<PAGE>
- ------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
Commission file number 0-______
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3248701
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 SOUTH EL CAMINO REAL, SUITE 1275
SAN MATEO, CALIFORNIA 94402
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(Address of principal executive offices)
(650) 548-0808
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(Registrant's telephone number, including area code)
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days
(1) Yes ___X____ No
(2) Yes ___X____ No
As of September 30, 1997, there were 1,310,230 shares of the Registrant's
common stock, par value $0.01 per share ("Common Stock") outstanding and
16,915,076 shares of the Registrant's preferred stock, par value $0.01 per
share ("Preferred Stock") outstanding. Each such share of Preferred Stock is
currently convertible into one share of Common Stock.
This document (excluding Exhibits) contains 45 pages.
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<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements....................................... 3
Consolidated Balance Sheets as of December 31, 1996
(audited) and September 30, 1997 (unaudited)............... 4
Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1996 and
1997 (unaudited)........................................... 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997 (unaudited).............. 6
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities...................................... 39
Item 4. Submission of Matters to a Vote of Security Holders........ 39
Item 6. Exhibits and Reports on Form 8-K........................... 41
SIGNATURES........................................................... 43
EXHIBIT INDEX........................................................ 44
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 41,657 6,512
Notes receivable from affiliates.......................................... 813 4,769
Notes receivable.......................................................... 1,431 730
License deposit........................................................... 5,255 --
Investments in affiliates held for sale................................... 2,062 3,402
Other current assets...................................................... 3,190 9,961
----------- ---------
Total current assets...................................................... 54,408 25,374
Property and equipment, net.................................................. 18,426 21,801
Investments in affiliates.................................................... 68,394 84,961
Telecommunication licenses and other intangibles, net........................ 18,484 17,558
License deposit.............................................................. 3,042 --
Debt issuance costs, net..................................................... 6,431 10,427
Other assets................................................................. 173 419
----------- ---------
Total assets................................................................. $ 169,358 160,540
----------- ---------
----------- ---------
LIABILITIES, MINORITY INTERESTS, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................................... $ 7,313 9,553
----------- ---------
Total current liabilities............................................... 7,313 9,553
Long-term debt, net.......................................................... 75,466 110,429
----------- ---------
Total liabilities......................................................... 82,779 119,982
Minority interests in consolidated subsidiaries.............................. 5,685 9,009
Redeemable convertible Preferred Stock, $.01 par value per share;
21,541,480 shares designated; 15,973,200 and 15,981,876 shares
issued and outstanding in 1996 and 1997, respectively; net of
note receivable from stockholder of $26 in 1996 and 1997;
liquidation and minimum redemption value of $107,459....................... 103,021 104,718
Commitments and contingencies (Note 12)
Stockholders' deficit:
Preferred Stock, $.01 par value per share;
1,538,520 shares designated; 933,200 shares issued and
outstanding in 1996 and 1997; liquidation value of $793.................. 9 9
Common Stock, $.01 par value per share; 26,000,000
shares authorized; 636,720 and 1,310,230 shares
issued and outstanding in 1996 and 1997, respectively.................... 6 13
Additional paid-in capital................................................. 31,060 48,311
Note receivable from stockholder........................................... (152) (152)
Deferred compensation...................................................... -- (1,299)
Unrealized gain on investments............................................. 68 --
Cumulative translation adjustment.......................................... 271 (744)
Accumulated deficit........................................................ (53,389) (119,307)
----------- ---------
Total stockholders' deficit.............................................. (22,127) (73,169)
----------- ---------
Total liabilities, minority interests, redeemable
convertible Preferred Stock and stockholders' deficit...................... $ 169,358 160,540
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
1996 1997 1996 1997
--------- ---------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues................................................ $ 349 2,275 532 3,292
Cost of revenues.................................................. 361 1,821 541 3,069
--------- --------- -------- --------
(12) 454 (9) 223
Operating expenses:
Selling, general and administrative expenses................... 4,257 7,889 10,610 23,623
Equity in losses of affiliates................................. 2,521 17,417 5,507 27,282
Minority interests in losses of consolidated subsidiaries...... -- (199) -- (662)
--------- --------- -------- --------
Loss from operations........................................ (6,790) (24,653) (16,126) (50,020)
Other income (expense):
Interest income................................................ 513 398 937 1,499
Interest expense............................................... (2,462) (6,975) (2,663) (15,726)
Other.......................................................... 14 (1,105) 1 35
--------- --------- -------- --------
Net loss.................................................... $ (8,725) (32,335) (17,851) (64,212)
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (17,851) (64,212)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation........................................................... 460 974
Amortization of telecommunication licenses and other intangibles....... 529 926
Amortization of debt issuance costs.................................... 109 2,681
Amortization of long-term debt discount................................ 1,921 12,591
Amortization of deferred compensation.................................. -- 145
Equity in losses of affiliates......................................... 5,507 27,282
Gain on sale of affiliate.............................................. -- (1,156)
Accrual of interest on long-term debt.................................. -- 372
Minority interests in losses of consolidated subsidiaries.............. 5,400 3,324
Issuance of Common Stock Warrants...................................... -- 9,601
Issuance of Common Stock............................................... -- 6,159
Unrealized gain (loss) on investments.................................. 112 (68)
Changes in operating assets and liabilities:
Other current assets................................................ (1,051) (6,771)
Accounts payable and accrued expenses............................... (2,571) 2,240
------------ ------------
Net cash used in operating activities........................... (7,435) (5,912)
------------ ------------
Cash flows from investing activities:
Issuance of notes receivable from affiliates.............................. (1,098) (4,591)
Repayment of notes receivable from affiliates............................. 583 635
Issuance of notes receivable.............................................. (3,185) (795)
Repayment of notes receivable............................................. 1,800 1,496
Advances to affiliate..................................................... (1,924) --
Investments in affiliates held for sale................................... -- (240)
Proceeds from sale of affiliate........................................... -- 3,218
Purchases of property and equipment....................................... (1,657) (4,349)
Purchase of subsidiary.................................................... (3,198) --
Investments in affiliates................................................. (2,167) (47,011)
Telecommunications licenses and other intangibles......................... (3,971) --
License deposits.......................................................... (14,300) 8,297
Other assets.............................................................. (345) (246)
------------ ------------
Net cash used in investing activities........................... (29,462) (43,586)
Cash flows from financing activities:
Proceeds from credit facility............................................. 7,000 --
Repayment of credit facility.............................................. (7,000) --
Exercise of stock options................................................. 6 45
Debt issuance costs....................................................... (6,000) (6,677)
Proceeds from issuance of long-term debt.................................. 69,702 22,000
Proceeds from issuance of warrants........................................ 30,300 --
------------ ------------
Net cash provided by financing activities....................... 94,008 15,368
------------ ------------
Effect of foreign currency exchange rates on cash and cash equivalents....... 257 (1,015)
------------ ------------
Net increase (decrease) in cash and cash equivalents........................ 57,368 (35,145)
Cash and cash equivalents at beginning of period............................. 25,398 41,657
------------ ------------
Cash and cash equivalents at end of period................................... $ 82,766 6,512
------------ ------------
------------ ------------
Supplemental cash flow information
Cash paid for interest.................................................... $ 363 --
------------ ------------
------------ ------------
Non-cash financing and investing activities:
Conversion of notes payable to related party and interest
to redeemable convertible Preferred Stock............................... $ 2,052 --
------------ ------------
------------ ------------
Net warrant exercises of redeemable convertible Preferred Stock........... $ -- 81
------------ ------------
------------ ------------
Effect of net assets of subsidiary previously accounted for by
the equity method....................................................... $ 4,395 --
------------ ------------
------------ ------------
Issuance of Common Stock Warrants......................................... $ -- 7,254
------------ ------------
------------ ------------
Issuance of Common Stock.................................................. $ -- 6,159
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
6
<PAGE>
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
International Wireless Communications Holdings, Inc. ("IWC Holdings") was
incorporated in Delaware in July 1996 as a holding company whose primary
assets are all of the issued and outstanding capital stock of International
Wireless Communications, Inc. ("IWC") and a note receivable from IWC in a
principal amount equal to the net proceeds from the Unit Offering (as
defined below). (IWC Holdings and IWC are collectively referred to herein
as the "Company.") IWC was incorporated in Delaware in January 1992 and is
a leading operator, owner and developer of wireless communications networks
in major emerging markets in Asia and Latin America. These local wireless
businesses ("LWBs") provide a variety of communication services, including
cellular, wireless local loop ("WLL"), specialized mobile radio ("SMR") and
paging. Together with its strategic partners, the Company has interests in
12 separate countries.
To date, the Company has invested principally in LWBs that are in their
early stages of development, have a limited number of subscribers and are
expected to incur losses for a substantial period of time. In addition,
the Company intends to pursue additional investment opportunities. The
Company believes that its existing cash balance is sufficient to meet its
operating and contractual obligations through fiscal 1997. It is not
sufficient, however, to meet the Company's business objective of
participating in additional capital calls or funding commitments to
finance the infrastructure buildout of its operating and non-operating
LWBs. The ability of the Company to make additional investments is
dependent on the availability of additional external financing. In the
event the Company is unable to obtain external financing it may
ultimately be unable to either maintain its existing ownership interests
or fully realize the underlying potential value of the LWBs.
In August 1996, IWC Holdings issued and sold 196,720 units, each consisting
of a $1,000 principal amount 14% Senior Discount Note due 2001 (an
"Original Note," and, collectively, the "Original Notes") and one nominally
priced warrant now exercisable for 14.283 shares of Common Stock (a "Unit
Warrant," and, collectively, the "Unit Warrants"), for total gross proceeds
of approximately $100 million (the "Unit Offering"). In November 1996,
pursuant to the indenture agreement that governs the Original Notes (the
"Indenture"), IWC Holdings exchanged new 14% Senior Secured Discount Notes
due 2001 (the "Exchange Notes") which were registered under the Securities
Act of 1933, as amended (the "1933 Act"), for the Original Notes. The
terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the
terms of the Original Notes. (The Exchange Notes and the Original Notes
are referred to collectively herein as the "Notes.")
In connection with the Unit Offering, IWC Holdings and IWC completed a
reorganization in which IWC became a wholly owned subsidiary of IWC
Holdings through the conversion of each share of the then-outstanding
capital stock of IWC into 40 shares of the corresponding class and series
of stock of IWC Holdings (the "Stock Conversion"). All data related to
shares and per share amounts for all periods presented have been adjusted
to reflect the effect of the reorganization and the Stock Conversion.
In the opinion of management, the accompanying unaudited financial
statements of IWC Holdings and its subsidiary, IWC, reflect all adjustments
(consisting only of normal recurring adjustments) considered necessary for
a fair presentation of the Company's financial condition, results of
operation and cash flows for the periods presented. These financial
statements should be read in conjunction with the Company's audited
consolidated financial statements as of December 31, 1995 and 1996, and for
each of the years in the three-year period ended December 31, 1996,
including the notes thereto, as filed with the Securities and Exchange
Commission on Form 10-K. The results of operations for the three and
the nine months ended September 30, 1997 are not necessarily indicative of
results that may be expected for the year ended December 31, 1997.
7
<PAGE>
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts of IWC, its wholly owned subsidiaries, SRC Servicos de Radio
Comunicacoes Ltda. and subsidiary ("SRC"), TeamTalk Limited and subsidiary
("TeamTalk"), together with various offshore holding companies, and its
four majority-owned subsidiaries, M/S Mobilcom (Pte) Ltd. ("Mobilcom
Pakistan"), PeruTel S.A. ("PeruTel"), Star Telecom Overseas (Cayman
Islands) Limited ("STOL"), and Promociones Telefonicas S.A. ("Protelsa").
Wireless Data Services, Ltd. ("WDS"), although 50% owned by the Company,
has also been consolidated in the accompanying consolidated financial
statements as the Company has the ability to exercise control over WDS.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
(2) CASH AND CASH EQUIVALENTS
The Company has invested in a variety of short-term, highly liquid
investments all with original maturities of 90 days or less. As of
September 30, 1997, the Company had cash of $1,302,000, and cash
equivalents consisting of money market mutual funds and seven-day fixed
term deposits totaling $2,360,000 and $2,850,000 respectively. The fair
value of the corporate debt securities approximated cost as of September
30, 1997.
On June 27, 1997, the Company sold its 1.56% equity interest in Corporacion
Mobilcom S.A. de C.V. ("Mobilcom Mexico") for $3,218,000 (see Note 4). In
compliance with the Indenture, all the proceeds from the disposition of the
Company's interest in Mobilcom Mexico were used for Permitted Investments
(as defined) within 270 days after the date of disposition. For a more
detailed description of the restrictions set forth in the Indenture on the
use of proceeds from the Company's sale of its interest in Mobilcom Mexico,
see "Description of Exchange Notes" in the Company's Registration Statement
on Form S-1, declared effective by the Securities and Exchange Commission
on November 21, 1996 (Reg. No. 333-11987).
8
<PAGE>
(3) BALANCE SHEET COMPONENTS
Balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
Other current assets
Other receivables............................... $ 1,373 4,209
Accounts receivable............................. 348 1,398
Prepaid expenses and other...................... 1,469 4,354
--------- ----------
$ 3,190 9,961
--------- ----------
--------- ----------
Property and equipment
Telecommunication equipment..................... $ 9,930 9,930
Computer and office equipment................... 935 1,811
Furniture and fixtures.......................... 320 444
Leasehold improvements.......................... 276 618
Automobiles..................................... 197 271
Construction in process......................... 7,620 10,553
--------- ----------
19,278 23,627
Less accumulated depreciation................... 852 1,826
--------- ----------
Property and equipment, net................. $ 18,426 21,801
--------- ----------
--------- ----------
Telecommunication licenses and other intangibles
SRC/Via 1....................................... $ 6,680 6,680
Mobilcom Pakistan............................... 5,439 5,439
TeamTalk........................................ 1,760 1,760
STOL............................................ 3,965 3,965
Protelsa........................................ 1,557 1,557
WDS............................................. 221 221
Other........................................... 200 200
--------- ----------
19,822 19,822
Less accumulated amortization................... 1,338 2,264
--------- ----------
Telecommunication licenses and other
intangibles, net......................... $ 18,484 17,558
--------- ----------
--------- ----------
Accounts payable and accrued expenses
Accounts payable................................ $ 5,163 2,307
Professional services........................... 718 1,576
Employee compensation and benefits.............. 619 702
Equipment purchases............................. 27 3,882
Other........................................... 786 1,086
--------- ----------
$ 7,313 9,553
--------- ----------
--------- ----------
</TABLE>
(4) INVESTMENTS IN AFFILIATES HELD FOR SALE
In June 1997, the Company sold its entire 1.56% equity interest in Mobilcom
Mexico for $3,218,000 to a third party affiliated with an existing
shareholder in Mobilcom Mexico. The Company carried this investment in
Mobilcom Mexico at its historical cost basis of $2,062,000. As a result,
the Company reported a gain of $1,156,000 (pre-tax and after-tax) in other
income for the nine months ended September 30, 1997.
In addition to the above, the Company has recently reviewed its
investment and operating strategy to focus the Company's resources on its
larger wireless operations. As part of this realignment, the Company
proposes to sell all or a portion of its interests in TeamTalk, Mobilkom
and UTS. The Company anticipates that the sale or partial sale of these
three investments will occur within the next 12 months. These
investments are carried at their historical cost and the Company
anticipates that the
9
<PAGE>
proceeds from disposition of the three investments will equal or
exceed the Company's historical cost basis in their investments.
Investments in affiliates held for sale are as follows (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(unaudited)
Mobilcom Mexico................. $ 2,062 --
UTS............................. -- 1,902
Mobilkom........................ -- 1,500
--------- ----------
$ 2,062 3,402
--------- ----------
--------- ----------
In July 1997, the Company changed its method of accounting for its
investment in UTS from the equity method to the cost method of accounting
since its ownership interest was reduced from 19.04% to 15.41% as the
Company elected not to participate in a recent capital call. The Company
has not changed its basis of accounting for the other remaining investments
held for sale. The Company continues to consolidate TeamTalk and has not
reclassified this investment as an asset held for sale. The Company's
investment in, and advances to, TeamTalk amounted to $16,336,000 as of
September 30, 1997. Selected unaudited financial information for TeamTalk
is as follows as of and for the nine months ended September 30, 1997 (in
thousands):
Current assets......................... $ 899
Non current assets..................... 12,534
Current liabilities.................... 3,813
Non current liabilities................ 7,130
Net revenues........................... 1,403
Net loss............................... (2,240)
(5) INVESTMENTS IN AFFILIATES
The Company's investments in affiliates represent interests in various LWBs
in several developing countries. These investments are accounted for under
the equity or cost methods of accounting.
EQUITY INVESTMENTS
For those investments in companies in which the Company's voting interest
is 20% to 50%, or for investments in companies in which the Company exerts
significant influence through board representation and management authority
even if its ownership is less than 20%, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share in losses of affiliates, limited
to the extent of the Company's investment in and advances to affiliates,
including any debt guarantees or other contractual funding commitments. All
affiliated companies have fiscal years ended December 31. Investments in
affiliated companies are as follows as of December 31, 1996 and September
30, 1997 (in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
MALAYSIA INDONESIA CHINA PHILIPPINES NEW ZEALAND VARIOUS
------------- --------- ------- ----------- ----------- --------
PRISMANET PT
(M) SDN. BHD. RAJASA STAR
(FORMERLY HAZANAH DIGITEL
STW) PERKASA LIMITED OTHER
Affiliated company........................ ("PRISMANET") ("RHP") ("SDL") UTS TEAMTALK COMPANIES TOTALS
------------- --------- ------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of ownership................... 30% 28% 40% 19% 100% Various
Investments in affiliated companies as of
December 31, 1995......................... $ 20,241 24,220 -- -- 2,338 447 47,246
Additional investment (reclassification).. 1,201 8,556 20,000 1,906 (1,736) 78 30,005
Amortization.............................. 969 1,278 347 51 -- 525 3,170
Losses (gains)............................ 3,563 3,468 1,000 (20) 602 -- 8,613
------------- --------- ------- ----------- ----------- --------- --------
Equity in losses of affiliates............ 4,532 4,746 1,347 31 602 525 11,783
------------- --------- ------- ----------- ----------- --------- --------
Investments in affiliated companies
as of December 31, 1996................... $ 16,910 28,030 18,653 1,875 -- -- 65,468
------------- --------- ------- ----------- ----------- --------- --------
------------- --------- ------- ----------- ----------- --------- --------
Portion of investment exceeding the
Company's share of the underlying
historical net assets as of
December 31, 1996......................... $ 15,852 28,030 10,653 882 -- -- 55,417
------------- --------- ------- ----------- ----------- --------- --------
------------- --------- ------- ----------- ----------- --------- --------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
---------------------------------------------------------------------------
MALAYSIA INDONESIA CHINA PHILIPPINES PAKISTAN THAILAND
------------- --------- ------- ----------- -------------- ------------
INTERNATIONAL
WIRELESS
COMMUNICATIONS WORLDPAGE
PAKISTAN COMPANY
LIMITED LIMITED
Affiliated company...................... PRISMANET RHP SDL UTS(1) ("IWCPL") ("WORLDPAGE") TOTALS
------------- --------- ------- ----------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of ownership................. 30% 28% 40% 15% 34% 11%
Investments in affiliated companies
as of December 31, 1995................. $ 16,910 28,030 18,653 1,875 -- -- 65,468
Additional investment
(reclassification)...................... -- -- 9,000 (1,662) 25,568 4,500 37,406
Amortization............................ 664 1,257 489 23 -- -- 2,433
Losses.................................. 10,246 9,488 4,500 190 425 -- 24,849
------------- --------- ------- ----------- -------------- ------------- --------
Equity in losses of affiliates.......... 10,910 10,745 4,989 213 425 -- 27,282
------------- --------- ------- ----------- -------------- ------------- --------
Investments in affiliated companies
as of September 30, 1997................ $ 6,000 17,285 22,664 -- 25,143 4,500 75,592
------------- --------- ------- ----------- -------------- ------------- --------
------------- --------- ------- ----------- -------------- ------------- --------
Portion of investment exceeding the
Company's share of the underlying
historical net assets as of
September 30, 1997...................... $ 6,000 17,285 19,164 -- -- 2,801 45,250
------------- --------- ------- ----------- -------------- ------------- --------
------------- --------- ------- ----------- -------------- ------------- --------
</TABLE>
- ----------------------
(1) During 1997, the Company has initiated the disposition of its interest
in UTS and has reclassified this investment as a current asset (see Note 4).
