SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(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, 1997.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________ to _____________.
Commission file number 00-21143
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
Salt Lake City, Utah 84101
(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 X No , 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-KSB/A or any amendment to this Form 10-KSB/A. [ ]
State the registrant's net revenue for its most recent fiscal year: $40,186.
The aggregate market value of voting stock held by non-affiliates of the
registrant computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days, was $3,580,767.
As of March 31, 1998, 8,209,900 shares of registrant's Common Stock, par value
$.01 per share, 3,257,490 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.
<PAGE>
WIRELESS CABLE & COMMUNICATIONS, INC.
April 16, 1998
Form 10-KSB/A
PART 1.
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
OVERVIEW
The Company was formed to provide high quality, low-cost,
telecommunications services to subscribers in emerging markets outside the
United States. The Company intends to provide these services using its own
networks of fixed local point to multi-point broadband wireless communication
systems. The Company anticipates that it will also be able to provide its
services using fiber optic networks and coaxial cable where the Company believes
it is economically attractive or strategically desirable to do so. The Company
currently holds or has the right to acquire communications networks in six
countries which have an aggregate population of approximately 80 million,
including Venezuela, Costa Rica, Guatemala, Argentina, Panama and New Zealand
(the "Market Countries"). The Company also expects to obtain rights to
additional communications networks in other emerging markets, primarily in Latin
America. The Company's interests in the Market Countries include the ownership
of a 78% interest in a network that currently provides multi-channel television
services in Caracas, Venezuela (the "Operating System"). The Company also holds
or has the right to acquire majority economic interest positions in all of its
other markets. In certain markets where governmental regulations prohibit
foreign control of network rights, the Company has generally acquired minority
interests in the entities that hold the rights to the network and a majority
interest in the company that has the exclusive right to operate the network. The
Company believes that this ownership structure provides it with significant
management influence over the network operations in each of those markets.
The Company intends to offer a number of integrated service packages
targeted to businesses, governmental agencies and residential consumers. The
Company intends to evolve into a full-service provider of "one-stop shopping"
communications services with a product portfolio that includes Internet and
intranet services, high speed data connectivity, and local and long distance
telephony services. The Company's bundled service packages will be tailored to
the specific needs of the target customer group, but will initially focus on
high speed data connectivity and Internet and intranet access. The Company also
plans to add local and long distance telephony services and video conferencing
services and/or multi-channel television services to its service packages at a
later date. The Company has identified 15 medium and large cities (the "Target
Markets") in the Market Countries in which it intends to launch or expand its
communications networks during the next three years. The Company began
construction activities on the Target Markets in January 1998 and anticipates
completion of its facilities in the Target Markets by December 2000. It then
intends to launch or expand its data services in the remainder of the Market
Countries and launch or expand wireless data, voice and multi-channel television
services in the Target Markets and the other portions of the Market Countries.
The Company's network 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 investments) sufficient to fund those
capital expenditures. See "Profitability Milestones and Operating Concerns --
Need for Substantial Additional Financing" and "Management's Discussion and
Analysis of Certain Relevant Factors," below.
<PAGE>
The Company believes many underdeveloped countries, particularly
countries in Latin and Central America, are experiencing rapid economic and
population growth, as well as unparalleled demand for expanded
telecommunications services. The Company also believes that the market
penetration in those countries by telecommunications services providers has been
limited in comparison to developed countries such as the United States.
Worldwide, the combined telecommunications market is believed to be in
excess of $600 billion. Further, the number of worldwide Internet users is
expected to grow from an estimated 46 million in 1997 to approximately 152
million by the year 2000.
DESCRIPTION OF THE COMPANY'S BUSINESS
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"). Through its joint venture entity, Wireless
Holdings, Inc., a Delaware joint venture corporation ("WHI"), TTI owns operating
and non-operating wireless communications networks in six United States markets
through WHI. TTI also owned an interest in certain New Zealand and Park City,
Utah network rights.
In July 1995, the board of directors of TTI voted to separate its
business assets into two groups. Under the terms of the business separation (the
"Separation"), TTI agreed to form a new corporation -- the Company -- to hold
TTI's New Zealand and Park City, Utah network rights, and the stock of that
corporation was then to be distributed to TTI's shareholders.
In order to complete the Separation, TTI formed the Company and, in
August 1995, it issued 3,500,000 shares of its common stock to TTI in exchange
for TTI's interest in the New Zealand and Park City, Utah networks. The New
Zealand network rights represented approximately 99% of the value of the TTI
assets contributed to the Company. TTI immediately transferred the shares of the
Company to an escrow agent, to be held for the benefit of TTI's shareholders of
record on that date 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), until the Company complied with certain
securities law requirements. In December 1996, the Company registered the shares
under the federal securities laws under the Securities Exchange Act of 1934, as
amended, pursuant to a registration statement on Form 10-SB. The Company has not
yet distributed the shares from escrow, although it anticipates doing so in the
near future. See "Certain Relationships and Related Transactions."
<PAGE>
TIC Transaction. Prior to January 31, 1997, the Company's primary
business assets consisted of its New Zealand network rights and a 4.4% equity
interest in a company that holds the network rights in Venezuela. See
"Description of the Company's Business - Market Country Networks," 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
telecommunication rights in a number of South American and Latin American
countries, including Venezuela, Costa Rica, Panama, Peru and Guatemala. The
principal shareholder of TIC is the father of the Company's president.
In February 1997, TIC merged with a newly formed wholly-owned
subsidiary of the Company. 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"). As a result of the TIC Transaction, the former
shareholders and option holders of TIC acquired approximately 87% of the voting
control of the Company on a fully diluted common share equivalent basis. As a
result of the Petrolera Transaction, the FondElec Transaction and the CVV
Transaction, all as described below, the former shareholders and option holders
of TIC currently hold approximately 54.6% of the voting control of the Company.
The TIC Transaction was accounted for as a reverse acquisition for accounting
purposes (see Note 1 to the consolidated financial statements).
The number of Series A Preferred Shares the TIC shareholders received
was based primarily on a valuation of Latin and South American wireless
telecommunications rights that was prepared by a securities underwriter in
connection with a proposed registered public offering of the Company's Common
Shares. The parties also considered other factors in determining their
respective values for purposes of the TIC Transaction, including (i) current and
anticipated debt obligations, (ii) the funds expended by the parties in
acquiring their respective rights, (iii) the Company's and TIC's pre-TIC
Transaction relationships, (iv) TIC's and the Company's joint interests in the
Venezuelan communications network, (v) the fact that the Company had agreed to
enter into an option to acquire the company that operates the Venezuelan network
as nominee for TIC, and (vi) increases in the value of the Company's wireless
rights in New Zealand after the date of the valuation. The valuation assumed
full build-out of each system, which has yet to occur. See "Certain
Relationships and Related Transactions."
Note and Warrant Offering. During 1996 and 1997, the Company sold a
series of secured promissory notes (the "Notes") and warrants (the "Warrants")
in a private placement transaction. The aggregate principal amount of the Notes
(which were retired in full in November 1997) was $871,095. The Warrants provide
their holders with the right to acquire the number of common shares of the
Company having a value equal to the principal amount of the Notes, as determined
by a formula which takes into consideration the price at which the Company
issues its securities and the timing of those issuances. Currently, the Warrants
entitle their holders to purchase approximately 1,161,016 shares of common stock
at a current exercise price of approximately $.75 per share.
FondElec Group, Inc. and certain of its affiliates ("FondElec") were
the principal investors in the Notes and Warrants. FondElec is engaged primarily
in acquiring, owning and operating (through various investment funds) interests
in Latin, Central and South American privatized utilities. In connection with
FondElec's investment in the Notes and Warrants, the Company and FondElec formed
LatinCom, Inc., a Delaware joint venture corporation ("LatinCom"), for the
purpose of obtaining wireless telecommunication network rights in Peru, Brazil
and Mexico. See "Certain Relationships and Related Transactions," below.
<PAGE>
Petrolera Transaction. Effective August 1, 1997, the Company executed
an agreement with Petrolera Argentina San Jorge S.A., an Argentinean corporation
(together with its affiliates, "Petrolera"), to sell 800,305 shares of the
Company's authorized but unissued Common Stock and 526,331 shares of its
authorized but unissued Series "A" Preferred Stock for $10 million (the
"Petrolera Transaction"). The Petrolera Transaction was funded on August 30,
1997. As of that date, the Common Stock and Series A Preferred Stock Petrolera
acquired represented, in the aggregate, approximately 18% of the voting control
of the Company on a common share equivalent basis. Petrolera also acquired the
right to purchase, for a nominal purchase price, shares of the Company's Common
Stock and Series "A" Preferred Stock sufficient to maintain its percentage
interest in the voting control of the Company if the Company entered into
transactions for the sale of its securities with certain specified parties on or
before November 1, 1997. As a result of the Company's acquisition of its
interest in Caracas Viva Vision TV, S.A. (See "Market Country Networks") and the
FondElec Transaction (as described below), Petrolera acquired an additional
699,695 shares of Common Stock and 83,378 shares of Series "A" Preferred Stock
for a total purchase price of $7,831 in order to maintain its effective voting
percentage in the Company.
In connection with the Petrolera Transaction, the Company and certain
of its shareholders entered into a voting agreement to elect persons designated
by Petrolera as members of the Board of Directors of the Company until the
earlier of August 1, 2000, or immediately preceding the closing of a public
offering by the Company which results in net proceeds to the Company of at least
$15 million and a market capitalization of at least $50 million (a "Qualified
Offering"). Under the voting agreements, Petrolera can designate 20% of the
board so long as it holds 10% or more of the Company on a common share
equivalent basis and 10% of the board if Petrolera's ownership falls below 10%.
Currently, the Petrolera designees to the board of directors are Messrs.
Fucaraccio and Schiller. See "Management."
In connection with the Petrolera Transaction, the Company and Petrolera
formed WCI de Argentina, S.A., an Argentinean corporation, for the purpose of
pursuing certain wireless telecommunication network rights in Argentina. See
"Market Country Networks - Argentina," below. Wireless Communications de
Argentina, S.A. is held 80% by the Company and 20% by Petrolera. See "Certain
Relationships and Related Transactions."
FondElec Transaction. Effective November 1, 1997, the Company entered
into an agreement with FondElec Essential Services Fund, L.P. and Pegasus Fund,
L.P., affiliates of FondElec, to sell an aggregate of 1,487,067 shares of the
Company's authorized but unissued Common Stock and 250,049 shares of the
Company's authorized but unissued Series "A" Preferred stock for a total
purchase price of $5,248,795 (the "FondElec Transaction"). The purchase price
for the shares was funded in November 1997 and February 1998. As a result of the
transaction, FondElec and its affiliates currently hold an aggregate (exclusive
of the Warrants they acquired in connection with their purchase of the Notes to
purchase an additional 615,837 common shares) of approximately 18% of the voting
control of the Company on a common share equivalent basis.
<PAGE>
In connection with the FondElec Transaction, the Company and certain of
its shareholders entered into a voting agreement to elect persons designated by
FondElec to the Board of Directors of the Company until the earlier of November
1, 2000 or immediately preceding the closing of a Qualified Offering. Under the
voting agreement, FondElec can designate 20% of the board so long as it holds
10% or more of the Company on a common share equivalent basis and 10% of the
board if its ownership falls below 10%. See "Certain Relationships and Related
Transactions." Currently, the FondElec designees on the board are Messrs.
Accosta-Rua and Sorenson. See "Management."
Wireless Telecommunications Networks
Telecommunications Services. The Company anticipates that its
telecommunications services will initially consist of services related to the
transmission and reception of high speed data and Internet access. Companies
which provide telecommunications services on such a basis are generally referred
to as "competitive local exchange carriers," or "CLECs." The Company may also in
the future offer local and long distance telephone services and multi-channel
television programming. The Company may also provide related ancillary
telecommunications services, including facsimile transmission, video
conferencing, virtual work groups, application and document sharing
capabilities, voice mail, e-mail and conference bridges. The Company intends to
acquire the rights to use, provide or access those telecommunications services
through acquisition, joint venturing, partnering or other contractual
arrangements and then use its wireless point to multi-point telecommunications
networks as a "pipeline" to deliver those services to subscribers. See
"Profitability Milestones and Operating Concerns Dependence on Content
Providers."
The Company's high speed data telecommunications services will include
services relating to providing access or connection to the Internet and other
data collection or service arrays. The Internet, which is a network of thousands
of interconnected, separately administered public and commercial networks, has
grown dramatically over the past few years. The number of worldwide Internet
users was estimated to be approximately 46 million in 1997, and is expected to
grow to approximately 152 million by the year 2000. The Company believes that
the growth in the number of users will result in substantial increases in both
Internet advertising (which International Data Corporation estimates will grow
from $181 million in 1996 to approximately $2.9 billion in the year 2000) and
Internet commerce (which International Data Corporation estimates will grow from
approximately $318 million in 1995 to $95 billion in the year 2000). Further,
increased Internet usage, as well as the availability of powerful new software
programs and hardware for the development and distribution of Internet content,
have resulted in a proliferation of Internet-based services, including
advertising, on-line magazines, specialized news feeds, interactive games and
educational and entertainment applications.
The use of the Internet and related data arrays as a medium for
communication, education, entertainment and commerce has been hampered by
problems with its performance and reliability. The Internet's performance
limitations primarily stem from its basic architecture, which was not designed
for the distribution of data-intensive multi-media content. This architecture
has resulted in a number of bottlenecks in the delivery system, including
bottlenecks relating to acquiring access to copper-based cable networks and the
slower than optimal transmission speed for data over those systems.
<PAGE>
The Company may also provide voice based telecommunications
services over its networks. If it does so, the Company anticipates that those
services would primarily consist of local and long distance voice services.
Presently, those services are generally provided by local exchange services and
long distance carriers. Local exchange services typically involve the carriage
of telecommunications within defined local calling areas and provide access to
other local exchanges and long distance carriers. Long distance services
typically involve the carriage of telecommunications between local exchange
services.
In emerging growth countries such as the Market Countries, telephony
services have primarily been provided over networks of copper wire. The Company
estimates that the telephony market penetration rate in Latin America is
currently less than 10%. These systems are expensive and difficult to build and
maintain, and generally allow data to be transmitted at relatively slower
speeds. In addition, unlike in the United States, where numerous local and long
distance telephone carriers compete with one another, telephony services
competition in the Market Countries has historically been limited. The Company
believes that the regulatory agencies governing telephony services in the Market
Countries have recognized the value of competition in the telephony industry and
that those governmental agencies will take steps to modify or lessen the
regulatory controls currently favoring limited telephony competition in the
Market Countries.
In a number of the Market Countries the Company's network rights do not
include the right to provide telephony services. The Company believes, however,
that, as competition for those services increases in those Market Countries,
changes in the regulatory environment will prompt governmental authorities to
grant telephony rights to wireless communications networks. The Company
anticipates that it will pursue telephony services authorizations in each Market
Country where it does not currently hold such rights. There can be no assurance,
however, that the Company will pursue such rights, that it will be able to
secure the right to provide telephony services in any Market Countries in which
it does not currently have the right to provide such services, or that the
Company will pursue the development of any telephony rights it has or may
acquire.
The Company may also provide multi-channel video services in some or
all of the Market Countries. If it does so, the Company anticipates that its
video services would primarily consist of multi-channel prepackaged television
programming services provided by third-party suppliers and packagers. The
Company anticipates that its contracts with these programming suppliers would
include both master agreements, under which the Company would use specific
programming in most or all of its markets, and region specific contracts, under
which the Company would use programming in regional or country specific markets.
The Company believes that there is currently an adequate and growing supply of
such programming in its Latin and Central American Market Countries. Further,
although multi-channel television operations in New Zealand have historically
been hampered by the lack of satellite-provided television programming in the
Southern Pacific rim area, the Company believes that, with the recent increase
in the number of satellites covering the New Zealand/Australia area, it would
not have any material difficulties in obtaining adequate television programming
for its New Zealand market.
<PAGE>
Wireless Telecommunications Networks. The Company's telecommunications
services will be carried over the Company's wireless networks. These
communications networks will use microwave radio frequencies that are licensed
by governmental agencies in each market. The microwave signals are transmitted
over the air from a Company owned or leased transmission facility (a "central
node") to a transceiver at each subscriber's location, eliminating the need for
the networks of cable and amplifiers used by traditional copper wire or fiber
optic based ("hardwire") network operators. Wireless networks typically deliver
the same types of services offered by hardwire systems, including Internet
access, long distance and local telephony services, data transmission and
reception and multi-channel television services. Wireless networks can also be
used to connect related subscribers (such as all of the banks in a particular
banking system) to the same database or services ("intranet data services").
To a subscriber, a wireless communications network operates in the same
manner as a traditional hardwire system. At the subscriber's location, microwave
signals are received by a transceiver and are passed to a subscriber processing
device located near the subscriber's television set, computer or telephone.
Because wireless signals are transmitted over the air rather than through
underground or above-ground cable arrays, wireless systems are less susceptible
to outages and are less expensive to operate and maintain than hardwire systems.
In contrast to traditional hardwire systems, most service problems experienced
by wireless communications network subscribers are subscriber-specific rather
than neighborhood-wide problems.
Engineering and construction of a wireless communications network
typically can be completed in 120 to 180 days, whereas construction of a
traditional hardwire television, telephone or data network with comparable
coverage areas may take years. The radio frequencies used in wireless networks
are typically in the 2.3, 18, 28 and/or 40 GHz frequency bands, depending on
local frequency licensing standards and practices. The 18 GHz frequency range is
typically used by satellite cable operators for point-to-point service
transmission between geographically separate properties and to eliminate the
requirement to build a complete satellite signal reception facility for each
property. Channels in the 40 GHz range are now being used in parts of Europe and
are generally considered to be an alternative to 28 GHz systems, which are
typically used in the United States and Latin America. At present, equipment
costs for 40 GHz systems are marginally higher than those for other types of
systems. The Company's network rights in New Zealand consist of 2.3 GHz and 40
GHz channels. The Company's network rights in Latin America generally consist of
28 GHz rights. The Company may also use frequency bands between the 10 to 25 GHz
range and fiber optic / coaxial cable systems in some instances to provide its
services.
The transmission of wireless signals in the frequencies proposed by the
Company requires a clear "line-of-sight" between the transmitter and the
transceiver. 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 using engineering techniques such as
pre-amplifiers, beam benders and signal repeaters, but these techniques
generally increase the cost of delivering programming to subscribers.
<PAGE>
Wireless communications networks use high gain transceivers at the
subscriber end, so reflection and multi-path interference are generally
minimized, and picture and data quality typically exceeds that of hardwire
network providers. Further, wireless communications networks 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, if a network is designed
properly, transmissions over the network are usually not affected by weather or
electrical interference. Also, in traditional hardwire networks the programming
signal declines in strength as it travels along the copper wire or fiber optic
cable and must be boosted by trunk and feeder amplifiers. Each amplifier
introduces some distortion into the signal. By contrast, wireless communications
networks use only two principal pieces of equipment, a transmitter and a
transceiver.
Another of the primary advantages of a wireless communications network
is its ability to transmit wireless data communications at much higher speeds
than is normally possible through copper wire systems. Typically, dial-up modems
offer a peak transmission speed of approximately 56 kilobits per second ("Kbps")
over existing telephone lines. Integrated Services Digital Network ("ISDN")
technology allows peak data transmission speeds of 128 Kbps over specially
conditioned telephone lines, but is not widely deployed because of its high
cost. Hewlett Packard has estimated that an asymmetrical 28 GHz network could
optimally operate at 10 megabits per second ("Mbps") downstream and 1.54 Mbps
upstream. The significance of the transfer speed can be seen in the chart below,
which shows the downloading time for a 5 megabyte file at various transmission
speeds:
Data Communications Speed Transfer Time
- ------------------------- -------------
28.8 Kbps (U.S. Standard) 23 minutes
56 Kbps (typical peak telephone line speed) 12 minutes
128 Kbps (ISDN peak speed) 5 minutes
1.54 Mbps (assumed optimal wireless upstream speed) 26 seconds
10 Mbps (assumed optimal wireless downstream speed) 4 seconds
In addition, due to the extraordinary bandwidth of the Company's
typical wireless networks, it has the ability to provide two-way capability.
This capability would, among other things, allow customers who see a commercial
that lists an Internet address on a television program they are watching to push
a button on their remote control to automatically switch ("hyperlink") to the
web page for that Internet address.
Demand for The Company's Services
The Market Countries are generally hindered by inadequate
telecommunications services, in large part because of the state of their
services infrastructure and the fact that those services cannot, in the opinion
of the Company, meet the requirement of an ever expanding global
telecommunications demand. The Company believes that (i) businesses, households
and governments desire to participate in those types of services, but are unable
to do so because of that inadequate infrastructure, and (ii) governments desire
to improve competitiveness which will allow them to better participate in a
global economy. The Company believes that its wireless communications networks
will provide 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 available in the Market Countries through existing
telecommunications infrastructures.
<PAGE>
Data Services. The Company's current business focus will be to act as a
provider of data services. The Company believes that, as in developed countries,
demand for data services in emerging growth countries such as the Market
Countries will significantly increase over the next few years. The Internet has
recently emerged as a global communications medium which enables millions of
people to share information and conduct business electronically. The use of the
Internet and related interconnected data networks has grown dramatically. The
number of worldwide Internet users is expected to grow from an estimated 46
million in 1997 to 152 million by the year 2000. The Company believes the use of
such worldwide data links will continue to be stimulated by a number of factors,
including the emergence of a true worldwide data services web, the increasing
sophistication of hardware and software directed toward those services, and the
availability of low-cost, flat rate pricing for access to the data systems and
on-line peripheral services.
The use of data networks is limited by a number of factors, including
the speed at which the data is transmitted to the end user by the
telecommunications service provider. In early 1997, dial-up modems offering a
peak data transmission speed of 56 kbps were introduced for use with Internet
service providers over existing hardwire telephone networks. Microwave systems,
such as the systems the Company plans to employ as part of its networks,
currently can provide transmission speeds in excess of 10 Mbps downstream.
Voice and Video Services. The Company may also provide telephony and
multi-channel video services using its networks. The Company believes there is a
substantial and increasing demand for these services in the Market Countries.
Although the Company's network rights in some of the Market Countries
do not include the right to provide telephony services, the Company believes
that, as competition for telephony services increases and is promoted in those
Market Countries, changes in the regulatory environment may allow governmental
authorities in those Market Countries to grant rights to wireless communications
network operators to provide those services. The Company anticipates that it
will pursue telephony services authorizations in each of the Market Countries
where it does not currently hold those rights. However, there can be no
assurance the Company will pursue such rights, that it will be able to secure
the right to provide telephony services in any Market Country in which it does
not currently have the right to provide such services or that the Company will
pursue the development of any telephony services it has or may acquire.
Company Strengths
The Company believes it has several business, management and marketing
strengths that 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 wireless telecommunications networks offering high
speed data, voice and multi-channel video programming services, including
limited affordable or reliable data and voice and video services alternatives,
moderate-to-medium income per capita, high television, voice and data demand and
low data and wireless voice and video services penetration rates.
<PAGE>
Limited Market Competition. The Company believes there is currently
limited competition within the Market Countries that has the ability to provide
similar data services at prices that will be competitive with the Company's
anticipated pricing structures. The lack of competition in the Market Countries
results, in part, from the fact that such services have historically been
provided by regional or local monopolies that typically use copper wire or fiber
optic networks. These hardwire networks are difficult and expensive to
build-out, expand and maintain, particularly in emerging growth nations such as
the Market Countries, where underground utilities are frequently not marked.
Further, these networks typically create "last mile bottlenecks" which result in
data routing or security problems. For example, the Internet frequently becomes
overloaded when transmitting the same data streams from popular web site
services to millions of individual users. In addition, dial-up users frequently
encounter busy signals when attempting to connect to their Internet service
providers over hardwire systems and are unable to access quality multi-media
content easily because of the slow speed of their modems.
Although the Company may use fiber and/or coaxial based systems to
provide its services, it will primarily rely on high speed microwave
transmission networks. The Company believes that, because it will be one of the
first service providers in many of the Market Countries to provide competitively
priced comprehensive communications service packages that are reliable, fast and
secure, the Company will be able to build a significant subscriber base with a
minimal subscriber turnover.
Broadband Network Rights. The Company holds or has the right to acquire
28 GHz or 40 GHz wireless telecommunications rights in the majority of the
Market Countries. Due to the broadband nature of the Company's typical 28 GHz
and 40 GHz technology platforms, the Company believes it will be able to provide
numerous telecommunications services to its potential subscribers, including
high speed data capabilities, voice services and multi-channel television
services.
Low Cost Structure. The nature of the Company's wireless communications
technology permits the buildout of markets in a more efficient and cost
effective manner than is possible using traditional hardwire systems. A
traditional hardwire system requires the construction of a network of copper
wires from a central facility to each subscriber location, often through areas
where no viable subscriber base exists. In contrast, wireless communication
networks can broadcast directly to subscriber locations or to a cellular
rebroadcast facility that broadcasts to the subscriber locations. This
translates into a lower incremental cost of adding subscribers to wireless
networks in comparison to traditional telecommunications networks.
Strong Local Partners. The Company has selected local partners within
each of the Market Countries to assist it in its business operations in those
markets. The Company generally selects financially strong local partners who the
Company believes 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 network rights and obtaining necessary regulatory
approvals, assisting in arranging, identifying and evaluating opportunities for
the Company's telecommunications business, and providing local advocacy for the
Company's business operations.
<PAGE>
Company Strategies
The Company's initial business objective is to become a significant
provider of high quality, low cost, data telecommunications services in targeted
emerging growth countries. The Company may also provide telephony and/or video
services. The Company believes that a provider of telecommunications services
can 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
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 will employ the following business strategies to achieve
its business objective:
Focus on Developing Markets. The Company's strategy is to acquire,
develop and operate telecommunications networks in under-served developing
countries where management believes there is a high and growing demand for
voice, data and video services. The Company believes such markets typically have
less competition from alternate delivery systems and entertainment formats, and
that a wireless communications network provides the most economical method of
providing telecommunications services to potential subscribers. The Company
believes that, because it will be one of the first such service providers in
many of its markets to provide competitively priced services, the Company will
be able to secure a significant subscriber base with minimal subscriber
turnover.
Preliminary Focus on Data Services. The Company intends to focus its
initial development activities on the launch of its high speed data services.
The Company's focus on that market segment is based primarily on its belief that
those services can be implemented in a more cost effective manner than wireless
voice or multi-channel television services. The Company also believes that the
subscriber base for wireless data services is, in general, more affluent, stable
and willing to pay 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 networks, it will be able more quickly to achieve positive cash
flow. Positive cash flow would facilitate any development and launch of the
Company's wireless voice and multi-channel television services.
