Certain Transfers Not Prohibited.
(a) The restrictions on Transfers of NewComm's stock contained in
Section 2.01(a) shall not be construed to prohibit Transfers of NewComm's stock
by TLD or CC to any of its
Affiliates (as such term is defined in Rule 501(b) under the Securities Act of
1933, as amended (the "Securities Act") ("Permitted Transfers");
(b) Any and all shares of NewComm's stock in the hands of any
transferee pursuant to Section 2.04(a)(each, a "Permitted Transferee") shall
remain subject to this Agreement.
Section 2.05 Termination of Restrictions.
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(a) Upon the sale of NewComm's stock as part of a firm commitment
underwritten public offering or widely distributed private placement
underwritten by a nationally recognized full-service investment bank effected
after the Restriction Expiration Date, pursuant to which the aggregate gross
proceeds received by NewComm and/or any of its shareholders are at least Forty
Million Dollars ($40,000,000.00) (a "Qualified Public Offering"), all
restrictions imposed upon the transfer and issuance of NewComm's stock,
corporate governance, and corporate action by Articles II, III and IV of this
Agreement shall expire. In addition, upon TLD's acquisition of a controlling
stock interest in NewComm, the restrictions on Transfers or issuance of
NewComm's stock imposed by Sections 2.01(a), Section 2.01(b) and Section 2.03
and the provisions of Article III and IV shall expire.
ARTICLE III. CORPORATE GOVERNANCE
Section 3.01 Board of Directors.
(a) So long as TLD holds the Secured Convertible Promissory Note or at
least twenty percent (20%) of NewComm's outstanding voting common stock one (1)
member of NewComm's Board of Directors shall be designated by TLD and four (4)
members of the Board of Directors shall be designated by CC.
(b) After the Restriction Expiration Date, in the event that TLD
becomes the holder of at least forty-nine point eight percent (49.8%) of
NewComm's voting common stock, the number of members of NewComm's Board of
Directors shall be increased to six (6). Subject to any required
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FCC approval, fifty percent (50%) of the members shall be designated by TLD and
fifty percent (50%) shall be designated by CC.
(c) Each of TLD (upon becoming a shareholder of NewComm) and CC agrees
to vote its shares in favor of the persons nominated by the other as set forth
in Sections 3.01(a) and (b). Each designated director shall serve at the
pleasure of the designating person and shall be removed upon the request of the
designating person. Any vacancy in the Board of Directors shall be filled by a
director nominated by the person that designated the director being replaced.
Section 3.02 Meetings of the Board of Directors. NewComm's Board of
Directors shall meet at least quarterly until such time as the Board of
Directors determines that meetings of such frequency are no longer required. In
addition, any director shall be entitled to call a special meeting of the Board
if a meeting has not been held within the prior ninety (90) days. NewComm shall
reimburse members of the Board of Directors for the customary and reasonable
expenses of attending the meetings of the Board of Directors.
Section 3.03 Indemnification. NewComm shall not amend the
indemnification provisions of its Articles of Incorporation (as amended, the
"Articles") or By-Laws to eliminate or reduce the indemnification provided for
all directors and such provisions as so written shall be deemed to be a contract
with each director regarding his or her indemnification by NewComm. NewComm
shall also enter into separate indemnification agreements with each director.
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ARTICLE IV. CORPORATE ACTION
Section 4.01 Restricted Actions. Each of CC and TLD agrees that,
notwithstanding any provision of this Agreement, the Articles or By-Laws to the
contrary, it will not vote its shares of NewComm stock in favor of, and will
ensure the Director(s) designated by it will not to vote in favor of, any of the
following actions without the consent of the other or the Director(s) designated
by the other, as applicable:
(a) the liquidation, dissolution or winding up of NewComm's business
operations;
(b) the sale, exchange or other disposition of all or substantially
all of NewComm's assets, business or of any of the Licenses;
(c) the merger, spin off, strategic alliance or other business
combination or reorganization of NewComm with any corporation partnership,
limited liability company or other entity;
(d) any material change in the nature of the Business conducted by
NewComm;
(e) the amendment of NewComm's Articles of Incorporation or By-Laws;
(f) the issuance of any shares of NewComm's stock to any person or
entity, other than as provided for in this Agreement, including persons who are
then existing shareholders, or the addition of any new shareholder;
(g) the redemption of part or all of the stock outstanding or the
prepayment of any debt securities; including without limitation the Secured
Convertible Promissory Note;
(h) incurring any indebtedness in excess of One Million Dollars
($1,000,000.00) in a single transaction;
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(i) the granting of any mortgage or deed of trust or the placing of any
other lien or encumbrance on the assets of the Corporation or any portion
thereof that exceed One Million Dollars ($1,000,000.00) in value, to secure any
loan except as otherwise provided herein;
(j) the making of a single capital expenditure in excess of Three
Million Dollars ($3,000,000.00);
(k) the approval of any dividend distribution to shareholders in excess
of the net income for the year of the distribution, net of any prior year
losses;
(l) a change in outside attorneys or auditors; and
(m) any transaction between NewComm and a shareholder or an Affiliate
(as defined in Section 2.04(a)(i) of this Agreement) of such shareholder, other
than the Management Agreement between NewComm and TLD and the Technology
Transfer Agreement between NewComm and Telefonica Internacional, S.A.
Section 4.02 Deadlock. Upon a deadlock between CC and TLD on any matter
described in Section 4.01, hereof, the Shareholders agree that the action
proposed shall not be undertaken or approved and the status quo shall be
preserved.
ARTICLE V. BUY-OUT
Section 5.01 TLD Buy-Out.
