SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSBA
(Mark one)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996.
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
_____________.
Commission file number 000-21143
WIRELESS CABLE & COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
Nevada 87-0545056
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 West 500 South, Suite 320 84101
Salt Lake City, Utah
(Address of principal executive office) (Zip Code)
(Issuer's telephone number) (801) 328-5618
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $.01 None
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
Yes ____ No X , and (2) has been subject to such filing requirements for the
past 90 days. Yes X No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B is not contained in this form, and no disclosure will 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-KSBA or any amendment to this Form 10-KSBA. [ ]
State the registrant's net revenue for its most recent fiscal year: $0
The aggregate market value of voting stock held by non-affiliates of the
registrant on August 15, 1997, was approximately $6,317,255 calculated based on
a value of $2.25 per share placed on the Registrant's common stock in a
transaction in which the Company participated on that date.
As of August 15, 1997, 5,222,833 shares of registrant's Common Stock, par value
$.01 per share, 2,397,732 shares of the registrant's Series A Preferred Shares,
par value $.01 per share, and 354,825 shares of the registrant's Series B
Preferred Shares, par value $.01 per share, were outstanding.
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WIRELESS CABLE & COMMUNICATIONS, INC.
August 15, 1997
Form 10-KSBA
PART I.
THE COMPANY
Exact corporate name: Wireless Cable & Communications, Inc.
State and date of incorporation: Nevada - July 23, 1995
Street address of principal office: 102 West 500 South, Suite 320
Salt Lake City, Utah 84101
Company telephone number: (801) 328-5618
Fiscal year end: December 31
BUSINESS AND PROPERTIES
A. OVERVIEW
The Company was formed to acquire, develop, operate and own majority
interests in wireless high speed data transmission and reception, video
conferencing, Internet access (collectively, "data services"), telephony
services and wireless cable television systems located in emerging markets
outside the United States. The Company holds or has the right to acquire
wireless communications licenses or lease interests in five countries which have
an aggregate population of approximately 43 million, including New Zealand,
Venezuela, Costa Rica, Guatemala, and Panama (the "Market Countries"). The
Company also expects to obtain additional cable licenses or lease rights in
other emerging markets, primarily in Latin American.
Within the Company's Market Countries, management has identified 11
medium and large cities (the "Target Markets") in which it intends to launch or
expand wireless cable television and/or data service systems over the next 3
years. The Company believes a significant portion of that population can be
served by line-of-sight ("LOS") transmissions. LOS transmission generally
requires a direct, unobstructed transmission path from a central or cellularized
transmitting antenna to an antenna located at the subscriber's location. The
Company's system development plans will require substantial capital
expenditures. There can be no assurance the Company will be able to acquire
amounts (either through debt or equity fundings) sufficient to fund those
capital expenditures. See "Profitability Milestones" and "Management's
Discussion and Analysis of Certain Relevant Factors," below. If the Company is
unable to secure significant additional debt or equity financing there can be no
assurance that it be able to continue as a going concern.
The Company believes many underdeveloped countries, particularly in
Latin America, are experiencing rapid economic and population growth, as well as
unparalleled demand for expanded television program and data services options.
In contrast with the United States, where hardwire cable systems and telephone
companies were the pioneers in meeting the demand for multi-channel
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subscription television and data services, the hardwire cable industry,
telephone companies and wireless communications industries concurrently entered
the market in these emerging growth markets. The Company estimates that
wireless/hardwire cable television penetration of Latin American and New Zealand
households is approximately 8% and .04% respectively, as compared to
approximately 63% in the United States, and that wireless data services
penetration in Latin America and New Zealand is also substantially lower than in
the United States. The Company believes that, within 10 years, more than 30% of
Latin American and New Zealand homes will subscribe to multi-channel cable
television and satellite television services which are capable of delivering
50-150 channels of programming. During the same period, the Company believes
that a significant percentage of the Latin American and New Zealand potential
data service subscribers will subscribe to data services.
In the Company's Latin American markets, current wireless/hardwire
cable penetration is estimated at approximately 6% of television households,
generally reflecting less developed national economies and slowly developing
cable infrastructures. In New Zealand, broadband television services with
significant channel capacity is in the beginning stages of development, despite
a household television penetration rate of more than 95%. In its Market
Countries, the Company believes that delivery by wireless cable of expanded
multi-channel television programming has an inherent advantage due to the ease
of lower cost at which subscribers can be added vis a vis hardwire cable
television operations in the same regions.
The Company believes it has several business, management and market
strengths which will differentiate it from its competitors. These strengths
include the following:
Attractive Market Demographics. Each of the Market Countries has
demographic and other characteristics the Company believes are favorable to the
ownership and operation of multi-channel wireless cable and data services
subscription systems, including limited affordable or unreliable entertainment
and/or data services options, moderate medium income per capita, high television
household penetration rates and low wireless/hardwire cable and data services
penetration rates. In addition, television viewers in the Market Countries
currently have limited off-air television options.
Exclusive Rights in Markets. Local regulatory agencies typically grant
one or two licenses per geographic area for a given GHz frequency range. This
finite spectra allocation serves as a natural entry barrier to competition. The
Company holds or has the right to acquire exclusive 28 GHz or 40 GHz wireless
cable license rights in the majority of the Market Countries. Due to the
broadband nature of the 28 GHz and 40 GHz technology platforms, management
believes the Company will be able to provide numerous telecommunications
services to its potential subscribers, including telephone and high speed data
capabilities, multi-channel television services and internet access, video
conferencing and interactive television.
Limited Market Competition. The Company believes there is limited
competition within the Market Countries that has the ability to provide similar
data services and multi-channel television services at a price the Company
believes will be competitive with the Company's
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pricing structure for its services. The Company believes it will be able to
enter its Target Markets and quickly establish itself as the preferred broadcast
telecommunications provider to mainstream consumer households and businesses.
Managed Subscriber Penetration. The nature of the Company's wireless
communications technology permits the buildout of markets in a more efficient
and cost effective manner than the Company believes is capable in hardwire cable
systems. Whereas a hardwire cable system requires the construction of a cable
network from the headend facility to subscriber locations, often through areas
where no viable subscriber base exists, a wireless communication system may
broadcast directly to the subscriber locations or to a cellular rebroadcast
facility that broadcasts to the subscriber locations. The Company believes that,
at a penetration rate of approximately 20%, wireless communications systems can
deliver cable television and data services at approximately one-third the cost
per subscriber of hardwire cable systems.
Strong Local Partners. The Company selects local partners within each
of its local markets to assist it in its business operations in those markets.
The Company generally selects financially strong local partners who are both
influential and respected within their countries and who will work closely with
the Company's senior management. Local partners play an active role in securing
licenses and obtaining necessary regulatory approvals, assisting in arranging,
identifying and evaluating opportunities for the Company's wireless projects,
and providing local advocacy for the Company's business operations.
The Company intends to employ a number of business strategies to
achieve its objectives of acquiring, developing and operating wireless cable
systems in the Market Countries. In general, the Company believes the Market
Countries typically have less competition from alternate entertainment and
communication formats and that wireless communications systems provide the most
economical method of providing multi-channel television and data services
subscription services to potential subscribers. The Company believes that,
because it will be the first such service provider in many of the markets to
provide competitively priced television packages offering over 30 program
channels (including local marketing programming) with a high quality picture and
reliable, secure and relatively inexpensive data services, the Company will be
able to secure a significant subscriber base with a minimal subscriber turnover.
Focus on High Subscriber Growth and Cash Flow. In order to achieve
positive cash flow as soon as possible, the Company plans initially to develop
markets in which it believes there is the most potential to generate significant
subscriber growth. The Company believes these markets include the significant
metropolitan areas within the Company's Market Countries, including, Caracas,
Venezuela and Auckland, New Zealand, where the market areas have a denser
population with a relatively high television ownership rate, greater demand for
data services and more disposable income. The Company intends to construct and
launch its wireless communications systems as soon as possible and achieve rapid
penetration in the Target Markets by being the first provider of wireless data
services and wireless multi-channel television subscription services. The
Company initially intends to focus its developmental and marketing efforts
within the Target Markets on subscribers for the Company's data services. Once
the Target Markets are cash flow
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positive, the Company intends to focus on expanding its existing data services
systems into the surrounding areas of its markets to maximize subscribers and
penetration. The Company then intends to follow a similar pattern in marketing
its multi-channel television services.
Strategic Alliances. The Company has entered into strategic alliances
with a number of companies and entities already active in the Latin American and
South American utilities and communications markets. One of its principal
strategic alliances is with FondElec Group, Inc. ("FondElec"), a Delaware
corporation, which, together with its affiliates, currently owns, operates and
invests in a number of electrical and other utilities in South American and
Latin American countries. FondElec is one of the Company's shareholders and,
together with the Company, has formed LatinCom, Inc. ("LatinCom"), a Delaware
corporation. LatinCom was formed to acquire, own and operate wireless cable and
other communication rights in Brazil, Peru, and Mexico.
B. DESCRIPTION OF THE COMPANY'S BUSINESS.
As of August 15, 1997, the Company holds or has the right to acquire
wireless communications licenses or lease interests in five markets having an
aggregate population of approximately 43 million people. These markets, the
Market Countries, include New Zealand, Venezuela, Costa Rica, Guatemala, and
Panama. The Company is also seeking wireless cable licenses or lease rights in
other markets on its own behalf and through LatinCom, its joint venture
corporation with FondElec Group, Inc. The Company's current interests in the
Market Countries include the ownership of approximately 68.14% of an operating
system located in Caracas, Venezuela (the "Operating System"). The Operating
System has approximately 1,280 subscribers. The Company holds or intends to
acquire a contractual right to majority economic interest positions in all of
its markets. In certain markets where government regulations prohibit foreign
control of licenses or other aspects of the Company's business operations, the
Company has attempted to acquire minority interests in those entities in a
manner which it believes will provide it with significant management influence.
Assuming the availability of sufficient debt or equity financing (in
the approximate amount of $10 million), the Company has targeted 11 medium and
large cities (the Target Markets) within the Company's Market Countries in which
it intends to launch wireless communications systems (primarily data services
systems) over the next three years. The Target Markets include the Operating
System and 10 other non-operating systems, of which the Company expects to
commence construction activities on 2 by the end of 1997 assuming it obtains
sufficient financing.
As of August 15, 1997, the Company had contractual interests in
wireless communications markets covering an estimated 43 million people ("POPS")
and the Operating System (located in Caracas, Venezuela) served approximately
1,280 subscribers. The Operating System is in the early stages of operation and
is expanding its subscriber base. Unless otherwise specifically stated herein,
all information in this report describes the Company's business and operations
as of December 31, 1996. The Company has included certain information relating
to subsequent events in an effort to provide a basis for better evaluating the
Company's operations.
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Company Background
The Separation. The Company was formed for the purpose of continuing
the development of certain business assets formerly held by Transworld
Telecommunications, Inc. ("TTI"). TTI is also in the wireless cable television
industry and, through its joint venture entity, Wireless Holdings, Inc., a
Delaware joint venture corporation ("WHI"), TTI owns operating wireless cable
systems in Spokane, Washington and San Francisco, California, and non-operating
wireless systems or channel lease rights in Seattle, Washington, San Diego and
Victorville, California, and Greenville, South Carolina. Prior to May, 1997, TTI
also owned an interest in an operating wireless cable system located in Tampa
Bay, Florida and, prior to the formation of the Company, owned the Company's
interest in the New Zealand license rights. The WHI and Tampa Bay systems have
approximately 20,000 subscribers.
On July 26, 1995, the board of directors of TTI voted to separate its
business assets into two groups. The first group of business assets consisted of
TTI's interest in the WHI systems and the Tampa Bay, Florida system. The second
group of assets included TTI's interest in the New Zealand licenses, and other,
miscellaneous, assets. Under the terms of the business separation (the
"Separation"), TTI agreed to form a new corporation to hold the separated
business operations, and the stock of that corporation was then to be
distributed to TTI's shareholders.
In order to complete the separation, the Company was incorporated on
July 31, 1995, and on August 1, 1995, it issued 3,500,000 shares of its common
stock to TTI in exchange for TTI's interest in the New Zealand license rights
and miscellaneous assets. TTI immediately transferred the shares of the Company
to an escrow agent, Fidelity Transfer Company of Salt Lake City, Utah, to be
held for the benefit of TTI's shareholders of record on August 1, 1995. The
distribution of the 3,500,000 shares to TTI's shareholders was delayed until the
Company complied with certain requirements of the federal securities laws,
including the registration of the Company's shares pursuant to a registration
statement on Form 10-SB under the Securities Exchange Act of 1934, as amended.
Shortly after the effective date of that registration statement, the 3,500,000
shares held by Fidelity Transfer Company were transferred to TTI's shareholders
of record as of August 1, 1995, on a non-pro rata basis, with the management and
principal shareholder of TTI relinquishing a portion of their shares in the
Company in favor of the TTI public shareholders. In general, the public
shareholders received approximately 1.6 shares of the Company's common stock for
each ten shares of TTI common stock they held on August 1, 1995.
TIC Transaction. Prior to January 31, 1997, the Company's primary
business assets consisted of its interest in its New Zealand assets and a 4.4%
equity interest in the licensee of certain wireless communication rights in
Venezuela. See "Operating Systems," below, and the Company's registration
statement on Form 10-SB dated December 30, 1996, as amended. In late 1996, the
Company entered into negotiations with a Delaware corporation, Telecom
Investment Corporation ("TIC") regarding the terms of a potential merger or
acquisition. TIC held or had the right to acquire wireless communication rights
in a number of South American and Latin American countries, including Venezuela,
Costa Rica, Panama, Peru and Guatemala.
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On January 31, 1997, the Company entered into a transaction with TIC,
pursuant to which TIC merged with a newly formed wholly-owned subsidiary of the
Company, NewWCCI, Inc. The merger was effective February 4, 1997. Under the
terms of the merger, the former shareholders of TIC received 2,397,732 shares of
the Company's newly designated Series A Preferred Shares and TIC became a
wholly-owned subsidiary of the Company (the "TIC Transaction"). A copy of the
merger agreement between NewWCCI, Inc. and TIC is attached as Exhibit 10.5 to
this report.
The number of Series A Preferred Shares the TIC shareholders received
in the TIC Transaction was based primarily on a valuation of Latin and South
American wireless cable rights that was prepared by a securities underwriter in
the fall of 1996 in connection with a proposed registered public offering of the
Company's Common Stock. The parties also considered other factors in determining
their respective values for purposes of the TIC Transaction, including current
and anticipated debt obligations, the funds expended by the parties in acquiring
their respective rights, the Company's and TIC's pre-TIC Transaction
relationships (including the fact that the Company had previously loaned TIC
funds for various business purposes), TIC's and the Company's joint interests in
the Venezuelan market rights and the fact that the Company had agreed to enter
into an option to acquire the lessee of the Venezuelan licensee as nominee for
TIC, and recent changes in the make up and value of the Company's wireless
rights in New Zealand. The valuations assume full build-out of each system,
which has yet to occur. As of August 15, 1997, currently neither company has any
systems in operation, other than the Venezuelan Operating System. Any such
build-out would require significant capital expenditures by the Company. See
"Profitability Milestones."
The Series A Preferred Shares issued to the former TIC shareholders
generally have all of the rights and preferences of the Company's Common Shares,
but are also entitled to certain preferences regarding voting rights,
liquidation amounts and dividend amounts. See "Description of Capital Stock,
below." As a result of the merger, the former shareholders and option holders of
TIC currently hold approximately 87.7% of the voting power of the Company on a
common share equivalent basis.
LatinCom, Inc. In January, 1997, the Company and FondElec Group, Inc.
formed LatinCom, Inc., a Delaware joint venture corporation, for the purpose of
pursuing wireless communication rights in Peru, Brazil and Mexico. Under the
terms of LatinCom's formation, the Company received 45 shares of the common
stock of LatinCom, Inc., representing 45% of the total issued and outstanding
capital stock of the company. The remaining 55 issued and outstanding shares
(representing 55% of the issued and outstanding shares of LatinCom, Inc.) are
held by FondElec Group, Inc. (which holds 45 shares) and certain third parties
and officers and directors of the Company (who collectively held 10 shares of
LatinCom). The 10% of LatinCom held by the Company's management and third
parties is non-dilutable.
FondElec and the Company have each agreed to fund one-half of the
operations of LatinCom relating to the acquisition of wireless cable rights in
Peru, Brazil and Mexico. The Company anticipates that LatinCom's shareholders
will enter into a shareholders agreement which,
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among other things, will restrict the transferability of their LatinCom shares.
See "Certain Relationship and Related Transactions, below."
CVV Transaction. On August 15, 1997, the Company completed the purchase
of 68.14% of Caracas Viva Vision TV, S.A. ("CVV"), a Venezuelan company that has
the rights to exploit the 28 GHz frequency band rights for the entire Republic
of Venezuela, pursuant to a stock purchase and option agreement, as amended (the
"Option Agreement"). The Company also has an agreement to purchase an additional
10% of CVV. The Company initially entered into this contract as the nominee of
TIC. As a result of the TIC Transaction, however, the Company acquired TIC's
interest in the CVV option.
CVV operates an existing wireless cable television system which
currently has approximately 1,280 subscribers, representing approximately .3% of
the potential multi-channel television subscribers in the system's market area.
Under the terms of the Option Agreement, the Company paid and delivered $200,000
in cash, 1,577,000 shares of the Company's common stock, 354,825 shares of the
Company's newly designated Series "B" Preferred Shares and a promissory note in
the amount of $200,000. The promissory note accrues interest at the rate of
6.75% per annum and the principal and all accrued interest is payable in one
principal installment due on or before the earlier of (i) October 15, 1997, or
(ii) ten days after the closing by the Company of an investment in the capital
of the Company in excess of $2 million.
In conjunction with this purchase, the Company and certain of its
shareholders also entered into a voting agreement to elect a former CVV
principal to the board of directors of the Company until the earlier of August
14, 2000 or immediately preceding the closing of a public offering by the
Company which results in net proceeds of at least $15 million and a market
capitalization of at least $50 million.
On August 1, 1997, the Company and the remaining shareholder of CVV
entered into an additional amendment to the Option Agreement whereby the Company
agreed to purchase an additional 10% of the total outstanding shares of CVV for
$800,000 in cash. On August 15, 1997, the shareholder had not complied with the
terms of the amendment to the Option Agreement and is in default.
Demand for The Company's Services
Many under-developed countries, particularly in Latin America, are
experiencing rapid economic and population growth, as well as unparalleled
demand for expanded multi-channel television program and data services options.
In contrast with the United States, where hardwire cable systems and telephone
companies were the pioneers in meeting the demand for multi-channel subscription
television and data services, the hardwire cable industry, telephone companies
and wireless cable industry concurrently entered the wireless communications
market in these emerging growth markets.
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The Company believes that a relatively smaller proportion of the
prospective data services subscribers in Latin America and New Zealand are
served through traditional hardwire cable or telephone services, as compared to
the United States. The Company also believes that, within ten years significant
portions of the potential Latin American and New Zealand data service
subscribers will subscribe to a data services provider. The Company intends to
conduct market surveys in the Market Countries in order to quantify the extent
of the current potential data services subscribers in its Market Countries and
the number of those potential subscribers that anticipate they will subscribe to
data services within the next 10 years.
The Company estimates that wireless/hardwire cable penetration of Latin
American and New Zealand households is approximately 7% and 0.4%, respectively,
as compared to approximately 63% in the United States. An additional 3% of Latin
American households (typically the most affluent homes) are estimated to utilize
satellite dishes and receivers to obtain multichannel television programming.
The Company believes that within ten years more than 30% of Latin American homes
and more than 25% of New Zealand homes will subscribe to multichannel television
cable and satellite services which are capable of delivering 50 to 150 channels
of programming.
In the Company's Latin American markets, current wireless/hardwire
cable penetration is estimated at approximately 7% of television households,
generally reflecting less developed national economies and slowly developing
cable infrastructures. In New Zealand, broadband television service with
significant channel capacity is in the beginning stages of development, despite
a household television penetration rate of more than 95%. In both its Latin
American and New Zealand markets, the Company believes that delivery by wireless
cable of multi-channel expanded programming has an inherent advantage due to the
ease and lower cost at which subscribers can be added vis a vis hardwire cable
television operations in the region.
The following table sets forth certain information with respect to the
countries in which the Company's operating companies and development stage
projects are located:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(4) (5)
1994 1994
(1) (2) (2),(3) (4) (4) Wireless/ Wireless/
Estimated Annual PPP-Adjusted Total 1994 Hardware Hardware
Total Population GNP Per Country Television Cable Cable
Population Growth Capital Households Households Subscribers Penetration
Millions 1990-94 (US$) (000's) (000's) (000's) (% of TV HH's)
-------- ------- ----- ------- ------- ------- --------------
Costa Rica 3.5 2.1% $3,200 (6) 557 545 38 7.0%
Guatemala 11.3 2.9% 1,200 2,022 1,200 175 14.6%
Panama 2.7 1.9% 2,200 584 400 75 18.8%
Venezuela 22.0 2.3% 4,490 4,500 4,489 177 3.9%
New Zealand 3.5 0.9% 17,230 1,200 1,150 5 0.4%
<FN>
(1) Source: U.S. Bureau of Census, International Data Base, 1996
(2) Source: World Bank, World Development Report 1996.
(3) PPP-Adjusted GNP Per Capita denotes gross national product per capita
adjusted for relative purchasing power available to the consumer.
(4) Source: 1995 TV International Source Book.
(5) Television Household Penetration is computed by dividing Wireless/Hardware Cable Subscribers by Television Households.
(6) Data for Costa Rica not available. Estimated based on purchasing power
adjustment for Panama applied to GNP Per Capita for Costa Rica as quoted by
World Bank, World Development Report 1996.
</FN>
</TABLE>
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Business Strategy
The Company's overall business objective is to become a significant
provider of data services and wireless television in targeted developing
countries. The Company believes that a wireless data services operation may
successfully compete in the marketplace only where it provides reliable,
relatively fast and secure services to potential customers at a price
competitive with other comparable services. The Company also believes that a
wireless cable television operation may successfully compete in the marketplace
only where it provides attractive multichannel programming to potential
subscribers at a price competitive with other comparable services available to
those subscribers. Additionally, the Company believes that superior customer
service can secure a stable subscriber base, facilitate the acquisition of
market share from existing competitors, and inhibit market share acquisition by
new competitors entering the Company's markets. The Company's implementation of
its business strategies is contingent upon its ability to obtain significant
additional debt or equity financing.
The Company intends to focus its business efforts on the expansion and
launch of its wireless data services within the Target Markets. The Target
Markets consist of 11 of the largest population centers in the Company's Market
Countries. After the Company expands and launches its wireless data services
within the Target Markets, it intends to expand those services to other areas in
its Market Countries. Thereafter, the Company intends to build-out and launch
wireless cable television services, first in the Target Markets, and then
throughout the other areas of the Market Countries.
Initially, the company anticipated that it would focus its business
efforts on wireless cable television services, not wireless data services. The
Company's current focus on wireless data services is based primarily upon its
belief that those services can be implemented in a more cost effective manner
than wireless television services ($10 to $15 million for the launch of its data
services systems versus $100 to $250 million for the launch of its wireless
cable television systems), and that the subscriber base for wireless data
services is, in general, more affluent, stable and willing to pay, as an up
front cost, all or a substantial part of the installation and equipment costs of
those services. As a result, the Company believes that, by first emphasizing the
wireless data services available through its wireless communications license and
lease rights, it will be able more quickly to achieve positive cash flow,
thereby facilitating the Company's acquisition of additional debt and/or equity
financing, and the development and launch of its wireless cable television
services.
The Company employs the following business strategies to achieve its
objective of acquiring, developing and operating wireless communications systems
and channel rights in which it may hold a majority interest in emerging
international markets:
Focus on Developing Markets. The Company's strategy is to acquire,
develop and operate wireless communications systems in under-served developing
countries where management believes there is a high demand for wireless data
services and wireless multi-channel television services. The Company believes
such markets typically have less competition from alternate data
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services delivery systems and entertainment formats, and that a wireless
communications system provides the most economical method of providing such
services to potential subscribers. The Company believes that, because it will be
the first such service provider in many of its markets to provide a
competitively priced service, the Company will be able to secure a significant
subscriber base with minimal subscriber turnover.
Maximize Subscriber Penetration. In order to achieve positive cash flow
as soon as possible, the Company plans initially to develop markets in which it
believes there is the most potential to generate significant subscriber growth.
The Company believes these markets include the significant metropolitan areas
within the Company's Market Countries, including Caracas, Venezuela and
Auckland, New Zealand, where the market area has a denser population with a
relatively high television ownership rate, greater demand and use of data
services and more disposable income. The Company intends to construct and launch
its wireless communications systems as soon as is possible and achieve rapid
penetration in its Target Markets areas by being the first provider of a
wireless communications service at a reasonable price. The Company intends to
first focus on the build-out and launch of its wireless data services system
within the Target Markets. Once the Target Markets are cash flow positive, the
Company intends to focus on expanding its wireless data services systems into
surrounding areas of its markets to maximize subscribers and penetration.
Thereafter, the Company intends to build-out and launch its wireless cable
television systems, first in the Target Markets and then throughout the Market
Countries.
Offer Attractive Programming Packages. In order to maximize the number
of the Company's subscribers, management intends to offer a wide variety of
wireless data services packages and both English and local-language programming
on its wireless cable television systems. The Company's typical wireless cable
television system will offer local language programming for news, movies and
sporting events, as well as a wide range of popular English language
programming.
Utilize and Support Local Management. The Company intends to rely on
local country managers to develop existing operating companies and identify new
wireless communications opportunities within its local markets. The Company
anticipates that its local managers will be natives of the local market, and
that they typically have significant managerial and operating experience. They
will be supported by the Company's corporate operations staff, which the Company
anticipates will be located in South Florida. Use of local country managers,
supported by the Company's experienced corporate staff, will allow it to rapidly
and effectively respond to operational matters, develop and maintain effective
working relationships with local partners and capitalize on wireless
communications opportunities.
Capitalize on Technological Capabilities. The Company believes that one
of the primary advantages of offering service through its broad-band 28 GHz and
40 GHz wireless spectrums will be the Company's ability to offer wireless data
services as well as wireless multi-channel cable television services. Each of
the 28 GHz and 40 GHz spectrums provide more bandwidth for a single user than
the combined bandwidths of AM and FM radio, VHF and UHF television, MMDS, SMR
Radio, Cellular Telephone, PCS and the entire Geosynchronous Satellite C-band.
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The Company believes it has the opportunity to become the single-source provider
of telecommunication products (including multi-channel television services,
telephone access and high-speed data services such as the Internet) in each of
its markets in which licensing restrictions permit.
Pursue Low Cost Structure. Wireless communications systems typically
cost significantly less to build and operate than traditional hardwire systems,
due primarily to the hardwire cable plant requirement for an extensive network
of coaxial or fiber-optic cable, amplifiers and related equipment. Ultimately,
the Company believes it can further reduce its incremental cost per new
subscriber in comparison to local operators through savings from bulk purchases
of subscriber equipment, including set-top boxes and antennas, for the aggregate
of new subscribers in its multiple markets. The Company estimates that each
additional wireless cable television or data service subscriber currently
requires an incremental capital expenditure by the Company (other than head-end
costs) of approximately $350 to $385, consisting of, on average, $275 to $300 of
material and $50 to $150 of installation costs and overhead charges.
Acquisition Strategy
The Company does not rely exclusively on the number of potential
subscribers in evaluating potential markets. Instead, it has developed a series
of more complex criteria to analyze prospective acquisitions. These criteria
include wireless channel availability, the existence of any established
groupings or blocks of channels, the type of potential subscriber base, the
nature, quality and extent of service provided by existing and traditional
communications systems, topography, demographics, the existence of a strong
local strategic partner, political and economic risk, governmental regulation
and other factors. The Company also evaluates the potential acquisition's
ability to facilitate the Company's use of economies of scale and increase its
operating efficiencies, particularly where a market acquisition can add to
existing regional market clusters. The Company intends to continue to pursue its
expansion strategy in the future by acquiring and building out wireless
communications systems in markets outside of the United States that meet its
market selection criteria.
Company Markets
The table below provides information regarding the Market Countries.
The information presented is based on assumptions and estimates which the
Company believes to be reasonable, but there is no guarantee the Company's
estimates are accurate. Data shown are presented as of August 15, 1997:
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<TABLE>
<S> <C> <C> <C> <C>
Estimated Estimated
Total Target
Company Television Television
System Participation Households Households
Country/City Technology Percentage(1) (Thousands) (Thousands)
Costa Rica
San Jose LMDS 92.5% 259 197
Guatemala
Guatemala City LMDS 80.0% 366 201
Panama
Panama City LMDS 90.0% 182 107
Venezuela
Caracas LMDS/Cable 78.1% 899 719
Maracaibo LMDS 78.1% 297 237
Valencia LMDS 78.1% 225 180
Maracay LMDS 78.1% 175 140
Barquisimeto LMDS 78.1% 162 130
Cuidad/Guayana LMDS 78.1% 111 89
New Zealand
Auckland MVDS/ 94.9% 320 275
MMDS/
Cable
Wellington MVDS/ 94.9% 109 94
MMDS/
Cable
Christchurch MVDS/ 94.9% 105 90
MMDS/
Cable
<FN>
(1) See "Business--Operating Systems" and "Business--Pending Launch
Systems," below, for a summary of the manner in which the Company holds
or has the right to acquire the interests shown. The Company's interest
in a number of the markets is based on its rights under executory
contracts. There can be no assurance the Company will be able to
acquire or hold the interest shown.
</FN>
</TABLE>
Operating Systems
The following information summarizes the Company's rights in the Market
Countries where there are existing wireless or hardwire operating systems. As
used in this section and the other sections of this report describing the
Company's business operations and wireless communications rights, the term
"Company" refers to Wireless Cable & Communications, Inc.
and its direct and indirect subsidiaries:
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<PAGE>
Venezuela.
Background. As of August 15, 1997, the Company had acquired
approximately 8.5% of the license holder of the nationwide 28 GHz frequencies
for all of the Republic of Venezuela and 68.14% of the entity which holds the
rights to exploit the frequency rights. The Company's investment in Venezuela
was motivated by an opportunity to acquire what it believes to be an
under-funded existing wireless cable television system in the Caracas-Los Teques
area of Venezuela with nationwide frequency rights in what the Company believes
is an under-served, multi-channel television market. The Company believes
Venezuela possesses several desirable market characteristics, including
political stability, stable population growth with moderate per capita gross
national product, and improving economic conditions and currency stability.
The Company's initial market in Venezuela, the Caracas-Los Teques area,
covers approximately 899,000 households. Those households represent
approximately 20% of the potential Venezuelan wireless cable television
subscribing households. The Company has not conducted any market surveys to
determine the percentage of the potential data services subscribers in Venezuela
that the Caracas-Los Teques area covers, but believes that the area holds a
significant percentage of the potential data services subscribers in the
country. The Company believes significant subscriber growth potential exists in
the Caracas-Los Teques area and in the Company's other Venezuelan Target Markets
due to the low hardwire cable and MMDS penetration rate (approximately 8.5
percent in Caracas and 4 percent nationwide), the inherent difficulty for
hardwire cable expansion due to poorly marked underground utilities, and the
lack of other data services options. The Company's Target Markets in Venezuela,
including the Caracas-Los Teques area, aggregate approximately 42% of the
nationwide household count.
The Company believes that the high population density and the
installation difficulties encountered by competing hardwire cable systems in the
Company's Venezuelan markets is conducive to rapid wireless communications
subscriber penetration, and that adequate funding for its Venezuelan system will
produce rapid expansion of that subscriber base.
Ownership and Management Structure. On August 15, 1997, the Company
completed the purchase of 68.14% of Caracas Viva Vision TV, S.A. ("CVV"),
pursuant to the Option Agreement. The Company also has an agreement to purchase
an additional 10% of CVV. See the section entitled "Company Background" for a
more detailed description of the terms of the Company's acquisition of its
interest in CVV.
In conjunction with the Option Agreement, the Company also agreed to
acquire up to an 11.53% interest in Comunicaciones Centurion, S.A.
("Centurion"), the Venezuelan corporation that holds the nationwide 28 GHz
frequency concession. As of August 15, 1997, the Company had paid $845,955 of
its total potential investment of $1,153,000 for its Centurion interest and
holds approximately 8.5% of Centurion. Centurion has entered into service
agreements under which it has granted CVV the exclusive rights to use its
licensed frequencies. The obligation to invest in Centurion ceased on August 15,
1997 when the Company exercised its option to purchase the stock of CVV
according to the terms described above under the Option Agreement.
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<PAGE>
Operating and Growth Strategy. CVV's immediate growth strategy is to
increase its Caracas-Los Teques wireless cable subscriber base by increasing its
television marketing efforts. Historically, CVV has enjoyed constrained growth
due to limited funding. In the future, CVV intends to launch a wireless data
service operation in the Caracas-Los Teques service area and, thereafter,
intends to launch wireless data services operations within the other Venezuelan
Target Markets. CVV then intends to launch its wireless cable television
services in the Venezuelan Target Markets other than the Caracas-Los Teques
market area. The Company anticipates that it will initiate renewed marketing
efforts for its wireless cable television services, and begin marketing of its
data services, in the Caracas-Los Teques market area as soon as funds become
available. Assuming adequate funding, the Company believes that it will have
between 45,000 and 50,000 wireless cable television subscribers in the
Caracas-Los Teques market area by the end of 1999.
Programming. CVV currently offers basic subscribers up to 49 channels
of television programming, including a wide range of entertainment, news, sports
and educational channels.
CVV does not currently provide any data services.
Franchises and Government Regulation. The Commission Nacional de
Telecomunicaciones ("CONATEL") of the Venezuelan Ministry of Transport and
Communications has granted Centurion exclusive rights to the 28 GHz frequencies
throughout the Republic of Venezuela. The license has a twelve-year term, and
expires in April, 2005. The license may be renewed for an additional twelve-year
term if Centurion has complied with the conditions of the concession. Centurion
pays CONATEL an annual telecommunications tax of 1.0% of gross invoicing for
subscriber services and a quarterly concession fee of 0.5% of gross invoicing
for subscriber services. Centurion and CVV are also obligated to provide three
channels for governmental or public interest programming and must obtain the
approval of CONATEL to offer telecommunication services other than multi-channel
subscription television or pay-per-view programming. CVV has also requested
approval to provide high speed data services using the 28 GHz frequencies.
New Zealand.
Background. The Company acquired its New Zealand market rights in
August of 1995 in connection with the Separation. The Company's New Zealand
channel rights are held by Auckland Independent Television Service, Ltd.
("AITS"), which is owned 94.9% by the Company. AITS has acquired the right to
four MMDS channels in the Auckland area and has also acquired the exclusive
license rights for the 40 GHz frequencies in the Auckland area, with countrywide
expansion rights as applied for on a city by city basis. AITS' 40 GHz license
rights permit the delivery of television, data and telephony services.
The New Zealand market is characterized by a developed and stable
economy, high per capita income, and high household television penetration. New
Zealand also has limited multi-channel television offerings, reflecting slow
multi-channel development as a result of historically limited
satellite-delivered programming. Consequently, wireless/hardwire cable
penetration of
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<PAGE>
television households in New Zealand is very low, approximately 0.4 percent. The
Company also believes there is significant demand for data services in New
Zealand, but that penetration of those services into the marketplace has been
hampered by limited data services options.
With the launch of additional satellites to provide programming in the
Asian region and the rapid development of multi-channel television in Australia,
the quality and quantity of available programming has increased significantly in
New Zealand. The Company believes that its wireless cable technology and ease of
system buildout will produce rapid growth of its wireless cable television
subscriber base in New Zealand.
Ownership and Management Structure. The Company owns 94.9% of AITS.
AITS holds license rights to four Auckland area MMDS channels to be operated at
frequencies ranging from 2.3 to 2.4 GHz under lease agreements which expire in
2004. Both licenses have provisions providing extensions to the initial term,
although there can be no assurance that the license will be renewed. AITS
originally held the rights to ten (10) MMDS channels in the Auckland area, but
the lease agreements to six (6) of those channels expired in December of 1996
and were not renewed by the lessor. AITS has also been granted exclusive license
rights at 40 GHz, the New Zealand LMDS frequency, for video, voice and data
services on a city-by-city basis, as requested by AITS and subject to certain
utilization requirements.
Operating and Growth Strategy. AITS' growth strategy is based on the
rapid deployment of its 40 GHz system in the New Zealand Target Markets. The
Company believes that its proposed subscription rate structure and data services
menus for its anticipated wireless cable television services and wireless data
services will represent attractive packages for prospective subscribers. The
Company also believes that the current low multi-channel television penetration
rates, combined with a highly visible marketing program will produce significant
subscriber growth in the Company's New Zealand Target Markets. Assuming the
acquisition of sufficient financing, the Company anticipates that it will begin
the build-out of the Auckland, New Zealand 40 GHz market in mid 1997, and that
it will launch its data services subscriber drive shortly thereafter.
Programming. AITS plans to provide a variety of data services packages
and a wide variety of cable television programming in its New Zealand wireless
cable television markets, including a range of entertainment, news, sports and
educational channels, as well as pay-per-view programming.