12
<PAGE>
In June 1997, after the transfer of its interest in SDL to IWC China
Limited ("IWC China"), a wholly owned indirect subsidiary of the Company,
IWC, IWC China, SDL and the other shareholders of SDL entered into an
Amendment to Subscription Agreement and Waiver (the "SDL Amendment and
Waiver"), pursuant to which the SDL Subscription Agreement was amended to
provide, among other things, for (a) the immediate payment to Star
Telecom Holdings Limited, the Company's partner in SDL ("STHL") of a
$9,000,000 premium, (b) the waiver by IWC and IWC China of all conditions
precedent to IWC China's obligation to enter into and complete a second
subscription of SDL shares for an aggregate subscription price of
$19,000,000 on or before June 17, 1998. In connection with the execution
of the SDL Amendment and Waiver, the Company funded the $9,000,000
premium in June 1997. The Company assigned the entire amount of the
premium to participation rights in SDL's underlying projects.
In August 1997, the Company acquired a 43.48% indirect equity interest in
IWCPL for an aggregate purchase price of US$22,000,000, $15,841,000 of
which was paid in cash and $6,159,000 of which was paid with 493,510
shares of IWCH's Common Stock. IWCPL used these funds and the
proceeds from the sale of its remaining equity to an unrelated party and
to Vanguard Pakistan, Inc., a wholly owned indirect subsidiary of
Vanguard Cellular Systems, Inc., a significant stockholder of the Company
("Vanguard"), to acquire a 46% equity interest in Pakistan Mobile
Communications (Pvt) Limited ("Mobilink"), a cellular telephone service
provider in Pakistan, for an aggregate purchase price of $50,600,000. In
September 1997, IWCPL consummated the sale of newly issued shares in
IWCPL to an unrelated third party for $13,959,000 and used the proceeds
to purchase an additional 12.69% equity interest in Mobilink, thereby
increasing its equity interest in Mobilink to 58.69%. The Company's
indirect equity interest in Mobilink and IWCPL was 20% and 34.08%,
respectively, after the consummation of the foregoing transactions. In
September 1997, the Company also funded an aggregate of $3,568,000 to
IWCPL, which amount represents the Company's pro rata share of various
capital calls declared by IWCPL. This additional funding brought the
Company's investment in IWCPL to $25,568,000 as of September 30, 1997.
The Company accounted for its investment in IWCPL using the purchase
method of accounting and subsequently has reported this investment under
the equity method of accounting.
In September 1997, STOL, a company that holds interests in various paging
projects in Asia and in which the Company holds a 56% indirect equity
interest, invested $4,500,000 for a 20% equity interest in WorldPage Co.
Ltd. ("WorldPage"), a Thai paging operator. The Company's corresponding
indirect equity interest in WorldPage is 11.2%. STOL recorded its
investment in WorldPage using the purchase method of accounting and
assigned $2,801,000 of its investment to telecommunication licenses,
representing the amount of the purchase price that exceeded the fair value
of STOL's percentage ownership of WorldPage's tangible net assets.
In September 1997, the Company recorded a write-down of $7,683,000 in the
Company's equity investment in Prismanet to the Company's estimate of the
net realizable value of this investment. The Company believes that a
significant impairment in the value has occurred due to its recent
determination that there are diminished prospects for the allocation of
additional spectrum at a different frequency band to Prismanet by the
government of Malaysia in the foreseeable future. This allocation of
additional spectrum is believed by the Company to be critical to support
the value of Prismanet's business as proposed to be conducted. The
management of Prismanet has since undertaken an extensive review of
Prismanet's business plan, the results of which are yet to be determined.
13
<PAGE>
COST INVESTMENTS
The Company uses the cost method of accounting for three other
investments as of September 30, 1997. These are RPG Paging Services
Limited ("RPSL"), First International Telecommunication Co. Ltd. ("FIT")
and Telecomunicaciones Globales S.A. de C.V. ("Global Telecom"). The
Company holds its interests in RPSL and FIT indirectly through STOL. In
January 1997, STOL purchased an additional 9% of RPSL for $2,100,000,
thereby increasing its equity interest in RPSL from 10% to 19%, and
correspondingly increasing the Company's indirect interest in RPSL to
10.64% as of September 30, 1997. In September 1997, STOL invested
$5,781,000 for a 12% equity interest in FIT, a Taiwanese paging operator,
which corresponds to a 6.72% indirect equity interest in FIT held by the
Company as of September 30, 1997. In January 1997, the Company acquired a
1.56% equity interest in Global Telecom, a Mexican long distance company,
for $62,000. The Company considers its investments in RPSL, FIT and
Global Telecom as long-term in nature and does not hold them for trading
purposes.
The following represents the Company's carrying value of these cost
investments (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(unaudited)
Mobilkom.......................... $ 1,500 --
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RPSL.............................. 1,426 3,526
FIT............................... -- 5,781
GLOBAL TELECOM.................... -- 62
------------ -------------
$ 2,926 9,369
------------ -------------
------------ -------------
During 1997, the Company reclassified Mobilkom to an investment in
affiliates held for sale (see Note 4).
(6) NOTES RECEIVABLE FROM AFFILIATES
In March 1997, the Company loaned $3,500,000 to SDL. This loan, which is
evidenced by a promissory note, accrues interest at 9% per annum and is due
upon written demand by the Company. The Company anticipates repayment
within the next 12 months.
In June 1997, STOL loaned $1,500,000 to SDL. This loan accrues interest at
8.75% per annum and is due upon written demand by STOL. This loan, plus
accrued interest, was repaid by SDL in August 1997.
In September 1997, the Company, through its wholly owned subsidiary, IWC
China, loaned $800,000 to SDL. This loan accrues interest at 9% per annum
and is due upon written demand by the Company. The Company anticipates
repayment within the next 12 months.
(7) NOTES RECEIVABLE
In March 1997, the Company loaned $500,000 to an unrelated third party.
This loan, which is evidenced by a secured, convertible promissory note,
has a one year term, accrues interest at the rate of 15% per annum and is
guaranteed by another unrelated third party. At the sole discretion of the
Company, the loan may be converted at any time during its one year term
into 51% of the outstanding capital stock of Nexbeep S.A., formerly named
Clasbeep S.A., an Ecuadorian paging corporation that is wholly owned by the
borrower.
In April 1997, the Company collected $900,000 on a loan the Company had
extended to a co-shareholder of Mobilcom Mexico. The remaining unpaid
balance of the loan of $608,000, including accrued interest, was collected
in July 1997.
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(8) LICENSE DEPOSITS
In August 1996, STOL and the Company deposited $3,005,000 and $2,250,000,
respectively, for their respective 20% and 10% interests in a Taiwanese
company in organization that had submitted an application for a national
paging license for Taiwan. In early February 1997, it was announced that
such company's application was unsuccessful, and the Company reclassified
the deposits as a current asset. In June 1997, STOL received a refund of
$1,669,000 of its deposit, net of its pro rata share of application
expenses of $347,000. In July 1997, STOL received a further refund of
$212,000. In order to mitigate its transactional foreign currency
exposure, the remaining balance of $777,000, which is denominated in New
Taiwanese dollars, was used to pay fees associated with STOL's investment
in FIT. In June 1997, the Company received a refund of $1,029,000, net
of its pro rata share of application expenses of $220,000. The remaining
balance of $1,001,000 was received by the Company in August 1997.
In June 1996, the Company deposited $3,042,000 for a 20% interest in a
consortium pursuing SMR licenses in Taiwan. The consortium was successful
in winning four of twelve license applications. In August 1997, the
Company received a refund of $1,933,000, which represents its pro rata
portion of the deposit applied to the eight unsuccessful applications,
net of the Company's pro rata share of application expenses of $105,000.
In September 1997, the Company sold its entire interest in the consortium
for $1,153,000.
(9) LONG-TERM DEBT AND DEBT ISSUANCE COSTS
In August 1997, the Company closed a bridge financing facility (the
"Pakistan Bridge Facility"), with Toronto Dominion Investments, Inc.
("TDI"), Vanguard Cellular Financial Corp.("VCFC") and others, whereby
the Company received written commitments for an aggregate amount of
$29,000,000 in exchangeable bridge loans. The Pakistan Bridge Facility
is structured as a two-tier facility, with $7,000,000 available to IWCH
for general corporate and other purposes (the "IWCH Pakistan Facility")
and $22,000,000 loaned to Pakistan Wireless Holdings Limited ("PWH"), an
indirect wholly owned subsidiary of the Company, for the specific purpose
of financing the cash portion of the purchase price of the Company's
indirect investment in Mobilink and the Company's pro rata share of the
shareholder capital calls and shareholder loans required to finance the
operations of Mobilink (the "PWH Pakistan Facility"). The Pakistan
Bridge Facility contains significant restrictions on the Company's
ability to use additional debt or equity financing until all amounts
outstanding under the Pakistan Bridge Facility are repaid in full. The
Pakistan Bridge Facility bears interest payable in-kind on a quarterly
basis beginning at 14% and increases over time to 25%. There are no
scheduled cash interest payments on the Pakistan Bridge Facility.
Principal plus accrued but unpaid interest on the Pakistan Bridge
Facility matures in August 2002. Warrants to purchase shares of the
Company's Common Stock, at an exercise price of $0.01 per share, were
also issued in connection with the IWCH Pakistan facility (the "Initial
Pakistan Warrants"). The number of shares issuable of the Company's
Common Stock at the closing of the Pakistan Bridge Facility upon exercise
of the Initial Pakistan Warrants was initially set at 247,756 and
increases upon the occurrence of certain events. The number of shares of
the Company's Common Stock issuable upon exercise of the Initial Pakistan
Warrants subsequently increased (see Note 13). The Company also agreed
to grant to the lenders under the Pakistan Bridge Facility, upon the
occurrence of a specified liquidity event, additional warrants (the
"Pakistan Liquidity Warrants"; together with the Initial Pakistan
Warrants, the "Pakistan Warrants") to purchase a number of shares of the
Company's Common Stock equal to the quotient of (i) 35% of the greater of
(A) $2.0 million and (B) the unpaid principal amount of and unpaid
accrued interest in the IWCH Pakistan Facility and (ii) the value of the
Company's Common Stock with respect to such liquidity event. As of
September 30, 1997, the $7,000,000 IWCH Pakistan Facility had not yet
been drawn down (see Note 13).
The costs related to the issuance of the Pakistan Bridge Facility,
which include all warrants expected to be earned through December 1997 in
accordance with the terms of the IWCH Pakistan Facility were capitalized and
are being amortized to interest expense using the effective interest method
over the estimated term of the debt. Debt issuance costs related to the
Pakistan Bridge Facility are presented, net of amortization, of
$4,784,000 on the accompanying consolidated balance sheet as of September
30, 1997.
(10) MINORITY INTEREST
In July 1997, the Company, STHL, the Company's then-sole partner of STOL,
and STOL entered into an agreement with a third party providing for the
issuance and sale to such third party of new shares equivalent to up to a
20% interest in STOL, subject to STOL entering into valid and binding
agreements to invest in certain specified paging companies. As of
September 30, 1997, STOL had entered into such agreements with these
specified paging companies and, as a result, the third party paid STOL
$4,160,000 for a 20% interest in STOL, thereby diluting the Company's
interest in STOL from 70% to 56%.
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(11) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDER'S DEFICIT
In August 1997, pursuant to the terms of the Unit Warrants, the number of
shares of the Company's Common Stock issuable upon exercise of the Unit
Warrants increased by an aggregate of 28,414 shares to an aggregate of
2,838,166 shares as a result of the issuance by the Company of warrants
to purchase the Company's Common Stock in connection with the Pakistan
Bridge Facility.
In September 1997, at the request of IWC China, VCFC guaranteed
$8,000,000 of indebtedness to be incurred by SDL (the "Vanguard SDL
Guarantee"). Pursuant to a reimbursement agreement (the "Reimbursement
Agreement"), IWC China agreed to pay VCFC (i) an up-front guarantee fee
of $240,000 in cash, (ii) a quarterly in-kind guarantee fee at an initial
rate of 6.75% that increases over time to 17.75% and (iii) an additional
guarantee fee payable in shares of SDL owned by IWC China if VCFC is
required to make any payments under the guarantee. In addition, the
Company granted VCFC a ten-year warrant to purchase shares of its Common
Stock at an exercise price of $0.01 per share. The number of shares
issuable upon exercise of the warrant is initially set at 68,819 and
increases in quarterly increments thereafter until VCFC's obligations
under the guarantee have been permanently released and discharged. The
Company recognized an expense of $1.1 million related to the Vanguard SDL
Guarantee. The Company has recorded this expense in other expense in the
accompanying consolidated statement of operations. The Company plans to
recognize additional expense related to incremental quarterly warrant grants
associated with this Vanguard SDL Guarantee when the quantity or terms of
such warrants are no longer contingent.
In September 1997, pursuant to the terms of the Unit Warrants, the number
of additional shares of the Company's Common Stock issuable upon exercise
of the Unit Warrants increased by an aggregate of 7,851 shares to an
aggregate of 2,846,017 shares as a result of the issuance by the Company
of warrants to purchase the Company's Common Stock in connection with the
Vanguard SDL Guarantee.
In September 1997, the Company paid its pro rata share of a finder's fee
to an unrelated third party in connection with its indirect investment in
Mobilink primarily through the issuance of a warrant to purchase 81,982
shares of the Company's Common Stock at an exercise price of $0.01 per
share (the "Mobilink Finder's Fee"). The Company recognized a total fee
of $1.0 million related to the Mobilink Finder's Fee which is included
as a component of the cost basis of the Company's investment in IWCPL.
(12) COMMITMENTS AND CONTINGENCIES
CAPITAL CONTRIBUTIONS
In order to protect IWC's investments in subsidiaries and affiliates from
ownership dilution, IWC anticipates making additional capital
contributions to the LWBs as approved, and dependent upon the Company's
available financial resources.
GUARANTEE OF DEBT OF EQUITY INVESTEE
In connection with a Malaysian Ringgit 91,000,000 (approximately $28.0
million as translated using effective exchange rates at September 30, 1997)
senior credit facility through a syndicate of Malaysian banks obtained by
the Company's 30% equity investee, the Company and the other shareholders
of Prismanet executed a financial "keep well" covenant pursuant to which
they have agreed (i) to ensure that Prismanet will remain solvent and be
able to meet its financial liabilities when due and (ii) to ensure that the
project is completed in a timely manner and to make additional debt and
equity as and investments in Prismanet, as necessary to meet cost overruns.
The loan is repayable by Prismanet in eleven semi-annual installments
beginning October 8, 1997. The Company and other Prismanet shareholders
have separately executed an agreement, whereby each shareholder has agreed
to share in the liability on a pro rata basis in relation to their interest
in Prismanet. In the event that the bank were to seek repayment from the
Prismanet shareholders and the other shareholders were unable to honor
their pro rata share in the liability, the Company might be liable for the
full amount of the outstanding amount of the loan. As of September 30,
1997, this credit facility was fully drawn down and the Company has been
advised that, subsequent to September 30, 1997, Prismanet obtained a six
month extension on the repayment of the first installment due, as provided
by the lead bank of the syndicate.
The Company does not believe it is practicable to estimate the fair value
of the "keep well" covenant and does not believe exposure to loss is
likely. Accordingly, no provision has been made in the accompanying
consolidated financial statements.
The Company, indirectly through its wholly owned subsidiary, New Zealand
Wireless Limited, owns 15% of Mobilkom. Mobilkom expects to fund the
continued buildout of its network and the acquisition of subscriber
terminals
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primarily through a seven-year $50,000,000 revolving/reducing credit
facility which it has obtained from a syndicate of Thai banks. Borrowings
under the credit facility bear interest at a floating rate based on LIBOR
and are secured by substantially all of Mobilkom's assets and a pledge of
all the capital stock held by the Company and Mobilkom's other
shareholders. Another Mobilkom shareholder has guaranteed borrowings of up
to $25,000,000 under the credit facility. As of September 30, 1997,
borrowings of approximately $22,637,000 were outstanding under this
facility.
The Company indirectly owns a 19.8% equity interest in PT Mobile Selular
Indonesia ("Mobisel"), a provider of cellular services in Indonesia
through its 28.3% ownership in RHP. Mobisel has obtained a six-year
$60,000,000 credit facility from Nissho Iwai International (Singapore)
Pte. Ltd. ("Nissho Iwai") to finance the construction of its network.
Borrowings under the credit facility bear interest at a floating rate
based on LIBOR and are secured by all of Mobisel's assets and a pledge of
all the capital stock held by RHP and Mobisel's other shareholders. RHP
has also guaranteed the credit facility. As of September 30, 1997, this
credit facility was fully drawn down.
The Company, indirectly through its wholly owned subsidiary IWC China,
entered into an agreement to subscribe for additional SDL shares for an
aggregate subscription price of $19,000,000. Pursuant to the Amendment
and Waiver, IWC China is required to fund the second subscription of SDL
shares no later than June 17, 1998. If IWC China does not meet its
funding commitment, this will likely result in the Company's 40% equity
interest in SDL being diluted to a level which may have a material
adverse effect on the Company's ability to realize the full potential of
its investment.
(13) SUBSEQUENT EVENTS
In October 1997, STOL made a $2,000,000 loan to Shenzhen Wanlitong
Industrial Development Company ("Wanlitong") in connection with STOL's
proposed investment in a nationwide paging project in China through the
formation of a co-operative joint venture ("STOL Paging CJV") with
Wanlitong. The loan is for a term of one year and carries interest at
the rate of 10% per annum. When the STOL Paging CJV is formed, the
loan will be converted into an ownership interest in the STOL Paging CJV.
In October 1997, the Option Committee of the Board of Directors of the
Company granted options to purchase an aggregate of 187,684 shares of
Common Stock at an exercise price of $12.48 per share to certain service
providers of the Company under the 1996 Amended and Restated Stock
Option/Stock Issuance Plan.
In October 1997, the Company drew down $3,500,000 of the $7,000,000
available under the IWCH Pakistan Facility. As a result, the number of
shares of the Company's Common Stock issuable upon exercise of the
Pakistan Liquidity Warrants increased.