(a) For the period between one year in advance of the Restriction
Expiration Date and the Restriction Expiration Date, CC shall have the option to
purchase the Secured Convertible Promissory Note or the NewComm common stock
into which the Secured Convertible Promissory
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Note is convertible, as applicable, for a purchase price equal to the higher of
(i) one hundred fifty percent (150%) of the sum of the principal and accrued
interest of the Secured Convertible Promissory Note and (ii) one hundred twenty
five-percent (125%) of the market value, at the time of purchase, of the NewComm
stock into which the Secured Convertible Promissory Note and the Interest Note
(as defined in the Secured Convertible Promissory Note) are convertible (the "CC
Option"). The CC Option shall be exercised by delivery of written notice to TLD
of exercise (an "Option Notice") prior to the Restriction Expiration Date. If
the parties are unable to agree on such market value within thirty (30) days of
the Option Notice, CC shall notify to TLD the names of three (3) reputable
internationally recognized investment banking firms ("Bank"). TLD shall within
ten (10) days of receipt of the names, select one Bank who shall determine the
fair market value of such NewComm stock. In the event that TLD fails to select
the Bank within the ten (10) day period, CC shall select the Bank that will
determine the fair market value of such NewComm stock. The determination of the
Bank shall be conclusive and the parties agree not to challenge such
determination value in court proceedings or otherwise. All fees of the Bank
shall be paid by NewComm.
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(b) The closing of a purchase pursuant to this Section 5.01, shall be
held at a mutually acceptable place and on a mutually acceptable date not sooner
than ten (10) days after receipt of the valuation from the Bank. At such closing
TLD's debt or equity interests in NewComm, as applicable, shall be transferred
free and clear of all pledges, liens, security interest or encumbrances of any
nature whatsoever. The parties shall execute all other documents that may be
reasonably necessary or advisable to effectuate the transactions contemplated
hereby, and CC shall pay the purchase price of the TLD debt or equity interest,
as applicable, in cash, by a cashier's check or by wire transfer.
(c) If CC exercises the CC Option,
(i) the option provided in Section 5.02 of this Agreement
shall be without further effect;
(ii) any and all guarantees issued by TLD or any of its
Affiliates on any outstanding debt of NewComm shall cease to be effective; and
(iii) each of TLD and Telefonica Internacional, S.A. will have
the option to terminate the Management Agreement and the Technology Transfer
Agreement, respectively, within thirty (30) days of closing of the purchase
pursuant to this Section 5.01.
Section 5.02 CC Buy-Out Event.
(a) At any time after the Restriction Expiration Date, TLD shall have
the option, exercisable at its sole discretion and subject only to any
applicable requirements of the Communications Act of 1934, as amended, or orders
or regulations promulgated thereunder, and/or the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 and its implementing regulations,
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to elect to purchase any of the shares of Class A Common Stock held by CC in the
amount required for TLD to acquire 50.1% of the issued and outstanding common
stock of NewComm (the "Call"). Any such purchase shall be at a price per share
equal to the market value at the time of purchase of a share of NewComm's Class
A Common Stock. The Call shall be exercised by delivery of an Option Notice to
CC. If the parties are unable to agree on such market value within thirty (30)
days of the Option Notice, TLD shall notify to CC the names of three (3)
reputable internationally recognized investment banking firms ("Bank"). CC shall
within ten (10) days of receipt of the names, select one Bank who shall
determine the fair market value of a share of NewComm's Class A Common Stock. In
the event that CC fails to select a Bank within the ten (10) day period, TLD
shall select the Bank that will determine the fair market value of a share of
NewComm's Class A Common Stock. The determination of the Bank shall be
conclusive and the parties agree not to challenge such determination value in
court proceedings or otherwise. All fees of the Bank shall be paid by NewComm.
(b) The closing of a purchase pursuant to this Section 5.02, shall be
held at a mutually acceptable place and on a mutually acceptable date not sooner
than ten (10) days after receipt of the valuation from the Bank. At such closing
the shares of NewComm's Class A Common Stock shall be transferred free and clear
of all pledges, liens, security interests or encumbrances of any nature
whatsoever. The parties shall execute all other documents that may be reasonably
necessary or advisable to effectuate the transactions contemplated hereby, and
TLD shall pay the purchase price of the Class A Common Stock in cash, by a
cashier's check or by wire transfer.
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ARTICLE VI. REGISTRATION RIGHTS
Section 6.01 Required Registration.
(a) At any time on or after the Restriction Expiration Date, if CC
proposes to dispose of at least the Minimum Number (as defined below) of its
NewComm shares of stock (the "CC Shares") in a registered offering, it may
request NewComm in writing to effect the registration of such CC Shares, stating
the number of CC Shares to be disposed of and the intended method of disposition
of such CC Shares. NewComm will use all commercially reasonable efforts to
effect promptly the registration under the United States Securities Act of 1933,
as amended (the "Act") of all CC Shares specified in CC's request. The managing
underwriters that will place the CC Shares shall be those mutually acceptable to
CC and TLD.
(b) If TLD determines, in response to a request for registration of CC
Shares that the filing of a registration statement under the Act would not be in
the best interests of NewComm, NewComm may delay acting upon such request for a
period (not to exceed one hundred eighty (180) days from its receipt of such
request) that TLD deems reasonable so as to be in the best interests of NewComm.
(c) The "Minimum Number" shall mean all of the issued and outstanding
shares of NewComm common stock held by CC; provided that such shares have an
aggregate estimated disposition price (before deduction of underwriting
discounts and expenses of sales) of at least Forty Million Dollars
($40,000,000.00) million (but in no event in an initial public offering less
than an amount to create a viable public trading market).