Use of Low Cost Wireless Communications Networks. The Company intends
to provide its telecommunications services through its own fixed local wireless
point to point and point to multi-point broadband microwave networks. These
networks will consist primarily of 28 GHz and 40 GHz fixed wireless
telecommunications systems. Wireless point to multi-point broadband networks
have several advantages over traditional copper wire systems, including
relatively low basic system build out and incremental subscriber addition costs,
speed to market and high bandwidth capacity and flexibility. As a result, the
Company expects to enjoy a lower network cost structure than competitive
hardwire systems. The Company anticipates that the majority of its capital
expenditures will consist of expenditures for chip-based electronic equipment,
which the Company believes will decline in cost through time as the Company and
the industry achieve economies of scale. The Company also believes that its
lower cost structure will allow it to economically access smaller buildings and
more customers than fiber optic-based systems and, in general, enjoy more price
flexibility than hardwire systems. Further, because of the flexibility of
wireless communications networks, the Company anticipates that it will able to
minimize the deployment of network equipment not associated with revenues, since
a significant portion of its planned capital expenditures will be for the
purchase of subscriber premises equipment and switch electronics (which are
generally deployed only when subscribers are acquired), and because the
Company's systems will not need to cover an entire market before the Company can
initiate service in that market.
<PAGE>
Maximize Subscriber Penetration. In order to achieve positive cash flow
as soon as possible, the Company plans initially to offer services in markets in
which it believes there is the most potential to generate significant subscriber
growth. These markets include the major metropolitan areas within the Company's
Market Countries, where the market areas have denser populations with a
potentially greater demand and use of telecommunications 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 Market areas by being one of the first providers of
telecommunications services at a reasonable price.
Offer Attractive Services Packages. The Company will initially focus
its business operations on the delivery of high speed data and will offer
services associated with data transmission such as Internet and intranet access,
high speed data connectivity and e-mail. The Company anticipates that it may
eventually also offer a wide variety of other telecommunications services,
including local and long distance telephone, video conferencing and
multi-channel television programming services on its wireless networks. The
Company anticipates that it will allow subscribers to combine into packages the
services they want, rather than offering only bundled packages designed for a
"typical" customer. The Company believes this flexible sales strategy will
reduce switching barriers for potential subscribers who may be reluctant to
switch all of their telecommunications services and vendors at once or for
subscribers with existing contracts with other service providers.
End User Focus. The Company intends to offer services directly to end
users, rather than positioning itself as a wholesale network service provider.
By deriving the majority of its revenues from providing telecommunications
services directly to end user customers, the Company believes it will quickly
establish a sustainable and broad customer base. The Company believes this
strategy will minimize the risk of generating substantial revenues from a
limited number of sources, and that it will maximize revenues and profitability
by accessing the higher priced retail market.
Utilize and Support Local Management. The Company intends to rely on
local country managers to develop existing networks and identify new wireless
communications opportunities within its local markets. The Company anticipates
that its market managers will be natives of the local markets, and that they
typically will have significant managerial and operating experience in the
telecommunications industry. They will be supported by the Company's corporate
operations staff, which will be located in Southern Florida. The Company
believes the use of local country managers, supported by the Company's
experienced corporate staff, will allow it to respond rapidly and effectively to
operational matters, develop and maintain effective working relationships with
local partners and capitalize on wireless telecommunications opportunities.
<PAGE>
Capitalize on Technological Capabilities. The Company intends to invest
in networks that have broad bandwidth capabilities. Each of the Company's 28 GHz
and 40 GHz networks provides more bandwidth for a single user than the combined
bandwidths of AM and FM radio, VHF and UHF television, specialized mobile radio,
cellular telephone, personal communications systems, and an entire
Geosynchronous Satellite C-band. The Company believes that the relatively broad
band nature of the Company's networks will allow it to offer multiple
telecommunications services over the same network and establish itself as a
single-source provider of telecommunications services which is known as an
Integrated Communications Processor ("ICP").
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 communications markets. One of its principal strategic alliances
is with FondElec which, together with its limited partners, has made investments
of in excess of $630 million in South American and Latin American countries.
FondElec is one of the Company's shareholders and, together with the Company,
has formed LatinCom. Another of the Company's alliances is with Petrolera which,
together with its affiliates, is engaged in the oil and gas industries in
Argentina. Petrolera is one of the Company's principal shareholders and,
together with the Company, has formed Wireless Communications de Argentina, S.A.
for the purpose of pursuing network rights in Argentina. See "Description of the
Company's Business Company Background," and "Certain Relationships and Related
Transactions."
Pursue Strategic Acquisitions of Subscriber Bases and Ancillary
Services. In addition to developing its own subscriber base through the
promotion of its telecommunications services, the Company intends to engage in
selective acquisitions of existing telecommunications subscriber bases, in the
form of the acquisition of Internet service providers and, potentially, local
and long distance telephone companies or existing multi-channel television
operations. The Company believes such strategic acquisitions could provide the
Company with additional positive cash flow, provide the Company with benefits
resulting from the vertical integration of key service providers in the
telecommunications industry and, in cases where the acquired company relies
primarily on hardwire networks to provide its services, provide the acquired
company with a viable method of increasing its existing subscriber base through
the promotion of the Company's wireless telecommunications networks. By
vertically integrating a number of components of the telecommunications industry
under one corporate umbrella, the Company may also be able to market itself as a
"one-stop" telecommunications service provider ("ICP"). The Company has recently
begun negotiations with a number of companies that have existing subscriber
bases and which currently provide telecommunications services over hardwire
systems, such as Internet service providers. On January 14, 1998 and March 3,
1998, entered into Memoranda of Understanding for the acquisition of an 80% and
100% interest in, respectively, Internet service providers in Guatemala and
Venezuela. See Note 13 to the Consolidated Financial Statements. There can be no
assurance the Company will acquire those providers or that it will be able to
enter into relationships or alliances with any such parties (or others) upon
terms and conditions that are acceptable to the Company.
<PAGE>
Company Markets
The table below provides summary information regarding the Market
Countries. Unless otherwise noted, the information is based on assumptions and
estimates the Company believes to be reasonable, but there can be no guarantee
the Company's estimates are accurate. Also, unless otherwise indicated, the
information presented is as of December 31, 1997:
<PAGE>
<TABLE>
<CAPTION>
1997
Country/ Projected 2005
Company Target Market Country/
Market Country/ System Market Population(1) Target Market
Target Market Technology Percentage Population(2)
<S> <C> <C> <C> <C>
Costa Rica 3,500,000 4,000,000
San Jose 28 GHz(3) 100.0% 1,529,000 1,743,000
Guatemala 11,700,000 13,640,000
Guatemala City 28 GHz 70.0% 1,350,000 1,574,000
Panama 2,700,000 3,100,000
Panama City 28 GHz 90.0% 820,000 941,360
Venezuela(4) 22,500,000 26,350,000
Caracas 28 GHz 78.14%(5) 3,500,000 4,300,000
Maracaibo 28 GHz 78.14%(5) 1,400,000 1,750,000
Valencia 28 GHz 78.14%(5) 1,300,000 1,600,000
Maracay 28 GHz 78.14%(5) 877,000 1,074,000
Barquisimeto 28 GHz 78.14%(5) 876,000 1,073,000
San Cristobal/ 28 GHz 78.14%(5) 895,000 1,096,375
Puerto Ordaz
New Zealand 3,600,000 3,800,000
Auckland 40 GHz(6) 94.9% 845,000 892,000
and 2.5 GHz(7)
Wellington/Petone 40 GHz and 94.9% 251,000 265,000
2.5 GHz
Christchurch 40 GHz and 94.9% 241,000 254,000
2.5 GHz
Argentina 35,800,000 37,250,000
Parana/Santa Fe Value added(8) 80.0% 1,000,000 1,230,000
Neuquen Value added 80.0% 265,000 326,000
Cordova Value added 80.0% 1,200,000 1,500,000
</TABLE>
- ---------------------------
(1) 1997 TV International Sourcebook, MTA-EMCI
(2) 1997 TV International Sourcebook, MTA-EMCI
(3) "28 GHz" means local multipoint data, voice or video programming
distribution service, a transmission service licensed by local
authorities typically using the frequencies of 26 GHz through 31 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.
(4) A wholly-owned subsidiary of the Company's operating company in
Venezuela has also been granted a "value added" license to provide data
services throughout Venezuela. The subsidiary of the operating company
has filed an application with the Venezuelan government to provide
these services using the 28 GHz network rights.
(5) Exclusive of the Company's 8.46% interest in Communicaciones Centurion,
S.A. See "Description of the Company's Business - Market Country
Networks."
(6) "40 GHz" means multipoint video distribution, data, voice or video
programming service, a transmission service licensed by local
authorities typically using the frequencies of 37.5 GHz through 42.5
GHz and rendered on microwave frequencies from a fixed transmitter
local simultaneously to multiple receiving facilities.
(7) "2.5 GHz" means multi-channel multipoint data, voice or video
programming distribution service, a transmission service licensed by
local authorities typically using the frequencies of 2.3 GHz through
2.7 GHz and rendered on microwave frequencies from a fixed transmitter
local simultaneously to multiple receiving facilities.
(8) The Company has received a "value added" license in Argentina under
which it was granted the nationwide right to provide telecommunications
services. The Company has applied for licenses to provide those
services in the Argentinean Target Markets in the 25 GHz frequency
range.
Market Country Networks
The following information summarizes the Company's network rights in
each of the Market Countries. As used in this section and the other sections of
this report describing the Company's business operations, the term "Company"
refers to Wireless Cable & Communications, Inc. and its direct and indirect
subsidiaries. The Company's interest in its network rights and the scope, use
and duration of the network rights are subject to numerous restrictions,
qualifications and contingencies, some of which are set forth in the section
below entitled "Profitability Milestones and Operating Concerns."
Venezuela
Background. The Company holds an interest in an operating network
located in Venezuela. The network provides subscription multi-channel television
programming services to approximately 900 subscribers in the Caracas-Los Teques
market area. The Company's investment in Venezuela was motivated by an
opportunity to acquire nationwide network rights for Venezuela. The Company
believes Venezuela possesses several desirable market characteristics, including
a stable political climate, stable population growth with moderate per capita
gross national product and improving economic conditions.
Venezuela has a population of approximately 22.5 million. The Company's
initial Target Market in Venezuela, the Caracas-Los Teques area, has a
population of approximately 3.5 million. The Company believes that the high
population density and the installation difficulties encountered by competing
hardwire networks in the Venezuelan market are conducive to rapid wireless
communications system penetration, and that adequate funding for its Venezuelan
system will produce rapid expansion of the Company's subscriber base in the
market.
<PAGE>
Ownership and Management Structure. As is typical in the Market
Countries, the Venezuelan government has imposed limitations on the ownership by
foreign nationals of interests in entities that have been granted the rights to
Venezuela's telecommunications networks. In order to provide the Company with
sufficient management control over a network in such cases, the Company
typically employs a "two-tier" ownership structure. Under this structure, the
Company attempts to acquire the maximum ownership percentage it can acquire
under local law (usually, a minority position) in the entity that holds the
government network concession (the "network right holder"), and a controlling
interest in a separate entity that is formed for the purpose of operating or
commercializing the network rights held by the network right holder (the
"operating company"). The network right holder for the 28 GHz frequencies for
the Republic of Venezuela is Comunicaciones Centurion, S.A. ("Centurion").
Caracas Viva Vision TV, S.A. ("CVV") and its wholly-owned subsidiary are the
operating companies that hold the rights to commericialize those network rights.
In November 1997, the Company completed the purchase of a 78.14%
interest in CVV. The Company paid a total of $1,200,000 in cash and delivered
1,577,000 shares of its Common Stock and 354,825 shares of its Series B
Preferred Shares for its interest in CVV. Under the terms of the Company's
agreements with the shareholders of CVV, certain of those shareholders also
executed an escrow agreement, under which they deposited 266,667 shares of the
Company's Common Stock and 40,000 shares of the Company's Series B Preferred
Stock with an escrow agent in order to provide the Company with security for the
performance of the obligations and veracity of the representations contained in
the CVV transaction documents. The escrow agreement terminates upon the latter
of August 18, 2000, or the final disposition of any claims relating to the
escrow agreement by the Company.
The Company has an option to purchase the remaining approximately
21.86% of CVV at any time before November 20, 2000. The exercise price for the
option is $2,000,000. The Company also has the right to acquire up to an 11.53%
interest (the maximum percentage available to the Company under current law) in
Centurion, the network right holder for the nationwide 28 GHz frequency network
concession. As of March 31, 1998, the Company holds approximately 8.46% of
Centurion.
Under the terms of the Company's purchase of its rights in the
Venezuelan network, CVV and Centurion entered into a series of management,
marketing and maintenance agreements. These agreements obligate Centurion to use
CVV as its exclusive agent for the sale, marketing and maintenance of the
telecommunications services provided through the network rights granted to
Centurion, prohibit Centurion from taking any action which would impair or
terminate the network rights, and require Centurion to assign operating rights
to CVV for any additional network rights Centurion obtains in Venezuela. CVV
manages and operates the network on behalf of Centurion, and is required to
remit to Centurion a percentage of the revenues generated by the network as
reimbursement for Centurion's operating costs and to pay it for the right to use
the frequency rights. The balance of the amounts generated through the network
are retained by CVV as compensation for marketing, sales, equipment
installation, and maintenance service payments.
<PAGE>
Under the terms of the Company's purchase of its interest in CVV, the
Company and certain of its shareholders entered into voting agreements to elect
designees of a former CVV principal to the Board of Directors of the Company
until the earlier of August 14, 2000 or immediately preceding the closing by the
Company of a Qualified Offering. See "Profitability Milestones and Operating
Concerns - Control of Network Operations and Use." Currently, Messrs. Williams
and Lowe are the designated board members under those agreements. See
"Management."
On March 3, 1998, the Company signed a Memorandum of Understanding for
the purchase of a company in Venezuela providing Internet services. The
agreement is subject to due diligence review. There can be no assurance that the
Company will complete the acquisition of the Internet service provider. See
"Business Properties - Description of Company Business - Company Strengths -
Pursue Strategies Acquisition of Subscriber Bases and Ancillary Services."
Operating and Growth Strategy. Centurion and CVV are currently
providing wireless multi-channel television services to approximately 900
subscribers in the Caracas-Los Teques area. Prior to the Company's investment in
CVV, CVV had only constrained growth for those services due to limited funding.
The Company's immediate growth strategy for the Venezuelan network is to
increase its Caracas-Los Teques wireless multi-channel television subscriber
base. The Company also intends to launch wireless data services operations in
the Caracas-Los Teques service area (with the anticipated launch date for those
services in July 1998) and, thereafter, intends to launch wireless data and
voice services operations within the other Venezuelan Target Markets. The launch
of the Company's data and voice services will be contingent upon its receipt of
governmental approval to provide those services over the networks. The Company
then intends to launch its wireless multi-channel television services in the
Venezuelan Target Markets other than the Caracas-Los Teques market area. The
Company believes that it will have between 3,000 and 7,000 data subscribers in
the Caracas-Los Teques Target Market by the end of 1999. See "Profitability
Milestones and Operating Concerns - Operating, Management and Other Market
Issues."
Franchises and Government Regulation. The Commicion Nacional de
Telecomunicaciones ("CONATEL") of the Venezuelan Ministry of Transport and
Communications granted Centurion exclusive rights to the 28 GHz frequencies
throughout the Republic of Venezuela in 1993. 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. These conditions include the payment to CONATEL of 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 video
services and providing three video channels for governmental or public interest
programming.
The Company's Venezuelan network rights currently permit it to provide
only video services. A wholly-owned subsidiary of CVV has also received approval
to provide high speed data services throughout the Republic of Venezuela on a
value added basis and is currently awaiting governmental approval to use
Centurion's 28 GHz frequencies for those purposes. See "Profitability Milestones
and Operating Concerns - Network Issues."
<PAGE>
Guatemala
Background. Guatemala has the largest population in Central America
(approximately 11.7 million) and a growing and increasingly stable economy
characterized by low-to-moderate household income. The Company's initial Target
Market in Guatemala, Guatemala City, has a population of approximately
1,350,000. Guatemala also 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.
Ownership and Management Structure. In March, 1997, the Company entered
into an agreement with VivaVision de Guatemala ("Viva"), a Guatemalan
corporation that was the network rights holder for two GHz of spectrum in the 28
GHz frequency band in Guatemala. Those rights permitted the delivery of wireless
multi-channel television, data and voice services. Under the Company's agreement
with Viva, the Company and Viva agreed to form a new operating company, Wireless
Communications Holdings - Guatemala, S.A. ("Wireless Guatemala"). In December,
1997, the parties formed Wireless Guatemala and the Company acquired 70% of
Wireless Guatemala. Viva acquired the other 30% of Wireless Guatemala.
Under the Company's agreements for the Guatemalan network, the Company
acquired its 70% interest in Wireless Guatemala in return for a commitment to
fund 100% of the expenditures necessary to develop and construct wireless
communication facilities for the initiation of 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. Wireless Guatemala also has a first right of refusal to acquire
any additional spectrum at the 28.5 to 29.5 GHz band that Viva or its affiliates
acquire for delivery of multichannel television, data and voice services in
Guatemala. See "Profitability Milestones and Operating Concerns - Control of
Network Operations and Use."
<PAGE>
In January, 1998, the Company entered into a Memorandum of
Understanding regarding the acquisition of 80% of three companies which provide
Internet services in Guatemala. The transaction is subject to due diligence
review. There can be no assurance that the Company will acquire all or any of
these Internet service providers. See "Business and Properties - Description of
Company's Business - Company Strengths - Pursue Strategic Acquisitions of
Subscriber Bases and Ancillary Services."
Operating and Growth Strategy. The Company intends initially to market
its data services in the Target Market for Guatemala, Guatemala City, and then
expand its marketing to include wireless voice and multi-channel television
services. The Company began the buildout of a wireless network in Guatemala City
in January 1998 and anticipates launching its data services systems in July
1998. The Company expects that its Guatemala City system will have between 2,000
and 4,000 data services subscribers in Costa Rica by the end of 1999. See
"Profitability Milestones and Operating Concerns - Operating, Management and
Other Market Issues."
Franchises and Governmental Regulations. The current status of the
Company's network rights in Guatemala is uncertain. On January 25, 1996, the
Ministry of Communications, Transport and Public Works for the Republic of
Guatemala issued Viva a license to utilize the Guatemalan network. The license
was applied for and issued under law number 433, which became effective in 1980.
Under the 1980 law, Viva's concession was valid for a period of 2 years (until
January 24, 1998), and was then renewable, at the discretion of the Ministry,
for additional two-year periods if Viva made an application for renewal within
30 days of the license's termination date. In December, 1997, Viva contacted the
Ministry regarding extension of its concession. In December 1996, Guatemala
adopted a new telecommunications law, the General Law of Telecommunication. The
new law grandfathered in existing telecommunications rights, but only through
their period of validity. All concession holders, even those holding a
concession under the old law, became subject to the new law with respect to
operational aspects on its effective date. Under the new law, an application for
extension of concessions must be presented to the Superintendency of
Telecommunications between 200 and 120 days prior to the expiration of a
license. It is unclear from the actual language in the new law whether Viva's
original license was subject to the extension application provisions in the old
law or those set forth in the new law. Because of the confusion arising from the
inconsistencies between the old law and the new law, on January 26, 1998, Viva
applied for a new license for a concession in the 28 GHz range under the new
law.
Under the new law, upon receipt of an application for a concession, the
Superintendency is required to issue a resolution accepting or rejecting the
application within 3 days and, once having issued its resolution accepting the
application, it is required to publish the application in the official
government paper, in a local newspaper and in an international financial paper.
The publication must be continued for a period of 20 days and, upon the
expiration of the 20 day period, parties have 5 days within which to file with
the Superintendency a notice of opposition to or interest in the concession in
question. If the Superintendency receives a notice of opposition, it must
resolve the matter within 10 days. If the opposition is well founded or if there
is an expression of interest in the frequency by other parties, the concession
rights become subject to public auction.
<PAGE>
The Company believes the Superintendency was required to accept or
reject Viva's application for the 28 GHz concession under the new law within 3
days of the date Viva filed the application, or no later than January 29, 1998.
The Superintendency, however, did not accept the application until February 10,
1998. Further, despite repeated requests from the Company and Viva for immediate
publication of Viva's new application, the Superintendency did not begin
publication of the application until March 27, 1998, two months after the
Company believes the application should have first been published.
The Company believes it will be required to rely upon Viva's new
application for the network rights under the new law as a basis for its network
rights in Guatemala. Further, the Company may be required to participate in a
public auction of concession rights in the 28 GHz range if another party timely
files a well founded notice of opposition or interest with the Superintendency.
There can be no assurance that the Company will be able to successfully acquire
those rights or any other network rights in Guatemala. See "Profitability
Milestones and Operating Concerns - Network Issues."
Costa Rica
Background. The Company has interests in non-operating network rights
in the 28 GHz frequency band in Costa Rica. Costa Rica has a stable economy and
a political environment with higher than average Latin American household
incomes. Costa Rica has a population of approximately 3.5 million, which is
expected to grow to approximately 4.0 million by the year 2005. The Company's
Target Market in Costa Rica, San Jose, has a population of approximately
1,529,000.
Ownership and Management Structure. In December, 1997, the Company
acquired 100% of Television Interactiva, S.A. ("TISA"), a Costa Rican
corporation that is the operating company for 2 GHz of bandwidth in the 28 GHz
frequency range for Costa Rica. The network right holder of the 28 GHz rights is
Papeles de Curcuma, S.A., a Costa Rican corporation ("PDC"). Under the Company's
agreements with PDC, it has agreed to fund (through loans, equity or third party
financings) the build out of the Costa Rican network. The outstanding stock of
PDC is held by Botho Steinvorth. Mr. Steinvorth and the Company have entered
into a pledge agreement under which he has pledged the shares in PDC as security
for the Company's performance of its funding obligations. Under the pledge
agreement, the Company is permitted to take all actions incumbent on the holders
of PDC's shares, and to exercise all voting rights with respect to the shares.
Under the agreements for the Costa Rican network, TISA has the right to
operate the network on behalf of PDC. Under the agreement, TISA is obligated to
conduct all feasibility studies for the network, do all network marketing,
acquire and maintain all network equipment and operate the network. PDC is
required to acquire and maintain Costa Rican broadcast licenses, apply for
renewals of those licenses and serve as liaison between TISA and the government
of Costa Rica. PDC is also obligated to assist TISA in acquiring non-English
programming for the network. The agreement also provides TISA with the right to
acquire any interest in the licenses that PDC is allowed to dispose of based on
changes in Costa Rican law. Under the agreement, TISA is required to pay PDC a
license fee of $1,000 per year. See "Profitability Milestones and Operating
Concerns - Control of Network Operations and Use."
<PAGE>
Operating and Growth Strategy. The Company will initially focus its
development efforts in its Costa Rican Target Market, San Jose. The Company
plans to initiate construction of broadcast facilities in San Jose in May 1998
and anticipates it will initiate marketing of its data services in San Jose in
October 1999. The Company believes it will have between 1,000 and 2,000 data
services subscribers in Costa Rica by the end of 1999. See "Profitability
Milestones and Operating Concerns - Operating, Management and Other Market
Issues."
Franchises and Government Regulation. The license concession to the
27.5 to 29.5 GHz bandwidth was originally issued to a Costa Rican citizen by the
Control Nacional Radio, Ministry of Government and Policy of the Republic of
Costa Rica in February 1997. In connection with the Company's acquisition of its
interest in TISA, PDC acquired the license. The license allows the use of the
spectrum for video and data services throughout Costa Rica, but does not
currently provide the Company with the right to provide voice services.
The Company's facilities have been inspected by the Ministry and the
Company believes that it has complied with the requirements for obtaining a
final license. The Company aniticipates that the license will be granted in the
next few weeks. See "Profitability Milestones and Operating Concerns - Network
Issues."
Panama
Background. The Company has an interest in the network rights for the
28 GHz frequency band for Panama. The Company views Panama as an attractive
market due to its higher than average household income levels, high level of
household and business telecommunications services penetration and expanding
commercial business base. The country also has a stable political environment
and improving economy. Panama currently has a population of approximately 2.7
million, which is expected to increase to approximately 3.1 million by 2005. The
Company's Target Market in Panama, Panama City, has a population of
approximately 820,000 (approximately 30% of the total population of Panama).
Ownership and Management Structure. In March 1997, the Company acquired
90% of Wireless Communications Panama S.A. ("Wireless Panama"), a Panamanian
joint venture corporation that will act as the operating company for a 28 GHz
network in Panama. The frequency rights to be used by the operating company are
held by Administracion E Inversiones Radiales, S.A. ("AIRSA"), a Panamanian
company. AIRSA acquired the remaining 10% of Wireless Panama, on a non-dilutive
basis. For a period of one year, the Company is obligated to provide funding
(either in the form of debt, capital infusion or third party financing)
sufficient to bring the network to operating status.
<PAGE>
Under the Company's agreements for the Panamanian network, Wireless
Panama and AIRSA entered into a service contract under which Wireless Panama
will build out, maintain and operate the Panamanian network, and pursuant to
which it has the exclusive right to commercialize the network rights held by
AIRSA. The service contract requires AIRSA to maintain the network rights (and
all required extensions or approvals for the network) and to act as liaison with
the Panamanian government with respect to the network. Until the Company
determines that it will take over marketing of the network, AIRSA is required to
perform that function, and will receive 10% of the service fees arising from its
marketing efforts for a period of one year. If it becomes possible under
Panamanian law for AIRSA to sell, assign, lease, rent or otherwise divest
itself, in whole or in part, of its interest in the network, Wireless Panama has
the right to acquire that interest for no cost. Under the services agreement,
Wireless Panama is obligated to conduct all technical and feasibility studies
required for the network, develop a business plan for the system, acquire and
maintain all equipment necessary for the network and operate the network. During
each of the first five years of the service agreement, Wireless Panama is
required to pay AIRSA $6,000 as an annual fee for the use of the network rights.
See "Profitability Milestones and Operating Concerns - Control of Network
Operations and Use."
Operating and Growth Strategy. The Company expects to initiate
construction of a broadcast facility in the Panamanian Target Market, Panama
City, in July 1998 and begin offering data services in that market by September
1998. After it launches its data services program in Panama City, the Company
intends to launch its data services program throughout the remainder of Panama,
and then launch voice (assuming it receives approval to provide such services)
and multi-channel television services throughout the country. The Company
believes that it will have between 1,000 and 2,000 data subscribers in Panama by
the end of 1999. See "Profitability Milestones and Operating Concerns -
Operating, Management and Other Market Issues."
Franchises and Government Regulation. In June 1996, the Direccion
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. The
Panamanian network rights currently include authority to provide data services.
In October 1997, AIRSA received notice that its license rights included the
right to provide data and multi-channel video services with or without spectrum.
The license rights are temporary, subject to the payment of filing fees and
compliance with certain broadcast requirements. See "Profitability Milestones
and Operating Concerns - Network Issues."