In November 1997, pursuant to the terms of the IWCH Pakistan Facility,
the number of shares of the Company's Common Stock issuable upon exercise
of the Initial Pakistan Warrants increased from 253,406 shares to
501,162 shares because the Company failed to file a registration
statement for a proposed public offering of shares of its Common Stock
with the Securities and Exchange Commission on or before October 31,
1997. As a result, pursuant to the terms of the Unit Warrants, the
number of shares of the Company's Common Stock issuable upon exercise of
the Unit Warrants increased by an aggregate of 29,062 shares to an
aggregate of 2,875,079 shares.
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INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THIS SECTION AND DISCUSSED IN THE "RISK FACTORS" SECTION
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL
15, 1997.
INTRODUCTION
The principal operating companies in which the Company holds an interest
provide cellular services in China, Pakistan and Indonesia and SMR services
in Brazil. As of September 30, 1997, these operating companies had licenses
or cooperative arrangements with licensees covering an estimated 863 million
POPs which, based on the Company's equity interests in such operating
companies, represented an estimated 240 million equity POPs. As of September
30, 1997, these operating companies, which are generally in the early stages
of operating and expanding their networks, served an aggregate of
approximately 201,000 subscribers.
In August 1997, the Company acquired a 20% indirect interest in Mobilink.
Such acquisition together with the acquisition of SDL in November 1996 has
provided growth in the subscribers of the Company's principal operating
companies subscribers from 17,000 as of September 30, 1996 to 112,000 as of
September 30, 1997.
The Company has reported net losses for each fiscal year since the date
of its organization. As the Company continues to make investments accounted
for under the equity method or on a consolidated basis and given that the
Company may exercise an existing option to increase its equity interest in
Mobilink and is negotiating an option to increase its interest in Mobisel,
the Company anticipates that its net losses will increase significantly for
the foreseeable future.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
The Company recognized $532,000 of operating revenues and $541,000 of
cost of revenues for the nine month period ended September 30, 1996 as
compared to $3.3 million in operating revenues, offset by cost of revenues of
$3.1 million, for the corresponding period in 1997, represented by the
consolidated commercial operations of TeamTalk, the Company's wholly owned
SMR operating company in New Zealand. There are no other significant
revenues or costs of revenues recognized by the Company. The Company
anticipates that the operating revenues and costs of revenues will continue
to increase as the Company continues to expand and develop its consolidated
commercial network operations.
The Company's selling, general and administrative expenses increased from
$10.6 million for the nine month period ended September 30, 1996 to $23.6
million for the corresponding period in 1997, an increase of 122.7%. This
increase was primarily due to an increase in selling, general and
administrative expenses associated with the Company's consolidated SMR
operations, consisting principally of TeamTalk and SRC and an increase in
corporate overhead. The Company's own general and administrative expenses
increased from $7.4 million for the nine months ended September 30, 1996 to
$12.0 million for the corresponding period in 1997, an increase of 60.8%.
The Company experienced continued growth in its own general and
administrative expenses as the Company expanded its corporate and regional
operations to manage the growth in the local wireless businesses and
recognized
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a management advisory expense of $2.3 million in connection with the Vanguard
Warrant/Option Exchange. The selling, general and administrative expenses of
the consolidated SMR operations increased from $3.2 million for the nine
month period ended September 30, 1996 to $11.6 million for the corresponding
period in 1997, an increase of 268.6%. These entities continued to develop
their SMR operations and expand their services resulting in the increase in
selling, general and administrative expenses.
The Company's equity in losses of affiliates increased from $5.5 million
for the nine month period ended September 30, 1996 to $27.3 million for the
corresponding period in 1997, an increase of 395.4%. The Company recorded an
equity loss of $10,909,000, which includes a write-down of $7,683,000, in the
Company's equity investment in Prismanet to the Company's estimate of the net
realizable value of this investment. The Company believes that a significant
impairment in value has occurred due to its recent determination that there
are diminished prospects for the allocation of additional spectrum at a
different frequency band to Prismanet by the government of Malaysia in the
foreseeable future. This allocation of additional spectrum is believed by the
Company to be critical to support the value of Prismanet's business as
proposed to be conducted. The management of Prismanet has since undertaken an
extensive review of Prismanet's business plan, the results of which are yet
to be determined. Also, the Company has recognized the increase in the
underlying operating losses of Mobisel and SDL.
The Company's equity in losses of affiliates attributable to its 19.8%
indirect interest in Mobisel increased from $1.8 million for the nine month
period ended September 30, 1996 to $10.7 million for the corresponding period
in 1997 as Mobisel continued to expand its operations and build-out its
nationwide cellular network. As part of its expansion effort, Mobisel
experienced significant growth in its promotional selling expenses and its
general and administrative expense base increased in order to meet the
anticipated growth in its operations. In addition, Mobisel's interest
expense increased for the nine month period ended September 30, 1997 as
Mobisel had fully drawn down the $60.0 million credit facility arranged in
October 1996 to finance the construction of its nationwide network. Also, in
order to finance this expansion effort, Mobisel entered into, and utilized
the majority of, a syndicated short-term notes facility arranged in January
1997. These funds enabled Mobisel to continue to build-out its nationwide
cellular network and were also utilized for general corporate purposes.
Lastly, Mobisel recognized significant foreign exchange translation losses
associated with the remeasurement of its U.S. dollar-denominated credit
facility due to the devaluation of the Indonesian Rupiah during the nine
month period ended September 30, 1997.
The Company's equity in losses of affiliates attributable to its 40%
indirect interest in SDL, which the Company acquired in November 1996, was
$4.5 million for the nine month period ended September 30, 1997. SDL's
operating losses are anticipated to increase for the foreseeable future as
SDL continues to expand its operations in China.
The Company's interest expense increased from $2.7 million for the nine
month period ended September 30, 1996 to $13.9 million for the corresponding
period in 1997. The increase in interest expense was primarily due to
interest expense associated with the Unit Offering, which occurred in August
1996.
The Company's interest income increased from $937,000 for the nine month
period ended September 30, 1996 to $1.5 million for the corresponding period
in 1997. The increase in interest income was primarily due to the higher
cash and cash equivalents balances of the Company as derived from the
proceeds of the Unit Offering.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
The Company recognized $349,000 of operating revenues and $361,000 of
cost of revenues for the three month period ended September 30, 1996 as
compared to $2.3 million in operating revenues, offset by cost of revenues of
$1.8 million, for the corresponding period in 1997, represented by the
consolidated commercial operations of TeamTalk. There are no other
significant revenues or costs of revenues recognized by the Company. The
Company anticipates that operating revenues and costs of revenues will
continue to increase as the Company continues to expand and develop its
consolidated network operations that are, or will become, commercial.
The Company's selling, general and administrative expenses increased from
$4.3 million for the three month period ended September 30, 1996 to $7.9 million
for the corresponding period in 1997, an increase of 85.4%. This increase was
primarily due to an increase in selling, general and administrative expenses
associated with the
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Company's consolidated SMR operations, consisting principally of TeamTalk and
SRC and an increase in corporate overhead. The Company's own general and
administrative expenses increased from $2.4 million for the three months
ended September 30, 1996 to $3.4 million for the corresponding period in
1997, an increase of 40.5%. The Company experienced continued growth in its
own general and administrative expenses as the Company increased its
corporate and regional operations to manage the growth in its local wireless
businesses. The selling, general and administrative expenses of the
consolidated SMR operations increased from $1.9 million for the three month
period ended September 30, 1996 to $4.5 million for the corresponding period
in 1997, an increase of 142.4%. These consolidated entities continued to
develop their SMR operations and expand their services resulting in the
increase in selling and administrative expenses.
The Company's equity in losses of affiliates increased from $2.5 million
for the three month period ended September 30, 1996 to $17.4 million for the
corresponding period in 1997, an increase of 590.9%. The Company recorded an
equity loss of $8,885,000, which includes a write-down of $7,683,000, in the
Company's equity investment in Prismanet to the Company's estimate of the net
realizable value of this investment. The Company believes that a significant
impairment in value has occurred due to its recent determination that there
are diminished prospects for the allocation of additional spectrum at a
different frequency band to Prismanet by the government of Malaysia in the
foreseeable future. This allocation of additional spectrum is believed by
the Company to be critical to support the value of Prismanet's business as
proposed to be conducted. The management of Prismanet has since undertaken
an extensive review of Prismanet's business plan, the results of which are
yet to be determined.
The Company's equity in losses of affiliates attributable to its indirect
19.8% interest in Mobisel increased from $1.1 million for the three month
period ended September 30, 1996 to $6.1 million for the corresponding period
in 1997 as Mobisel continued to expand its operations and build-out its
nationwide cellular network. As part of its expansion effort, Mobisel
experienced growth in its promotional selling expenses and furthermore its
general and administrative expense base increased in order to meet the
anticipated growth in its operations. In addition, Mobisel's interest
expense increased for the three month period ended September 30, 1997 as
Mobisel had fully drawn down the $60.0 million credit facility arranged in
October 1996 to finance the construction of its nationwide network. Also, in
order to finance this expansion effort, Mobisel entered into, and utilized
the majority of, a syndicated short-term notes facility arranged in January
1997. These funds enabled Mobisel to continue to build-out of its nationwide
cellular network and were also utilized for general corporate purposes.
Lastly, Mobisel recognized significant foreign exchange translation losses
associated with the remeasurement of its US Dollar-denominated credit
facility due to the devaluation of the Indonesian Rupiah during the three
month period ended September 30, 1997.
The Company's equity in losses of affiliates attributable to its 40%
interest in SDL, which the Company acquired in November 1996, was $1.8
million for the three month period ended September 30, 1997. SDL's operating
losses are anticipated to increase for the foreseeable future as SDL
continues to expand its operations in China.
The Company's interest expense increased from $2.5 million for the three
month period ended September 30, 1996 to $5.1 million for the corresponding
period in 1997. The increase in interest expense was primarily due to
interest expense associated with the Unit Offering which occurred in August
1996.
The Company's interest income decreased from $513,000 for the three month
period ended September 30, 1996 to $399,000 for the corresponding period in
1997. The decrease in interest income was primarily due to a reduction in
the cash and cash equivalent balances, as derived from the Unit Offering in
August 1996, available for investment in short-term interest bearing
securities during the period.
IMPACT OF INFLATION AND CURRENCY FLUCTUATION
Many developing countries have experienced substantial, and in some
periods extremely high, rates of inflation and resulting high interest rates
for many years. They have also experienced significant fluctuations in their
exchange rates. In addition, many of the currencies of developing countries
have experienced steady, and in some currencies, substantial devaluations
relative to the U.S. dollar. For example, since mid-1997, a number of
currencies of Southeast Asia countries, including Indonesia and Malaysia,
have experienced significant declines in their exchange rates relative to the
U.S. Dollar. Such inflation and devaluations have had, and may continue to
have significant negative effects on the economies and securities markets of
certain developing countries, and could have material adverse effect on the
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Company's operating companies in such countries, including an adverse effect
on their subscriber levels and on their ability to obtain financing. Because
tariffs in many of the countries in which the Company's operating companies
operate are regulated, such operating companies may not always be able to
increase tariffs in response to inflation or currency devaluations, which
could have a material adverse effect on the results of operations of such
operating companies.
The U.S. dollar-denominated value of the Company's investment in an
operating company or other wireless project is partially a function of the
currency exchange rate between U.S. dollar and the applicable local currency.
In addition, the Company's operating companies will report their results of
operations in the local currency and, accordingly, the Company's results of
operations will be affected by changes in currency exchange rates between
those currencies and the U.S. dollar. In general, the Company does not hedge
against foreign currency exchange rate risks. As a result, the Company may
experience economic loss with respect to its investments and fluctuations in
its results of operations solely as a result of currency exchange rate
fluctuations. The Company does not carry currency convertibility risk
insurance.
To the extent that the Company's operating companies commence, or have
commenced, commercial operations, any revenues they generate will generally
be received by such operating companies in the local currency. By contrast,
many significant liabilities of such operating companies (such as liabilities
for the financing of telecommunications equipment) may be payable in U.S.
dollars or in currencies other than the local currency. As a result, any
devaluation in the local currency relative to the currencies in which such
liabilities are payable could have a material adverse effect on the Company.
In addition, certain operating companies may have U.S. dollar denominated
debt financings. It is typical that the operating companies attempt to
obtain local currency denominated financings when available, although certain
entities are only able to obtain U.S. dollar-denominated funding. The
primary foreign currency to which the Company is exposed is the Indonesian
Rupiah. As discussed in more detail later, Mobisel, the Company's national
cellular operating company in Indonesia, has incurred U.S. dollar debt
through its credit facility with Nissho Iwai. Further, it is anticipated
that substantial additional U.S. dollar debt will be sought to fund future
capital expenditures of Mobisel. Revenues to repay such U.S. dollar debt
will be denominated in the Indonesian Rupiah. Recently the Indonesian Rupiah
fluctuated unfavorably against the U.S. dollar in conjunction with other
currencies in Asia, and as a result, the amounts outstanding under the Nissho
Iwai credit facility increased substantially on an Indonesian
Rupiah-denominated basis. As a consequence, Mobisel will have to increase
operating revenues to compensate for this unfavorable fluctuation or absorb
the impact of this foreign exchange exposure in their current and future
operations. Although the Company and its operating companies attempt to
match assets and liabilities, to the extent possible, it is not always
possible due to sovereign foreign capital restrictions or the availability of
credit facilities in currencies other than the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its cash requirements primarily through
the use of the net proceeds of a series of Preferred Stock private
placements, bridge loans and the Unit Offering. Except for the Pakistan
Bridge Facility, the bridge loans have generally been converted into
Preferred Stock. The proceeds from these financings were mainly used to fund
the Company's investments in its operating companies and other wireless
projects, to provide working capital and for general corporate purposes. As
of December 31, 1996 and September 30, 1997, the Company had cash and cash
equivalents balances of $41.6 million and $6.5 million, respectively.
The Company has generated negative cash flow from operations since
inception, and its operating companies and other wireless projects are not
expected to provide any positive cash flow or any cash distributions to the
Company for the foreseeable future. See "--Additional Factors that May
Affect Future Results--Company Level Risks--Negative Operating Cash Flow;
Dependence on Additional Financing; No Commitments for Additional Financing"
and "--Additional Factors that May Affect Future Results--Company Level
Risks--Holding Company Structure; Limitations on Access to Cash Flow of
Operating Companies." As a result, the Company is and will remain dependent
upon raising funds from outside sources to fund its working capital needs,
investments in its operating companies and other wireless projects, to repay
the Notes and any other indebtedness it may incur when it becomes due and
payable and other cash requirements.
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The Company believes that its existing cash balance is sufficient to meet
its minimum operating and contractual obligations through the end of June
1998. However, the Company will require additional financing prior to such
date to meet its business objective of participating in additional capital
calls of the operating companies, including the second subscription of SDL
shares for an aggregate subscription price of $19,000,000, to finance
expansion of their respective operations. The Company has no commitments or
arrangements for additional financing, and there can be no assurance that
this additional financing will be available to the Company on acceptable
terms when required by the Company or at all. The Company's inability to
obtain such additional financing on acceptable terms would have a material
adverse effect on the Company. See "--Additional Factors that May Affect
Future Results--Company Level Risks--Negative Operating Cash Flow; Dependence
on Additional Financing; No Commitment for Additional Financing."
Historically, the Company and its partners have typically funded initial
investments in its operating companies and other wireless projects through
capital contributions either in the form of equity or shareholder loans.
When such projects have become operational, the Company has sought to fund
their ongoing development using third-party financing, preferably on a
non-recourse basis to the Company.
Mobisel has obtained a $60.0 million credit facility from Nisso Iwai. This
facility is secured by all of Mobisel's assets and a pledge of all of the
Mobisel capital stock held by RHP and has also been guaranteed by RHP.
Borrowings under the credit facility with Nissho Iwai are to be used solely
for the implementation and construction of Mobisel's network. Borrowings
outstanding under this credit facility must be repaid in six equal
semi-annual installments commencing in May 1998. Mobisel will require
substantial additional financing to complete its planned capital expenditures
through 1998 and for other working capital needs. Accordingly, Mobisel has
commenced discussion with a number of potential financing sources in order to
obtain additional financing. Mobisel entered into a syndicated short-term
notes facility agreement in January 1997 with PT Bank Unum Servitia, as
arranger, whereby the banks agreed to purchase Indonesian Rupiah ("Rp")
60,000,000,000 of short-term notes and interest notes of Rp15,000,000,000 (in
aggregate approximately $22.8 million as at September 30, 1997). Borrowings
outstanding under this short-term notes facility must be repaid in February
1998. These short-term notes and interest notes will have a repayment
priority to the existing loans outstanding. Mobisel is currently in
discussion with a variety of financial arrangers. The Company is actively
working with its local partners to establish a short and medium term
financing plan for Mobisel. Lastly, the RHP shareholders have contributed
$1.1 million in shareholder loans and it is anticipated that the shareholders
will be required to provide additional financial support in the short-term
permitting Mobisel to address its short term cash constraints. See
"--Additional Factors that May Affect Future Results--Project Level
Risks--Negative Operating Cash Flow; Dependence on Additional Financing; No
Commitment for Additional Financing."
Prismanet has arranged a Malaysian Ringgit ("RM") 91.0 million
(approximately $28.0 million as at September 30, 1997) credit facility
through a syndicate of Malaysian banks. This facility is secured by
substantially all of Prismanet's assets and a pledge of all of the capital
stock of Prismanet held by the Company and Prismanet's other shareholders. In
addition, the facility has been guaranteed by Shubila Holding Sdn. Bhd., the
60% owner of Prismanet, and certain directors of Prismanet (including a
former officer of the Company). Also, Prismanet has agreed to assign to and
deposit with the banks all of its cash, including revenues, loan drawings and
shareholder advances. In addition to pledging their capital stock in
Prismanet, the Company and the other Prismanet shareholders have entered into
a "keep well" covenant pursuant to which they have agreed (i) to ensure that
Prismanet remains solvent and able to meet its financial liabilities when
due, and (ii) to ensure the timely completion of its wireless local loop
project and to make additional debt or equity investments in Prismanet
necessary to meet any cost overruns. Accordingly, the Company and other
Prismanet shareholders could be jointly or severally liable for amounts
payable under the credit facility in the event of default by Prismanet.
Borrowings outstanding under this credit facility must be repaid in eleven
semi-annual installments beginning October, 1997. As of September 30, 1997,
this facility was fully drawn down and it is the intention of the Company and
its partners to seek additional third party debt financing to fund
Prismanet's capital expenditures and to refinance outstanding indebtedness
under the credit facility. Subsequent to September 30, 1997, the Company,
consistent with its write-down in its investment in Prismanet, decided it
would not participate in a RM20.0 million capital contribution, and
accordingly, agreed to reduce its equity investment in Prismanet. Initially
Shubila Holding Sdn. Bhd. has agreed to contribute the Company's pro rata
share of its capital contribution whereby the Company's equity investment
will be reduced to 25.0%. In addition, Shubila Holding Sdn. Bhd. has the
option to fund sufficient additional funds to reduce our ultimate holdings in
Prismanet to 22.5%.