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(d) NewComm shall not be required to effect more than one registration
pursuant to this Section 6.01. For purposes of the foregoing sentence, in the
event that NewComm shall have filed a registration statement upon the request of
CC, and thereafter such request shall have been withdrawn by CC other than after
a delay caused by NewComm pursuant to Section 6.01(b), such withdrawn
registration shall be considered to be a registration.
(e) NewComm shall not be required to cause a registration statement
requested hereunder to become effective prior to one hundred eighty (180) days
following the effective date of the most recent registration by NewComm of
equity or equity-linked securities under the Act (other than a registration
effected solely to implement an employee benefit plan or a transaction to which
Rule 145 of the Securities and Exchange Commission (the "SEC") is applicable);
provided, however, that NewComm shall use all commercially reasonable efforts to
achieve such effectiveness promptly following such one hundred eighty (180) day
period if CC's request has been made prior to the expiration of such one hundred
eighty (180) day period.
(f) Notwithstanding anything to the contrary herein provided, upon the
exercise by CC of its registration rights pursuant to this Section 6.01, TLD
shall have the option of transferring TLD shares of common stock to CC in
exchange for the CC Shares and effect the registration of such TLD shares, as
provided hereunder, in lieu of the registration of the CC Shares; provided that
a nationally recognized investment banking firm selected by CC from a list of
three (3) such investment banking firms prepared by TLD determines that it would
be in the best interest of CC to offer the shares of TLD instead of the CC
Shares. In such event, the TLD shares of common stock to be issued in exchange
for the CC Shares shall have a market value equal to the market
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value of the CC Shares, as determined by the investment banking firm selected by
CC. The fees, costs and expenses of the investment banking firm shall be paid by
TLD.
(g) CC shall bear and pay all expenses incurred in connection with the
registration, filing or qualification of CC Shares pursuant to this Section
6.01, including (without limitation) all registration, filing and qualification
fees, printing and accounting fees relating or apportionable thereto, the fees
and disbursements of counsel, underwriting discounts and commissions, and TLD,
in its capacity as Manager under the Management Contract will participate at the
expense of NewComm in the presentations made by NewComm to promote the sale of
the CC Shares.
Section 6.02 Piggy-Back Registration.
(a) If at any time after the Restriction Expiration Date NewComm
determines to register any of its shares of common stock under the Act in
connection with the public offering of such securities by NewComm solely for
cash (other than a registration relating solely to the sale of securities to
participants in a NewComm employee benefit plan or a transaction to which Rule
145 of the SEC applies, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of NewComm stock other than information
on selling shareholders), NewComm shall, at such time, promptly give CC written
notice of its intention to effect such registration. Upon the written request of
CC given within twenty (20) days after mailing of such notice by NewComm,
NewComm shall use commercially reasonable efforts to cause to be registered
under the Act all of the shares that CC has requested to be registered (the
"Piggy-Back Shares") (a "Piggy-Back
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Registration"); provided that NewComm shall have the right to postpone or
withdraw any such registration effected pursuant to this subsection without
obligation to CC.
(b) It shall be a condition precedent to NewComm's obligation to take
any action pursuant to this Section with respect to the Piggy-Back Shares that
CC shall furnish to NewComm such information regarding itself, the NewComm stock
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of such shares.
(c) NewComm shall bear and pay all expenses incurred in connection with
the registration, filing or qualification of the Piggy-Back Shares with respect
to CC's Piggy-Back Registrations, including (without limitation) all
registration, filing and qualification fees, printing and accounting fees
relating or apportionable thereto, and the fees and disbursements of one counsel
for CC (provided it shall be counsel to NewComm), but excluding underwriting
discounts and commissions relating to Piggy-Back Shares which shall be paid by
CC.
(d) In connection with any offering involving an underwriting of
NewComm's stock, NewComm shall not be required to include any Piggy-Back Shares
in such underwriting unless CC accepts the terms of the underwriting as agreed
upon between NewComm and the underwriters, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by NewComm. If the total amount of Piggy-Back Shares to be
included in such offering exceeds the amount of shares sold other than by
NewComm that the underwriters determine in their sole discretion is compatible
with the success of the offering, then NewComm shall be required to include in
the offering only that number of PiggyBack Shares which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering.
(e) CC shall not have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
(f) In the event any Piggy-Back Shares are included in a registration
statement under this Agreement:
(i) To the extent permitted by law, NewComm will indemnify and
hold harmless CC and its officers and directors, any underwriter (as defined in
the Act) for CC and each person, if any, who controls CC or the underwriter
within the meaning of the Act or the Securities Exchange Act of 1934 (the "1934
Act") (each, for purposes of this Section 6.02, an "Indemnitee"), against any
losses, claims, damages or liabilities to which they may become subject under
the Act, or the 1934 Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (A) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (B) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (C) any violation or alleged violation by
NewComm of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and
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NewComm will pay to each such Indemnitee, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that this indemnity agreement shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of NewComm (which consent shall not be unreasonably
withheld), nor shall NewComm be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Indemnitee.
(ii) To the extent permitted by law, CC will indemnify and
hold harmless NewComm, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls NewComm
within the meaning of the Act, any underwriter, any other NewComm shareholder
selling securities in such registration statement and any controlling person of
any such underwriter or other NewComm shareholder, against any losses, claims,
damages, or liabilities to which any of the foregoing persons may become
subject, under the Act, or the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by CC expressly for use in
connection with such registration; and each CC will pay, as incurred, any legal
or other expenses reasonably incurred by any person intended to be indemnified
hereunder, in connection with investigating or defending any such loss,
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claim, damage, liability, or action; provided, however, that this indemnity
agreement shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of CC, which consent shall not be unreasonably withheld.