Franchises and Government Regulation. The regulation of 2.5 GHz
multi-distribution licenses and 40 GHz licenses in New Zealand is governed by
the Radio Communications Act of 1989 (the "New Zealand Act"). The New Zealand
Act governs the licensing and regulation of radio equipment or licensing to
authorize the transmission of radio waves. The New Zealand Act is administered
by the Ministry of Commerce.
The management rights for particular frequency bands are created by the
Secretary of Commerce. Any manager granted particular frequency rights has the
authority to create licenses
16
<PAGE>
to transmit radio waves on those frequencies. These licenses are granted in
accordance with the provisions of the New Zealand Act, but the terms under which
they are allocated are determined by the manager. Management rights and licenses
are generally issued for long periods, sometimes for periods as long as 20
years. Management rights and licenses may be traded, and are deemed to be assets
of a business for purposes of the Commerce Act of 1986, as well as the New
Zealand anti-trust statute. No written instrument dealing with the management
rights or granting or transferring of any licenses has effect until it is
registered in accordance with the New Zealand Act.
Radio apparatus licensing is governed by the Radio Regulations of 1987,
which were continued under the New Zealand Act, and which provide for the
licensing of radio transmitting and receiving equipment. All radio apparatus
licenses granted by the Ministry of Commerce are renewable annually.
Pending Launch Systems
The following information summarizes the Company's wireless
communications rights in Market Countries where there are currently no operating
systems in which it has or will acquire interests.
Costa Rica.
Background. The Company has entered into an agreement to acquire 92.5%
of Television Interactiva, S.A. ("TISA"), a Costa Rican corporation that leases
license rights from a Costa Rican citizen who was granted the concession for 2
GHz of bandwidth in the Costa Rican 28 GHz frequency range. Costa Rica has a
stable economy and a political environment with higher than average Latin
American household incomes and moderately low multi-channel subscription
television penetration--all attributes the Company seeks in prospective markets.
The Company believes it can obtain rapid subscriber growth in Costa
Rica due to the Country's low multi-channel subscription television, the
perceived low data services penetration rate and the strong household and
business income characteristics. The Company's Target Market in San Jose, Costa
Rica has approximately 259,000 households, almost 47% of the total country
households.
Ownership and Management Structure. The Company has entered into
agreements with local Costa Rican partners for the purchase of an interest in
TISA. The Company will own 92.5% of the shares of TISA, while the remaining 7.5%
will be held on a non-dilutive basis by Groupo Continental, S.A. ("Groupo"). The
Company is obligated to fund all expenditures for development and construction
of TISA's telecommunications business in Costa Rica. The Company expects to meet
its funding obligations through a series of loans, investments, or by arranging
financing with third parties. Groupo is a San Jose, Costa Rica-based company
engaged in a variety of wireless technology services in Central America. As TISA
develops its wireless
17
<PAGE>
operations in Costa Rica, the Company expects TISA to contract for certain
technical services from Groupo.
Evita Arguedas Maklouf, a citizen of Costa Rica and the spouse of a
principal of Groupo, holds licenses/concessions issued by the Costa Rican
government for the 27.5 to 29.5 GHz bands of frequency. TISA and Ms. Maklouf
have entered into an agreement under which TISA has leased the rights to the
licenses/concessions for 15 years. At the end of the initial lease period, the
parties will negotiate an extension of the lease. Lease fees under the agreement
are the greater of $200,000 per year or 2.0% of gross revenue from subscribers,
payable in arrears and beginning at the end of the first year after initial
subscribers begin making payments. TISA will also pay all costs for development
of telecommunications systems utilizing the frequencies.
Operating and Growth Strategy. TISA will focus initially on developing
its wireless communications products in San Jose, Costa Rica. TISA intends to
establish its service capability through a rapid build-out of facilities and
intends to implement an intensive marketing effort encompassing broadbased
community involvement projects to attract subscribers and establish its local
identity.
The Company believes that responsive customer service and competitive
monthly subscription rates are key ingredients to local success in attracting
subscribers in Costa Rica. The Company also believes that its planned rates are
competitive with entertainment alternatives in San Jose, Costa Rica,
particularly existing multi-channel television subscription services, as well as
the limited competing data services providers.
Assuming that the Company obtains funding which is sufficient to launch
its data services systems (approximately $10 million to $15 million), it plans
to initiate construction of broadcast facilities in San Jose, Costa Rica in
mid-1997.
Programming. The Company plans to provide a broad range of
entertainment, news, sports and educational programming, as well as a number of
data services packages.
Franchises and Government Regulation. The license concession to the
27.5 to 29.5 GHz bandwidth was issued to Ms. Maklouf by the Control Nacional
Radio, Ministry of Government and Policy of the Republic of Costa Rica. The
license concession has been granted for use in providing video and data services
throughout Costa Rica.
The license concession is granted without expiration, as long as
services are provided through the frequencies. Signals must be available within
six months (plus a six-month extension) to meet license requirements.
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<PAGE>
Guatemala.
Background. The Company has entered into a definitive agreement to
acquire a 70% interest in VivaVision de Guatemala ("Viva"), a Guatemalan
corporation that has a right to exploit the exclusive rights to one GHz in the
28 GHz broadcast frequency band in Guatemala. These rights permit the delivery
of both wireless cable television and data and voice services. Guatemala has the
largest population in Central America and a growing and increasingly stable
economy that provides low to moderate household income to its citizens.
Guatemala has a highly competitive multi-channel television industry with a
large number of smaller hardwire cable operators. Telephone and data delivery
service in Guatemala is relatively antiquated, with significant delays to
customers in providing service, meeting demand and maintaining system integrity.
The Company believes that it can obtain significant subscriber growth
in its Guatemalan Target Market, Guatemala City, by providing competitive
monthly subscriber rates for television and data services and superior quality
and service. Guatemala City has approximately 18% of the total 2 million
households in Guatemala.
Ownership and Management Structure. The Company has entered into a
definitive agreement with Alfredo Herrera Cabrera, Milton Herrera, Ron Vaisbort
and Joaquin Sufuentes pursuant to which the Company will acquire a 70% ownership
interest in Viva in return for funding 100% of the expenditures necessary to
develop and construct wireless communication facilities necessary to initiate
television and data service operations in Guatemala. The Company anticipates
that it will meet its funding commitment through a combination of debt and
capital contributions, but may also arrange debt through third parties. The
Company has also acquired the right to purchase an additional 10% of Viva for
$500,000 at any time before Viva has the full use of the 27.5 to 28.5 GHz
frequency band and has a first right of refusal to acquire any additional
spectrum at the 28.5 to 29.5 band that Viva acquires for delivery of
multichannel television, data and voice services. Viva pays the licensee of the
rights to be used by Viva $1,000 annually.
Operating and Growth Strategy. Assuming sufficient financing, the
Company plans to complete buildout of a wireless communication system in
Guatemala City in early 1998 that has a LOS capability for approximately 200,000
households. The Company intends to initially aggressively market Viva's data
services in Guatemala City, and then expand its marketing plan to include
wireless cable television services. Because of the highly competitive nature of
the Guatemalan market, the Company anticipates that it will have only moderate
subscriber growth. Nevertheless, the Company expects that its Guatemala City
system will have between 15,000 and 20,000 wireless cable television subscribers
by the end of 1999.
Programming. In addition to its data services packages, the Company
plans to offer an extensive array of programming consisting of entertainment,
news, sports, educational and pay-per-view events.
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<PAGE>
Franchises and Governmental Regulations. Mr. Alfredo Herrera Cabrera, a
citizen of Guatemala, holds a license issued by the Guatemalan Ministry of
Commerce, Transportation and Public Works and authorized by the Counsel of
Frequencies and International Affairs of Radio on November 22, 1995. The license
is valid for an initial term of 25 years and may be extended for an additional
25 year term. Commercial terrestrial stations are obligated to install, and
reserve within their systems, the frequency capacity for three channels for
exclusive use by universities legally established in the Republic of Guatemala,
the Ministry of Culture and Sports, and the Secretary of Public Relations for
the President of the Republic of Guatemala.
Panama.
Background. The Company has entered into a letter of intent to acquire
90% of a Panamanian joint venture that will own and operate wireless cable
television and data services systems in the 28 GHz frequency band. The Company
expects to execute definitive agreements for the acquisition of the Panama
rights in the next few weeks. The Panamanian license rights include authority to
provide both multi-channel subscription television service and data services.
The Company views Panama as an attractive market due to its higher than average
household income levels, high level of household television penetration and
expanding commercial business base. The country also exhibits a stable political
environment and improving economy.
Ownership and Management Structure. The Company has executed a letter
of intent with Administracion E. Inversiones Radials, S.A. ("AIRSA"), a
Panamanian company engaged in broadcasting and engineering, to form a joint
venture in Panama which will operate an LMDS system utilizing the 28 GHz
frequencies for multichannel television and data services. The Company expects
to execute definitive agreements for the acquisition of the Panama rights in the
next few weeks. The Company assisted AIRSA in obtaining its initial LMDS license
at 28 GHz and, more recently, facilitated expansion of the license rights held
by AIRSA to include the 27.5 to 29.5 GHz frequency range.
Under the Company's agreement with AIRSA, AIRSA will assign its rights
to the frequencies to the joint venture in exchange for a 10% non-dilutable
interest in the joint venture, with the Company owning the remaining 90%. The
Company is obligated to fund or provide funding for all expenditures necessary
to bring the venture to operating status. The Company intends to meet its
funding obligations through loans, arranging loans through third parties and
through capital contributions.
Operating and Growth Strategy. Assuming the availability of sufficient
financing, the Company expects to complete construction of its Panama City
wireless cable television broadcast facilities in early 1998, with LOS
capability for approximately 100,000 households. The Company will launch a
parallel effort to obtain a substantial position in providing data services to
commercial enterprises in the market. The Company believes that the joint
venture can establish a substantial customer base in Panama by offering an
extensive array of quality programming and selectively providing data services
to commercial and home customers. Multi-channel subscription penetration in the
Panama market is approximately 18.8%, with Panama City
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<PAGE>
comprising approximately 182,000 households (or approximately 31%) of the total
households in Panama.
Programming. In addition to its data services packages, the Company
plans to offer a varied package of programming in the Panama market, including
entertainment, news, sports, educational and pay-per-view events.
Franchises and Government Regulation. On June 17, 1996, the Nacional de
Medios de Comunicacion Social of the Republic of Panama issued AIRSA licenses
for the 27.6 to 28.08 GHz and 6086.0 Mhz frequency bands. On October 15, 1996,
the frequency allocation was increased to cover the 27.5 to 29.5 GHz frequency
band, with authorization to provide both subscription television and data
services. The license is perpetual, based on continued operations within all
regulations.
Other System Opportunities
The Company is currently pursuing wireless cable license, lease and
operating rights in a number of other countries in Latin America. The Company is
also pursuing wireless communication rights in Brazil, Mexico and Peru through
LatinCom, in which the Company holds a 45% interest. See "Certain Relationships
and Related Transactions." While there can be no assurance the Company will be
successful in securing such license, lease or operating rights, the Company
believes that additional Latin or South American markets would provide
additional economies of scale with respect to programming and equipment
acquisition.
System Operations
Marketing. Prior to initiating the buildout of a potential new market,
the Company intends to conduct pre-launch studies to evaluate the population
demographics and physical terrain of that market. The Company then intends to
create a development plan that identifies the market potential of various areas
within the target market and that, based on factors including television
penetration, income levels and existing competition, and then will define the
probable locations of the headend transmission facility and cell sites for
retransmission. As the construction of facilities nears completion, the Company
will then conduct a marketing program targeted to those areas identified as
having the greatest potential for subscriber growth. The Company's marketing
programs typically include (i) neighborhood door-to-door sales of services,
including multiple dwelling unit meetings and door hangers, (ii) marketing tied
to regional events such as high interest sporting events, (iii) television and
newspaper advertisements, and (iv) other promotional activities such as referral
programs and promotional gifts.
Installation. The Company's installation package for wireless cable
television service will include a standard rooftop mounted antenna and other
related equipment, such as cabling and a settop decoder located at the
subscriber's location. Installations at single-family homes require an entire
installation package, whereas installations at multiple dwelling units in which
drop lines have been installed will require less time and expense. The Company
anticipates it will charge
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<PAGE>
its television service subscribers an installation fee ranging from $19.95 to
$49.95 with an equipment deposit of $49.95.
The Company's installation package for data services will include a
standard roof-top mounted antenna and other related equipment, such as cabling
and any required decoders or transmitters located at the subscriber's location.
The Company anticipates that it will charge its data services subscribers an
installation fee ranging from $950 to $2,500, depending on the type of service
involved. In contrast to the Company's wireless cable television subscribers,
the Company anticipates that it will be able to require its data services
subscribers to pay the entire cost of installation (and any related equipment)
up front. As a result, the Company anticipates that it will be able to obtain
positive cash flow from those subscribers almost immediately.
Customer Service. The Company believes that providing high levels of
customer service in installation and maintenance will enable it to maintain high
levels of customer satisfaction and minimize subscriber churn. With this
objective in mind, the Company will strive to (i) complete installations
promptly, (ii) provide prompt customer service using a customer hotline, (iii)
provide timely repair service, and (iv) make new subscriber follow-up calls
after installation to ensure customer satisfaction. The Company will also strive
to impart a "customer service" mentality in its employees through ongoing
training and intends to establish an employee forum to facilitate the exchange
of ideas regarding improvements in customer service. The Company also intends to
adopt various employee incentive programs linked to achieving high levels of
customer satisfaction.
Management Information Systems and Billing. The Company intends to
utilize a commercial management information system tailored to meet the
requirements of the subscription television and high speed data industries. This
system will include capabilities that facilitate monitoring customer service and
customer payment patterns, monitoring subscriber equipment and installations,
and managing each operating system efficiently. The Company has five employees
in Caracas currently dedicated to integration of the Company's management
information system to all aspects of its Venezuelan operation.
The Company believes that its billing procedures will be an integral
part of its strategy to maintain high levels of customer satisfaction and to
minimize subscriber churn. The Company anticipates that subscribers will have
the opportunity to select (on a one time basis and at the time of installation)
the day of the month on which payment for that month's service is due. The
Company anticipates that subscribers will also be able to pay their bills at a
bank through direct transfers, or use the Company's mobile collection service
for payment. If a customer does not pay his bill within 15 days after the due
date, the customer's service will be automatically disconnected and his account
receivable will be sent to a collection agency. If the customer does not pay
within another 30 days, the collection agency will forward the customer's name
to a private credit agency for further action. After disconnection of subscriber
service due to nonpayment, a Company installer will be sent to the subscriber's
location to recover the installed equipment for re-use with a new subscriber.
The Company intends to communicate with
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<PAGE>
delinquent subscribers to encourage the payment of past-due accounts so as to
avoid disconnection if possible.
Wireless Communications Systems and Technology
General. The Company believes that there is a large and growing demand
for wireless communications systems in emerging growth countries, particularly
the Market Countries. A large part of this growing demand results directly from
the expanding nature of and need for data services. The number of devices
currently accessing the world wide computer web is approximately 12.6 million.
That number is expected to grow to approximately 233 million devices in the year
2000. A large portion of this growth will occur in emerging growth countries
such as the Market Countries. The Company expects that demand for multi-channel
television will similarly grow in the next few years.
Wireless communications systems use microwave radio frequencies which
are licensed by a governmental agency in each market to provide high speed data
transmission, internet access, telephony and multiple channel television
programming. The microwave signals are transmitted over the air from the
head-end to an antenna at each subscriber's location, eliminating the need for
the networks of cable and amplifiers utilized by traditional cable operators.
The wireless communications system can also incorporate an "interactive" feature
which will allow subscribers to modify the type of data received and transmit
commands and requests.
Engineering and construction of a wireless communications systems
typically can be completed in 120 to 180 days, whereas construction of a
traditional cable or telephone system with comparable coverage areas may take as
long as three to five years. The radio frequencies used in such systems are
typically in the 2.5, 18, 28 and/or 40 GHz frequency bands, depending on local
frequency licensing standards and practices. Systems operating at 2.5 GHz carry
the designation "multi-channel multi-point distribution systems" or MMDS;
systems operating at 28 GHz are designated as "local multi-point distributions
systems," or LMDS, while systems operating at 40 GHz are referred to as
"multi-point video distribution systems," or MVDS. The 18 GHz frequency is
typically used for cable operator point-to-point service transmission between
geographically separate properties, thereby eliminating the requirement to build
a complete satellite signal reception facility for each property. The Company's
channel rights in New Zealand consist of MMDS and MVDS channels. Forty GHz MVDS
channels are now being utilized in parts of Europe and are generally considered
to be an alternative to 28 GHz LMDS systems, which are typically used in the
United States and Latin America. At present, equipment costs for 40 GHz MVDS
systems are marginally higher than those for other types of systems. Typically,
the Company's license rights in Latin America consist of 28 GHz LMDS systems.
A typical wireless communications system consists of head-end equipment
(satellite signal reception equipment, radio transmitters, other broadcast
equipment and transmission antenna) and reception/retransmission equipment at
each subscriber's location (antenna, frequency conversion device and other
set-top devices). Currently, wireless cable television systems typically deliver
programming on 20 to 35 channels, including local "off-air" broadcast channels
that are received
23
<PAGE>
directly by the customer's antenna rather than transmitted by the wireless cable
operators. Like traditional cable operators, wireless cable television operators
generally are able to offer a full range of basic and premium programming
options, including local off-air and on-air channels, movie channels, music
channels, new and sports channels and specialized programming. Wireless data
services typically deliver the same types of data services offered by hardwire
or telephone systems, including internet access, telephony services, data
transmission and reception services. In addition, wireless communications
systems can be used not only to connect numerous subscribers to varying data
services ("internet data services"), but related subscribers to the same data
base or services ("intranet data services"). Intranet data services can be used
to link multiple subscriber locations (such as all of the banks in a particular
banking system) into a particular data base.
The Company believes a wireless communications system is the most
economical technology currently available for the delivery of pay television
service and data services. Because wireless communications systems do not
require an extensive network of coaxial cable and amplifiers, the capital cost
per installed wireless subscriber is substantially lower than for a traditional
cable or telephone system operator. This cost advantage generally allows
wireless communications system operators to provide programming to subscribers
at a lower cost than a hardwire cable or telephone system operator. The Company
believes wireless communications systems will continue to maintain this cost
advantage, even following the deployment of fiber optics, direct broadcast
satellite and other microwave-based emerging technologies. In general, all of
the Company's Market Countries are experiencing rapid economic growth, but are
hindered by inadequate telecommunications infrastructures. In addition, lease
line point-to-point data circuits are nearly non-existent in the Market
Countries, thereby providing the Company with a viable and ready made potential
market.
System Configuration and Subscriber Equipment. To a subscriber,
wireless communications systems operate in the same manner as traditional
hardwire systems. At the subscriber's location, microwave signals are received
by an antenna and are passed through conventional coaxial cable to a
descrambling convertor located near the subscriber's television set (in the case
of wireless cable television services) or computer (in the case of data
services). Because wireless signals are transmitted over the air rather than
through underground or above-ground cable networks, wireless systems are less
susceptible to outages and are less expensive to operate and maintain than
franchise cable systems. In contrast to traditional cable systems, most service
problems experienced by wireless communications systems subscribers are
subscriber-specific rather than neighborhood-wide problems.
Wireless systems using 2.5 GHz frequencies typically transmit signals
over distances of 20 to 40 miles from their central transmission point, and,
with an increase in transmission power or tower height, may expand the coverage
area to approximately 40 to 50 miles. Wireless cable systems using the higher
frequency formats (such as 28 GHz or 40 GHz) transmit signals over successively
shorter distances. In cases where edge fed cellular architecture is used, the
transmission coverage area is approximately 3-5 kilometers, while the use of
center fed cellular architecture allows a coverage area of approximately 6-10
kilometers. As the transmission
24
<PAGE>
frequency increases for LMDS and MVDS transmissions, a cellularized distribution
architecture is used to ameliorate line-of-sight issues by providing multiple
"look" angles to adjacent cells, although with increased capital costs for
additional cellular sites or engineering techniques, such a passive and active
micro-cells. However, the natural signal attenuation at LMDS and MVDS
frequencies and the increased bandwidth available at those frequencies typically
provided frequency re-use capability that provides business opportunities for
telephony and data services using the wireless cable television infrastructure
in locals where licensing restrictions permit.
The transmission of wireless frequencies requires a clear
"line-of-sight" between the transmitter and the receiving antenna. Buildings,
dense foliage and hilly terrain can cause signal interference which can diminish
or block signals. These line-of-sight constraints can be ameliorated by
increasing the transmission power of the system and/or by using engineering
techniques such as pre-amplifiers, beam benders(TM) and signal repeaters, but
these techniques generally increase the cost of delivering programming to
subscribers.
Because wireless communications systems use high gain antennas at the
subscriber end, ghosting, reflection and interference are generally minimized,
so picture and data quality typically exceeds that of other traditional service
providers. Further, wireless communications systems typically broadcast their
programming at wavelengths that are long in relationship to the size of
raindrops, hail or snow, but short in comparison to interference normally caused
by electrical utility currents and motors. As a result, wireless communications
transmissions are usually not affected by weather or electrical interference.
Also, in traditional cable systems the programming signal declines in strength
as it travels along the cables and must be boosted by trunk and feeder
amplifiers. Each amplifier introduces some distortion into the television
signal. By contrast, wireless communications systems use only two principal
pieces of equipment -- a transmitter and a receiving antenna.
Like traditional cable and telephone systems, wireless communications
systems are capable of employing "addressable" subscriber authorization
technology, which enables the system operator to control centrally the
programming available to each subscriber without the need for a service call to
the subscriber's home. By eliminating service calls, addressable systems reduce
the operating costs of a pay television or data services system.
One of the primary advantages of a wireless communication system is the
ability to transmit data at much higher speeds than is normally possible through
cable, telephone or fiber optic delivery methods. For example, Hewlett Packard
has estimated that an asymmetrical LMDS system could optimally operate at 10
Mb/s downstream and 1.544 Mb/s upstream. The significance of the transfer speed
can be seen in the chart below:
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DOWNLOADING COMPARISON: 5 MEGABYTE FILE
Transfer
Data Communications Speed Time
14.4 Kbps 47 minutes
28.8 Kbps (U.S. Standard) 23 minutes
56 Kbps 12 minutes
128 Kbps 5 minutes
1.54 Mbps 26 seconds
4 Mbps 10 seconds
10 Mbps 4 seconds
45 Mbps 1 second
In addition, due to the extraordinary bandwidth of the Company's
typical LMDS frequencies, it has the ability to provide two-way capability. This
ability would allow subscribers to use the Company's signal and technology to
"interact" with their television programming. As an example, this ability would
allow a customer who sees a commercial that lists an internet address to push a
button on their remote control to automatically switch ("hyperlink") to the Web
page for that internet address.
Competition
The Company believes its primary competition is from traditional
fiberoptical and coaxial cable operators and telephone companies. The technology
used by such operators is a coaxial cable or fiber-optic system that transmits
signals from a head-end, delivering local and satellite delivered programming
via a distribution network consisting of amplifiers, cable and/or fiber-optic
other components to subscribers. Regular system maintenance is necessary due to
water ingress, temperature changes and other equipment problems, all of which
may affect the quality of the signal delivered by the cable or telephone company
to its subscribers. Traditional cable and telephone systems typically cost
significantly more to build and maintain than wireless cable systems. The
Company believes the head-end equipment costs of a wireless communications
system are comparable to those for traditional cable systems, the installation
of coaxial cable and amplifiers is considerable more costly to traditional cable
operators than is the installation of reception antennas and related equipment
required by wireless cable operators.
Several technologies are under development that may significantly
affect the pay television and high speed data services industries and result in
new competitors entering the market. The company cannot predict the competitive
impact of these new technologies and competitors on the wireless communications
industry. The Company expects, however, that wireless communications operators
will be able to expand their programming capacity and introduce new services,
while continuing to maintain a cost advantage over other providers of such
services. The Company
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<PAGE>
intends to exploit its comparative cost advantage by targeting a value-conscious
subscriber base that may be unwilling to pay for more costly, specialized
programming or services.
Fiber-optic Systems, Digital Compression and Interactive Services.
Traditional cable systems historically have been the principal providers of pay
television services. The maximum number of programming channels offered by
traditional cable systems has been limited by the current analog transmission
and coaxial cable technologies. A number of new technologies are under various
stages of development to increase the channel capacity of these systems. These
new developments include the replacement of traditional cable system coaxial
cable networks with fiberoptic networks and the use of digital techniques to
compress more programming signals onto existing coaxial cable or other networks.
The Company believes the channel and information content capacity of
its wireless communications systems will be expandable through the application
of digital technology. Depending on the technology used, experts expect wireless
communications systems to be capable of transmitting up to 10 channels of
programming in the bandwidth in which one channel of programming was
historically broadcast. In addition, the Company expects that digital technology
will enable wireless communications systems to transmit high definition
television signals. Depending on the impact of governmental regulation in a
specific area, the Company anticipates that the wireless industry (and the
traditional cable industry) will have commercial access to digital compression
technology within the next twelve months.
The Company believes the typical subscriber may not use, or want to pay
for, the substantial increases in programming channel capacity available through
the application of compression technology. As a result, while compression may
allow wireless communications operators to expand significantly their
programming capacity, that increased capacity may not result in either a
substantial increase in a wireless communications operator's subscriber base or
a substantial increase in the actual amount of programming provided by a
wireless communications operator. Instead, the Company believes the compression
technology may have its most important impact on the number of operators
entering the wireless communications market, since, by using compression
technology, wireless communications operators with rights to use as few as 3 or
4 channels may be able to provide the equivalent of up to 30 or 40 channels of
programming. The Company holds adequate frequency spectrum in its wireless
markets to permit transmission of 32- 49 channels of program capacity without
adopting digital compression technology, but has adopted a system architecture
that permits a future migration to digital compression if and when it determines
that it is desirable to do so. The introduction of expanded channel capacity and
interactive services by traditional cable systems will require substantial new
investment. Accordingly, the Company does not expect to deploy the new
compression technologies until relatively inexpensive equipment is available and
its subscribers demonstrate sufficient demand.
Telephone Company Competition. Recently a number of telephone companies
in the United States and other markets have begun using technology capable of
providing audio/video services over telephone lines ("video dial tone" service).
These types of services are typically regulated by governmental regulations and
rules. For example, in the United States the Federal
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<PAGE>
Communications Commission recently adopted new regulations permitting local
telephone companies to provide video dial tone service in their telephone
franchise areas on a common carrier basis under certain conditions. Several
large United States telephone companies have announced plans either to enhance
their existing distribution plants to offer video dial tone service or construct
new distribution plants in conjunction with a local traditional cable operator
to offer video dial tone service. United States telephone companies are also
permitted to operate hardwire and wireless cable systems under certain
conditions. While the competitive effect of the entry of telephone companies
into the pay television business (where permitted by a specific market's laws)
is still uncertain, the Company believes that wireless communications systems
will continue to maintain a cost advantage over video dial tone service
technologies.
The Company's Market Countries are generally hindered by an inadequate
telecommunications infrastructures, primarily because of the state of their
telephone services and the fact that those services cannot, in the opinion of
the Company, meet the demands of an ever expanding global Internet demand. The
Company believes that (i) businesses and governments desire to participate in
those types of services, but are unable to do so because of that inadequate
infrastructure, and that (ii) governments desire to improve competitiveness
which will allow them to better participate in a global economy. Therefore, the
Company believes that a wireless communications system is an immediate and cost
effective manner of delivering and disseminating information from several points
to a number of subscribers in a manner which is not currently available through
local telecommunications infrastructure.
Satellite Systems. "Backyard dish" or "direct-to-home" ("DTH") antenna
distributors using satellites to beam television programming offer customers
access to programming similar to that offered by traditional cable operators.
The primary advantages of wireless cable systems over DTH systems are lower
equipment costs and broader availability of local programming. DTH systems, on
the other hand, enjoy the advantages of access to a wider variety of satellite
programming and the ability to serve areas not serviced by traditional or
wireless communications systems. A conventional DTH antenna system costs
approximately $1,000 to $3,000 per subscriber, depending on the features of the
system, plus monthly fees for access to certain programming. DTH systems
typically cannot receive local off-air broadcast channels, however, so DTH
subscribers generally are not able to watch local news, weather or sports
programs. DTH systems are typically not interactive, thereby precluding a number
of high speed data applications.
Several companies have developed and sell high-powered transmission
satellites to distribute high capacity programming to DTH antennas as small as
18" in diameter ("directed broadcasting satellite" or "DBS"). DBS receiver
equipment for a single television set is typically approximately $600 per
customer, plus installation fees (and monthly subscriber fees), although a
number of DBS companies have recently offered equipment and subscription
packages at substantially lower initial costs. Due to the cost of DBS satellites
and receiving equipment, and because local programming cannot be received on a
DBS system, the Company believes wireless cable systems will continue to enjoy a
comparative cost and local programming advantage over these satellite systems.
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<PAGE>
Other Microwave Systems. The Company's wireless cable operations will
typically be broadcast on microwave frequencies in the 28 GHz and 40 GHz ranges.
Frequencies other than the 28 GHz and 40 GHz ranges are currently authorized for
wireless cable operations in a number of market areas, including frequencies in
the 2.5 GHz range and in the 18 GHz range. The Company believes that the 28 GHz
and 40 GHz frequency bands provide advantages over other frequency bands,
including the ability to transmit data and television signals on the same
architecture, its high capacity and its ability to be integrated into different
infrastructure.
Private Cable Systems. Private cable systems also compete with wireless
cable systems. Private cable systems are multi-channel television services
offered through a wired plant that is similar to a traditional cable system, but
they operate under agreements with private land owners to service specific
multiple dwelling units. private cable systems may be used in conjunction with
wireless cable television operations. Because private cable systems may only be
used to provide programming to multiple dwelling unit subscribers (such as
hotels and large apartment complexes) the Company believes that wireless cable
systems should still enjoy an competitive advantage over private cable-only
systems.
Industry Trends
The Company's business will be affected by industry trends and in order
to acquire, maintain and increase its subscriber base, the Company will need
rapidly to adapt and modify its practices to remain competitive in light of
those trends. These trends include the following:
Interactivity. Several wireless communications systems operators have
recently publicized their intention to develop interactive services. These
systems allow the services provider to offer features not generally available to
television viewers, including the ability to choose among different camera
angles and take part in game shows. The Company anticipates that it may offer
interactive capabilities on its wireless cable systems in the future, as
additional channel capacity becomes available through digital compression.
Pay-per-view Services. In recent years, the cable television industry
has promoted a service that enables customers to order and pay for individually
selected programs. This service, known as "pay-per-view", has been successful
for specialty events such as concerts and sporting events, but the cable
industry has also been promoting the pay-per-view concept for purchases of
movies with the idea of competing directly with video rental stores and
theaters. In order for subscribers to subscribe to pay-per-view events, they
must have addressable converters, which allow the cable company to control what
the subscriber watches without having to visit the subscriber's residence to
change equipment. The Company anticipates that all of the converters used in its
systems will be addressable, allowing subscribers to receive pay-per-view
programming. The Company believes that pay-per-view services will become
increasingly popular as additional exclusive events become available for
distribution on pay-per-view channels. Certain cable operators have made efforts
to increase the use of pay-per-view services by installing "impulse" devices,
which make it easier for subscribers to select programming and which do not
require a return path to order the program in question. The Company may utilize
impulse devices
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<PAGE>
on its converters, particularly in Latin America, where telephone service
availability and wireless television service may not co-exist.
Compression. Several equipment manufacturers have developed digital
compression techniques which allow several programs to be carried within the
bandwidth that historically carried only one program. Various experts have
estimated that compression ratios of up to 10 to 1 are possible. Currently,
digital compression systems are the operation in commercial systems which
provide compression ratios of as high as 8 to 1. The Company intends to use
digital compression technology in its systems where such compression is
permitted by governmental regulation and is economically feasible.
Advertising. Advertising on wireless and traditional cable television
systems has been sold by program suppliers, which sell national advertising time
as part of the signal they deliver to the cable operators. Advertisers have,
however, begun placing advertisements on channels dedicated exclusively to
advertising, as well as in the two minutes per hour of "local available time"
set aside by program suppliers for insertions in their programming of
advertisements sold by the local cable operators. Use of local available time
requires automatic "spot insertion" equipment. The Company expects to utilize
spot insertion equipment when it becomes economically prudent to do so.
Regulation
The use of airwaves for microwave transmission is generally subject to
extensive government regulation. The amount, type and extent of that regulation
varies from country to country. The information set forth in each of the
Company's Market Countries summarizes certain government regulations affecting
the Company's ability to operate its wireless cable television systems in those
markets. The regulatory structure for any particular market is subject to change
from time to time, and any such regulatory change could have a material and
adverse effect on the particular market in which that change takes place, and/or
upon the Company's business as a whole.
PROPERTIES AND FACILITIES
Equipment. The Company has entered into an agreement with a wireless
communications head-end manufacturer for the lease of head-end equipment at a
cost of $10,000 every three (3) months per head-end. At the election of the
Company the lease payments can be applied toward the purchase of the equipment.
The total purchase price for each system is $60,000. The Company currently
leases three such systems, which are located in Costa Rica, Guatemala and
Panama.
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<PAGE>
Office Space. The Company shares approximately 2,500 square feet of
leased office space at 102 West 500 South, Suite 320, in Salt Lake City, Utah.
Under the terms of the Company's agreement with TTI, the Company is required to
make monthly payments of $200. The Company believes the office space is adequate
for its current needs.
Channel Rights. The Company holds license rights (either directly or
derivatively) for wireless telecommunications channels it uses in its markets.
It generally has acquired those rights pursuant to (i) long-term leases with
third party licensees, (ii) arrangements where it is the majority owner of the
licensing or leasing entity, or (iii) arrangements which it believes provides it
with substantial management control of such licenses or leases. Licenses for
wireless communications channels in most markets that meet the Company's market
selection criteria have already been granted or applied for. Therefore, in order
to build and operate wireless communications systems in new markets where it
does not already control a critical number of channels, the Company will have to
purchase, lease or otherwise acquire sufficient channel capacity from or with
third parties.
The Company's current interests in channel rights in the various Market
Countries are described in the descriptions of the various Market Countries,
above.
Programming. The Company has entered, or expects to enter, into a
number of programming contracts with commercial programming suppliers and
packagers. These contracts include both master agreements, under which the
Company will use specific programming in most or all of its markets, and
regional specific contracts, pursuant to which the Company will use programming
in regional or country specific markets. As of August 15, 1997, the Company
anticipates that its programming offerings will consist substantially of the
following:
Summary of Programming Rights
Country Programming
New Zealand Cartoon Network, TNT, Discovery Channel, CNN,
Television New Zealand (for TV1, TV2), TV3, Shopping
channel, Country Music Television, Dentsche Welle, Sky
Television Network, World Radio Network, CNBC, NBC Asia,
MCM (Paris), CFI Paris, UIH Australasian Programming
Venture.
Venezuela Master programming schedule(2), plus Canal de Noticias
NBS, Cne Canal, CMT, CNBC, Cable Health Club, Dentsche
Welle, Hispa Vision, TBN, TVE, Travel Channel Latin
America, TV5, Tele-UNO, RA1, Nostalgia, ME/U, MORMusic,
GEMS, The Food Channel, Worldnet, RCTV, Globo Vision,
Vene Vision, Metro Politano, VTV, and Televen.
Costa Rica Master programming schedule(2), plus local off air
channels.
Panama Master programming schedule(2), plus local off air
channels.
Guatemala Master programming schedule(2), plus local off air
channels.
31
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(1) Programming currently used by the New Zealand hardwire television system to
be acquired by AITS.
(2) Consisting of HBO Ole', ESPN International/ESPN2, CNN International/CNN/CNN
Headline, TNT Latino America, Cartoon Network Latin America, MTV Latino,
Discovery Latin America, Fox Latin American, A&E and USA Latino
<PAGE>
EMPLOYEES.
At August 15, 1997, the Company had one full-time employee - see
"Management Employment Agreements."
LITIGATION.
The Company is involved in certain litigation matters in the normal
course of business which, in the opinion of management, will not result in any
material adverse effects on the Company.
PROFITABILITY MILESTONES
The wireless telecommunications industry is a relatively new industry
which requires sizable amounts of capital to purchase systems and significant
capital expenditures to generate subscribers and revenue growth. These
activities lead to a large amount of amortization and depreciation expense being
recorded. As a result, companies in the wireless communications industry have
not historically been profitable.
In management's opinion, a primary factor in obtaining equity or debt
financing in the wireless communications industry is the generation of positive
monthly operating cash flow. The Company did not generate a profit during the
period from July 31, 1995 through December 31, 1995 or for the fiscal year ended
December 31, 1996.
The Company's management believes that the following events or
milestones must or should occur before the Company can begin generating positive
monthly operating cash flow:
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<TABLE>
<S> <C> <C>
Expected Manner of Occurrence Date or Number of Months when
Event or Milestone or Method of Achievement Milestone
- ------------------ ----------------------------- or Events Should be Accomplished
--------------------------------
Build out of data services Additional financing, either through Approximately 18 months.
systems in the Company's debt or equity fundings.