In August 1997, the Company completed the Pakistan Bridge Facility with TDI
and VCFC, whereby the Company received written commitments from these and
certain other stockholders of the Company for an aggregate
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amount of $29 million in exchangeable bridge loans. The Pakistan Facilities
comprise: (A) the $22 million PWH Pakistan Facility, and (B) the $7 million
IWCH Pakistan Facility that is available to the Company for general corporate
and other purposes. The PWH Pakistan Facility which was fully drawn in
August 1997 for the specific purpose of funding the cash portion of the
purchase price of the Company's investment in Mobilink and the Company's pro
rata share of the shareholder capital calls and shareholder loans required to
finance the operations of Mobilink. The Pakistan Bridge Facility contains
significant restrictions on the Company's ability to raise additional debt or
equity financing until all amounts outstanding under the Pakistan Facilities
are repaid in full.
SDL has funded its current operating and capital expenditures through
borrowings under a $7.0 million credit facility from Bank Bira, and $8
million and $20 million credit facilities from The Toronto-Dominion Bank. In
addition, IWC China loaned $4.3 million to SDL during the nine month period
ended September 30, 1997. SDL continues to require substantial financial
resources to fund its commitments through 1998. SDL is currently in
negotiations to finance its operations and capital expenditures with certain
vendors and financial institutions. The failure of SDL to obtain additional
financing would have a material adverse effect on its ability to conduct
business.
Following a recent review of its investment and operating strategy, the
Company has decided to focus its resources on developing its larger cellular
and SMR investments. As part of this realignment and in order to raise
additional capital, the Company proposes to sell all or a portion of its
interests in TeamTalk, Mobilkom and UTS. The Company anticipates that the
sale or partial sale of these three investments will occur within the next 12
months. However, in part because there exists no public market for the
Company's ownership interests in these investments, there can be no assurance
that any of these investments will be sold upon terms acceptable to the
Company within such time period or at all.
The businesses of the Company's operating companies and other wireless
projects are capital intensive and will require continuing sources of outside
financing to fund working capital needs, capital expenditures and other cash
requirements. In particular, SDL and Mobisel will require substantial
additional financing in order to complete planned capital expenditures.
However, there can be no assurance that the Company's operating companies and
the other projects will be able to obtain required additional financings on
acceptable terms or at all, which could have a material adverse effect on the
Company. In addition, there can be no assurance that the operating companies
will be able to pay their indebtedness or other liabilities when due. See
"--Additional Factors that May Affect Future Results--Project Level
Risks--Negative Operating Cash Flow; Dependence on Additional Financing."
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
THE COMPANY OPERATES IN A RAPIDLY CHANGING ENVIRONMENT THAT INVOLVES A
NUMBER OF RISKS, SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THE
FOLLOWING DISCUSSION HIGHLIGHTS SOME OF THESE RISKS. THESE RISKS SHOULD BE
READ IN CONJUNCTION WITH THE "RISK FACTORS" SECTION INCLUDED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") ON APRIL 15,
1997.
IN ADDITION, SINCE THE FILING OF SUCH ANNUAL REPORT ON FORM 10-K, THE
COMPANY HAS UNDERTAKEN A REALIGNMENT OF ITS BUSINESS STRATEGY AWAY FROM ITS
SMALLER PROJECTS AND HAS DECIDED TO FOCUS ITS RESOURCES TOWARD LARGER-SCALE
PROJECTS, PARTICULARLY CELLULAR PROJECTS, IN WHICH THE COMPANY DIRECTLY OR
EFFECTIVELY EXERCISES SIGNIFICANT OPERATIONAL CONTROL. ACCORDINGLY, THE
FOLLOWING RISKS SHOULD ALSO BE READ IN LIGHT OF SUCH REVISED BUSINESS
STRATEGY.
COMPANY LEVEL RISKS
CONTINUING LOSSES; LIMITED OPERATING HISTORY
The Company has incurred net losses since its inception and had an
accumulated stockholders' deficit of approximately $73.7 million as of
September 30, 1997. The Company anticipates that its net losses will increase
in the foreseeable future, and there can be no assurance as to whether or
when the Company's operations will become profitable. See "--Results of
Operations." The Company has a limited operating history. Since its
inception in January 1992, the Company's activities have been concentrated
primarily in the early stage development of its wireless projects, including
the selection of local partners, the formation of operating companies and the
pursuit of operating licenses.
NEGATIVE OPERATING CASH FLOW; DEPENDENCE ON ADDITIONAL FINANCING; NO COMMITMENTS
FOR ADDITIONAL FINANCING
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The Company used cash in operations and investing activities of $73.2
million for the year ended December 31, 1996, and $51.9 million for the nine
months ended September 30, 1997, and expects such negative cash flows to
continue and likely increase in the foreseeable future. Because of such
negative cash flow and negative working capital and the capital intensive
nature of the Company's business, the Company will continually require
additional sources of outside debt and equity financing to fund its working
capital needs, investments and other cash requirements. In particular, the
Company will require additional financing prior to June 30, 1998, to meet
currently anticipated requirements for working capital and investments in its
operating companies and other wireless projects. In addition, the Company may
pursue additional investment opportunities for wireless projects that are
consistent with the recent realignment of its business strategy and
anticipates that additional sources of financing would be required in order
to fund those investments, if any. However, the Company has neither received
commitments nor completed arrangements for additional financing, and there
can be no assurance that any additional debt or equity financing will be
available to the Company on acceptable terms when required by the Company or
at all. If adequate sources of additional financing are not available, the
Company may be forced (i) to delay, scale back or eliminate one or more of
its projects, (ii) to suffer a significant dilution of its equity interest or
loss of value in one or more of its investments, or (iii) to liquidate one or
more of its investments. In addition, the Company may be unable to repay its
liabilities (including the Notes) as they become due, and may be unable to
meet its working capital and other cash requirements. Accordingly, the
Company's inability to obtain such additional financing would have a material
adverse effect on the Company. In order to secure financing for certain
operating companies, Vanguard has in the past provided certain guarantees on
behalf of the Company. However, Vanguard is not obligated to provide such
guarantees and there can be no assurance that Vanguard will continue to
provide such guarantees in the future, which could have a material adverse
effect on the Company.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has indebtedness that is substantial
in relation to its stockholders' equity, including its redeemable convertible
Preferred Stock. As of September 30, 1997, the Company's long term debt was
$110.4 million, and its stockholders' deficit and redeemable convertible
Preferred Stock were $73.7 million and $104.7 million, respectively. The high
level of the Company's indebtedness will have important consequences,
including (i) limitations on the Company's ability to obtain additional debt
financing in the future and (ii) limitations on the Company's flexibility in
reacting to changes in the industry and economic conditions generally. In
addition, most of the existing operating companies and other wireless
projects will not be subject to any limitations restricting the incurrence of
additional indebtedness, and, to the extent that the Company is successful in
its strategy of obtaining additional financing at the operating company or
other wireless project level, the amount of such indebtedness could increase
substantially, which may have consequences similar to those described in
clauses (i) and (ii) above with respect to the Company.
RISK OF INABILITY TO REPAY NOTES AT MATURITY
The Company has had net losses and has generated negative cash flow from
operations since inception. Further, as discussed below under "--Holding
Company Structure; Limitations on Access to Cash Flow of Operating
Companies," the Company does not expect that it will generate positive cash
flow through dividends or other distributions from its operating companies
for the foreseeable future. Accordingly, the Company's ability to repay the
Notes and any other indebtedness which it may incur from time to time at
maturity will be dependent on developing one or more sources of financing
prior to the maturity of such indebtedness. The Company may, among other
things, (i) seek to refinance all or a portion of such indebtedness at
maturity through sales of additional debt or equity securities of the Company
or other borrowings, (ii) seek to sell all or a portion of its interests in
one or more of its operating companies or other wireless projects (subject to
the restrictions described below under "--Company Level Risks--Restrictions
on Transfer of Ownership Interests") or (iii) negotiate with its financial
and strategic partners to permit the cash, if any, produced by the operating
companies to be distributed to equity holders. There can be no assurance that
the Company will be successful in achieving any of the foregoing alternatives.
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In addition, a default under the Notes or such other indebtedness as the
Company may incur in the future, for example, could in turn permit lenders
under Prismanet's Malaysian RM 91 million (approximately $28 million at
September 30, 1997) senior credit facility, and possibly under other debt
instruments of the operating companies, to declare borrowings outstanding
thereunder to be due and payable pursuant to cross-default clauses,
permitting the lenders under such debt instruments to proceed against any
collateral pledged as security therefor. Any failure by the Company to repay
the Notes when due would have a material adverse effect on the Company.
RISK OF GOVERNMENTAL ACTIONS RESULTING IN VIOLATION OF INDENTURE
The Indenture pursuant to which the Notes were issued, contains covenants
that impose certain requirements with respect to sales or other dispositions
of assets with a fair market value in excess of $500,000 (including capital
stock in operating companies and in other wireless projects) by the Company
and certain subsidiaries of the Company ("Asset Sales"). Among other things,
the Indenture requires that at least 85% of the consideration for an Asset
Sale be in cash and that the Company receive consideration equal to the fair
market value of the assets in question. However, if an Asset Sale occurs
because of governmental action (for example, by expropriation or
confiscation), or in certain other circumstances including, among other
things, a sale of the Company's investment in certain operating companies
compelled by other stockholders of such operating company or pursuant to
rights granted to certain bank lenders of certain operating companies, the
requirement that the Company receive fair market value for the assets shall
be deemed to have been satisfied to the extent that the difference between
the fair market value of such assets and the actual consideration received in
such Asset Sale (and all other Asset Sales subject to this exception) is less
than 10% of the "total market value of equity" of the Company. However, if an
Asset Sale is compelled by governmental action, the Indenture still requires
that at least 85% of the consideration be in cash.
In certain of the countries in which the Company has made investments,
there is a risk that the Company's investments may be confiscated or
expropriated by governmental authorities. See "--Project Level Risks--Risks
Inherent in Foreign Investment." To the extent that the consideration, if
any, received by the Company in connection with these expropriations or
confiscations failed to satisfy the covenants under the Indenture, such a
violation will be deemed an event of default under the Indenture entitling
the holders of the Notes to demand immediate repayment thereof and to proceed
against their collateral, which would have a material adverse effect on the
Company.
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF OPERATING
COMPANIES
IWCH is a holding company with no business operations of its own. All of
the operations of IWCH are conducted through its wholly owned subsidiary,
IWC, and its affiliated companies, which are separate and distinct legal
entities and have no obligation, contingent or otherwise to make any funds
available to IWCH to enable it to make investments in operating companies or
other wireless projects, meet working capital needs or other liabilities of
IWCH (including liabilities under the Notes), or for any other reason. In
addition, most of the operating companies have generated negative cash flow
from operations, and the Company expects that most operating companies will
continue to generate negative cash flow from operations for the foreseeable
future. Further, to the extent that any of the operating companies generates
positive cash flow, the Company may be unable to access such cash flow
because (i) it owns 50% or less of the equity of most of such entities and,
therefore, does not have the requisite control to cause such entities to pay
dividends to their equity holders; (ii) certain of such entities are
currently or may become parties to credit or other borrowing agreements that
restrict or prohibit the payment of dividends, and such entities are likely
to continue to be subject to such restrictions and prohibitions for the
foreseeable future; (iii) the Company expects that its operating companies
will generally reinvest all of their cash flow in development opportunities
for the foreseeable future; and/or (iv) some of the countries in which such
entities conduct business, tax the payment and repatriation of dividends or
otherwise restrict the repatriation of funds. As a result, the Company does
not expect that it will be able to generate any significant cash flow through
dividends or other distributions from the operating companies in the
foreseeable future, and there can be no assurance that the Company will be
able to generate any significant cash flow from the operating companies at
any time in the future.
RESTRICTIONS ON TRANSFER OF OWNERSHIP INTERESTS
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The Company's ability to sell or transfer its ownership interests in its
operating companies and other wireless projects (i) is generally subject to
limitations contained in the agreements between the Company and its local
partners including, in certain cases, complete prohibitions on sales or
transfers for a period of years, co-sale rights and/or rights of first
refusal and (ii) may be subject to provisions in local operating licenses and
local governmental regulations that, in certain cases, prohibit or restrict
the transfer of the Company's ownership interests in such operating companies
and other wireless projects. Moreover, the Company and its local partners
have in the past been required to pledge their capital stock in certain
operating companies to secure credit facilities obtained by those operating
companies, and the Company may be prohibited from transferring or otherwise
disposing of such capital stock so long as it is pledged as collateral for
those credit facilities. In addition, none of the operating companies or
other wireless projects currently has any publicly traded securities and
there can be no assurance that in the future there will be either a public or
private market for the securities of the Company's operating companies or
other wireless projects. As a result, the Company's ability to liquidate any
or all of its investments may be substantially limited and there can be no
assurance that the Company will be able to do so in a timely manner, or at
all in the event that the Company is required to do so in order to satisfy
its cash needs, including providing funds for investments and repayment of
indebtedness. Moreover, even if any sales are completed, the prices realized
on those sales could be less than the Company's investment, and there may be
substantial local taxes imposed on the Company in the case of any such sales
and, in any event, there can be no assurance that there will not be
substantial taxes or other restrictions on the ability of the Company to
repatriate any amounts realized upon the sale of any such investments. In
addition, certain of the operating companies and other wireless projects are
or may be parties to credit agreements that restrict their ability to pay
dividends or make other distributions to their equity investors, and the
Company's local partners, by virtue of their majority ownership interest in
the operating companies and other wireless projects, generally have the right
to determine the timing and amount of any such dividends or distributions.
LIMITS ON CONTROL OF OPERATING COMPANIES AND OTHER WIRELESS PROJECTS
Although the Company controls or exerts significant influence over its
operating companies and other wireless projects, the Company is subject to
significant contractual, regulatory or other restrictions. In most cases, the
Company's local partners in the operating companies and other wireless
projects have veto powers over significant operational, financial and
management matters that may preclude the Company from controlling or
directing the operations of such entities and implementing strategies that it
favors, including strategies involving the expansion or development of
projects or the pursuit of certain financing alternatives. Moreover, SDL is
prohibited by Chinese law from operating or managing any of its
telecommunications ventures in China, which limits its influence over all
project matters. See "--Project Level Risks--Risks Inherent in Foreign
Investment". In addition, regardless of whether it holds a majority or
minority interest, the Company may be unable to access the cash flow, if any,
of its operating companies and other wireless projects as a result of
contractual, regulatory and other limitations. See "--Holding Company
Structure; Limitations on Access to Cash Flow of Operating Companies."
RISKS INHERENT IN GROWTH STRATEGY
The Company has grown rapidly since inception, and as of September 30,
1997, had operating companies or other wireless projects in 11 foreign
countries. Subject to the availability of additional financing, the Company
anticipates that it may make additional investments in wireless projects in
other foreign countries and is actively seeking and evaluating new investment
opportunities in foreign countries where it currently has operating companies
or other wireless projects. This strategy raises risks inherent in assessing
the value, strengths and weaknesses of development opportunities, in
evaluating the costs and uncertain returns of building and expanding the
facilities for operating systems and in integrating and managing the
operations of additional operating systems. The Company's growth strategy
will place significant demands on the Company's operational, financial and
marketing resources and on its management. Any failure to manage the Company
effectively could have a material adverse effect on the Company.
RISK OF REGISTRATION UNDER INVESTMENT COMPANY ACT OF 1940
Because the Company often acquires minority ownership positions in
operating companies and development stage projects, there is a risk that these
ownership positions could be deemed to be investment securities and that the
Company could be characterized as an investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). Due to the Company's active
role in developing and managing the operating companies and its contractual
rights as an equity holder, the Company believes that a substantial majority of
its interests in the
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operating companies are the equivalent of joint venture interests rather than
investment securities. Therefore, the Company believes that it is not an
investment company and intends to continue its business and conduct its
operations so as not to become subject to the Investment Company Act. If the
Commission or its staff were to take the position, or if it were otherwise
asserted, that the Company is an investment company, the Company could be
required either (i) to liquidate its investments in one or more operating
companies or other wireless projects and change the manner in which it
conducts its operations to avoid being required to register as an investment
company or (ii) to register as an investment company. If the Company were
required to register under the Investment Company Act, it would be subject to
substantial regulations with respect to capital structure, operations,
transactions with affiliates and other matters. In addition, a determination
that the Company is subject to the Investment Company Act would constitute an
event of default under the Indenture and permit acceleration of the Notes. If
the Company were found to be an investment company but was not registered
under the Investment Company Act, the Company would be prohibited from, among
other things, conducting public offerings in the U.S. or engaging in
interstate commerce in the U.S., the Company would be subject to monetary
penalties and injunctive relief in an action brought by the Commission, and
certain contracts to which the Company is a party (including the Indenture
and the Notes) might be rendered unenforceable or subject to rescission by
any party thereto. As a result, any determination that the Company is an
investment company would have a material adverse effect on the Company and
would likely require that the Company cease operations.
CONTROL OF THE COMPANY
At September 30, 1997, Vanguard beneficially owned approximately 36.1% of
the Company's equity. Vanguard has provided and continues to provide a
number of services to the Company relating to the formation, development and
operation of wireless communications services, including identification and
evaluation of wireless communications opportunities, review of business and
technical plans and assistance in training operating company personnel.
Vanguard has the right to elect three of the ten members of the Company's
Board of Directors and currently has three representatives on such Board,
including Haynes G. Griffin, Chairman of the Board of Directors. As a result,
Vanguard may have the ability to effectively control the Company and direct
its business and affairs. In addition, such concentration of ownership may
have the effect of delaying or preventing a change in control of the Company.
CONFLICTS OF INTEREST
Vanguard is not precluded from competing with the Company by itself or
through affiliates from developing, owning and/or operating international
wireless communications businesses, including businesses that use the same or
similar technologies or provide the same services as the Company's existing
and future operating companies. This is true even though the Company acquired
substantially all of Vanguard's interests in its international wireless
projects in December 1995. Further, although many of the agreements governing
the relationship between the Company and its local partners contain
preemptive rights, rights of first refusal and/or rights of co-sale with
respect to the sale of shares in the Company's joint ventures, Vanguard is
not precluded from co-investing with the Company in such joint ventures. For
example, in April 1997, Vanguard purchased a 7% equity interest in SDL
directly from STHL, the Company's local partner in SDL, and in August 1997,
Vanguard co-invested with the Company in Mobilink and acquired a 6% indirect
equity interest in Mobilink.
In addition, in May 1997, the Company and Vanguard consummated a
transaction, pursuant to which Vanguard surrendered warrants to purchase
shares of Preferred Stock of the Company in exchange for the issuance of a
warrant to purchase Common Stock of the Company at $0.25 per share issued to
Vanguard and options to purchase Common Stock of the Company at $9.375 per
share issued to various members of the management of Vanguard, including two
individuals who currently serve as directors of the Company (the "Vanguard
Warrant/Option Exchange"). In addition, Vanguard has in the past provided
certain guarantees of indebtedness of operating companies on behalf of the
Company. In particular, in September 1997, Vanguard provided a guarantee of
certain indebtedness of SDL on behalf of IWC China and received a warrant to
purchase 68,819 shares of the Company's Common Stock as consideration for
such guarantee. Although the directors designated by Vanguard may abstain
from voting on matters in which the interests of the Company and Vanguard are
in conflict, they are not obligated to do so, and the Company has not adopted
any formal policies or procedures designed to prevent actual conflicts of
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interest from occurring. As a result, the presence of potential or actual
conflicts could affect the process or outcome of Board deliberations. There
can be no assurance that such conflicts of interest will not materially
adversely affect the Company. Further, other stockholders of the Company and
their affiliates have engaged, or may in the future engage, in transactions
with the Company or its operating companies or other wireless projects and
participate in wireless communications businesses that are competitive with
those of the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company and its growth strategy depends in large part
on the ability of the Company to attract and retain key management, marketing
and operating personnel at each of the Company, operating company and other
wireless project levels. There can be no assurance the Company will be able
to attract and retain the qualified personnel needed for its business,
particularly because of the amount of international travel required of the
Company's managers and because experienced local managers are often
unavailable. In addition, the loss of the services of one or more members of
its senior management team, particularly John D. Lockton or Hugh B. L.