(iii) Promptly after receipt by an indemnified party of notice
of the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
to the extent of such prejudice, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may
otherwise have to any indemnified party.
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(iv) The obligations of NewComm and the CC under this Section
6.02 shall survive the completion of any offering of NewComm stock under this
Agreement and termination of this Agreement.
Section 6.03 "Market Stand-Off" Agreement. During the period of
duration specified by NewComm and an underwriter of NewComm Stock or other
equity and equity-linked securities of NewComm (which period shall not exceed
one hundred eighty (180) days), following the effective date of a registration
statement of NewComm filed under the Act, neither CC nor TLD shall, to the
extent requested by NewComm and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
those who agree to be similarly bound) any equity and equity-linked securities
of NewComm held by it at any time during such period (except, (i) transfers
between or among CC and TLD; (ii) NewComm stock included in such registration;
and (iii) transfers to Affiliates of the transferor).
Section 6.04 Listing. In connection with a registration pursuant to
Article VI of this Agreement, NewComm will use all commercially reasonable
efforts to qualify the NewComm or TLD stock sold pursuant to such registration
to trade on a United States national securities exchange or on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system and to
maintain the inclusion of such NewComm Stock on a United States national
securities exchange or the NASDAQ system for a period of four years after the
effective date of a registration statement filed with the SEC pursuant to this
Agreement. The NASDAQ system shall mean the NASDAQ National Market.
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ARTICLE VII. ADDITIONAL COVENANTS
Section 7.01 Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use commercially reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. TLD and CC each agree to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.
Section 7.02 FCC Filing.
(a) Upon the execution and delivery of this Agreement (or as soon as
practicable thereafter), an application will be filed by TLD and NewComm (and
CC, if applicable), with the FCC requesting the pro forma transfer of the
Licenses from CC to NewComm.
(b) At the Closing Date (or as soon as practicable thereafter), an
application will be filed by TLD and NewComm (and CC, if applicable), with the
FCC requesting authorization for TLD (as a foreign corporation) to hold more
than a 25% equity interest in NewComm and for the transfer of control of the
Licenses from SuperTel to NewComm or to CC.
Section 7.03 Filing of Documentation and Information. In the event that
TLD elects to exercise any of its rights under this Agreement that result in its
acquisition of a controlling interest in NewComm, each of TLD and CC shall file
and shall cause NewComm to file promptly all such documentation and information
required by the Hart-Scott-Rodino Antitrust Improvement
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Act of 1976, the Exon-Florio Amendment to the Defense Production Act of 1950, as
amended, and any other applicable legislation to enable TLD to acquire such
controlling interest.
Section 7.04 Nondisclosure of Confidential Information.
(a) Each of TLD and CC hereby agrees that it will not use Confidential
Information (as defined below) for its own purposes or for the purposes of any
person other than NewComm and will not disclose Confidential Information to any
person (other than its directors, officers or employees), except (i) to the
extent required by law, (ii) with the prior written permission of the other
party, or (iii) in the case of TLD, to the extent required to comply with its
obligations under the Management Contract. Each of TLD and CC also agrees to
take all reasonable precautions to prevent inadvertent disclosure or use of such
Confidential Information by its directors, officers or employees and shall
forever maintain confidential and in complete secret such Confidential
Information except as to any item or portion thereof that is or becomes publicly
known through no fault of itself. Nothing herein shall preclude each of TLD and
CC from using or disclosing information rightfully disclosed to it by a third
party not employed by NewComm or any individual who may be working with or
assisting a competitor, to the extent such third party is entitled to disclose
such information.
(b) For purposes of this Section 7.04 the term "information" includes
without limitation, information relating directly or indirectly to: research and
development; patent, trademark, and copyright development and licensing thereof;
trade secrets and inventions; formulas, designs, drawings, specifications and
engineering; processes and equipment; financing, distribution, marketing, sales,
customer services, and operation techniques, strategies and
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maintenance costs; price lists, pricing policies and quoting procedures;
financial and accounting information; names of customers and their
representatives; potential business of promotional opportunities; computer and
technology fundamentals, programs, database, and software; and the type,
quantity, quality and specifications of services given to clients.
(c) The term "Confidential Information" means facts, details,
intelligence, content, materials, ideas, or information, whether or not
contained in books, records, statements, or plans, which (i) are proprietary to
NewComm, (ii) are provided to NewComm by TLD pursuant to the Management
Agreement or by Telefonica Internacional, S.A., pursuant to the Technology
Transfer Agreement, (iii) are designated or deemed or treated as confidential by
NewComm, (iv) are not generally known by outside personnel, (v) are known by TLD
or CC through its ownership of, or services rendered to NewComm, or (vi) are
provided or available to NewComm and required to keep in confidence pursuant to
any agreement.
Section 7.05 Filing of Agreement. A copy of this Agreement, as amended
from time to time, shall be filed with and retained by the Secretary of NewComm.
Section 7.06 Corporation Designee. All rights granted to NewComm by the
terms of this Agreement may be exercised by such person, persons, entity or
entities as the Board of Directors of the Corporation, in its sole discretion,
shall designate acting by vote or unanimous written consent.
Section 7.07 Attorneys and Auditors. CC shall cause NewComm to retain
Axtmayer Adsuar Muniz & Goyco, P.S.C., as its counsel for general legal matters
and Steptoe & Johnson
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L.L.P. as its counsel for legal matters pertaining to FCC rules and regulations.