Argentina
Background. The Company has interests in a value added license to
provide telecommunications services in Argentina. The Company believes that
Argentina possesses several desirable market characteristics, including
political stability, stable population growth, moderate per capita gross
national product, improving economic conditions, high population densities in
the Company's Target Markets and a stable economy.
Argentina currently has a population of approximately 35.8 million. The
Company's initial market in Argentina, the Parana/Santa Fe metropolitan area,
covers an area with a population of approximately 1.0 million. The Company
believes significant subscriber growth potential exists in the area and in the
other portions of Argentina due to the low hardwire/wireless network data
services penetration rate the inherent difficulty for hardwire network expansion
due to poorly marked underground utilities, and the lack of other data service
options.
Ownership and Management Structure. In August, 1997, in connection with
the Petrolera Transaction, the Company formed WCI de Argentina, an Argentinean
corporation ("WCIA"). WCIA is owned 80% by the Company and 20% by Petrolera.
WCIA was formed for the purpose of acquiring rights in the 25 GHz frequency
range for Argentina. Under the terms of the agreements for the formation of
WCIA, Petrolera agreed not to compete in any business conducted by WCIA in any
geographic area in which WCIA conducts business for the period ending on the
latter of the third anniversary of the formation of WCIA, or when Petrolera or
its affiliates no longer hold any interest in WCIA. The agreements also contain
prohibitions on the transfer by Petrolera or the Company of their respective
interests in WCIA. See "Profitability Milestones and Operating Concerns -
Control of Network Operations and Use."
<PAGE>
Operating and Growth Strategy. Once the Company receives assigned
frequency rights for its value added network rights in Argentina (which it has
requested for Cordoba, Neuquen and Parana/Santa Fe), it intends to first focus
its development and buildout efforts in Argentina in Parana/Santa Fe, and
intends to launch a wireless data service operation. Thereafter, the Company
intends to launch wireless data and voice services operations in the remainder
of Argentina. See "Profitability Milestones and Operating Concerns - Operating,
Management and Other Market Issues."
Franchises and Governmental Regulation. The Company's Argentinean
network rights were granted by the National Telecommunications Commission, which
governs the licensing and regulation of telecommunications rights in Argentina.
Under the terms of the network rights, WCIA was granted a "value added" license
to provide telecommunications services in Argentina. WCIA filed an application
with the Commission for use of the value added rights in the 25 GHz frequency
band in January 1998. See "Profitability Milestones and Operating Concerns -
Network Issues."
New Zealand
Background. The Company has interests in network rights in the 2.3 GHz
and 40 GHz frequency ranges for New Zealand. The New Zealand market is
characterized by a developed and stable economy, high per capita income, and
relatively high household voice, data and video penetration. The Company
believes that the telecommunications services offered in New Zealand have
historically been slowed by a shortage of satellite delivered television
programming and voice and data services. With the launch of additional
satellites in the Asian region and the rapid development of telecommunications
services in Australia, the quality and quantity of available services has
increased significantly in New Zealand. The Company believes that its ability to
offer data and voice services and multi-channel television programming, and the
ease of wireless system buildout, will produce rapid growth of its subscriber
base in New Zealand. New Zealand currently has a population of approximately 3.6
million. The Company's initial Target Market in New Zealand, Auckland, has a
population of approximately 845,000.
Ownership and Management Structure. The Company acquired its New
Zealand network rights in August of 1995 in connection with the Separation. The
Company's New Zealand network rights are held by Auckland Independent Television
Services, Ltd. ("AITS"), a New Zealand corporation which is owned 94.9% by the
Company. AITS holds (under licenses from two network right holders) four
channels in the 2.3 GHz frequency range in the Auckland area. These licenses
expire between 2001 and 2004. Both licenses provide for extensions to the
initial terms, although there can be no assurance the licenses will be renewed.
The Company has also acquired (as the network right holder) the exclusive rights
for the 40 GHz frequencies in the Auckland, Christchurch and Wellington/Petone
areas, with countrywide expansion rights as applied for on a city-by-city basis.
The Company's 40 GHz license rights permit the delivery of television, data and
telephony services. The 40 GHz frequencies are valid for one year, renewable
yearly and require the payment of a license fee. See "Profitability Milestones
and Operating Concerns - Control of Network Operations and Use."
Operating and Growth Strategy. The Company intends initially to focus
its development and buildout efforts in the New Zealand Target Markets using its
40 GHz network. The Company believes that its proposed subscription rate
structure for its anticipated communications packages will be attractive to
prospective subscribers. The Company anticipates that it will begin the
build-out of the Auckland, New Zealand 40 GHz market in January 1999, and that
it will launch its data services subscriber drive in April 1999. The Company
believes that it will have between 3,000 and 5,000 data services subscribers in
New Zealand by the end of 1999. See "Profitability Milestones and Operating
Concerns - Operating, Management and Other Market Issues."
Franchises and Government Regulation. The Company's 2.3 GHz and 40 GHz
network rights in New Zealand are 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.
<PAGE>
The management rights for particular frequency bands are created by the
Secretary of Commerce. An entity that has been granted particular frequency
rights has the authority to create licenses (such as the licenses held by the
Company in the 2.3 GHz channels) for third parties 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 network right holder. Management rights and licenses can be
issued for varying terms, sometimes 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 with the New
Zealand government 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. See "Profitability
Milestones and Operating Concerns - Network Issues."
Other Network Rights
In addition to its network rights in the Market Countries, the Company
holds an interest in certain network rights and a leased transmitter facility in
Park City, Utah. The Park City rights were acquired by the Company in connection
with the Separation and are held by the Company's wholly-owned subsidiary
Transworld Wireless Television, Inc. ("TWTV"). The Park City rights consist of
four 2.5 GHz channels.
Network Operations
The Company has adopted a number of administrative procedures and
policies that it believes will facilitate the efficient operation of its
business. These policies and procedures include the following:
Service Packages. The Company initially intends to provide only
data-related services such as high speed data connectivity and Internet and
intranet access, but anticipates that it will eventually offer subscribers a
number of other standard telecommunications services, including video
conferencing, local and long distance telephone services, and multi-channel
television services, as well as specialized telecommunications services such as
virtual work groups, application, and document sharing, frame relay and
conference bridges and advanced fax management. To the extent possible
consistent with its services offerings, the Company intends to provide
subscribers with the ability to combine various services without the constraints
of inflexible package requirements or product-specific boundaries. The Company
believes that a flexible sales strategy will help reduce switching barriers for
those subscribers who may initially be reluctant to switch all of their
telecommunications services and vendors at one time or are subject to existing
contracts. Although a majority of the Company's services will be deployed using
the Company's fixed wireless point to multi-point broadband networks, the
Company anticipates that it will also be able to provide its services using
coaxial cable and fiber optic networks where the Company believes it is
economically attractive or strategically desirable to do so.
<PAGE>
Pre-Launch Activities. Prior to initiating the buildout of a new
market, the Company intends to conduct pre-launch studies to evaluate the
population demographics and physical terrain of that market. The Company has
already conducted several such studies in its Target Markets. The Company then
intends to create a development plan that identifies the subscriber potential of
various areas within the target market and, based on such factors as television
and data penetration rates, income levels and existing competition, it will then
define the probable locations of the network central node transmission facility
and any required cell sites for retransmission. As the construction of its
central node or retransmission facilities nears completion, the Company will
conduct a marketing program targeted to those areas identified as having the
greatest potential for subscriber growth. The Company's marketing programs will
typically include (i) inbound telemarketing, (ii) neighborhood door-to-door
sales, including multiple dwelling unit meetings and door hangers, (iii)
marketing tied to regional events such as high interest sporting events, (iv)
telephone, television and print advertisements, (v) promotional activities such
as referral programs and promotional gifts, (vi) direct mailings, (vii) Internet
web pages, (viii) advertising on installation vehicles, (ix) participation in
professional forums, (x) automated e-mail messages, (xi) free or promotional
services to key or high profile users, (xii) launch promotional activities, and
(xiii) the use of resellers, agents and direct marketing agencies.
Installation. The Company's installation packages for its services will
generally include a standard rooftop mounted transceiver and other related
equipment, such as cabling and a data modem, which will be located at the
subscriber's location. The Company currently anticipates that, depending on the
type of service involved, the cost of a data service subscriber installation
will initially range from $1,675 to $2,215. The Company anticipates that it will
be able to charge its data services subscribers the entire cost of installation
and any related equipment. As a result, the Company anticipates that it will be
able to obtain more quickly positive cash flow from those subscribers.
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 turnover. With this
objective in mind, the Company has adopted operating policies under which it
will (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 also intends to impart a "customer service" mentality in its
employees through ongoing in-house training sessions and intends to establish an
employee forum to facilitate an exchange of ideas for improvements in customer
service. The Company also intends to adopt various employee incentive programs
linked to achieving high levels of customer satisfaction.
Operations Center. The Company expects to deploy central node
transmission and switching equipment in each of its principal market areas. The
Company's networks will be engineered to provide subscribers with the ability to
interconnect with the Internet, as well as with other locations the customer may
have within the Company's network and, if the Company provides voice services,
to interconnect with local exchange networks and long distance networks. In
order to ensure that the Company's networks are working as efficiently as
possible, the Company plans to construct and maintain one or more network
operation centers which will monitor its various networks on a 24 hour a day
basis and which will provide its operating personnel with alarm, status and
performance information. The Company anticipates the network operations centers
will include equipment which will allow the Company to conduct preventative
maintenance activities in order to avoid network outages or to respond promptly
to any network disruption that might occur. The Company currently anticipates
that its operations center for its Latin and South American markets will be
located in Southern Florida.
<PAGE>
Management Information Systems and Billing. The Company intends to use
a commercial management information system tailored to meet the requirements of
the subscription telecommunications industry. This system will allow the Company
to monitor customer service and customer payment patterns, monitor subscriber
equipment and installations, and manage each operating network efficiently. The
Company has also adopted credit procedures and collection policies which it
believes will minimize subscriber turnover and uncollectible accounts.
Competition
General Competition. The telecommunications market in developed
countries such as the United States is intensely competitive. The Company has
not begun to market its wireless services to potential customers on a wide
spread basis, has not obtained significant market share in any of the Market
Countries, and does not expect to do so in the near future given the size of the
telecommunications market and the diversity of customer requirements.
The Company will eventually compete with numerous other
telecommunications service providers in the Market Countries. Some of these
competitors may have long-standing relationships with their subscribers and
suppliers, greater name recognition and significantly greater financial,
technical and marketing resources than the Company. Nevertheless, the Company
expects to compete on the basis of local service features, quality, price,
reliability, customer service and rapid response to customer needs for both
bundled and unbundled telecommunications services. The Company anticipates that,
as its competitors face increased competition, they may respond with increased
pricing flexibility which, in turn, may result in increased price competition.
There can be no assurance that such increased price competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Several technologies are under development that may significantly
affect the wireless telecommunications industry and result in new competitors
entering the market. The Company cannot predict the competitive impact of these
new technologies and competitors. The Company expects, however, that wireless
telecommunications operators will be able to expand their services capacity and
introduce new services while continuing to maintain a cost advantage over other
providers of such services. The Company intends to exploit its comparative cost
advantage by targeting a value-conscious subscriber base.
<PAGE>
Fiber optic Systems and Digital Compression. Traditional hardwire
systems have historically been limited by their use of analog transmission and
coaxial cable technologies. A number of new technologies are under development
to increase the capacity of these systems. These new developments include
replacing traditional copper wire networks with fiber optic networks and using
digital techniques to compress more programming signals and data onto existing
copper wire or other networks.
The Company believes that its 28 GHz and 40 GHz technology platforms
provide adequate transmission capability for the Company's anticipated data
subscriber needs. The Company has adopted a system architecture that permits a
future migration to more advanced digital compression if and when it determines
that it is desirable to do so. The introduction of expanded digital capacity by
traditional hardwire operators will require substantial new investment.
Accordingly, the Company does not expect to deploy the advanced compression
technologies until relatively inexpensive equipment is available and subscribers
demonstrate sufficient demand.
Telephone Company Competition. The data services provider industry has
traditionally been dominated by local and regional telephone companies, which
have typically relied on their networks of copper wire and fiber optic cable to
provide services. In each market country, the Company may compete with one or
more established telephone service providers, some of which may have
long-standing relationships with their customers and significantly greater name
recognition, and financial, technical and marketing resources than the Company.
The Company believes, however, that because such companies rely on their
established hardwire networks (which currently have a penetration rate in Latin
America of less than 10%), which are costly to expand, difficult to maintain and
have technological limitations (especially with respect to the transmission
speed for data), and because the Company will compete with those entities on the
basis of quality, price, reliability, the scope of the telecommunications
services it can provide (i.e., the availability of "one stop" combined voice,
data and multi-channel television services), and customer service, the Company's
wireless communications systems will have a competitive advantage over those
entities.
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 heavily regulated by governmental regulations and rules. 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 hardwire television operators to
offer video dial tone service. While the competitive effect of the entry of
telephone companies into the subscriber 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.
<PAGE>
Satellite Systems. Although the Company anticipates that it will focus
its initial business efforts on the provision of data services, it may also
provide multi-channel television programming at a future date. Multi-channel
television programming operators are subject to additional types of competition.
For example, "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 hardwire television service
providers and wireless multi-channel television service providers. The primary
advantages of wireless multi-channel networks 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 hardwire
or wireless communications networks. A conventional DTH antenna system costs up
to $1,000 per subscriber, however, 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
also 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 $300 to $400
per customer, plus installation fees (and monthly subscriber fees), although a
number of DBS companies have recently offered equipment and subscription
packages at lower initial prices. 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 multi-channel programming providers will
continue to enjoy a comparative cost and local programming advantage over these
satellite systems.
Other Microwave Systems. The Company will typically provide its
services over 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
telecommunications networks in a number of market areas, including frequencies
in the 2.5 GHz range and, in limited instances, in the 18 GHz range. The Company
believes the 28 GHz and 40 GHz frequency bands provide advantages over other
frequency bands, including the ability to transmit data, voice and television
signals on the same architecture, their high information content capacity and
their ability to be integrated into different infrastructures.
Acquisition Strategy
The Company intends to continue to pursue its expansion strategy in the
future by acquiring and building out wireless telecommunication networks and
services providers in markets outside of the United States that meet its market
selection criteria. The Company has developed a series of complex criteria to
analyze prospective acquisitions of market networks and subscriber systems.
These criteria include (i) the number of potential subscribers in the market,
(ii) the types of telecommunications services in which the subscribers would
most likely be interested, (iii) network frequency availability, (iv) the
existence of established groupings or blocks of network rights, (v) the nature,
quality and extent of service provided by existing and traditional
communications networks in the market, (vi) topography, (vii) demographics,
(viii) the existence of a strong local strategic partner, (ix) political and
economic risk, (x) governmental regulation, and (xi) the potential to add to the
Company's subscriber base by acquiring the acquisition target's existing
operations. The Company also evaluates the potential acquisition's ability to
facilitate the Company's use of economies of scale and to increase its operating
efficiencies, particularly where a market acquisition can add subscribers or add
to existing regional market clusters.
<PAGE>
Governmental 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 the section
entitled "Market Country Networks" summarizes certain government regulations
affecting the Company's ability to own and operate its wireless networks 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. See "Profitability Milestones and
Operating Concerns - Network Issues" and "Profitability Milestones and Operating
Concerns - Control of Network Operations and Use."
PROPERTIES AND FACILITIES
Equipment. The Company believes it has the ability to source key
network components from a number of equipment vendors. Fixed local wireless
networks can be constructed using equipment from different manufacturers and can
utilize different technologies because customers do not roam between base
stations. The Company believes that the flexibility provided by vendor diversity
will facilitate an adequate and prompt supply of equipment at attractive prices.
The Company has entered into an agreement with Millitech, Inc., a
wireless communications head-end manufacturer, for the lease of head-end
equipment at a quarter-annual cost, per head-end, of $10,000. At the Company's
election, 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, one of which is located in each of Costa
Rica, Guatemala and Panama.
In January 1998, the Company entered into a series of agreements with
Motorola, Inc. and its affiliates ("Motorola") for the design, construction and
deployment of hardware and software products the Company will use in its network
operations. The Motorola agreements include an agreement pursuant to which
Motorola will design and install products for use with the Company's networks,
and a services agreement, pursuant to which Motorola will provide services to
the Company relating to the design and implementation of the Company's networks.
Under the product agreement, the Company agreed to purchase from
Motorola certain equipment, support services and software licenses from Motorola
and other parties for use in the Company's networks. The contract initially
anticipates the purchase of those products for the Company's Guatemalan
operations. The Company is required to pay 50% of the total price for the
products and services provided by Motorola under the agreement on the date that
it submits any purchase order for those products to Motorola. The remaining 50%
of the purchase price is payable no later than one year from the date of the
product agreement (January 1999). If Motorola fails to successfully complete a
commissioning test plan designed by the parties by an agreed date, the Company
has the option to either retain the products and pay Motorola the remaining 50%
of the purchase price, or allow Motorola to remove its portion of the products.
<PAGE>
Under the data pilot services agreement, Motorola agreed to conduct a
pilot system to provide high speed data services in the Company's Target Market
in Guatemala, Guatemala City. Under the agreement, Motorola is required to act
as the primary contractor for the pilot system and provide all required
material, effort and services necessary for its installation. The payment terms
under the data pilot services agreement are similar to those under the product
agreement. See "Profitability Milestones and Operating Concerns - Operating
Management and Other Market Issues."
Office Space. The Company leases approximately 2,500 square feet of
office space at 102 West 500 South, Suite 320, in Salt Lake City, Utah under a
lease agreement expiring in September 2000. The Company is required to make
monthly lease payments of $3,070 during the first year of the lease, $3,177
during the second year and $3,285 during the third year of the lease. The
Company believes the office space is adequate for its current needs. The Company
anticipates that it will acquire additional operating space in Southern Florida
during the Company's second fiscal quarter and is currently reviewing a number
of lease and purchase options for office space in the area. The Company also
maintains, through its various subsidiaries and affiliates, office space in a
number of the Market Countries.
Network Rights. The Company holds license rights (either directly or
derivatively) for microwave point to multi-point telecommunications networks in
the Market Countries. It generally has acquired those rights pursuant to (i)
long-term contracts with third party network rights holders, (ii) arrangements
where it is the majority owner of the network rights holders, or (iii)
contractual arrangements which it believes provide it with substantial
managerial and operational control of such network rights, including ownership
positions in the operating companies for the network rights and, where
permissible under local law, ownership positions in the network rights holder.
Generally, the networks in which the Company has interests operate on
frequencies of either 28 GHz or 40 GHz. The Company's network rights in the
Market Countries are described in greater detail in the section entitled "Market
Country Networks," above.
The rights for wireless communications networks in most markets that
meet the Company's market selection criteria have already been granted to (or
been applied for by) third parties. Therefore, in order to build and operate
wireless communications networks in new markets where it does not already
control network rights, the Company will have to purchase, lease or otherwise
acquire sufficient network capacity from or with those third parties. See
"Profitability Milestones and Operating Concerns - Network Issues."
Telecommunications Services Content.
Data Services Content. The Company anticipates that it will acquire or
contract with Internet service providers in each of the Market Countries to
provide Internet and content data services to the Company's subscribers in those
Market Countries. The Company intends to offer the services on either a
transport basis (where the Company's wireless networks will act as a "pipeline"
for the Internet service provider), through the acquisition of the Internet
service provider (in which case, the Company would offer the data services as
part of a bundled offering under the Company's brand name), or through a
contractual arrangement (partnership, management agreement, services
arrangements, joint venture or otherwise) with the Internet service provider.
See "Businesses and Properties - Description of the Company's Business - Company
Strategies." These data services are expected to include routing, addressing,
DNS, registration services, network security and fire walls, intranet services,
e-mail, news services, and hosting and peering services. See "Profitability
Milestones and Operating Concerns Dependence on Content Providers."
<PAGE>
The Company also intends to provide local dedicated data access
circuits. These lines, which typically link customers' computers together to
create larger networks, are used by banks, billing clearing houses, advertising
agencies, hospitals and other business to exchange large data files, as well as
by any business to connect offices for file sharing, e-mail and work group
applications.
The Company is currently negotiating with a number of Internet service
providers in the Market Countries regarding the acquisition of those service
providers or for terms under which the Company and those service providers
could, on a partnering, joint venture or other contractual basis, provide
Internet and related services using the Company's networks. The Company intends
to acquire backup services contracts with those Internet service providers so
that, if, for some reason, the Company and the Internet service provider cannot
agree upon the terms of any such acquisition or partnering arrangement, the
Company can still provide the Internet content over its networks. There can be
no assurance the Company will be able to successfully negotiate the acquisition
of any Internet service provider or the terms under which a particular Internet
service provider and the Company would join together on a partnership or joint
venture basis to provide Internet and related data services over the Company's
wireless networks.
Voice Services. If the Company elects to provide telephone services, it
intends to provide a complete range of local exchange and long distance services
as part of its product line. The Company anticipates these services would
include basic local services, access to long distance and dedicated lines,
direct inward dialing, custom calling services and, in the case of long distance
services, domestic intramarket, intermarket and international calling, toll free
services, calling card and conference call bridging and other enhanced services.
Because the Company's network rights do not, in most instances, provide
the Company with the right to deliver voice services, the Company is not
currently engaged in any substantive discussions with local or long distance
voice services providers regarding the use of the Company's networks for those
services. The Company anticipates, however, that any arrangements with voice
services providers would generally be structured in a manner similar to the
Company's arrangements for the provision of data services.
Television Programming. The Company expects to enter into a number of
contracts with commercial television programming suppliers and packagers for
video programming. The Company anticipates that these contracts will 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
March 30, 1998, the Company is providing multi-channel television service in the
Venezuelan market, and only on a limited basis in the Caracas-Los Teques area.
The Company's programming in that market consists of ESPN International/ESPN2,
CNN International/CNN/CNN Headline, TNT Latino America, Cartoon Network Latin
America, MTV Latino, Discovery Latin America, Fox Latin American, USA Latino,
plus Canal de Noticias NBS, Cne Canal, CMT, CNBC, Cable Health Club, Deutsche
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. See "Profitability Milestones and
Operating Concerns - Dependence on Content Providers."
<PAGE>
EMPLOYEES
As of the date hereof, the Company has 10 full-time employees. See
"Management -- Employment Agreements."
LITIGATION
In March 1998, a small group of shareholders who acquired their shares
as a result of the Separation contacted the Company to complain about its
failure to distribute from escrow those shares, the LatinCom arrangement and the
Company's agreements with former principals of TIC. The shareholder group has
suggested that it may sue the Company if the Company does not promptly take
remedial action. The Company believes the claims are without merit.
PROFITABILITY MILESTONES
AND OPERATING CONCERNS
The wireless telecommunications industry is an 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 has not generated a profit during any
period of its existence, and has generated only limited cash flow from its only
operating system, its wireless television services operation in Venezuela.
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:
Date or Number of
Expected Manner Months when Milestone
of Occurrence or or Events Should be
Event or Milestone Method of Achievement Accomplished
Build out of wireless Conduct proof of concept Build out of Target
data services systems market broadcasts, tests Markets began in
in the Company's Target construction of January 1998 and is
Markets transmission facilities anticipated to take
and marketing launch. approximately 2 years
to complete.
Build out and operation of Additional debt or equity Anticipated build out
wireless data services financing. of non-Target Market
systems in areas of the areas to begin in 1999.
Market Countries other
than the Target Markets.
Build out and operation of Substantial additional Anticipated build out
wireless voice and debt or equity financing. to begin in 1999.
multi-channel television
systems in the Market
Countries
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:
Initial Phases of Development. Almost all the networks 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 communications services on a commercial basis (for
multi-channel television services), and that operating company only recently
initiated commercial service and 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
the Company will be able to perform its obligations under those agreements
(particularly in cases where the Company is required to provide funds for the
build out and launch of networks) or that the terms of the Company's
participation in the operating company or network rights holder 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
telecommunications networks in the Market Countries will depend on the
resolution of a number of financial, logistical, technical, marketing, legal and
regulatory issues, as well as other factors. In addition, there can be no
assurance the Company's proposed network operations will not encounter
engineering, design or operational problems, or that the Company can
successfully develop any of its existing or planned development stage projects,
or that those projects or any of the operating companies or network rights
holders in which the Company has or acquires an interest will achieve commercial
success.
Need for Substantial 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 to achieve profitability, to cover ongoing operating expenses
and capital contributions, to acquire additional wireless networks or wireless
communication rights in existing or other markets, and to build out, operate and
manage its markets, including the Target Markets. In some instances, the Company
is required under its contractual agreements in the Market Countries to provide
or secure financing sufficient to build out or initiate construction of the
networks.
<PAGE>
The Company currently estimates that it will require between $10
million and $20 million to launch its data services systems in all of the Target
Markets, and between $20 million and $50 million to launch its data services
systems in areas of the Market Countries outside the Target Markets. If the
Company elects to pursue the delivery of voice and/or video services, the
Company estimates the build out and launch of voice services would require
between $50 million and $100 million and that video services would cost between
$100 million and $200 million to build out and launch in the Market Countries.
There can be no assurance that all or any of such funds will be available to the
Company on satisfactory terms and conditions, if at all. The Company's failure
to obtain such 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 value per share of their Common Stock, Series A
Preferred Stock, and/or Series B Preferred Stock. The acquisition of funding
through the issuance of debt could 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 subsidiaries or affiliates from third parties, although there can be
no assurance that the Company's subsidiaries or affiliates 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.
Risks of Foreign Investment. The Company has invested and intends to
continue to invest substantial resources outside the United States. The Company
does not intend to acquire, or invest in, any wireless communication networks,
assets or operations within the United States.
Governments of many developing 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 become
competitors of the Company, or companies upon which the operating companies and
network right holders 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. The Company's interests in some or all
of the Market Countries could be adversely affected by expropriation,
confiscatory taxation, nationalization, political, economic or social
instability, changes in laws or other developments over which the Company has
little or no control.
The Company does not currently carry political risk insurance.
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.
Difficulties and Uncertainties of New Industry. Microwave transmission
of telecommunications services is a relatively new industry 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.
<PAGE>
Network Issues. The Company will be required to rely on the existence
of, and continuing ability to use or exploit, telecommunications licenses,
concessions or leases which are typically granted by governmental agencies on an
exclusive or limited 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 such rights they have granted or may
in the future grant in which the Company may have direct or derivative interest,
and the Company may have limited or no legal recourse if any of these events
were to occur. In addition, there can be no assurance that renewals of these
rights will be granted upon their expiration or, if renewed, that the renewal
terms will not be less favorable to the Company than the original terms of the
rights. See "Business and Properties - Description of the Company's Business -
Market Country Networks."