Target Markets
Build out and operation of Additional debt or equity financing. If the Company obtains additional and
data services systems in sufficient debt or equity financing, it
areas of the Market anticipates beginning the build out of the
Countries other than the non-Targeted Market areas of the Market
Target Markets Countries in 1998.
Build out and operation of Additional debt or equity financing. If the Company is able to obtain sufficient
wireless cable television debt and/or equity financing, it anticiptates
systems in the Market that it will begin build out and operation of the
Countries the wireless cable television systems in the
Market Countries in 1998.
</TABLE>
The milestones set forth above are subject to a number of business,
financial and other contingencies, some of which may be beyond the control of
the Company. These contingencies include the following:
Need for Additional Financing. The growth of the Company's business
requires substantial investment on a continuing basis to finance operations,
capital expenditures and related expenses for subscriber growth and system
acquisition and development. The Company will require additional debt or equity
financing or achieve profitability, to cover ongoing operating expenses and
capital contributions, to acquire additional wireless cable systems or channel
rights in existing or other markets, and to Build out, operate and manage its
markets, including the Target Markets. The Company currently estimates that it
will require between $10 million and $15 million of additional financing to
launch its data services systems in the Target Markets and between $100 million
and $250 million to launch its wireless cable television systems. There can be
no assurance that such additional funds will be available on satisfactory terms
and conditions, if at all. The Company's failure to obtain such additional funds
could adversely affect the growth, profitability and operation of the Company,
perhaps materially. To the extent future financing requirements are satisfied
through the issuance of equity securities, then-current investors in the Company
may experience dilution in the book value per share of their common stock,
Series A Preferred Stock, and/or Series B Preferred Stock. Additional debt could
also result in a substantial portion of the Company's cash flow from operations
being dedicated to the payment of principal and interest on such indebtedness
and could render the Company more vulnerable to competitive and economic
downturns. Financing could also be obtained by the Company's operating companies
or development stage companies from third parties, although there can be no
assurance that the Companies operating companies or development stage companies
will be able to obtain the financing required to make planned capital
expenditures, provide working capital or meet other cash needs on terms which
are economically acceptable to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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<PAGE>
Initial Phases of Development. Almost all the wireless projects in
which the Company has (or has the right to acquire) an interest are in the early
stages of development. Only one operating company, located in Caracas,
Venezuela, currently provides wireless cable and/or other communications
services on a commercial basis, and that operating company only recently
initiated commercial service and generally has a limited number of subscribers.
The Company has signed definitive agreements with a number of strategic partners
in the Market Countries, but in some cases the parties' have not executed
definitive agreements or created definitive legal entities to effect the parties
proposed business operations. Even in cases where the Company has executed
definitive agreements with third parties in a particular market, there can be no
assurance that the Company will be able to perform its obligations under those
agreements or that the terms of the Company's participation in the operating
company or development stage project for that market will not be modified in a
manner that could be materially adverse to the Company.
The successful development and commercialization of the Company's
markets will depend on a number of significant financial, logistical, technical,
marketing, legal, regulatory and other factors. In addition, there can be no
assurance that the Company's proposed systems will not encounter engineering,
design or operational problems, and there can be no assurance the Company can
successfully develop any of its existing or planned development stage projects,
or that those projects or any of the operating companies in which the Company
has or acquires an interest will achieve commercial success.
Risks of Foreign Investment. The Company has invested substantial
resources outside the United States and plans to make additional and continuing
investments in countries outside the United States in the future. The Company
does not currently anticipate that it will acquire, or invest in, any wireless
communication assets or operations within the United States.
Governments of many developed countries have exercised and will
continue to exercise substantial influence over many aspects of private business
enterprise. Local governments own or control companies that are or may in the
future become competitors of the Company, or companies upon which the operating
companies and development stage projects in which the Company has an interest
may depend for required services or materials. Governmental actions in the
future could have a significant effect on the economic conditions and many of
the market areas in which the Company intends to, or has, invested, and
otherwise may have a material adverse effect on the Company and its operating
companies and developmental stage projects. The Company's interest in some or
all of the Market Countries could be adversely affected by expropriation,
confiscatory taxation, nationalization, political, economic or social
instability or other developments over which the Company has little or no
control.
The Company does not currently carry political risk insurance in the
market areas in which it conducts, or intends to conduct, business. Moreover,
applicable agreements relating to the Company's interests in the Market
Countries are frequently governed by foreign law. Therefore, it may be difficult
for the Company to enforce its rights under the agreements relating to its
rights.
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<PAGE>
Difficulties and Uncertainties of New Industry. Wireless cable
television and data services are relatively new industries with a short
operating history. As a result, the Company may experience difficulties and
uncertainties normally associated with new industries, such as lack of consumer
acceptance, difficulty in obtaining financing, increases in competition,
advances in technology and changes in laws and regulations.
License and Lease Issues. The Company will be required to rely on the
existence of, and continuing ability to use or exploit, telecommunications
licenses which are typically granted by governmental agencies on an exclusive
basis and for limited terms. There can be no assurance these governmental
agencies will not seek unilaterally to limit, revoke or otherwise adversely
modify the terms of any licenses they have granted or may in the future grant in
which the Company may have direct or derivative interest, and the Company may
have very limited or no legal recourse if any of these events were to occur. In
addition, there can be no assurance that renewals of these licenses will be
granted upon their expiration or, if renewed, that the renewal terms will not be
substantially less favorable to the Company than the original license terms.
Licenses may also be subject to significant operating restrictions or
conditions, including restrictions relating to the implementation or
construction of system improvements, commercialization, subscriber rates,
royalties and other specified deadlines or conditions which, if not satisfied,
could result in the loss or revocation of a license. There can be no assurance
that, if the Company is able to obtain a required license or license right,
those operating conditions will be satisfied and, as a result, that any such
licenses would not be lost, revoked or otherwise modified in a manner which is
materially adverse to the Company or its business operations.
Operating, Management and Other Market Agreement Issues. The Company
anticipates that it will depend on one or more local partners (or other parties)
in each of its market areas to obtain the use of required licenses, to conduct
business operations in those markets, and to facilitate the Company's business
operations with other local entities, including governmental authorities. The
Company would be dependent on these strategic partners, although there can be no
assurance that these strategic partners will perform in accordance with the
terms of any agreements they have with the Company.
Under the terms of the Company's agreements with its strategic partners
in a number of the Market Countries, under the proposed terms of a number of the
agreements for the pending acquisition markets and under the terms of the
Company's agreements with LatinCom, the Company will have obligations to fund
substantial system construction and development costs. Any such construction and
development will be capital intensive and the Company will be required to seek
continuing sources of financing to fund working capital needs, capital
expenditures and other cash requirements. The Company's failure to obtain such
financing could have a material adverse effect on the Company, including its
relationships with its strategic partners and, among other things, could result
in the loss or revocation of licenses held by the operating companies in the
Market Countries. There can be no assurance the Company will be able to obtain
or secure financing sufficient to fund its capital expenditure obligations.
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<PAGE>
In market areas where the Company will be required to construct
wireless communications networks or additions to existing wireless
communications networks, that construction activity may require the operating
companies and developmental stage companies to obtain qualified subcontractors
and necessary equipment on a timely and cost effective basis, the availability
of which could vary significantly from country to country. Construction projects
may be subject to cost overruns and delays not within the control of the
operating company or its subcontractors, such as delays caused by acts of
governmental entities, financing or catastrophic occurrences.
Among its other strategic alliances, the Company has joined with
FondElec in the formation of LatinCom. LatinCom was formed for the purpose of
acquiring, developing, owning and operating wireless communication rights and
systems in Peru, Argentina, Mexico and Brazil. There can be no assurance that
LatinCom will be able to acquire, develop or operate any wireless communications
systems and, if it fails to do so, the Company may be precluded from acquiring
or operating wireless communications in the countries in which LatinCom was
formed to operate. Further, although LatinCom was formed for the purpose of
acquiring and operating wireless communications systems in specific South
American and Latin American countries, there can be no assurance that it will
not develop contacts or learn of marketing opportunities in other Latin or South
American countries, including countries in which the Company has or may have an
interest. As a result, there could be potential conflicts between the business
operations of the Company and LatinCom.
Currency and International Risks. A number of the markets in which the
Company currently has engaged, or intends to engage, in business has experienced
substantial rates of inflation and resulting high interest rates, sometimes for
a period of many years. Inflation and fluctuations in interest rates could have
a material adverse effect on the Company's operations and business. Further, the
value of the Company's investments in its overseas operations will depend, in
part, on currency exchange rates between the United States dollar and applicable
local currency. The Company does not intend to hedge, and has not in the past
hedged, against foreign currency change rate risks.
Distributions under the payments the Company receives from operating
subsidiaries or affiliates in the future may be subject to withholding taxes
imposed by the jurisdictions in which such entities are formed or operating.
United States corporations may generally claim foreign tax credits against their
United States federal income tax expenses for any foreign withholding taxes held
or actually paid with respect to companies in which the Company owns 10% or more
of the voting stock. The Company's ability to claim any such foreign tax credits
and to utilize net foreign losses is, however, subject to limitations and
restrictions.
Governmental Regulation. The Company's business operations are subject
to extensive governmental regulation. This regulation can take the form of
limitations on the number of persons who can hold the governmental franchises,
service requirements, restrictions on foreign ownership and subscriber rates,
instruction requirements and programming content restrictions, among others.
There can be no assurance that material and adverse changes in the regulation of
the Company's existing or future operations will not occur.
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Control of Operating Companies. The Company intends to acquire, where
possible under local law, majority interests in each of its operating and
developing stage companies. Applicable local laws may, however, restrict the
interest the Company may acquire in those entities due to limitations on foreign
investments in such markets. In such cases, the Company intends to acquire
minority equity positions in the relevant operating company or development stage
company which, combined with other interests the Company will acquire in the
same market in management companies, licensees or other entities will result in
the Company obtaining and maintaining substantial control over the business
operations in any such market. Nevertheless, there can be no assurance that the
Company will, in fact, obtain majority interests in all of its markets, or
obtain voting, equity or management positions which could prevent the Company's
strategic partner in a particular market from implementing strategies or
business decisions inconsistent with those favored by the Company.
Dependence on Programming and Data Service Providers. The success of
the Company's wireless communications operations will depend, in part, upon its
ability to provide programming and data services for its subscribers. The
Company has entered into, or has begun negotiations to acquire, programming
contracts with a number of programming providers, including CNN, HBO, MTV, The
Discovery Channel and others. There can be no assurance, however, that the
Company will be able to obtain programming contracts with such entities, or
others, or that it will be able to do so upon terms which it believes are
economically advisable.
Possible Non-Consummation of Pending Acquisitions. The Company has
entered into definitive agreements or letters of intend to acquire wireless
communications rights in the Company's Market Countries, but the consummation of
each of those transactions is subject to certain conditions. There can be no
assurance that the Company will enter into definitive agreements with any
parties with which it currently only has letters of intend. Upon its acquisition
of rights in a number of the Market Countries, the Company will be required to
invest significant capital and management time in order to develop and/or expand
the systems in those market areas. Most of the Company's wireless communications
rights do not constitute operating systems and currently consist only of groups
of channel rights in specific market areas. They do not include any programming
agreements, subscribers or transmission or reception equipment. There can be no
assurance that the Company will able to Build out, operate and expand those
systems successfully.
Forward-looking statements. This report contains forward-looking
statements, which are not historical fact. Such forward-looking statements
include the Company's plans to launch wireless telecommunications systems in
Latin America and New Zealand. Those statements also include the Company's
expectations concerning factors affecting the markets for its services, such as
government regulations, competitive factors, and demand growth for the services.
Actual results could differ from those projected in any forward-looking
statements for the reasons detailed in the Liquidity and Capital Resources
section of this report and other risks detailed within this report. The
forward-looking statements are made as of the date of this report.
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<PAGE>
DIVIDENDS DISTRIBUTIONS AND REDEMPTIONS
The Company has not declared or paid any dividends to the holders of
its Common Stock, Series A Preferred Stock or Series B Preferred Stock.
MANAGEMENT
Directors, Executive Officers and Other Key Employees.
The Company's directors, executive officers and key employees, and
their respective ages and positions with the Company, are set forth below in
tabular form. Biographical information on each person is set forth following the
tabular information. There are no family relationships between any of the
Company's directors or executive officers, with the exception of Lance
D'Ambrosio and Troy D'Ambrosio, who are brothers. The Company's board of
directors is currently comprised of three members, each of whom is elected for a
term of one year. Executive officers are chosen by and serve at the discretion
of the board of directors.
Person Age Position
- ------ --- --------
Lance D'Ambrosio 40 President and Director
Paul Gadzinski 42 Executive Vice President
Donald Williams 36 Vice President of Latin
American Operations and
Director
Anthony Sansone 32 Secretary and Treasurer
Troy D'Ambrosio 36 Director
George Sorenson 41 Director
Lance D'Ambrosio -- Mr. D'Ambrosio is the President and Director of the
Company, and holds other executive officer and director positions in the
Company's subsidiaries and affiliates. Mr. D'Ambrosio is responsible for the
Company's acquisitions, strategic planning and mergers, and is responsible for
all financing plans for the Company. Since 1992 Mr. D'Ambrosio has served as the
President, Chief Executive Officer and a Director of TTI, has acted as the
President and a Director of WHI and has held executive offices and/or director
positions in WHI's subsidiaries. Between 1987 and 1992, Mr. D'Ambrosio was the
President of Bridgeport Financial, Inc., a holding company that acquired a
full-service broker/dealer securities operation. During this period, Mr.
D'Ambrosio was also the President of First Eagle Investment, a securities
broker/dealer. He was also President of Tri-Bradley Investments of Utah, which
was primarily involved in raising venture capital for investments in high-tech
companies. Mr. D'Ambrosio
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<PAGE>
holds a Bachelor of Science in Marketing and Management from the University of
Utah, which he received in 1979.
Paul Gadzinski -- Mr. Gadzinski is the Executive Vice President of the
Company. Since 1994, Mr. Gadzinski has also served as Vice President for Market
Development for TTI and as Vice President of Marketing for WHI. Between 1989 and
1994, Mr. Gadzinski served as Director of Marketing, and was subsequently
promoted to Vice President and General Manager, of Cross-Country Wireless Cable,
a 40,000 plus subscriber wireless cable system located in Riverside, California,
that recently was acquired by Pacific Telesis Group. Between 1985 and 1989, Mr.
Gadzinski was the Marketing Director and Operations Manager of Cable Vision
International, a traditional cable operation located in Luquillo, Puerto Rico
(which now does business as TCI Cable Vision of Puerto Rico, Inc.). Mr.
Gadzinski received an Associate of Arts degree in Small Business Management from
Santiago Community College.
Donald Williams -- Mr. Williams joined the Company in 1997 as Vice
President of Latin American Operations and also serves as a Director. Mr.
Williams has six years of senior management and wireless communications business
development experience in Venezuela. In 1992, Mr. Williams founded
Comunicaciones Centurion, S.A., and applied for and was granted the concession
for the 28 GHz frequency band for Venezuela. In 1990, Mr. Williams co-founded
CARESA, a technical systems integrator and manufacturer's representative to the
Venezuelan petroleum industry located in Maracaibo, Venezuela. Mr. Williams took
his university training in the United States and England.
Anthony Sansone -- Mr. Sansone is the Secretary and Treasurer of the
Company and serves as its Controller. Mr. Sansone is also the Treasurer and
Controller of TTI and has served as a director of WHI. During 1993 and 1994, Mr.
Sansone was the Controller, Secretary and the Director of Shareholder Relations
for Paradigm Medical Industries, Inc., a public manufacturer of ophthalmic
cataract removal devices. During 1992 and 1993, he was the Assistant Controller
of HGM Medical Lasers, Inc., which manufactures and sells surgical and dental
lasers. Between 1988 and 1992, Mr. Sansone was the Assistant to the Vice
President of Public Relations and the Assistant to the Chairman of the Board of
Directors for American Stores Company, a large retail grocery and drugstore
chain. Mr. Sansone received a Bachelor of Science degree in Accounting from Utah
State University in 1988 and a Master of Business Administration degree from the
University of Utah in 1991.
Troy D'Ambrosio -- Mr. D'Ambrosio is a Director of the Company and also
served as a Director of TTI. Mr. D'Ambrosio is the Manager of Customer Relations
for Wasatch Advisors, a mutual fund and investment services entity. Between
November of 1993 and September of 1996, Mr. D'Ambrosio held executive positions
in TTI, where he served as Vice President of Administration, Secretary and a
Director, and also served in executive positions and as a director of WHI and
its subsidiaries. Between July of 1992 and November of 1993, Mr. D'Ambrosio was
a Vice President and a partner in a public relations firm specializing in legal,
economic and government relations for business. Between 1985 and 1992, Mr.
D'Ambrosio was with American Stores, most recently as Vice President of
Corporate Communications and Government Relations.
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<PAGE>
Mr. D'Ambrosio received a Bachelor of Arts degree in Political Science from the
University of Utah in 1982.
George Sorenson -- Mr. Sorenson is a Director of the Company and also
served as a Director of TTI. Mr. Sorenson is a Principal in FondElec Group,
Inc., which invests in energy and electricity markets in Latin American, and
advises United States corporations on their investments in that area. FondElec
is also a 45% shareholder in LatinCom. Between 1990 and 1992, Mr. Sorenson was
the Associate Director of Bear, Sterns & Co., Inc. where he was principally
responsible for its international investment banking in the far east and
coordinated product development, marketing and account coverage for Japanese
accounts in New York and Tokyo. Between 1983 and 1990, Mr. Sorenson worked for
Drexel Burnham & Lambert, Inc., most recently as a Senior Vice President in
Tokyo, Japan, where he managed the company's high yield bond operations in Asia.
Mr. Sorenson received a Bachelor of Arts degree in Finance from the University
of Utah in 1979 and a Masters in International Business Management in 1981 from
the American Graduate School of International Management.
The Board of Directors currently has no committees, but anticipates
that it will form three standing committees: the Executive Committee, the Audit
Committee, and the Compensation Committee. The Executive Committee will be
vested with the authority to manage the Company's affairs between scheduled
meetings of the Board of Directors. The Audit Committee will be primarily
charged with the review of professional services provided by the Company's
independent auditors, the determination of the independence of such auditors,
the annual financial statements of the Company and the Company's system of
internal accounting controls. The Audit Committee will also review such other
matters with respect to the accounting, auditing and financial reporting
practices and procedures of the Company as it may find appropriate or as may be
brought to its attention. The Compensation Committee will be charged with the
responsibility of reviewing executive salaries, administering bonuses, incentive
compensation and stock option plans of the Company, and approving the salaries
and other benefits of the executive officers of the Company. The Compensation
Committee will also consult with the Company's management regarding pension and
other benefit plans, and the Company's compensation policies and practices in
general.
Director Compensation
Directors do not receive cash compensation for serving on the Board of
Directors or any committee of the Board, or for any other services rendered to
the Company, but are reimbursed for expenses they incur in connection with
attending Board or committee meetings.
Executive Compensation
During the Company's fiscal years ended December 31, 1995 and 1996,
none of the Company's executive officers received any cash compensation,
bonuses, stock appreciation rights, long-term compensation, stock awards or
long-term incentive rights from the Company. As set forth in the chart below,
however, during 1996 one of the Company's executive officers received
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<PAGE>
options to acquire shares in TIC, which were subsequently assumed by and
converted into options to acquire shares of the Company's Series A Preferred
Stock in connection with of the TIC Transaction, none of which has been
exercised. The options were granted to the executive in exchange for services to
TIC. No executive officers received any stock options during 1995 or 1996 for
services to the Company. The options assumed by the Company as part of the TIC
Transaction are as follows:
Number of
Securities Exercise
Underlying Price Expiration
Name Options ($/Share) Date(1)
Paul Gadzinski 39,962 $.0625 2001
1 The options expire on the 5th anniversary of the date of their grant.
Employment Agreements
On August 15, 1997, the Company had entered into an employment
agreement with Donald Williams, a former CVV principal for a one year period at
an annual salary of $102,857 plus additional payments in accordance with
Venezuela law. In addition to base salary, Mr. Williams is entitled to receive
incentive bonuses, as determined by the Company's board of directors, standard
benefits such as health, life insurance, and reimbursement of reasonable
expenses incurred on the Company's behalf. In general, the contract may be
terminated only for cause, which is defined in the agreement as willful
misconduct, fraud, misappropriation, embezzlement, and similar unlawful acts. In
addition, the Mr. Williams can terminate the contract on 180 days notice. If the
contract is terminated without cause, Mr. Williams is entitled to receive
severance pay in an amount equal to the lessor of six month's pay or the
remaining amount due under the contract. The Company anticipates it will enter
into additional employment agreements with its other officers in the near
future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions either
engaged in or proposed to be engaged in by the Company involving its executive
officers, directors, 5% stockholders and immediate family members of those
persons:
LatinCom, Inc.
The Company is an investor in LatinCom, Inc., a Delaware corporation
that is in the business of acquiring, owning and operating wireless
communications systems in Peru, Brazil and Mexico (the "LatinCom Markets"). The
Company holds a 45% interest in LatinCom, and the remaining 55% is held 45% by
FondElec, 8% by certain officers and directors of the Company and 2% by a third
party. The 10% not held by the Company or FondElec is non-dilutable. One of the
members of the Company's board of directors is a principal of FondElec.
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<PAGE>
The Company and FondElec formed LatinCom for the purpose of
capitalizing on certain proprietary relationships, contracts and information
relating to the wireless communications industry that were developed by FondElec
in the LatinCom markets. The Company and FondElec believed that, by combining
FondElec's proprietary relationships and information with the Company's
expertise in wireless communications, they could more easily and economically
acquire and exploit wireless communication's rights in the LatinCom markets.
Upon the formation of LatinCom, each of the Company and FondElec
contributed to LatinCom their interests in certain wireless communications
development activities and rights relating to the country of Peru. In addition,
both the Company and FondElec have agreed to loan to LatinCom, on a continuing
basis, amounts sufficient to fund LatinCom's operations. In order to maintain
FondElec's and the Company's equal positions in LatinCom, those loans will be
made 50% by FondElec and 50% by the Company.
Currently, the Company anticipates that LatinCom's wireless
communications development activities will be contractually limited to its
development activities in Peru, Brazil and Mexico. There can be no assurance,
however, that LatinCom may not attempt to develop or acquire wireless
communication rights in other countries, including countries in which the
Company has or may acquire wireless communication's rights or enter into
negotiations for those rights. Further, because FondElec is a shareholder in
both the Company and LatinCom, and because the officers and directors of the
Company who own interests in LatinCom will also manage the operations of the
Company, conflicts may arise between the interests of LatinCom and the Company.
There can be no assurance that those conflicts will be resolved in favor of the
Company. The Company anticipates the shareholders of LatinCom will enter into an
agreement regarding their rights and duties as shareholders and which sets forth
certain limitations and restrictions on the transfer or encumbrance of their
interests and the scope of LatinCom's business operations and market areas. The
Company further anticipates that the agreement will contain and be subject to
other provisions normally found in shareholder agreements.
Services Agreement.
On January 1, 1997, TIC entered into a services agreement with
Bridgeport Financial, Inc. The principal of Bridgeport Financial is the father
of Lance D'Ambrosio and Troy D'Ambrosio, officers and directors of the Company.
Under the terms of the agreement, TIC retained Bridgeport Financial to provide
TIC with certain advisory and other services relating to the acquisition,
ownership and operation of wireless cable television, telephony and data
transmission services in Central and South America, Europe and Asia. In
consideration for these services, TIC agreed to pay Bridgeport Financial, on a
continuing basis and in arrears, an amount equal to (i) two percent of the first
$50 million of TIC's gross annual revenues, and (ii) one percent of TIC's gross
annual revenues in excess of $50 million from all sources. The minimum amount
payable to Bridgeport Financial in the first contract year, however, is
$150,000. The amounts payable with respect to the first contract year are due
and payable upon the earlier of 15 days after the end of the contract year, or
five days after the receipt by TIC or its successors of the proceeds from an
equity or debt financing of at least $3 million. Thereafter, the amounts due
Bridgeport
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<PAGE>
Financial under the agreement are due and payable within 15 days of the end of
each month. For purposes of calculating the amounts due under the services
agreement, the gross annual revenues of TIC include all of the revenues of its
parent or subsidiaries, and its parent's subsidiaries, provided that if any
subsidiary is not held 100% by TIC or its parent, the revenue of that subsidiary
is attributed to TIC only to the extent of TIC's or its parent's ownership of
that subsidiary. The agreement contains a specific exclusion for any gross
revenues attributed to TIC from the operations of wireless communication rights
in New Zealand.
The term of the services agreement is for five years and it
automatically renews for successive periods of one year unless either party
notifies the other of its election not to renew the agreement at least 60 days
before the end of the current term. The agreement may be terminated at any time
by TIC in the event of any occurrence of TIC's cessation of its active business
operations, Bridgeport Financial's failure or refusal to perform the services in
accordance with the terms of the agreement, if Bridgeport Financial or its
principal is charged with or convicted of any felony, if Bridgeport Financial
breaches its duties or obligations under the agreement and fails or refuses to
correct that breach within 10 days after written notice by TIC, or upon the
issuance of any final binding order of a governmental authority having
jurisdiction rendering the agreement invalid or unenforceable. Bridgeport
Financial may terminate the agreement at any time if TIC breaches its duties or
obligations under the agreement and fails or refuses to correct any breach
within 10 days after written notice.
The services agreement also contains provisions pursuant to which
Bridgeport Financial acknowledges and agrees that all customer accounts for
which Bridgeport Financial provides services under the agreement are the sole
and exclusive customers, accounts and proprietary contacts of TIC and that,
during the term of the agreement and for a period of one year after its
termination, Bridgeport Financial will not enter into any business operations in
direct or indirect competition with the business of TIC or in any current market
of TIC. The Services Agreement replaces a prior agreement between Bridgeport
Financial and TIC, pursuant to which TIC was obligated to pay Bridgeport
Financial the sum of $5,000 per month. The Services Agreement is binding upon
any successor or assignee of TIC and, as a result of the merger between TIC and
the Company's wholly-owned subsidiary, NewWCCI, Inc., the provisions of the
Services Agreement will apply to the gross revenues generated by TIC, the
Company and their respective subsidiaries. A copy of the services agreement is
attached hereto as Exhibit 10.6.
TIC Transaction
In February, 1997, the Company's wholly-owned subsidiary, NewWCCI, Inc.
merged with and into TIC. TIC was the surviving entity in the transaction. For a
more detailed description of the merger, see the section entitled "Business"
above.
A number of the shareholders of TIC also serve as officers and
directors of the Company. In addition, the father of the Company's president was
the majority shareholder of TIC and, as a result of a TIC Transaction, currently
holds a majority of the Company's voting power on a common stock equivalent
basis. See "Principal Stockholders" below.
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<PAGE>
CVV Transaction
In August, 1997, the Company acquired a 68.14% interest in CVV in which
an officer of the Company was a former principal owner. For a more detailed
description of the acquisition, see the section entitled "Operating Systems"
above.
PRINCIPAL STOCKHOLDERS
As a result of the TIC Transaction in February, 1997, the former
stockholders in TIC acquired a significant portion of the voting power of the
Company. The CVV Transaction in August 1997 also affected the voting power of
the Company. The TIC Transaction and CVV Transaction took place subsequent to
the end of the Company's fiscal year (December 31, 1996). Because of the
significance of the changes in the identity and percentage ownership rights of
the Company's principal stockholders resulting from these transactions, the
following table sets forth the beneficial ownership of the Company's Common
Stock, Series A Preferred Stock and Series B Preferred Stock at August 15, 1997.
The table describes the beneficial ownership of the Company's Common Stock,
Series A Preferred Stock and Series B Preferred Stock by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each such person (alone or with family members) has voting
and dispositive power of the shares listed opposite such person's name. The
offices and positions shown in parentheses after the name of certain of the
persons shown below state the current offices and positions held by those
persons in the Company's management. Unless otherwise indicated, each such
person (either alone or with family members) has been deemed to have authority
or dispositive power of the shares listed:
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<TABLE>
<CAPTION>
Shares Owned Beneficially
<S> <C> <C> <C>
Percent of
Name Class Number Class1
Lance D'Ambrosio Common 290,5332 5.56%
(President, Director) Series A
3276 E. Almira Court Preferred 359,6602 15.00%
Salt Lake City, Utah
Troy D'Ambrosio Common 33,096 *
(Director) Series A
2914 Nila Way Preferred 199,811 8.33%
Salt Lake City, Utah
Paul Gadzinski Common 24,249 *
(Executive V.P.) Series A
6649 Wintertree Dr. Preferred 39,9625 1.67%
Riverside, California
Donald Williams Common 855,5566 16.38%
(V.P. Latin America Ops) Series B
7 Winter Wheat Preferred 192,5006 54.25%
The Woodlands, Texas
Anthony Sansone Common 4,850 *
(Secretary/Treasurer) Series A
3692 South 645 East Preferred 39,963 1.67%
Salt Lake City, Utah
George Sorenson Common 14,1454 *
(Director)
12 Fairgreen Lane
Old Greenwich, Connecticut
George D'Ambrosio Common 471,291 9.02%
5451 South 1410 East Series A
Salt Lake City, Utah Preferred 1,192,872 49.75%
FondElec Group, Inc. Series A
333 Ludlow Street Preferred 359,660 15.00%
Stamford, Connecticut
All directors and officers as a Common 1,222,429 23.41%
group (5 persons) Series A
Preferred 639,396 26.67%
Series B
Preferred 192,500 54.25%
*Less than 1%
<FN>
1 Assumes 5,222,833 outstanding shares of Common Stock, 2,397,732 outstanding shares of Series A Preferred
Stock and 354,825 outstanding shares of Series B Preferred Stock. Does not assume the exercise of any outstanding
options or the exercise of any warrants issued in connection with the placement by the Company of certain secured
promissory notes. See "Management's Discussion and Analysis of Certain Relevant Factors" and "Market Price and Dividends
on the Registrant's Common Equity and Other Shareholder Matters."
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<PAGE>
2 Includes shares held in the name of Mr. D'Ambrosio and shares held in the name of entities over which Mr.
D'Ambrosio has voting and/or beneficial control and for which he does not disclaim beneficial ownership.
3 Includes shares held in the name of Mr. D'Ambrosio and held in the name of entities over which Mr. D'Ambrosio
has voting and/or beneficial control and for which he does not disclaim beneficial ownership. Mr. D'Ambrosio is the
father of Lance D'Ambrosio and Troy D'Ambrosio.
4 Mr. Sorenson is also a principal of FondElec Group, Inc. Mr. Sorenson disclaims beneficial interest in the
shares held by FondElec Group, Inc. and SC Tampa, Inc.
5 Includes options to acquire 39,962 shares of Series A Preferred Stock, none of which have been exercised.
6 Under the terms of the Company's acquisition of its interest in CVV, Caribbean Comunicaciones Group and Mr.
Williams acquired equity securities of the Company. Mr. Williams is a principal of Caribbean Comunicaciones Group but
disclaims beneficial interest in the shares held by Caribbean Comunicaciones Group.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CERTAIN RELEVANT FACTORS
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and the other financial
information appearing elsewhere in this report.
Overview
The Company is in the business of acquiring, developing and operating
wireless communications systems, primarily through interests in operating and
development companies conducting business in Latin and South America and New
Zealand. The Company currently has, or has the right to acquire, interests in
wireless communications systems or channel right groupings in five markets. As
of March 1, 1996, one of these market areas has an established wireless
communications commercial operation.
The Company owns or has entered into letters of intent or agreements
giving it the right to acquire a 92.5% interest in the licensee of the rights to
the 27.5 to 29.5 GHz frequency bands in Costa Rica, a 70% interest in the 27.5
to 28.5 GHz frequency bands in Guatemala (and the right to acquire an additional
10% interest), a 90% interest in the licensee of the 27.5 to 29.5 GHz frequency
bands in Panama, a 94.9% interest in the licensee of four channels in the 2.5
GHz frequency band and channels in the 40 GHz frequency band in New Zealand, and
an 8.5% interest (as of July 31, 1997) in the licensee of the 27.5 to 29.5 GHz
frequency bands in Venezuela. The Company owns 68.14% of the lessee of the
Venezuelan licenses and has the right to acquire an additional 10%. Further, the
Company owns a 45% interest in LatinCom, Inc., a Delaware corporation that is
negotiating with various wireless communications right holders in Mexico,
Brazil, and Peru.
The Company generally invests in non-operating wireless projects or
channel right groupings in under-developed countries. Those projects typically
have neither cash flow nor revenue to support operating costs, working capital
or capital expenditures. In addition, when any such projects become operational,
and to the extent they generate positive cash flow, the continuing capital
investment required to satisfy the requirements of those projects (as well as
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<PAGE>
increasing operating expenses and working capital requirements) typically result
in little or no excess funds being available for distribution to shareholders.
As a result, the Company anticipates that its operating companies and
development stage companies will not pay any cash dividends or other cash
distributions to the Company in the near future.
Since its inception, the Company has sustained net losses and negative
cash flow, due primarily to start-up costs, expenses and charges for
depreciation and amortization of capital expenditures and other costs related to
its acquisition and development of its wireless communications systems and
license rights. The Company expects to continue to experience negative cash flow
through at least 1997, and may continue to do so after it develops and expands
its wireless communications systems, even if individual systems of the Company
become profitable and generate positive cash flow. Unless the Company is able to
generate sufficient revenue or acquire significant additional debt or equity
financing to cover its present and ongoing operation costs and liabilities,
there is substantial doubt about its ability to continue as a going concern.
The Company's assets consist primarily of two groups -- those assets
the Company acquired as a result of the Separation, and those it acquired in its
recent transaction with TIC. The financial statements included as part of this
report as described in this section include audited consolidated financial
statements for the year ended December 31, 1996 and for the period from July 31,
1995 (date of inception) through December 31, 1995. Due to the Company's limited
history and recent acquisitions, it is the opinion of management that a
year-to-year comparison of revenues and expenses is not meaningful to an
understanding of the Company's operations.
For the 12 months ended December 31, 1996, the Company had no revenues,
but incurred total expenses of $715,561. These expenses were comprised of
$247,915 in professional fees, $2,600 in depreciation expenses, $308,195 in
amortization expenses and lease expenses which are directly related to the
Company's New Zealand wireless assets, $78,134 in general and administrative
expenses, and $78,717 in interest expense relating to a loan commitment
agreement between the Company and TTI, as described below. The total expenses of
$715,561 were reduced by minority interest in the loss of the Company's New
Zealand assets of $17,607, to arrive at the total net loss of $697,954.
For the 5 months ended December 31, 1995, the Company had no revenues,
but incurred total expenses of $161,703. These expenses were comprised of
$17,935 in professional fees, $1,085 in depreciation expenses, $128,921 in
amortization expenses and lease expenses which are directly related to the
Company's New Zealand assets, $7,323 in general and administrative expenses and
$6,439 in interest expense related to the loan commitment between TTI and the
Company. The total expenses of $161,703 were reduced by minority interest in the
loss of the Company's New Zealand assets of $6,575, to arrive at the total net
loss of $155,128.
Liquidity and Capital Resources. At December 31, 1996, the Company's
current liabilities exceeded its current assets by $199,786. The Company's
business operations will require substantial capital financing on a continuing
basis. The availability of that financing will
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<PAGE>
be essential to the Company's continued operation and expansion. There can be no
assurances, however, that the Company will be able to acquire or generate
sufficient capital to build-out its existing channel rights or acquire other
channel rights (in operating systems or otherwise). Further, the Company expects
to incur net losses for the foreseeable future, although it anticipates that its
individual systems may generate positive monthly operating cash flow
approximately 24 to 36 months after start up.
As of December 31, 1996, the Company had current assets of $245,437,
compared to $203,037 as of December 31, 1995, for an increase of $42,400. The
increase in current assets was primarily due to an increase in cash as a result
of increased borrowing. The Company invested $440,000 in a Venezuelan license
company during the year ended December 31, 1996. License rights decreased
$169,166 from $1,092,333 as of December 31, 1995 to $923,167 at December 31,
1996 due to amortization expense. The Company also made loans to TIC, which
subsequently merged with and into a subsidiary of the Company in connection with
the TIC Transaction, in the amount of $120,234 during the year ended December
31, 1996.
The Company had current liabilities of $445,223 as of December 31, 1996
compared to $218,851 as of December 31, 1995, for an increase of $226,372. The
increase in current liabilities was due to an increase in accounts payable
relating to start up expenses. Minority interest in subsidiaries decreased
$17,607 from $49,612 as of December 31, 1995 to $32,005 at December 31, 1996 due
to minority interest in loss of subsidiary. Long term debt increased $880,602
from $238,406 at December 31, 1995 to $1,119,008 at December 31, 1996. The
increase was due to additional advances by TTI, and the related accrued
interest, under the terms of a loan commitment as described below, and loans
from a third party. Common stock and additional paid in capital increased by
$1,458 and $37,997, respectively, between December 31, 1995 and December 31,
1996, due to the June 1996 issuance of 145,833 shares of the Company's Common
Stock for $1,600 in cash.
The Company anticipates that it will obtain financing necessary to fund
its future operations through loans, equity investments and other transactions.