CC shall also cause NewComm to retain the services of Arthur Andersen L.L.P. as
outside auditors.
Section 7.08 Marketing. CC and TLD acknowledge and agree that, although
the name of the corporation organized pursuant to this Agreement will be NewComm
Wireless Services, Inc., the company will use the trade names of "TLD",
"Telefonica Larga Distancia", or contractions, portions or derivations thereof
in the marketing of NewComm, its services and products. In the event that CC
exercises the CC Option or TLD ceases to hold any NewComm stock or the Secured
Convertible Promissory Note, NewComm will cease to use such trade names and
contractions, portions or derivations thereof in the marketing of NewComm, its
services and products.
Section 7.09 Oregon Litigation. CC and TLD acknowledge and agree that
in the event that any of the plaintiffs (or its successors or assigns) in a
certain consolidated proceeding entitled Black et al. vs. Arizala et al.
originally filed in the Circuit Court of the State of Oregon for Multnomah
County (Case No. 9611-09017) (the "Oregon Litigation") asserts a claim against
NewComm related to the allegations made in such proceeding, TLD shall have the
option to obtain indemnification from CC for any liabilities, losses,
obligations, claims, costs and expenses (including without limitation court
costs and reasonable attorneys fees) suffered or incurred by NewComm as a result
of such claim.
Section 7.10 Accrued Interest on the CC Debt. CC shall pay all interest
accrued on the CC Debt up to the Closing Date.
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Section 7.11 Reservation of Common Stock. NewComm shall, at all times,
have reserved the appropriate number of shares of Common Stock for the
conversion of the Secured Convertible Promissory Note and any other outstanding
convertible debt securities.
Section 7.12 Endorsement of Stock Certificates. All certificates
representing NewComm's shares of stock owned by CC or TLD shall have
conspicuously endorsed thereon a legend substantially as follows:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER PURSUANT TO A JOINT VENTURE
AGREEMENT BY AND AMONG CLEARCOMM L.P. AND TELEFONICA LARGA
DISTANCIA DE PUERTO RICO, INC. A COPY OF THE SHAREHOLDERS
AGREEMENT MAY BE OBTAINED FROM THE CORPORATION WITHOUT CHARGE
UPON THE WRITTEN REQUEST OF THE HOLDER HEREOF.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER
THAT ACT AND ANY APPLICABLE SECURITIES LAWS, UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE."
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ARTICLE VIII. REPRESENTATIONS AND WARRANTIES OF CC
CC hereby represents and warrants to TLD that:
Section 8.01 Existence and Power. CC is a validly existing limited
partnership duly organized under the laws of Delaware and has all requisite
power, authority and legal right to conduct its affairs as currently conducted.
CC has no subsidiaries.
Section 8.02 Corporate Authorization.
(a) The execution, delivery and performance by CC of this Agreement and
the documents to be delivered in connection herewith are within CC's powers and
have been duly authorized by its general partner, SuperTel Communications Corp.
and, upon execution thereof, will be duly executed and delivered by CC. The
authorization of CC's limited partners is not required for CC to be empowered to
execute, deliver and perform under this Agreement.
(b) This Agreement constitutes the valid and binding agreement of CC,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
Section 8.03 Governmental Authorization. The execution, delivery and
performance by CC of this Agreement and the documents to be delivered in
connection herewith require no approval or other action by or in respect of, or
filing with, any Puerto Rico or United States governmental authority other than
compliance with any applicable requirements of the Communications Act of 1934,
as amended (the "Communications Act") and any rules, regulations,
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practices and policies promulgated by the FCC ("FCC Rules"), with respect to the
transfer of the Licenses.
Section 8.04 Non-Contravention. The execution, delivery and performance
by CC of this Agreement and the documents to be delivered in connection herewith
do not and will not (i) contravene or conflict with the partnership agreement
and any other governing document of CC, (ii) assuming compliance with matters
set forth in Section 8.03, contravene or conflict with or constitute a violation
of any provision of any Puerto Rico or United States law, regulation, judgment,
injunction, order or decree binding upon or applicable to CC; or (iii) result in
the creation or imposition of any lien on any asset of CC.
Section 8.05 Ownership. CC is currently the record and beneficial owner
of each of the Licenses and the Other Assets and will transfer and deliver the
Licenses and the Other Assets to NewComm free and clear of any liens or
encumbrances, except for any lien in favor of the FCC as collateral for the CC
Debt. CC acquired the Licenses from the FCC pursuant to the terms of a license
dated January 22, 1997 and modified on June 8, 1998 (the "FCC License"), a true
and exact copy of which was delivered by CC to TLD. The FCC License is in full
force and effect, and has not been amended or modified; CC is not in breach of,
or default under such license; and no event or circumstances have occurred that
may result in a default under the FCC License.
Section 8.06 Finder's Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of CC who might be entitled to any fee or commission from TLD or
NewComm upon consummation of the transactions contemplated herein.
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Section 8.07 CC Debt. The CC Debt amounts to FIFTY ONE MILLION THREE
HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED AND FIFTY FIVE DOLLARS
($51,339,555.00).
Section 8.08 Litigation. Except as set forth in the Disclosure Schedule
attached hereto and made a part hereof, there is no pending, or to CC's
knowledge, threatened claim or litigation that could affect CC's title and
interest in the Licenses and no events or circumstances have occurred that may
result in any such claim or litigation.
ARTICLE IX. REPRESENTATIONS AND WARRANTIES OF TLD
TLD hereby represents and warrants to CC that:
Section 9.01 Organization and Existence. TLD is a corporation duly
incorporated, validly existing and in good standing under the laws of Puerto
Rico.