McClung, could have a material adverse effect on the Company. The Company
does not have any key man life insurance on any of its executive officers.
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REPORTING STANDARDS; FINANCIAL STATEMENTS OF OPERATING COMPANIES; TIMELY
COMPLIANCE WITH INFORMATIONAL AND FILING REQUIREMENTS
Companies in developing countries are subject to accounting, auditing and
financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. companies. In addition, there
may be substantially less publicly available information about companies in a
developing country than there is about U.S. companies. The Company's ability
to comply with the informational and filing requirements of the Indenture and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
which it is or will be subject will depend on the timely receipt of accurate
and complete financial and other information from the Company's operating
companies and other wireless projects. The failure to receive such
information on a timely basis could have a material adverse effect on the
Company, including preventing it from satisfying the informational and filing
requirements of the Indenture and the Exchange Act.
RISK OF INABILITY TO FINANCE A CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control (as defined in the Indenture
to include (i) a sale or transfer by the Company or a Restricted Subsidiary
(as defined in the Indenture) of all or substantially all of its assets; (ii)
the adoption of a plan of liquidation; (iii) the acquisition of greater than
50% of the voting power by an entity other than Vanguard or (iv) upon the
change of a majority of the Board of Directors), the Company will be required
to make an offer to purchase all of the outstanding Notes at the price set
forth in the Indenture. The Company's failure to purchase the Notes would
result in a default under the Indenture. In the event of a Change of Control,
there can be no assurance that the Company would have sufficient assets to
satisfy all of its obligations under the Indenture. Future debt of the
Company may also contain prohibitions of certain events or transactions which
would constitute a Change of Control or require the obligations thereunder to
be retired upon a Change of Control.
NO CASH DIVIDENDS ON COMMON STOCK
The Company is prohibited under the terms of the Indenture from paying
dividends or making other distributions with respect to the Company's capital
stock, including the Common Stock while the Notes are outstanding. The
Company anticipates that all earnings, if any, will be retained for the
operation and expansion of the Company's business.
RISKS INHERENT IN GROWTH STRATEGY
The Company has grown rapidly since its inception and, as of September 30,
1997, had operating companies or other wireless projects in 11 foreign
countries. Subject to the availability of additional financing, the Company
may make additional investments in wireless projects in other foreign
countries. This strategy entails risks inherent in assessing the value,
strengths and weaknesses of development opportunities, in evaluating the
costs and uncertain returns of building and expanding the facilities for
operating systems and in integrating and managing the operations of
additional operating systems. The Company's growth strategy will place
significant demands on the Company's operational, financial and marketing
resources and on its management. Any failure to manage the Company
effectively could have a material adverse effect on the Company.
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PROJECT LEVEL RISKS
OPERATING LOSSES AND NEGATIVE CASH FLOW; DEPENDENCE ON ADDITIONAL
FINANCING/CAPITAL
In the past, each of the Company's operating companies have generated
operating losses and negative cash flow from operations, and the Company
expects that certain of its operating companies will continue to generate
operating losses and negative cash flow from operations for the foreseeable
future. The business of the operating companies and other wireless projects
is capital intensive and, in light of such anticipated negative cash flow
from operations, will require continuing sources of outside financing to fund
working capital needs, capital expenditures and other cash requirements. The
Company's strategy is to seek such additional financing at the operating
companies primarily from third parties and not from the Company or its
partners. However, there can be no assurance that the operating companies and
other wireless projects will be able to obtain the financing required to make
planned capital expenditures, provide working capital or meet other cash
needs. Failure to obtain such financing could have a material adverse effect
on the Company and, among other things, could result in the loss or
revocation of licenses held by the operating companies or other wireless
projects or require that certain planned projects be delayed or abandoned. In
particular, at September 30, 1997 a significant portion of the Company's
investments had been made in six operating companies (namely Via 1, which is
developing a regional SMR system in Brazil; Prismanet, which is developing a
national WLL system in Malaysia; TeamTalk, which is developing a nationwide
SMR system in New Zealand; Mobisel, which is developing a national cellular
system in Indonesia; SDL, which is developing various regional cellular
systems in China; and Mobilink, which is developing a national cellular
system in Pakistan), and each of these operating companies will be required
to obtain substantial additional financing in order to complete planned
capital expenditures required to achieve their respective business plans.
The failure of the operating companies and other wireless projects to
obtain additional financing could have a material adverse effect on the
Company and, among other things, could result in the loss or revocation of
licenses held by certain of the such operating companies and other wireless
projects, require that certain planned projects be delayed, scaled back or
abandoned, delay or prevent growth in subscriber levels and harm
relationships with local partners. For example, SDL currently requires
substantial additional capital to build out its network and make required
payments. The failure to obtain such capital could delay growth in adding
subscribers and result in the loss of SDL's right to cooperate with its local
partners in one or more of the seven provinces targeted by SDL or the Beijing
municipality. Moreover, Mobisel currently lacks sufficient financing to
purchase required handsets and build out its network. The failure to obtain
such financing could result in the merger, sale or liquidation of Mobisel.
In most cases, under agreements with its local partners, the Company and
its partners may be required to make additional equity investments in
operating companies or other wireless projects, and the Company's or such
partners' inability or unwillingness to do so could result in the dilution of
such party's equity interest or a significant impairment or loss of the value
of the Company's investment. Moreover, the Company and its other strategic
partners have in the past been required, and in the future likely will be
required, to guarantee and/or pledge their respective equity interests to
secure certain indebtedness of the operating companies and other wireless
projects and otherwise to provide certain assurances to lenders. See
"--Liquidity and Capital Resources." The Indenture contains certain
restrictions on the ability of the Company to make investments in, or
guarantee the indebtedness of, the operating companies and other wireless
projects.
In addition, there can be no assurance that the operating companies or
other wireless projects will be able to pay their indebtedness or other
liabilities when due. Any failure to pay such indebtedness or other
liabilities when due could have a material adverse effect on the Company. See
"--Company Level Risks--Negative Operating Cash Flow; Dependence on
Additional Financing; No Commitments For Additional Financing" below.
Moreover, to date, most of the debt financing obtained by the operating
companies has been secured by assets of the respective operating companies,
and it is likely that any debt financing the operating companies or other
wireless projects obtain in the foreseeable future will also be similarly
secured. The pledge of assets to secure debt financing may limit the
operations of the operating companies and make it substantially more
difficult to obtain additional financing from other sources.
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DEPENDENCE ON LOCAL ECONOMIES; INFLATION; CURRENCY DEVALUATIONS AND
FLUCTUATIONS
The Company's operating companies are dependent, in large part, on the
economies of the developing countries in which they have operations. Many
developing countries have experienced substantial, and in some periods
extremely high, rates of inflation and resulting high interest rates for many
years, as well as significant fluctuations in their exchange rates. For
example, several Latin American countries, including Brazil, experienced
extremely high rates of inflation in 1993 and 1994. Recently, many of the
currencies of developing countries have experienced steady devaluations of
their currencies relative to the U.S. dollar. For example, since mid-1997, a
number of currencies of Southeast Asian countries, including Indonesia, have
experienced dramatic declines in their exchange rates relative to the U.S.
dollar. Such inflation, fluctuations and devaluations have had, and may
continue to have, significant negative effects on the economies and
securities markets of developing countries, including rapid increases in
interest rates, limited credit availability and solvency problems experienced
by many companies and banks with U.S. dollar-denominated loans. Developments
such as these could result in higher unemployment and slower economic growth
in the countries in which the Company's operating companies do business,
which in turn could have a material adverse effect on such operating
companies, including an adverse effect on their subscriber levels and on
their ability to obtain financing. Because tariffs in many of the countries
in which Company's operating companies operate are regulated, certain
operating companies may often be unable to increase tariffs in response to
inflation or currency devaluations, which could have a material adverse
effect on the results of operations of such operating companies. Revenues
generated by the Company's operating companies are generally paid in the
local currency. By contrast, many significant liabilities of such operating
companies (such as liabilities for the financing of telecommunications
equipment) are payable in U.S. dollars. As a result, any devaluation in the
local currency relative to the U.S dollar could have a material adverse
effect on such operating companies and the Company. For example, in
Indonesia, a substantial part of Mobisel's debt is U.S. dollar denominated.
Unless the Indonesian government allows a tariff increase, Mobisel could
experience difficulties in servicing the debt, which could have a material
adverse effect on Mobisel and the Company.
The U.S. dollar-denominated value of the Company's investment in its
operating companies and other wireless projects is partially a function of
the currency exchange rate between the U.S. dollar and the applicable local
currency. In addition, such operating companies and other wireless projects
will report their results of operations in the local currency and,
accordingly, the Company's results of operations may be adversely affected by
changes in currency exchange rates between those currencies and the U.S.
dollar. In general, the Company does not hedge against foreign currency
exchange rate risks. As a result, the Company may experience economic loss
with respect to its investments and fluctuations in its results of operations
solely as a result of currency exchange rate fluctuations. The Company does
not carry currency convertibility risk insurance.
EARLY STAGE OF DEVELOPMENT OF WIRELESS PROJECTS
Although the Company's operating companies currently provide wireless
communications services on a commercial basis, they are in the early stage of
operations, have a limited number of subscribers and are expected to incur
losses for a substantial period of time. The successful development and
commercialization of each of the Company's operating companies and other
wireless projects will depend on a number of significant financial,
logistical, technical, engineering, marketing, administrative, regulatory and
other factors, the outcomes of which cannot be predicted. For example,
Prismanet, the Company's Malaysian WLL operating company, experienced
significant delays in network deployment and its marketing plans in 1996
primarily as a result of adverse effects on Prismanet of an attempt by the
Malaysian government to consolidate the Malaysian telecommunications
industry. See "--Risks Inherent in Foreign Investment." As a result, the
Company and its principal strategic partner in Prismanet extensively reviewed
and revised Prismanet's business plan and strategy. Pursuant to this revised
business plan, Prismanet applied for an allocation of additional spectrum
from the Malaysian regulatory authorities in early 1997. However, Prismanet
was recently informed that it would not receive such spectrum allocation in
the foreseeable future, and the management of Prismanet has undertaken a
second review of its business plan and strategy. Primarily as a result of
the foregoing, which the Company believes has significantly diminished
Prismanet's business prospects and, consequently, the value of the Company's
investment in Prismanet, the Company recorded a significant write-down of its
investment in Prismanet during the quarter ended September 30, 1997.
RISKS INHERENT IN FOREIGN INVESTMENT
The Company has invested substantially all of its resources outside of
the U.S. and plans to continue to invest substantially all of its resources
outside of the U.S. in the future. Governments of many developing countries
have exercised and continue to exercise substantial influence over many
aspects of the private sector. In some cases, the government owns or controls
(i) companies that are or may in the future become competitors of the Company
or (ii) companies (such as national telephone companies) upon which the
operating companies and other wireless projects may depend for required
interconnections to wireline telephone networks and other essential services,
such as the leasing of lines. For example, foreign ownership or operation of
telecommunications ventures is prohibited in China and is limited in
Indonesia. In China and Brazil, in many cases joint venture and shareholder
agreements have not been prepared or signed and/or definitive legal entities
have not been formed. For example, SDL is cooperating with its local partners
in seven provinces and one municipality to construct cellular networks. In
four of such provinces, definitive joint venture entities have not been
formed and SDL is operating under cooperative agreements with its partners
that are not likely to be enforceable under current Chinese law. In the three
provinces where definitive joint venture entities have been formed or are in
the advanced stages of formation, all of the operating permits and other
requisite governmental approvals have not yet been received and the validity
of the definitive joint venture structural model has not been tested.
Accordingly, there can be no assurance that the agreements based on this
model will be legally enforceable.
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Further, in Brazil, although the Company and one local partner have entered
into a shareholders' agreement for the formation and corporate governance of
Via 1, the initial capitalization of Via 1 has not yet been completed. In
addition, although Via 1 is using the licenses held by the Company and its
local partners, formal operating agreements to permit the use of such
licenses have not yet been executed.
Government actions in the future could have a significant adverse effect
on economic conditions in a foreign country or may otherwise have a material
adverse effect on the Company and its operating companies and other wireless
projects. Expropriation, confiscatory taxation, nationalization, political,
economic or social unrest or instability or other developments in foreign
countries could materially adversely affect the value of the Company's
interests in its operating companies and other wireless projects in
particular developing countries. For example, from January 1995 to January
1997, the government of Pakistan shut down all cellular services in the city
of Karachi, which forced Mobilink to cease its operations in that city. The
shutdown ordered by the Pakistani government contributed to significantly
slower growth in Mobilink's subscriber base during the two-year shut down.
Also, in early 1996 in Malaysia, the Malaysian government announced a program
designed to consolidate the Malaysian telecommunications industry which, if
completed, would have forced the sale or merger of Prismanet, the Company's
Malaysian operating company, to one of a limited number of surviving
telecommunications companies. Although the Malaysian government subsequently
announced that it did not intend to proceed with this program, the activities
of the Malaysian government in connection with such program resulted in
significant delays in Prismanet's network deployment, marketing plans and
subscriber growth. There can be no assurance that other countries where the
Company has operating companies and other wireless projects will not impose
similar restrictions or initiate similar programs in the future. The
imposition of any such restriction or initiation of any such program could
have a material adverse effect on the Company. The Company does not have
political risk insurance in the countries in which it currently conducts
business.
Although there are no laws, regulations or binding judgments in Pakistan
that bar a lender's right to receive interest from a borrower under a debt
obligation, a constitutionally established body in Pakistan has voided a
number of statutory provisions which it determined violated Islamic
principles relating to riba (an Islamic term analogous to interest). This
determination is being appealed and reviewed in the courts in Pakistan. If
the determination that interest is contrary to Islamic principles is upheld,
ordinary civil courts in Pakistan might be persuaded to void contracts
pertaining to interest payments on moneys borrowed, including such contracts
made by the Government of Pakistan. This would result in substantial economic
disruption and could have a material adverse effect on the Pakistani economy,
Mobilink and the Company, including the unavailability to Mobilink of
financing from foreign lenders. There can be no assurance that the appeal or
review petition will be successful.
Finally, many of the agreements the Company enters into in connection
with its operating companies and other wireless projects are governed by the
laws of, and are subject to dispute resolution in the courts of, or through
arbitration proceedings in, the country, province or state in which the
operating companies and other wireless projects are located. The Company
cannot predict whether such forums will provide it with an effective and
efficient means of resolving disputes that may arise in the future. Moreover,
even if the Company is able to obtain a satisfactory decision through
arbitration or a court proceeding, there can be no assurance of the
enforcement of the award or judgment, and the Company's ability to obtain or
enforce relief in the U.S. is uncertain.
TECHNOLOGICAL RISK; RISK OF OBSOLESCENCE
Although the Company's operating companies currently use well-established
technologies, they may in the future deploy advanced technologies that may
only recently have been developed and commercially introduced. There can be
no assurance that these operating companies will not experience technical
problems in the commercial deployment of any such advanced technologies,
particularly if they are initially introduced in developing countries. In
addition, the technologies used in wireless communications are evolving
rapidly and one or more of the technologies currently utilized or planned by
the Company to be utilized may, when deployed, be poorly received by its
customers or may become obsolete, which, in either case, would likely have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to keep pace with ongoing technological changes in the
wireless telecommunications industry. Any technical problems or obsolescence
could have a material adverse effect on the Company.
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RISKS ASSOCIATED WITH LICENSES
The ability of the Company's operating companies or their local partners
to retain and utilize their respective telecommunications licenses, to renew
such licenses when they expire and to obtain new licenses in the future is
essential to the Company's operations. However, there can be no assurance
that governmental agencies will not seek to unilaterally limit, revoke or
otherwise adversely modify the terms of these licenses in the future, any of
which could have a material adverse effect on the Company. The Company may
have limited or no legal recourse if any of these events were to occur. See
"--Risks Inherent in Foreign Investment." In the future, additional licenses
may be sought to expand operations, and no assurance can be given that any
such licenses will be obtained. In addition, certain of the licenses will
automatically revert back to the government after a specified period of time,
and there can be no assurance that renewals to these and the other licenses
will be granted or, if renewed, that the renewal terms will not be
substantially less favorable to the Company than the original license terms,
any of which could have a material adverse effect on the Company. Moreover,
the transfer of licenses often requires the approval of governmental
entities. For example, the Brazilian government has not approved the transfer
to Via 1 of entities holding licenses contributed or to be contributed to it
by its current and proposed shareholders, and there can be no assurance that
such approval will be obtained. The failure to obtain such approvals, and
other approvals, licenses and/or renewals could, have a material adverse
effect on the Company.
Additionally, because foreign ownership of telecommunications ventures is
prohibited in China, SDL is not itself the holder of any telecommunications
licenses, and is therefore dependent on its local partners to obtain, retain and
renew the licenses necessary for the commercial operations of SDL's cellular
networks. In addition, the cooperative joint ventures being formed between SDL
and SDL's local partners to build local cellular networks will generally have a
term of 20 years, at the end of which the cooperative joint ventures will be
terminated. Any failure by the relevant Chinese parties to obtain, retain or
renew such licenses and joint venture arrangements could have a material adverse
effect on SDL and the Company. To the extent the Company's operating companies
and other wireless projects require additional licenses to expand their
respective businesses, they may be forced to participate in competitive bidding
processes or to purchase licenses from other license holders at higher prices
than may have historically been paid.
Furthermore, relevant governmental authorities may grant additional
telecommunications licenses, possibly on better terms, covering the same
geographical areas as the operating companies' or other wireless projects'
licenses or otherwise grant licenses which allow other companies to compete
directly with the operating companies and other wireless projects for
wireless subscribers. Although the inherent limitation on suitable frequency
bands may provide some protection against the issuance of competing licenses,
there can be no assurance that such competitive licenses will not be granted
or, if granted, that they will not have a material adverse effect on the
Company. For example, the Pakistan Telecommunications Authority (the "PTA"),
which regulates the provision of telecommunications services, has the
authority to grant a GSM license to Pakistan Telecommunications Company
Limited, the current provider of national wireline services.
Many of the licenses granted to the Company's operating companies and
other wireless projects contain significant restrictions and other
requirements, including those relating to geographic coverage, network
capacity, technology, interconnection to the public wireline network,
attainment of minimum subscriber levels, network construction and commercial
operation deadlines and the local manufacturing of equipment. Failure to
comply with these restrictions and other requirements may result in the loss,
revocation or restriction of the licenses, penalties or increased costs.
Moreover, certain of the Company's operating companies and other wireless
projects have in the past failed to comply or may presently not be in
compliance with certain restrictions and other requirements. In Brazil, for
example, the Company and its proposed partners were unable to comply with
operations commencement deadlines with respect to their licenses and, as a
result, were required to obtain extensions of such deadlines. Although such
failures have not to date led to the loss of any licenses, there can be no
assurance that the relevant governmental authorities will not seek to revoke
licenses as a result of these past defaults or refuse to grant further
deadline extensions, which could have a material adverse effect on Via 1 and
the Company. In addition, Mobilink may currently be in technical violation of
certain requirements of its license relating to network capacity and local
handset manufacturing. There can be no assurance that the Mobilink license
will not be unilaterally revoked for any
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such violations of the terms of its license, which revocation would have a
material adverse effect on Mobilink and the Company.