While there can be no assurance that the Company will secure such funding, the
Company is currently in negotiations to obtain third-party financing of between
$500,000 and $20,000,000 for its activities and management believes (but can
give no assurances) that this funding can be obtained under terms satisfactory
to the Company. The Company anticipates that such funding would be in the form
of secured or unsecured loans and/or equity investments. The terms and mix of
any such funding will be contingent on a number of factors, including the
proportion of the funding that takes the form of secured debt (versus equity),
the type of security interest the Company is able to provide the third parties
if the funding is structured as a secured loan, the prevailing interest rates at
the time of that funding, the third party's other investment opportunities and
other factors, some or all of which may be beyond the control of the Company. In
the event the Company is unsuccessful in completing these financing arrangements
or in obtaining substitute financing or funding commitments, the Company would
have difficulty in meeting its operating expenses, satisfying its existing or
future debt obligations, or succeeding in acquiring, developing or operating its
wireless communications systems or adding subscribers to such systems. If the
Company does
48
<PAGE>
not have sufficient cash flow or is unable otherwise to satisfy its debt
obligations, its ongoing growth and operations could be restricted or the
viability of the Company could be materially and adversely affected.
The Company has taken several actions which it believes will improve
its short term and ongoing liquidity and cash flow. These actions include
establishing policies designed to conserve cash and control costs, and pursuing
additional financing and capital resources, as described herein.
In early 1997, subsequent to the period covered by this report, the
Company offered to certain investors secured promissory notes in the aggregate
principal amount of $1,600,000, together with warrants to acquire shares of the
Company's common stock. The offering was subject to no minimum or escrow
provisions, although the minimum subscription per investor was $50,000 in
principal amount (subject to the Company's discretion to accept subscriptions
for lower principal amounts from any individual investor). Through August 15,
1997, the Company sold $850,000 in principal amounts of these secured promissory
notes.
The offerees of the secured promissory notes were accredited investors,
as that term is defined in Regulation D promulgated under the Securities Act of
1933, as amended. At the election of the Company, it also reserved the right to
sell the secured promissory notes and warrants to up to 35 persons who were not
accredited investors. The secured promissory notes and warrants were placed by
the Company's officers and directors on a best efforts basis.
The amounts due under the secured promissory notes bear interest at the
rate of nine percent (9%) per annum and, subject to the terms of the documents
relating to the issuance of the secured promissory notes related to
acceleration, are due on January 31, 2002. All interest under the secured
promissory notes is to be paid semiannually on each June 30 and December 31.
The secured promissory notes are secured by a pledge of the Company's
interests in its New Zealand and Venezuelan wireless communication's rights, its
interest in LatinCom and by the pledge by certain of the Company's shareholders
of their shares in the Company. The Company's largest shareholder has also
granted the holders of the secured promissory notes a proxy to vote his shares
in the Company in the event of a default by the Company under the secured
promissory notes.
The holders of the secured promissory notes will also receive the right
to acquire from the Company, at any time and from time to time through January
31, 2002, shares of the Company's common stock at a purchase price equal to the
"purchase price" as that term is defined in the secured promissory note
documents. The warrants allow the holders of the secured promissory notes to
acquire, in the aggregate, shares of the Company's common stock at the Purchase
Price having an accurate value of $1,600,000 (assuming the purchase of all of
the secured promissory notes offered by the Company). Under the terms of the
warrants, the warrant holders will be protected from certain types of dilution.
The Company has also granted the holders of any shares acquired pursuant to the
warrants certain demand and "piggyback" registration rights. Subject to
49
<PAGE>
the limitations set forth in the Registration Rights Agreement, those rights
allow the holders of the shares acquired pursuant to the exercise of the
warrants to include those shares in a registration statement relating to a
registered public offering of the Company's common stock.
On August 4, 1997, the Company borrowed $2,100,000 from a third party
investor. The loan bears interest at 10%, is unsecured, and is payable with
accrued interest on December 31, 1997. The Company has used $200,000 of the loan
proceeds to exercise its option to purchase 68.14% of the outstanding shares of
CVV and intends to use $800,000 to exercise its option in Venezuela to purchase
an additional 10% of CVV, to pay for equipment and start-up expenses in
Venezuela and Guatemala of $579,850, and to pay outstanding accounts payable of
$496,784.
The Company has also borrowed funds under a loan commitment from TTI
(the "Commitment"). Under the terms of the Commitment, TTI agreed to loan the
Company up to $1,000,000, which will be repaid, together with interest at the
rate of 8% per annum, on August 1, 2001. At the Company's option, however, its
obligations to TTI may be converted into a term loan (payable in monthly
payments of principal and interest) with a maturity date of 10 years from the
first day of the month following the conversion if (i) the Company is not in
default under the Commitment, (ii) there has been no material change in the
Company's financial condition which TTI reasonably determines to be materially
adverse to the Company or which materially increases TTI's risk of non-payment,
(iii) the construction and build-out of the Company's systems are, in the sole
opinion of TTI, occurring in accordance with the projected schedule agreed to by
the parties, and (iv) the Company provides TTI with certain documentation,
including information regarding the uses of the amounts advanced by TTI under
the Commitment.
The amounts advanced under the Commitment may be used only for (i)
acquiring, owning, building out and operating wireless communications systems
and operations and (ii) the payment of general administrative and office
expenses incurred by the Company in connection with those operations, all in
accordance with the budget to be agreed upon by the parties. No amounts advanced
under the Commitment may be used for general investment purposes unless an
investment is for a period of not more than 30 days and pending the expenditure
of those funds in question for approved purposes. At the request of TTI, the
Company has agreed to grant it a security interest in all or a part of its
assets to secure the Company's repayment obligations. As of December 31, 1996,
$996,707 plus accrued interest of $47,301 was outstanding under the Commitment.
PART II
MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
There has been no established public market for the Common Stock or
Series A Preferred Stock or Series B Preferred Stock of the Company. The Company
cannot predict the effect, if any, that future sales of shares of common stock,
Series A Preferred Stock, or Series B Preferred
50
<PAGE>
Stock or the availability of such shares for sale, will have any market price
prevailing from time to time on the Company's equity securities. Future sales of
substantial amounts of stock (whether common or preferred) could adversely
affect the prevailing market prices of the Company's outstanding equity
securities.
All of the currently issued and outstanding shares of the Company's
Common Stock, Series A Preferred Stock and Series B Preferred Stock were issued
by the Company in transactions which the Company believes did not involve public
offerings. All 3,500,000 shares of Common Stock issued in connection with the
Separation, are freely tradable, but all other shares of common stock, Series A
Preferred Stock and Series B Preferred Stock currently outstanding are
"restricted securities," as that term is defined in the federal securities laws,
and may not be resold unless registered under the Securities Act of 1933, as
amended, or sold in connection with an exemption therefrom. All or a portion of
the restricted shares may in the future become eligible for sale in the public
marketplace in reliance on Rule 144, subject to the volume and other
restrictions contained therein.
The secured promissory notes and warrants offered by the Company were
also not registered under the federal or state securities laws in reliance upon
exemptions from registration contained in those laws. The secured promissory
notes and the warrants constitute "restricted securities" and may not be resold
unless registered under the Securities Act of 1933, as amended, or sold in
connection with an exemption therefrom.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On September 5, 1996, Deloitte & Touche LLP replaced Jones, Jensen &
Co. as independent certified public accountants for the Company for the year
ending December 31, 1995. Jones, Jensen & Co.'s relationship with the Company
was not terminated because of any resolved or unresolved disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
The decision to change the Company's independent accountants from
Jones, Jensen & Co. to Deloitte & Touche LLP was recommended and approved by the
Company's Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Paragraph 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
own 10% or more of a registered class of the Company's equity securities
(collectively, "Reporting Persons"), to file reports of ownership and changes in
ownership with the Securities and Exchange Commission if the Company and its
equity securities meet certain requirements. The Company has not received or
reviewed any filings under Section 16(a) for any Reporting Person, including any
filing on Forms 3, 4 or 5. The persons constituting the Reporting Persons are
described in the section entitled "Principle Stockholders."
51
<PAGE>
REPORTS ON FORM 8-K
None
PART F/S
The following financial information is provided in accordance with the
requirements of Item 310 of Regulation S-B.
INDEX TO FINANCIAL STATEMENTS
Item Page
Independent Auditors' Report 53
Consolidated Balance Sheets 54
Consolidated Statements of Operations 55
Consolidated Statements of Stockholders' Equity (Deficit) 56
Consolidated Statements of Cash Flows 57
Notes to Consolidated Financial Statements 58
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Wireless Cable & Communications, Inc.
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Wireless Cable &
Communications, Inc. and subsidiaries (a development stage company) (the
Company) as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996 and for the period from July 31, 1995 (date of
inception) to December 31, 1995, and for the period from July 31, 1995 (date of
inception) to December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the year ended December 31, 1996 and for the period from July 31, 1995
(date of inception) to December 31, 1995, and for the period from July 31, 1995
(date of inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is a development
stage enterprise engaged in the development of wireless telecommunications
systems both domestically and internationally. As discussed in Note 1 to the
consolidated financial statements, the Company does not have revenue sufficient
to cover its operating costs, its current liabilities exceed its current assets,
and the Company has incurred losses since inception. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 24, 1997
(August 15, 1997 as to notes 7 and 8)
53
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<S> <C> <C>
December 31, December 31, 1995
1996
ASSETS
CURRENT ASSETS:
Cash $ 77,991 $ 2,075
Prepaid license lease fees (Notes 2 and 3) 167,446 200,962
------------------ -------------------
Total current assets 245,437 203,037
INVESTMENT IN CENTURION (Note 2) 440,000 -
EQUIPMENT - Net (Note 2) 433 3,033
OTHER RECEIVABLES (receivable from related party, Note 4) 120,234 -
LICENSE RIGHTS - Net (Note 3) 923,167 1,092,333
------------------ -------------------
TOTAL ASSETS (Note 6) $ 1,729,271 $ 1,298,403
================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 235,825 $ 16,668
Accrued license lease fees (Note 3) 109,398 102,183
Accrued consulting fees (payable to related party, Note 4) 100,000 100,000
------------------ -------------------
Total current liabilities 445,223 218,851
LONG-TERM LIABILITIES:
Long-term debt (owed to related party, Note 4) 1,044,008 238,406
Note payable (Note 6) 75,000 -
MINORITY INTEREST IN SUBSIDIARY (Note 1) 32,005 49,612
------------------ -------------------
Total liabilities 1,596,236 506,869
------------------ -------------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 6 and 7)
STOCKHOLDERS' DEFICIT (Note 1):
Preferred stock; $0.01 par value; 5,000,000 shares authorized:
and no shares issued or outstanding
Common stock; $0.01 par value; 15,000,000 shares authorized:
3,645,833 and 3,500,000 shares issued and outstanding in
1996 and 1995, respectively 36,458 35,000
Additional paid-in capital 949,659 911,662
Deficit accumulated during the development stage (853,082) (155,128)
------------------ -------------------
Total stockholders' deficit 133,035 791,534
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,729,271 $ 1,298,403
================== ===================
See notes to consolidated financial statements.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996,
FROM JULY 31, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995,
AND FROM JULY 31, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<S> <C> <C> <C>
July 31, 1995 July 31, 1995
Year (Date of (Date of
Ended Inception) To Inception) To
December 31, December 31, December 31,
1996 1995 1996
---------------- ----------------- -----------------
REVENUES NONE NONE NONE
---------------- ----------------- -----------------
EXPENSES:
Professional fees $ 247,915 $ 17,935 $ 265,850
Depreciation and amortization (Note 2) 171,766 73,585 245,351
Lease expense (Note 3) 139,029 56,421 195,450
General and administrative 78,134 7,323 85,457
---------------- ----------------- -----------------
Total 636,844 155,264 792,108
INTEREST EXPENSE (Notes 4 and 6) 78,717 6,439 85,156
---------------- ----------------- -----------------
NET LOSS BEFORE MINORITY INTEREST 715,561 161,703 877,264
MINORITY INTEREST IN LOSS OF SUBSIDIARY (Note 1) 17,607 6,575 24,182
---------------- ----------------- -----------------
NET LOSS $ 697,954 $ 155,128 $ 853,082
================ ================= =================
Net loss per common share $ (0.20) $ (0.04)
================ =================
Weighted average common shares 3,574,112 3,500,000
================ =================
See notes to consolidated financial statements.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FROM JULY 31, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Deficit
Additional During the
CommonStock Paid-in Development
Shares Amount Capital Stage
Issuance of common stock to TTI
shareholders in August 1995 (Note 1) 3,500,000 $35,000 $911,662
Net loss for the period from July 31, 1995
(date of inception) to December 31, 1995 $(155,128)
------------- ------------ ------------ ---------------
BALANCE, DECEMBER 31, 1995 3,500,000 35,000 911,662 (155,128)
Issuance of common stock (Note 4) 145,833 1,458 37,997
Net loss for the year ended December 31, 1996 (697,954)
------------- ------------ ------------ ---------------
BALANCE, DECEMBER 31, 1996 3,645,833 $36,458 $949,659 $(853,082)
============= ============ ============ ===============
See notes to consolidated financial statements.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996,
FROM JULY 31, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995,
AND FROM JULY 31, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<S> <C> <C> <C>
July 31, 1995 July 31, 1995
Year (Date of (Date of
Ended Inception) To Inception) To
December 31, December 31, December 31,
1996 1995 1996
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (697,954) $ (155,128) $ (853,082)
Adjustments to reconcile net loss to net cash used in
development activities:
Depreciation and amortization 171,766 73,585 245,351
Minority interest in loss of subsidiary (17,607) (6,575) (24,182)
Interest expense from issuance of common stock 37,855 - 37,855
Change in assets and liabilities:
Other receivables from related party (120,234) - (120,234)
Prepaid license lease fees 33,516 (87,344) (53,828)
Accounts payable 219,157 9,062 228,219
Accrued license lease fees 7,215 25,441 32,656
----------------- ----------------- -----------------
Net cash used in development activities (366,286) (140,959) (507,245)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Centurion (440,000) - (440,000)
----------------- ----------------- -----------------
Net cash used in investing activities (440,000) - (440,000)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,600 2,000 3,600
Borrowings from related party 805,602 141,034 946,636
Borrowings through a promissory note 75,000 - 75,000
----------------- ----------------- -----------------
Net cash provided by financing activities 882,202 143,034 1,025,236
----------------- ----------------- -----------------
NET INCREASE IN CASH 75,916 2,075 77,991
CASH AT BEGINNING OF PERIOD 2,075 - -
----------------- ----------------- -----------------
CASH AT END OF PERIOD $ 77,991 $ 2,075 $ 77,991
================= ================= =================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for interest and income taxes
NONE NONE NONE
================= ================= =================
SUPPLEMENTAL SCHEDULE FOR NONCASH INVESTING AND FINANCING ACTIVITIES
In connection with the Separation (see Note 1), the Company issued common stock in
exchange for the acquisition of assets and the assumption of liabilities as follows:
Historical cost of assets acquired, including prepaid
license lease fees, equipment, and license rights $ 1,282,569
Common stock issued (946,662)
-----------------
Liabilities assumed $ 335,907
=================
See notes to consolidated financial statements.
</TABLE>
57
<PAGE>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY
Organization - Wireless Cable & Communications, Inc. and subsidiaries
(the Company) was incorporated in Nevada on July 31, 1995. The Company
is in the business of acquiring and developing wireless
telecommunication systems. The Company owns a non-operating wireless
system comprised of four channels and a leased transmitter tower in
Park City, Utah, and owns a non-operating wireless system comprised of
lease and license rights to a total of twenty-four broadcast channels
in Auckland, New Zealand (consisting of four 2.5 GHz and twenty 40 GHz
channels). The Park City channels and tower rights are held through the
Company's wholly-owned subsidiary, Transworld Wireless Television,
Inc., a Nevada corporation ("TWTV Park City"), and the New Zealand
channel rights are held through the Company's 94.9% owned subsidiary,
Auckland Independent Television Services, Ltd., a New Zealand
corporation ("AITS"). The Company is a development stage company and
currently has no revenues and no operating wireless telecommunication
systems.
The authorized number of shares of the Company's preferred stock is
5,000,000, $0.01 par value. At December 31, 1996 and 1995, no preferred
stock was issued or outstanding and no specific rights or preferences
for the preferred stock had been authorized or established by the
Company's Board of Directors (See note 8).
The Company was formed for the purpose of continuing the development of
certain business assets formerly held by Transworld Telecommunications,
Inc., a Pennsylvania corporation ("TTI"). Under the terms of a business
separation (the "Separation"), TTI agreed to form a new corporation
(the Company) to hold the separated business assets.
In order to complete the Separation, on August 1, 1995, the Company
issued 3,500,000 shares of its common stock, par value $.01 per share,
to TTI in exchange for TTI's interest in AITS, TWTV Park City and
certain other miscellaneous assets with a carrying value of
approximately $946,662 (which represents the historical cost of those
assets to TTI). The carrying values of the TWTV Park City and AITS
assets were $4,118 and $1,278,451, respectively. Upon its receipt of
the Company's shares of common stock, TTI immediately transferred the
shares in the Company to an escrow agent to be held for the benefit of
TTI's shareholders of record on August 1, 1995. The distribution of the
3,500,000 shares to TTI's shareholders was delayed until the Company
and TTI complied with certain requirements of the federal securities
laws, including the filing by the Company of a registration statement
on Form 10-SB under the Securities Exchange Act of 1934. The Company's
Form 10-SB became effective December 30, 1996. The 3,500,000 shares
were then distributed to TTI's shareholders of record as of August 1,
1995, on a non-pro rata basis, with the management and principal
shareholder of TTI relinquishing a portion of their shares in the
Company in favor of the TTI public shareholders. In general, the public
shareholders received approximately 1.6 shares of the Company's common
stock for each 10 shares of TTI common stock they held on August 1,
1995.
Basis of Presentation - The Company's consolidated financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business.
58
<PAGE>
As with most development stage companies, there are uncertainties that
raise substantial doubt about the ability of the Company to continue as
a going concern. The Company's current wireless telecommunication
assets consist of two groups of wireless television channel rights,
four channels in the Park City, Utah area and 24 channels (consisting
of the four MMDS Channels and the twenty 40 GHz Channels) in the
Auckland, New Zealand area. Neither of these channel groupings
presently comprise an operating wireless telecommunications system, and
the Company will be required to build out the systems and initiate
marketing efforts to acquire subscribers before either group of channel
rights will begin generating operating income.
Since its inception, the Company has sustained net losses and negative
cash flow, due primarily to start-up costs, expenses, and charges for
depreciation and amortization of capital expenditures and other costs
relating to its development of its wireless telecommunication systems.
The Company expects to continue to experience negative cash flow
through at least 1997, and may continue to do so thereafter while it
develops and expands its wireless telecommunications systems, even if
individual systems of the Company become profitable.
The Company anticipates that it will obtain the financing necessary to
fund its future operations through loans, equity investments and other
transactions. While there can be no assurance that the Company will
secure such financing, the Company is currently in negotiations to
obtain third party financing for its activities; and management
believes that this funding can be obtained under terms satisfactory to
the Company. In the event that the Company is unsuccessful in
completing these financing arrangements or in obtaining substitute
funding commitments, the Company would have difficulty in meeting its
operating expenses, satisfying its existing or future debt obligations,
or succeeding in acquiring, developing or operating a cable system or
adding subscribers to such cable systems. If the Company does not have
sufficient cash flow or is unable to otherwise satisfy its debt
obligations, its ongoing growth and operations could be restricted and
the viability of the Company could be adversely affected.
The Company has taken several actions which it believes will improve
its short-term and ongoing liquidity and cash flow. These actions
include establishing policies designed to conserve cash and control
costs, and pursuing additional financing and capital resources as
described above. The Company's continuation as a going concern is
dependent upon its ability to satisfactorily meet its debt obligations,
acquire and develop operating telecommunication systems, secure
adequate financing or additional equity and ultimately to generate
sufficient cash flows to achieve cash flow positive operations. The
consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. The Company's
subsidiaries include AITS, which is owned 94.9% by the Company, and
TWTV Park City, which is a wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in the
consolidation. The Company's subsidiaries use the U.S. dollar as their
functional currency. Foreign currency translation gains and losses are
included in expenses as they are incurred and were not material for the
periods ended December 31, 1996 and 1995.
Use of Estimates in Preparing 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.
Prepaid License Lease Fees - Prepaid license lease fees are prepayments
of annual license or lease fees relating to the Company's license
rights.
59
<PAGE>
Investment in Centurion - The Company uses the cost method of
accounting for its investments in voting shares of other entities where
it holds less than 20% of the voting shares of the other entity and
where the Company does not exercise significant influence. As of
December 31, 1996, the Company had invested a total of $440,000 for a
4.4% interest in Comunicaciones Centurion, S.A., a Venezuelan company
(see Note 7).
Equipment - Equipment, consisting entirely of transmission equipment is
stated at cost. Depreciation is computed using the straight-line method
over the expected useful life of the assets of five years. Accumulated
depreciation on the equipment was $12,567 and $9,967 at December 31,
1996 and 1995, respectively.
Net Loss Per Common Share - Net loss per common share is calculated by
dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Warrants were not included in the
net loss per common share calculation as they are antidilutive.
Income Taxes - Under the asset and liability approach of Statement of
Financial Accounting Standards (SFAS) No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their existing tax bases.
New Accounting Standards - Effective January 1, 1996, the Company
adopted SFAS 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires
that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. This standard did not have a material effect on
the Company's 1996 consolidated financial statements.
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. The Company has decided to
continue to apply APB Opinion No. 25 (as permitted by SFAS No. 123).
The warrants granted on December 27, 1996 did not require any
compensation expense to be disclosed per SFAS No. 123.
In February 1997, SFAS No. 128, "Earnings Per Share" and SFAS No. 129,
"Disclosures of Information about Capital Structure" were issued. SFAS
No. 128 changes the computation, presentation, and disclosure
requirements of earnings per share for entities with publicly held
common stock. SFAS No. 129 addresses standards for disclosing
information about an entity's capital structure. Although such
statements are not effective until December 31, 1997, had such
statements been adopted for the periods ended December 31, 1996 and
1995, and for the period from July 31, 1995 (date of inception) to
December 31, 1996, the effect would not be significant.
3. LEASE AND LICENSE AGREEMENTS
The Company has certain lease and license agreements for various
multi-point multi-channel distribution service (MMDS or wireless
telecommunication) channels and frequencies within New Zealand. Each
license is for a specified number of channels and frequencies for a
specified length of time. The licenses were obtained from TTI through
the Separation and are recorded at TTI's historical cost.
The Company has three license agreements relating to ten channels in
New Zealand. The first license is for six channels and consists of a
three year lease which expired December 9, 1996. The accrued license
lease
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fees balance of $109,398 at December 31, 1996 and $102,183 at December
31, 1995 relates to the three year lease which expired December 9,
1996. The Company has not remitted the accrued balance at December 31,
1996 of $109,398 which represents two annual license lease fee
payments. The contractual amounts of this license are denominated in
New Zealand dollars which are subject to foreign exchange risk. The
December 31, 1996 accrued balance of $109,398 has been converted to
U.S. dollars using the December 31, 1996 exchange rate of $0.71. The
December 31, 1995 accrued balance of $102,183 has been converted to
U.S. dollars using the December 31, 1995 exchange rate of $0.65. The
second license is for two channels and consists of an eight year lease
expiring March 1, 2001 with a guaranteed option to renew the lease for
an additional four years. The third license is for two channels and
consists of a ten year lease expiring September 30, 2004.
The Company is obligated to make the following future minimum lease
payments which have been converted to U.S. dollars using the December
31, 1996 exchange rate of $0.71:
Year ending December 31:
1997 $ 98,618
1998 98,618
1999 58,618
2000 58,618
2001 58,618
2002 and thereafter 140,144
-----------------
Total future lease payments $513,234
=================
License rights are amortized using the straight-line method over the
life of the leases ranging from three to twelve years. Accumulated
amortization on the license rights was $526,833 and $357,667 at
December 31, 1996 and December 31, 1995, respectively.
In addition to owning the rights to use these licenses, the Company is
required to make certain license lease fee payments which vary
depending on the lease. These license lease fee payments are generally
paid in advance. Certain lease payments are denominated in New Zealand
dollars which are subject to foreign exchange risk. Lease expense under
all noncancelable operating leases totaled $139,029 and $56,421 for the
year ended December 31, 1996 and for the period from July 31, 1995
(date of inception) to December 31, 1995, respectively. Prepaid license
lease fees represent prepayments of annual license lease fees and
totaled $167,446 and $200,962 as of December 31, 1996, and December 31,
1995, respectively.
4. RELATED PARTY TRANSACTIONS
In June 1996, TTI borrowed $2,500,000 (the Loan) from Pacific Mezzanine
Fund, L.P., an unrelated party. As partial consideration for making the
Loan, Pacific Mezzanine Fund, L.P. remitted $1,600 for the purchase of
145,833 shares of the Company's common stock. Because these shares were
issued at below market value, the Company recorded additional interest
expense of $37,855 at the time of the stock purchase. The terms of the
Loan will allow TTI to loan funds to the Company pursuant to the loan
commitment agreement between the Company and TTI.
The Company has entered into an agreement with TTI wherein, at TTI's
sole discretion, the Company will be allowed to borrow from TTI up to
$1,000,000 for the purpose of facilitating the acquisition, operation,
build-out, and maintenance of the Company's business operations.
Interest on any outstanding balance will accrue at 8% per annum with
the principal and interest becoming due and payable in full on August
1, 2001. As of December 31, 1996, $996,707 plus accrued interest of
$47,301 was outstanding on the loan. As of December 31, 1995, $231,967
plus accrued interest of $6,439 was outstanding on the loan. The
estimated
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fair value of this long-term debt at December 31, 1996 and December 31,
1995 was not materially different from the carrying value presented in
the consolidated balance sheet.
The Company has a current liability to an entity owned by the father of
the president of the Company in the amount of $100,000 for consulting
services related to the New Zealand channel frequencies. This liability
was assumed during the Separation.
As of December 31, 1996, the Company had a related party receivable in
the amount of $120,234 from Telecom Investment Corporation, a Delaware
corporation ("TIC"), which merged with a wholly owned subsidiary of the
Company effective February 4, 1997 (see Note 8). The related party
receivable relates to professional fees and general and administrative
expenses paid by the Company on behalf of TIC. At December 31, 1996,
TIC represents a related party because one of the Company's directors
is also a director of TIC. The related party director did not own a
controlling interest in TIC at December 31, 1996.
5. INCOME TAXES
The Company has federal and state net operating loss carryforwards of
approximately $153,000 and $9,000 as of December 31, 1996 and December
31, 1995, respectively, that may be offset against future taxable
income and expense through 2010.
The long-term net deferred tax assets of $141,000 and $10,000 at
December 31, 1996 and December 31, 1995, respectively, are fully
reserved with a valuation allowance due to the uncertainty of
realization and are comprised of the following:
<TABLE>
<S> <C> <C>
December 31, December 31,
1996 1995
Deferred Tax Assets:
Net operating loss carryforwards $59,700 $3,100
Depreciation 900 400
Organizational expenditures 90,800 7,000
----------------------- ------------------------
Total deferred tax asset 151,400 10,500
Deferred Tax Liabilities - Amortization (10,400) (500)
Valuation allowance (141,000) (10,000)
----------------------- ------------------------
Total net deferred tax asset NONE NONE
======================= ========================
</TABLE>
The net change in the valuation allowance was $131,000 for the year ended
December 31, 1996. The difference between income tax expense at the federal
statutory rate and the Company's effective tax rate is attributable to the
valuation allowance.
6. NOTE PAYABLE
The Company has borrowed $75,000 through a secured promissory note,
with interest payable semi- annually on each June 30 and December 31
and bearing interest at the rate of 9% per annum. The secured
promissory note is due on January 31, 2002 and is collateralized by
assets of the Company and all outstanding shares of the Company's
common stock owned by two of the Company's directors. The holder of the
promissory note also has the right until January 31, 2002, subject to
certain conditions and restrictions, to exercise a warrant to purchase
up to $75,000 of the Company's common stock at a price which will be
determined the earlier of May 1998 or at the timing of any future
equity offering greater than $5,000,000. As of July 21, 1997, the
Company has borrowed $725,000 through secured promissory notes with the
same terms as the
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initial $75,000 secured promissory note. An officer of the holder of
the promissory note is also a director of the Company.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation matters in the normal
course of business which, in the opinion of management, will not result
in any material adverse effects on the Company.
On November 8, 1996, the Company, acting as an agent for TIC (see Note
8), entered into an agreement under which TIC has an option to acquire
all of the stock of Caracas VivaVision, T.V., S.A. ("CVV") (the "Option
Agreement"). The option term was originally through March 31, 1997, but
was extended by CVV (on behalf of the shareholders of CVV and pursuant
to the terms of the Option Agreement) through August 15, 1997. CVV is a
Venezuelan corporation which has entered into an agreement with the 28
GHz license holder in Venezuela to market and commercialize the 28 GHz
frequencies within the country of Venezuela. The original purchase
price for this option was $11,000,000 consisting of $7,700,000 of cash
and $3,300,000 of the Company's common stock at a fair value equal to
the offering price of a future equity offering.
On August 15, 1997, the Company completed the purchase of 68.14% of
CVV, pursuant to an amendment signed on August 12, 1997. Under the
terms of the amendment, the Company paid and delivered $200,000 in
cash, 1,577,000 shares of the Company's common stock, 354,825 shares of
the Company's newly designated Series "B" Preferred Shares (See Note 8)
and a promissory note in the amount of $200,000. The promissory note
accrues interest at the rate of 6.75% per annum and the principal and
all accrued interest is payable in one principal installment due on or
before the earlier of (i) October 15, 1997, or (ii) ten days after the
closing by the Company of an investment in the capital of the Company
in excess of $2 million.
In conjunction with this purchase, the Company also entered into the
following agreements with one of the former principal shareholders of
CVV: (i) an employment agreement with the former CVV principal which
commenced on August 15, 1997 for a one year period at an annual salary
of $102,857 plus additional payments in accordance with Venezuela
employment law; and (ii) a voting agreement electing the former CVV
principal to the board of directors of the Company until the earlier of
August 14, 2000 or immediately preceding the closing of a public
offering by the Company which results in net proceeds of at least $15
million and a market capitalization of at least $50 million.
On August 1, 1997, the Company and the remaining shareholder of CVV
entered into an additional amendment to the Option Agreement whereby
the Company agreed to purchase an additional 10% of the total
outstanding shares of CVV for $800,000 in cash. On August 15, 1997, the
shareholder had not complied with the terms of the amendment to the
Option Agreement and is in default.
On July 17, 1996, the Company entered into an agreement with
Comunicaciones Centurion, S.A., ("Centurion"), to acquire up to 11.53%
of its voting capital stock (1% per $100,000 investment). Centurion is
a Venezuelan corporation which holds the license rights for the 28 GHz
frequencies within Venezuela. As of December 31, 1996, the Company had
invested $440,000 with Centurion and had recorded a 4.4% investment in
Centurion. The Company had the obligation to acquire an additional
7.13% investment in Centurion for $713,000 (for a total interest of
11.53%, which represents the maximum additional foreign ownership of
Centurion that would be allowed under Venezuelan law given other
existing foreign ownership positions). As of August 15, 1997, the
Company had invested $845,955 with Centurion and had recorded an 8.46%
investment in Centurion. The obligation to invest in Centurion ceased
on August 15, 1997 when WCCI exercised its option to purchase the stock
of CVV according to the terms described below.
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8. SUBSEQUENT EVENTS
On January 30, 1997, the Company's board of directors established
preferences for a Series A class of preferred stock consisting of
4,000,000 shares. The Series A preferred shares entitle their holders
to 10 votes on all matters submitted to a vote of the shareholders of
the Company and liquidation and dividend rights entitling the holder to
receive an amount per share equal to ten times the aggregate amount to
be distributed per share to the holders of common stock. On August 12,
1997, the Company designated an additional 250,000 shares of its
preferred stock as Series A preferred stock.
In December 1996, the Company entered into negotiations with TIC
regarding the terms of a potential merger or acquisition. TIC held or
had the right to acquire wireless communication rights in a number of
South American and Latin American countries, including Venezuela, Costa
Rica, Panama and Guatemala. On January 31, 1997, Wireless Cable &
Communications, Inc. ("WCCI") entered into a transaction with TIC,
pursuant to which TIC merged with a newly formed wholly-owned
subsidiary of WCCI, NewWCCI, Inc. (the "Merged Companies"). The merger
was effective February 4, 1997. Under the terms of the merger, the
former shareholders of TIC received 2,397,732 shares of WCCI's newly
designated Series "A" Preferred Shares and legally TIC became a
wholly-owned subsidiary of WCCI. Also, the former option holders of TIC
received options to purchase 199,811 shares of WCCI's Series "A"
Preferred Shares. As a result of the merger, the former shareholders
and option holders of TIC currently hold approximately 87.7% of the
voting power of the Merged Companies on a common share equivalent
basis. Generally accepted accounting principles typically require that
the company whose shareholders retain the majority voting interest in
the combined business be treated as the acquiror for accounting
purposes. Accordingly, the merger has been accounted for as a "reverse
acquisition" whereby TIC is deemed to have acquired an 87.7% interest
on a common share equivalent basis in WCCI using the purchase method.
However, WCCI remains the legal entity and the Registrant for
Securities and Exchange Commission reporting purposes.
Consistent with the reverse acquisition accounting treatment, the
financial statements presented for the period from September 27, 1994
(date of TIC inception) through December 31, 1996 are the financial
statements of TIC and differ from the consolidated financial statements
of WCCI and its subsidiaries as previously reported.
Generally accepted accounting principles require that the assets and
liabilities of WCCI (the legal acquiror) be recorded at fair value at
the date of the merger. However, based on management's estimates, the
fair value of WCCI is not significantly different than its book
carrying value. Therefore, the assets and liabilities of WCCI have been
recorded at their carryover book value as of February 4, 1997 (the
effective date of the merger) to reflect the reverse acquisition of
WCCI as follows:
Current assets (including cash of $56,583) $ 217,017
License rights 913,500
Property and equipment (net) 217
Other long term assets 577,347
Current liabilities (463,191)
Long-term debt (1,126,823)
Minority interest (31,077)
---------------------
Stockholders' deficit (net) $ 86,990
=====================
The proforma net loss of the merged companies is $334,899, $1,120,522
and $1,514,529 for the years ended December 31, 1995, 1996 and for the
period from September 27, 1994 (date of inception) to December 31,
1996.
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<PAGE>
On August 4, 1997, a third party loaned the Company $2,100,000. The
loan bears interest at 10%, is unsecured, and is payable with accrued
interest on December 31, 1997. The Company has used $200,000 of the
loan proceeds to exercise its option to purchase 68.14% of the
outstanding shares of CVV (see Note 7), and intends to use the
remaining proceeds from the loan to pay $800,000 to exercise its option
in Venezuela to purchase an additional 10% of CVV, to pay for equipment
and start-up expenses in Venezuela and Guatemala of $579,850, and to
pay outstanding accounts payable of $496,784.
On August 12, 1997, the Company designated 750,000 shares of its
preferred stock as Series "B" Preferred Shares. The rights and
privileges of the Series "B" Preferred Shares are as follows: (1) they
carry a liquidation preference of $10 per share. The Series "B" and
Series "A" Preferred Shares share ratably in liquidation proceeds (in
accordance with their interests), prior to any liquidation
distributions to the common shareholders; (2) they carry voting rights
that entitle the holder to 1 vote per share and the holders vote
together with the common shareholders as one class on all matters; (3)
they are non-redeemable; (4) they pay noncumulative dividends in the
annual amount of 6.75% per share payable semiannually on January 1 and
July 1 of each year (payable in cash or additional Series "B" Preferred
Shares, at the Company's option); and (5) they are convertible only
into common shares of the Company on the earlier of the third
anniversary of their initial issuance, the date preceding the closing
of an underwritten public offering resulting in net proceeds to the
Company of $15 million and a market capitalization of $50 million
(including all amounts received by the Company in conjunction with the
underwritten public offering) or the sale of all or substantially all
of the Company's business or assets or a similar transaction. Each
Series "B" Preferred Share is convertible into the number of common
shares obtained by dividing $10 by the price per common share as
determined in good faith by the board of directors of the Company, and
(ii) in the case of an underwritten public offering, each Series "B"
Preferred Share is convertible into such number of shares as is
determined by dividing $10 by the public offering price.
65
<PAGE>
<TABLE>
<CAPTION>
PART III.
INDEX TO EXHIBITS
<S> <C> <C>
Exhibit No. Exhibit Page
3.1 Articles of Incorporation *
3.2 Bylaws *
4.1 Statement of Rights and Preferences for the Series A Preferred 68
Stock
4.2 Statement of Rights and Preferences for the Series B Preferred 72
Stock
10.1 Agreement and Plan of Reorganization *
10.2 Escrow Agreement between Fidelity Transfer Company, TTI and *
the Company
10.3 Commitment Agreement between the Company and TTI *
10.4 Letter of Understanding with Decathlon Communications, Inc. *
10.5 Merger Agreement Between the Company and Telecom Investment 77
Corporation
10.6 Services Agreement between Bridgeport Financial, Inc. and the 95
Company
10.7 Option and Stock Purchase Agreement between the Company, 103
Caracas Viva Vision, S.A. and its Shareholders
10.8 July 24, 1997 Amendment to Option and Stock Purchase Agreement 160
10.9 August 13, 1997 Amendment to Option and Stock Purchase 164
Agreement
12.1 Computation of Earnings Per Share 166
21.1 Subsidiaries of the Registrant 167
27.1 Financial Data Schedule 168
* This document was previously filed with the Commission and is incorporated in this report by reference.