Such rights may also be subject to significant operating restrictions
or conditions, including restrictions relating to the implementation or
construction of network improvements, commercialization, subscriber rates,
royalties and other specified deadlines or conditions which, if not satisfied,
could result in the loss or revocation of the network rights. There can be no
assurance that, if the Company is able to obtain required network rights, those
operating conditions will be satisfied and, as a result, that any such rights
would not be lost, revoked or otherwise modified in a manner which is or could
be materially adverse to the Company, its business operations or financial
condition. Further, although the Company has taken such actions as it has deemed
necessary or appropriate under the circumstances to verify or otherwise
determine the scope, extent, duration and nature of the network rights in the
Market Countries, it has in some instances relied upon the representations of
the holders of such rights as to some or all of such matters. There can be no
assurance that the actual terms and conditions of such rights do not differ,
perhaps materially, from those represented by the network rights holders and
their principals.
Operating, Management and Other Market Issues. The Company anticipates
that it will depend on one or more local partners (or other parties) in each of
the Market Countries to obtain or maintain the use of any required network
rights, to conduct business operations in those markets, and to facilitate the
Company's business operations with other local entities, including governmental
authorities. The Company will be dependent on these strategic partners, although
there can be no assurance that they will perform in accordance with the terms of
any agreements they have with the Company.
Under the terms of the Company's agreements with certain of its
strategic partners, the Company will have obligations to fund substantial
network construction and development costs. Any such construction and
development will be capital intensive and the Company will be required to seek
substantial and 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, impairment or revocation of network rights in the
Market Countries. There also can be no assurance the Company will be able to
obtain or secure financing sufficient to fund its capital expenditure
obligations, or that it will be in the best interests of the Company to do so.
<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 Company 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 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 and with Petrolera in the formation of
WCIA. There can be no assurance that either entity will be able to acquire,
develop or operate any wireless communications networks and, if they fail to do
so, the Company may be precluded from acquiring or operating wireless networks
in the countries in which those entities were formed to operate. Further,
although those entities were formed for the purpose of acquiring and operating
wireless networks in specific South American and Latin American countries, there
can be no assurance that they 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 those
entities.
Currency and International Risks. A number of the Market Countries,
such as Venezuela, have 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 against foreign currency exchange rate
risks.
Distributions or other payments the Company receives from its operating
subsidiaries or affiliates in the future may be subject to withholding taxes
imposed by the jurisdictions in which such entities are formed or are 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 rights to the networks,
service requirements, restrictions on foreign ownership and subscriber rates,
instruction requirements and programming or service 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. See
"Business and Properties - Description of the Company's Business - Market
Country Networks."
<PAGE>
Control of Network Operations and Use. The Company intends to acquire,
where possible under local law, majority interests in the network rights
holders. 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 majority equity positions
in the operating companies for those networks (generally under long term
contracts) 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 of the network in any such market. There can be no assurance,
however, that the Company will in fact obtain such interests in all of its
markets, or obtain voting, equity or management positions which could prevent
the Company's strategic partners in a particular market from implementing
strategies or business decisions inconsistent with those favored by the Company.
Dependence on Content Providers. The success of the Company's
operations will depend, in part, upon its ability to provide access to data
nets, and if it elects to provide telephony and video services, to long distance
voice carriers and television programming for its subscribers. The Company has
entered into, or has begun negotiations to acquire, programming and service
contracts with a number of data services providers, including Internet service
providers, Internet content aggregators and cable-based data services. There can
be no assurance, however, that the Company will be able to obtain contracts with
such entities, or others, or that it will be able to do so upon terms which it
believes are economically advisable.
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 the
Market Countries. 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 Company's services.
Actual results could differ from those projected in any forward-looking
statements for the reasons detailed in the other sections of this report and
other risks detailed within this report. The forward-looking statements are made
as of the date of this report.
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, as of
March 31, 1998, 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. With the exception of Lance D'Ambrosio
and Troy D'Ambrosio, who are brothers, there are no family relationships between
any of the Company's directors or executive officers. As of the date of this
report, the Company's board of directors is comprised of eight 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:
<PAGE>
Person Age Position
Lance D'Ambrosio 40 President, Chief Executive Officer
and Director
Paul Gadzinski 43 Executive Vice President
William Levan 44 Senior Vice President of Engineering
Donald Williams 37 Vice President of Latin American Operations
and Director
E. Andrew Lowe 53 Vice President of Finance and Director
Anthony Sansone 33 Secretary and Treasurer
Troy D'Ambrosio 37 Director
George Sorenson 43 Director
Gaston Acosta-Rua 33 Director
Jorge Fucaraccio 54 Director
Peter Schiller 63 Director
Lance D'Ambrosio -- Mr. D'Ambrosio is the President, Chief Executive
Officer and Director of the Company, and holds other executive officer and
director positions in the Company's subsidiaries and affiliates. Mr. D'Ambrosio
has been involved in the telecommunications business for the last seven years.
Mr. D'Ambrosio is responsible for the Company's acquisitions, strategic planning
and mergers, and is responsible for all financing plans for the Company. Between
1992 and 1997 Mr. D'Ambrosio served as the President, Chief Executive Officer
and a Director of TTI, acted as the President and a Director of WHI and 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
which was primarily involved in raising venture capital for investments in
high-tech companies. Mr. D'Ambrosio 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. Between 1994 and 1997, Mr. Gadzinski 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 multi-channel television
system located in Riverside, California, that 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 attended Santiago Community College with an
emphasis in small business management.
<PAGE>
William Levan - Mr. Levan joined the Company in March, 1998 as its
Senior Vice President of Engineering. Between July of 1997 and February of 1998,
Mr. Levan acted as the Director, Applications Hybrid Networks in Cupertino,
California, where he was responsible for pre-sales support of its hybrid series
2000 broadband modem system. Between 1994 and July of 1997, he was the Director
of Hardware Engineering for Hybrid Networks in Cupertino, California. Between
1991 and August of 1994, Mr. Levan was the Chief Technology Engineer for the
Foothill College District in Cupertino, California where he was responsible for
the design and supervised installation of the district wide broadband voice,
video and data network. Mr. Levan attended Ohio State University with an
emphasis in Electrical Engineering.
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 Centurion,
and applied for and was granted the concession for the 28 GHz frequency band for
Venezuela. Mr. Williams was responsible for building out the world's first fully
commercial multi-channel television system utilizing LMDS in Caracas, Venezuela.
In 1990, Mr. Williams co-founded CARESA, a technical systems integrator and
manufacturer's representative to the Venezuelan petroleum industry in Maracaibo,
Venezuela. Mr. Williams obtained a Bachelors Degree in international business
administration from Schiller International University in London, England in
1983.
E. Andrew Lowe -- Mr. Lowe serves as Vice President of Finance and as a
Director of the Company. Since 1992, Mr. Lowe has also served as an Executive
Officer and a Director of TTI, and held Executive Officer or Director positions
in TTI's and its affiliates' subsidiaries. Between 1966 and 1992, Mr. Lowe was
an employee of Citicorp, most recently serving as Director of Marketing and
Customer Relations for the Real Estate Investment Advisory Division, where he
was the interface between pension funds, insurance companies, international
investment agencies and Citibank.
Anthony Sansone -- Mr. Sansone is the Secretary and Treasurer of the
Company and serves as its Controller. Between 1993 and 1997, he was also the
Treasurer and Controller of TTI and, during 1996, 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.
<PAGE>
Troy D'Ambrosio -- Mr. D'Ambrosio is a Director of the Company. Between
1993 and 1996 he served as Vice President of Administration and as a Director of
TTI and also served in executive positions and as a director of WHI and its
subsidiaries Since September 1996, Mr. D'Ambrosio has served as the Manager of
Mutual Fund Operations for Wasatch Advisors, Inc., a registered investment
advisory firm, which manages approximately $1 billion dollars in separately
managed accounts and a family of six mutual funds. 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.
Mr. D'Ambrosio received a Bachelor of Arts degree in Political Science from the
University of Utah in 1982.
Gaston Acosta-Rua - Mr. Acosta-Rua is a Director of the Company. Mr.
Acosta-Rua has spent the last 8 years in the private equity investment and
management sector in Latin America, primarily as a Director of FondElec Group,
Inc. Before joining FondElec, Mr. Acosta-Rua worked for and helped create the
Latin American Group for Chemical Venture Partners and was previously an officer
with the Chemical Bank Debt/Equity Group, which was responsible for managing the
combined Chemical Bank Manufacturers Hannover portfolio of Latin American equity
investments. Before working for Chemical Bank, Mr. Acosta-Rua worked as a
consultant to the Brookings Institute in Washington, D.C. Mr. Acosta-Rua
received a Juris Doctorate from the George Mason School of Law in 1991, and a
Bachelor of Arts Degree in Computer Science and Finance from Furman University
in 1987.
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, together with its affiliates, invests in energy and electricity markets
in Latin American, and advises United States corporations on their investments
in that area. FondElec is a shareholder in the Company and holds 45% of
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.
Jorge Fucaraccio - Mr. Fucaraccio is a Director of the Company. Since
1994, Mr. Fucaraccio has been an advisor to Petrolera Argentina San Jorge S.A.
and Bolland S.A., Argentinean corporations, in software engineering applications
related to oil production and data communications. Between 1989 and 1991, Mr.
Fucaraccio worked as the National Director of Technology at the National
Institute of Industrial Technology in Argentina (the "INTI") where he was
responsible for managing all technical departments and research centers of the
INTI, including its communications, software engineering, energy, mechanics and
building technologies research departments. Between 1982 and 1988, he was a
member of the Board of Advisors at the Ministry of Science and Technology and
the Ministry of Energy in Argentina. During this period, he was responsible for
the creation of a number of research centers and directed several technical
governmental missions between the government of Argentina and countries in
Europe and Asia. Between 1978 and 1985, Mr. Fucaraccio was a director of an
energy transmission and solar energy utilization research program sponsored by
the Organization of American States. Mr. Fucaraccio received a Licentiate in
Physical Sciences from the Buenos Aires University in 1970. He has also served
as "guest worker" at the National Institutes of Standards and Technology
(formerly the National Bureau of Standards) in Maryland under a fellowship
sponsored by the United Nations. Mr. Fucaraccio also conducted post-graduate
research activities at the Technical University of Denmark (Lyngby).
<PAGE>
Peter Schiller - Mr. Schiller is a Director of the Company. Since 1993,
Mr. Schiller has been employed by Bolland S.A and its affiliates, Petrolera
Argentina San Jorge S.A. and OEA Services, all of which are Argentinean
corporations engaged in oil and gas services, where he currently serves as the
Director of New Business Development. Between 1976 and 1993, Mr. Schiller held
general management positions in the heavy electromechanical manufacturing,
automotive components and non-ferrous metals industries. Between 1961 and 1975,
Mr. Schiller held a number of product design and quality control management
positions in the electrical, automotive and tractor industries. Mr. Schiller
received a degree in Electrical Engineering from the University of La Plata,
Argentina in 1961 and pursued a three year, post-graduate course in Business
Management in 1971 at the Argentine Catholic University in Buenos Aires,
Argentina. In 1993, Mr. Schiller conducted post-graduate studies in oil and gas
specialization at the Argentine Catholic University in Buenos Aires.
The Company has also engaged the services of Brian Reynolds on a
consulting basis and to oversee the Company's operations in its various Market
Countries. Between 1994 and 1998, Mr. Reynolds was the Chief Operating Officer
of WHI, a joint venture entity between TTI and Videotron, USA. As the Chief
Operating Officer of WHI, Mr. Reynolds was primarily responsible for the start
up of its high speed data and television services and launched three operating
systems servicing 30,000 customers. Between 1989 and 1994, Mr. Reynolds held
senior telecommunications industry management positions, including senior
management positions with a Sacramento, California-based cable television system
serving over 150,000 subscribers. Mr. Reynolds received a Bachelors Degree from
Rutgers University with an accounting concentration in 1979.
The Company is currently negotiating with Mr. Reynolds regarding his
employment as the Company's President and Chief Operating Officer. There can be
no assurance that the Company will enter into an employment contract with Mr.
Reynolds as its President and Chief Operating Officer or any other position.
The Board of Directors has two standing committees, the Audit
Committee, and the Compensation Committee. The Audit Committee is 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 also reviews 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. Messrs. Fucaraccio, Sorensen and Lowe serve as the
members of the Audit Committee. The Compensation Committee is 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 also consults with the Company's management regarding pension and
other benefit plans, and the Company's compensation policies and practices in
general. Messrs. Fucaraccio, Sorensen and Lance D'Ambrosio serve as the members
of the Compensation Committee.
<PAGE>
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 in their capacity as director of the Company, but are reimbursed for
expenses they incur in connection with attending Board or committee meetings.
Executive Compensation
The following table summarizes the compensation paid to or earned by
the Company's Chief Executive Officer and four other most highly compensated
executive officers whose total salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers") during the fiscal year ended December 31, 1997.
During the fiscal years ended December 31, 1996 and 1995, none of the Company's
officers received any cash compensation, bonuses, stock appreciation rights,
long-term compensation, stock awards or long-term incentive rights from the
Company, although during 1996 Paul Gadzinski received options to acquire shares
of TIC, which were subsequently assumed by and converted into options to acquire
shares of the Company's Series A Preferred Stock in connection with the TIC
Transaction. The options were granted to Mr. Gadzinski in consideration of
services he performed on behalf of TIC. The options were cancelled, without
being exercised, in December 1997.
Summary Compensation Table
Annual Compensation Other Annual
Name and Principal Position Salary Bonus Compensation(1)
- ----------------------------- ------- ------- --------------
Lance D'Ambrosio $165,000(2) $ 6,875 $ 13,800(3)
Chief Executive Officer
and Director
Donald Williams $102,857(4) $ 17,143 $ 6,000
Vice President of Latin American
Operations and Director
Paul Gadzinski $105,000(5) $ 2,500 $ 6,000
Executive Vice President
E. Andrew Lowe $100,000(6) $ - 0 - $ 6,000
Vice President of Finance and
Director
<PAGE>
<TABLE>
<CAPTION>
- -----------------------
(1) Represents full year premiums on group term life insurance and medical and
dental insurance.
(2) Reflects full year base salary. Mr. D'Ambrosio became a salaried employee
of the Company on August 1, 1997.
(3) Includes an automobile allowance of $7,800.
(4) Reflects full year base salary. Mr. Williams became a salaried employee of
the Company on August 13, 1997. The bonus amounts payable to Mr. Williams
are benefits pursuant to Venezuela employment law.
(5) Reflects full year base salary. Mr. Gadzinski became a salaried employee
of the Company on August 1, 1997.
(6) Reflects full year base salary. Mr. Lowe became a salaried employee of the
Company on August 1, 1997.
Stock Option Grants
The following table provides information relating to stock options
awarded to each of the Named Executive Officers during the fiscal year ended
December 31, 1997. The only options granted to Named Executive Officers by the
Company were options to acquire Series A Preferred Stock.
Series A Preferred Stock
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable
----------------------------------------------
Percent of Total Value at Assumed Annual
-------------- Options Granted ------------ ------------ Rate of Stock
Number of to Employees in Appreciation for
Underlying Fiscal Year (1) Exercise Option Term(3)
------------------
Name Options Price Per Expiration ------------------------
Granted (#) Share (2) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Paul Gadzinski 17,130 19% $2.25 2001 $156,895 $166,203
E. Andrew Lowe 34,260 39% $2.25 2001 $313,792 $332,405
- -----------------------
(1) Based on options for an aggregate of 88,220 Series A preferred shares
granted during the fiscal year ended December 31, 1997.
(2) On the date of the grant of the options for the Series A preferred stocks,
the Board of Directors of the Company estimated that the fair market value
of that stock was $10.86.
(3) Potential realizable value is based on the assumption that the Series A
Preferred Stock of the Company appreciates at the annual rate shown
(compounded annually) from the date of grant until the expiration of the
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
Fiscal Year-End Option Value
The following table provides information regarding the number and value
of options held by the Named Executive Officers on December 31, 1997.
Number of Securities Value of Unexercised
Underlying Unexercised ---------------------------------------
Options at In-the-Money
Fiscal Year-End (#) Options at
Fiscal Year-End (#) (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------
<S> <C> <C> <C> <C>
Paul Gadzinski 17,130 -0- $147,590 -0-
E. Andrew Lowe 34,260 -0- $295,179 -0-
</TABLE>
- ----------------------
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company assumed that the Series A Preferred Shares
underlying the options had a value of $10.86 per share on December 31, 1997,
which is the estimated fair market value the Board of Directors attributed to
that stock in November 1997 in connection with the FondElec Transaction and
Petrolera Transaction. The option value is based on the difference between the
fair market value of such shares on December 31, 1997, and the option exercise
price per share, multiplied by the number of shares subject to the options.
<PAGE>
Employment Agreements
As of March 31, 1998, the Company had entered into employment
agreements with several of its key officers, including Lance D'Ambrosio, William
Levan, Donald Williams and E. Andrew Lowe. The agreements have initial terms of
one to three years. Under the agreements, the employee is entitled to a base
salary ($165,000 in the case of Mr. D'Ambrosio, $120,000 in the case of Mr.
Levan, $102,857 in the case of Mr. Williams, and $100,000 in the case of Mr.
Lowe), plus incentive bonuses (as determined by the Board of Directors) and
standard benefits such as health and life insurance and reimbursement of
reasonable expenses. Under Mr. Williams' contract, he is also entitled to
additional payments (in the approximate amount of two month's compensation) as
required under Venezuelan law.
In general, the employment contracts may be terminated only for cause,
which is defined in the agreements as willful misconduct, fraud,
misappropriation, embezzlement, and similar unlawful acts. In addition, the
employee can terminate the contract on 180 days notice. If the contract is
terminated without cause, the employee is entitled to receive severance pay in
an amount equal to the lesser of six month's pay or the remaining amount due
under the contract. The contracts also contain non-competition provisions which
the Company believes are consistent with industry practice. The Company intends
to enter into employment agreements with all of its officers and key employees.
Certain Litigation
Certain of the Company's officers and directors have acted (and, in the
case of Mr. Lowe, currently act) as executive officers or directors of TTI. See
"Management - Directors, Executive Officers and Other Key Employees." In
December 1997, TTI filed a petition under Chapter 11 of the United States
Bankruptcy Code in connection with the defense and prosecution of litigation
claims relating to the termination by Pacific Telesis Group and its affiliates
of their agreement to acquire TTI's United States network rights.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions either
engaged in by the Company during the past two years, or proposed to be engaged
in by the Company, involving its executive officers, directors, 5% stockholders
and immediate family members of those persons:
<PAGE>
LatinCom, Inc.
The Company is a shareholder in LatinCom. LatinCom was formed for the
purpose of acquiring, owning and operating telecommunications networks in Peru,
Brazil and Mexico (the "LatinCom Markets") and with the intent of capitalizing
on certain proprietary relationships, contracts and information relating to the
telecommunications industry that were developed by FondElec in the LatinCom
markets. Two of the members of the Company's board of directors are principals
of FondElec.
The Company and FondElec believed that, by combining FondElec's
proprietary relationships and information with the Company's expertise in
wireless telecommunications networks, they could more easily and economically
acquire and exploit rights to telecommunications networks in the LatinCom
Markets.
Upon the formation of LatinCom, each of the Company and FondElec
contributed to LatinCom their interests in wireless telecommunications
development activities and rights relating to the country of Peru. The Company
believes that its rights, and the rights contributed by FondElec, had only
nominal value. Both the Company and FondElec, however, have agreed to loan to
LatinCom, on a continuing basis, amounts sufficient to fund LatinCom's
operations. To date, neither party has advanced any amounts to LatinCom and
LatinCom has not engaged in any active business operations. In order to maintain
FondElec's and the Company's equal positions in LatinCom, any loans will be made
50% by FondElec and 50% by the Company. If either party fails to fund its loan
obligations, that party's interest in LatinCom would be subject to dilution.
There can be no assurance that LatinCom will not attempt to develop or
acquire wireless or other telecommunication rights in other countries, including
countries in which the Company has or may acquire network rights or enter into
negotiations for those rights. Further, because FondElec is a shareholder in
both the Company and LatinCom, and because certain officers and directors of the
Company who own interests in LatinCom will also have input in the management 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, although the Company anticipates that its officers and
directors will attempt to resolve any such potential conflicts in accordance
with their fiduciary duties to the Company.
Services Agreement
On January 1, 1997, TIC entered into a services agreement (the
"Services Agreement") with Bridgeport Financial, Inc. ("Bridgeport"), an entity
which has experience in negotiating and acquiring telecommunications rights in
emerging growth countries and which has, in the Company's opinion, significant
proprietary contacts in the telecommunications industries and network rights in
those countries. The principal of Bridgeport 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 to provide TIC with advisory and other
services relating to the acquisition, ownership and operation of
telecommunications services in Central and South America, Europe and Asia. In
consideration for these services, TIC agreed to pay Bridgeport, 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, was
$150,000. The Services Agreement replaces a prior consulting services agreement
between Bridgeport and TIC under which TIC was obligated to pay Bridgeport a
specified dollar amount per 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 and Park City, Utah.
<PAGE>
The term of the Services Agreement is 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 can be terminated at any time by TIC if, among
other things, Bridgeport fails or refuses to perform or Bridgeport or its
principal is charged with or convicted of any felony.
During the term of the agreement and for a period of one year after its
termination, Bridgeport has agreed not to 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 is binding upon any successor or assignee of TIC
and, as a result of the TIC Transaction, the provisions of the Services
Agreement apply to the gross revenues generated by TIC, the Company and their
respective subsidiaries.
TIC Transaction
In February, 1997, a wholly-owned subsidiary of the Company merged with
and into TIC. TIC was the surviving entity in the transaction. Certain of the
shareholders of TIC also served as officers and directors of the Company. In
addition, the father of the Company's president was the majority shareholder of
TIC. As a result of the TIC Transaction, the former shareholders and option
holders currently hold approximately 54.6% of the Company's voting power on a
fully-diluted common stock equivalent basis. See "Principal Stockholders" below.
In connection with the TIC transaction, the Company assumed an interest-bearing
note in the amount of $180,281 due to an entity controlled by the father of the
Company's president. As of December 31, 1997, $138,129 plus accrued interest of
$50,820 were outstanding on the loan. See "Business Description of the Company's
Business."
CVV Transaction
In August 1997, the Company acquired a 68.14% interest in CVV. In
November 1997, the Company acquired an additional 10% of CVV (and an option to
purchase the balance of CVV through November 2000). The Company has also
acquired an approximately 8.5% interest in Centurion. An officer and director of
the Company was a former principal (either directly or through his affiliates)
in CVV and Centurion. For a more detailed description of the CVV Transaction,
see the section entitled "Business - Description of the Company's Business -
Market Country Networks" above.
Petrolera Transaction
In August 1997, in connection with the Petrolera Transaction, the
Company and Petrolera formed WCIA for the purpose of pursuing and developing
network rights in Argentina. WCIA is held 80% by the Company and 20% by
Petrolera. See "Business - Description of the Company's Business - Market
Country Networks." Certain designees of Petrolera serve on the Company's board
of directors as a result of agreements executed in connection with the Petrolera
Transaction. In connection with the Petrolera Transaction, Petrolera loaned $2.1
to the Company on a short term basis. The loan was repaid when Petrolera
converted the outstanding principal and accrued interest as partial satisfaction
of its obligations to pay for its shares under the Petrolera Transaction
documents. See the Company's report on Form 10-QSB for the period ended
September 30, 1997 for a more detailed discussion of the short term loan.
<PAGE>
FondElec Transaction
Effective November 1997, the Company executed an agreement for the sale
of shares of the Company's common stock and Series A Preferred Stock to certain
affiliates of FondElec in the FondElec Transaction. Certain designees of
FondElec serve on the Company's board of directors as a result of agreements
executed in connection with the FondElec Transaction. "Business - Description of
the Company's Business - Company Background."
Pacific Mezzanine Fund, L.P.
In June, 1996, TTI borrowed $2.5 million from Pacific Mezzanine Fund,
L.P., an unrelated party. The terms of the loan allowed TTI to loan to the
Company, pursuant to a separate loan commitment, up to $1,000,000 from the
Pacific Mezzanine Fund, L.P. loan proceeds. Interest on the outstanding balance
of the loan between TTI and the Company accrues at the rate of 8% per annum, and
all outstanding principal and interest are due and payable in full on August 1,
2001. As of December 31, 1997, $996,707 plus accrued interest of $133,953 was
outstanding on the loan.
Separation Liability
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 a commitment fee
related to the entity's investment that secured the New Zealand channel rights
prior to TTI's involvement in New Zealand. TTI assumed this liability in
connection with its acquisition of the New Zealand rights and the Company
subsequently assumed the liability in connection with the Separation.
PRINCIPAL STOCKHOLDERS
The following table describes the beneficial ownership, as of March 31,
1998, 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,
Series A Preferred Stock or Series B Preferred 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:
<PAGE>
Name and Address of Number of Percentage of
Beneficial Owners Class Shares Class(1)
George D'Ambrosio Common 471,291(2) 5.74%
5451 South 1410 East Series A Preferred 1,192,872(2) 36.62%
Salt Lake City, Utah Series B Preferred -0- *
FondElec Group, Inc.(3) Common 2,115,837 25.77%
333 Ludlow Street Series A Preferred 625,126 19.19%
Stamford, Connecticut Series B Preferred -0- *
Petrolera Argentina San Jorge,S.A Common 1,500,000 18.27%
Peron 925 Piso 5(degree)(1038) Series A Preferred 609,709 18.72%
Buenos Aires, Argentina Series B Preferred -0- *
Lance D'Ambrosio Common 290,533(4) 3.54%
(Chief Executive Series A Preferred 359,660(4) 11.04%
Officer, Director) Series B Preferred -0- *
3276 E. Almira Court
Salt Lake City, Utah
Paul Gadzinski Common 24,249 *
(Executive Vice President) Series A Preferred 17,130(5) *
6649 Wintertree Dr. Series B Preferred -0- *
Riverside, California
Donald Williams(6) Common 855,556 10.42%
(Vice President, Latin America Series A Preferred -0- *
Operations, Director) Series B Preferred 231,490 65.24%
7 Winter Wheat
The Woodlands, Texas
E. Andrew Lowe Common 87,328 1.06%
(Vice President, Finance and Series A Preferred 34,260(7) 1.05%
Director Series B Preferred -0- *
1590 Sandpoint Drive
Roswell, Georgia
Anthony Sansone Common 4,850 *
(Secretary/Treasurer) Series A Preferred 57,092(8) 1.75%
3692 South 645 East Series B Preferred -0- *
Salt Lake City, Utah
George Sorenson(9) Common 14,145 *
(Director) Series A Preferred -0- *
12 Fairgreen Lane Series B Preferred -0- *
Old Greenwich, Connecticut
Troy D'Ambrosio Common 33,096 *
(Director) Series A Preferred 199,811 6.13%
2914 Nila Way Series B Preferred -0- *
Salt Lake City, Utah
Gaston Acosta-Rua(10) Common -0- *
(Director) Series A Preferred -0- *
4 Memory Lane Series B Preferred -0- *
Rowaytoa, Connecticut
Jorge Fucaraccio(11) Common -0- *
(Director) Series A Preferred -0- *
Peron 925 Piso 5(degree)(1038) Series B Preferred -0- *
Buenos Aires, Argentina
Peter Schiller (12) Common -0- *
(Director) Series A Preferred -0- *
Peron 925 Piso 5(degree)(1038) Series B Preferred -0- *
Buenos Aires, Argentina
All directors and officers as a Common 1,309,757 15.95%
group (11 persons)(13) Series A Preferred 667,953 20.51%
Series B Preferred 231,490 65.24%
- -----
*Less than 1%
<PAGE>
1 Based on 8,209,900 outstanding shares of Common Stock, 3,257,490
outstanding shares of Series A Preferred Stock and 354,825 outstanding shares of
Series B Preferred Stock. The inclusion herein of any shares as beneficially
owned does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated, each person listed has sole investment and voting
power with respect to the shares listed. In accordance with the rules of the
Securities and Exchange Commission, each person is deemed to beneficially own
any shares issuable upon exercise of share options or warrants held by such
person that are currently exercisable or that become exercisable within 60 days
after March 31, 1998.