Section 9.02 Corporate Authorization.
(a) The execution, delivery and performance by TLD of this Agreement
and the consummation by each of them of the transactions contemplated herein are
within its corporate powers and have been duly authorized by all necessary
corporate or other action on the part of TLD.
(b) This Agreement constitutes the valid and binding agreement of TLD,
enforceable against it in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors
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generally, by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
Section 9.03 Governmental Authorization. The execution, delivery and
performance by TLD of this Agreement require no action by or in respect of, or
filing with, or consent of any governmental authority, other than compliance
with any applicable requirements of the Communications Act or FCC Rules.
Section 9.04 Non-Contravention. The execution, delivery and performance
by TLD of this Agreement do not and will not (i) contravene or conflict with the
certificate of incorporation or by-laws, or (ii) assuming compliance with the
matters referred to in Section 9.03, contravene or conflict with any provision
of any law, regulation, judgment, injunction, order or decree binding upon TLD.
Section 9.05 Finder's Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of TLD who might be entitled to any fee or commission from CC or
NewComm. upon consummation of the transactions contemplated herein.
ARTICLE X. CONDITIONS TO CLOSING
Section 10.01 Conditions to the Obligations of CC. The obligations of
CC to execute the documents and take the actions required under this Agreement
at the Closing Date are subject to the satisfaction of the following conditions:
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(a) (i) the representations and warranties of TLD contained in this
Agreement and in any certificate or other writing delivered by TLD pursuant
hereto shall be true in all material respects at and as of the Closing Date, as
if made at and as of such time; and (ii) CC shall have received a certificate
signed by the General Manager of TLD to the foregoing effect;
(b) CC shall have received an opinion of Axtmayer, Adsuar, Muniz &
Goyco, P.S.C. substantially in the form of Exhibit J hereof;
(c) CC shall have received a Secretary's Certificate substantially in
the form of Exhibit K hereof;
(d) TLD shall have executed the documents and taken the actions
required under Article I of this Agreement; and
(e) the FCC shall have issued an unconditional firm and final
authorization to the transfer of the Licenses to NewComm.
Section 10.02 Conditions to Obligation of TLD. The obligations of TLD
to execute the documents and take the actions required under this Agreement at
the Closing Date are subject to the satisfaction of the following conditions:
(a) (i) the representations and warranties of CC contained in this
Agreement and in any certificate or other writing delivered by CC pursuant
hereto shall be true in all material respects at and as of the Closing Date, as
if made at and as of such time; and (ii) TLD shall have received a certificate
signed by the President of SuperTel, CC's general partner, to the foregoing
effect;
(b) TLD shall have received an opinion from Martinez Odell & Calabria
substantially in the form of Exhibit L hereof;
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(c) TLD shall have received an unqualified opinion from Brown & Wood
LLP reasonably satisfactory to TLD to the effect that CC may transfer the
Licenses and the Other Assets to NewComm concurrently with NewComm's issuance of
the Secured Convertible Promissory Note to TLD without the consent of CC's
limited partners;
(d) TLD shall have received a Secretary's Certificate substantially in
the form of Exhibit M hereof;
(e) CC shall have executed the documents and taken the actions required
under Article I of this Agreement;
(f) the FCC shall have issued an unconditional firm and final
authorization to the transfer of the Licenses to NewComm; and
(g) except for the Oregon Litigation, the pending litigation described
in the Disclosure Schedule shall have been settled, such settlement shall be
firm, final and non-appealable to the reasonable satisfaction of TLD, and there
shall be no pending or threatened litigation against CC.
ARTICLE XI. INDEMNIFICATION
Section 11.01 TLD's and NewComm's Right to Indemnification. CC will
indemnify TLD and NewComm and hold TLD and NewComm, and their respective present
and future directors, officers and employees, harmless from any and all
liabilities, losses, obligations, claims, costs and expenses (including without
limitation court costs and reasonable attorneys fees) of any type or nature that
TLD or NewComm may suffer or incur as a result of or relating to (i) the breach
or inaccuracy, or any alleged breach or inaccuracy, of any of the
representations,
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warranties, covenants or agreements made by CC in this Agreement or in any of
the exhibits hereof, or (ii) any acts or omissions of CC occurring prior to the
Closing Date related to the Licenses or the CC Debt.
Section 11.02 CC's and NewComm's Right to Indemnification. TLD shall
indemnify and hold CC and NewComm, and their respective present and future
directors, officers and employees harmless from any and all liabilities, losses,
obligations, claims, costs and expenses (including without limitation court
costs and reasonable attorneys fees) that CC or NewComm may suffer or incur as a
result or relating to the breach or inaccuracy, or any alleged breach or
inaccuracy, of any representations, warranties, covenants or agreements made by
TLD in this Agreement or in any of exhibits hereof.
Section 11.03 Notice. The party seeking indemnification hereunder (for
purposes of this Article XI, "Indemnitee") shall promptly, and within thirty
(30) days after notice to it (notice to Indemnitee being the filing of any legal
action, receipt of any claim in writing, or similar form of actual notice) of
any claim as to which it asserts a right to indemnification, notify the party
from whom indemnification is sought (for purposes of this Article XI,
"Indemnitor") of such claim. If notice is given, Indemnitor shall promptly
indemnify Indemnitee upon receipt of any such notice. The failure of Indemnitee
to give such notification shall not relieve the Indemnitor from any liability
that it may have pursuant to this Agreement unless the failure to give such
notice within such time shall have been prejudicial and in such case only to the
extent thereof, and in no event shall the failure to give such notification
relieve the Indemnitor from any liability it may have other than pursuant to
this Agreement. In the event that the Indemnitor fails to fully
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indemnify the Indemnitee within ten (10) days after the Indemnitee's right to
indemnity hereunder is notified to the Indemnitor, without any legally valid
reason to deny its obligations to indemnify, the Indemnitor shall be liable to
pay the amount claimed plus interest at five percent (5%) over The Chase
Manhattan Bank, N.A. base rate, fluctuating concurrently with any changes in
such base rate, for the period commencing after the expiration of the ten (10)
day period and ending on the day of payment in full of the indemnity amount.