</TABLE>
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WIRELESS CABLE & COMMUNICATIONS, INC.
August 15, 1997
Date
/s/ Lance D'Ambrosio
Lance D'Ambrosio
President and Chief Executive Officer
(Principal Executive Officer)
WIRELESS CABLE & COMMUNICATIONS, INC.
August 15, 1997
Date
/s/ Anthony Sansone
Anthony Sansone
Secretary and Treasurer
(Principal Financial Officer)
DIRECTORS
August 15, 1997 /s/ Lance D'Ambrosio
Date Lance D'Ambrosio
August 15, 1997 /s/ Troy D'Ambrosio
Date Troy D'Ambrosio
August 15, 1997 /s/ George Sorenson
Date George Sorenson
August 15, 1997 /s/ Donald Williams
Date Donald Williams
67
EXHIBIT 4.1
STATEMENT OF RIGHTS AND PREFERENCES
FOR THE SERIES A PREFERRED STOCK
CERTIFICATE ESTABLISHING AND DESIGNATING THE
RIGHTS, PREFERENCES AND RESTRICTIONS OF
SERIES A PREFERRED SHARES OF THE
PREFERRED STOCK OF WIRELESS CABLE & COMMUNICATIONS, INC.
Pursuant to the provisions of ss. 78.1955 of the Nevada Revised
Statutes, and pursuant to the authority expressly vested in the Board of
Directors of Wireless Cable & Communications, Inc., a Nevada corporation (the
"Corporation"), by unanimous written consent resolutions dated January 30, 1997,
the Board of Directors of the Corporation fixed and determined the voting
rights, designations, preferences, qualifications, privileges, limitations,
restrictions, options and other special or relative rights of a series of the
Corporation's preferred stock, hereinafter designated as the "Series A Preferred
Shares," consisting of all 4,000,000 shares of the Corporation's 5,000,000
shares of authorized preferred stock.
The undersigned corporate officers hereby certify and acknowledge that
the following resolution was duly adopted as part of such unanimous written
consent resolutions:
RESOLVED, the pursuant to the authority expressly vested in the Board
of Directors of the Corporation and pursuant to the provisions of
Nevada Business Corporation Laws, the Board of Directors hereby fixes
and determines the relative voting rights, designations, preferences,
qualifications, privileges, limitations, restrictions and other special
or relative rights of the Series A Preferred Shares, which shall
consist of 4,000,000 shares of the Corporation's preferred stock (the
"Series A Preferred Shares").
SPECIAL TERMS OF THE SERIES A PREFERRED SHARES
Voting Rights. In addition to any other voting rights
required by law, the holders of Series A Preferred Shares shall have
the following voting rights:
Subject to the provision for adjustment hereinafter
set forth, each Series A Preferred Share shall entitle the holder
thereof to 10 votes on all matters submitted to a vote of the
shareholders of the Corporation.
In the event the Corporation shall at any time after
the issuance of any Series A Preferred Shares (i) declare any dividend
on common stock payable on shares of common stock, (ii) subdivide the
outstanding shares of common stock, or (iii) combine the outstanding
shares of common stock into a smaller number of shares, then, in each
such case, the number of votes per share to which the holders of Series
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<PAGE>
A Preferred Shares were entitle immediately prior to such event shall
be adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of common stock outstanding immediately
after such event and the denominator of which is the number of shares
of common stock that were outstanding immediately prior to such event.
Except as otherwise provide in the Corporation's
Articles of Incorporation, or by law, the holders of Series A Preferred
Shares and the holders of common stock (and the holders of shares of
any other series or class entitled to vote thereon) shall vote together
as one class on all matters submitted to a vote of shareholders of the
Corporation.
Required Shares. Any Series A Preferred Shares
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall, upon their cancellation, become
authorized but unissued preferred stock and may be reissued as part of
a new series of preferred stock to be created by resolution or
resolutions of the Board of Directors.
Liquidation, Dissolution or Winding Up. In the event
of any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the holders of Series A Preferred Shares shall be
entitled to receive an amount per share, subject to the provision for
adjustment set forth in the next sentence, equal to ten times the
aggregate amount to be distributed per share to the holders of common
stock. In the event the Corporation shall at any time after the
issuance of any Series A Preferred Shares (i) declare any dividend on
common stock payable in shares of common stock, (ii) subdivide the
outstanding shares of common stock, or (iii) combine the outstanding
shares of common stock into a smaller number of shares, then in each
such case the amount to which holders of Series A Preferred Shares were
entitled immediately prior to such event pursuant to the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which
is the number of shares of common stock that were outstanding
immediately prior to such event.
Consolidation, Merger, Etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of common stock are exchanged or
changed into any other stock or securities, cash and/or any other
property, then, in any such case, the Series A Preferred Shares shall
at the same time be similarly exchanged or changed into an amount per
share (subject to provision for adjustment as set forth in the next
sentence) equal to ten times the aggregate amount of stock, securities,
cash and/or other property (payable in kind), as the case may be, into
which or for which each share of common stock is changed or exchanged.
In the event the Corporation shall at any time after the issuance of
any Series A Preferred Shares (i) declare any dividend on common stock
payable in shares of common stock, (ii) subdivide the outstanding
shares of common stock, or (iii) combine the outstanding shares of
common stock into a smaller number of shares,
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<PAGE>
then, in each such case, the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred
Shares shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of common stock outstanding
immediately after such event, and the denominator of which is the
number of shares of common stock that were outstanding immediately
prior to such event.
Redemption. The Series A Preferred Shares shall not
be redeemable.
Ranking. The Series A Preferred Shares shall rank on
a par with the Corporation's common stock as to the payment of
dividends and the distribution of assets, unless the terms of any such
series shall provide otherwise.
Fractional Shares. Series A Preferred Shares may be
issued in fractions of a share which shall entitle the holder, in
proportion of such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of the holders of Series A Preferred
Shares.
Dividends and Distributions. The rate of dividends
payable per share of Series A Preferred Shares will be equal (subject
to the provision for adjustment set forth in the next sentence) ten
times the aggregate per share of all amount of cash dividends, and ten
times the aggregate per share amount (based upon the fair market value
at the time the non-cash dividend or other distribution is declared or
paid as determined in good faith by the Board of Directors) of all
non-cash dividends or other distributions other than a dividend payable
in shares of common stock or a subdivision of the outstanding shares of
common stock (by reclassification or otherwise) declared on the common
stock of the Corporation after the date of the first issuance of any
Series A Preferred Share. Dividends on the Series A Preferred Shares
shall be paid out of funds legally available for such purpose. In the
event the Corporation shall at any time after the issuance of any
Series A Preferred Share (i) declare any dividend on common stock
payable in shares of common stock, (ii) subdivide the outstanding
shares of common stock, or (iii) combine the outstanding shares of
common stock into a smaller number of shares, than in each such case
the amounts to which holders of Series A Preferred Shares were entitled
immediately prior to such event shall be adjusted by multiplying each
such amount by a fraction, the numerator of which is the number of
shares of common stock outstanding immediately after such event, and
the denominator of which is the number of shares of common stock that
were outstanding immediately prior to such event. Dividends paid on the
Series A Preferred Shares shall be paid, subject to the provisions of
this section, as, when and if paid to the holders of shares of common
stock of this Corporation.
Other Rights. In all other respects, the holders of
the Series A Preferred Shares shall have, and shall be subject to, all
of the rights, designations, preferences, qualification, privileges,
limitations, restrictions and other relative rights of the holders of
shares of this Corporation's common stock.
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<PAGE>
* * * *
The undersigned hereby certify that the foregoing resolution was duly
and unanimously adopted by the Board of Directors of the Corporation on January
30, 1997.
/s/ Lance D'Ambrosio
President
/s/ Anthony Sansone
Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 30th
day of January, 1997, by Lance D'Ambrosio the President of Wireless Cable &
Communications, Inc.
James E. Elegante
NOTARY PUBLIC
Residing at: Salt Lake City
My Commission Expires:
8-8-99
71
EXHIBIT 4.2
STATEMENT OF RIGHTS AND PREFERENCES
FOR THE SERIES B PREFERRED STOCK
CERTIFICATE ESTABLISHING AND DESIGNATING THE
RIGHTS, PREFERENCES AND RESTRICTIONS OF
SERIES B PREFERRED SHARES OF
WIRELESS CABLE & COMMUNICATIONS, INC.
Pursuant to the provisions of section 78.1955 of the Nevada revised
Statutes, as amended, and pursuant to the authority expressly vested in the
Board of Directors of Wireless Cable & Communications, Inc., a Nevada
corporation (the "Corporation"), by consent resolutions dated July 17, 1997, the
Board of Directors of the Corporation fixed and determined the voting rights,
designations, preferences, qualifications, privileges, limitations,
restrictions, options and other special or relative rights of a series of the
Corporation's preferred stock, hereinafter designated as the "Series B Preferred
Shares," consisting of 750,000 shares of the Corporation's 5,000,000 shares of
authorized preferred stock, of which (prior to the filing of this Certificate)
750,000 shares of such 5,000,000 shares are undesignated.
The undersigned, the duly elected and acting president and secretary of the
Corporation, respectively, hereby certify and acknowledge that the resolution
set forth immediately below was duly adopted as such written consent resolution:
IT IS HEREBY RESOLVED AS FOLLOWS:
Pursuant to the authority expressly granted to and vested in the Board of
Directors of the Corporation, and pursuant to the provisions of the Nevada
Revised Statutes, the Board of Directors hereby fixes and determines the
relative voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions and other special or relative rights or a series of
authorized preferred stock, par value $.01 per share, designated the "Series B
Preferred Stock," which shall consist of 750,000 shares of the Corporation's
preferred stock as follows:
1. Dividends
1.1 No dividend shall be declared or paid on the common stock of
the Corporation, par value $.01 per share (the "Common Stock"), during any
fiscal year of the Corporation until dividends in the annual amount of $.0675
per share (as adjusted for any stock dividends, combinations, or stock splits
with respect to such stock as set forth in Section 5), noncumulative, on the
Series B Preferred Stock shall have been declared and paid during such fiscal
year. The preferential dividend on the Series B Preferred Stock shall be payable
semiannually on January 1 and July 1 of each year.
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1.2 The preferential dividend described in Section 1.1 hereof
shall be payable by the Corporation, in its sole discretion, in (a) cash, or (b)
by the delivery to each holder of the Series B Preferred Stock of the number of
shares of Series B Preferred Stock equal to the product of (i) .0675 (annually,
or .03375 semi-annually, as the case may be), multiplied by (ii) the number of
shares of issued and outstanding Series B Preferred Stock held by such
shareholder.
2. Liquidation. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holder of each share of Series
B Preferred Stock shall be entitled to receive (subject to any other class of
the Corporation's stock that is senior to the Series B Preferred Stock), prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of the shares of Common Stock, but in parity (in pari pasu) with the
holders of the shares of the Series A Preferred Stock, an amount equal to $10.00
per Series B share. If, upon any such liquidation, dissolution or winding up of
the Corporation, the assets distributable among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment in full to such
holders of the amount hereinabove provided, then the entire assets of the
Corporation shall be applied ratably to the payment of such amount to the
holders of the Series A Preferred Stock and the Series B Preferred Stock then
outstanding.
3. Redemptions. The Series B Preferred Stock shall not be redeemable.
4. Conversion. The Series B Preferred Stock shall not be convertible, except as
provided in the further paragraphs of this Section 4.
4.1 All issued and outstanding Series B Preferred Stock shall be
automatically converted into fully paid and nonassessable shares of Common Stock
of the Corporation at the applicable Conversion Rate on the date preceding the
earliest to occur of (i) three years from the date of the initial issuance of
the Series B Preferred Stock, or (ii) the date of the consummation of the
Corporation's sale of shares of its Common Stock in an underwritten public
offering pursuant to a registration statement (other than a registration
statement filed on Form S-4 or S-8, or equivalent form) filed with and declared
effective by the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended, which results in aggregate net cash proceeds to the
Corporation of at least $15,000,000 and which results in a market capitalization
for the Corporation of at least $50,000,000 (post money) (an "Offering"), or
(iii) if the Corporation shall merge with or consolidate into another
corporation and shall not be the surviving entity in such merger or
consolidation, or shall sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business.
4.2 As used herein, the term "Conversion Rate" shall mean, with
respect to the occurrence of any event described in clause (i) or clause (iii)
of paragraph 4.1, a fraction, the numeration of which shall be $10.00 and the
denominator of which shall be the then value, per share, of the Corporation's
Common Stock, as determined in good faith by the Board of Directors, and, with
respect to the occurrence of the event described in clause (ii) of paragraph
4.1, a fraction, the numerator of which shall be $10.00 and the denominator of
which shall be the greater of (A) the actual price paid by investors in the
Corporation's Common Stock pursuant to the Offering, or (B) the assumed price to
the public set forth in the registration statement for the Offering.
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4.3 Upon a conversion of the Series B Preferred Stock into shares
of Common Stock pursuant to the provisions of paragraph 4.1, the holder thereof
shall surrender, during regular business hours, the certificates representing
the Series B Preferred Stock, duly endorsed to the Corporation or in blank, at
the principal office of the Corporation or at such other place as the
Corporation shall designate. The Corporation shall, promptly following its
receipt of such certificates, determine the number of shares of Common Stock
into which Series B Preferred Stock shall convert by multiplying the number of
share of Series B Preferred Stock so tendered to the Corporation by the
applicable Conversion Rate, and deliver to such holder of Series B Preferred
Stock, or to such holder's nominee or nominees as shall be designated by such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holders shall be entitled, together with cash to which such holder
shall be entitled in lieu of fractional shares. The Series B Preferred Stock to
be converted shall be deemed to have been converted and canceled as of the day
immediately preceding the earliest to occur of the events described in paragraph
4.1, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
4.4 At least 10 days prior to the anticipated occurrence of the
earliest to occur of any event specified in paragraph 4.1, the Corporation shall
give a written notice to each holder of record of Series B Preferred Stock, by
certified mail enclosed in a postage paid envelope addressed to such holder at
such holder's address as the same shall appear on the books of the Corporation.
Delivery shall be deemed to have occurred on the second day after deposit of
such notice in the mail. Such notice shall (i) state that the shares will be
automatically converted on the date preceding the consummation of the
anticipated event, (ii) state the expected date of conversion, and (iii) call
upon such holder to exchange on or after said date at the principal place of
business of the Corporation a certificate or certificates representing the
Series B Preferred Stock to be converted in accordance with such notice as
provided in paragraph 4.3. Upon any conversion hereunder, the Corporation shall
not be obligated to issue certificates for the shares of Common Stock unless and
until certificates evidencing the converted Series B Preferred Stock are
delivered to the Corporation.
4.5 The issuance of certificates for Common Shares upon the
conversion of Series B Preferred Stock shall be made without charge to the
converting holder of Series B Preferred Stock for any original issue or transfer
tax in respect of the issuance of such certificates.
4.6 The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of Series B Preferred Stock, the full number of shares
of Common Stock then deliverable upon the conversion or exchange of all the
Series B Preferred Stock at the time outstanding. The Corporation shall take at
all times such corporate action as shall be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the conversion of Series B Preferred Stock in accordance with
the provisions hereof.
4.7 No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock shall be issued upon any conversion of Series
B Preferred Stock.
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5. Equitable Adjustment. If a state of facts shall occur which, without being
specifically controlled by the provisions of these resolutions (including,
without limitation, any subdivision of the outstanding shares of the Common
Stock into a greater number of shares of Common Stock, any combination of the
outstanding shares of Common Stock into a lesser number of shares, the issuance
of rights to all of the holders of its shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the then fair market value of the Common Stock, the declaration of a dividend or
other distribution payable in Common Stock, or the reorganization of the
Corporation), would not fairly protect the conversion, dividend or voting rights
of the holders of the Series B Preferred Stock or the rights of the Corporation
in accordance with the essential intent and principles of these resolutions,
then the Board of Directors of the Corporation shall make an adjustment in
application of the provisions hereof, in accordance with such essential intent
and principles, so as to protect such rights. Anything herein to the contrary
notwithstanding, no adjustment in the Conversion Rate shall be required unless
such adjustment, either by itself or with other adjustments not previously made,
would require a change of at least 5% in the Conversion Rate, provided, however,
that any adjustment which by reason of this subparagraph is not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section shall be made to the nearest
one-thousandth of a share.
6. Voting Rights. Except as provided by any applicable provision of Nevada law,
each share of Series B Preferred Stock shall entitle the holder thereof the
right to cast one vote on every matter duly brought before the holders of shares
of Common Stock of the Corporation. The holders of the shares of Series B
Preferred Stock and Common Stock shall vote together as one class on all matters
submitted to a vote of the shareholders of the Corporation.
7. Rank. All preferred shares of the Corporation shall be identical and of equal
rank except as to terms which may be specified by the Board of Directors
pursuant to the resolution or resolutions providing for the issuance or
amendment of the Series A Preferred Stock or the Series B Preferred Stock
adopted from time to time by the Board of Directors.
* * * *
The undersigned hereby certify that the foregoing resolution was duly
and unanimously adopted by the Board of Directors of the Corporation on July 17,
1997.
/s/ Lance D=Ambrosio
President
/s/ Anthony J. Sansone
Secretary
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STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 11th day of
August, 1997, by Lance D=Ambrosio, the President of Wireless Cable &
Communications, Inc.
James E. Elegante
NOTARY PUBLIC
Residing at: Salt Lake City, Utah
My Commission Expires:
8-8-99
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this 11th day of
August, 1997, by Anthony Sansone, the Secretary of Wireless Cable &
Communications, Inc.
James E. Elegante
NOTARY PUBLIC
Residing at: Salt Lake City, Utah
My Commission Expires:
8-8-99
76
EXHIBIT 10.5
MERGER AGREEMENT BETWEEN THE COMPANY
AND TELECOM INVESTMENT CORPORATION
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of
January 31, 1997, by and between WIRELESS CABLE & COMMUNICATIONS, INC., a Nevada
corporation (the "Parent"), NEWWCCI, INC., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Subsidiary"), and TELECOM INVESTMENT
CORPORATION, a Delaware corporation (the "Company").
RECITALS:
WHEREAS, the respective Boards of Directors of the Company, the
Subsidiary and Parent deem it advisable and in the best interests of their
shareholders to effect the merger (the "Merger") of the Subsidiary with and into
the Company pursuant to this Agreement.
WHEREAS, the respective Boards of Directors of the Company, Parent
and Subsidiary, and all of the shareholders of the Company and the Subsidiary
have approved the Merger.
WHEREAS, for federal income tax purposes, the Merger is intended
to constitute a reorganization within the meaning of Sections 368(a) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, together with other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I - THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2), (a) the separate
existence of Subsidiary shall cease and Subsidiary shall be merged with and into
the Company (the Subsidiary and the Company are sometimes referred to herein as
the "Constituent Corporation" and the Company is sometimes referred to herein as
the "Surviving Corporation"). The Merger shall have all the effects of a merger
as provided by Section 259 of the Delaware General Business Laws (the "Act").
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1.2 Effective Date and Time of the Merger. On the Closing Date and
subject to the terms and conditions hereof, articles or certificate of merger
(the "Articles of Merger") shall be duly prepared, executed and acknowledged by
each of the Subsidiary and the Company in compliance with the applicable
provisions of the Act and shall be delivered for filing to the Secretary of
State of Delaware (the "Secretary") as provided in the Act as soon as
practicable on or after the Closing Date. The Merger shall become effective on
the date (the "Effective Date") and at the time (the "Effective Time") that the
Articles of Merger are so filed, or at such time thereafter as is provided in
such Articles of Merger by mutual agreement of Parent and the Company. If the
Secretary requires any changes in the Articles of Merger as a condition to
filing the Articles of Merger or to issuing a certificate of merger, the
Subsidiary and the Company will execute necessary revisions incorporating such
changes, provided they are not inconsistent with, or result in any material
change to, the terms of this Agreement.
1.3 Articles of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation.
1.4 Bylaws of the Surviving Corporation. The Bylaws of the
Company, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended as provided
therein, in the Certificate of Incorporation of the Surviving Corporation, or by
the Act.
1.5 Board of Directors of the Surviving Corporation. The directors
of the Company immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, without change, until their successors have been duly
elected and qualified or until their earlier death, resignation or removal, in
accordance with the applicable provisions of the Certificate of Incorporation of
the Surviving Corporation and the Bylaws of the Surviving Corporation.
1.6 Officers of the Surviving Corporation. The officers of the
Company immediately prior to the Effective Time shall be and become the officers
of the Surviving Corporation, without change, until their successors have been
duly elected and qualified or until their earlier death, resignation or removal,
in accordance with the Certificate of Incorporation of the Surviving Corporation
and the Bylaws of the Surviving Corporation.
1.7 Closing and Closing Date. Prior to the filing of the Articles
of Merger, a closing (the "Closing") of the transactions herein contemplated
shall take place for the purpose of confirming the satisfaction of, or if
permissible, waiver, of the conditions set forth in Article VI hereof. The
Closing will take place as soon as practicable after the satisfaction, or, if
permissible, waiver, of the conditions set forth in Article VI hereof (such time
and date being referred to herein as the "Closing Date"), at the offices of
Parsons Behle & Latimer, 201 South Main Street, Suite 1800, Salt Lake City,
Utah, or at such other place as Parent and the Company shall agree. At the
Closing, each of the parties shall take all such actions and execute and deliver
all such documents, instruments, certificates and other items as may be required
under this Agreement or otherwise, in order to perform or fulfill all covenants,
conditions and agreements on its part to be performed at or prior to the Closing
Date and to cause all conditions precedent to the other party's obligations
under this Agreement to be satisfied in full.
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ARTICLE II - CONVERSION OF SECURITIES
2.1 Conversion of Company Shares. As of the Effective Date, by
virtue of the Merger and without any action on the part of any of the parties or
any holder of any shares of the Company or Subsidiary, all of the outstanding
common shares of the Company (the "Company Common Shares"), shall, in the
aggregate, be converted into the right to receive 2,397,732 fully paid and
nonassessable shares of the Parent's Series A Preferred Stock (the "Parent
Shares") upon surrender of the certificates formerly representing such Company
Common Shares.
2.2 Conversion of Subsidiary Shares. As of the Effective Date, by
virtue of the Merger and without any action on the part of any of the parties or
any holder of any shares of the Company or Subsidiary, each of the issued and
outstanding common shares of the Subsidiary shall be converted into and become
1,000 validly issued, fully paid and nonassessable common shares of the
Surviving Corporation.
2.3 Options for Company Shares. All outstanding options or
warrants to acquire Company Common Shares shall, as of the Effective Date and by
virtue of the Merger and without any action on the part of the parties or any
holder of such options or warrants, be converted into the right to acquire (upon
substantially the same terms and conditions as the outstanding options or
warrants to acquire the Company Common Shares, as adjusted to reflect the
relative rights and preferences thereof and the relative dilution resulting from
the exercise of such options and warrants to the existing shareholders of the
Company assuming no consummation of the Merger) Parent Shares.
ARTICLE III - PAYMENT AND SURRENDER
3.1 Ownership and Delivery of Certificates.
(a) Payment Schedule. At or prior to the Closing, the
Company shall deliver to the Subsidiary a schedule (the "Ownership Schedule")
containing, to the best knowledge of the Company, the names and addresses of all
holders of shares of the Company and rights in respect thereof. The schedule
shall also set forth all option or warrant holders of the Company Common Shares.
With respect to each holder, the Ownership Schedule shall indicate (i) the
number of Company Common Shares currently owned or subject to acquisition by the
holder, and (ii) the aggregate number of shares of Parent Shares to be received
by such holder.
(b) Delivery of Certificates. The Company shall use its
reasonable efforts to obtain prior to the Closing Date, the surrender of the
certificates representing as many of the Company Common Shares as possible. All
such certificates shall be duly endorsed in blank, or accompanied by blank stock
powers. In the case of Company Common Shares, the certificates representing
shares which have been lost, mutilated or destroyed, the Company will use its
reasonable efforts to obtain from the owners of such shares an affidavit of lost
certificate, in such form as shall be approved by the Subsidiary. As to any
certificates representing Company Common Shares which are surrendered to the
Company by a person, firm or entity other than the record holder thereof as
shown on the books and records of the Company, the Company shall accept the
surrender of such certificates only when such certificates are accompanied by
such documents and instruments confirming the ownership rights
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in such shares as shall be satisfactory to the Subsidiary. The Company shall
hold all shares surrendered to it pursuant to this Section 3.1(b) in escrow
until the Closing.
(c) Delivery of Parent Shares. At the Closing, on the
basis of the Payment Schedule, Subsidiary shall deliver, to each holder that has
theretofore surrendered its certificates or acceptable evidences thereof to the
Company in accordance with Section 3.1(b) hereof, that number of Parent Shares
referred to in clause 4.1(a) (ii) above. Any part or portion of the total number
of Parent Shares which are not so distributed to shareholders of the Company
upon the Closing Date in accordance with this Section 4.1(c) shall be held by
Parent. Parent shall send to any holders of Company Common Shares who shall not
have so surrendered stock certificates, or acceptable evidences thereof, at or
prior to the Closing Date, a letter of transmittal instructing such holders to
surrender to Parent their certificates, duly endorsed in blank, or acceptable
evidences thereof. Upon delivery thereof, the holders shall be entitled to, and
the Parent shall distribute to such holders, the Parent Shares for the shares of
Company Common Shares held by such holders.
3.2 Closing of Transfer Records. After the close of business on
the Closing Date, transfers of the Company Common Shares outstanding prior to
the Effective Time shall not be made on the stock transfer books of the
Surviving Corporation.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Subsidiary. Subsidiary
represents and warrants to the Company as follows:
(a) Organization; Good Standing. Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as now being
conducted.
(b) Execution and Validity of Agreements. The execution
and delivery by Subsidiary of this Agreement, and the consummation of the
transactions provided for herein have been duly authorized by all requisite
corporate and shareholder action. This Agreement has been duly and validly
executed and delivered by Subsidiary, and, assuming due authorization, execution
and delivery of this Agreement by the other parties to it, is a legal, valid and
binding obligation of Subsidiary, enforceable against it in accordance with its
terms, subject only to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
equity principles.
(c) Effect of this Agreement. The execution, delivery and
performance of this Agreement by Subsidiary, and the consummation by it of the
transactions contemplated hereunder, do not and will not conflict with or result
in a breach or termination of any term or provision of, or constitute a default
under, or result in the creation of any lien, charge or encumbrance upon any of
its properties or assets pursuant to any corporate charter, bylaw, mortgage,
deed of trust, indenture or other agreement or instrument, or any order,
judgment, decree or like restriction, statute or regulation by which it or any
of its assets and properties may be bound.
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(d) No Approvals or Notices Required: No Conflicts With
Instruments. The execution, delivery and performance of this Agreement by
Subsidiary and the consummation by it of the transactions contemplated hereby
will not (i) constitute a violation (with or without the giving of notice or
lapse of time) of any provision of applicable law, (ii) require any consent,
approval or authorization of any person or governmental authority which it has
not obtained, (iii) result in a default under, acceleration or termination of,
or the creation in any person or entity of the right to accelerate, terminate,
modify or cancel, any agreement, lease, franchise, permit, note or other
restriction, encumbrance, obligation or liability to which Subsidiary is a party
or by which it is bound or to which any of its assets are subject, (iv) result
in the creation of any lien or encumbrance upon Subsidiary's assets, (v)
conflict with or result in a breach of or constitute a default under any
provision of Subsidiary's Certificate of Incorporation or Bylaws, or (vi)
conflict with, result in tortious interference as a result of such conflict
with, or otherwise violate, any contract or arrangement between Subsidiary and
any other person.
(e) Broker. Neither Subsidiary nor any of its affiliates
(including Parent) or anyone acting on behalf of it, has taken any action
relating to any broker, finder, consultant or other expert which could result in
the imposition upon the Company, or any of its affiliates, of any obligation to
pay a fee to any broker, finder, consultant or other similar expert in
connection with this Agreement or the transactions contemplated hereby.
4.2 Representations and Warranties of the Company. The Company
hereby represents and warrants to Subsidiary and Parent as follows:
(a) Disclosure Schedule. Prior hereto (and updated on the
date hereof) the Company has delivered to Subsidiary and Parent a schedule (the
"Disclosure Schedule"), which is incorporated by reference herein and which
represents, except as otherwise provided therein, a correct and complete listing
of the information called for and copies of all documents called for and setting
forth as of the date hereof (unless otherwise specifically indicated) the
following:
(i) A true and complete copy of the Company's
Certificate of Incorporation, together with all amendments and restatements
thereto through the date hereof, and a true and complete copy of the Bylaws of
the Company as in effect on the date hereof;
(ii) A listing of all jurisdictions where the
Company has qualified to do business as a foreign corporation, with true and
complete copies of all certificates of authority to do business as a foreign
corporation, certified by the appropriate governmental authorities;
(iii) The unaudited financial statements (the
"Unaudited Financial Statements") of the Company for the fiscal year ended
August 31, 1996 and for the 3 months ended November 30, 1996, including the
Company's balance sheet (the "Balance Sheet") dated November 30, 1996 (the
"Balance Sheet Date");
(iv) A complete list of any real property owned
or leased by the Company, together with a materially complete legal description
of such real property;
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(v) A materially correct list and description of
all items of machinery, tools and equipment owned or leased by the Company
(pursuant to capital and operating leases);
(vi) Copies of all issued patents, pending patent
applications, registered trademarks, trade names, servicemarks, brandmarks,
brand names or copyrights owned or used by the Company, together with copies of
all registrations, licenses and royalty agreements for any of the foregoing,
owned in whole or in part by the Company; copies of all written, and a
description of all oral, licenses granted by or to the Company and all other
agreements to which the Company is a party which relate, in whole or in part, to
any of the above; and a list describing all trade secrets, know-how or processes
owned and presently utilized by the Company;
(vii) Copies of all business licenses and
permits, approvals or similar notices (including without limitation all
environmental and health licenses, permits, approvals and notices) issued to and
held by the Company from any Federal, foreign, state or local governmental body;
(viii) Copies of any policies of insurance
(including without limitation fidelity bonds covering officers and employees and
policies on the life of any directors, officers or key employees) in force now
and insuring the liabilities, risks, or properties or other assets of the
Company;
(ix) Copies of all written, or a description of
the material terms of all oral, existing contracts and agreements (including,
without limitation, mortgages, leases, loan agreements, and credit agreements),
to which the Company is a party or by which it or any of its properties or
assets may be bound other than (A) contracts involving less than $50,000 each or
(B) contracts or commitments which are terminable by the Company upon no more
than thirty (30) days' notice without penalty (collectively, the "Material
Contracts");
(x) Copies of any and all agreements between the
Company and any other party relating to the purchase or sale of capital stock or
any other security of the Company;
(xi) Copies of all written, or a description of
all oral employment and consulting agreements, executive compensation plans,
incentive compensation plans, employee stock purchase and stock option plans,
and other plans or arrangements providing for benefits for the employees of the
Company;
(xii) The name of each bank or other financial
institution from which credit commitments, loans or financing to the Company are
outstanding, together with complete copies of any existing credit agreements
and/or other banking documentation related thereto;
(xiii) The name of each bank or other financial
institution where the Company has an account or safe deposit box and the names
of all persons authorized to draw thereon or to have access thereto;
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(xiv) The names of all persons, firms,
associations, corporations or business organizations holding general or special
powers of attorney from the Company and a summary of the terms thereof;
(xv) The names of the plaintiffs, defendants,
claimants or other parties, the court, agency or other forum and the applicable
docket numbers of all pending claims, actions, suits, or legal, administrative,
arbitrations or other proceedings or investigations to which the Company or any
officer or director of the Company (with respect to matters relating to the
Company) has received service of process or other official notification; and
(xvi) A list of all accounts receivable of the
Company.
Except as otherwise indicated in the Disclosure Schedule, true and
complete copies of all documents, including all amendments thereto, and a
description of all oral agreements referred to in the Disclosure Schedule shall
be attached thereto. Except as otherwise noted in the Disclosure Schedule, there
is not, under any of the documents, rights, obligations and commitments referred
to in the Disclosure Schedule (including without limitation any of the Material
Contracts) any existing breach, default or event which with notice and/or lapse
of time would constitute a default thereunder by the Company or, to the
Company's knowledge, by any other party thereto, nor has any party thereto given
notice of or made a claim with respect to any such breach or default.
(b) Organization; Good Standing; No Subsidiaries.
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation in every jurisdiction wherein
the failure to so qualify would have a material and adverse effect on the
Company or its business, and the Company has not been requested to so qualify in
any jurisdiction.
(ii) The Company has one subsidiary, Telecom
Investment Corporation del Peru, S.A. ("TICP"), a Peruvian corporation, which is
owned 89% by the Company. TICP's other shareholders are Tom Cauchois, a member
of the Company's board of directors, who holds 10% of TICP and a Peruvian
national who is a shareholder in Telesco S.A., which has a joint venture
agreement with TICP.
(c) Execution and Validity of Agreements. The Company has
all requisite power and authority to enter into this Agreement and to perform
its obligations hereunder. This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Subsidiary and Parent, is a legal, valid and binding obligation of
the Company, enforceable against it in accordance with its terms, subject only
to bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally and to general equity principles.
(d) Capital Stock.
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(i) Schedule 5.2(d)(i) hereto accurately (A)
describes the authorized capital stock of the Company, (B) lists the number of
shares of such capital stock presently issued and outstanding and (C)
identifies, to the best knowledge of the Company, the true and lawful owner of
each of the shares of such capital stock. All of the outstanding shares of
capital stock have been duly and validly authorized and issued and are fully
paid and nonassessable, with no personal liability attaching to the ownership
thereof. The Company does not have any capital stock outstanding other than as
listed in Schedule 5.2(d)(i) hereto;
(ii) Schedule 5.2(d)(ii) hereto accurately
describes the number of shares of Company Common Stock with respect to which
warrants are outstanding, and with respect to which stock options have been
granted and are outstanding, and identifies the holder and owner of such
warrants and stock options. Except for the conversion rights of such outstanding
warrants and stock options, the Company has no outstanding subscriptions,
options, rights, warrants, calls, commitments or agreements of any kind to issue
or acquire any shares of capital stock of the Company, or any securities
convertible into any shares of such capital stock and, other than this
Agreement, there are no shareholder or other agreements or understandings with
respect to the sale or transfer of any shares of such capital stock or other
securities;
(e) Financial Statements. The Unaudited Financial
Statements are true and correct and fairly present, in all material respects,
the financial position of the Company as of the dates indicated and the results
of operations for the periods therein indicated.
(f) Accounts Receivable and Accounts Payable. All accounts
receivable and all other receivables reflected on the Balance Sheet and all such
receivables arising after the Balance Sheet Date are bona fide receivables and
are current and enforceable and arose in the ordinary course of business. No
material counterclaims or offsetting claims with respect to such receivables are
pending or, to the Company's knowledge have been, threatened. All accounts
payable and all other payables reflected in the Balance Sheet are bona fide
payables which arose in the ordinary course of business and have been paid or
are not yet due and payable.
(g) Undisclosed Liabilities. The Company has no material
debts or liabilities or obligations of any nature whatsoever, whether accrued,
absolute or contingent, determined or undetermined, known or unknown, and
whether due or to become due (including, without limitation, liability for
taxes, assessments, penalties, fees or interest), except (i) liabilities or
obligations specifically reflected and, if appropriate, reserved against on the
Balance Sheet, (ii) liabilities or obligations arising in the ordinary course of
business since the date of the Balance Sheet, none of which, individually or in
the aggregate, involves or will involve, individually or in the aggregate, more
than $50,000, (iii) liabilities or obligations set forth in the Disclosure
Schedule, and (iv) contractual obligations of the Company under contracts
incurred in the ordinary course of business which are not required to be
disclosed in the Disclosure Schedule.
(h) Absence of Certain Changes or Events. Since the
Balance Sheet Date, there has been no material adverse change in the assets,
liabilities, operations or business prospects of the Company, and the Company
has not (i) declared any dividend or made any payment or other distribution in
respect of its shares of capital stock, (ii) acquired or disposed of any shares
of its capital stock, (iii) entered into any transaction with any officer,
director, employee, or any known
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relative thereof or any entity in which any such person
has an interest, except the payment of rent, salaries, wages and expenses
reimbursement in the ordinary course of business at the same levels in effect
prior to such date,(iv) incurred any obligation or liability (contingent or
otherwise), except (A) this Agreement, (B) normal trade and other obligations
incurred in the ordinary course of business, and (C) obligations under
contracts, agreements and leases, the performance of which have not and will
not, individually or in the aggregate exceed $50,000, (v) discharged or
satisfied any lien or other encumbrance or paid any obligation or liability
(fixed or contingent), except in the ordinary course of business or required by
the terms thereof or in connection with the transactions contemplated herein,
(vi) mortgaged, pledged or subjected to any lien or other encumbrance any of its
assets (whether tangible or intangible), (vii) sold, assigned, transferred,
conveyed, leased or otherwise disposed of or agreed to sell, lease or otherwise
dispose of any of its assets except for sales of assets for fair consideration
in the ordinary course of business, (viii) canceled or compromised any debt or
claim, except in the ordinary course of business, (ix) waived or released any
rights, except for waivers or releases made in the ordinary course of business,
(x) transferred or granted any rights under any of its concessions, leases,
licenses, agreements, patents, trademarks, trade names, servicemarks,
brandmarks, brand names, copyrights, or with respect to any of its inventions or
know-how, (xi) made any single capital expenditure in excess of $50,000, or
entered into any commitment therefor, (xii) suffered any casualty loss or
damage, whether or not covered by insurance, or (xiv) except as otherwise
provided in this Subsection (h), entered into any other transaction, contract or
commitment other than in the ordinary course of business.