SUBSTANTIAL LEVERAGE
Pursuant to the Company's strategy of financing with debt at the project
level where possible, most of the operating companies have substantial
indebtedness and, to the extent that additional debt financing is available,
may in the future incur substantial additional indebtedness, in relation to
its base of equity capital. Such indebtedness has important consequences to
the future operations of such operating companies, including that: (i) such
operating companies will have significant cash requirements to service debt,
reducing funds available for operations and future business opportunities and
increasing the vulnerability of the operating companies to adverse general
economic and industry conditions; (ii) the operating companies may be
restricted in the future from obtaining additional financing, whether for
future working capital, additional capital expenditures or other general
corporate purposes; (iii) the operating companies' high level of indebtedness
may adversely impact their flexibility in planning for, or reacting to,
changes to their businesses and market conditions and their ability to
compete with less highly leveraged competitors; and (iv) the operating
companies may be restricted in their ability to pay dividends or make other
distributions to the Company. There can be no assurance that the operating
companies will be able to pay their indebtedness or other liabilities when
due. Any failure to pay such indebtedness or other liabilities when due could
have a material adverse effect on the operating companies and the Company.
See "--Project Level Risks--Negative Operating Cash Flow; Dependence on
Additional Financing."
DEPENDENCE ON OTHER TELECOMMUNICATIONS PROVIDERS
Just as is the case with cellular operators in the U.S., the success of
the Company's wireless networks will in many cases depend upon services
provided by other telecommunications providers, some of which are competitors
of the Company or its operating companies or other wireless projects. For
example, interconnection agreements with national or regional telephone
companies are generally required in order for the wireless networks of the
Company's operating companies and other wireless projects to interconnect
with wireline telephone networks, and may require the use of microwave, fiber
optic or other lines belonging to other parties to link their wireless
networks. Although a number of operating companies have entered into
interconnection and/or leased-line agreements or have interconnection and/or
leased-line arrangements in place, the revocation, loss or modification of
any of these existing agreements or arrangements or the failure to obtain
necessary agreements and/or arrangements in the future on reasonable terms,
could have a material adverse effect on the operating companies and the
Company. The terms under which the operating companies are currently
permitted to interconnect with certain other networks, or may be permitted to
do so in the future, may restrict their ability to exploit significant
opportunities, or to otherwise manage their respective businesses
efficiently. For example, Mobilink currently interconnects to the local
wireline operator in Pakistan pursuant to an oral understanding and does not
have a written interconnection agreement. While Mobilink is currently
negotiating a definitive interconnection agreement, there can be no assurance
that it will be able to do so, or that any interconnection agreement entered
into will be on reasonable terms. Any failure of Mobilink to continue to have
access to interconnection would have a material adverse effect on Mobilink
and the Company. Also, in China, although the Company believes that the
Ministry of Post and Telecommunications, the principal body responsible for
regulation of the telecommunications industry and the local exchange provider
(the "MPT"), supports the construction by SDL and its local partners of
cellular networks in China, there can be no assurance that such support will
continue. Any decision by the MPT not to support the development by Star
Digitel and its local partners of cellular networks would have a material
adverse effect on Star Digitel and the Company.
DEPENDENCE ON PARTNERS
The Company will generally continue to depend on its local partners to
obtain required licenses in all of its wireless projects. In addition, the
Company may become dependent on strategic partners with resources beyond
those of the Company to pursue larger scale projects, including certain WLL
projects. In WLL projects, the Company may require the participation of a
larger telecommunications company possessing the substantial capital and
operating resources required to finance and deploy a WLL system. The failure
of the Company to identify and enter into relationships with strong partners,
or the failure of those partners to provide these resources, may have a
material adverse effect on the Company.
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CONSTRUCTION AND OPERATING RISKS
The Companies operating companies and other wireless projects typically
require substantial construction of new wireless networks and additions to
existing wireless networks. Construction activity requires such operating
companies and other wireless projects to obtain qualified subcontractors and
necessary equipment on a timely basis, the availability of which varies
significantly from country to country. Construction projects are subject to
cost overruns and delays not within the control of such operating companies
and other wireless projects or their subcontractors, such as those caused by
acts of governmental entities, financing delays and catastrophic occurrences.
Delays can also arise from design changes, material and equipment shortages,
delays in delivery and the inability to obtain required financing.
Accordingly, there can be no assurance that the operating companies and other
wireless projects will be able to complete current or future construction
projects for the amount budgeted or within the time periods projected, or at
all. Failure to complete construction for the amount budgeted or on a timely
basis could jeopardize predicted subscriber growth, contracts, franchises or
licenses and could have a material adverse effect on the Company.
In addition, the success of the operating companies and other wireless
projects will depend on effective and cost-efficient management information,
billing and collection systems that allow the Operating Companies to send
bills and collect payments on a timely basis. For example, Mobisel, the
Company's national cellular project in Indonesia, recently installed a new
billing and collection system which created a more accurate subscriber
database. As a result, Mobisel was required to write down a portion of its
subscriber base. Failure to implement such systems and procedures could
result, among other things, in substantial amounts of uncollectible accounts
receivable and inaccurate subscriber records. See "--Risks Associated With
Licenses."
CUSTOMER RISKS; SUBSCRIBER FRAUD
Customer attrition (commonly referred to in the telecommunications
industry as "churn") results in the loss of future revenue from subscribers
whose service is disconnected and the inability to recoup any unrecovered
costs incurred in acquiring the subscriber, typically equipment subsidies and
dealer commissions. Churn occurs for several reasons, including primarily
disconnection by a company for non-payment of bills and to a lesser extent
disconnection by the subscriber who chooses to switch to a competing service
or terminate service, particularly when two or more vendors offer the same
wireless service in a single market. The Company expects that as the
subscriber bases of its operating companies grow and the industry matures,
the churn rates of the operating companies may increase. The inability of the
operating companies to maintain their churn at a relatively low level could
have a material adverse effect on the Company and its operating companies.
Also, because it may be more difficult for operating companies to ascertain
the creditworthiness of potential customers, they may experience a higher
level of bad debt expense than otherwise would be the case. The failure to
effectively manage customer credit risk would have a material adverse effect
on the Company. All cellular networks are subject to fraud. Fraud can take
many forms, including subscribers misrepresenting their backgrounds or
financial capabilities to obtain cellular service ("subscription fraud"),
sophisticated technology-based theft of subscriber identification codes for
use on stolen cellular phones ("cloning") and users employing false
identification to roam into a network ("roaming fraud"). All types of
cellular fraud found in the U.S. are found in developing countries. While the
Company believes it is taking reasonable steps to forestall fraud in its
networks, there can be no assurance that fraud will not substantially effect
the revenues or profits of one or more of its operating companies.
COMPETITION
Although the implementation of advanced wireless technologies is in the
early stages of deployment in most developing countries, the Company believes
that its business will become increasingly competitive, particularly as
businesses and foreign governments realize the market potential of these
wireless technologies. A number of large American, Japanese and European
companies, including U.S.-based regional Bell operating companies ("RBOCs") and
large international telecommunications companies, are actively engaged in
programs to develop and commercialize wireless technologies in developing
counties. In many cases, the Company will also compete against local land-line
carriers, including government-owned telephone companies. Most of these
companies have substantially greater financial and other resources, including
research and development staffs and technical and marketing capabilities than
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the Company. Subject to the availability of additional spectrum, the Company
anticipates that there will be increasing competition for additional licenses
and increased competition to the extent such licenses are obtained by others.
Although the Company intends to employ relatively new technologies, there
will be a continuing competitive threat from even newer technologies which
may render the technologies employed by the Company obsolete.
REGULATION
The Company's operating companies and other wireless projects are
generally subject to a high degree of regulation by the governments in the
countries in which they operate. Such regulations are constantly evolving and
may change significantly over time. Many of the countries in which the
Company has interests have only recently adopted laws and regulations
pertaining to telecommunications services, and in many cases these laws and
regulations are undergoing significant revision and re-evaluation. There can
be no assurance that material and adverse changes in the regulation of the
Company's operating companies and other wireless projects will not occur in
the future. To date, certain operating companies and other wireless projects
have been subject to regulations in many areas, including with respect to
restrictions on foreign ownership or operation, service requirements, foreign
debt registration and approval requirements, restrictions on interconnection
of wireless systems to government-owned or private telephone networks,
subscriber rate-setting, technology and construction requirements. As in the
U.S., these regulations can impose significant restrictions on operations.
The failure to comply with applicable governmental regulations or operating
requirements could result in the loss of licenses, limit the ability of an
operating company or other wireless project to add subscribers or otherwise
have a material adverse effect on the Company. In addition, delays caused by
governmental approval or licensing procedures could have a material adverse
effect on the Operating Companies and the Company. See "--Project Level
Risks--Risks Inherent in Foreign Investment." To the extent that any of the
Operating Companies seeks to make a dividend or other distribution to the
Company, or to the extent that the Company seeks to liquidate its investment
in an Operating Company and repatriate monies from a relevant country, local
taxes, foreign exchange controls or other restrictions may effectively
prevent the transfer of funds to the Company or the exchange of local
currency for U.S. dollars.
FOREIGN CORRUPT PRACTICES ACT
The Company is subject to the Foreign Corrupt Practices Act ("FCPA"),
which generally prohibits U.S. companies and their intermediaries from
bribing foreign officials for the purpose of obtaining or keeping business or
licenses or otherwise obtaining favorable treatment. Although the Company has
taken precautions to comply with the FCPA, there can be no assurance that
such precautions will protect the Company against liability under the FCPA,
particularly as a result of actions which may in the past have been taken or
which may be taken in the future by agents and other intermediaries for whose
actions the Company may be held liable under the FCPA. In particular, the
Company may be held responsible for actions taken by its strategic or local
partners even though such strategic or local partners are themselves
typically foreign companies which are not subject to the FCPA; and the
Company has no ability to control such strategic or local partners. Any
determination that the Company has violated the FCPA could have a material
adverse effect on the Company.
IMPORT DUTIES ON NETWORK EQUIPMENT AND HANDSETS
The Company's wireless projects are highly dependent upon the successful
and cost-efficient importation of infrastructure equipment and handsets from
North America, Europe and Japan. In certain countries in which the Company
operates, network equipment and handsets are subject to significant import
duties and other taxes. There can be no assurance that these import duties
will not increase significantly in the future, which could have a material
adverse effect on the applicable wireless project.
RADIO FREQUENCY EMISSION CONCERNS
Certain consumers have alleged that serious health risks have resulted
from the use of certain mobile communications devices. The actual or
perceived health risks of mobile communications devices could adversely
affect mobile communication service providers, including the Company,
through, among other things, reduced subscriber growth, reduced network
usage, the threat of product liability suits and limitations on financing.
37
<PAGE>
TAX RISKS
Distributions of earnings and other payments received by the Company from the
Company's operating subsidiaries and affiliates are likely to be subject to
withholding taxes imposed by the jurisdictions in which such entities are formed
or operating. In general, a U.S. corporation may claim a foreign tax credit
against its federal income tax expense for such foreign withholding taxes and
foreign taxes paid directly by corporate entities in which the Company owns 10%
or more of the voting stock. The ability to claim such foreign tax credits and
to utilize net foreign losses is, however, subject to numerous limitations, and
the Company may incur incremental tax costs as a result of these limitations or
because the Company is not in a tax paying position in the U.S. Special U.S. tax
rules apply to U.S. taxpayers that own stock in a "passive foreign investment
company" (a "PFIC") that could also increase the Company's effective rate of
taxation. In general, a non-U.S. corporation will be treated as a PFIC if at
least 75 percent of its income is "passive income" or if at least 50 percent of
its assets are held for the production of "passive income." A non-U.S.
corporation that owns 25 percent or more of the stock of a non-U.S. subsidiary
is treated as receiving a proportionate share of the income of, and as owning a
proportionate share of the assets of, such subsidiary. It is possible that
certain of the Operating Companies are PFICs. Generally, except to the extent
the Company makes an election to treat a PFIC in which it owns stock as a
"qualified electing fund" (a "QEF election") in the first taxable year in which
the Company owns the PFIC's stock, (i) the Company would be required to allocate
gain recognized upon the disposition of stock in the PFIC and income recognized
upon receiving certain dividends ratably over the Company's holding period for
the stock in the PFIC, (ii) the amount allocated to each year other than the
year of the disposition or dividend payment would be taxable at the highest U.S.
tax rate applicable to corporations, and an interest charge for the deemed
deferral benefit would be imposed with respect to the tax attributable to each
year, and (iii) gain recognized upon disposition of PFIC shares would be taxable
as ordinary income. If the Company were to make the QEF election, as described
above, the Company would be required in each year that the PFIC qualification
tests are met to include its pro rata share of the QEF's earnings as ordinary
income and its pro rata share of the QEF's net capital gain as long-term capital
gain, whether or not such amounts are actually distributed. The Company has not
made any QEF elections with respect to any non-U.S. corporation in which it
holds stock. The Company may also be required to include in its income for U.S.
income tax purposes its proportionate share of the earnings of those foreign
corporate subsidiaries that are classified as "controlled" foreign corporations
without regard to whether distributions have been received from such companies.
38
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- Not Applicable.
ITEM 2. CHANGES IN SECURITIES.
(a), (b) Changes in Rights of Security Holders
(c) Sales of Unregistered Securities During the Three Months Ended
September 30, 1997
(i) On August 18, 1997, the Company issued and sold an aggregate of 493,510
shares of Common Stock to IWC for a promissory note in the principal amount
of $6,159,000. Such shares were subsequently contributed by IWC to certain
wholly owned subsidiaries and were eventually transferred to an unrelated
party as partial payment of the purchase price for the Company's acquisition
of an interest in Mobilink.
(ii) Also on August 18, 1997, the Company issued warrants to purchase an
aggregate of 247,756 shares of Common Stock at a strike price of $0.01 per
share to 31 persons, including TDI, VCFC and other stockholders and service
providers of the Company, and/or their respective affiliates, in connection
with the Pakistan Bridge Facility.
(iii) On September 18, 1997, the Company issued warrants to purchase an
aggregate of 69,601 shares of Common Stock to Vanguard in connection with the
Vanguard SDL Guarantee.
(iv) On September 24, 1997, the Company issued a warrant to purchase an
aggregate of 81,982 shares of Common Stock at a strike price of $0.01 per
share to an unaffiliated third party as payment for the Company's share of a
finder's fee in connection with its investment in Mobilink.
(v) In connection with the foregoing issuances of warrants to purchase shares
of the Company's Common Stock, the number of shares issuable upon exercise of
the Unit Warrants increased from an aggregate of 2,809,746 to an aggregate of
2,875,169 pursuant to the terms of the Unit Warrants.
The issuances of the Company's securities described in clauses (i) to (iv)
above were deemed exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon Section 4(2) thereof.
The recipients of the securities in the transactions described in such
clauses represented their intentions to acquire such securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the instruments
evidencing the securities issued in such transactions. All recipients had
adequate access, primarily through their relationships with the Company, to
information about the Company. The issuance of the Company's securities
described in clause (v) above was deemed exempt from registration because no
"sale" occurred within the meaning of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 18, 1997, holders of the requisite number of shares of the
Company's capital stock approved the following matters by written consent in
lieu of a meeting:
(a) The amendment and restatement of the company's Amended and Restated
Certificate of Incorporation to provide, among other things, for the
designation of Series G-1, Series G-2, Series H-1 and Series H-2
Preferred Stock, including the rights, preferences, privileges and
restrictions granted to or imposed upon such series;
(b) A waiver of certain anti-dilution and other rights under the Company's
Amended and Restated Certificate of Incorporation in connection with the
transactions effected as part of the Pakistan Bridge Facility;
39
<PAGE>
(c) Certain approvals required pursuant to, waivers of rights contained in and
amendments to the Series F Purchase Agreement, the Registration Rights
Agreement and the Investor Rights Agreement in connection with the
Pakistan Bridge Facility; and
(d) The reinvestment by the Company of the proceeds from the sale of the
Company's 1.56% equity interest in Mobilcom Mexico, which sale was
consummated in June 1997.
Holders of 560,640 shares of the Company's Common Stock, representing 67% of
the then-outstanding shares of Common Stock; 753,200 shares of the Company's
Series A Preferred Stock, representing 81% of the then-outstanding shares of
Series A Preferred Stock; 1,229,240 shares of the Company's Series B
Preferred Stock, representing 100% of the then-outstanding shares of Series B
Preferred Stock; 1,627,320 shares of the Company's Series C Preferred Stock,
representing 92% of the then-outstanding shares of Series C Preferred Stock;
3,301,901 shares of the Company's Series D Preferred Stock, representing 90%
of the then-outstanding shares of Series D Preferred Stock; 3,972,240 shares
of the Company's Series E Preferred Stock, representing 100% of the
then-outstanding shares of Series E Preferred Stock; and 3,439,080 shares of
the Company's Series F-1 Preferred Stock, representing 76% of the
then-outstanding shares of Series F-1 Preferred Stock voted in favor of the
foregoing matters. No holders of shares of the then-outstanding capital
stock of the Company voted against the foregoing matters.
ITEM 5. OTHER INFORMATION -- Not Applicable.
40
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.10A (1) Share Purchase Agreement between Motorola International
Development Corporation ("MIDC") and International Wireless
Communications Pakistan Limited ("IWCPL"), dated July 17, 1997
2.10B (2) Share Purchase Agreement between Continental Communications
Limited ("CCL") and IWCPL, dated July 17, 1997
2.10C (3) Restated and Amended Shareholders Agreement among MIDC, Saif
Telecom (Pvt) Ltd ("Saif") and IWCPL, dated August 13, 1997
2.10D (4) Side Letter regarding Shareholder Obligations among IWCPL, Saif,
MIDC and Saif, dated August 13, 1997
2.10E (5) Amended and Restated Shareholders' Agreement among IWCPL,
Pakistan Wireless Holdings Limited ("PWH"), Vanguard Pakistan,
Inc. ("Vanguard Pakistan") and South Asia Wireless Communications
(Mauritius) Limited ("SAWC"), dated August 13, 1997
2.10F (5) IWC Group Agreement between PWH and Vanguard Pakistan, dated
August 13, 1997; Voting Trust Agreement between PWH and
Vanguard Pakistan, dated August 13, 1997
2.10G (5) Deed of Adherence to IWCPL Shareholders Agreement among IWCPL,
PWH, Vanguard Pakistan and SAWC, dated August 27, 1997
2.10H (6) License granted to Pakistan Mobile Communications Limited by the
Government of Pakistan, Ministry of Communications, dated July
6, 1992 (the "Mobilink License")
2.10I (5) Re-validation of the Mobilink License, dated August 9, 1997
2.10J (5) Letter Agreement Amending the Restated and Amended Shareholders
Agreement Among MIDC, Saif and IWCPL dated August 1997.