2 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. Also includes shares
held by Mr. D'Ambrosio as nominee for a general partnership whose other partner
is Mr.
D'Ambrosio's son, Lance D'Ambrosio.
3 Reflects shares held by FondElec Group, Inc. and its affiliates,
including FondElec Essential Services Growth Fund, L.P. and Pegasus Fund, L.P.
(collectively, "FondElec"). Includes options to acquire 15,417 Series A
Preferred Shares and Warrants to acquire 615,837 common shares. The number of
Series A Preferred Shares subject to the option is subject to adjustment if the
Company engages in certain fundamental corporate transactions.
4 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. Does not
include shares held by Mr. D'Ambrosio's father as nominee for a partnership in
which Mr. D'Ambrosio is a 50% partner.
5 Includes options to acquire 17,130 Series A preferred shares.
6 Mr. Williams is a principal of Caribbean Comunicaciones Group, which
holds a portion of the shares of Common Stock and Series B Preferred Stock
shown. Mr. Williams does not disclaim beneficial interest in the shares held by
Caribbean Comunicaciones Group.
7 Includes options to acquire 34,260 Series A preferred shares.
8 Shares shown are held by a limited liability company for which Mr.
Sansone acts as managing member. Mr. Sansone does not disclaim beneficial
ownership of such shares. Also includes options to acquire 17,130 Series A
preferred shares.
9 Mr. Sorenson is a principal of FondElec. Mr. Sorenson disclaims
beneficial interest in the shares held by FondElec.
10 Mr. Acosta-Rua is a principal of FondElec. Mr. Acosta-Rua disclaims
beneficial interest in the shares held by FondElec.
11 Mr. Fucaraccio is an officer of Petrolera. Mr. Fucaraccio disclaims
beneficial interest in the shares held by Petrolera.
12 Mr. Schiller is an officer of Petrolera. Mr. Schiller disclaims
beneficial interest in the shares held by Petrolera.
13 Includes options to acquire 83,937 Series A Preferred Shares and
warrants to acquire 615,837 shares of Common Stock.
<PAGE>
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 was formed to provide high quality, low cost,
telecommunications services to subscribers in emerging markets outside the
United States. The Company owns a 78.14% interest in CVV, which has the right to
commercialize the network rights held by Centurion in Venezuela. That network
currently provides service to approximately 900 subscribers. In addition, the
Company has interests in seven other entities that either hold the right to
operate wireless telecommunications systems or have the right to manage and
commercialize wireless telecommunications rights held by other parties: (i) an
8.46% interest in Centurion, the entity that holds the network rights in
Venezuela, (ii) a 94.9% interest in AITS, which holds license and lease rights
for the New Zealand network, (iii) a 70% interest in Wireless Guatemala, a
corporation which has been formed to acquire and operate network rights in
Guatemala, (iv) a 100% interest in TISA, a corporation that has the right to
manage and operate a network in Costa Rica, (v) a 90% interest in Wireless
Panama, which will act as the operating company for the network in Panama, (vi)
an 80% interest in WCIA, which holds a value added license to provide
telecommunications services in Argentina, and (vii) a 100% interest in TWTV, a
corporation that holds network rights and a leased transmitter in Park City,
Utah. The Company also owns a 45% interest in LatinCom, Inc. ("LatinCom"), a
Delaware corporation that was formed for the purpose of investing in future
wireless telecommunications projects in Peru, Mexico and Brazil.
With the exception of the Company's interest in CVV, the Company's
current investments consist of non-operating wireless projects or channel right
groupings. 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 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 company 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 intangible assets 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 1999, 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.
<PAGE>
Accounting Treatment
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
transaction with TIC. As a result of the TIC transaction, the former
shareholders of TIC obtained (as of February 4, 1997) approximately 87.7% of the
voting power of the combined companies on a common share equivalent basis.
Accordingly, in conformance with generally accepted accounting principles
("GAAP"), the merger has been accounted for as a "reverse acquisition."
Consistent with the reverse acquisition accounting treatment, the financial
statements presented for the period from September 27, 1994 (the date of TIC's
inception) through December 31, 1997 are the financial statements of TIC and
differ from the consolidated financial statements of Wireless Cable &
Communications, Inc. and its subsidiaries as previously reported. The
consolidated financial statements presented include the operations of TIC for
the period from September 27, 1994 (date of TIC inception) through December 31,
1997 and of Wireless Cable & Communications, Inc. and its subsidiaries for the
period February 4, 1997 (effective date of the acquisition) to December 31,
1997.
Results of Operations
Year ended December 31, 1997 compared to the year ended December 31,
1996
For the year ended December 31, 1997, the Company had revenues of
$40,186 from the multi-channel video services provided in Caracas, Venezuela by
CVV, which manages the Venezuelan network. In accordance with GAAP, the revenues
and expenses for CVV are reported for the period August 15, 1997 (the date the
Company acquired its initial 68.14% interest in CVV) to December 31, 1997. Prior
to 1997, the Company did not have revenues. The cost of service for CVV's
revenues was $165,048 for the year ended December 31, 1997.
Operating expenses for the year ended December 31, 1997 were $3,791,607
compared to $399,620 for 1996, for an increase of $3,391,987. This increase was
primarily due to stock option compensation expense and professional fee expense
incurred by the Company in 1997 for options granted below fair value, an
increase in general and administrative and professional fees related to the
acquisition of the Company's Venezuelan network rights and the Petrolera
Transaction and FondElec Transaction, and the depreciation, amortization and
lease expense from the Company's New Zealand assets and the Venezuelan assets.
The Company's operating loss was $3,916,469 for the year ended December 31,
1997, compared to $399,620 for the year ended December 31, 1996.
Interest income for the year ended December 31, 1997 was $116,367. The
Company had no interest income during 1996. Interest expense increased $784,255
from $22,948 for the year ended December 31, 1996 to $807,203 for the year ended
December 31, 1997. The increase was due primarily to additional interest expense
incurred by the Company under the Notes, which were repaid in November 1997, and
the Warrants, which were issued at a price below fair value.
<PAGE>
Minority interest in loss of subsidiaries was $13,011 for the year
ended December 31, 1997 and related to the Company's New Zealand subsidiary,
AITS. There was no minority interest prior to 1997.
As a result of the foregoing, the Company's net loss for the year ended
December 31, 1997 was $4,594,294, compared to $422,568 for 1996, for an increase
of $4,171,726.
Year ended December 31, 1996 compared to the year ended December 31,
1995
The Company had no revenues or cost of service during 1996 or 1995.
Operating expenses and operating losses for the year ended December 31,
1996 were $399,620, compared to $168,719 for 1995, for an increase of $230,901.
The increase was due primarily to an increase in general and administrative
expenses and professional fees incurred by the Company in conjunction with the
Company's negotiation of certain contracts relating to the networks.
Interest expense increased $11,896 from $11,052 for the year ended
December 31, 1995 to $22,948 for the year ended December 31, 1996. The increase
in interest expense was due primarily to additional interest expense relating to
the Company's borrowings from Bridgeport. See "Certain Relationships and Related
Transactions."
As a result of the foregoing, the Company's net loss for the year ended
December 31, 1996 was $422,568, compared to $179,771 for 1995, for an increase
of $242,797.
Liquidity and Capital Resources
Since inception, the Company has funded its cash requirements at the
parent company level through debt and equity transactions. The proceeds from
these transactions were primarily used to fund the Company's investments in and
acquisition of start-up network operations, to provide working capital and for
general corporate purposes, including the expenses incurred in seeking and
evaluating new business opportunities. The Company's foreign subsidiary
interests have been financed by the Company through a combination of equity
investments and shareholder loans.
As of December 31, 1997, the Company had current assets of $6,455,282,
compared to $23,680 as of December 31, 1996, for an increase of $6,431,602. The
increase in current assets was primarily due to an increase in cash as a result
of the Petrolera Transaction, and the acquisition of the CVV and Wireless Cable
& Communications, Inc.'s assets.
The Company had current liabilities of $1,961,413 as of December 31,
1997 compared to $438,557 as of December 31, 1996, for an increase of
$1,522,856. The increase in current liabilities was due to the assumption by the
Company of the current liabilities of CVV and Wireless Cable & Communications,
Inc. Long term debt increased $899,090 from $231,570 at December 31, 1996 to
$1,130,660 at December 31, 1997. The increase was due primarily to the
assumption by the Company of Wireless Cable & Communications, Inc.'s note
payable to TTI, and the related accrued interest.
<PAGE>
The Company's principal sources of funds are its available resources of
cash and cash equivalents. At December 31, 1997, the Company had cash and cash
equivalents of $6.2 million. On February 25, 1998, the Company received an
additional $4.9 million in conjunction with the FondElec Transaction.
The cash flow generated by the Company's operations and projected
network launches will not be sufficient to cover the Company's projected
operating expenses, general and administrative expenses and start-up costs.
Accordingly, the Company's cash and cash equivalents are being depleted under
current operating conditions. Nevertheless, the Company believes that its cash
and cash equivalents, together with the anticipated cash flow from the
operations it brings on line, will be sufficient to cover the Company's
operating expenses through 1999.
If the Company elects to provide voice or video services using its
networks, the Company's current sources of funds are insufficient to fund the
buildout and launch of those service capabilities. The ability of the Company to
provide these services will be dependent upon the Company obtaining substantial
additional sources of funds to finance these projects. While the Company
believes that it may be able to obtain financing for new voice and video
launches through additional equity or debt financing or otherwise, no assurances
can be given that any such financing will be available, or that the Company
would be able to obtain any such financing on favorable terms.
The Year 2000 Issue
The year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the data has
been stored as just two digits (e.g. 97 for 1997). On January 1, 2000, any clock
or date recording mechanisim including data sensitive software which uses only
two digits to represent the year, may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company is converting its financial systems to year 2000 compliant
systems. The Company does not anticipate a significant cost to modify its
systems to accommodate the impact of the upcoming change in the century.
PART 2.
MARKET FOR EQUITY AND RELATED SHAREHOLDER MATTERS
There has been no established public market for the Common Stock,
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 Stock, or the availability
of such shares for sale, will have at 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 any prevailing market
prices of the Company's outstanding equity securities.
<PAGE>
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
unregistered public offerings. The 3,500,000 shares of Common Stock issued in
connection with the Separation and the Series A Preferred Stock issued in
connection with the TIC Transaction are "restricted securities" but are eligible
for sale in the public market subject to the volume, affiliate, timing and
manner of sale limitations of Rule 144 promulgated under the Securities Act of
1933, as amended. The remaining Series A Preferred Stock and Series B Preferred
Stock outstanding are currently "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 market place in reliance on Rule 144, subject to
volume, affiliate, timing and manner of sale or other restrictions contained
therein.
The Company previously issued the Warrants, which were not registered
under the federal or state securities laws in reliance upon exemptions from
registration contained in those laws. The Warrants constitute "restricted
securities" and may not be resold unless registered under the Securities Act of
1933, as amended, or disposed of in connection with an exemption therefrom.
As of the date hereof, there are approximately 430 holders of the
outstanding shares of the Company's Common Stock, 12 holders of the outstanding
shares of the Company's Series A Preferred Stock and 9 holders of the shares of
outstanding Series B Preferred Stock. The Company has not declared or paid any
cash dividends on any class of its equity securities. The Company does not
anticipate paying dividends on its equity securities in the near future.
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."
REPORTS ON FORM 8-K
None
<PAGE>
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 .............................................. 59
Consolidated Balance Sheets ............................................... 60
Consolidated Statements of Operations ..................................... 61
Consolidated Statements of Stockholders' Equity ........................... 62
Consolidated Statements of Cash Flows ..................................... 63
Notes to Consolidated Financial Statements ................................ 64
<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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997, 1996 and 1995 and for the period from September 27,
1994 (date of inception) to December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash
flows for the years ended December 31, 1997, 1996 and 1995 and for the period
from September 27, 1994 (date of inception) to December 31, 1997, in conformity
with generally accepted accounting principles.
As explained in Note 1, on January 31, 1997, the Company entered into a
transaction which was recorded as a reverse acquisition.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
April 14, 1998
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------
1997 1996
--------------- ----------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ........................................... $ 6,171,515 $ 8,902
Accounts receivable - net ........................................... 9,754 --
Due from affiliaties ................................................ 36,950 --
Inventory ........................................................... 32,074 --
Prepaid license fees (Notes 2 and 4) ................................ 186,982 14,778
Other current assets ................................................ 18,007 --
------------ ------------
Total current assets ................................ 6,455,282 23,680
INVESTMENT IN CENTURION (Note 2) ........................................ 845,955 --
EQUIPMENT - net (Notes 2 and 5) ......................................... 421,944 --
LICENSE RIGHTS - net (Note 4) ........................................... 807,167 --
CONTRACT RIGHTS - net (Notes 2 and 3) ................................... 8,916,587 --
OTHER ASSETS ............................................................ 42,171 --
------------ ------------
TOTAL ASSETS ............................................................ $ 17,489,106 $ 23,680
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............................ $ 640,164 $ 438,557
Note payable (Note 11) .............................................. 350,000 --
Accrued license lease fees (Note 4) ................................. 121,621 --
Accrued consulting fees (payable to related party, Note 6) .......... 100,000 --
Due to affiliates (Note 6) .......................................... 709,558 --
Customer deposits ................................................... 40,070 --
------------ ------------
Total current liabilities ........................... 1,961,413 438,557
LONG-TERM LIABILITIES:
Long-term debt (owed to related party, Note 6) ...................... 1,130,660 231,570
MINORITY INTEREST IN SUBSIDIARIES (Note 1) .............................. 18,067 --
------------ ------------
Total liabilities ................................... 3,110,140 670,127
COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 8, and 11)
STOCKHOLDERS' EQUITY (Notes 1 and 9):
Series "A" Preferred stock; $0.01 par value; 4,250,000 shares
authorized: 2,938,355 and 0 shares issued and outstanding in 1997
and 1996, respectively (10-1 liquidation preference over common) 29,384 --
Series "B" Preferred stock; $0.01 par value; 750,000 shares
authorized: 354,825 and 0 shares issued and outstanding
in 1997 and 1996, respectively .................................. 3,548 --
Common stock; $0.01 par value; 15,000,000 shares authorized:
6,108,132 and 1,500,000 shares issued and outstanding in
1997 and 1996, respectively ..................................... 61,081 15,000
Additional paid-in capital .......................................... 19,540,694 --
Deficit accumulated during the development stage .................... (5,255,741) (661,447)
------------ ------------
Total stockholders' equity (deficit) ................ 14,378,966 (646,447)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 17,489,106 $ 23,680
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995,
AND FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
September 27,
1994 (Date of
Inception) To
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES ................................................... $ 40,186 $ -- $ -- $ 40,186
COST OF SERVICE ............................................ 165,048 -- -- 165,048
------------ ------------ ------------ ------------
GROSS MARGIN ............................................... (124,862) -- -- (124,862)
OPERATING EXPENSES:
Professional fees (Note 10) ............................ 873,052 176,488 28,466 1,097,195
Depreciation and amortization (Notes 2, 4 and 5) ....... 619,182 -- -- 619,182
Leased license expense (Note 4) ........................ 116,161 -- -- 116,161
General and administrative ............................. 1,220,474 223,132 140,253 1,622,635
Stock option compensation expense (Note 10) ............ 962,738 -- -- 962,738
------------ ------------ ------------ ------------
Total ................................... 3,791,607 399,620 168,719 4,417,911
------------ ------------ ------------ ------------
OPERATING LOSS ............................................. (3,916,469) (399,620) (168,719) (4,542,773)
OTHER INCOME AND EXPENSES:
Interest income ........................................ 116,367 -- -- 116,367
Interest expense (Notes 6 and 8) ....................... (807,203) (22,948) (11,052) (842,346)
------------ ------------ ------------ ------------
Total ................................... (690,836) (22,948) (11,052) (725,979)
------------ ------------ ------------ ------------
NET LOSS BEFORE MINORITY INTEREST .......................... (4,607,305) (422,568) (179,771) (5,268,752)
MINORITY INTEREST IN LOSS OF SUBSIDIARIES (Note 1) ......... 13,011 -- -- 13,011
------------ ------------ ------------ ------------
NET LOSS ................................................... $ (4,594,294) $ (422,568) $ (179,771) $ (5,255,741)
============ ============ ============ ============
Net loss per basic and diluted common share*................ $ (0.16) $ (0.28) $ (0.12)
============ ============ ============
Weighted-average common shares*
Basic .................................................. 27,897,803 1,500,000 1,500,000
============ ============ ============
Diluted ................................................ 29,559,350 1,500,342 1,500,000
============ ============ ============
* Retroactively restated for the adoption of Statements of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share," effective December 31, 1997.
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995,
AND FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Series "A" Preferred Stock Series "B" Preferred Stock Common Stock Accumulated
---------------------- --------------------- --------------------- Additional During the
Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage
---------- ---------- ---------- --------- ---------- --------- ----------- -------
Issuance of TIC stock
to TIC shareholders
<S> <C> <C> <C> <C> <C> <C> <C> <C>
on September 27, 1994 ............. 1,500,000 $15,000
Net loss for the period
from September 27, 1994
(date of inception)
to December 31, 1994 ................. $(59,108)
----------- ------- ---------- -------- ---------- ------ ---------- ----------
BALANCE, DECEMBER 31, 1994 ............ 1,500,000 15,000 (59,108)
Net loss for the year
ended December 31, 1995 .............. (179,771)
----------- ------- ---------- -------- ---------- ------ ---------- ----------
BALANCE, DECEMBER 31, 1995 ............ 1,500,000 15,000 (238,879)
Net loss for the year
ended December 31, 1996 .............. (422,568)
----------- ------- ---------- -------- ---------- ------ ---------- ----------
BALANCE, DECEMBER 31, 1996 ............ 1,500,000 15,000 (661,447)
Reverse acquisition of TIC:
Exchange of TIC
common shares for WCCI
Series "A" Preferred shares ....... 2,397,732 $ 23,977 (1,500,000) (15,000) $(8,977)
Addition of WCCI common stock ..... 3,645,833 36,458 50,532
Exchange of CVV common stock
for WCCI common shares and
Series "B" Preferred shares (Note 3) 354,825 $3,548 1,577,000 15,770 7,077,182
Issuance of WCCI common stock
and Series "A" Preferred
shares for cash (Note 11) .......... 526,331 5,264 800,305 8,003 9,986,733
Issuance of warrants
below fair value ................... 657,143
Issuance of WCCI common stock
and Series "A" Preferred
shares for cash (Note 11) ......... 14,292 143 84,994 850 299,007
Issuance of options
for common shares and
Series "A" Preferred
shares below fair value .......... 1,479,074
Net loss for the year
ended December 31, 1997 ............. (4,594,294)
----------- ------- ---------- -------- ---------- ------ ---------- ----------
BALANCE, DECEMBER 31, 1997 ............ 2,938,355 $29,384 354,825 $ 3,548 6,108,132 $61,081 $19,540,694 $(5,255,741)
=========== ======= ========== ======== ========== ====== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995,
AND FROM SEPTEMBER 27, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
September 27,
1994 (Date of
Inception) To
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------ ---------- --------- -------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss ......................................................$ (4,594,294) $(422,568) $ (179,771) $ (5,255,741)
Adjustments to reconcile net loss to net cash used in
development activities:
Depreciation and amortization ........................... 619,182 -- -- 619,182
Minority interest in loss of subsidiaries ............... (13,011) -- -- (13,011)
Issuance of stock options below fair value .............. 1,479,074 -- -- 1,479,074
Issuance of warrants below fair value ................... 657,143 -- -- 657,143
Change in assets and liabilities,
net of effects from CVV acquisition:
Accounts receivable .................................. 959 -- -- 959
Prepaid license fees ................................. (11,769) (13,778) 9,000 (11,769)
Inventory ............................................ 33,225 -- -- 33,225
Other current assets ................................. 40,444 -- (1,000) 40,444
Other receivables .................................... 232,323 -- -- 227,646
Other assets ......................................... 1,258 -- -- (8,844)
Accounts payable and accrued liabilities ............. (287,889) -- -- (4,045)
Other payable ........................................ (198,142) 195,206 80,526 (198,142)
Accrued license lease fees ........................... 12,223 -- -- 12,223
Customer deposits .................................... 317 -- -- 317
---------- --------- ------------ -----------
Net cash used in development activities ........... (2,028,957) (241,140) (91,245) (2,421,339)
---------- --------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Centurion ....................................... (805,955) -- -- (805,955)
Reverse acquisition of WCCI ................................... 56,582 -- -- 56,582
Acquisition of CVV (net of cash acquired) ..................... (387,318) -- -- (387,318)
Purchase of minority interest in CVV .......................... (800,000) -- -- (800,000)
Purchases of equipment ........................................ (128,779) -- -- (128,779)
-------- --------- ------------ -----------
Net cash used in investing activities .............. (2,065,470) -- -- (2,065,470)
---------- --------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........................ 1,967,945 -- 15,000 1,982,945
Proceeds from issuance of Series A preferred stock ............ 8,332,055 -- -- 8,332,055
Proceeds from related party borrowings ........................ 919,333 235,033 88,515 1,305,617
Payments on related parties borrowings ........................ (962,293) -- -- (962,293)
Proceeds from promissory notes ................................ 2,300,000 -- -- 2,300,000
Payments on promissory notes .................................. (2,300,000) -- -- (2,300,000)
------------ --------- ------------ -----------
Net cash provided by financing activities ......... 10,257,040 235,033 103,515 10,658,324
------------ --------- ------------ -----------
NET INCREASE (DECREASE) IN CASH ................................. 6,162,613 (6,107) 12,270 6,171,515
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 8,902 15,009 2,739 --
-------- --------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $6,171,515 $ 8,902 $ 15,009 $ 6,171,515
======== ========= ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ........................ $ 30,996 $ -- $ -- $ 30,996
======== ========= ============ ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Acquisition of CVV (Note 3):
Fair value of assets acquired,
including contract rights
and equipment (net of cash acquired) ....................... $ 8,485,740
Fair value of liabilities assumed ............................. (1,001,922)
Common stock issued ........................................... (3,548,250)
Series B Preferred stock issued ............................... (3,548,250)
-----------
Net cash paid ........................................... $ 387,318
============
See Notes 1 and 11 to consolidated financial statements for
other stock transactions and non-cash activities.
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WIRELESS CABLE & COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS COMBINATION
Business Description - Wireless Cable & Communications, Inc. ("WCCI")
was formed to provide high quality, low cost, data, telephony and
multi-channel video services to subscribers in emerging markets outside
the United States. WCCI owns a 78.14% interest in Caracas Viva Vision
TV, S.A. ("CVV"), a local multi-point distribution service ("LMDS")
wireless communications system in Venezuela that currently provides
service to approximately 900 subscribers. In addition, the Company has
interests in seven other entities that either hold the right to operate
wireless telecommunications systems or have the right to manage and
commercialize wireless telecommunications rights held by other parties:
(i) an 8.46% interest in Centurion Comunicaciones, S.A. ("Centurion"),
the entity that holds the LMDS rights in Venezuela, (ii) a 94.9%
interest in Auckland Independent Television Services, Ltd. ("AITS"),
which holds license and lease rights for a multi-point video
distribution service ("MVDS") and four multi-channel, multi-point
distribution service ("MMDS") channels in three new Zealand cities,
(iii) a 70% interest in Wireless Communications Holding - Guatemala,
S.A. ("WCH - Guatemala"), a corporation which has been formed to
acquire and operate LMDS rights in Guatemala, (iv) a 100% interest in
Sociedad Television Interactiva, S.A. ("TISA"), a corporation that has
the right to manage and operate an LMDS system in Costa Rica, (v) a 90%
interest in Wireless Communications Panama, S.A. ("WC - Panama"), which
will act as the operating company for an LMDS system in Panama, (vi) an
80% interest in WCI de Argentina ("WCIA"), which holds a value added
license to provide telecommunications services in Argentina, and (vii)
a 100% interest in Transworld Wireless Television, Inc. ("TWTV"), a
corporation that holds four MMDS channels in a leased transmitter in
Park City, Utah. The Company also owns a 45% interest in LatinCom, Inc.
("LatinCom"), a Delaware corporation that was formed for the purpose of
investing in future wireless telecommunications projects in Peru,
Mexico and Brazil. With the exception of the Company's 78.14% interest
in CVV, none of the entities in which the Company has an interest (or
for which they hold management rights) constitute operating wireless
telecommunications systems.
Organization - On January 31, 1997, WCCI entered into a transaction
with Telecom Investment Corporation ("TIC"), pursuant to which TIC
merged with a newly formed wholly-owned subsidiary of WCCI, NewWCCI,
Inc. (the "Merged Companies" or the "Company"). 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. As a result of the merger, the former
shareholders of TIC obtained approximately 87.7% of the voting power of
the Merged Companies on a common share equivalent basis (as of February
4, 1997). Generally accepted accounting principles typically require
that the company whose shareholders retain the majority voting interest
in the combined business be treated as the acquirer for accounting
purposes. Accordingly, the merger has been accounted for as a "reverse
acquisition" whereby TIC is considered to have acquired (as of February
4, 1997) 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.
<PAGE>
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, 1997 are the financial
statements of TIC and differ from the consolidated financial statements
of WCCI and its subsidiaries as previously reported. The consolidated
financial statements presented include the operations of TIC for the
period from September 27, 1994 (date of TIC inception) through December
31, 1997 and of WCCI and its subsidiaries for the period February 4,
1997 (effective date of the acquisition) to December 31, 1997.
Generally accepted accounting principles require that the assets and
liabilities of WCCI (the legal acquirer) be recorded at fair value at
the date of the merger. 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 $56,582) $ 217,017
License rights ........................... 913,500
Equipment (net)
Other long term assets ................... 217
Current liabilities ...................... 577,347
Long-term debt ........................... (463,191)
Minority interest ........................ (1,126,823)
(31,077)
-----------
Stockholders' equity (net) ............... $ 86,990
===========
Pro forma consolidated results of operations of TIC, including WCCI and
subsidiaries from the date of merger, as though the reverse acquisition
had occurred at the beginning of the periods presented are $4,640,937,
$1,005,584, and $6,159,643 of net loss for the years ended December 31,
1997 and 1996 and for the period from September 27, 1994 (date of TIC
inception) to December 31, 1997 (the development stage), respectively.