Section 11.04 Third-Party Claims. If any claim for indemnification and
hold harmless by Indemnitee arises out of a claim by a person other than
Indemnitee, Indemnitor may, by written notice to Indemnitee, undertake to
conduct any proceedings or negotiations in connection therewith or necessary to
defend Indemnitee and take all other steps or proceedings to settle or defeat
any such claims or to employ counsel to contest any such claims; provided that
Indemnitor shall reasonably consider the advice of Indemnitee as to the defense
of such claims, and Indemnitee shall have the right to participate, at its own
expense, in such defense, but control of such litigation and settlement shall
remain exclusively with Indemnitor. Indemnitee shall provide all reasonable
cooperation in connection with any such defense by Indemnitor. Counsel, filing
fees, court fees and other costs or expenses of all proceedings, contests or
lawsuits with respect to any such claim or asserted liability shall be borne by
Indemnitor. If any such claims is made hereunder and Indemnitor does not elect
to undertake the defense thereof by written notice to Indemnitee, Indemnitee
shall be entitled to control such litigation and settlement and shall be
entitled to indemnity with respect thereto pursuant to the terms of this Article
XI. To the extent that Indemnitor undertakes the defense of such claim by
written notice to Indemnitee and diligently
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pursues such defense at its expense, Indemnitee shall be entitled to
indemnification hereunder only to the extent that such defense is unsuccessful
as determined by a final and unappealable judgment of a court of competent
jurisdiction, or by written acknowledgment of the parties.
ARTICLE XII. DEFAULTS
Section 12.01 Defaults. The occurrence of any of the following events
shall constitute an "Event of Default" for purposes of this Agreement on the
part of the party with respect to which such event occurs (the "Defaulting
Party"):
(a) the institution by the Defaulting Party of proceedings of any
nature under any laws of any jurisdiction, whether now existing or subsequently
enacted or amended for the relief of debtors wherein such party is seeking
relief as a debtor;
(b) a general assignment by the Defaulting Party for the benefit of
creditors;
(c) the institution against the Defaulting Party of a case or other
proceeding under any bankruptcy or similar laws as now existing or hereunder
amended or becoming effective, which proceeding is not dismissed, stayed or
discharged within a period of sixty (60) days after the filing thereof;
(d) the appointment of a receiver for all or substantially all of the
Defaulting Party's business or assets on the grounds of insolvency, and such
appointment is not vacated within sixty (60) days of such occurrence;
(e) the admission by the Defaulting Party in writing of its inability
to pay its debts as they come due;
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(f) the breach by the Defaulting Party of any of the material
provisions contained in this Agreement;
(g) the breach by CC of any of its obligations under the Guarantee or
the Pledge Agreement; and
(h) the breach by NewComm of any of its obligations under the Secured
Convertible Note, the Promissory or the Security Agreement.
Section 12.02 Remedies. Upon an Event of Default, pursuant to Sections
12.01(a) through (f), inclusive, the other party (the Non-Defaulting Party), and
upon an Event of Default pursuant to Sections 12.01(g) or (h), TLD, may elect to
dissolve NewComm or purchase the shares of Common Stock of the Defaulting Party
or CC, as applicable, applying the procedure contained in Article V of this
Agreement. In the event, that the Non-Defaulting Party or TLD elects to dissolve
NewComm, the Defaulting Party or CC, as applicable, shall vote its shares of
NewComm's stock to effect such dissolution.
ARTICLE XIII. TERMINATION
Section 13.01 Grounds for Termination.
(a) This Agreement may be terminated at any time:
(i) by mutual written agreement of TLD and CC;
(ii) by either TLD or CC if the transactions contemplated by
Sections 1.01, 1.02, 1.03, 1.04, 1.06 and 1.07 shall not have been consummated
on or before June 30, 1999, or such other date, if any, as TLD and CC shall
agree in writing; provided that no party may
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terminate this Agreement pursuant to this clause if such party's failure to
fulfill any of its obligations under this Agreement shall have been the reason
that the transactions contemplated herein shall not have been consummated on or
before such date; and
(iii) by either TLD or CC if such other party is then in
material breach of this Agreement, and the terminating party is not then in
material breach of this Agreement.
The party desiring to terminate this Agreement pursuant to
this Section 13.01(a) shall give two (2) business days notice of such
termination to the other party.
(b) This Agreement shall terminate upon the exercise by CC of the CC
Option and in the event CC and TLD agree to the acquisition by TLD of all the
shares of NewComm stock held by CC; provided however, that upon any such
termination the provisions of Section 7.04, Article VIII, Article IX, Article XI
and Article XIV shall remain in full force and effect.
Section 13.02 Effect of Termination. If this Agreement is terminated as
permitted by Section 13.01(a)(i), 13.01(a)(ii), 13.01(b) or 1.05(d) such
termination shall be without liability to either party (or any shareholder,
director, officer, employee, agent, consultant or representative of such party)
to this Agreement. If the termination is pursuant to Section 13.01(a)(iii) as
the result of the failure of any party to fulfill a material covenant of this
Agreement or a misrepresentation by any party to this Agreement, such party
shall be fully liable for any and all damages, costs and expenses (including,
but not limited to, reasonable counsel fees) sustained or incurred by the other
party as a result of such failure, breach or misrepresentation.