10.13G Amendment Agreement among PT Rajasa Hazanah Perkasa, Nissho
Iwai Corporation, PT Bina Reksa Perdana, International Wireless
Communications, Inc. ("IWC") and PT Deltonya Satya Dinamika,
dated October 29, 1996
10.16F Deed of Adherence between Star Digitel Limited ("SDL") and IWC
China Limited ("IWC China"), dated June 18, 1997
10.16G Bridge Loan Agreement between Star Digitel Limited ("SDL") and the
Toronto-Dominion Bank ("TD-Bank") dated May 16, 1997 ("SDL Bridge
Loan Agreement")
10.16H Pledge Agreement made by IWC in favor of TD-Bank, dated June 5,
1997
10.16I Reimbursement Agreement by and among SDL, Star Telecom Holding
Limited ("STHL") and Vanguard Cellular Financial Corporation
("VCFC"), dated May 16, 1997
10.16J SDL Bridge Loan Agreement Supplement No. 1 between SDL and TD-Bank
dated September 18, 1997 ("Bridge Loan Supplement")
10.16K(7) Reimbursement Agreement between IWC China and VCFC in connection
with the Bridge Loan Supplement, dated September 18, 1997
10.16L Amended and Restated Negative Pledge Agreement made by IWC and IWC
China in favor of TD-Bank, dated September 18, 1997
10.16M Conditional Deed of Adherence between SDL and VCFC dated September
18, 1997
10.28A (5) Loan Agreement between International Wireless Communications
Holdings, Inc. ("IWCH"), VCFC and TD-Bank, dated
August 18, 1997
10.28B (5) Exchange Agreement between IWCH, VCFC, TD-Bank and other
Noteholders and Warrantholders, dated August 18, 1997
10.28C (5) Amended and Restated Certificate of Incorporation of IWCH,
dated September 10, 1997
10.28D (5) Intercreditor and Collateral Agency Agreement dated August 18,
1997
10.28E (5) IWCH Tranche A Senior Exchangeable Note
41
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.28F (5) IWCH Warrant to Purchase Common Stock
10.28G (5) Loan Agreement between PWH, VCFC and TDI, dated August 18, 1997
10.28H (5) PWH Tranche A Exchangeable Senior Secured Note
10.28I (5) Pledge Agreement between PWH and TDI, dated August 18, 1997
10.28J (5) Security Agreement among PWH and TDI, dated August 18, 1997
10.28K (5) Stock Option Agreement between IWCH and PWH, dated August 18,
1997
10.28L (5) Supplement to Share Purchase Agreement between IWCH and
Continental Communications Limited, dated August 18, 1997
10.28M (5) Sixth Amended and Restated Investor Rights Agreement, dated
August 27, 1997
10.28N (5) Amended and Restated Registration Rights Agreement, dated
August 27, 1997
10.280 Memorandum of Understanding among Vanguard Cellular Systems,
Inc., Electra Investment Trust PLC and certain other
shareholders of IWCH listed therein, dated August 14, 1997
27.1 Financial Data Schedule
- ------------------
(1) Incorporated by reference to Exhibit No. 10.27A to the Registrant's
Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on August 12, 1997 (the "June 1997 Form 10-Q")
(2) Incorporated by reference to Exhibit No. 10.27B to the June 1997 Form 10-Q
(3) Incorporated by reference to Exhibit No. 10.27C to the June 1997 Form 10-Q
(4) Incorporated by reference to Exhibit No. 10.27D to the June 1997 Form 10-Q
(5) Incorporated by reference to an Exhibit with the same exhibit number to the
Registrant's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 12, 1997.
(6) Incorporated by reference to Exhibit No. 10.27G to the June 1997 Form 10-Q
(7) To be filed by amendment.
(b) REPORTS ON FORM 8-K
On September 11, 1997, the Company filed a Current Report on Form 8-K to
report the acquisition by the Company of a 20% indirect equity interest in
Mobilink and the financing of such acquisition through the proceeds from
Pakistan Bridge Facility. Mobilink is a Pakistani corporation that provides
cellular services in Pakistan. No financial statements for Mobilink or for the
Registrant were required to be filed with such Report on Form 8-K.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1997 INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
(Registrant)
By: /s/ Douglas S. Sinclair
-----------------------------------
Douglas S. Sinclair
Executive Vice President and
Chief Financial Officer
By: /s/ Keith D. Taylor
-----------------------------------
Keith D. Taylor
Vice President, Controller and
Chief Accounting Officer
43
<PAGE>
EXHIBIT INDEX*
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. DESCRIPTION DOCUMENT NO.
----------- ----------- -----------
<S> <C> <C>
2.10A (1) Share Purchase Agreement between Motorola International -
Development Corporation ("MIDC") and International Wireless
Communications Pakistan Limited ("IWCPL"), dated July 17, 1997
2.10B (2) Share Purchase Agreement between Continental Communications -
Limited ("CCL") and IWCPL, dated July 17, 1997
2.10C (3) Restated and Amended Shareholders Agreement among MIDC, Saif -
Telecom (Pvt) Ltd ("Saif") and IWCPL, dated August 13, 1997
2.10D (4) Side Letter regarding Shareholder Obligations among IWCPL, -
Saif, MIDC and Saif, dated August 13, 1997
2.10E (5) Amended and Restated Shareholders' Agreement among IWCPL, -
Pakistan Wireless Holdings Limited ("PWH"), Vanguard Pakistan,
Inc. ("Vanguard Pakistan") and South Asia Wireless Communications
(Mauritius) Limited ("SAWC"), dated August 13, 1997
2.10F (5) IWC Group Agreement between PWH and Vanguard Pakistan, dated -
August 13, 1997; Voting Trust Agreement between PWH and
Vanguard Pakistan, dated August 13, 1997
2.10G (5) Deed of Adherence to IWCPL Shareholders Agreement among IWCPL, -
PWH, Vanguard Pakistan and SAWC, dated August 27, 1997
2.10H (6) License granted to Pakistan Mobile Communications Limited by -
the Government of Pakistan, Ministry of Communications, dated
July 6, 1992 (the "Mobilink License")
2.10I (5) Re-validation of the Mobilink License, dated August 9, 1997 -
2.10J (5) Letter Agreement Amending the Restated and Amended Shareholders -
Agreement Among MIDC, Saif and IWCPL dated August 1997. -
10.13G Amendment Agreement among PT Rajasa Hazanah Perkasa, Nissho 2
Iwai Corporation, PT Bina Reksa Perdana, International Wireless
Communications, Inc. ("IWC") and PT Deltonya Satya Dinamika,
dated October 29, 1996
10.16F Deed of Adherence between Star Digitel Limited 3
("SDL") and IWC China Limited ("IWC China"), dated June 18, 1997
10.16G Bridge Loan Agreement between Star Digitel Limited ("SDL") and 4
the Toronto-Dominion Bank ("TD-Bank") dated May 16, 1997
("SDL Bridge Loan Agreement")
10.16H Pledge Agreement made by IWC in favor of TD-Bank, dated 5
June 5, 1997
10.16I Reimbursement Agreement by and among SDL, Star Telecom Holding 6
Limited ("STHL") and Vanguard Cellular Financial Corporation
("VCFC"), dated May 16, 1997
10.16J SDL Bridge Loan Agreement Supplement No. 1 between SDL and 7
TD-Bank dated September 18, 1997 ("Bridge Loan Supplement")
10.16K(7) Reimbursement Agreement between IWC China and VCFC in -
connection with the Bridge Loan Supplement, dated
September 18, 1997
10.16L Amended and Restated Negative Pledge Agreement made by 8
IWC and IWC China in favor of TD-Bank, dated
September 18, 1997
10.16M Conditional Deed of Adherence between SDL and VCFC dated 9
September 18, 1997
10.28A (5) Loan Agreement between International Wireless Communications -
Holdings, Inc. ("IWCH"), VCFC and TD-Bank, dated August 18, 1997
10.28B (5) Exchange Agreement between IWCH, VCFC, TD-Bank and other -
Noteholders and Warrantholders, dated August 18, 1997
10.28C (5) Amended and Restated Certificate of Incorporation of IWCH, -
dated September 10, 1997 -
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. DESCRIPTION DOCUMENT NO.
----------- ----------- -----------
<S> <C> <C>
10.28D (5) Intercreditor and Collateral Agency Agreement dated August 18, -
1997
10.28E (5) IWCH Tranche A Senior Exchangeable Note -
10.28F (5) IWCH Warrant to Purchase Common Stock -
10.28G (5) Loan Agreement between PWH, VCFC and TDI, dated August 18, 1997 -
-
10.28H (5) PWH Tranche A Exchangeable Senior Secured Note -
10.28I (5) Pledge Agreement between PWH and TDI, dated August 18, 1997 -
10.28J (5) Security Agreement among PWH and TDI, dated August 18, 1997 -
10.28K (5) Stock Option Agreement between IWCH and PWH, dated August 18, -
1997
10.28L (5) Supplement to Share Purchase Agreement between IWCH and -
Continental Communications Limited, dated August 18, 1997
10.28M (5) Sixth Amended and Restated Investor Rights Agreement, dated -
August 27, 1997
10.28N (5) Amended and Restated Registration Rights Agreement, dated -
August 27, 1997
10.28O Memorandum of Understanding among Vanguard Cellular Systems, 10
Inc., Electra Investment Trust PLC and certain other
shareholders of IWCH listed therein, dated August 14, 1997
27.1 Financial Data Schedule 11
</TABLE>
- -----------------
(1) Incorporated by reference to Exhibit No. 10.27A to the Registrant's
Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on August 12, 1997 (the "June 1997 Form 10-Q")
(2) Incorporated by reference to Exhibit No. 10.27B to the June 1997 Form 10-Q
(3) Incorporated by reference to Exhibit No. 10.27C to the June 1997 Form 10-Q
(4) Incorporated by reference to Exhibit No. 10.27D to the June 1997 Form 10-Q
(5) Incorporated by reference to an Exhibit with the same exhibit number to the
Registrant's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 12, 1997.
(6) Incorporated by reference to Exhibit No. 10.27G to the June 1997 Form 10-Q
(7) To be filed by amendment.
45
<PAGE>
EXHIBIT 10.13G
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "Agreement") is made on the 29 day of October
1996 by and among:
1. PT. RAJASA HAZANAH PERKASA, a company duly established under the laws of
the Republic of Indonesia, having its office at Wisma Pejaten, Jalan
Pejaten Barat No. 6, Jakarta 12510, Republic of Indonesia (hereinafter
referred to as the "Company");
2. NISSHO IWAI CORPORATION, a company duly established under the laws of
Japan, having its office at 4-5, Akasak 2-Chome, Minato-ku, Tokyo 107,
Japan (hereinafter referred to as the "New Shareholder");
3. PT. BINA REKSA PERDANA, a company duly established under the laws of the
Republic of Indonesia, having its office at Arthaloka Building 4th Floor,
Jalan Jend. Sudirman Kav. 2, Jakarta Selatan, Republic of Indonesia
(hereinafter referred to as "BRP");
4. INTERNATIONAL WIRELESS COMMUNICATIONS, INC, a company duly established
under the laws of the State of Delaware, United States of America, having
its office at 400 South El Camino, Suite 1275 San Mateo, California 94402,
United States (hereinafter referred to as "IWC"); and
5. PT. DELTONA SATYA DINAMIKA, a company duly established under the laws of
the Republic of Indonesia, having its office at Setiabudi Building 2 Lt.
3A, Jalan HR. Rasuna Said 1, Jakarta Selatan, Republic of Indonesia
(hereinafter referred to as the "DSD"; BRP, IWC and DSD are hereinafter
collectively referred to as the "Existing Shareholders" and individually as
an "Existing Shareholder").
RECITALS
WHEREAS, the Existing Shareholders and the Company are party to a
Shareholders Agreement dated 9 November 1995 (the "Shareholders Agreement");
WHEREAS, the New Shareholder is party to a Subscription Agreement dated the
date hereof among the New Shareholder, Nissho Iwai Hong Kong Corporation
Limited ("NIHK"), the Existing Shareholders and the Company (the
"Subscription Agreement"), pursuant to which the New Shareholder will, after
certain BKPM, Ministry of Justice and other approvals have been obtained,
subscribe for 773 (seven hundred seventy three) newly issued shares of the
Company (the "New Shares"), constituting three percent (3%) of the
anticipated fully issued and outstanding shares of the Company;
<PAGE>
WHEREAS, the New Shareholder, NIHK and the Company have entered into a Loan
Agreement dated the date hereof, pursuant to which NIHK has agreed to lend
US$4,400,000 to the Company (the "Loan") as a prepayment for the issuance of
the New Shares to the New Shareholder and if the New Shares are not issued to
the New Shareholders by the date six (6) months after the proceeds of the
Loan have been disbursed to the Company, the New Shareholder shall be
entitled to acquire 773 shares directly from the Existing Shareholders (the
"Existing Shares") by assigning the Loan but excluding all accrued interest
thereon to the Existing Shareholders and remitting the sum of US$4,100,000 to
such Existing Shareholders, all pursuant to the terms of the Subscription
Agreement and the Loan Agreement.
WHEREAS, pursuant to the terms of the Loan Agreement and the Subscription
Agreement, it is a condition precedent to the obligation of NIHK to make the
Loan and for the New Shareholder to subscribe for the New Shares thereunder,
that the Company, the Existing Shareholders and the New Shareholder amend the
Shareholders Agreement to provide INTER ALIA for the admission of the New
Shareholder as a party to the Shareholders Agreement; and
WHEREAS, the Existing Shareholders and the New Shareholder wish to amend the
Shareholders Agreement in the manner contemplated in the Loan Agreement.
NOW THEREFORE, having regard to the above and based on the mutual promises
and covenants herein contained, the parties agree that the Shareholders
Agreement be, and it hereby is, amended as follows:
1. ADMISSION OF NEW SHAREHOLDER. The New Shareholder hereby agrees that on
the date that the New Shares are duly issued to the New Shareholder in
accordance with the terms of the Subscription Agreement or the date the
Existing Shares are acquired by the New Shareholder (the "Effective Date"),
it shall be fully bound by the terms and conditions of the Shareholders
Agreement, as hereby amended, as a party thereto, and the Existing
Shareholders agree to the admission of the New Shareholder as a party to
such agreement. The parties agree that from and after the Effective Date
each reference in the Shareholders Agreement, as hereby amended, to
"Party", "Parties", "party" or "parties" shall be deemed to include the New
Shareholder.
2. ARTICLE 5.7 - GUARANTEE OBLIGATIONS. The Existing Shareholders and the
Company agree that the New Shareholder shall not be required to furnish any
guarantees or other obligations in respect to any financing obtained by the
Company as set forth in Article 5.7 of the Shareholders Agreement.
3. ARTICLE 6.1(c). The first three lines and the last four lines of Article
6.1(c) of the Shareholders Agreement shall be amended to read as follows:
<PAGE>
(c) each of the Parties shall comply with the provisions of all applicable
national, federal, state, provincial, and local laws, ordinances and
regulations of the United States of America, Japan and the Republic of
Indonesia...
(iv) to any other persons or entity, the payment of which would
violate the laws, or regulations having the force of law, of the
United States of America, Japan or the Republic of Indonesia or any
other governmental entity having jurisdiction over the activities
being carried out under this Agreement.
4. ARTICLE 14.3 - NOTICES. The Shareholders Agreement shall be amended by
inserting the following provision after the first paragraph of Article
14.3:
If to Nissho Iwai Corporation, addressed to:
NISSHO IWAI CORPORATION
4-5, Akasaka 2-Chome
Minato-ku, Tokyo 107
Japan
Facsimile: (813) 3588-4693
Attention: Takashi Kaida
---------------
General Manager
5. PUT OPTION. In the event the Company acquires an equity interest or
invests in any other company or entity which the New Shareholder considers,
in its absolute discretion, objectionable for whatever reason, the New
Shareholder shall have the right to sell all, but not less than all, of the
New Shares or the Existing Shares (as the case may be) to the Company or to
all of the Existing Shareholders, upon notice (the "Notice") to the Company
or to the Existing Shareholders, as the case may be (the "Purchaser(s)"),
for an amount equal to US$8,500,000 (UNITED STATES DOLLARS EIGHT MILLION
FIVE HUNDRED THOUSAND). Upon receipt of the Notice, the Purchaser(s) shall
take all such action necessary to promptly obtain the necessary consents
and approvals to effect the sale of the New Shares or the Existing Shares
(as the case may be) to the Purchaser(s) within ninety (90) days of the
date of receipt of the Notice. The Purchaser(s) may also arrange for a
third party to acquire the New Shares or the Existing Shares (as the case
may be) from the New Shareholder, provided the sale of the New Shares or
the Existing Shares (as the case may be) shall occur within ninety (90)
days of the date the Notice is delivered to the Purchaser(s) and at least
US$8,500,000 of the proceeds are paid to the New Shareholder. The right to
sell the New Shares or the Existing Shares (as the case may be) hereunder
shall expire on the date ten (10) years after the Effective Date.
<PAGE>
6. TERMS UNCHANGED. Except as expressly amended hereby, all of the terms and
conditions of the Shareholders Agreement shall remain in full force and
effect.
7. NEW SHAREHOLDERS AGREEMENT. In the event that a new investor or strategic
partner subscribes for shares in the Company prior to or after the
Effective Date, the New Shareholder shall be invited to participate in any
and all meetings related to the negotiation of the terms and conditions of
any new shareholder, joint venture or other similar agreement setting forth
the rights and obligations of the shareholders of the Company in respect of
the Company. No such agreement may be entered into without the signature
and participation of the New Shareholder.
8. SEVERABILITY. If one or more of the provisions hereof shall be invalid,
illegal or unenforceable in any respect under any applicable law or
decision, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected or impaired in any way.
The Company and each of the Existing Shareholders shall execute such
additional documents as the New Shareholder may request in order to give
effect (so as to make the same valid, legal and enforceable) to any
provision hereof which is determined to be invalid, illegal or
unenforceable.
9. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. GOVERNING LAW AND DISPUTE RESOLUTION. Article 13 of the Shareholders
Agreement is hereby incorporated into and made an inseparable part of this
Shareholders Agreement.
IN WITNESS WHEREOF the parties have executed or caused their duly authorized
representatives to execute this Agreement on the day and year first above
written.
PT. RAJASA HAZANAH PERKASA
By /s/ Suprapto Pegent
---------------------------------------
Suprapto Pegeng
President Director
NISSHO IWAI CORPORATION
By /s/ Ikuo Endo
---------------------------------------
Ikuo Endo under a Power of Attorney
dated 25 October 1996
<PAGE>
PT. BINA REKSA PERDANA
By /s/ Tonny Hardianto By /s/ Hotomo Mandala Putra
----------------------------- -----------------------------------
Tonny Hardianto Hutomo Mandala Putra
President Director President Commissioner
INTERNATIONAL WIRELESS COMMUNICATIONS, INC.
By /s/ Hugh McClung
---------------------------------------
Hugh McClung
Vice Chairman
PT. DELTONA SATYA DINAMIKA
By /s/ Amir Abdul Rachman
---------------------------------------
Amir Abdul Rachman
Director
<PAGE>
EXHIBIT 10.16F
DEED OF ADHERENCE
-----------------
THIS DEED OF ADHERENCE is made the 18th day of June, 1997.
BETWEEN:
(1) Star Digitel Limited, a company incorporated in Hong Kong (the
"Company"); and
(2) IWC China Limited, a company incorporated in Mauritius (the "New
Shareholder").