Historical Background - WCCI was originally 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 (WCCI) to hold the separated
business assets.
In order to complete the Separation, on August 1, 1995, WCCI 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 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 and AITS assets were $4,118 and $1,278,451,
respectively. Upon its receipt of WCCI's shares of common stock, TTI
immediately transferred the shares in WCCI to an escrow agent to be
held for the benefit of TTI's shareholders of record on August 1, 1995
on a non-pro rata basis, with the management and principal shareholder
of TTI relinquishing a portion of their shares in WCCI in favor of the
TTI public shareholders. The distribution of the 3,500,000 shares to
TTI's shareholders was delayed until WCCI and TTI complied with certain
requirements of the federal securities laws, including the filing by
WCCI of a registration statement on Form 10-SB under the Securities
Exchange Act of 1934. WCCI's Form 10-SB became effective December 30,
1996. In general, the public shareholders received approximately 1.6
shares of WCCI's common stock for each 10 shares of TTI common stock
they held on August 1, 1995.
<PAGE>
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.
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, intangible
assets and other costs relating to its acquisition and development of
its wireless telecommunication systems. The Company expects to continue
to experience negative cash flow through at least 1999, 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in the consolidation.
Foreign Currency Translation - All of the Company's subsidiaries,
except for CVV, operate using the local currency as the functional
currency. Accordingly, all assets and liabilities of these
subsidiaries, except for CVV, are translated at current exchange rates
at the end of the period and revenues and costs at average exchange
rates in effect during the period. The resulting cumulative translation
adjustments were not significant, but otherwise would have been
recorded as a separate component of stockholders' equity.
Because the Venezuelan bolivar is considered a highly inflationary
currency, CVV uses the U.S. dollar as the functional currency.
Accordingly, assets and liabilities are translated at period-end
exchange rates, except for inventories and property, plant and
equipment, which are translated at historical rates. Revenues and
expenses are translated at average exchange rates in effect during the
period, except for costs related to balance sheet items, which are held
and translated at historical rates. Foreign currency translation gains
and losses are included in expenses as they are incurred and were not
material for the period ended December 31, 1997.
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.
Recognition of Revenues, Costs and Expenses - Revenues for
telecommunications services are recognized in the period during which
the services are provided. Costs and expenses are recorded on the
accrual basis.
Inventories - Inventories of cables and other subscriber installation
supplies are stated at the lower of average cost or market.
Prepaid License Lease Fees - Prepaid license lease fees are prepayments
of annual license or lease fees relating to the Company's license
rights.
<PAGE>
Investment in Centurion - The Company uses the cost method of
accounting for its investment in Centurion as it holds less than 20% of
the voting shares of the entity and the Company does not exercise
significant influence. As of December 31, 1997, the Company had
invested a total of $845,955 for an 8.46% interest in Centurion (see
Notes 1, 3 and 11).
Equipment - Equipment is stated at cost. Depreciation is computed using
the straight-line method over the expected useful life of the assets as
follows:
Life in years
Subscriber equipment 2 - 3 years
Machinery and equipment 2 - 5 years
Furniture and equipment 1 - 5 years
Vehicles and tools 1 - 5 years
Net Loss Per Common Share- Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" and retroactively restated its net loss per common
share for all periods presented, to conform with the statement.
Accordingly, net loss per common share is computed by both the basic
method, which uses the weighted average number of common shares and the
common stock equivalents on a voting basis for the Series "A" and
Series "B" preferred stock outstanding, and the diluted method, which
includes the dilutive common shares and Series "A" preferred shares
from stock options and warrants, as calculated using the treasury stock
method. The difference between the Company's basic and diluted net loss
per common share is not significant.
Income Taxes - The Company uses the asset and liability method to
account for income taxes. 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.
Contract Rights - Contract rights represent the estimated fair value of
certain exclusive agreements. As of December 31, 1997, the Company had
contract rights, net of amortization, of $8,166,587 in CVV and $750,000
in TISA. The contract rights are being amortized over the remaining
term of these exclusive agreements, or seven years. Amounts charged to
expense for the amortization of these contract rights were $427,412 in
1997.
Long-Lived Assets - The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation
and amortization period or to the unamortized asset balance is
warranted. Such evaluation is based principally on the expected
utilization of the long-lived assets and the projected, undiscounted
cash flows of the operations in which the long-lived assets are
deployed.
Fair Value of Financial Instruments - The Company's financial
instruments, when valued using market interest rates, are not
materially different from the amounts presented in the consolidated
financial statements.
<PAGE>
New Accounting Standards - In June 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income, and its components
(revenues, expenses, gains and losses), in a full set of
general-purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial
statement, but requires that an enterprise display an amount
representing total comprehensive income for the period in that
financial statement. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassifications of financial
statements for earlier periods provided for comparative purposes are
required. The impact on the Company of the adoption of SFAS No. 130 has
not yet been fully determined.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information" which establishes standards
for the way that public businesses report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures about products and
services, geographical areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December
15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. The adoption of SFAS No. 131 could
result in additional disclosures, but is not expected to have a
material impact on the Company's operations or financial condition.
3. ACQUISITION OF CVV
On November 8, 1996, WCCI, acting as an agent for TIC, entered into an
agreement under which WCCI executed an option to acquire all of the
stock of 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 agreements with Centurion to market and commercialize
the LMDS frequencies within the country of Venezuela.
On July 24, 1997 and August 13, 1997, WCCI executed amendments to the
Option Agreement whereby CVV, as contemplated by the Option Agreement,
amended the terms of the contract between WCCI and two of the principal
shareholders (who collectively held approximately 68.14% of the total
outstanding shares of CVV). Under the terms of the amendment, WCCI
agreed to pay and deliver $200,000 in cash, 1,577,000 shares of WCCI's
common stock, 354,825 shares of WCCI's newly designated Series "B"
Preferred Shares and a promissory note in the amount of $200,000. The
promissory note accrued interest at the rate of 6.75% per annum. On
August 15, 1997, WCCI completed the purchase of 68.14% of the
outstanding shares of CVV. On December 2, 1997, WCCI paid in full the
$200,000 promissory note along with $4,403 of accrued interest.
The Company and the shareholders of CVV also executed an escrow
agreement under which the shareholders of CVV deposited 266,667 shares
of the Company's common stock and 40,000 shares of the Company's Series
"B" Preferred Stock, representing a portion of the consideration for
the transaction, with an escrow agent in order to provide the Company
with security for the performance of the obligations and the veracity
of the representations contained in the Option Agreement. The escrow
agreement terminates upon the latter of August 18, 2000 or final
disposition of any claims by WCCI.
<PAGE>
On August 1, 1997, WCCI and the remaining shareholder of CVV entered
into an additional amendment to the Option Agreement whereby WCCI
agreed to purchase an additional 10% of the total outstanding shares of
CVV for $800,000 in cash. On November 21, 1997, WCCI and the remaining
shareholder of CVV completed the purchase of an additional 10% of the
total outstanding shares of CVV and entered into an additional
three-year option agreement to purchase the remaining shares of CVV not
held by WCCI for $2,000,000. WCCI paid and expensed $50,000 for the
first twelve months of the option and can pay an additional $50,000
annually to extend the option through November 2000.
The allocation of the $7,496,500 purchase price for the purchase of
68.14% of CVV was as follows:
Fair value of assets acquired
Current assets $ 279,071
Non-current assets 8,219,351
Fair value of current liabilities assumed (1,001,922)
-----------
$ 7,496,500
===========
The following pro forma information reflects the results of the
Company's operations as if the CVV acquisition had occurred at the
beginning of the periods presented, adjusted for the effect of
recurring charges related to the acquisition, primarily the
amortization of intangible contract rights and a reduction of
depreciation expense due to the write-down to fair value of fixed
assets.
Years Ended December 31,
------------------------
Pro forma results 1997 1996
---- ----
Revenue $ 123,716 $ 26,993
Net loss $ (4,942,538) $ (585,611)
Net loss per common share $ (0.18) $ (0.17)
(basic method)
Net loss per common share $ (0.17) $ (0.17)
(diluted method)
These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results
would have been had the acquisition actually taken place at the
beginning of the periods presented, nor do they purport to represent
results of future operations of the combined companies.
4. NEW ZEALAND LEASE AND LICENSE AGREEMENTS
The Company has certain lease and license agreements for MMDS and MVDS
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 two operative license agreements relating to four MMDS
channels in New Zealand. The first license is for two channels and
consists of an eight-year lease, with annual payments denominated in
New Zealand dollars which are subject to foreign exchange risk. The
license agreement expires March 1, 2001 with an option to renew the
lease for an additional four years. The second license is for two
channels and consists of a ten-year lease expiring September 30, 2004.
Both licenses provide for extensions to the initial terms, although
there can be no assurance the licenses will be renewed. The contractual
amounts of this license are denominated in New Zealand dollars which
are subject to foreign exchange risk.
<PAGE>
The Company is obligated to make the following annual future minimum
lease payments relating to four channels in New Zealand which have been
converted to U.S. dollars using the December 31, 1997 exchange rate of
$0.51:
Year ending December 31:
1998 $ 91,965
1999 51,965
2000 51,965
2001 51,965
2002 51,965
2003 and thereafter 68,420
-----------
Total future lease payments $ 368,245
===========
License rights are amortized using the straight-line method over the
life of the leases ranging from eight to twelve years. Accumulated
amortization on the license rights was $106,333 at December 31, 1997.
Total leased license expense was $116,161 for 1997 of which $60,665
related to the MMDS channels. The remaining amount of leased license
expense in the amount of $55,496 relates to rights to MVDS frequencies.
The Company is required to make certain license lease fee payments
annually for these MVDS leases which are generally paid in advance.
5. EQUIPMENT
At December 31, 1997, equipment consisted of the following:
Subscriber equipment $ 270,719
Machinery and equipment 183,717
Furniture and equipment 37,702
Vehicles and tools 15,026
---------
507,164
Less - accumulated depreciation (85,220)
---------
$ 421,944
=========
6. RELATED PARTY TRANSACTIONS
WCCI entered into an agreement with TTI wherein, at TTI's sole
discretion, the Company was allowed to borrow from TTI up to $1,000,000
for the purpose of facilitating the operation, build-out, and
maintenance of the Company's business operations. Interest on any
outstanding balance accrues at 8% per annum with the principal and
interest becoming due and payable in full on August 1, 2001. As of
December 31, 1997, $996,707 plus accrued interest of $133,953 was
outstanding on the loan.
<PAGE>
In connection with the merger with TIC, WCCI assumed a note in the
amount of $180,281 due to an entity controlled by the father of the
president of WCCI. The note agreement is dated January 1, 1997, is due
on demand and bears interest at the rate of 12%. As of December 31,
1997, $138,129 plus accrued interest of $50,820 was outstanding on the
loan. WCCI also assumed a services agreement dated January 1, 1997
under which an entity owned by the father of the president of WCCI will
provide consulting services to TIC in exchange for fees equal to the
greater of $250,000 per year (except the first year minimum payment is
$150,000) or 2% of the first $50,000,000 of TIC's annual revenues and
1% of TIC's gross revenues in excess of $50,000,000. The fees are
payable monthly within 15 days of the end of such month. The agreement
expires December 31, 2001 and is renewable by mutual consent of both
parties to the agreement for successive one-year periods. The first
year minimum payment of $150,000 was made in October 1997. The Company
also has a current liability to an entity owned by the father of the
president of WCCI in the amount of $100,000 for a commitment fee
related to the entity's investment that secured the rights to the New
Zealand channel rights prior to TTI's involvement in New Zealand. TTI
assumed this liability in connection with its acquisition of the New
Zealand rights and the liability was subsequently assumed by WCCI in
connection with the Separation.
In connection with the CVV Transaction, the Company assumed accounts
payable and accrued liabilities totaling $520,609 due to a member of
the Company's board of directors, to entities controlled by this same
director, and to Centurion whose shareholders include this same
director, an entity controlled by this director and the Company.
The Company is a shareholder in LatinCom. LatinCom was formed for the
purpose of acquiring, owning, and operating telecommunications networks
in Peru, Brazil and Mexico. Two of the members of the Company's board
of directors are principals of an entity who is also a shareholder in
LatinCom.
7. INCOME TAXES
The Company has federal and state net operating loss carryforwards of
approximately $1,352,343 as of December 31, 1997 that may be offset
against future taxable income and expense through 2011.
The long-term net deferred tax assets at December 31, 1997 and December
31, 1996 are fully reserved with a valuation allowance due to the
uncertainty of realization and are comprised of the following:
1997 1996
Deferred Tax Assets:
Net operating loss carryforwards
Federal $ 459,797 $ 137,717
State 67,617 20,252
Foreign 427,837 --
Equipment depreciation 799 870
Organizational expenditures 553,445 287,307
Amortization of organizational expenditures 145,320 --
----------- -----------
Total deferred tax asset 1,654,815 446,146
Deferred Tax Liabilities - Amortization of
CVV contract rights (104,389) (47,536)
Valuation allowance (1,550,426) (398,610)
----------- -----------
Total net deferred tax asset NONE NONE
=========== ===========
<PAGE>
The net change in the valuation allowance was $1,151,816 for the year
ended December 31, 1997. The difference between income tax expense at
the federal statutory rate and the Company's effective tax rate is
attributable to the valuation allowance.
8. NOTES PAYABLE
During 1997 and 1996, the Company had borrowed $850,000 through secured
promissory notes which accrued interest at the rate of 9% per annum
payable semi- annually on each June 30 and December 31. On June 30,
1997, all of the holders of notes as of that date agreed to accept the
June 30, 1997 interest payment totaling $21,095 in the form of
additional promissory notes. In September and November 1997, the
Company paid all principal and interest due on the notes totaling
$894,242. An officer of the entity that held promissory notes totaling
$462,058 was also a director of the Company (see Note 11).
The former holders of the promissory notes also have the right until
January 31, 2002, subject to certain conditions and restrictions, to
exercise warrants to purchase up to 1,161,016 shares of the Company's
common stock at $0.75 per share. The Company recognized interest
expense of $657,143 which represented the difference between the
interest rate at which the debt was issued and the estimated interest
rate for which the debt would have been issued in the absence of the
warrants.
9. PREFERRED STOCK
The authorized number of shares of WCCI's preferred stock is 5,000,000,
$0.01 par value.
At December 31, 1997, WCCI had designated 4,250,000 shares of its
preferred stock as Series "A" Preferred Shares. The rights and
privileges of the Series "A" Preferred Shares are as follows: (1) they
carry voting rights that entitle the holder to 10 votes per share and
the holders vote together with the common shares as one class on all
matters; (2) if dividends are distributed, the Series "A" Preferred
Shares receive an amount per share equal to ten times the dividend per
share paid to the common shareholders; and (3) in the case of a
liquidation, dissolution, consolidation, merger or other similar type
of transaction, the Series "A" Preferred Shares shall receive an amount
per share equal to ten times the aggregate consideration paid per
common shares.
At December 31, 1997, WCCI had 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 WCCI's option); and (5) they are convertible only into
common shares of WCCI 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 WCCI 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 WCCI's business or assets or a
similar transaction. The Series "B" Preferred Shares are convertible
into common shares of WCCI as follows (i) in the event of the
occurrence of the third anniversary or the sale of all or substantially
all of WCCI's business or assets, each share of 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 WCCI, and (ii) in the case of an
underwritten public offering, each Series "B" Preferred Share is
convertible into such number of common shares as is determined by
dividing $10 by the public offering price.
<PAGE>
10. STOCK OPTIONS
The following tables summarize the stock option activities for both
employees and non-employees:
Common Stock Options:
Number Range of Exercise
of Shares Price Per Share
1997:
Outstanding at beginning of year 125,000 $ 0.10
Granted 52,500 $0.10 - $1.00
Canceled 125,000 $ 0.10
--------
Outstanding at end of year 52,500 $0.10 - $1.00
Weighted average fair value of options
granted during year $ 0.96
Number Range of Exercise
of Shares Price Per Share
1996:
Outstanding at beginning of year 0
Granted 125,000 $ 0.10
Canceled 0
--------
Outstanding at end of year 125,000 $ 0.10
Weighted average fair value of options
granted during year $ 0.10
There were no common stock options outstanding during 1995.
Preferred Stock Options:
On December 22, 1997, the Board of Directors authorized stock options
for 199,811 shares of Series "A" Preferred Stock. As of December 31,
1997, options for 135,328 were granted and outstanding.
Number Range of Exercise
of Shares Price Per Share
1997:
Outstanding at beginning of year 0
Granted 135,328 $ 2.25
Canceled 0
---------
Outstanding at end of year 135,328 $ 2.25
Weighted average fair value of options
granted during year $ 2.25
There were no preferred stock options outstanding during 1996 or 1995
The common and preferred options are all fully vested and expire
between 1999 and 2001.
<PAGE>
The Company accounts for stock options granted using the Accounting
Principles Board ("APB") Opinion No. 25. Accordingly, compensation cost
has been recognized for all stock option grants which were issued with
an exercise price below fair value at the date of grant. The
compensation expense recognized in 1997 was $962,738. The Company also
recognized additional professional fees expense of $516,336. Had
compensation cost for the Company's stock options been determined based
on the fair value at the grant dates for awards consistent with SFAS
No. 123, the Company's net loss and net loss per common share and
common share equivalent would have changed to the pro forma amounts
indicated below:
1997 1996
Net loss:
As reported $ (4,594,294) $ (422,568)
Pro forma $ (4,632,242) $ (422,568)
Net loss per weighted average
common share (basic method):
As reported $ (0.16) $ (0.28)
Pro forma $ (0.16) $ (0.28)
Net loss per weighted average
common share (diluted method):
As reported $ (0.16) $ (0.28)
Pro forma $ (0.16) $ (0.28)
There were no stock options outstanding during 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996: dividend
yield of 0%, expected volatility of 0%, risk-free interest rates
ranging from 5% to 7%, and expected lives ranging from 2 to 4 years.
11. COMMITMENTS AND CONTINGENCIES
Litigation - In March 1998, a small group of shareholders who acquired
their interests as a result of the Separation contacted the Company to
complain about the failure to distribute from escrow those shares, the
LatinCom arrangement and the Company's agreements with former
principals of TIC. The shareholder group has suggested that it may sue
the Company if the Company does not promptly take remedial action. The
Company believes that the shareholder group's concerns are without
merit.
Building Lease - The Company leases its corporate office space under a
three-year operating lease. Future minimum annual lease payments under
the Company's operating lease are as follows:
Year ending December 31:
1998 $ 37,159
1999 38,452
2000 29,566
---------------
Total future lease payments $105,177
===============
<PAGE>
Total rent expense under the operating lease in 1997 was $9,209. Prior
to 1997, the Company shared office space with TTI and paid a nominal
fee.
On July 17, 1996, WCCI entered into an agreement with 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 LMDS frequencies within Venezuela. As of
December 31, 1997, WCCI had invested $845,955 with Centurion and had
recorded an 8.46% investment in Centurion. Under this agreement, WCCI
had an obligation to acquire an additional 3.07% investment in
Centurion for $307,045 (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). 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 in Note 3. CVV has certain
agreements with Centurion to install and maintain equipment and to
market sources. Costs related to these agreements were not material in
1997.
On March 17, 1997, TIC entered into a definitive agreement under which
TIC and a third party group agreed to form a corporation in Guatemala
to provide an LMDS wireless service in Guatemala. TIC agreed to provide
all funding to the corporation in return for 70% ownership in the
Guatemalan corporation. TIC also has the option to acquire an
additional 10% interest in the Guatemalan corporation for $500,000. The
Guatemalan corporation will pay the LMDS license holder in Guatemala a
rental fee of $1,000 per year.
On October 15, 1996, TIC entered into a definitive agreement under
which TIC and a third party group agreed to form a corporation in
Panama to provide an LMDS wireless service in Panama. The Company
agreed to provide all funding to the corporation in return for 90%
ownership in the Panamanian corporation. The other 10% is owned by the
license holder and shall not be diluted or reduced by any issuance of
additional securities. The Panamanian corporation will pay the license
holder a one-time fee of $5,000 upon the initiation of service and a
rental fee of $6,000 per year for the first five years of the contract.
On April 21, 1995, TIC, through TISA (a 92.5% owned subsidiary),
entered into a Frequency Rental Contract with the original LMDS license
holder in Costa Rica which allowed TIC to operate an LMDS system in
Costa Rica. On December 4, 1997, WCCI purchased the remaining interest
in TISA for $750,000. WCCI paid $300,000 up front and deposited
$100,000 into a certificate of deposit payable to the license holder.
WCCI also executed a non-interest bearing promissory note in the amount
of $350,000 which is due on November 4, 1998. In conjunction with this
transaction, Papeles de Curcuma, S.A., a Costa Rican corporation
("PDC") acquired the LMDS license. The outstanding stock of PDC is held
by a third party which has entered into a pledge agreement with the
Company under which the third party has pledged the shares of PDC as
security for the Company's performance of its funding obligations.
Under the pledge agreement, the Company is permitted to take all
actions incumbent on the holders of PDC's shares, and to exercise all
voting rights with respect to the shares. The Company has entered into
a services agreement with PDC where the Company has the right to
operate and provide all funding for the build-out of an LMDS network on
behalf of PDC. TISA is required to pay PDC an annual license fee of
$1,000.
<PAGE>
WCCI has a 45% investment in LatinCom, a Delaware corporation formed on
January 30, 1997, that is in the business of acquiring, owning and
operating wireless communications systems in Peru, Brazil and Mexico.
The remaining 55% of LatinCom is held 45% by FondElec Group, Inc.
("FondElec"), 8% by certain officers and directors of the Company and
2% by a third party. The 10% not held by WCCI or FondElec shall not be
diluted or reduced by any issuance of additional securities. One of the
members of the Company's board of directors is a principal of FondElec.
Upon the formation of LatinCom, each of TIC 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.
Effective August 1, 1997, the Company executed a Stock Purchase
Agreement with Petrolera Argentina San Jorge, S.A. ("Petrolera") to
sell equity securities of the Company equivalent to 18% of the
Company's total equity structure on a common share equivalent basis for
$10,000,000 in cash (the "Petrolera Transaction"). Under the proposed
terms of the agreement, the 18% ownership of Petrolera was non-dilutive
until the earlier of September 30, 1997 (including transactions that
close before November 1, 1997, which were the subject of serious
negotiations on September 30, 1997), or when the Company had closed an
additional $10,000,000 of equity financing from certain other third
parties. The Petrolera Transaction was completed on August 30, 1997.
As a result of the Company's acquisition of its interest in CVV as
described in Note 3, Petrolera acquired additional shares of the
Company's common stock and Series "A" preferred stock in order to
maintain its 18% effective voting control percentage in the Company.
The Petrolera Transaction gives Petrolera the following minority rights
provisions until the earlier of three years or a public offering with
net proceeds of at least $15,000,000: (i) Petrolera is entitled to have
board representation of 20% (as long as it retains at least a 10%
ownership interest in the Company on a common share equivalent basis)
and (ii) the Company has to receive approval of two-thirds of the
Company's board of directors to sell or merge the Company with another
entity, to approve certain issuances of additional securities, or to
enter into significant contracts or other transactions which materially
affect the Company's operations.
In conjunction with the Petrolera Transaction, Petrolera loaned the
Company $2,100,000 on August 4, 1997. The loan bore interest at 10%,
was unsecured, and was repaid with accrued interest at the closing of
the Petrolera Transaction when Petrolera converted the outstanding
principal and accrued interest as partial satisfaction of its
obligations.
Effective November 1, 1997, the Company executed a Stock Purchase
Agreement with FondElec Essential Service Growth Fund, L.P. and Pegasus
Fund, L.P. (collectively "FondElec"), whose officers and directors are
directors of WCCI and who collectively owned 8.6% of the Company's
equity structure on a common share equivalent basis, to sell equity
securities of the Company to collectively bring their ownership of the
Company up to 18% of the Company's total equity structure on a common
share equivalent basis for $5,248,795 in cash (the "FondElec
Transaction"). Under the terms of the agreement, the FondElec
Transaction is required to close no later than February 25, 1998 (see
Note 13). On November 21, 1997, Pegasus Fund, L.P. closed a $300,000
investment in the Company under the terms of the FondElec Transaction.
The FondElec Transaction gives FondElec the following minority rights
provisions until the earlier of three years or a public offering with
net proceeds of at least $15,000,000: (i) FondElec would be entitled to
have board representation of 20% (as long as it retains at least a 10%
ownership interest in the Company on a common share equivalent basis)
and (ii) the Company would have to receive approval of two-thirds of
the Company's board of directors to sell or merge the Company with
another entity, to approve certain issuances of additional securities,
or to enter into significant contracts or other transactions which
materially affect the Company's operations.
<PAGE>
None of the above agreements is with a foreign government nor foreign
government employees. The agreements are with foreign corporations or
individuals.
12. SEGMENT REPORTING AND FOREIGN OPERATIONS
The Company operates exclusively in one business segment in which it
provides high bandwidth telecommunications services. As of December 31,
1997, the Company conducted operations outside the United States in
Venezuela. The following is a summary extract of the Company's foreign
operations in Venezuela and identifiable assets in New Zealand for
fiscal year 1997:
Sales to
Unaffiliated Identifiable
Customers Net Loss Assets
United States -- $ (3,675,494) $ 6,403,903
Venezuela $ 40,186 (645,507) 9,585,670
New Zealand -- (273,293) 994,149
Costa Rica -- -- 750,000
Eliminations -- -- (244,616)
------------ ------------ ------------
Total $ 40,186 $ (4,594,294) $ 17,489,106
============ ============ ============
The Company did not have operations outside the United States prior to
1997.
13. SUBSEQUENT EVENTS
On January 14, 1998, the Company signed a Memorandum of Understanding
with a Bahamas corporation for the purchase of 80% of three companies
in Guatemala providing Internet services. The agreement is subject to a
due diligence review. The Company is currently conducting its due
diligence review and expects to complete this process in April 1998.
On February 25, 1998, the Company and FondElec completed the FondElec
Transaction as described in Note 11 and the Company received the
remaining $4,948,795 in cash due under the agreement. As a result of
the closing of the FondElec Transaction, Petrolera acquired additional
shares of the Company's common stock and Series "A" preferred stock in
order to maintain its 18% effective voting control percentage in the
Company.
On March 3, 1998, the Company signed a Memorandum of Understanding with
a Venezuelan corporation for the purchase of 100% of the shares of the
company which provides Internet service in Venezuela. The agreement is
subject to a due diligence review. The Company is currently conducting
its due diligence and expects to complete this process in April 1998.
<PAGE>
PART 3.