(i) Taxes. The Company has not yet filed any federal,
state, local or foreign returns in any jurisdiction relating to any taxes,
assessments, penalties, fees, interest and other governmental charges on the
Company's properties, income or franchises ("Taxes"). The provision for Taxes
payable reflected on the Unaudited Financial Statements is adequate for the
payment of all liabilities of the Company for Taxes through the date of such
Unaudited Financial Statements. In addition, the Company has made or by the
Closing Date, will have made, adequate provision for the payment of Taxes
accrued or accruable through the end of the month preceding the Closing. None of
the income tax returns of the Company have been audited. The Company has not
executed or filed with any applicable taxing authority any agreement or other
document having the effect of extending the period for assessment or collection
of any taxes. The Company is not a party to any action or proceeding pending, or
threatened, by any governmental authority for assessment or collection of taxes
and no claim for assessment or collection of taxes has been asserted against the
Company. The Company is not part of an Affiliated Group (as defined in the
Code).
(j) Litigation. There are no claims, actions, suits or
legal or administrative arbitrations or other proceedings or investigations
relating to or pending against the Company, or, to the Company's knowledge,
threatened against or affecting the Company, or to which the Company is a party,
before or by any Federal, foreign, state, local or other governmental or
non-governmental department, commission, board, bureau, agency, court or other
instrumentality, or by any private person or entity, and, to the Company's
knowledge, there are no facts which would provide a basis for any such claim,
action, suit or proceeding. There are no existing or, to the knowledge of the
Company, threatened orders, judgments or decrees of any court or governmental
agency which specifically apply to the Company or any of its properties or
assets.
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(k) Labor Controversies. The Company has complied in all
material respects with all applicable Federal, foreign, state or local laws or
regulations thereof relating to wages, hours, collective bargaining and the
payment of Social Security and similar taxes; and the Company is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. The Company has complied in all material respects with all
applicable Federal, foreign, state or local laws or regulations thereof relating
to occupational safety; and the Company is not liable for any penalties for
failure to comply therewith.
(l) Patents; Trademarks, etc. The Company possesses all
those patents, patent licenses, trade names, trademarks, servicemarks,
brandmarks, brand names, copyrights, know-how, formulae and other proprietary
and trade rights necessary for the conduct of its business as now conducted,
subject to no restrictions and without any known conflict with the rights of
others, and to the knowledge of the Company, no person or entity has made any
claims or threatened that the Company is in violation or infringement of any
patent, patent license, trade name, trademark, servicemark, brandmark, brand
name, copyright, know-how, formula or other proprietary or trade rights of such
third party, and no assignments, grants, or licenses to use such marks,
copyright, know-how, formulae or trade rights have been granted by the Company.
(m) Compliance with Law.
(i) The Company has all governmental licenses and
permits (Federal, foreign, state and local) necessary to conduct its business,
and such licenses and permits are in full force and effect. No notices of
violation are or have been received with respect to any such licenses or
permits, and no proceeding is pending or, to the Company's knowledge, threatened
looking toward the revocation or limitation of any such license or permit;
(ii) The Company has duly complied in all
material respects with all applicable Federal, foreign, state and local laws and
regulations relating to the operation of its business; and
(iii) The Company has duly complied in all
material respects with all applicable Federal, foreign, state and local laws and
regulations which have been enacted or adopted relating to the protection of the
environment.
(n) No Approvals or Notices Required; No Conflicts With
Instruments. The execution, delivery and performance of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby will
not (i) constitute a violation (with or without the giving of notice or lapse of
time) of any provision of applicable law, (ii) require any consent, approval or
authorization of any person or governmental authority, (iii) result in a default
under, acceleration or termination of, or the creation in any party of the right
to accelerate, terminate, modify or cancel, any agreement, lease, franchise,
permit, note or other restriction, encumbrance, obligation or liability to which
the Company is a party or by which it is bound or to which any of its assets are
subject, (iv) result in the creation of any lien or encumbrance upon the
Company's assets, (v) conflict with or result in a breach of or constitute a
default under any provision of the Company's Certificate of Incorporation or
Bylaws, or (vi) conflict with, result in tortious interference as a result of
such conflict with, or otherwise violate, any contract or arrangement between
the Company and any other person.
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(o) Disclosure. The Company has not failed to disclose to
Subsidiary or Parent any fact which could reasonably be anticipated to impact
negatively upon Subsidiary's or Parent's decision to enter into this Agreement.
(p) Title to Properties; Absence of Liens and
Encumbrances. The Company has good and merchantable title to the properties and
assets owned by it, including all property reflected in the Balance Sheet, free
and clear of all liens, security interests, charges, claims and encumbrances,
other than (i) as may be referred to in the Balance Sheet or described in the
Disclosure Schedule, (ii) any liens for taxes not yet due and payable or being
contested in good faith by appropriate proceedings.
(q) Employee Benefit Plans.
(i) The Company does not currently have or
maintain, and has not in the past maintained, employee benefit plans ("Benefit
Plans") as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or any other bonus, incentive, retirement or
other employee benefit plans, programs or arrangements, under which the Company
has any present or future obligation or liability or under which any current or
former employee of the Company has any present or future rights to benefits;
(ii) The Company does not contribute to or have
any present or future obligation or liability in connection with any
multiemployer plans, as defined in Section 4001(a)(3) of ERISA, or with any
employee pension benefit plan, as defined in Section 3(2) of ERISA, subject to
Title IV of ERISA.
ARTICLE V - COVENANTS
5.1 Pre-Closing Covenants. The Company and Parent, as the case may
be, covenant and agree to take the following actions between the date hereof and
the Closing Date:
(a) Operation of the Business. Between the date hereof and
the Closing Date, the Company shall:
(i) operate the business of the Company in the
ordinary course, consistent with past practices;.
(ii) maintain such insurance on the assets and
properties of the Company, and with respect to the conduct of the business of
the Company, in such amounts and of such kinds as may be in effect on the date
of this Agreement;
(iii) comply with all laws applicable to it, the
violation of which would have a material adverse effect on its operations.
Furthermore, the Company shall not, between the date hereof and
the Closing Date, without the express written consent of Parent:
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(i) assume or create a mortgage, security
interest, pledge, lien or encumbrance of or upon any of the assets of the
Company, except for security interests or liens arising in the ordinary course
of business as a matter of law or contract for the purchase of goods not yet
paid for;
(ii) amend, renew or terminate any of the
Company's contracts, agreements, franchises, permits or licenses, other than in
the ordinary course of business or as may be required by the terms hereof;
(iii) sell, lease, transfer or otherwise dispose
of any of the properties or assets of the Company, other than in the ordinary
course of business, or cancel or compromise any debt or claim owing to the
Company or waive, compromise or release any right relating to the Company;
(iv) institute or amend any Benefit Plan or any
other bonus, stock option, profit sharing, pension, retirement or other similar
arrangement or plan, except amendments required by law or amendments required to
prevent the expiration or termination thereof (of which the Company shall notify
Parent);
(v) enter into any employment contract;
(vi) institute or increase any compensation or
benefits payable to any officer or employee of the Company, or pay or accrue any
bonus to any such officers or employees, except as required by the policies or
agreements listed on the Disclosure Schedule;
(vii) knowingly take any action which would cause
any of the representations and warranties of the Company contained in this
Agreement to be untrue as of the Closing Date;
(viii) transfer or grant any right under, or
enter into any settlement regarding the breach or infringement of, any license,
patent, copyright, trademark, trade name, invention, franchise or similar right,
or modify any existing right with the respect thereto;
(ix) institute, settle or agree to settle any
litigation, action or proceeding before any court or governmental body relating
to its business;
(x) suffer any change, event or condition which
materially adversely affects the condition (financial or otherwise) of the
properties, assets, liabilities, business or prospects of the Company;
(xi) incur any obligation, or liability, absolute
or contingent or otherwise relating to the Company, whether due or to become
due, except liabilities incurred in the ordinary course of business and which,
individually or in the aggregate, involve less than $50,000; and
(xii) amend, modify or alter the Certificate of
Incorporation or Bylaws of the Company.
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(b) Investigation. The Company shall permit Parent to make
or cause to be made such investigation of the business and properties of the
Company and its financial and legal condition as Parent deems necessary or
advisable to familiarize itself therewith. Parent and its accountants,
contractors, counsel and other representatives shall have full access to the
premises, real property, books and records of the Company during normal business
hours. The officers of the Company shall promptly furnish Parent with access to
such financial and operating data, including bank records, information
concerning the ownership of, title to and restrictions upon the use of the
Company's property, and other similar information with respect to business and
properties of the Company as may be in their possession and as Parent shall from
time to time reasonably request.
5.2 Regulatory Authorizations, Third Party Consents. Each Party
will use its reasonable efforts to obtain as soon as practicable all consents,
authorizations, orders and approvals of any governmental commission, board or
other regulatory body or any other person required for, or in connection with
the performance by it of, this Agreement and the consummation by it of the
transactions contemplated hereby and will cooperate fully with the other party
hereto in assisting it to obtain any such consent, authorizations, orders and
approvals.
5.3 Additional Agreements. Subject to the terms and conditions
provided herein, each of the parties agrees to use its reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Agreement. In case at any time after the
Closing Date any further action is necessary, proper or advisable to carry out
the purposes of this Agreement, as soon as reasonably practicable each party
shall take all such necessary action.
5.4 No Public Announcement. Except as may be required by law, or
as contemplated by Sections 6.6 and 6.7 hereof, no party hereto shall make any
public announcement concerning the transactions contemplated by this Agreement
without the prior written approval of the other Party, which approval shall not
be unreasonably withheld.
5.5 Update of Disclosure Schedule. The Company shall promptly
disclose to Parent and update the Disclosure Schedule to indicate any
developments which make inaccurate any of the representations and warranties of
the Company contained herein.
ARTICLE VI - CONDITIONS PRECEDENT
6.1 Parent's Conditions Precedent. Parent and Subsidiary shall
have no obligation hereunder unless prior to or simultaneously with the Closing
each of the conditions set forth in each of the clauses below shall have been
satisfied or waived.
(a) Stockholder Approval. This Agreement shall have been
approved by the holders of the Company Common Shares in accordance with the Act.
(b) Representations and Warranties of the Company. The
representations and warranties of the Company contained in this Agreement were
true and correct in all material respect
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as of date of this Agreement and shall also be true and correct in all material
respect at and as of the Closing Date with the same force and effect as if then
initially made.
(c) Performance of Covenants. The Company shall have
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants required to be performed or complied
with at or prior to the Closing.
(d) Bring-Down Certificate. The Company shall have
delivered to Parent a certificate, dated the Closing Date, certifying that all
of the conditions set forth in this Section 7.1 have been satisfied.
(e) No Adverse Changes. Between the Balance Sheet Date and
the Closing Date, there shall have been no material adverse change in the
condition (financial or otherwise), operations, business or prospects of the
Company.
(f) Authorizations: Consents. All governmental
authorizations and all consents of other parties required pursuant to the terms
and provisions of any leases, franchises, agreements, instruments, licenses and
permits in connection with consummation of the transactions contemplated hereby
shall have been obtained and delivered to Parent, all in form satisfactory to
Parent.
(g) Legal Proceedings: Injunctions, etc. At the Closing
Date, there shall be no judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against Parent, Subsidiary or the Company which
prohibits, restricts or delays the consummation of the transactions contemplated
by this Agreement; and at the Closing Date there shall be no pending lawsuit,
claim or legal action involving Parent, the Subsidiary or the Company relating
to the transactions contemplated by this Agreement which could or would
adversely affect such transaction or Parent, the Subsidiary or the Company.
(h) Resolutions. The Company shall have delivered to
Parent copies of resolutions of its Board of Directors and shareholders
authorizing and approving the execution of this Agreement and the consummation
of the transactions contemplated hereby.
6.2 Conditions Precedent of the Company. The Company shall not
have any obligation hereunder unless prior to or simultaneously with the Closing
each of the conditions set forth in the clauses below shall have been satisfied
or waived.
(a) Board of Director Approval. This Agreement shall have
been approved by the Board of Directors of Parent and Subsidiary and the sole
shareholder of Subsidiary.
(b) Parent's Representations and Warranties. The
representations and warranties of Parent contained in this Agreement were true
and correct at the date of this Agreement and shall also be true and correct at
and as of the Closing Date with the same force and effect as if then initially
made.
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(c) Parent's Certificate. Parent shall have delivered to
the Company a certificate, dated the Closing Date, certifying that all of the
conditions set forth in this Section 7.2 have been satisfied.
(d) Legal Proceedings; Injunctions. etc. At the Closing
Date, there shall be no judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Company Parent or the Subsidiary which
prohibits, restricts or delays the consummation of the transactions contemplated
by this Agreement; and at the Closing Date there shall be no pending lawsuit,
claim or legal action involving the Company or Parent or the Subsidiary relating
to the transactions contemplated by this Agreement which could or would
adversely affect such transaction or the Company.
(e) Resolutions. Parent shall have delivered to the
Company copies of the resolutions of its and the Subsidiary's Board of Directors
authorizing and approving the execution of this Agreement and the consummation
of the transactions contemplated hereby.
ARTICLE VII - SURVIVAL
7.1 Survival of Representations and Warranties. The representation
and warranties of the Parties shall not survive the Closing.
ARTICLE VIII - TERMINATION
8.1 Termination By Parties. This Agreement may be terminated at
any time prior to the Closing Date:
(a) Mutual Consent. By the mutual consent of the Purchaser
and the Company;
(b) By Parent. By Parent, if any of the conditions
provided in Section 7.1 shall not have been satisfied, complied with or
performed in any material respect, and Parent shall not have waived such failure
or satisfaction, noncompliance or nonperformance;
(c) By the Company. By the Company, if any of the
conditions provided in Section 7.2 shall not have been satisfied, complied with
or performed in any material respect, and the Company shall not have waived such
failure of satisfaction, noncompliance or nonperformance.
(d) Upset Date. By the Parent or the Company if the
Closing shall not have occurred by February 28, 1997; providing that such
terminating party shall not be in default hereunder.
In the event of any termination pursuant to Subsections (b), (c)
or (d) above, written notice setting forth the reasons therefor shall forthwith
be given by the terminating party to the other party.
Any termination pursuant to Subsections (b) or (c) above shall not
be a waiver of any rights or remedies otherwise available under this Agreement,
by operation of law or otherwise to the party who so terminates.
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ARTICLE IX - MISCELLANEOUS
9.1 Headings. Section and other headings contained in this
Agreement are for reference purposes only and will not affect in any way the
making of this Agreement or its interpretation.
9.2 Governing Law. It is the intention of the Parties that the
laws of the State of Utah (without giving effect to the choice of law rules
thereof) will govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
9.3 Entire Agreement. This Agreement, the Exhibits hereto and the
Disclosure Schedule constitute the entire Agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions whether oral or written of the
Parties. All Exhibits to this Agreement and the Disclosure Schedule constitute
an integral part of this Agreement as if fully written herein.
9.4 Assignment. Neither this Agreement nor any rights hereunder
may be assigned by either Party hereto without the express written consent of
the other Party.
9.5 Binding Effect. Subject to the provisions of Section 10.4
hereof, this Agreement will be binding upon and inure to the benefit of the
respective heirs, personal representatives, successors and assigns of the
Parties.
9.6 Notices. Any notices or communications required or permitted
herein will be deemed to have been sufficiently given if delivered personally or
sent by registered or certified mail, postage prepaid, or sent by facsimile
(fax) transmission as follows:
If to Parent or Subsidiary: Wireless Cable & Communications, Inc.
102 West 500 South
Salt Lake City, Utah 84101
If to Company: Telecom Investment Company
2936 Sierra Point Place
Salt Lake City, Utah 84109
Either party may change the address to which notices, requests, demands, claims
and other communications hereunder are to be delivered by giving the other party
notice in the manner set forth herein. Any notice, request, demand, claim or
other communication hereunder shall be deemed delivered on the earlier to occur
of (i) its actual receipt, or (ii) the second business day following its deposit
in the United States mail with postage prepaid and return receipt requested, or
(iii) the second business day following its deposit with the overnight courier
service, or (iv) the date it is sent to the party in question by confirmed
telecopier transmission sent prior to 5:00 p.m. Mountain time on a regular
business day.
9.7 Expenses. Each party shall bear its own expenses incurred in
connection with the transactions contemplated by this Agreement, including legal
and accounting fees and expenses.
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9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original instrument and all of
which together will constitute one and the same instrument.
9.9 Waivers and Amendments.
(a) Extension and Waiver. Parent, on the one hand, and the
Company, on the other, may, by notice to the other, (i) extend the time the
observance and performance of any term or provision of this Agreement on the
other's part to be observed and performed, (ii) waive compliance with, or permit
modified observance or performance of, any of the covenants or obligations of
the other contained in this Agreement.
(b) Amendments. This Agreement may be amended, modified or
supplemented only by a written instrument executed by Parent and the Company.
The waiver of a breach or default in the observance and performance of any terms
or provisions hereof shall not operate or be construed as a waiver of any
subsequent breach or default.
(c) Failure to Exercise Rights. No failure on the part of
any party to exercise, and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right or remedy by it. All remedies
hereunder are cumulative and are not exclusive of any other remedies provided by
law or in equity.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement on the date first above written.
PARENT:
WIRELESS CABLE & COMMUNICATIONS,
INC.
By: /s/ Lance D'Ambrosio
Its: President
SUBSIDIARY:
NEWWCCI, INC.
By: /s/ Anthony Sansone
Its: Secretary
COMPANY:
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TELECOM INVESTMENT CORPORATION
By: /s/ George D'Ambrosio
Its: Chairman
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EXHIBIT 10.6
SERVICES AGREEMENT BETWEEN BRIDGEPORT FINANCIAL, INC.
AND THE COMPANY
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement") is made as of the 1st
day of January, 1997, by and between TELECOM INVESTMENT CORPORATION ("TIC") and
BRIDGEPORT FINANCIAL, INC. ("Bridgeport").
RECITALS:
TIC is in the business of acquiring, owning and operating
wireless cable television, telephony and data transmission frequencies, and
related assets (collectively, "Wireless Rights"), in developing and emerging
markets, including markets in Central and South America, Europe and Asia (the
"Business").
Bridgeport has experience in businesses similar to the Business,
and is currently providing consulting or other services to TIC in connection
with the Business under the terms of an oral agreement (the "Oral Agreement").
TIC desires to retain Bridgeport, and Bridgeport desires to be
retained by TIC, for the purpose of providing to TIC certain advisory and other
services relating to the Business and upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals, and
other good and valuable consideration, the parties agree as follows:
AGREEMENT:
1. Termination of Oral Agreement. Bridgeport and TIC are currently
parties to the Oral Agreement, pursuant to which Bridgeport provides to TIC
services similar to the Services, as
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described in paragraph 3, and in exchange for the amount of $5,000 per month. In
consideration of the execution by the parties of this Agreement (and upon the
execution hereof by the parties), the Oral Agreement shall be deemed terminated
for all purposes.
2. Engagement of Bridgeport. Subject to the terms and conditions
of this Agreement, TIC hereby engages Bridgeport to provide and perform, and by
execution of this Agreement, Bridgeport agrees to provide and perform, all of
the duties, services and obligations required of Bridgeport under the terms of
this Agreement, including the Services, as that term is described in paragraph
3.
3. Services. During the term hereof, Bridgeport shall be
responsible for, among other things, the following duties and functions
(collectively, the "Services"):
(a) To provide to TIC and its affiliates business,
legislative, technical and administrative advice relating to the acquisition,
ownership, use or commercial exploitation of Wireless Rights in TIC's current
and anticipated market areas (the "Market Areas") and, at the request of TIC, to
assist TIC or its affiliates in the acquisition or disposition of any such
Wireless Rights.
(b) To notify, and keep TIC fully apprised, of all
legislative, legal and technological changes in wireless cable, telephony and
data transmission rights (or regulations or laws relating thereto) in the Market
Areas, and to notify or apprise TIC of any opportunities to acquire, develop,
utilize, invest in or sell, any Wireless Rights in the Market Areas.
(c) At the request of TIC, assist TIC and its affiliates
in the preparation, filing and prosecution of any applications, requests or
other filings for Wireless Rights in any of the Market Areas.
(d) At the request of TIC, assist TIC and its affiliates
in the acquisition of funding for the Business.
(e) To use its best efforts to perform the Services in a
substantial workmanlike manner and in accordance with any applicable or
appropriate standards, guidelines, business policies,
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procedures and business plans established from time to time by TIC or any
governmental agency or authority having jurisdiction over Bridgeport.
(f) To provide TIC with such reports as it may reasonably
require (either verbal or written) relating to the matters set forth in this
paragraph 3.
(g) To protect TIC's trade secrets and proprietary
information, including, but not limited to its marketing information, client
lists, prospect lists, business plans and other confidential information from
any unauthorized use or exposure.
(h) To acquire, and maintain, at its own expense, any and
all permits, equipment, licenses or personnel (including employees, agents or
independent contractors) necessary or appropriate for Bridgeport to perform the
Services in accordance with the terms hereof.
4. Independent Contractor Status. Bridgeport understands and
agrees that this Agreement shall not constitute or create any contract or
relationship of employment, partnership or agency between Bridgeport and TIC,
and that Bridgeport shall, for all purposes, be considered to be an independent
contractor of TIC. THE MEANS, METHODS AND TIMING OF BRIDGEPORT'S PERFORMANCE OF
THE SERVICES SET FORTH IN THIS AGREEMENT SHALL BE LEFT EXCLUSIVELY AND SOLELY TO
BRIDGEPORT'S DISCRETION. BRIDGEPORT SHALL BE FREE TO DISPOSE OF SUCH PORTION OF
ITS EMPLOYEES' OR OWNER'S TIME, ENERGY AND SKILLS DURING REGULAR BUSINESS HOURS
IN SUCH MANNER AS BRIDGEPORT SEES FIT, AND TO PROVIDE OR UTILIZE SUCH TIME,
ENERGY AND SKILL FOR THE BENEFIT OF SUCH OTHER PERSONS, FIRMS OR ENTITIES AS
BRIDGEPORT DEEMS ADVISABLE, CONSISTENT WITH THE TERMS HEREOF. TIC AND BRIDGEPORT
ACKNOWLEDGE AND AGREE THAT BRIDGEPORT SHALL HAVE THE RIGHT TO DELEGATE OR
SUBCONTRACT ALL OR A PORTION OF THE SERVICES TO THIRD PARTIES, PROVIDED THAT
BRIDGEPORT OTHERWISE COMPLIES WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT.
5. Consideration.
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(a) In consideration of the performance by Bridgeport of
the Services, TIC agrees to pay to Bridgeport, during the term hereof and on an
annual basis in arrears, an amount equal to the sum of (i) two percent (2%) of
the first $50,000,000 of Telecom's gross annual revenues and (ii) one percent
(1%) of Telecom's gross annual revenues in excess of $50,000,000, from all
sources; provided, however, that in no event shall the amounts payable to
Bridgeport hereunder be less than one hundred fifty thousand dollars ($150,000)
for the first Contract Year, as defined below, or $20,855.33 per month
thereafter. The amounts payable with respect to the first Contract Year shall be
due and payable upon the earlier of 15 days after the end of such Contract Year
or 5 days after the receipt by TIC of proceeds from an equity or debt financing
of at least $3,000,000. Thereafter, the amounts due Bridgeport under the terms
of this Agreement shall be due and payable within 15 days of the end of such
month. Bridgeport hereby specifically acknowledges that, by reason of the
termination of the Oral Agreement, it is waiving (and does hereby waive) all
monthly amounts payable or to be payable to it under the Oral Agreement.
(b) For purposes of this paragraph, (i) "TIC" shall mean
TIC and all of its parent and subsidiaries, and its parent's subsidiaries;
provided, however, that if any subsidiary is not held 100% by TIC or its parent,
the revenue of such subsidiary shall be attributed to TIC to the extent of TIC's
or its parent's ownership of such subsidiary. By way of example, if a subsidiary
is only owned 20% by TIC, only 20% of that subsidiary's revenue would be
attributed to TIC for purposes of this paragraph 4. Notwithstanding the
foregoing, no revenue shall be attributed to TIC from any operations of TIC or
its subsidiaries or parent with respect to Wireless Rights in New Zealand; and
(ii) a "Contract Year" shall mean a period beginning on the execution of this
Agreement and continuing through the one year period thereafter.
(c) From time to time during the term of this Agreement
and during the period ending on the third anniversary of its termination,
Bridgeport shall be entitled to review or audit the books and records of TIC in
order to verify the amounts due and payable to Bridgeport pursuant to this
paragraph. If any such audit or review shows that the amounts actually due
Bridgeport for any calendar year hereunder was understated by TIC by 5% or more,
TIC shall bear the costs of such audit or review, and shall be required to pay
to Bridgeport the amount of any such deficiency, together with interest thereon
(from the ending date of the calendar year in question) at the rate of
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18% per annum until such deficiency is paid in full). If any such audit or
review shows no deficiency or a deficiency of less than 5%, Bridgeport shall
bear the costs and expenses of such audit or review.
6. Term. The term of this Agreement shall commence on the date
hereof and shall continue for a period of 5 years. Thereafter, this Agreement
shall automatically renew for successive periods of 1 year, unless either party
notifies the other party of its election not to renew this Agreement at least 60
days prior to the end of the current term.
7. Termination.
(a) TIC may terminate this Agreement at any time and with
or without notice to Bridgeport in the event of the occurrence of any one or
more of the following:
(i) TIC ceases active business operations;
(ii) Bridgeport fails or refuses to perform the
Services in accordance with the terms hereof;
(iii) Bridgeport, or its principals, is charged
with or convicted of a felony;
(iv) Bridgeport breaches its duties or
obligations hereunder and fails or refuses to correct any such breach within 10
days of written notice by TIC of such breach; or
(v) Upon the issuance of any final, binding order
of a governmental authority having jurisdiction rendering invalid or
unenforceable any central part of this Agreement.
(b) Bridgeport may terminate this Agreement at any time
and with or without notice in the event TIC breaches its duties or obligation
hereunder, and fails or refuses to correct such breach within 10 days of written
notice by Bridgeport of such breach.
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(c) Bridgeport and TIC may terminate this Agreement, at
any time, upon their mutual written consent.
(d) In the event of the termination of this Agreement in
accordance with this paragraph 7, all obligations of the parties (except those
specified to survive such termination, as described in this Agreement) shall
cease as of the termination date without prejudice to any rights or remedies of
either party.
8. Records. Bridgeport shall maintain adequate and accurate
records, books and accounts regarding the performance of the Services hereunder,
which shall be open to inspection by TIC during normal business hours during the
term of this Agreement and for a period of three (3) years thereafter.
9. Customers and Competition.
(a) Bridgeport acknowledges and agrees that TIC has and
will spend substantial time, effort and money in connection with the development
of its Business and the promotion, marketing and sale of the Business, and that
all customers and accounts for which Bridgeport provides services hereunder are
and shall remain the sole and exclusive customers, accounts and proprietary
contacts of TIC after the termination of this Agreement.
(b) During the term of this Agreement and for a period of
one year after its termination, Bridgeport shall not engage in any business
operations in direct or indirect competition with the Business in any
then-current market of TIC.
(c) Bridgeport hereby acknowledges and agrees that, as a
result of the special relationship between Bridgeport and TIC relating to the
nature and terms of this Agreement, and other matters, the breach by Bridgeport
of the terms and conditions of this paragraph would result in immediate and
irreparable harm to TIC, the extent of which would be difficult or impossible to
determine. Therefore, in the event of any breach or threatened breach by
Bridgeport of the terms and conditions of this paragraph, TIC shall have the
right to obtain, and Bridgeport hereby consents to the issuance of, a temporary
or permanent injunction preventing or ceasing any such violation. The right
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to injunctive relief provided under this paragraph shall be in addition to such
other rights and remedies as TIC may have, under law or in equity. In the event
of any termination of this Agreement, the provisions of this paragraph 9 shall
survive.
10. Authority and Relationship. Bridgeport shall not have any
right to bind, obligate or make representations with respect to TIC in any
business or other matter whatsoever, and shall not make any representations to
the contrary. TIC shall not be obligated to accept any business opportunity
procured or proposed by Bridgeport as a result of its performance of the
Services hereunder.
11. Indemnification. Bridgeport shall forever protect, save and
keep TIC harmless and indemnify TIC against and from any and all claims,
demands, losses, costs, damages, suits, judgments, penalties, expenses and
liabilities of any kind or nature whatsoever (including attorneys' fees and
court costs) arising directly or indirectly out of or in connection with a
breach by Bridgeport of any of its representations, warranties or covenants
contained in this Agreement.
12. Representations and Warranties of Bridgeport. Bridgeport
hereby represents and warrants to TIC, with the understanding that TIC is
relying upon such representations and warranties in entering into this
Agreement:
(a) Bridgeport is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah, and has
received all necessary approvals (shareholder, director or otherwise) necessary
for it to execute and perform this Agreement.
(b) The execution and performance by Bridgeport of this
Agreement will not constitute a breach or a violation of any agreement to which
Bridgeport is a party, or violate or breach its articles of incorporation or
bylaws.
13. Assignment or Transfer. It shall be a condition to the
transfer, assignment or delegation by Bridgeport of any of its rights or
obligations under this Agreement that the transferee possess (in TIC's sole
discretion) the requisite skills, experience and knowledge to perform the
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Services hereunder and that the transferee agree to execute an agreement
substantially in the form of this Agreement. This Agreement shall be binding
upon any successor or assignee of TIC, or upon any permitted successor or
assignee of Bridgeport.
14. Default. Should default occur in the performance of any of the
obligations set forth in this Agreement, the defaulting party shall, in addition
to any damages which may result from that default, pay to the non-defaulting
party the costs, including reasonable attorneys' fees incurred by the
non-defaulting party in curing such default or in enforcing the terms and
conditions of this Agreement.
15. Headings. The headings for the paragraphs of this Agreement
are inserted for convenience only and are not part of this Agreement.
16. Severability. Any provision hereof which may be invalid or
unenforceable under any applicable law or regulation shall be reformed so as to
be enforceable and so as to effectuate, to the maximum extent possible, the
intent of the parties hereunder. Any invalidity or unenforceability of any
provision hereunder shall not invalidate the remaining provisions of this
Agreement.
17. Governing Law. The validity, construction, enforcement and
effect of this Agreement shall be governed by the laws of the State of Utah. The
parties hereto specifically submit to the jurisdiction of the state and federal
courts for the State of Utah with respect to all questions relating to the
construction and enforcement of this Agreement and to the adjudication of any
and all claims arising out of this Agreement.
18. Integration. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
previous written or oral negotiations, commitments or writings, and cannot be
altered or otherwise amended except pursuant to an instrument in writing signed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties execute this Agreement as of the
day and date first noted above.
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BRIDGEPORT FINANCIAL, INC.
By:/s/ George D'Ambrosio
Its:Chairman
TELECOM INVESTMENT CORPORATION
By:/s/ Emanuel A. Floor
Its:Vice President & Secretary
103
EXHIBIT 10.7
OPTION AND STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY
AND CARACAS VIVA VISION, S.A. AND ITS SHAREHOLDERS
OPTION AND
STOCK PURCHASE AGREEMENT
BETWEEN AND AMONG
WIRELESS CABLE & COMMUNICATIONS, INC.
AND
CARACAS VIVA VISION TV, S.A.
AN ITS SHAREHOLDERS,
PROMOTORA PERFIL 47, S.A.,
CARIBBEAN COMMUNICATIONS GROUP, S.A.,
COMUNICACIONES CENTURION, S.A.,
AND
DONALD A. WILLIAMS
NOVEMBER 8, 1996
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Page
1. Definitions.................................................................................................... 2
2. Option and Purchase and Sale of Shares......................................................................... 11
(a) Grant and Exercise of Option.......................................................................... 11
(b) Exercise Price........................................................................................ 11
(c) Delivery to Escrow Agent.............................................................................. 12
(d) Deliveries at Closing................................................................................. 13
3. Representations and Warranties of Buyer and Shareholders Concerning the Transaction............................ 13
(a) Representations and Warranties of Buyer............................................................... 13
(b) Representations and Warranties of Shareholders........................................................ 14
4. Representations and Warranties of the Shareholders and VIVA.................................................... 16
(a) Organization, Qualification, and Corporate Power...................................................... 16
(b) Capitalization........................................................................................ 16
(c) Noncontravention...................................................................................... 17
(d) Brokers' Fees......................................................................................... 17
(e) Title to Assets....................................................................................... 17
(f) VIVA and Subsidiaries................................................................................. 18
(g) Financial Statements.................................................................................. 18
(h) Events Subsequent to Dates of Most Recent Financial Statements........................................ 19
(i) Undisclosed Liabilities............................................................................... 21
(j) Legal Compliance...................................................................................... 21
(k) Tax Matters........................................................................................... 21
(l) Real Property......................................................................................... 23
(m) Intellectual Property................................................................................. 24
(n) Tangible Assets....................................................................................... 26
(o) Inventory............................................................................................. 26
(p) Contracts............................................................................................. 27
(q) Notes and Accounts Receivable......................................................................... 28
(r) Powers of Attorney.................................................................................... 29
(s) Insurance............................................................................................. 29
(t) Litigation............................................................................................ 29
(u) Product Warranty...................................................................................... 29
(v) Employees............................................................................................. 30
(w) Employee Benefits..................................................................................... 30
(x) Guaranties............................................................................................ 31
(y) Environment, Health, and Safety....................................................................... 31
(z) Certain Business Relationships with VIVA.............................................................. 32
(aa) Disclosure............................................................................................ 32
5. Pre-Closing Covenants.......................................................................................... 32
(a) General............................................................................................... 32
(b) Notices and Consents.................................................................................. 32
(c) Operation of Business................................................................................. 33
(d) Preservation and Conduct of Business.................................................................. 33
(e) Full Access........................................................................................... 34
(f) Notice of Developments................................................................................ 34
(g) Exclusivity........................................................................................... 34
(h) Transfer Applications................................................................................. 35
(i) Perfection of Channel License......................................................................... 35
6. Post-Closing Covenants......................................................................................... 35
(a) General............................................................................................... 36
(b) Litigation Support.................................................................................... 36
(c) Transition and Non-Circumvention...................................................................... 36
(d) Confidentiality....................................................................................... 37
(e) Covenant Not to Compete............................................................................... 37
7. Conditions to Obligation to Close.............................................................................. 38
(a) Conditions to Obligation of Buyer..................................................................... 38
(b) Conditions to Obligation of VIVA...................................................................... 40
8. Remedies for Breaches of This Agreement........................................................................ 41
(a) Survival of Representations and Warranties............................................................ 41
(b) Indemnification Provisions for Benefit of Buyer....................................................... 41
(c) Indemnification Provisions for Benefit of the Shareholders............................................ 42
(d) Matters Involving Third Parties....................................................................... 43
(e) Other Indemnification Provisions...................................................................... 44
9. Tax Matters.................................................................................................... 44
(a) Mitigation of Taxes................................................................................... 44
(b) Information........................................................................................... 45
(c) Certain Taxes......................................................................................... 45
10. Termination.................................................................................................... 45
(a) Termination of Agreement.............................................................................. 45
(b) Effect of Termination................................................................................. 46
11. Miscellaneous.................................................................................................. 46
(a) Nature of Certain Obligations......................................................................... 46
(b) Press Releases and Public Announcements............................................................... 47
(c) No Third Party Beneficiaries.......................................................................... 47
(d) Entire Agreement...................................................................................... 47
(e) Succession and Assignment............................................................................. 47
(f) Counterparts.......................................................................................... 48
(g) Headings.............................................................................................. 48
(h) Notices............................................................................................... 48
(i) Governing Law......................................................................................... 49
(j) Amendments and Waivers................................................................................ 50
(k) Severability.......................................................................................... 50
(l) Expenses.............................................................................................. 50
(m) Construction.......................................................................................... 50
(n) Incorporation of Exhibits and Annexes................................................................. 51
(o) Arbitration........................................................................................... 51
(p) Submission to Jurisdiction............................................................................ 52
(q) Controlling Language.................................................................................. 53
</TABLE>
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OPTION AND STOCK PURCHASE AGREEMENT
THIS OPTION AND STOCK PURCHASE AGREEMENT is entered into as of November 8,
1996, by and among WIRELESS CABLE & COMMUNICATIONS, INC., a Nevada corporation
(referred to herein as either "Buyer" or "WCCI"), CARACAS VIVA VISION T.V.,
S.A., a Venezuelan sociedad anonima ("VIVA") and the shareholders of VIVA set
forth at the signature lines hereto (collectively the "Shareholders;"
singularly, a "Shareholder"). Buyer, VIVA and the Shareholders are referred to
collectively herein as the "Parties" and singularly as a"Party."