<PAGE>
- 41 -
ARTICLE XIV. MISCELLANEOUS
Section 14.01 Survival. The representations, warranties, covenants and
agreements contained herein shall survive the execution of this Agreement.
Section 14.02 Notices. All notices, requests and other communications
to each party hereunder shall be in writing (including telecopy or similar
writing, with confirmation of receipt) and shall be given:
if to TLD, to:
Telefonica Larga Distancia de Puerto Rico, Inc.
P.O. Box 70325
San Juan, Puerto Rico 00936-8325
Telephone: (787) 749-5800
Telecopy: (787) 749-5707
Attention: Jose Luis Fernandez
with a copy to:
Axtmayer Adsuar Muniz & Goyco, P.S.C.
P.O. Box 70264
San Juan, Puerto Rico 00936-8294
Telephone: (787) 756-9000
Telecopy: (787) 756-9010
Attention: Fernando Goyco-Covas, Esq.
if to CC, to:
ClearComm, L.P.
221 Ponce de Leon Ave.
Suite 1407
San Juan, Puerto Rico 00917-1814
Telephone: (787) 756-0840
Telecopy: (787) 756-0844
Attention: Javier O. Lamoso
<PAGE>
- 42 -
Section 14.03 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived subject to
the requirements of applicable law if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by TLD and CC, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
Section 14.04 Expenses. Except as otherwise expressly provided in this
Agreement, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
Section 14.05 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto and compliance with applicable
laws and regulations.
Section 14.06 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of Puerto Rico without giving effect to
principles of conflicts of laws.
Section 14.07 Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become
<PAGE>
- 43 -
effective when each party hereto shall have received a counterpart hereof signed
by the other party hereto.
Section 14.08 Entire Agreement. This Agreement, including the Exhibits
hereto, constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto.
Section 14.09 Captions; Definitions. The captions herein are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 14.10 Dispute Resolution; Arbitration.
(a) The parties agree with the principle that disputes, claims and
controversies arising out of or related to this Agreement or any of the notes or
agreements set forth in Exhibits C, D, E, F and G (including the performance,
enforcement, breach, or termination thereof, and any remedies relating thereto)
(each, a "Dispute") should be regarded as business problems to be resolved
promptly through business-oriented negotiations before resorting to arbitration.
The parties agree to use their best efforts and to attempt in good faith to
resolve any Dispute promptly by negotiation between the executives of the
parties who have authority to settle the Dispute. Either party may give the
other party written notice of any Dispute not resolved in the normal course of
business ("Notice of Dispute"). Within fifteen (15) days after receipt of the
Notice of Dispute by the receiving party ("Date of Notice"), the receiving party
shall submit to the other a
<PAGE>
- 44 -
written response, which shall include a statement of such party's position.
Within thirty (30) days after the Date of Notice, the parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to attempt to resolve the Dispute. All reasonable requests for
information made by one party to the other will be honored.
(b) If the Dispute has not been resolved by these persons within
forty-five (45) days of the Date of Notice, the Dispute shall be referred to a
more senior executive of each party who has authority to settle the Dispute and
who shall likewise meet to attempt to resolve the Dispute.
(c) All negotiations pursuant to this Section 14.10 shall be
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.
(d) In the event the Dispute has still not been resolved by
negotiation, then such Dispute shall be settled by binding arbitration according
to the rules of the American Arbitration Association before an Arbitral Panel
composed of three (3) Arbitrators. One of such Arbitrators shall be selected by
CC, another by TLD and the third one by two Arbitrators selected by CC and TLD.
The Arbitration shall be legally binding, shall take place in San Juan, Puerto
Rico and shall be conducted in the Spanish language. The arbitral award or order
("Award") shall be given in writing, shall detail the disputed matters and the
reasons upon which the Award is based. The Award of the Arbitrators shall be
final and binding upon the parties and shall not be subject to appeal to any
court or other authority. Judgment upon the award or order may be entered in any
court of competent jurisdiction, and application may be made to any such court
for enforcement thereof. Each party shall bear its own costs and expenses in
connection with the Arbitration, but shall share equally in the costs and fees
of the Arbitration proceedings. Each party accepts and
<PAGE>
- 45 -
submits to the arbitral jurisdiction referenced above and to any court of
competent jurisdiction with regard to enforcement of the Award. Process in any
such action or proceeding may be served on any party anywhere in the world.
Section 14.11 Third Party Beneficiaries; Parties Bound.
(a) No provision of this Agreement shall create any third party
beneficiary rights in any person (except in favor of NewComm), nor shall any
provision of this Agreement modify any rights of any third party under any
existing law, regulation or contract with any third party.
(b) TLD and CC are entering into the Agreement in their capacity as
corporations and limited partnerships, respectively, only and no officer,
director or other individual associated therewith shall have any personal
liability under this Agreement.
IN WITNESS WHEREOF, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TELEFONICA LARGA DISTANCIA DE
PUERTO RICO, INC.
By: _________________________
Jose Luis Fernandez
CLEARCOMM, L.P.
By: __________________________
Javier O. Lamoso
Exhibit 21
State or Place
Subsidiary of Incorporation
---------- ----------------
ClearComm License LLC Delaware
ClearComm West, LLC Delaware
ClearComm de Puerto Rico Delaware
NewComm Wireless Services, Inc. Puerto Rico
ClearCorp., LLC Delaware
CommClear, LLC Delaware
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