INDEX TO EXHIBITS
Exhibit
No. Page Exhibit
3.1 * Articles of Incorporation
3.2 * Bylaws
4.1 * Statement of Rights and Preferences for the Series A Preferred
Stock
4.2 * Statement of Rights and Preferences for the Series B Preferred
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
10.5 * Merger Agreement between the Company and Telecom Investment
Corporation
10.6 * Services Agreement between Bridgeport Financial, Inc. and the
Company
10.7 * Option and Stock Purchase Agreement between the Company, Caracas
Viva Vision, S.A. and its Shareholders
10.8 * July 24, 1997 Amendment to Option and Stock Purchase Agreement
10.9 * August 13, 1997 Amendment to Option and Stock Purchase Agreement
10.10 * Shareholders Agreement between Petrolera Argentina San Jorge, S.A.
and the Company
10.11 81 Stock Purchase Agreement between FondElec Essential Services
Growth Fund, L.P., Pegasus Fund, L.P. and the Company
12.1 125 Computation of Earnings Per Share
21.1 127 Subsidiaries of the Registrant
27.1 128 Financial Data Schedule
* This document was previously filed with the Commission and is
incorporated in this report by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
April 16, 1998 /S/ Lance D'Ambrosio
- ---------------------- ---------------------------------------
Date Lance D'Ambrosio
Chairman and Chief Executive Officer
(Principal Executive Officer)
WIRELESS CABLE & COMMUNICATIONS, INC.
April 16, 1998 /S/ E. Andrew Lowe
- ---------------------- --------------------------------------
Date E. Andrew Lowe
Vice President of Finance
(Principal Financial Officer)
DIRECTORS
April 16, 1998 /S/Lance D'Ambrosio
- ---------------------- ---------------------------------------
Date Lance D'Ambrosio
April 16, 1998 /S/ Troy D'Ambrosio
- ---------------------- ---------------------------------------
Date Troy D'Ambrosio
April 16, 1998 /S/ Donald Williams
- ---------------------- ---------------------------------------
Date Donald Williams
April 16, 1998 /S/ E. Andrew Lowe
- ---------------------- ---------------------------------------
Date E. Andrew Lowe
April 16, 1998 /S/ Jorge Fuccaraccio
- ---------------------- ---------------------------------------
Date Jorge Fucaraccio
April 16, 1998 /S/ Peter Schiller
- ---------------------- ---------------------------------------
Date Peter Schiller
April 16, 1998 /S/ Geoge Sorenson
- ---------------------- ---------------------------------------
Date George Sorenson
April 16, 1998 /S/ Gaston Acosta-Rua
- ---------------------- ---------------------------------------
Date Gaston Acosta-Rua
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page
10.11 Stock Purchase Agreement between FondElec
Essential Services Growth Fund, L.P., Pegasus 81
Fund, L.P. and the Company
12.1 Computation of Earnings Per Share 125
21.1 Subsidiaries of the Registrant 127
27.1 Financial Data Schedule 128
STOCK PURCHASE AGREEMENT BETWEEN FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P.,
PEGASUS FUND, L.P. AND THE COMPANY
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is effective as of November 1, 1997, by
and between WIRELESS CABLE & COMMUNICATIONS, INC., a Nevada corporation (the
"Company"), on the one hand, and FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P.,
a Delaware limited partnership, and PEGASUS FUND, L.P., a New York limited
partnership, (collectively the "Investor"), on the other hand; and for the
limited purposes of Section 13 hereof, George D'Ambrosio, Lance D'Ambrosio, and
Troy D'Ambrosio (the "D'Ambrosios"). The Company and the Investor are referred
to collectively herein as the "Parties" and singularly as a "Party."
WHEREAS, the Company desires to sell the Shares, as set forth on
Exhibit "A," to the Investor, and the Investor desires to purchase such Shares
from the Company, on the terms and conditions contained herein.
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.
1. Definitions. When used in this Agreement, the following terms shall
have the meanings set forth in this Section 1:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, restraining
orders, judgments, orders, decrees, rulings, damages, dues, penalties, fines,
costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, 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, by contract
or otherwise.
<PAGE>
"Agreement" means this Stock Purchase Agreement, as amended,
supplemented or otherwise modified from time to time.
"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.
"Business" means the business and operations of the Company and its
Subsidiaries, as described in the Company's annual report on Form 10-KSB for
1996, as amended, and quarterly reports on Form 10-QSB for the periods ended
March 31, 1997, June 30, 1997, and September 30, 1997, as filed with the
Securities and Exchange Commission.
"Channel License" shall mean any license granted by any Local Authority
to operate a Channel with respect to the Business. The Channel Licenses are
identified on Section 4(e) of Annex I.
<PAGE>
"Channels" means the classes of microwave frequencies licensed by any
Local Authority pursuant to the Channel Licenses used for the transmission or
delivery of instructional, cultural, educational and/or commercial audio, video
or data programming or transmission (including, without limitation, MDS, MVDS,
LMDS, Private Cable Channels and/or MMDS services), which Channels are set forth
on Section 4(e) of Annex I. "LMDS" means local multi-point distribution service,
a transmission service licensed by Local Authority typically using the
frequencies of 26 through 31 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 and/or video and/or audio programming, or any equivalent Local
Law domestic transmission service. "MDS" means multi-point distribution service,
a transmission service licensed by Local Authority typically 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 and used primarily for the distribution of commercial data, and/or
video and/or 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 typically 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 data, and/or video and/or audio
programming and any equivalent Local Law transmission service. "MVDS" means
multi-point video distribution service, a transmission service licensed by Local
Authority typically using the frequencies of 37.5 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
data, and/or video and/or audio programming, or any equivalent Local Law
domestic transmission service. "Private Cable Channels" means multi-point video
distribution services, a transmission service licensed by Local Authority
typically using the frequencies of approximately 17.9 through 18.64 GHz and
rendered on microwave frequencies from a fixed transmitter location
simultaneously to multiple receiving facilities, used primarily for the
distribution of commercial data, and/or video and/or audio programming, or any
equivalent Local Law transmission service.
"Closing" has the meaning set forth in Section 2(c).
<PAGE>
"Closing Date" has the meaning set forth in Section 2(c).
"Common Share Equivalent Basis" means, when calculating a person's
percentage ownership of the Company's outstanding securities, the percentage
determined assuming the conversion of all securities of the Company other than
common shares into shares of common stock based on the conversion rights of such
shares or, if none, based on the voting rights of such shares in relation to the
Company's common shares.
"Confidential Information" means any information concerning the
businesses and affairs of a Party that is not already known by or generally
available to the public.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an employee pension
benefit plan, (b) qualified defined contribution retirement plan or arrangement
within the meaning of Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or any similar Local Law (including any
Multiemployer Plan), or (c) any benefit plan within the meaning of ERISA Section
3(1), and any equivalent provision of Local Law, or material fringe benefit plan
or program.
"Environmental, Health, and Safety Laws" means all Local Laws
concerning pollution or protection of the environment, public health and safety,
or employee and/or workplace 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.
"Financial Statements" has the meaning set forth in Section 4(g).
"GAAP" means United States generally accepted accounting principles, as
in effect from time to time.
<PAGE>
"Indemnified Party" has the meaning set forth in Section 9(d).
"Indemnifying Party" has the meaning set forth in Section 9(d).
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, revisions, extensions, and reexaminations thereof, (b) all
trademarks, service marks, logos, trade names, and corporate names, together
with all translations, adaptations, including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith, (c)
all copyrightable works, all copyrights, and all applications in connection
therewith, (d) all trade secrets and confidential business information
(including ideas, research and development, know-how, technical data, designs,
customer and supplier lists, pricing and cost information, and business and
marketing plans), (e) all other proprietary rights, and (f) all copies and
tangible embodiments thereof.
"Knowledge" means actual knowledge after reasonable investigation. With
respect to an entity, "Knowledge" means actual knowledge after reasonable
investigation by the entity's executive officers and directors, partners or
control persons.
"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), whether based on contract, tort
or Local Law, including any liability for Taxes.
"License Conditions" means, 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 term extension requests, (c) where required, the licensee has
built facilities pursuant to the licensee's initial authorization, and (d) there
are no violations of any Local Law with respect to such Channel License which
would have an Adverse Consequence upon the right or ability of the Company or
its Subsidiaries to operate thereunder.
<PAGE>
"Local Authority" means any governmental agency, authority, division,
or service having authority, control or jurisdiction over a particular matter or
event.
"Local Law" means all applicable statutes, rules, regulations, orders,
decrees, codes, rulings, charges, injunctions, codes, judgments and laws of a
Local Authority.
"Material Contracts" means all Channel Licenses, Permits, Leases,
agreements, contracts, understandings, instruments, licenses, written or oral,
which are related to the continuing conduct and operation of the Business and
which, if not available to the Company or its Subsidiaries, would have a
material adverse effect upon the ability of the Company to operate the Business
in substantially the same manner as it is now conducted.
"Most Recent Financial Statements" has the meaning set forth in Section
4(g).
"Most Recent Fiscal Month End" has the meaning set forth in Section
4(g).
"Most Recent Fiscal Year End" has the meaning set forth in Section
4(g).
"Non-Dilutive Transactions" shall have the meaning ascribed to it by
the Stock Purchase Agreement by and between the Company and Petrolera Argentina
San Jorge S.A., dated the 1st day of August, 1997.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
<PAGE>
"Permits" means all rights, franchises, permits, authorities, licenses,
certificates of approval or authorizations (including licenses) issuable by
Local Authority, including Channel Licenses, and which, pursuant to Local Law,
authorize a Person lawfully to conduct and operate its business as currently
conducted and to own, and/or lease and use its assets.
"Permitted Stock" means the issuance to Petrolera Argentina San Jorge
S.A. ("Petrolera") of additional equity securities of the Company pursuant to
the terms of that certain Stock Purchase Agreement between the Company and
Petrolera dated August 1, 1997 and the Certificate of Contingent Interest
delivered in connection therewith.
"Person" means an individual, corporation, partnership, joint venture,
trust, association, unincorporated organization or any other entity or
governmental body or subdivision, agency, commission or authority thereof, or
any equivalent entity under Local law;
"Preemptive Right Exemptions" has the meaning set forth in Section
12(a).
"Purchase Price" has the meaning set forth in Section 2(b).
"Securities Act" means the United States Securities Act of 1933, as
amended.
"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.
"Shares" means 1,487,067 of the authorized but unissued shares of the
common stock of the Company, par value $.01, and 250,049 of the authorized but
unissued shares of the Series A Preferred Stock of the Company, par value $.01,
to be acquired by Investor hereunder, as set forth on Exhibit "A".
<PAGE>
"Subsidiary" or "Subsidiaries" means the entities described in Section
4(f) of Annex I.
"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.
"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.
"Third Party Claim" has the meaning set forth in Section 9(d).
"Updated Financial Statements" has the meaning set forth in Section
8(a)(v).
2. Purchase and Sale of Shares
(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, Investor agrees to purchase from the
Company, and the Company agrees to sell to the Investor, the Shares for
the consideration specified in Section 2(b).
(b) Purchase Price. Investor agrees to pay and contribute to
the Company, at the Closing, U.S. Five Million Two Hundred Forty-Eight
Thousand Seven Hundred Ninety-Five ($5,248,795) Dollars (the "Purchase
Price") by delivery of cash payable by wire transfer or delivery of
other immediately available funds. The investment shall be made as
follows:
<PAGE>
i. Fondelec Essential Services Growth Fund, L.P. shall pay
Four Million Nine Hundred Forty-Eight Thousand Seven Hundred
Ninety-Five Dollars ($4,948,795);
ii. Pegasus Fund, L.P. shall pay Three Hundred Thousand
Dollars ($300,000).
(c) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Parsons
Behle & Latimer in Salt Lake City, Utah, or at such other location as the
Parties determine, commencing at 10:00 a.m. local time on the third business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as the Company and Investor may mutually
determine (the "Closing Date"); provided, however, that the Closing Date shall
be no later than February 23, 1998.
(d) Deliveries at the Closing At the Closing, (i) the Company
will deliver to the Investor one or more certificates representing the Shares
and the various certificates, instruments, and documents referred to in Section
8(a) below, and (ii) the Investor will deliver to the Company the Purchase Price
and the various certificates, instruments, and documents referred to in Section
8(b).
3. Representations and Warranties of Investor. Investor represents and
warrants to the Company that the statements contained in this Section 3 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 Section 3).
(a) Organization of the Investor. Investor is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware.
<PAGE>
(b) Authorization of Transaction. Investor 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 has been
duly authorized and executed by Investor and constitutes the valid and legally
binding obligation of Investor, enforceable in accordance with its terms and
conditions. Investor need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Local Authority in order
to consummate the transactions contemplated by this Agreement.
(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 Investor is subject or any provision of
its charter or other organization documents or bylaws 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 Investor 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 Investor to perform hereunder.
(d) Brokers' Fees. Investor 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 the Company could become
liable or obligated.
<PAGE>
(e) Investment Intent. Investor understands that the Shares
have not been registered under the Securities Act. Investor is acquiring the
Shares without a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act. The Shares will constitute "restricted
securities" under the Securities Act, and may not be resold without registration
under, or the availability of an exemption from, the registration requirements
of the Securities Act and similar Local Laws. The Investor represents that it is
familiar with Securities and Exchange Commission Rule 144, as presently in
effect, and understands the resell limitations imposed thereby and by the
Securities Act. Without limiting the representations set forth in this
paragraph, the Investor will make no disposition of all or any portion of the
Shares unless and until (i) there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or (ii) such Investor
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition and, if requested by the Company, the Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition does not require registration under the
Securities Act.
(f) Restrictive Legend. The certificate or certificates
evidencing the Shares may bear a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED
OR TRANSFERRED UNLESS THE SAME ARE REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR THE COMPANY RECEIVES
AN OPINION FROM COUNSEL SATISFACTORY TO IT THAT SUCH
REGISTRATION IS NOT REQUIRED FOR SALE OR TRANSFER OR
THAT THE SHARES HAVE BEEN LEGALLY SOLD IN BROKER
TRANSACTIONS PURSUANT TO RULE 144 OF THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION PROMULGATED UNDER THE SECURITIES ACT OF
1933.
(g) Information. The Investor has had the opportunity to
review the Company's Form 10-KSB for the year ended December 31, 1996, as
amended, and quarterly reports on Form 10-QSB for the periods ended March 31,
1997, June 30, 1997, and September 30, 1997, as filed with the Securities and
Exchange Commission pursuant to the Securities Act, and to ask questions of and
receive answers from the Company regarding the Business.
<PAGE>
(h) Accredited Investor. The Investor is an "accredited
investor," as that term is defined in Regulation D promulgated under the
Securities Act, can bear the risk of its investment in the Shares, and has such
knowledge and experience in financial and/or business matters that it is capable
of evaluating the merits and risks of an investment in the Shares.
4. Representations and Warranties Concerning the Company and its
Subsidiaries The Company represents and warrants to Investor 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 the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in Annex I attached.
(a) Organization, Qualification, and Corporate Power. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the place of its incorporation.
Each of the Company and its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to be so qualified (i) would
not have a material adverse effect on the Company and its Subsidiaries on a
consolidated basis, (ii) can be remedied without material expense, and (iii)
will not render any Material Contract unenforceable.
(b) Authorization of Transaction. The Company 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
has been duly authorized and executed by the Company and constitutes the valid
and legally binding obligation of the Company, enforceable in accordance with
its terms and conditions. The Company need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any Local
Authority in order to consummate the transactions contemplated by this
Agreement.
<PAGE>
(c) Capitalization. The entire authorized capital stock of the
Company consists of 15,000,000 shares of common stock, par value $.01, and
5,000,000 shares of preferred stock, par value $.01, of which 4,250,000 shall
have been designated Series A Preferred Shares and 750,000 shall have been
designated Series B Preferred Shares. Prior to the issuance of the Shares as
contemplated hereby (i) 6,659,018 shares of common stock will be issued and
outstanding, (ii) 2,590,627 Series A Preferred Shares will be issued and
outstanding; and (iii) 354,825 Series B Preferred Shares will be issued and
outstanding. All of the issued and outstanding shares of common stock, Series A
Preferred Stock and Series B Preferred Stock of the Company have been duly
authorized, are validly issued, fully paid, and are nonassessable, and are held
of record by the shareholders in the amounts reflected in Section 4(c) of Annex
I hereto. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company or any of its
Subsidiaries to issue, sell, or otherwise cause to become outstanding any
additional or other capital stock. Notwithstanding the preceding, the Investor
acknowledges that pursuant to the provisions of a Stock Purchase Agreement
between the Company and Petrolera Argentina San Jorge, S.A. ("Petrolera"), dated
August 1, 1997, the consummation of the transactions contemplated herein shall
constitute a Non-Dilutive Transaction and shall obligate the Company to issue to
Petrolera the number of Series A Preferred Stock and Common Stock sufficient to
provide Petrolera, in the aggregate with its present holdings in the Company,
with eighteen percent (18%) of the outstanding capital securities of the
Company. Following the issuance of the Series A Preferred Stock and Common Stock
to Petrolera pursuant to the Non-Dilutive Transaction requirements, the Company
shall be under no further obligation to issue any shares under the non-dilution
transaction provisions, other than as otherwise disclosed herein. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or any of its
Subsidiaries. To the Knowledge of the Company, there are no voting trusts,
proxies, or other agreements or understandings with respect to the voting of the
capital stock of the Company or any of its Subsidiaries. The Shares, when
issued, sold and delivered by the Company in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and non-assessable shares
of the capital stock of the Company.
<PAGE>
(d) 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 the Company or any of its Subsidiaries is
subject or any provision of the charter or organizational deed of the Company,
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 Material Contract.
(e) Title to Assets. The Company and its Subsidiaries have
good and marketable title to, or a valid leasehold or license interests in, the
properties and assets used by them or shown on the balance sheet included in the
Most Recent Financial Statements or acquired after the date thereof, free and
clear of all Security Interests, except for Security Interests set forth on
Section 4(e) of Annex I and except for properties and assets disposed of in the
Ordinary Course of Business since the date of the balance sheet included as part
of the Most Recent Financial Statements. The Channel Licenses held by the
Company and its Subsidiaries and those under which it intends to conduct the
Business are described on Section 4(e) of Annex I. Those Channel Licenses meet
the License Conditions in all material respects. The Company and its
Subsidiaries are in substantial compliance with all of their respective material
obligations with respect to the Channel Licenses held by them and, to the
Knowledge of the Company, no action is pending, threatened or has been
recommended by any Local Authority to revoke, suspend, withdraw or terminate any
Channel Licenses, and no event has occurred which, upon the giving of notice or
lapse of time or otherwise would allow, or could be expected to cause, the
revocation, withdrawal, suspension or termination of any Channel Licenses.
<PAGE>
(f) Subsidiaries. Section 4(f) of Annex I sets forth for each
Subsidiary (i) its name, jurisdiction of formation and where qualified, and (ii)
its authorized capitalization, the number of outstanding equity securities, the
names of the holders thereof, and the number of equity securities held by each
such holder.
(g) Financial Statements. Attached at Section 4(g) of Annex II
are the following financial statements (collectively the "Financial
Statements"): (i) audited 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, 1996 (the "Most Recent Fiscal Year
End") for the Company and, (ii) audited consolidated and audited consolidating
balance sheets and statements of income, changes in stockholders' equity, and
cash flow (the "Most Recent Financial Statements") as of and for the seven
months ended July 31, 1997 (the "Most Recent Fiscal Month End") for the Company.
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis (except for the absence of
footnotes), present fairly the financial condition of the Company as of such
dates and the results of operations for such periods, and are correct and
complete in all material respects (except, in the case of the Most Recent
Financial Statements, for normal year-end adjustments). The Company is not aware
of any material modifications to the Financial Statements necessary to make
those statements not false or misleading. The Most Recent Financial Statements
reflect, as of the Most Recent Fiscal Month End, all debts, liabilities and
obligations of any nature of the Company, contingent or otherwise, and whether
due or to become due, including, but not limited to debts, liabilities or
obligations on account of Taxes or other governmental charges (or penalties,
interest, or fines thereon or with respect thereto) to the extent such items are
required to be reflected on such statements under GAAP.
(h) Events Subsequent to Dates of Most Recent Financial
Statements. Except as set forth at Section 4(h) of Annex I, since the date of
the Most Recent Financial Statements, there has not been any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of the Company or any of its Subsidiaries. Without limiting
the generality of the foregoing, since that date:
<PAGE>
(i) neither the Company nor any of its Subsidiaries has sold,
leased, transferred, or assigned any of its respective assets, except for
transactions involving less than $25,000 in the aggregate.
(ii) neither the Company nor any of its Subsidiaries has
entered into any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than U.S.
$100,000 or outside the Ordinary Course of Business;
(iii) neither the Company nor any of its Subsidiaries has
canceled, compromised, or released any right or claim (or series of related
rights and claims) either involving more than U.S. $50,000 or outside the
Ordinary Course of Business;
(iv) neither the Company nor any of its Subsidiaries has
experienced any material damage, destruction, or loss (whether or not covered by
insurance);
(v) neither the Company nor any of its Subsidiaries has
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, respectively, bound or granted any
increase in the base compensation of any of its respective 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 respective
directors, officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
<PAGE>
(vi) neither the Company nor any of its Subsidiaries has paid,
discharged or satisfied any liability other than the payment, discharge or
satisfaction of liabilities incurred in the Ordinary Course of Business;
(vii) neither the Company nor any of its Subsidiaries has
mortgaged, pledged, or subjected (or agreed to subject) any of its assets,
tangible or intangible, to any lien, claim, Security Interest or other
encumbrance, except for liens for current personal and real property taxes not
yet due and payable; and
(viii) neither the Company nor any of its Subsidiaries has
committed to any of the foregoing.
(i) Undisclosed Financial Liabilities. Neither the Company nor
any of its Subsidiaries has any financial Liability (and, to the Knowledge of
the Company 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 financial Liability), except for (i) financial
Liabilities set forth on the face of the balance sheet included as part of the
Most Recent Financial Statements (rather than in any notes thereto) or set forth
on Section 4(i) of Annex I and (ii) financial Liabilities which have arisen
after the Most Recent Fiscal Month End in the Ordinary Course of Business.
(j) Legal Compliance. Each of the Company and its Subsidiaries
has complied in all material respects with all Local Law and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply. The Company has adopted a strict policy that mandates compliance with
the U.S. Foreign Corrupt Practices Act and has no Knowledge of any violations
thereof by the Company, its Subsidiaries or their Affiliates or any Person
employed by, representing or acting for any of the foregoing.
<PAGE>
(k) Tax Matters.
(i) All Taxes owed by the Company or any of its Subsidiaries
have been paid or reserved for on its Most Recent Financial Statement. There are
no Security Interests on any of the assets of the Company or any of its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
(ii) The Company and each of its Subsidiaries 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.
(iii) There is no dispute or claim concerning any Tax
Liability of the Company or any of its Subsidiaries either (A) claimed or raised
by any authority in writing or (B) as to which the Company has Knowledge based
upon personal contact with any agent of such authority.
(iv) The unpaid Taxes of the Company and its Subsidiaries (A)
did not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
balance sheet included as part of the Most Recent Financial Statements (rather
than in any notes thereto) and (B) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries in filing their Tax Returns.
(l) Leases and Property Interests. Section 4(l) of Annex I
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 the Company or any of its Subsidiaries 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 Section 4(l) being
referred herein as the "Leased Property"). The Leases: (a) are each in full
force and effect and are each legal, valid and binding obligations of the
Company or its Subsidiaries, as the case may be; and (b) will continue in effect
after the Closing without the consent, approval or act of, or the making of any
filing with, any other party. Neither the Company nor any of its Subsidiaries
under any such Lease is in default in any material respect thereof or has
received a notice of default thereunder which has not been cured.
<PAGE>
(m) Intellectual Property. The Company and its Subsidiaries
comply in all material respects with all Local Laws and regulations governing or
relating to the Intellectual Property. Each item of Intellectual Property owned
or used by the Company or any of its Subsidiaries immediately prior to the
Closing hereunder will be owned or available for use by the Company or its
Subsidiaries on substantially identical terms and conditions immediately
subsequent to the Closing hereunder.
(n) Material Contracts. Section 4(n) of Annex I lists the
following Material Contracts and other agreements to which the Company or any of
its Subsidiaries 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. $50,000 per annum;
(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 either of the Company or any of its
Subsidiaries, or involves consideration in excess of U.S. $50,000;
<PAGE>
(iii) any agreement (or group of related agreements) under
which the Company or any of its Subsidiaries has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of U.S. $100,000 or under which any such party has imposed
a Security Interest on any of its assets, tangible or intangible;
(iv) 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;
(v) 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. $100,000 or providing severance benefits;
(vi) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees; or
(vii) any agreement not otherwise disclosed on Annex I 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 the Company or its Subsidiaries or any other agreement
(or group of related agreements) the performance of which involves consideration
in excess of U.S. $100,000, and all agreements relating to the Channels,
Permits, and Channel Licenses.
The Company has delivered (or will deliver prior to Closing) to Investor a
correct and complete copy of each written agreement listed in Section 4(n) of
Annex I (as amended to date). With respect to each Material Contract (including,
but not limited to, those listed in Sections 4(n) of Annex I): (A) the agreement
is legal, valid, binding, enforceable, and in full force and effect with respect
to the Company or its respective Subsidiary; 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) to the
Knowledge of the Company, 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.
<PAGE>
(o) Notes and Accounts Receivable. All notes and accounts
receivable of the Company and its Subsidiaries are reflected properly on their
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 balance sheet included as part of the Most Recent
Financial Statements (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 the Company and its Subsidiaries.
(p) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company or any of its Subsidiaries.
(q) Litigation. Section 4(q) of Annex I sets forth each
instance in which the Company or any of its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is 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 Section
4(q) of Annex I could result in any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
either of the Company or any of its Subsidiaries.
(r) Employees. To the Knowledge of the Company, no executive,
key employee, or group of employees of either the Company or any of its
Subsidiaries has any plans to terminate employment with the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to
or bound by any collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes.
<PAGE>
(s) Employee Benefits. Section 4(s) of Annex I lists each
Employee Benefit Plan that the Company or any of its Subsidiaries maintains or
to which the Company or any of its Subsidiaries contributes. Each such Employee
Benefit Plan (and each related trust, insurance contract, or fund) complies in
form and in operation in all material respects with the applicable requirements
of Local Law, and has filed or distributed all required reports and descriptions
with respect to each such Employee Benefit Plan. All contributions (including
all employer contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan which is an employee
pension benefit plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and practice
of the Company and its Subsidiaries.
(t) Guaranties. Neither the Company nor any of its
Subsidiaries is a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.
(u) Environment, Health, and Safety. Each of the Company and
its Subsidiaries has complied in all material respects 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 any of them alleging any failure so to comply. Without
limiting the generality of the preceding sentence, each of the Company and its
Subsidiaries has obtained and been in compliance in all material respects with
all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.