I. VIVA holds the exclusive rights to the commercial exploitation of certain
licenses for the transmission of data, audio and video information and
programming in the market of the Republic of Venezuela (the "Market").
A. Certain of the Parties have previously entered into a letter of intent
(the "Letter of Intent") dated July 17, 1996, and later amended, describing the
preliminary terms of a series of agreements under which Buyer will have the
right to purchase from the Shareholders, and the Shareholders will sell to Buyer
if such right is exercised, one hundred percent (100%) of the outstanding
capital stock of VIVA in return for cash and common stock of WCCI upon the terms
to be set forth in one or more definitive agreements among the parties.
B. This Agreement constitutes one of the definitive agreements contemplated
by the Letter of Intent.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
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1. Definitions
"Accounting Adjustments" means the aggregate of all accounting adjustments
to Net Book Value that are required to bring the accounts of VIVA into
conformity with Generally Accepted Accounting Principles consistently applied in
the United States of America. Such adjustments shall be determined by the
independent auditors of WCCI. Such account adjustments shall exclude any
adjustments relating to currency exchange rates, but may include, but shall not
be limited to, write-downs, write-offs and/or any other accounting adjustments
to the accounts of VIVA necessary to present fairly the financial position of
VIVA as of September 30, 1996.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, Liabilities, obligations, Taxes, liens, losses, expropriations,
expenses, and fees, including court costs and attorneys' fees and expenses.
"Affiliate" of a Person shall mean any other Person that, directly or
indirectly Controls or is Controlled by that Person, or is Under Common Control
With that Person or any such other Person, or succeeds to all or substantially
all of the business or assets of such Person. The term "Control" (including,
with correlative meaning, the terms "Controlled by" or "Under Common Control
With"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person through the ownership of voting securities of such
Person.
"After-Acquired Rights" means (i) all rights to exploit and commercialize
Channel Licenses for MDS, MMDS, LMDS, MVDS and Private Cable Channels and all
other wireless frequencies used for voice, video or data delivery or
transmission (including, without limitation, specialized mobile radio licenses,
paging services and personal communications services), and (ii) leases to or
rights in all Channel Licenses for MDS, MMDS, LMDS, MVDS and Private Cable
Channel Licenses and all other wireless frequencies used for voice, video or
data delivery or transmission (including, without limitation, specialized mobile
radio licenses, paging services and personal communications services), and (iii)
all rights in or to any services, franchises or rights similar to the Wireline
Services, and (iv) all Permits relating to any of the foregoing, acquired by the
Shareholders and/or their respective Affiliates at any time during which VIVA
otherwise performs services for Comunicaciones Centuri\n, S.A. ("Centuri\n")
pursuant to any agreement relating thereto and to the extent allowed by
Venezuelan law.
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"Agreement" means this Option and Stock Purchase Agreement, as amended,
supplemented or otherwise modified from time to time.
"Approved Expenditures" means any expenditures of VIVA which are approved
in writing by Buyer.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the reason or catalyst
for any specified consequence.
"Best Efforts" means the taking by a party of such action as would be in
accordance with reasonable commercial practices as applied to the particular
matter in question to achieve the result as expeditiously as practicable;
provided, however, that such actions shall not include the incurrence of
unreasonable expense.
"Capital Expenditures" means all capital expenditures incurred and actually
paid by VIVA for capital items relating to and used in the business of VIVA
after July, 1996 and through the Closing and which were approved in writing by
Buyer or are contained in a budget prepared by VIVA and approved in writing by
Buyer.
"Channel License" shall mean any license or concession or any other permit
to broadcast signals on Channels granted by any Local Authority to Centuri\n to
operate a Channel, which Channel Licenses are set forth on ' 4(e) of Annex III.
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"Channels" means the classes of microwave frequencies licensed by any Local
Authority pursuant to the Channel Licenses in favor of Centuri\n used for the
transmission or delivery of instructional, cultural, educational and/or
commercial audio or visual programming (including, without limitation, MDS,
MVDS, LMDS, Private Cable Channel and MMDS services), which current Channels are
set forth on ' 4(e) of Annex III.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of a Party that is not already generally available to the public,
and which is declared to be confidential by the disclosing party.
"Environmental, Health, and Safety Laws" means all Local Laws concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"Escrow Agent" means the fiduciary to be appointed by WCCI and VIVA who
will perform services pursuant to paragraph 2 hereinbelow in conformance with
the laws governing and the standards practices applicable to fiduciaries in the
jurisdiction chosen by the parties to the Escrow Agreement.
"Escrow Agreement" means that certain escrow agreement among Buyer, the
Shareholders and an escrow agent acceptable to Buyer in the form of Exhibit A
hereto.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
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"Holding Agent" means the agent appointed by WCCI and VIVA who will perform
services pursuant to paragraph 2 hereinbelow in conformance with the standard
practices of such agents in Venezuela and pursuant to the Holding Agent
Agreement.
"Holding Trust" means that trust agreement created pursuant to Venezuelan
law to accomplish the obligations of the Holding Agent as set forth in paragraph
2 hereof.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
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"License Conditions" shall mean with respect to any Channel License, that
(a) such license is in full force and effect under Local Law, (b) there are no
expired authorizations where the licensee is seeking reinstatement, nor are
there any pending extension requests, (c) where required, the licensee has built
facilities pursuant to the licensee's initial authorization, (d) there are no
material violations of any Local Law with respect to such Channel License,
including, (i) no enforcement action or written inquiry that could result in the
termination of, the material impairment or forfeiture of, any rights under, or
material fine or forfeiture with respect to, such Channel License, (ii) no
Channels shall be, or shall have been, non-operational without the grant of
special temporary authorization from the appropriate Local Authority, if
required, and (iii) there shall be no written renewal challenges or inquiries
that could result in the termination of, the material impairment or forfeiture
of, any rights under or material fine or forfeiture with respect to the Channel
License, (e) no substantive petition to deny or other substantive objection
(including, without limitation, any interference issues, and substantive
petitions to deny) relating to the Channels shall be pending or shall been filed
with the Local Authority, (f) the Channel is licensed by the Local Authority to
Centuri\n, and (g) no third party other than Centuri\n shall be asserting or
have any rights to assert any interest in such Channel Licenses.
"Local Authority" means any Venezuelan governmental agency, authority,
division, or service having authority, control or jurisdiction over a particular
matter or event, including, specifically and without limitation, the National
Commission of Telecommunications ("CONATEL") and the Office of Superintendent of
Foreign Investments ("SIEX") and any successor entities thereto.
"Local Law" means all applicable statutes, rules, regulations, orders,
decrees, codes, rulings, charges, injunctions, codes, judgments and laws of
Venezuela and its various states, provinces, localities, municipalities and
other political subdivisions, including specifically and without limitation,
those relating to the grant, operation, renewal or transfer of Channel Licenses
and Wireline Services.
"LMDS" means local multi-point distribution service, a transmission service
licensed by Local Authority using the frequencies of 27.5 through 29.5 GHz and
rendered on microwave frequencies from a fixed transmitter location
simultaneously to multiple receiving facilities or in connection with a
low-earth orbiting satellite distribution system for commercial data, visual and
audio programming, or any equivalent Local Law domestic transmission service.
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"MDS" means multi-point distribution service, a transmission service
licensed by Local Authority using the frequencies of 2.15 through 2.165 GHz and
rendered on microwave frequencies from a primary fixed transmitter location
simultaneously to multiple receiving facilities used primarily for the
distribution of commercial visual and audio programming, or any equivalent Local
Law domestic transmission service.
"MMDS" means multi-channel multi-point distribution service, a transmission
service licensed by Local Authority using the frequencies of 2.5 through 2.7 GHz
and rendered on microwave frequencies from a fixed transmitter location
simultaneously to multiple receiving facilities, used primarily for the
distribution of commercial visual and audio programming and any equivalent Local
Law transmission service.
"MVDS" means multi-point video distribution service, a transmission service
licensed by Local Authority using the frequencies of 40.5 through 42.5 GHz and
rendered on microwave frequencies from a fixed transmitter location
simultaneously to multiple receiving facilities, used primarily for the
distribution of commercial visual and audio programming, or any equivalent Local
Law domestic transmission service.
"Net Book Value" means assets minus liabilities as shown on the books
according to GAAP.
"Offering" means an underwritten initial or other public offering of shares
of WCCI's unissued common stock which is registered with the Securities and
Exchange Commission (other than on Form S-8 or similar purpose form), which is
listed for trading on the NASDAQ or other exchange acceptable to WCCI and the
Shareholders, which results in net proceeds to WCCI of at least $20,000,000 and,
pursuant to which, WCCI shall have a market capitalization (post money) of at
least $75,000,000.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency), and as conducted with the approval of Buyer after the date of this
Agreement, which approval shall not be unreasonably withheld and which approval
shall be deemed given if Buyer has not given a response to VIVA within three
business days of its receipt of notice of the request for such approval.
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"Penalty Amount" means U.S. $200,000.
"Permits" means all rights, franchises, permits, authorities, licenses,
certificates of approval or authorization (including licenses) issuable by Local
Authority and which, pursuant to Local Law are necessary to permit a Person
lawfully to conduct and operate its business as currently conducted and to own
and use its assets.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof), and any Local Law equivalent of any of the foregoing.
"Pre-Closing Adjustments" means the Accounting Adjustments between the date
of September 30, 1996, and the date of Closing.
"Private Cable Channels" means a multi-point distribution and transmission
service licensed by Local Authority using the frequencies of approximately 17.5
through 18.5 GHz and rendered on microwave frequencies from a fixed transmitter
location simultaneously to multiple receiving facilities used primarily for the
distribution of commercial visual and audio programming and/or data, and an
equivalent Local Law domestic transmission service.
"Proprietary Contacts" means all Persons with whom the party in question
has previously had substantive discussions or negotiations regarding a business
relationship similar to those contemplated by this Agreement or relating to the
business of the transmission or delivery of visual or audio programming or data.
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"Securities Act" means the United States Securities Act of 1933, as
amended, or any equivalent provision of Local Law.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Share" means any share of the common stock or other equity of VIVA to be
acquired by Buyer from the Shareholders hereunder and constituting in the
aggregate, one hundred percent (100%) of the issued and outstanding stock or
equity securities of VIVA.
"Subscriber Equivalent" means that number determined by a formula in which
the dividend is the gross subscriber revenues in a given month as determined by
the cash collections for services billed pursuant to the Channel License and the
divisor is the basic subscriber rate for services billed pursuant to the Channel
License during the same month.
"Subscriber Deterioration Adjustment" means the product of (i) $750 Dollars
of the United States of America times (ii) the negative change, if any, in the
number of Subscribers Equivalents between June 30, 1996, and the Closing date.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, and any Local Law equivalent thereof.
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"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Underwriter" means the underwriter (or lead underwriter if there is more
than one underwriter) of the Offering.
"Wireline Services" means a transmission service licensed or franchised to
a Person for a designated area by Local Authority which uses a primary fixed
transmitter, amplifiers and co-axial cable for signal transmission and which is
used primarily for the distribution of commercial visual and audio programming
or any equivalent Local Law domestic transmission and delivery system.
2. Option and Purchase and Sale of Shares
(a) Grant and Exercise of Option. During the period beginning as of the
date hereof and continuing through the date which is ten (10) days after the
Offering but not later than March 31, 1997 (the "Option Period"), the
Shareholders collectively grant to Buyer the right and option (the "Option") to
acquire, on and subject to the terms and conditions of this Agreement, all of
the Shares for the consideration specified in 2(c). Buyer shall be entitled to
exercise the Option at anytime during the Option Period by providing notice to
VIVA (which notice shall constitute notice to the Shareholders) in accordance
with the notice provisions set forth below. The Option may be exercised by Buyer
only in full and not in part. In the event that Buyer exercises the Option,
Buyer shall give notice to the Shareholders of the time and place for the
Closing (as defined below) at which Closing the Shareholders shall execute or
cause to be executed on their behalf the Stock Registry Book of VIVA
transferring the Shares of VIVA.
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(b) WCCI investment obligation to Centurion. Pursuant to the
Letter of Intent, WCCI has made capital investments in or ordered equipment for
the benefit of Centurion totaling $450,000 United States Dollars in exchange for
which Centurion has noted in its Stock Registry the issuance of shares to WCCI
at the rate of 1% of the shares of Common Stock of Centuri\n for each $100,000
invested by WCCI. WCCI shall make further capital contributions and shall
continue to receive shares in Centurion at the same rate until WCCI has received
11.53% of the common stock of Centurion, such investments to be made by WCCI at
thirty day intervals beginning on November 15, 1996, and in the amounts of
$150,000 United States Dollars, or with respect to the last investment tranche,
in whatever amount less than $150,000 United States Dollars shall be necessary
to complete the investment to the amount of 11.53%. The obligation of WCCI to so
invest in Centurion shall cease when WCCI exercises the Option.
(c) Exercise Price. Buyer agrees to pay in Venezuela to the
Holding Agent on behalf of the Shareholders at the Closing for disbursement in
accordance with the relative percentages set forth at ' 2(b) of Annex I, cash
and other consideration having a value of, but never more than, Eleven Million
Dollars of the United States of America (U.S. $11,000,000) less the Subscriber
Deterioration Adjustment, the Accounting Adjustments, and Pre-Closing
Adjustments (the "Exercise Price"). The Exercise Price shall not be decreased by
any amount of worker obligations (pasivos sociales) which amount will be assumed
by Buyer. The Exercise Price shall be comprised of cash or of (i) whole shares
of common stock of WCCI (the "Stock Portion") which amount shall constitute 30%
of the Exercise Price (the "Stock Value") and (ii) cash which shall be delivered
by wire or other transfer acceptable to the Shareholders and equal to the
balance of the Exercise Price (the "Cash Portion"). The number of shares of WCCI
common stock comprising the Stock Portion shall be determined at the price of
the stock at the Offering (the "WCCI Common Stock Price"). WCCI common stock
having a value of U.S. $1,000,000 (based on the WCCI Common Stock Price) and
U.S. $1,600,000 cash, or should Buyer elect to pay the entire amount in cash,
then U.S. $2,600,000 cash shall be deposited into escrow, to be released in
accordance with the terms of the Escrow Agreement. In the event that the
Offering is not completed, the Exercise Price shall be made in cash, if the
Option is exercised.
(d) Delivery to Holding Agent.
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(i) Within seven (7) business days of the date of this
Agreement, Shareholders and Buyer shall execute, along with the Holding Agent,
the Holding Trust which shall, inter alia, provide: (I) authorization for the
Holding Agent to transfer and assign the Shares to Buyer upon receipt by the
Holding Agent of a notice issued by Buyer and VIVA certifying that (a) Buyer has
exercised the Option and (b) Buyer is delivering simultaneously therewith to the
Holding Agent the Exercise Price; and (II) authorization, through an irrevocable
power of attorney, to vote the Shares of Buyer in Centuri\n so as to eliminate
Buyer=s supermajority rights as described in the Shareholder Agreement entered
into concurrently herewith in the event that the Option is not exercised
(Exhibit B); and Shareholders and Buyer shall deliver to such Holding Agent as
the Buyer and Shareholders shall agree upon the following:
(A) the Stock Registry of VIVA with the
appropriate entries evincing ownership of the shares by each Shareholder; and
(B) the stock certificates, if any, that may have
been issued by VIVA to represent the shares.
(ii) In the event that the Holding Trust has not been so
executed then, unless the same shall have occurred by reason of Buyer=s failure
or of Force Majeure, the Shareholders shall pay to Buyer immediately the Penalty
Amount, if Buyer elects to terminate this Agreement pursuant to the provisions
of paragraph 10 hereof.
(iii) On the date of this Agreement the Shareholders shall
cause the Stock Registry of VIVA to be placed into a Safe Deposit Box in the
Banco Mercantil in Caracas, Venezuela, where it shall remain until placed with
the Holding Agent pursuant to this paragraph 2(d) or until this Agreement
terminates pursuant to paragraph 10 hereof. The Shareholders shall cause the
Bank to require the signatures of Donald A. Williams, a resident of Caracas,
Venezuela, and of Carolina Lanao, a resident of Caracas, Venezuela, to open the
Safe Deposit Box.
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(e) Deliveries and Actions at Closing. At closing (the "Closing") of the
purchase by Buyer of the Shares as a result of its exercise of the Option which
shall occur within 30 days of the exercise of the Option, (i) the Shareholders
and VIVA shall deliver to Buyer the various documents, certificates, instruments
and filings referred to in ' 7 below, and (ii) Buyer will deliver (or cause WCCI
to delivery, as appropriate) to the Shareholders the various consideration,
certificates, instruments and documents referred to in ' 7 below; and (iii) the
Holding Agent and Buyer will execute the transfer entry in the Stock Registry
Book of VIVA selling and assigning the Shares to Buyer and the Holding Agent
shall release the Stock Registry Book of Viva to Buyer.
3. Representations and Warranties of Buyer and Shareholders Concerning the
Transaction
(a) Representations and Warranties of Buyer. Buyer represents and warrants
to the Shareholders that the statements contained in this ' 3(a) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the date of the Closing, as though made then and as though the Closing date were
substituted for the date of this Agreement throughout this ' 3(a), except as set
forth in Annex II attached hereto.
(i) Organization of Buyer. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. Buyer has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency, lender, shareholder or third party, in order
to consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, unsecured
loan, or other arrangement to which Buyer is a party or by which it is bound or
to which any of its assets is subject and which, if conflicted with, breached,
defaulted, accelerated, terminated, modified or canceled, would have a material
adverse effect on the ability of Buyer to perform hereunder.
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(iv) Brokers Fees. Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which VIVA or the Shareholders
could become liable or obligated.
(v) Investment. Buyer is acquiring the Shares for
investment purposes and not with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act.
(b) Representations and Warranties of Shareholders. Each Shareholder
represents and warrants to Buyer that the statements contained in this '3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this '3(a)) with
respect to himself, except as set forth in Annex II attached hereto.
(i) Authorization of Transaction. Such Shareholder has
full power and authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of such Shareholder, enforceable in accordance with its terms
and conditions. Such Shareholder need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(ii) Noncontravention. To the Knowledge of each
Shareholder, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which such Shareholder is subject or, (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which such Shareholder is a party or by which he is bound or to
which any of his assets is subject and which, if conflicted with, breached,
defaulted, accelerated, terminated, modified or canceled, would have a material
adverse effect on the ability of such Shareholder to perform hereunder.
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(iii) Brokers Fees. Such Shareholder has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Buyer could
become liable or obligated.
(iv) Shares. Such Shareholder holds of record and owns
beneficially the number of Shares set forth next to his name in '4(b) of Annex
II, free and clear of any restrictions on transfer (other than any restrictions
under the Securities Act and local securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Such Shareholder is not a party to any option, warrant, purchase
right, or other contract or commitment that could require such Shareholder to
sell, transfer, or otherwise dispose of any capital stock of VIVA other than
pursuant to this Agreement. Such Shareholders are not a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any capital stock of VIVA except with respect to the Holding Trust.
4 Representations and Warranties of the Shareholders and VIVA. The
Shareholders and VIVA represent and warrant to Buyer that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing date (as though
made then and as though such date was substituted for the date of this Agreement
throughout this ' 4), except as set forth in Annex III delivered by Shareholders
and VIVA to Buyer on the date hereof.
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(a) Organization, Qualification, and Corporate Power. VIVA is a sociedad
anonima duly organized, validly existing, and in good standing under Local Law.
VIVA is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required. VIVA has full
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and in which it presently
proposes to engage and to own and use the properties owned and used by it.
Section 4(a) of Annex III lists the directors and officers of VIVA. VIVA has
delivered to Buyer correct and complete copies of the charter or organizational
deed of VIVA (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books and
the Stock Registry of VIVA are correct and complete. VIVA is not in default
under or in violation of any provision of its charter or organizational deed.
(b) Capitalization. The entire authorized capital stock of VIVA of
3,000,000 shares of common stock, par value 100 Bs. each, of which 3,000,000
common shares were issued and outstanding. The Shares constitute one hundred
percent (100%) of the issued and outstanding shares of VIVA. All of the issued
and outstanding shares of common stock of VIVA has been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record as set
forth in ' 4(b) of Annex III. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require VIVA to issue,
sell, or otherwise cause to become outstanding any additional or other capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to VIVA. Except as
described herein, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of VIVA. The
Shares are duly authorized, validly issued, fully paid and nonassessable shares
of the capital stock of VIVA, subject to no lien, charge or encumbrance of any
nature other than arising under applicable securities laws.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which VIVA is subject or any provision of the
charter or organizational deed of VIVA, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which VIVA is a party or by which it is bound or to which its
assets are subject (or, except as contemplated hereby, result in the imposition
of any Security Interest upon any of such assets), including, specifically, the
Permits, Channel Licenses or rights relating to the Channels or Wireline
Services for which VIVA has commercialization rights. VIVA need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of, any government or governmental agency or third party in order for
the Parties to consummate the transactions contemplated by this Agreement.
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(d) Brokers Fees. VIVA has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(e) Title to Assets. VIVA has good and marketable title to, or a valid
leasehold or license interest in, the properties and assets used by it, located
on its premises, or shown on its respective Most Recent Balance Sheet (as
hereafter defined) or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheet. The Channel
Licenses, Channels, Permits and Wireline Services held by Centurion and for
which VIVA has commercialization rights in the Market, are described on ' 4(e)
of Annex III. Centurion has granted to VIVA the exclusive commercialization
rights relating to such Channel Licenses, Channels, Permits and Wireless
Services for the Republic of Venezuela in accordance with the terms of the
various agreements previously delivered to Buyer. The Channel Licenses meet the
License Conditions. To the Knowledge of VIVA and the Shareholders, Centuri\n
owns, holds or possesses all Permits, and is in compliance with all material
obligations with respect to such Permits and, to the Knowledge of VIVA and the
Shareholders, no event has occurred which permits, or upon the giving of notice
or lapse of time or otherwise would permit, revocation or termination of any
such Permits. To the Knowledge of VIVA and the Shareholders, except as set forth
on ' 4(e) of Annex III, each of the Permits is valid and is in full force and
effect and there are no existing proceedings, complaints or investigations
pending, or to the Knowledge of VIVA or the Shareholders, threatened, before any
local authority relating to any of such Permits or to the right or ability of
Centurion to maintain, acquire or otherwise hold such Permits. To the Knowledge
of VIVA and the Shareholders, the Channels are being operated in material
compliance with the terms and conditions of their respective Channel Licenses
and other Permits and all other Local Law. Also attached at 4(e) of Annex III
are complete and correct copies of the forms of all Subscriber Agreements used
by VIVA relating to the Wireline Services or the Channels, a complete and
correct list of all Subscribers as of August 1996, and copies of all programming
or other contracts relating to the Wireline Services and the Channels. Each
Subscriber Agreement relating to such Subscribers is in full force and effect as
of the date of such list.
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(f) VIVA and Subsidiaries. VIVA has no subsidiaries.nd Subsidiaries
(g) Financial Statements. Attached as Section 4(g) of Annex III is the
beginning financial statement (the "Financial Statement"): (i) consolidated and
audited consolidating balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal year ended December
31, 1995, (the "Most Recent Fiscal Year End") for Seller; (ii) unaudited
consolidated and consolidating balance sheets (the "Most Recent Balance Sheet")
and statements of income, changes in stockholders' equity, and cash flow
(collectively, the "Most Recent Financial Statements") as of and for the 9
months ended September 30, 1996 (the "Most Recent Quarter End") for VIVA; and
(iii) a statement of gross subscriber revenues as determined by the cash
collections for services billed pursuant to the Channel License as of June 30,
1996, and the basic subscriber rate for services billed pursuant to the Channel
License during the same month. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of VIVA as of such dates and the results of operations of VIVA for
such periods, are correct and complete, and are consistent with the books and
records of VIVA (which books and records are correct and complete).
(h) Events Subsequent to Dates of Most Recent Financial Statements. Except
as set forth at Section 4(h) of Annex III, since the Most Recent Financial
Statements, there has not been any material adverse change in the business,
financial condition, operations, results of operations, or, to the Knowledge of
VIVA, future prospects of VIVA. Without limiting the generality of the
foregoing, since that date:
(i) VIVA has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) VIVA has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than U.S. $10,000 or outside the Ordinary Course
of Business;
(iii) no party (including VIVA) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than U.S. $10,000 to which VIVA is a party or by which it is bound;
(iv) VIVA has not imposed any Security Interest upon any
of its assets, whether tangible or intangible;
(v) VIVA has not made any capital expenditures or capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than U.S. $10,000 or outside the Ordinary
Course of Business;
(vi) VIVA has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than U.S.
$10,000 singly or U.S. $50,000 in the aggregate;
(vii) VIVA has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(viii) VIVA has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than U.S. $10,000 or outside the Ordinary Course of Business;
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(ix) VIVA has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock or declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any of its capital stock;
(x) VIVA has not experienced any significant damage,
destruction, or loss (whether or not covered by insurance) to its property;
(xi) VIVA has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such employment contract or agreement (oral or written) by which it is
bound or granted any increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business, or adopted,
amended, modified, or terminated any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xii) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving VIVA; and
(xiii) VIVA has not committed to any of the foregoing.
(i) Undisclosed Liabilities. VIVA has no Liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against it giving rise to any Liability),
except for (i) Liabilities set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen
after the Most Recent Quarter End in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
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(j) Legal Compliance. VIVA and each of its predecessors, if any, has
complied with all Local Law and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against it alleging any failure so to comply.
(k) Tax Matters
(i) VIVA has filed all Tax Returns it was required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
owed by VIVA (whether or not shown on any Tax Return) have been paid. VIVA is
not beneficiary of any extension of time within which to file any Tax Return. No
claim has been made by an authority in a jurisdiction where VIVA does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of VIVA that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) VIVA has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party and has
appropriate resources for all such liabilities.
(iii) VIVA does not expect any authority to assess any
additional Taxes for any period for which Tax Returns for VIVA have been filed.
There is no dispute or claim concerning any Tax Liability of VIVA either (A)
claimed or raised by any authority in writing or (B) as to which VIVA or the
Shareholders have Knowledge based upon personal contact with any agent of such
authority. Section 4(k) of Annex III lists all Local Law and foreign income Tax
Returns filed with respect to VIVA for taxable periods ended on or after
December 31, 1995, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. VIVA has
delivered to Buyer correct and complete copies of all such Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by VIVA since December 31, 1995.
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(iv) VIVA has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) VIVA has not been a United States real property
holding corporation within the meaning of Code ' 897(c)(2) during the applicable
period specified in Code ' 897(c)(1)(A)(ii). VIVA is not a party to any Tax
allocation or sharing agreement. VIVA has no Liability for the Taxes of any
Person as a transferee or successor, by contract, or otherwise.
(vi) The unpaid Taxes of VIVA (A) did not, as of its Most
Recent Quarter End, exceed the reserves for Tax Liability (rather than any
reserves for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of its Most Recent Balance Sheet
(rather than in any notes thereto) and (B) do not exceed those reserves as
adjusted for the passage of time through the dates of the Cost Closing hereunder
in accordance with the past custom and practice of Seller in filing its Tax
Returns.
(l) Real Property
(i) Section 4(l) of Annex III contains a complete and
accurate list of all real property owned by VIVA, and VIVA has delivered or made
available to Buyer copies of the deeds and other instruments (as recorded) by
which VIVA acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts and surveys in the possession of VIVA
and relating to such property. VIVA owns, with good and marketable title, all of
the properties that it purports to own, including all of the properties
reflected in its Most Recent Balance Sheet. All such properties are free and
clear of all encumbrances and are not subject to any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature
except, with respect to such real property, (i) mortgages or security interests
shown on such Most Recent Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (ii) mortgages or
security interests incurred in connection with the purchase of such property
(with respect to which no default or event that, with notice or lapse or time or
both, would constitute a default exists), (iii) Liens for current taxes not yet
due, and (iv) minor imperfections of title, if any, none of which is material in
amount, materially detract from the value or impairs the use of the property, or
impairs the operations of VIVA, and zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject
thereto. All buildings and structures owned by VIVA lie wholly within the
boundaries of the real property owned by VIVA and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person.
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(ii) Section 4(l) of Annex III identifies each lease,
sublease, material easement, grant or similar instrument, including site leases
for transmission and receiving equipment (showing the annual rental, expiration
date, renewal and purchase options, if any, and the location of the real
property covered by such lease or other agreement) under which VIVA has the
right to use, hold or operate any real property owned by a third party
(collectively, the "Leases") (the property covered by the agreements described
in this ' 4(l) being referred herein as the "Leased Property"). Except as
disclosed in ' 4(l) of Annex III, the Leases: (a) are each in full force and
effect and are each legal, valid and binding obligations of VIVA; and (b) will
continue in effect after the date of the Closings without the consent, approval
or act of, or the making of any filing with, any other party. VIVA, is not in
default in any material respect or received a notice of default thereunder which
has not been cured. To the Knowledge of VIVA and the Shareholders, no other
party to any such Lease is in material default thereunder. Except as disclosed
in ' 4(l) of Annex III, VIVA has valid (except with respect to the interest of
lessors in leasehold improvements) leasehold interests in the Leased Property,
free and clear of all Liens, created by VIVA, and to the Knowledge of VIVA and
the Shareholders, are free and clear of all Liens. Except as set forth in ' 4(l)
of Annex III, there are no security deposits held by VIVA under any Leases and
there are no arrearages in rent or additional rent under any such Leases.
(m) Intellectual Property
(i) VIVA complies with all Local Laws and regulations
governing or relating to the Intellectual Property. Each item of Intellectual
Property owned or used by VIVA immediately prior to the Closings hereunder will
be owned or available for use by VIVA on identical terms and conditions
immediately subsequent to such Closings hereunder. The Shareholders shall take
all steps necessary to assure the continued use by VIVA of each item of
intellectual property.
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(ii) VIVA has not, under Local Law, interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and VIVA has not received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that VIVA must
license or refrain from using any intellectual property rights of any third
party). To the Knowledge of VIVA and the Shareholders no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of VIVA.
(iii) Section 4(m) of Annex III identifies each trade name
or unregistered trademark used by VIVA in connection with its business. With
respect to each item of Intellectual Property required to be identified in '
4(m) of Annex III: (A) VIVA possesses all right, title, and interest in and to
the item, free and clear of any Security Interest, license, or other
restriction; (B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge; (C) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of VIVA is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and (D) VIVA has not agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m) of Annex III identifies each item of
Intellectual Property that any third party owns and that VIVA uses pursuant to
license, sublicense, agreement, or permission. VIVA has delivered to the Buyer
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be so identified in ' 4(m) of Annex III: (A) the license,
sublicense, agreement, or permission covering the item is legal, valid, binding,
enforceable, and in full force and effect, and will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the Closing; (B) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration thereunder; (C) with respect to each sublicense, the
representations and warranties set forth in subsections (A) and (B) above are
true and correct with respect to the underlying license; (D) the underlying item
of Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge; (E) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of VIVA and the Shareholders is threatened which challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property; and (F) VIVA has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
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(v) To the Knowledge of VIVA and the Shareholders, under
Local Law no use or license of the Intellectual Property by VIVA will interfere
with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of such party's business as presently conducted and as presently
proposed to be conducted.
(n) Tangible Assets. VIVA owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
(o) Inventory. The inventory of VIVA consists of supplies, manufactured and
purchased parts and finished goods, all of which is used in customer premises
operations, or in the origination, routing, termination and broadcasting of
telecommunications, and which is merchantable and fit for the purpose for which
it was procured, and none of which is obsolete, damaged, or defective, subject
only to the reserve for inventory write down set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing date in accordance with the past custom and
practice of VIVA. Such inventory is held by VIVA as set forth on ' 4(o) of Annex
III.
(p) Contracts. Section 4(p) of Annex III lists the following contracts and
other agreements to which VIVA is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of U.S. $10,000 per annum;
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(ii) any agreement (or group of related agreements) for
the purchase or sale of products, or personal property, or for the furnishing or
receipt of services, the performance of which will extend over a period of more
than one year, result in a material loss to VIVA or involve consideration in
excess of U.S. $10,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which VIVA has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of U.S. $10,000
or under which any such party has imposed a Security Interest on any of its
assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition arrangements;
(vi) any agreement between VIVA and its affiliates;
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual compensation
in excess of U.S. $10,000 or providing severance benefits, other than those
severance obligations imposed by Venezuelan labor law;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees outside the Ordinary
Course of Business; or
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(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
VIVA or any other agreement (or group of related agreements) the performance of
which involves consideration in excess of U.S. $10,000, and all agreements
relating to the Channels, Wireline Services, Permits, and Channel Licenses.
VIVA has delivered to Buyer a correct and complete copy of each written
agreement listed in ' 4(p) of Annex III (as amended to date) and a written
summary setting forth the terms and conditions of each oral agreement referred
to in ' 4(p) of Annex III . With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
and will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby; (B) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (C) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
VIVA are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing date in accordance with the past custom and practice of VIVA
and in accordance with GAAP.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of VIVA.
(s) Issuance. VIVA has, with respect to its properties and business,
insurance of such nature, with such terms and in such amounts as would
reasonably be maintained with respect to similar properties and similar
businesses. Section 4(s) of Annex III identifies (indicating policy owner,
carriers and effective dates) all policies of insurance, including the insurance
providing benefits for employees, owned, held or maintained by or for the
benefit of VIVA or under which VIVA is a named insured on the date hereof. All
such policies are in full force and effect and no notice of cancellation or
termination has been received with respect to such insurance except as set forth
on Section 4(s) of Annex III.
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(t) Litigation. Section 4(t) of Annex III sets forth each instance in which
VIVA (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or, to the Knowledge of VIVA or the
Shareholders is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in ' 4(t) of Annex III could result in any material
adverse change in the business, financial condition, operations, results of
operations, or future prospects of VIVA. Neither VIVA nor any of the
Shareholders have reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against it.
(u) Product Warranty. Each product sold, leased, or delivered by VIVA has
been sold, leased or delivered in conformity with all applicable contractual
commitments and all express and implied warranties, and VIVA has no Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against it giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith. VIVA has no Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product sold, leased, or delivered by VIVA.
(v) Employees. To the Knowledge of VIVA and the Shareholders no executive,
key employee, or group of employees of VIVA has any plans to terminate his or
her employment with VIVA. Except as set forth on ' 4(v) of Annex III, is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. VIVA has not committed any unfair labor practice. VIVA has
no Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of VIVA.
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(w) Employee Benefits. Section 4 (w) of Annex III list all the employees of
VIVA. With respect to such employees, VIVA has made reserves for all labor
benefits, termination indemnities and any other benefits, indemnities or
payments, whether in cash or in kind, statutory or contractual, due pursuant to
the Organic Labor Law, Social Security Law, Housing Policy Law, Organic Law on
Prevention, Conditions and Working Environment, Law of the National Institute of
Cooperative Education (INCE), as well as their corresponding Regulations and any
other labor provision or Regulation, including, but not limited to, bonuses,
night shift pay, overtime pay, vacation pay, vacation bonus, profit sharing,
indemnity for seniority or applicable severance benefits (double or single),
termination notice (double or single), indemnifications for industrial accidents
or work illnesses, travel expenses and per diem expenses. In this connection,
attached hereto as Section 4 (w) of Annex III are (i) a certificate issued by
the Ministry of Labor stating that VIVA has no pending claims, procedures or
liabilities before the Ministry; (ii) a certificate issued by the Social
Security Institute (IVSS) stating that VIVA has no pending claims, procedures or
liabilities before IVSS; and (iii) a certificate issued by the INCE stating that
VIVA has no pending claims, procedures or liabilities before INCE. VIVA has no
pension or other retirement plans or programs or any profit-sharing or other
benefit plans for its employees or officers. If any of VIVA=s current or former
employees or workers shall file, threaten to file or cause to file, directly and
indirectly, any claims against Buyer for payment of any labor benefits,
termination indemnities and any other benefits, indemnities or payments, whether
in cash or in kind, statutory or contractual, pursuant to the Organic Labor Law,
Social Security Law, Housing Policy Law, Organic Law on Prevention, Conditions
and Working Environment, Law of the National Institute of Cooperative Education
(INCE) as well as their corresponding Regulations and any other labor provision
or Regulation, including, but not limited to, bonuses, night shift pay, overtime
pay, vacation pay, vacation bonus, profit sharing, indemnity for seniority or
applicable severance benefits (double or single), termination notice (double or
single), indemnifications for industrial accidents or work illnesses, travel
expenses and per diem expenses, and VIVA does not have the appropriate reserve
to make payment of the claims, Shareholders shall be solely responsible for any
such claims.
(x) Guaranties. VIVA is not a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) of any other Person.
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(y) Environment, Health, and Safety
(i) VIVA has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, VIVA has obtained and been in compliance with all of the
terms and conditions of all permits, licenses, and other authorizations which
are required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety Laws.
(ii) VIVA has no Liability (and VIVA has handled or
disposed of any substance, arranged for the disposal of any substance, exposed
any employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could form the Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against VIVA giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(z) Certain Business Relationships with VIVA. Neither VIVA nor any of its
Affiliates owns any asset, tangible or intangible, which is used in the business
of Centuri\n other than the Channels.
(aa) Disclosure. The representations and warranties contained in this ' 4
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this ' 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
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(a) General. Each of the Parties will use its Best Efforts to take all
action and to do all things necessary in order to make effective the
transactions contemplated by this Agreement (including the satisfaction, but not
the waiver, of the Closing conditions set forth in ' 7 below).
(b) Notices and Consents. VIVA will give any notices to third parties, and
will use its Best Efforts to obtain any third party consents, that the Buyer may
request or Local Law may require in connection with the matters referred to in '
4 above. Each of the Parties will give any notices to, make any filings with,
and use its Best Efforts to obtain any authorizations, consents, and approvals
of Local Authority in connection with the matters referred to in ' 3 and ' 4
above.
(c) Operation of Business. VIVA will not to engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, VIVA will not (i)
increase its capital or issue new shares; (ii) declare, set aside, or pay any
dividend or make any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock, or (ii) otherwise
engage in any practice, take any action, or enter into any transaction of the
sort described in ' 4(h) above. The Shareholders shall amend the Bylaws of VIVA
to appoint as the General Manager of VIVA such person as Buyer and VIVA shall
designate who shall serve in such capacity until Closing. Such General Manager
shall have full authority under the Bylaws to carry out the business of VIVA.
From the date of this Agreement until Closing, the Board of Directors of VIVA
shall give notice of at least 10 days to Buyer of all Board meetings so as to
allow Buyer to have a representative present at the Board meeting, and the Board
of Directors of VIVA shall allow such representative of VIVA to be present at
and to participate in all such Board meeting, but such representative shall have
no right to vote on issues before the Board. In the event that this agreement
terminates prior to the Closing, then the provisions of this paragraph shall
have no further force and effect.
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(d) Perservation and Conduct of Business. VIVA will keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees. Notwithstanding the generality of the
foregoing, VIVA shall operate and carry on its business in the Ordinary Course
of Business, except as contemplated herein. The Parties understand and agree
that VIVA may engage in certain activities designed to increase the Subscriber
base or relating to capital or system improvements. Except as expressly
contemplated by this Agreement VIVA shall not make any change in its business or
operations that is not in the Ordinary Course of Business or make any
non-capital expenditure except in accordance with the budget or budgets approved
in writing by Buyer from time to time, which approval will be given if, in the
reasonable judgment of Buyer, such expenditure is necessary to maintain or
improve the value to Buyer of VIVA (which expenditures, in any case, shall not
exceed an average of $10,000 Dollars of the United States of America or its
equivalent in bolivars per month, including any amounts relating to the addition
of Subscribers), or as otherwise expressly approved in writing by Buyer, or make
any Capital Expenditures or enter into any contract or commitment therefore,
including any expenditure relating to head-end, receiver, transmitter, encoding
or other transmitter related equipment, except in accordance with the budget or
budgets approved in writing by Buyer from time to time, which approval will be
given if in the reasonable judgment of Buyer such expenditure is necessary to
maintaining or improving the value to Buyer of the assets and operations of VIVA
(which expenditures in any case shall not exceed an average of $10,000 Dollars
of the United States of America or its equivalent in bolivars per month,
including any amounts relating to the addition of Subscribers) or as otherwise
expressly approved in writing by Buyer.
(e) Full Access. VIVA will permit representatives of Buyer to have full and
complete access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of VIVA to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to VIVA for the purpose of enabling Buyer or its representatives
to verify the accuracy of the representations and warranties contained herein,
to verify that the covenants of this Agreement have been complied with and to
determine whether the conditions to Buyer's performance set forth herein have
been satisfied. No investigation by Buyer or its representatives hereunder (or
any Knowledge acquired or capable of being acquired in connection therewith)
shall affect Buyer's right to indemnification, reimbursement or other remedies
based on the representations, warranties, covenants and obligations of any of
the Parties hereto; provided, however, that Buyer shall not be entitled to base
a claim for indemnification on alleged falsity of a representation or warranty
herein if VIVA or the Shareholders carry the burden of proving that Buyer had
actual knowledge of the falsity of such representation or warranty at the time
of execution of this Agreement.
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(f) Notice of Developments. VIVA will give prompt written notice to Buyer
of any material adverse development causing or potentially causing a breach of
any of the representations and warranties in Secton 4 above. No disclosure by
any Party pursuant to this Secton 5(f), however, shall be deemed to amend or
supplement Annex I or III, or to prevent or cure any misrepresentation, breach
of warranty, or breach of covenant.
(g) Exclusivity. Except where Buyer has failed to make all payments due
under this Agreement within 30 days of the date when such payments are each due,
neither VIVA nor the Shareholders will (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets of, VIVA, (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing prior to the expiration of the Option
Period. VIVA will notify Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
(h) Transfer Applications. Promptly after the date of this Agreement, the
Parties shall file with Local Authority all transfer or other applications or
such other documents as may be necessary or advisable to obtain authorization
for the consummation of the transactions described herein. The Parties shall use
their respective Best Efforts to prosecute such filings with diligence and shall
diligently oppose any objections to such approvals to the end that the Parties
shall receive final action on such applications as soon as practicable. The term
"final action" as used in the preceding sentence shall mean an action of the
Local Authority that has not been reversed, stayed, enjoined, set aside,
annulled or suspended, with respect to which no timely petition for
reconsideration or administrative or judicial appeal or sua sponte action of the
Local Authority with comparable effect is pending, and as to which the time for
filing any such petition or appeal (administrative or judicial) or for the
taking of any such sua sponte action of the Local Authority has expired. VIVA
shall use its Best Efforts to cause the operations of the Channels and Wireline
Services to be, at Closing, in material compliance with all Local Law.
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(i) Perfection of Channel License. The Shareholders shall cause Centuri\n
to take all steps necessary to fulfill all requirements imposed by Local Law or
any Local Authority so as to bring the Channel License into full effectiveness.
6. Post Closing Covenants. The Parties agree as follows with respect to the
period following the Closing hereunder.
(a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under ' 8 below).
(b) Litigation Support. If and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing date
involving VIVA, each of the other Parties will cooperate with it and/or its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Secton 8 below).
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(c) Transition and Non-Circumvention. The Shareholders will not take any
action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of VIVA from
maintaining the same business relationships with VIVA after the Closing as it
maintained with VIVA prior to the Closing. The Shareholders will refer all
customer inquiries relating to the businesses of VIVA to VIVA from and after the
Closing. Further, for a period of two (2) years following the latter of the
execution of this Agreement or the Closing, unless otherwise specifically
authorized in writing by Buyer, the Shareholders shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual,
corporate or representative capacity (i) make contact or attempt to make
contact, solicit, or attempt to solicit, negotiate or attempt to negotiate,
enter into or attempt to enter into any agreement, or transact or attempt to
transact any business relating to the transactions contemplated hereby with any
Person that is a Proprietary Contact of VIVA; or (ii) commit any other acts,
directly or indirectly, which affects in any way whatsoever, or circumvent,
comprise, undermine or affect VIVA's relationship with VIVA's Proprietary
Contacts; or (iii) disclose to any other Person any Proprietary Contacts of
VIVA, unless required to do so by court order or by law (including Local Law),
and then only after having given notice of such requirement to VIVA with
sufficient time for VIVA to interpose an objection to such disclosure.
(d) Confidentiality. The Shareholders and Buyer will treat as confidential
and hold as such all of the Confidential Information of the other, and refrain
from using any of the Confidential Information of the other except in connection
with this Agreement and the ongoing operations of VIVA. If either Buyer or the
Shareholders is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information of another Party, it will notify the other party promptly of the
request or requirement so that the other party may seek an appropriate
protective order or waive compliance with the provisions of this ' 6(e). If, in
the absence of a protective order or the receipt of a waiver hereunder, Buyer or
the Shareholders are, on the advice of counsel, compelled to disclose any
Confidential Information of the other party to any tribunal or else stand liable
for contempt, it may disclose the Confidential Information of the other party to
the tribunal; provided, however, that it shall use its Best Efforts to obtain,
at the request of the other party, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the other party shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
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(e) Covenant Not to Compete. For a period of the longer of three years from
and after the Closing date or for so long as any Affiliate of the Shareholders
or the Shareholders shall continue to own any interest as a shareholder in WCCI
and with the exception of the Shareholders' direct or indirect interest in WCCI,
the Shareholders will not engage directly or indirectly in any business that
VIVA conducts as of the Closing date in, the Republic, including specifically,
any direct broadcast satellite system, multipoint multichannel distribution
system satellite, master antenna television system, community antenna, wireline
or other type of franchise hardwire or wireless cable television system or
substantially similar business; provided, however, that no owner of less than 5%
of the outstanding stock of any publicly traded corporation shall be deemed to
engage solely by reason thereof in any of its businesses. If the final judgment
of a court of competent jurisdiction declares that any term or provision of this
' 6(f) is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
7. Conditions to Obligation to Close
(a) Conditions to Obligation of Buyer. In the event that Buyer exercises
the Option, the obligation of Buyer to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in ' 3(b)
and ' 4 above shall be true and correct in all material respects at and as of
the Closing date;
(ii) VIVA shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing date;
(iii) VIVA shall have procured all of the third party
consents specified in ' 5(b) above;
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(iv) with respect to any party to this Agreement, no
action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any national, federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any of the transactions contemplated by this Agreement, cause
any of the transactions contemplated by this Agreement to be rescinded following
its consummation, affect adversely the right of Buyer to own the Shares and to
acquire control of VIVA as of the Closing date, or affect adversely the right of
VIVA to own its assets and to operate its business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Shareholders and VIVA shall have delivered to
Buyer a certificate to the effect that each of the conditions specified above in
' 7(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions
thereof) under applicable law shall have expired or otherwise been terminated
and the Buyer and the Shareholders shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to
herein;
(vii) Buyer shall have received from counsel to the
Shareholders an opinion in form and substance acceptable to Buyer which shall
provide, among other things, opinions relating to the existence and
capitalization of VIVA, effectiveness and ownership of the Channel Licenses, the
absence of any nonfulfilled requirements for approvals from Local Authorities or
third parties for the consummation of the transactions described herein, the
absence of any Local Laws prohibiting the transactions contemplated herein and
other matters routinely opined to by counsel for sellers and corporations in
transactions similar to those contemplated hereby, addressed to Buyer, and dated
as of the Closing date;
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(viii) Buyer shall have closed, and received the proceeds
from the Offering necessary to proceed to Closing;
(ix) all actions to be taken by the Shareholders or VIVA
in connection with the consummation of the transactions contemplated at the
Closing and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated at the Closing will be
satisfactory in form and substance to Buyer;
(x) Buyer shall have completed its business, regulatory,
legal and accounting due diligence investigation of VIVA, the results of which
shall be satisfactory to the Underwriter(s) of the Offering in their sole
discretion;
(xi) The Shareholders of Centuri\n shall have amended its
Articles of Incorporation/Bylaws to grant the necessary supermajority rights to
Buyer as required in that certain Centuri\n Shareholders Agreement effective as
of November 8, 1996.
(xii) The Shareholders shall have caused Caracas Wireless
Vision, S.A., a company organized and existing under the laws of the Republic of
Venezuela, and Centuri\n, as appropriate, to assign to VIVA the leases, the
Permits, and the insurance policies referenced in paragraphs 4(e), 4(l), 4(s)
and 4(w) of the Agreement.
(xiii) The Shareholders shall have executed the Holding
Trust and the Escrow Agreement.
Buyer may waive any condition specified in this ' 7(a) if it executes a writing
so stating at or prior to the Closing.
(b) Conditions to Obligation of VIVA. The obligation of the Shareholders to
consummate the transactions to be performed by it in connection with the Closing
is subject to the satisfaction of the following conditions:
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(i) the representations and warranties set forth in ' 3(a)
above shall be true and correct in all material respects at and as of the
Closing date;
(ii) Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing date;
(iii) Buyer shall have delivered to VIVA a certificate to
the effect that each of the conditions specified above in ' 7(b)(i)-(iii) is
satisfied in all respects;
(iv) The Shareholders shall have received the Exercise
Price.
VIVA may waive any condition specified in this ' 7(b) if it executes a writing
so stating at or prior to the Last Closing.
8. Remedies for Breaches of This Agreement
(a) Survival of Representations and Warranties. All of the representations
and warranties contained in Section 4(a)-(j) and Section 4(l)-(aa) shall survive
the Closing hereunder (even if Buyer knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of three years thereafter. All of the other
representations and warranties of the Parties contained in this Agreement
(including the representations and warranties of the Shareholders and VIVA
contained in ' 4(k) above) shall survive the Closing (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Last Closing) and continue in full force and effect thereafter (subject
to any applicable statutes of limitations). All of the representations and
warranties of the Shareholders under ' 4 are joint and several in nature.
(b) Indemnification Provisions for Benefit of Buyer
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(i) If the Shareholders breached any of their
representations, warranties, and covenants contained herein, and, if there is an
applicable survival period pursuant to ' 8(a) above, provided that Buyer makes a
written claim for indemnification against the Shareholders pursuant to ' 11(h)
below within such survival period, then the Shareholders agree to indemnify
Buyer from and against the entirety of any Adverse Consequences Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach; provided, however, the Shareholders shall not have any obligation
to indemnify Buyer from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach of any
representation or warranty of the Shareholders contained in ' 4(a)-(j) and '
4(l)-(aa) above until Buyer has suffered Adverse Consequences by reason of all
such breaches in excess of a $25,000 aggregate threshold, exclusive of
attorneys' fees relating to the issue (at which point the Shareholders will be
obligated to indemnify Buyer from and against all such Adverse Consequences
relating back to the first dollar).
(ii) Notwithstanding the foregoing, the Shareholders agree
to indemnify Buyer from and against the entirety of any Adverse Consequences
Buyer may suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of the Shareholders VIVA for the unpaid Taxes of any
Person as a transferee or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Shareholders. If Buyer
breaches any of its representations, warranties, and covenants contained herein,
and, if there is an applicable survival period pursuant to ' 8(a) above,
provided that the Shareholders make a written claim for indemnification against
Buyer pursuant to 11(h) below within such survival period, then Buyer agrees to
indemnify the Shareholders from and against the entirety of any Adverse
Consequences the Shareholders may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Shareholders may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach in the excess of
$25,000 aggregate threshold, exclusive of attorneys' fees relating to the issue
(at which point Buyer will be obligated to indemnify the Shareholders from and
against all such adverse consequences relating back to the first dollar).
(d) Matters Involving Third Parties
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(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this ' 8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying any indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party is thereby prejudiced.
(ii) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within 15 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence acceptable to
the Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with ' 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld or delayed unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld or delayed unreasonably).
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(iv) In the event any of the conditions in ' 8(d)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this ' 8.
(e) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant.
9. Tax Matters The following provisions shall govern the allocation of
responsibility as between Buyer and VIVA for certain tax matters following the
Closing Date:
(a) Mitigation of Taxes. The Parties agree to use their Best Efforts to
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed including, but not limited to, with respect to the transactions
contemplated hereby. The Parties understand, however, that the covenants set
forth in this Section 9(a) do not constitute any representation or warranty as
to the tax effects or treatment of the transactions contemplated hereby.
(b) Information. Buyer and the Shareholders agree to provide the other
party with all tax information that either party may be required to report
pursuant to applicable law.
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(c) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any gains tax,
transfer tax and any similar tax imposed by state, local or municipal
governments or their subdivisions), shall be paid by the Shareholders when due,
and the Shareholders will, at their own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law (but only if so required), Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
10. Termination
(a) Termination of Agreement. This Agreement may terminate as provided
below:
(i) Buyer and the Shareholders holding a majority of the
Shares may terminate this Agreement by mutual written consent at any time prior
to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to the Shareholders on or before the Closing if Buyer is not satisfied
with the results of its continuing business, regulatory, legal, and accounting
due diligence review;
(iii) Buyer may terminate this Agreement by giving written
notice to the Shareholders at any time prior to the Closing (A) if the
Shareholders have breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has notified the
Shareholders of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall not
have occurred on or before the 30th day after the exercise of the Option by
reason of the failure of any condition precedent under ' 7(a) hereof (unless the
failure results primarily from Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement);
(iv) The Shareholders (but not less than all the
Shareholders) may terminate this Agreement by giving written notice to Buyer at
any time prior to the Closing (A) if Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, the Shareholders have notified Buyer of the breach, and the
breach has continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or before the 30th day
after the exercise of the Option, by reason of the failure of any condition
precedent under ' 7(b) hereof (unless the failure results primarily from the
Shareholders breaching any representation, warranty, or covenant contained in
this Agreement); (v) The agreement shall be considered terminated if the Option
is not exercised; and
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(vi) Buyer may terminate this Agreement upon notice to
VIVA and the Shareholders if the Shareholders fail to establish the Holding
Trust.
(b) Effect of Termination
(i) If this Agreement pursuant to ' 10(a) above, all
rights and obligations of the Parties hereunder shall terminate without any
Liability of any Party to any other Party, except for any Liability of any Party
then in breach or, in the case of termination pursuant to paragraph 10 (a)(vi)
above, for the Penalty Amount which shall be immediately due and payable upon
notice from WCCI but without further demand for payment.
11. Miscellaneous
(a) Nature of Certain Obligations. The covenants of the Shareholders in ' 2
above concerning the sale of its Shares to Buyer and the representations and
warranties of the Shareholders in ' 4 above concerning the transaction are joint
and several obligations. As a result, the Shareholders will each be responsible
to the extent provided in ' 8 above for any Adverse Consequences Buyer may
suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of Buyer and
the Shareholders; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure).
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(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral (including, specifically, the Letter of Intent), to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of Buyer and the Shareholders; provided, however, that Buyer may (i) assign any
or all of its rights and interests hereunder to one or more of its Affiliates
established in connection with or for the purpose of effecting the Offering, and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. For purposes of this
Agreement, the delivery of a counterpart signature by telephonic facsimile
transmission shall be deemed the equivalent of the delivery of an original
counterpart signature.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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If to VIVA:
Caracas VIVA Vision TV, S.A.
Avda. Libertador con Calle Negrin
C.C. Libertador - Piso 1, Oficinas 1-4
Caracas, Venezuela
Tele: 582-712-343
Fax: 582-762-0720
If to Shareholders:
Donald A. Williams
GTTG (USA), Inc.
5 Grogans Park Drive, Suite 220
The Woodlands, Texas 77380-2190
Tele: (713) 364-9130
Fax: (713) 298-1666
Copy to:
Manuel Herrera
Calle Santa Ana No.14
Boleita
Caracas (in front of Oscar Meyer)
Venezuela
If to Buyer:
Wireless Cable & Communications, Inc.
102 West 500 South
Salt Lake City, Utah
Tele: (801) 328-5619
Fax: (801) 532-6060
Copy to:
James M. Elegante, Esq.
Scott R. Carpenter, Esq.
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
(801) 532-1234
Fax: (801) 536-6153
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Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah, United States of
America, without giving effect to any choice or conflict of law provision or
rule (whether of the State of Utah or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of Utah.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by Buyer and VIVA.
No waiver by any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby, except that any expenses with respect
to this Agreement or related agreements incurred by VIVA shall not be the
expense of VIVA but shall be the expense of its shareholders. Notwithstanding
the foregoing, the expenses associated with or deriving from the Holding Trust,
including but not limited to the Holding Agent=s fees and costs, will be borne
exclusively by the Shareholders.
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(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(n) Incorporation of Exhibits and Annexes. The Exhibits and Annexes
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Arbitration. Each of the Parties hereto shall carry out his or its
duties and obligations under this Agreement in the spirit of mutual cooperation
and good faith, and shall attempt to resolve amicably any differences, disputes
or controversies relating to this Agreement. In the event of any controversy or
claim arising in connection with this Agreement or the breach thereof, the
Parties will endeavor to negotiate a mutually satisfactory solution and, if such
a solution cannot be reached, then each such Party shall promptly provide the
other Parties with a written summary of the nature of the dispute and shall
propose solutions thereto. The Parties shall meet within 10 days of their
receipt of such written summary, to review the summary and to attempt in good
faith to resolve the dispute or controversy in question. If such controversy or
claim cannot be resolved to the mutual satisfaction of the Parties, then any
Party hereto may subject such controversy or claim to arbitration. The Parties
shall act in good faith pending any determination by any such arbitration board.
During a period of dispute between the parties, no party shall, whether prior
to, during or after the arbitration and until such time as the arbitration award
has been implemented, take any action or cause any action to be taken by any
Local Authority or any other person which would in any way materially
jeopardize, impair or diminish the full use of the Channel Licenses, Channels,
Permits or Wireline Services, or the operations of the telecommunications
services provided by VIVA. Each such party specifically agrees that a court of
competent jurisdiction may immediately enforce the provisions of this paragraph
(o) through injunctive relief without the need for any Party to post a bond or
surety. If arbitration is initiated by any party hereto, such arbitration shall
be settled in accordance with the International Rules of Arbitration of the
American
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Arbitration Association in effect on the date the notice for arbitration is
given to the other Party or Parties. In the event of any conflict between those
rules and the provisions of this paragraph (o), the provisions of this paragraph
(o) shall govern. Any Party wishing to submit a matter to arbitration shall
provide written notice to the other Party or Parties informing such other Party
or Parties of such intention and the issues to be resolved. Within 10 days after
the receipt of such demand, the other Party or Parties may, by written notice to
the Party initiating the arbitration, add additional issues to be resolved. The
Parties shall attempt to select a single arbitrator, but if they are unable to
agree within 10 days from the demand described above, then each of the Parties
shall appoint one arbitrator and the arbitrators so chosen shall in turn choose
an additional arbitrator. If the arbitrators chosen by the parties cannot agree
on the choice of the final arbitrator within a period of 10 days after their
nomination, then the final arbitrator shall be appointed by the American
Arbitration Association. Any arbitration proceedings initiated hereunder shall
be held in Miami, Florida, or such other place as the parties may mutually
agree. The arbitration shall take place in the English language. No decision of
the arbitrator(s) shall be subject to appeal, and judgment on the award or
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof. All administrative fees and costs of the arbitration and
of the arbitrators shall be divided equally between or among the Parties to the
arbitration. The service of any notices in reference to arbitration shall be
deemed valid and sufficient if provided under the notice provisions of this
Agreement. No party shall be prevented from obtaining equitable or injunctive
relief in any court of law or equity having competent jurisdiction, plus any
remedies ancillary thereto, to enforce the other Party's or Parties' obligations
under Sections 5(g), 6(c) or 6(e), and any Party seeking equitable relief with
respect to such section shall notify the other Party or Parties before taking
any action under this paragraph (o).
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah,
United States of America, in any action or proceeding, as exclusively between or
among the parties to this Agreement, arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Any Party may make service on any other Party by sending or delivering
a copy of the process (i) to the Party to be served at the address and in the
manner provided for the giving of notices in ' 12(h) above or (ii) to the Party
to be served at the address and in the manner provided for the giving of notices
in ' 12(h) above. Nothing in this ' 12(p), however, shall affect the right of
any Party to serve legal process in any other manner permitted by law or at
equity. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
(q) Further Assurances. VIVA and the Shareholder shall cooperate and do all
things necessary to assist Buyer in obtaining from any Local Authority any
Permit and registrations, including but not limited to the Venezuelan Foreign
Investment Certificate. Furthermore, the Shareholders shall cause VIVA to obtain
its classification certificate from Local Authorities.
(r) Controlling Language. The English version of this Agreement shall
control the rights, duties, preferences, liabilities and obligations of the
Parties hereunder and the interpretation of the terms hereof.
(s) Transfer of After Acquired Rights. Subject to the Closing, the
Shareholders, on behalf of themselves and all persons claiming by, through or
under them, hereby agree to transfer and convey to VIVA (for no additional
consideration) the rights to the After-Acquired Rights.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written. BUYER:
Wireless Cable & Communications, Inc.
By: /s/ Anthony John Sansone
Anthony John Sansone, Secretary
and Treasurer, pursuant to a
Unanimous Consent Resolution of
the Board of Directors
effective as of the 6th day of
November, 1996, attached hereto
as Exhibit C
VIVA:
CARACAS VIVA VISION TV, S.A.
By: /s/ John E. Williams
John E. Williams,
Attorney-in-Fact (Factor Mercantil)
(Exhibit D)
SHAREHOLDERS:
Promotora Perfil 47, S.A.
By: /s/ Luis Alberto Bastardo
Luis Alberto Bastardo,
with Power of Attorney
to represent Manuel
Herrera, President of
Promotora Perfil 47,
S.A., attached hereto
as Exhibit E
Caribbean Communications Group, S.A.
By: /s/ Donald A. Williams
Donald A. Williams, President
Comunicaciones Centuri\n, S.A.
By: /s/ Donald A. Williams
Donald A. Williams, President
and
/s/ Luis Alberto Bastardo
Luis Alberto Bastardo, Director
Donald A. Williams, an individual
/s/ Donald A. Williams
158
EXHIBIT 10.8
JULY 24, 1997 AMENDMENT TO OPTION AND
STOCK PURCHASE AGREEMENT
AGREEMENT
This Agreement is entered into as of the 24th day of July, 1997, by and
between CARACAS VIVA VISION T.V., S.A. (AViva@) and WIRELESS CABLE &
COMMUNICATIONS, INC. (AWCCI@).
A. WCCI, Viva and the shareholders of Viva, including Comunicaciones
Centuri\n, S.A. (ACenturi\n@), Promotora Perfil 47 (APP47@) Caribbean
Communications Group, S.A. (ACCG@) and Donald Williams (AWilliams@) (CCG and
Williams being hereinafter referred to as Athe Shareholders@), have entered into
an OPTION AND STOCK PURCHASE AGREEMENT, dated November 8, 1996, as amended (the
AOption Agreement@), pursuant to which Viva and its shareholders granted to WCCI
an option (the AOption@) to acquire all of the outstanding capital stock of Viva
under the terms and conditions contained therein.
B. Pursuant to the provisions of Section 2(c) of the Option Agreement, the
Shareholders are entitled to receive, as the exercise price for the Option, cash
and shares of the capital stock of WCCI (the AOption Consideration@).
C. WCCI and the Shareholders have agreed to modify the consideration
specified in such Section 2(c) of the Option Agreement, and the amount the
Shareholders will receive for the exercise of the Option.
D. WCCI and the Shareholders desire to memorialize the modification of the
terms of the Option Agreement as between them by entering into this Agreement,
and Viva desires to acknowledge such amendment between WCCI and the Shareholders
by executing this Agreement in accordance with the provisions of Section 11(j)
of the Option Agreement.
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, WCCI and the Shareholders agree as
follows:
1. Defined Terms. All initially capitalized terms not defined in this
Agreement will have the meanings given them in the Option Agreement. For
purposes of this Agreement, the term "PASJ Investment Amount" shall mean, with
respect to WCCI's common shares, the amount per common share initially paid or
to be paid by Petrolera Argentina San Jorge, S.A. ("PASJ") with respect to the
common stock portion of its proposed investment in WCCI in exchange for equity
securities of WCCI (the "PASJ Investment"). All monetary amounts set forth in
this Agreement are in United States dollars.
159
<PAGE>
2. Amendment as Between WCCI and the Shareholders. The parties hereby
modify and amend, as between WCCI and the Shareholders and only as between WCCI
and the Shareholders (and not with respect to PP47), Section 2(c) of the Option
Agreement to such extent and in such manner as will give full force and effect
to the provisions of paragraph 3 below, and Section 2(c) of the Option Agreement
shall be of no further force or effect as between WCCI and the Shareholders (and
only as to WCCI and the Shareholders, and not PP47) to the extent contradictory
with or to paragraph 3 below. Understanding therefore that the portion of VIVA
which is owned directly or indirectly by PP47 is not affected by this Agreement.
3. Shareholder Exercise Price. Upon and subject to the reversal of the
transaction pursuant to which Centuri\n acquired its interest in VIVA, and upon
the exercise of the Option, WCCI agrees to pay to the Holding Agent on behalf of
the Shareholders, and at the Closing for disbursement to the Shareholders as
provided in and subject to the further provisions of the Option Agreement, and
as consideration upon the exercise of the Option by WCCI, the following:
(a) Cash. The amount of $216,485 Dollars of the United States in
cash, or by cashiers check, wire transfer, or other acceptable means for payment
(the ACash Portion@); and
(b) Common Stock. Such number of fully paid and non-assessable
common shares of WCCI as shall have an aggregate value of $3,550,000 (the
ACommon Stock@). The number of WCCI common shares comprising the Common Stock
shall be determined by dividing $3,550,000 by the PASJ Investment Amount for
WCCI common shares; and
(c) Preferred Stock. Three Hundred Fifty-Five Thousand (355,000)
fully paid and non-assessable Series B preferred shares of WCCI (the APreferred
Stock@). The rights, preferences and privileges of the Series B preferred shares
shall be governed by the Designation of that series filed with the Office of the
Secretary of State of Nevada.
WCCI's delivery to the Holding Agent on behalf of the Shareholders of the
consideration set forth in this paragraph 3 shall constitute effective delivery
of such consideration to the Shareholders. WCCI shall not be obligated to see to
the division or relative distribution of such consideration as between or among
the Shareholders. The Shareholders= obligation to deliver a portion of the
Exercise Price into an escrow account to be governed in accordance with the
terms of the Escrow Agreement shall be satisfied by the delivery to the Escrow
Agent of a portion of the Common Stock and Preferred Stock having a value, based
on the PASJ Investment Amount for WCCI=s common shares and a $10 value for the
Preferred Stock, of $800,000, one-half of which value shall be in Common Stock
and one-half of which value shall be in Preferred Stock.
160
<PAGE>
4. Further Actions. As further consideration for the execution by the
parties of this Agreement, they agree as follows:
(a) Employment Agreement. WCCI and Williams shall enter into an
employment agreement in the United States for services to be performed on behalf
of WCCI in the United States pursuant to which WCCI will engage Williams to act
in an executive capacity in Latin American Operations of WCCI during the one
year period commencing August 1, 1997 and at an annual salary of $120,000. The
employment agreement shall contain standard provisions normally found in
employment agreements, including provisions relating to termination,
non-competition and Williams' duties and obligations.
(b) WCCI Investment in Viva. During the first year after the
Closing of the Option Agreement, WCCI and/or its affiliates will provide Viva
with financing (in the form of loans, capital contributions, arranged third
party financing and/or otherwise as WCCI shall determine) in an amount equal to
$1.5 million budgeted for such period, as determined by WCCI's board of
directors. During the second and third years after the Closing of the Option
Agreement, WCCI and/or its affiliates will provide financing to Viva based on
such operating budgets as shall be approved by WCCI's board of directors.
Notwithstanding the foregoing, WCCI=s obligation to fund all or any portion of
the amounts set forth in this paragraph 4(b) shall be contingent upon the
existence of no adverse events in Venezuela or the telecommunications market
which would render any such investments imprudent based on the determination of
WCCI=s Board of Directors.
(c) Board Seat. Unless waived in writing by Williams, until the
earlier of the third anniversary of the Closing of the Option Agreement or
immediately preceding the closing of an underwritten public offering registered
with the Securities and Exchange Commission (on a form other then Forms S-4, S-8
or similar forms) which results in net proceeds to WCCI of at least $15 million
and a market capitalization (post money) of at least $50 million, the Company
shall use its best efforts to elect one person designated by Williams to its
board of directors. In connection therewith, WCCI shall use its best efforts to
deliver to Williams an executed Shareholders Agreement, in the form of Exhibit
AA@ attached hereto, relating to the agreement of certain shareholders of WCCI
to vote their equity securities in WCCI in favor of Williams' designee in any
such election of WCCI=s board of directors.
5. Ratification of Option Agreement. Except as specifically provided
herein, each of the parties hereto hereby ratifies and affirms the terms and
conditions of the Option Agreement, which are incorporated herein by this
reference.
6. Further Actions. The Shareholders hereby agree to use their best efforts
(which shall include, without limitation, voting any equity securities they hold
in Centuri\n) to cause the reversal of the transaction whereby Centuri\n
acquired its interest in VIVA. The securities to be acquired by WCCI upon the
exercise of the Option shall be deemed to include all interests presently held
by the Shareholders in VIVA and all interests acquired by reason of the reversal
of the Centuri\n transaction.
161
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
CARACAS VIVA VISION T.V., S.A.
By: /s/Donald A. Williams
Its: President
WIRELESS CABLE & COMMUNICATIONS, INC.
By: /s/Lance D=Ambrosio
Its: President
162
EXHIBIT 10.9
AUGUST 13, 1997 AMENDMENT TO OPTION AND
STOCK PURCHASE AGREEMENT
August 13, 1997
Mr. Lance D'Ambrosio
Wireless Cable & Communications, Inc.
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
Re:..........................Caracas Viva Vision TV, S.A.
Dear Lance:
On November 8, 1996, Wireless Cable & Communications, Inc.
("WCCI") entered into an Option and Stock Purchase Agreement (the
AAgreement@) with the shareholders of Caracas Viva Vision TV, S.A. ("Viva")
for the purchase of their shares in Viva. On July 24, 1997, WCCI and Viva
entered into an agreement (the AJuly Amendment@) which modified, as among
WCCI, Caribbean Communications Group, S.A. ("CCG") and Donald Williams
("Williams"), the consideration that CCG and Williams would receive upon
WCCI's exercise of the option.
Based on the parties= further negotiations, they have
agreed to another amendment of the consideration to be paid to Williams and
CCG at the closing of the Agreement. The parties= present agreement is as
follows:
a) Instead of delivering $216,485 at closing, WCCI will deliver the amount
of $400,000. Or of that amount, $200,000 will be in the form of cash or
other readily available funds, and the balance ($200,000) will be
represented by a promissory note in the form of Exhibit "A" hereto. The
entire $400,000 will be made payable to CCG.
(b) Instead of delivering WCCI common shares having an aggregate value
(based on the PASJ Investment Amount, as defined in the July Amendment) of
$3,550,000, WCCI will deliver to CCG and Williams WCCI common shares having
an aggregate value of $3,548,250. Common shares having a value of
$1,623,250 will be delivered to CCG and common shares having a value of
$1,925,000 will be delivered to Williams.
(c) Instead of WCCI delivering 355,000 Series B preferred shares to
Williams and CCG, it will deliver 354,825 Series B preferred shares. CCG
will receive 162,325 of those shares, and Williams will receive 192,500 of
those shares.
163
<PAGE>
The parties further understand and agree that
Comunicaciones Centuri\n S.A. has loaned Viva certain amounts, which are
not reflected on the financial statements delivered by Viva upon the
execution of the Agreement in November of 1996 and which arose after that
date. The parties shall promptly determine the exact amount of the
Centuri\n loans, which in all events shall be limited to no more than
$400,000. All such amounts shall be due and payable no earlier than August
15, 2000.
Except as set forth in this letter, the Agreement, as
amended (including by the July Amendment), remains in full force and
effect.
If WCCI agrees to the amendments to the Agreement as
described herein, please signify that agreement by executing this letter in
the space provided below.
Sincerely,
Caracas Viva Vision TV, S.A.
By: /s/Donald A. Williams
Its: President
ACCEPTED AND AGREED:
Wireless Cable & Communications, Inc.
By: /s/ Lance D=Ambrosio
Its: CEO
Dated: 8/13/97
164
<TABLE>
<CAPTION>
EXHIBIT 12.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<S> <C> <C> <C> <C>
Number Days
Description Date of Shares Outstanding
Common stock issued in 8/1/95 to 3,5000,000 153 535,500,000
acquisition of assets 12/31/95
/ 153
-----------------
Weighted average shares outstanding for the five months
ended December 31, 1995 3,500,000
Number Days
Description Date of Shares Outstanding
Beginning Common Stock 1/1/96 to 3,500,000 180 630,000,000
6/28/96
Issuance of Common Stock 6/29/96 to 3,645,833 186 678,124,928
-----------
12/31/96
1,308,124,928
/ 366
-------------------------
Weighted average shares outstanding for the period
ended December 31, 1996 3,574,112
Number Days
Description Date of Shares Outstanding
Beginning Common Stock 8/1/95 to 3,500,000 333 1,165,500,000
6/28/96
Issuance of Common Stock 6/29/96 to 3,645,833 186 678,124,928
-----------
12/31/96
1,843,624,928
/ 519
-------------------------
Weighted average shares outstanding for the period from August 1, 1995
through December 31, 1996 3,552,264
</TABLE>
165
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of the Registrant
Transworld Wireless Television, Inc.
Auckland Independent Television Services, Ltd.
Telecom Investment Corporation
166
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001020424
<NAME> WIRELESS CABLE AND COMMUNICATIONS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 77,991
<SECURITIES> 440,000
<RECEIVABLES> 120,234
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 245,437
<PP&E> 433
<DEPRECIATION> 2,600
<TOTAL-ASSETS> 1,729,271
<CURRENT-LIABILITIES> 445,224
<BONDS> 0
0
0
<COMMON> 36,458
<OTHER-SE> 96,577
<TOTAL-LIABILITY-AND-EQUITY> 1,729,271
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 636,844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,717
<INCOME-PRETAX> (697,954)
<INCOME-TAX> 0
<INCOME-CONTINUING> (697,954)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (697,954)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