<PAGE>
(v) Brokers' Fees. Neither the Company nor any of its
Subsidiaries has any Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
(w) Insurance. The Company has insurance coverages that it
believes are adequate to protect its assets and Business. All such policies are
listed on Section 4(w) of Annex I and are in full force and effect.
(x) Governmental Filings. To the Knowledge of the Company, all
material governmental reports required by Local Law to be filed by the Company
and its Subsidiaries or which include or should include the Company and/or its
Subsidiaries have been filed.
(y) Securities Filings. Attached as part of Section 4(y) to
Annex I is the Company's report on Form 10-KSB for the fiscal year ended
December 31, 1996, as amended and the Company's reports on Form 10-QSB for the
periods ended March 31, 1997, June 30, 1997, and September 30, 1997, all as
filed with the Securities and Exchange Commission. No such filing contains a
material misstatement or omits to state a material fact required to make the
statements therein not misleading.
(z) Annexes. The Annexes attached to this Agreement are true
and correct in all material respects as of the date of their preparation and,
after being updated, if necessary, will be true and correct in all material
respects as of the Closing Date.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(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
waiver, of the closing conditions set forth in Section 8 below).
<PAGE>
(b) Notices and Consents. 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 Section 3 and Section 4 above.
(c) Operation of Business. Neither the Company nor or any of
its Subsidiaries will 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, the Company or any of its Subsidiaries will not
engage in any practice, take any action, or enter into any transaction of the
sort described in Section 4(h) above.
(d) Preservation and Conduct of Business. The Company and each
of its Subsidiaries will keep its respective business and properties
substantially intact, including its respective present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees. Notwithstanding the generality of the
foregoing, the Company and each of its Subsidiaries shall operate and carry on
their businesses in the Ordinary Course of Business except as contemplated
herein.
(e) Full Access. The Company and its Subsidiaries will permit
representatives of Investor 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 the Company and its Subsidiaries, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to each of the Company and its Subsidiaries for the purpose of
enabling the Investor or its representatives to verify the accuracy of the
representations and warranties contained herein, to verify that the covenants of
the Company in this Agreement have been complied with and to determine whether
the conditions to Investor's performance set forth herein have been satisfied.
<PAGE>
(f) Notice of Developments. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of its own representations and warranties in Section 3 and Section
4 above. No disclosure by any Party pursuant to this Section 5(f), however,
shall be deemed to amend or supplement any Annex hereto or prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(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
additional instruments and documents) as the 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 Section 9 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 the Company or any of its Subsidiaries, the other
Party will cooperate with it 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
Section 9 below).
<PAGE>
7. Confidentiality. Each Party will treat as confidential and hold as
such all of the Confidential Information of the other Party, and refrain from
using any of the Confidential Information except in connection with this
Agreement and the ongoing operations of the Company and its Subsidiaries. If any
Party 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 the
other Party, that Party will notify the other Party promptly of the request or
requirement so that such other Party (on its own behalf by or through the action
of the Company or its Subsidiaries) may seek an appropriate protective order or
waive compliance with the provisions of this Section 7. If, in the absence of a
protective order or the receipt of a waiver hereunder, any Party is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Party may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
Party shall use its Best Efforts to obtain, at the request of the other Party
(on its own behalf by or through the action of the Company or its Subsidiaries,
or otherwise), an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as such 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.
8. Conditions to Obligation to Close.
(a) Conditions to Obligation of Investor. The obligation of
Investor to consummate the transactions to be performed by it in connection with
the Closing is subject to the satisfaction or waiver of the following
conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) The Company shall have performed and complied
with all of its covenants hereunder in all material respects through the Closing
Date;
(iii) The Company and its Subsidiaries shall have
procured any third party consents specified in Section 5(b) above and shall
deliver to the Investor the following documents, each of which shall be
appropriately executed other than by the Investor: (A) a Voting Agreement in the
form of Exhibit "B" hereto, and (B) an opinion of the Company's legal counsel,
Parsons Behle & Latimer, in the form of Exhibit "C" hereto;
<PAGE>
(iv) no action, suit, or proceeding shall have been
instituted 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 (A) prevent consummation of any of the transactions contemplated
by this Agreement, or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(v) The Company shall have delivered to Investor a
certificate to the effect that (A) each of the conditions specified above in
Section 8(a)(i)-(iv) (other than the deliveries under Section 8(a)(iii)) are
satisfied in all respects, and (B) the Company is not aware of any material
modifications to the Most Recent Financial Statements necessary to make those
statements not false or misleading; and
(vi) all applicable waiting periods (and any
extensions thereof) under applicable law shall have expired or otherwise been
terminated and the Company and its Subsidiaries shall have received all other
authorizations, consents, and approvals of governments and governmental agencies
referred to in Section 5(b) relating to the Company and its Subsidiaries.
The Investor may waive any condition specified in this Section 8(a) if it
executes a writing so stating at or prior to the Closing. At the Closing,
assuming the satisfaction, or waiver by the Investor, of the conditions set
forth in this Section 8(a), the Investor shall deliver to the Company the
Purchase Price.
(b) Conditions to Obligation of the Company. The obligation of
the Company to consummate the transactions to be performed by it in connection
with the Closing is subject to the satisfaction or waiver of the following
conditions:
<PAGE>
(i) the representations and warranties set forth in
Section 3 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Investor shall have performed and complied
with all of its covenants hereunder in all material respects through the Closing
Date;
(iii) no action, suit, or proceeding shall have been
instituted before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation;
(iv) Investor shall have delivered to the Company a
certificate to the effect that each of the conditions specified in Section
8(b)(i)-(iii) are satisfied in all respects, and deliver an opinion of counsel
for the Investor, in the form of Exhibit "D"; and
(v) all applicable waiting periods (and any
extensions thereof) under applicable law shall have expired or otherwise been
terminated and the Investor shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Sections 5(b) relating to the Investor.
The Company may waive any condition specified in this Section 8(b) if it
executes a writing so stating at or prior to the Closing. At the Closing,
assuming the satisfaction, or waiver by the Company, of the Conditions set forth
in this Section 8(b), the Company shall deliver to the Investor one or more
certificates representing the Shares.
<PAGE>
9. Indemnification.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties shall survive the Closing
hereunder and continue in full force and effect for three years, subject to
earlier termination by applicable statute of limitations.
(b) Indemnification Provisions for Benefit of Investor. If the
Company breaches (or if any third party alleges facts that, if true, would mean
the Company has breached) any of its representations, warranties, agreements and
covenants contained herein and, if there is an applicable survival period
pursuant to Section 9(a) above, provided that Investor makes a written claim for
indemnification against the Company within 30 days of the expiration of such
survival period, then the Company agrees to indemnify Investor from and against
the entirety of any Adverse Consequences Investor may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
Investor 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 (or
the alleged breach); provided, however, that the Company shall not have any
obligation to indemnify Investor from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or alleged breach) of any representation, warranty, agreement or
covenant of the Company contained herein until Investor has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess of a
$175,000 aggregate threshold, provided, further, that the Company's obligation
to indemnify Investor shall not exceed the Purchase Price.
(c) Indemnification Provisions for Benefit of the Company. If
Investor breaches (or if any third party alleges facts that, if true, would mean
Investor has breached) any of its representations, warranties, agreements and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 9(a) above, provided that the Company makes a written claim
for indemnification against Investor within 30 days of the expiration of such
survival period, then Investor agrees to indemnify the Company from and against
the entirety of any Adverse Consequences the Company may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Company 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 (or the alleged breach); provided, however, that the Investor
shall not have any obligation to indemnify the Company from and against any
Adverse Consequences resulting from, or arising out of, relating to, in the
nature of, or caused by the breach (or alleged breach) of any representation,
warranty, agreement or covenant of the Investor contained herein until the
Company has suffered Adverse Consequences by reason of all such breaches (or
alleged breaches) in excess of a $175,000 aggregate threshold.
<PAGE>
(d) Matters Involving Third Parties.
(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 Section 9, then the Indemnified Party shall
promptly notify the Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying the 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 reasonably 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 reasonably 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.
<PAGE>
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section 9(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 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 unreasonably).
(iv) In the event any of the conditions in Section
9(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, the Indemnifying Party in connection therewith), (B) the
Indemnifying Party 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 Party 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 Section 9.
(v) A claim by a Party for indemnification is the
Party's only right to recover damages for breach of any provision of this
Agreement.
<PAGE>
10. Tax Matters. The following provisions shall govern the
allocation of responsibility for certain tax matters following the Closing Date:
(i) 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); (ii) each of the parties will provide the other party with all tax
information that either party may be required to report pursuant to applicable
law; (iii) 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 Investor when due, and Investor will, at its 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), Investor
will, and will cause its affiliates to, join in the execution of any such Tax
Returns and other documentation.
11. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) Investor and the Company may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Investor may terminate this Agreement by giving
written notice to the Company at any time prior to the Closing (A) if the
Company has breached any material representation, warranty, or covenant
contained in this Agreement applicable to it in any material respect, Investor
has notified the Company of the breach, and the breach has continued without
cure for a period of 5 days after the notice of breach or (B) if the Closing
shall not have occurred on or before February 23, 1998, by reason of the failure
of any condition precedent under Section 8(a) hereof (unless the failure results
primarily from Investor itself breaching any representation, warranty, or
covenant contained in this Agreement); and
<PAGE>
(iii) The Company may terminate this Agreement by
giving written notice to Investor at any time prior to the Closing (A) if
Investor has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Company has notified
Investor of the breach, and the breach has continued without cure for a period
of 5 days after the notice of breach or (B) if the Closing shall not have
occurred on or before February 23, 1998, by reason of the failure of any
condition precedent under Section 8(b) hereof (unless the failure results
primarily from the Company itself breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates
this Agreement pursuant to Section 11(a) above, all rights and obligations of
the Parties hereunder (other than their obligations under Section 7) shall
terminate without any Liability of any Party to any other Party, except for any
Liability of any Party resulting from a breach that occurs prior to the
termination.
(c) Specific Performance. Nothing in this Agreement
shall be interpreted to preclude either Party's right to seek and obtain
specific performance of the terms of this Agreement.
(d) Other Remedy. In lieu of pursuing any other
remedy set forth herein, if either Party shall have satisfied each of the
conditions to Closing required of it under the provisions of Section 8 above and
the other Party shall fail or refuse to proceed to Closing, then, in addition to
its right to terminate this Agreement, the non-breaching Party shall be entitled
to elect to recover from the breaching Party, and the breaching Party shall pay
and reimburse the non-breaching Party upon written demand therefor as liquidated
damages, for the costs and expenses incurred by the non-breaching Party
(including, but not limited to, the expenses of travel and lodging, attorney
fees and the fees and expenses of accountants and auditors) in negotiating the
terms of this Agreement and its related and ancillary agreements, not to exceed,
in the aggregate, $100,000.
<PAGE>
12. Affirmative Covenants. Unless waived in writing by the Investor,
the Company covenants and agrees with the Investor that the Company will do and
perform as provided in the following subsections. These covenants will expire
immediately preceding the closing of the first firm commitment underwritten
public offering pursuant to an effective registration statement on Form S-1 (or
its small business issuer equivalent or their successors forms) filed with the
Securities and Exchange Commission under the Securities Act, pursuant to which
the net proceeds to the Company are at least $15 million.
(a) Future Issuances of Securities. Unless approved by
two-thirds of the members of the Company's Board of Directors, the Company shall
not issue any of its securities (other than securities with no equity feature)
except for securities issued (i) as a stock dividend or upon any subdivision of
shares of the Company's equity securities; provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of such equity security, (ii) pursuant to subscriptions, warrants, options,
convertible securities or other rights which are listed on Annex II as being
outstanding on the Closing Date, or (iii) pursuant to the exercise of options,
approved and granted by the Compensation Committee of the Board of Directors, a
majority of whom are outside directors, to purchase equity securities of the
Company granted to employees of the Company, not to exceed in the aggregate 10%
of the issued and outstanding securities of the Company on a Common Share
Equivalent Basis assuming the exercise of all outstanding options and warrants,
the issuance of the Shares contemplated hereunder and the issuances of the
Company's securities under the Permitted Stock Transactions, or (iv) pursuant to
the Permitted Stock Transactions (such exempt securities and transactions
hereafter being referred to as "Preemptive Right Exemptions").
<PAGE>
In the event of any approved issuance of securities, the Investor shall have a
preemptive right to acquire the number of shares of such equity securities
proposed to be issued in an amount proportional to its then percentage ownership
of the Company's outstanding securities, on the same date and on the same terms
and conditions with which the proposed issuance shall occur. The Investor shall
have no preemptive right with respect to the Preemptive Right Exemptions, with
respect to (i) shares issued as compensation to directors, officers, agents or
employees of the Company, its subsidiaries or affiliates; (ii) shares issued to
satisfy rights of conversion or options created to provide compensation to
directors, officers, agents or employees of the Company, its subsidiaries or
affiliates; or (iii) shares sold otherwise than for money. The Investor's
preemptive right shall be voluntary, not mandatory, and is waivable in writing.
Any waiver evidenced by a writing shall be irrevocable, even though it is not
supported by consideration.
(b) Use of Proceeds. Prior to June 30, 1998, the Company shall
use and expend the proceeds from the sale of the Shares hereunder only for such
purposes as shall be set forth on the proposed budget attached hereto as Annex
III, or in the event of any modification thereto approved by two-thirds or more
of the Company's Board of Directors, in accordance with such modified budget.
(c) Restrictions. Unless approved by two-thirds or more of the
members of the Company's Board of Directors, the Company shall not: (i) declare
or set aside any portion of the Company's funds or securities for a distribution
as dividends, (ii) set, determine or establish fees payable to members of the
Company's Board of Directors for services rendered to the Company in that
capacity, (iii) materially change remunerations in money and/or benefits for its
executive officers, (iv) modify, in any material respect, the Business, (v)
incur or enter into any financial indebtedness in excess of $500,000 in any
single instance, or pledge a substantial portion of its assets or shares, (vi)
merge, consolidate or liquidate the Company, (vii) sell all or substantially all
of the Company's assets or properties, or (viii) vote to amend the Company's
articles of incorporation or its bylaws.
<PAGE>
(d) Holding Company Board Membership. In the event of the
formation by the Company and/or its shareholders of a corporation which is held
100% by the Company and/or its shareholders (a "Holding Company"), the Company
shall vote its interest in the Holding Company at any meeting relating to the
election of a Board of Directors for the Holding Company in such a manner as to
insure that the Holding Company does not have a different board member
constitution than the Company and in a manner which will require the same voting
requirements and other business limitations to be applicable to the operation
and conduct of the business of the Holding Company as are set forth in Sections
12(a) and 12(b).
(e) Interested Party Transactions. No contract or transaction
between the Company and any one or more of its directors or officers (or any
corporation, firm or entity in which one or more of its directors or officers
are employees or directors or are financially interested) shall be authorized by
the Company's Board of Directors unless a majority of the disinterested
directors authorize, approve or ratify that contract or transaction, except as
is or has been otherwise disclosed in the Company's Form 10-KSB filed with the
Securities and Exchange Commission, the Financial Statements and the notes
thereto, or the Disclosure Annexes.
13. Sale by D'Ambrosios.
(a) If any or all of the D'Ambrosios shall determine to effect
a sale of more than fifty percent (50%) of their collective holdings in the
Company to one or more parties other than the D'Ambrosios, the Investor shall be
entitled to sell its shares to such third parties, in accordance with the
provisions of this Section (such a sale by the D'Ambrosios being herein referred
to as a "Disposition").
(b) At least 20 days prior to a Disposition, the D'Ambrosios
shall provide the Investor notice setting forth a description of the terms of
such Disposition in reasonable detail. The Investor may, by notice to the
D'Ambrosios within 10 days of its receipt of the D'Ambrosios' notice, require
the D'Ambrosios to include, in such Disposition, shares owned by the Investor.
The number of Shares owned by the Investor to be included in any such
Disposition shall be equal to the product of (i) the quotient determined by
dividing the percentage of Shares owned by the Investor (on a fully diluted
basis) by the aggregate percentage of shares owned by the D'Ambrosios and the
Investor, multiplied by (ii) the number of shares to be sold in the Disposition.
All Shares included in a Disposition shall be sold and disposed of at the same
price per share and upon the same terms and conditions.
<PAGE>
(c) In connection with a Disposition in which Shares of the
Investor are to be sold, the D'Ambrosios may require the Investor to enter into
agreements with the purchase or purchaser containing (i) terms and conditions
relating to the sale that are substantially similar to the terms and conditions
of the agreement that the D'Ambrosios have executed or will execute in
connection with such Disposition, and (ii) representations and warranties to the
effect that, except as specifically disclosed to the purchaser or purchasers in
writing, the Investor does not have knowledge that any representation or
warranty made by the Company or the D'Ambrosios in connection with such
Disposition was untrue in any material respect when made or is untrue in any
material respect as of the closing.
The provisions of this Section 13 shall terminate immediately preceding an
initial public offering described in Section 12.
14. Miscellaneous.
(a) 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 Investor and the Company; 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 Party
and afford such Party an opportunity to comment prior to making the disclosure).
<PAGE>
(b) 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.
(c) 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, any letter of intent or
letter or understanding between the Parties), to the extent they related in any
way to the subject matter hereof.
(d) 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 his or its rights, interests, or obligations hereunder without the prior
written approval of Investor and Sellers; provided, however, that Investor may
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Investor nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) 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.
<PAGE>
(f) 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.
(g) 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 when actually
received, if personally delivered or sent by reputable air courier (such as
Federal Express or DHL) and addressed to the intended recipient as set forth
below:
If to the Company:
Lance D'Ambrosio
Wireless Cable & Communications, Inc.
102 West 500 South, Suite 320
Salt Lake City, Utah
Fax: (801) 532-6060
Copy to:
J. Gordon Hansen, Esq. or
Scott R. Carpenter, Esq.
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
Fax: (801) 536-6111
If to Investor:
Fondelec Essential Services Growth Fund, L.P.
333 Ludlow Street
Stamford, Connecticut 06902
Copy to:
Morris Orens
Sheriff, Friedman
919 3rd Avenue, 20th Floor
New York, New York 10022
Fax: (212) 758-9526
<PAGE>
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, 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. Any notice to Fondelec Essential Services Growth Fund, L.P.
hereunder shall constitute notice to the Investor and Pinon Management Corp.
(h) Governing Law. EXCEPT FOR ISSUES AND DISPUTES RELATING TO
THE INTELLECTUAL PROPERTY, WHICH SHALL BE GOVERNED BY LOCAL LAW, THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE
STATE OF DELAWARE, UNITED STATES OF AMERICA, WITHOUT GIVING EFFECT TO ANY CHOICE
OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(i) Amendments and Waivers. This Agreement may be amended,
extended or modified by a writing signed by Investor and the Company. 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.
<PAGE>
(j) 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.
(k) 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.
(l) 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.
(m) Incorporation of Exhibits and Annexes. The Exhibits and
Annexes identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Disputes.
(i) The provisions of this Section 14(n) shall be the sole and
exclusive remedy for any default under or breach by any Party of any term or
provision of this Agreement, and no claim may be brought under this Agreement
except in accordance with and pursuant to these terms. In the event there is a
dispute under this Agreement, the Parties shall meet with one another and
diligently attempt to resolve their disagreements. If they are unable to do so,
then upon request of either Party to the dispute, they will mediate the dispute,
utilizing an impartial mediator pursuant to the rules of the American
Arbitration Association ("AAA") or any other reputable organization that
sponsors mediation upon which the Parties shall mutually agree. If, after 30
days, the mediation is not successful, then either Party to the dispute may
bring arbitration to resolve the dispute as contemplated in this Section 14(n).
(ii) Assuming negotiations and mediation are unsuccessful, any
Party to the dispute may submit the disagreement to binding arbitration by
making a written demand for arbitration. The arbitration shall occur before a
single arbitrator in Miami, Florida, and shall be governed by the commercial
arbitration rules of the AAA. To assure predictability, the arbitrator shall be
an attorney at law selected by the Parties (with the assistance of the AAA if
necessary) with experience in telecommunication issues and commercial
transactions. The arbitrator shall base the decision on applicable principles of
law and equity and judicial precedent and, on request of a Party, will include
in the award findings of fact and conclusions of law upon which the award is
based. The arbitrator may grant such legal or equitable relief as he or she
deems to be appropriate, including money damages, specific performance and
injunctive relief.
(iii) Questions of whether the dispute is subject to
arbitration shall also be decided by the arbitrator. Within 10 days after the
appointment of the arbitrator, each Party to the dispute shall present to the
arbitrator a written statement of the issues in dispute. Within 5 days
thereafter, the arbitrator shall give notice to the Parties of a preliminary
hearing to discuss the issues, which hearing will occur approximately 10 days
thereafter. The final arbitration hearing will occur within 90 days after the
arbitration is initiated. Prior thereto, there will be limited discovery as
approved by the arbitrator at the preliminary hearing, including no more than
two depositions per Party.
<PAGE>
(iv) Any Party may request and obtain from a court of competent
jurisdiction provisional or ancillary remedies for relief such as an injunction
or the appointment of a receiver, but the institution of a judicial proceeding
will not constitute a waiver of the right of a Party to submit a dispute to
arbitration. Judgment upon an arbitration award may be entered in any court
having jurisdiction. Subject to the award of the arbitrator, each Party shall
pay an equal share of the arbitrator's fees, except the arbitrator shall have
the power to award all expenses (including attorney's fees and costs) to the
prevailing Party, as determined by the arbitrator. All matters relative to the
arbitration, including the result thereof, shall be maintained as confidential
by all Parties to this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written. COMPANY:
Wireless Cable & Communications, Inc.
By: /s/ Lance D'Ambrosio
Its: CEO
For the limited purposes
of Section 13 hereof:
/s/ George D'Ambrosio
George D'Ambrosio
/s/ Lance D'Ambrosio
Lance D'Ambrosio
/s/ Troy D'Ambrosio
Troy D'Ambrosio
<PAGE>
INVESTOR:
Fondelec Essential Services Growth Fund, L.P.
By: Fondelec E.S.G.P. Corp.,
Its Director
By: /s/ Tom Cauchois
Tom Cauchois
Its: Director
Pegasus Fund, L.P.
By: Pegasus Management Corporation
Its: General Partner
By: /s/ Tom Cauchois
Tom Cauchois
Its President
<TABLE>
<CAPTION>
Wireless Cable & Communications, Inc.
Cumulative Weighted Average Share Calculation
Basic:
Number Days Weighted
Description Date of CSE Outstanding Calculation
- ---------------------------------------- ---------- ------------ ---------- ----------------
Beginning common
<S> <C> <C> <C> <C>
stock equivalents 12/31/95 1,500,000 366 549,000,000
--------------
549,000,000
/ 366
------------ --------------
Weighted average CSE
outstanding for the
year ended December 31, 1996 12/31/96 1,500,000 1,500,000
============ ==============
Beginning common
stock equivalents 1,500,000 365 547,500,000
Reverse acquisition of assets
Common shares canceled 2/4/97 (1,500,000) 330 (495,000,000)
Common shares issued 2/4/97 3,645,833 330 1,203,124,890
Series "A" preferred
shares issued 2/4/97 23,977,320 330 7,912,515,600
Acquisition of assets
Common shares issued 8/15/97 1,577,000 138 217,626,000
Series "B" preferred
shares issued 8/15/97 354,825 138 48,965,850
Issuance of common stock
and Series "A"
Preferred Stock 8/31/97 6,063,615 122 739,761,030
Issuance of common stock
and Series "A"
Preferred Stock 11/25/97 227,914 36 8,204,904
--------------
10,182,698,274
/ 365
------------ --------------
Weighted average CSE
outstanding for the
year ended December 31, 1997 12/31/97 35,846,507 27,897,803
============ ==============
Diluted:
Number Days Weighted
Description Date of CSE Outstanding Calculation
- ---------------------------------------- ---------- ------------ ---------- ----------------
Beginning common stock
<S> <C> <C> <C> <C>
equivalents 12/31/95 1,500,000 366 549,000,000
Common stock options
granted 12/31/96 125,000 1 125,000
----------------
549,125,000
/ 366
------------ ----------------
Weighted average CSE
outstanding for the
year ended December 31, 1996 12/31/96 1,625,000 1,500,342
============ ================
Beginning common stock
equivalents 1,625,000 365 593,125,000
Reverse acquisition of assets
Common shares canceled 2/4/97 (1,500,000) 330 (495,000,000)
Common shares issued 2/4/97 3,645,833 330 1,203,124,890
Series "A" preferred
shares issued 2/4/97 23,977,320 330 7,912,515,600
Common options canceled 2/4/97 (125,000) 330 (41,250,000)
Series "A" preferred
options granted 2/4/97 1,353,280 330 446,582,400
Issuance of options 3/31/97 50,000 275 13,750,000
Issuance of options 7/31/97 2,500 153 382,500
Acquisition of assets
Common shares issued 8/15/97 1,577,000 138 217,626,000
Series "B" preferred
shares issued 8/15/97 354,825 138 48,965,850
Issuance of common stock
and Series "A"
Preferred Stock 8/31/97 6,063,615 122 739,761,030
Issuance of warrants 8/31/97 1,161,016 122 141,643,952
Issuance of common stock
and Series "A"
Preferred Stock 11/25/97 227,914 36 8,204,904
----------------
Subtotal 10,789,432,126
Less FAS No. 128
Treasury Method Adjustment (269,496)
----------------
10,789,162,630
/ 365
------------ ----------------
Weighted average CSE
outstanding for the
year ended December 31, 1997 12/31/97 38,413,303 29,559,350
============ ================
</TABLE>
Note: CSE = Common stock equivalent on a voting basis.
Subsidiaries of the Registrant:
Transworld Wireless Television, Inc.
Auckland Independent Television Serivces, Ltd.
Telecom Investment Corporation
Caracas Viva Vision TV, S.A.
Wireless Communications Holding - Guatemala, S.A.
Sociedad Television Interactiva, S.A.
Wireless Communications Panama, S.A.
WCI de Argentina, S.A.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001020424
<NAME> WIRELESS CABLE & COMMUNICATIONS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.0
<CASH> 6,171,515
<SECURITIES> 0
<RECEIVABLES> 9,754
<ALLOWANCES> 0
<INVENTORY> 32,074
<CURRENT-ASSETS> 6,455,282
<PP&E> 507,164
<DEPRECIATION> (85,220)
<TOTAL-ASSETS> 17,489,106
<CURRENT-LIABILITIES> 1,961,413
<BONDS> 0
0
32,932
<COMMON> 61,081
<OTHER-SE> 14,284,953
<TOTAL-LIABILITY-AND-EQUITY> 17,489,106
<SALES> 40,186
<TOTAL-REVENUES> 40,186
<CGS> 165,048
<TOTAL-COSTS> 3,791,607
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 807,203
<INCOME-PRETAX> (4,594,294)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,594,294)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,594,294)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