WHEREAS:
(A) On the 4th day of April, 1997, the Company and its shareholders
entered into an Amended and Restated Shareholders' Agreement (the
"Shareholders' Agreement") to which a form of this Deed is attached
as Exhibit A.
(B) The New Shareholder wishes to have transferred to it 85,030,000
shares (the "Shares") in the share capital of the Company from
International Wireless Communications, Inc., a company incorporated
in the State of Delaware, U.S.A. (the "Old Shareholder") and to
subscribe for an additional 146,870,000 shares in the share capital
of the Company, and in accordance with the Shareholders' Agreement
has agreed to enter into this Deed.
(C) The Company enters this Deed on behalf of itself and as agent for
all the existing Shareholders of the Company.
NOW THIS DEED WITNESSES as follows:
1. INTERPRETATION.
In this Deed, except as the context may otherwise require, all
words and expressions defined in the Shareholders' Agreement shall
have the same meanings when used herein.
2. COVENANT.
The New Shareholder hereby covenants to the Company as trustee for
all other persons who are at present or who may hereafter become
bound by the Shareholders' Agreement, and to the Company itself to
adhere to and be bound by all the duties, burdens and obligations
of a shareholder holding the same class of share capital as the
Shares imposed pursuant to the provisions of the Shareholders'
Agreement and all documents expressed in writing to be supplemental
or ancillary thereto as if the New Shareholder had been an original
party to the Shareholders' Agreement since the date thereof.
1.
<PAGE>
3. REFERENCES TO IWC.
All references to "IWC" in the Shareholders' Agreement (other than
in the recitals and in the definition of "IWC Management Services
Agreement" and "Noncompetition Agreement") shall be deemed a
reference to IWC China Limited.
4. NOTICE FOR ADDRESSES.
Section 16.2(b) of the Shareholders Agreement shall be deleted in
its entirety and replaced as follows:
"(b) if to IWC, to:
IWC China Limited
400 South El Camino Real
San Mateo, California 94402
United States of America
Attention: Mr. Doug Sinclair
Facsimile No.: 1-415-548-1842"
5. ENFORCEABILITY.
Each existing shareholder and the Company shall be entitled to
enforce the Shareholders' Agreement against the New Shareholder,
and the New Shareholder shall be entitled to all rights and
benefits of the Old Shareholder (other than those that are
non-assignable) under the Shareholders' Agreement in each case as
if the New Shareholder had been an original party to the
Shareholders' Agreement since the date thereof.
6. GOVERNING LAW.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF ENGLAND AND WALES.
2.
<PAGE>
IN WITNESS WHEREOF, this Deed of Adherence has been executed as a deed on the
date first above written.
STAR DIGITEL LIMITED
By: /s/ Wei Yuan
-------------------------------------
Name: Mr. Wei Yuan
Title: President and Chief
Executive Officer
IWC CHINA LIMITED
By: /s/ Hugh B.L. McClung
-------------------------------------
Name: Hugh B.L. McClung
Title: Director
3.
<PAGE>
______________________________________________________________________________
U.S.$8,000,000
BRIDGE LOAN AGREEMENT
Dated as of May 16, 1997
STAR DIGITEL LIMITED
AS BORROWER
and
THE TORONTO-DOMINION BANK
AS LENDER
________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 11
SECTION 1.03. Accounting Terms 11
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES 11
SECTION 2.01. The Advances 11
SECTION 2.02. Making the Advances 12
SECTION 2.03. Fees 12
SECTION 2.04. Repayment 12
SECTION 2.05. Interest 13
SECTION 2.06. Optional Prepayments 13
SECTION 2.07. Increased Costs 14
SECTION 2.08. Illegality 15
SECTION 2.09. Payments and Computations 15
SECTION 2.10. Taxes 16
SECTION 2.11. Use of Proceeds 17
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING 17
SECTION 3.01. Conditions Precedent to Effectiveness of
Section 2.01 17
SECTION 3.02. Conditions Precedent to Each Borrowing 20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES 20
SECTION 4.01. Representations and Warranties of the
Borrower 20
ARTICLE V
COVENANTS OF THE BORROWER 23
SECTION 5.01. Affirmative Covenants 23
<PAGE>
PAGE
SECTION 5.02. Negative Covenants 26
ARTICLE VI
EVENTS OF DEFAULT 29
SECTION 6.01. Events of Default 29
ARTICLE VII
MISCELLANEOUS 32
SECTION 7.01. Amendments, Etc. 32
SECTION 7.02. Notices, Etc. 32
SECTION 7.03. No Waiver; Remedies 32
SECTION 7.04. Costs and Expenses 33
SECTION 7.05. Right of Set-off 34
SECTION 7.06. Binding Effect 34
SECTION 7.07. Governing Law 34
SECTION 7.08. Execution in Counterparts 34
SECTION 7.09. Consent to Jurisdiction 35
SECTION 7.10. Judgment Currency 35
SECTION 7.11. Waiver of Jury Trial 36
SCHEDULES
Schedule 4.01(o) - Shares
Schedule 5.02(a)(iii) - Existing Liens
EXHIBITS
Exhibit A - Form of Promissory Note
Exhibit B - Form of Notice of Borrowing
Exhibit C-1 - Form of Guaranty from STHL
Exhibit C-2 - Form of Guaranty from VCFC
<PAGE>
Dated as of May 16, 1997
STAR DIGITEL LIMITED, a company organized under the laws of Hong
Kong (the "BORROWER") and THE TORONTO-DOMINION BANK ("TORONTO DOMINION"), as
the lender (the "LENDER") agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"ADVANCE" has the meaning specified in Section 2.01.
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control
with such Person or is a director or officer of such Person. For
purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a
Person means the possession, direct or indirect, of the power to vote 5%
or more of the Voting Stock of such Person or to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of Voting Stock, by contract or otherwise.
"APPLICABLE MARGIN" means, as of any date of determination, (a)
during the period from the Effective Date to the Initial Maturity Date,
2.25% and, subject to the Extension pursuant to Section 2.04(b), (b)
during the period thereafter until the Final Maturity Date, 2.50%.
"BORROWER" has the meaning specified in the preamble to this
Agreement.
"BORROWING" means a borrowing consisting of Advances made on the
same day by the Lender.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized by law to close in Hong Kong and Singapore and,
if the applicable Business Day relates to any Advance, on which dealings
are carried on in the London interbank market.
"CASH EQUIVALENTS" means (a) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed or
insured by the government of the
<PAGE>
United States of America or any agency or instrumentality thereof; (b)
demand deposits, certificates of deposit, acceptances, and Eurodollar
time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank
incorporated under the laws of the United States of America or any state
thereof and having, or having a direct or indirect parent corporation
that has, a long-term debt rating of at least "A" from Standard & Poor's
Ratings Group or a long-term debt rating of at least "A-2" from Moody's
Investors Service, Inc.; (c) repurchase obligations with a term not more
than 30 days for the underlying securities of the types described in
clause (a) above and with a counterparty that has a long-term debt
rating described in clause (b) above; and (d) commercial paper of a
United States of America issuer maturing no more than 270 days from the
date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"CELL SITE" means any transmitting/receiving station for wireless
telephony.
"COMMITMENT" has the meaning specified in Section 2.01.
"COMPLIANCE CERTIFICATE" means a compliance certificate in the form
and substance acceptable to the Lender signed on behalf of the Borrower
by a senior financial officer of the Borrower.
"CONSOLIDATED" means, with respect to any Person, the consolidation
of accounts in accordance with U.S. GAAP for such Person.
"DEBT" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services
(other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all obligations of
such Person evidenced by notes, bonds, debentures or other similar
instruments, (d) all obligations of such Person created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of
the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), (e) all obligations
of such Person as lessee under leases that have been or should be, in
accordance with U.S. GAAP for such Person, recorded as Finance Leases,
(f) all obligations, contingent or otherwise, of such Person in respect
of acceptances, letters of credit or similar extensions of credit,
(g) all obligations of such Person in respect of Hedge Agreements,
(h) all Debt of others referred to in clauses (a) through (g) above or
clause (i) below guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (1) to pay or purchase such Debt or to advance or
supply funds for the payment or purchase of such Debt, (2) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss,
(3) to supply funds to or in any other manner invest in the debtor
(including
<PAGE>
any agreement to pay for property or services irrespective of whether
such property is received or such services are rendered) or
(4) otherwise to assure a creditor against loss, and (i) all Debt
referred to in clauses (a) through (h) above secured by (or for which
the holder of such Debt has an existing right, contingent or otherwise,
to be secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Debt.
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"DOLLAR" or "$" means the lawful currency of the United States of
America.
"EFFECTIVE DATE" has the meaning specified in Section 3.01.
"ELECTION DATE" has the meaning specified in the Section 2.04(b).
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental Law,
Environmental Permit or Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment,
including, without limitation, (a) by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or other
actions or damages and (b) by any governmental or regulatory authority
or any third party for damages, contribution, indemnification, cost
recovery, compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree
or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder from time to time in effect.
"ERISA AFFILIATE" means any Person that for purposes of Title IV of
ERISA is a member of the Borrower's controlled group, or under common
control with the Borrower, within the meaning of Section 414 of the
Internal Revenue Code.
<PAGE>
"ERISA EVENT" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC, or (ii) the requirements of clause (1) of Section
4043(b) of ERISA (without regard to clause (2) of such Section) are met
with a contributing sponsor, as defined in Section 4001(a)(13) of ERISA,
of a Plan, and an event described in paragraph (9), (10), (11), (12) or
(13) of Section 4043(c) of ERISA is reasonably expected to occur with
respect to such Plan within the following 30 days; (b) the application
for a minimum funding waiver with respect to a Plan; (c) the provision
by the administrator of any Plan of a notice of intent to terminate such
Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of
ERISA); (d) the cessation of operations at a facility of the Borrower or
any ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
for the imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any Plan; (g) the adoption of an amendment to a
Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA; or (h) the institution by the PBGC of proceedings
to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence
of any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.01.
"EXTENSION" means the extension of the maturity of the Note pursuant
to Section 2.04(b).
"EXTENSION FEE" has the meaning specified in Section 2.03(b).
"FAIR MARKET VALUE" means, with respect to any property or asset
(including, without limitation, shares of capital stock) of any Person
on any date of determination, the value of the consideration obtainable
in a sale of such property or asset in the open market on such date
assuming an arm's-length sale that has been arranged without duress or
compulsion between a willing seller and a willing and knowledgeable
purchaser in a commercially reasonable manner over a reasonable period
of time under all conditions necessary or desirable for a fair sale
(taking into account the nature and characteristics of such property or
asset).
"FACILITY" has the meaning specified in Section 2.01.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers,
as published for such day (or, if such day is not a Business Day,
<PAGE>
for the next preceding Business Day) by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"FINAL MATURITY DATE" means the Initial Maturity Date, or if the
Extension is exercised by the Borrower in accordance with Section
2.04(b), May 11, 1998.
"FINANCE LEASES" means all leases that have or should be, in
accordance with U.S. GAAP, recorded as capital leases or finance
leases, as the case may be.
"GUARANTORS" means, collectively, STHL and VCFC.
"GUARANTIES" means, collectively, the STHL Guaranty and the VCFC
Guaranty.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"INITIAL MATURITY DATE" means November 12, 1997.
"INTEREST PERIOD" means, for each Advance comprising part of the
same Borrowing, the period commencing on the date of such Advance and
ending on the last day of the period selected by the Borrower pursuant
to the provisions below and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period
and ending on the last day of the period selected by the Borrower
pursuant to the provisions below. The duration of each such Interest
Period shall be one month upon notice received by the Lender not later
than 11:00 A.M. (Singapore time) on the third Business Day prior to the
first day of such Interest Period, select; PROVIDED, HOWEVER, that:
(i) the Borrower may not select any Interest Period that
ends after the Final Maturity Date;
(ii) Interest Periods commencing on the same date for
Advances comprising part of the same Borrowing shall be of the
same duration;
(iii) a maximum of three Borrowings shall be made available
to the Borrower during any Interest Period; and
<PAGE>
(iv) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, PROVIDED, HOWEVER, that, if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day; and
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"IWC" means International Wireless Communications, Inc., a Delaware
Corporation.
"IWC PLEDGE AGREEMENT" has the meaning specified in Section
3.01(h)(iv).
"LENDER" has the meaning specified in the preamble to this Agreement.
"LENDER'S ACCOUNT" means the account of the Lender's Account
maintained by the Lender at Bank of America, New York Branch with its
office at 1 World Trade Center, 10th Floor, New York, NY, 10048-1191,
USA, Account No. 6550 2-97469 CHIPS 361042.
"LENDING OFFICE" means, with respect to the Lender, Toronto-Dominion
(South East Asia) Limited, 1 Temasek Avenue, #15-02 Millenia Tower,
Singapore 039192.
"LIBOR" means, for any Interest Period for each LIBOR Advance
subject to Section 2.07, (a) the British Bankers Association settlement
rate for such Interest Period for deposits in Dollars at or about 11:00
A.M. (London time) on the second Business Day prior to the first day of
such Interest Period, as shown on the Telerate Page 3750 (or such other
page which replaces that page for the purposes of displaying offered
rates for banks in the London interbank market in Dollars on that
service) on the Telerate Service on such day; (b) if no rate appears on
the Telerate Page 3750 (or other page which replaces that page for the
purpose of displaying offered rates for banks in the London interbank
market in Dollars on that service) for Dollars or for the relevant
Interest Period, "LIBOR" shall be the arithmetic mean, rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such arithmetic
mean is not such multiple, of the rates for such Interest Period for
deposits in Dollars at or about 11:00 A.M. (London time) on the first
day of such Interest Period as shown on the LIBP page on the Reuters'
Service on that day; or (c) if no rate appears on either service
referred in clause (a) or (b) above, "LIBOR" shall be the arithmetic
mean, rounded upward to the nearest whole multiple of 1/16 of 1% per
annum, if such arithmetic mean is not such multiple, of the rates at
which deposits in Dollars of that amount for such Interest Period was
offered by Toronto Dominion to prime banks in the London interbank
market at or about 11:00 A.M. (London time) on the second Business day
prior to the first day of such period.
<PAGE>
"LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the
Guaranties, and the IWC Pledge Agreement.
"LOAN PARTIES" means, collectively, the Borrower, IWC and the
Guarantors.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party and its Subsidiaries taken as
a whole, (b) the rights and remedies of the Lender under any Loan
Document or (c) the ability of any Loan Party to perform its obligations
under any Loan Document.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
the Borrower or any ERISA Affiliate and at least one Person other than
the Borrower and the ERISA Affiliates or (b) was so maintained and in
respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such plan has
been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or the issuance of any
Debt or capital stock or other ownership or profit interest, any
securities convertible into or exchangeable for capital stock or other
ownership or profit interest or any warrants, rights, options or other
securities to acquire capital stock or other ownership or profit
interest by any Person, the aggregate amount of cash received from time
to time (whether as initial consideration or through payment or
disposition of deferred consideration) by or on behalf of such Person in
connection with such transaction after deducting therefrom only (without
duplication) (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other
similar fees and commissions and (b) the amount of taxes payable in
connection with or as a result of such transaction and (c) the amount of
any Debt secured by a Lien on such asset that, by the terms of such
transaction, is
<PAGE>
required to be repaid upon such disposition, in each case to the extent,
but only to the extent, that the amount so deducted are, at the time of
receipt of such cash, actually paid to a Person that is not an Affiliate
of such Person or any Loan Party and are properly attributable to such
transaction or to the asset that is subject thereof.
"NOTE" means a promissory note of the Borrower payable to the order
of the Lender, in substantially the form of Exhibit A hereto, evidencing
the aggregate indebtedness of the Borrower to the Lender resulting from
the Advances made by the Lender.
"NOTICE OF BORROWING" has the meaning specified in Section 2.02.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 4.01(g).
"OPERATING LEASES" means all leases that have or should be, in
accordance with U.S. GAAP, recorded as operating leases.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"PERMITTED DEBT" means, with the respect to the Borrower and its
Subsidiaries, (a) Debt of the Borrower under the Loan Documents and (b)
the indorsement of negotiable instruments for deposit or collection or
similar transaction in the ordinary course of business.
"PERMITTED INVESTMENTS" means, with respect to the Borrower,
(a) investments in Cash Equivalents; (b) extensions of trade credit to
the customers of the Borrower or any of its Subsidiaries, as the case
may be, in the ordinary course of business consistent with the
Borrower's or such Subsidiary's past practice; (c) purchases of
inventory occurring in the ordinary course of business consistent with
the Borrower's or such Subsidiary's past practice; (d) purchases of
assets in connection with Section 5.02(a)(ii); (e) negotiable
instruments held for collection, except to the extent that they would
constitute investments in Affiliates; (f) outstanding travel, moving and
other like advances to officers, employees and consultants; (g) lease,
utility and other similar deposits; or stock, obligations or securities
received in settlement of debts owing to the Borrower or a Subsidiary as
a result of foreclosure, perfection or enforcement of any Lien, in each
of the foregoing cases in the ordinary course of business of the
Borrower or any of its Subsidiaries, as the case may be; (h) sales of
goods or services on trade credit terms consistent with the Borrower's
and its Subsidiaries' past practices or as otherwise consistent with
trade credit terms in common use in the industry; (i) loans or advances
to
<PAGE>
vendors or contractors of the Borrower that do not exceed an aggregate
amount at any time outstanding of $1,000,000 (or the equivalent in any
other currency); and (j) loans or capital contributions made in cash or
other assets in respect of the Borrower's total amount of investment in
any Subsidiary organized as a Sino-foreign cooperative joint venture
under the "Law of the People's Republic of China on Sino-Foreign
Cooperative Joint Ventures," as re-enacted, amended or extended from
time to time.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under
Section 5.01(f); (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 30 days; (c) pledges or
deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and
(d) easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property for
its present purposes.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"REFINANCING" has the meaning specified in Section 3.01(h)(ix).
"SHAREHOLDERS" means, collectively, STHL, IWC and Vanguard China,
Inc., a Delaware corporation.
"SHARES" means, with respect to the Borrower, capital stock or any
warrants, rights or options to acquire any such capital stock of the
Borrower.
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
the Borrower or any ERISA Affiliate and no Person other than the
Borrower and the ERISA Affiliates or (b) was so maintained and in
respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"STHL" means Star Telecom Holding Limited, a corporation organized
under the laws of Hong Kong.
"STHL GUARANTY" has the meaning specified in Section 3.01(h)(ii).
<PAGE>
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in
which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency), (b) the
interest in the capital or profits of such limited liability company,
partnership or joint venture or (c) the beneficial interest in such
trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"TERMINATION DATE" means the earlier of the 30th day immediately
following the Effective Date and the date of termination in whole of the
Commitments pursuant to Section 6.01.
"TORONTO DOMINION" has the meaning specified in the preamble to this
Agreement.
"U.S. GAAP" has the meaning specified in Section 1.03.
"VCFC" means Vanguard Cellular Financial Corp., a North Carolina
corporation.
"VCFC GUARANTY" has the meaning specified in Section 3.01(h)(iii).
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening
of such a contingency.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(e) ("U.S.
GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
<PAGE>
SECTION 2.01. THE ADVANCES. The Lender agrees, on the terms and
conditions hereinafter set forth, to make advances (the "ADVANCES") to the
Borrower from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an aggregate amount not to
exceed at any time outstanding $8,000,000 (the "FACILITY" or, as the date
hereof, the "COMMITMENT"). Each Borrowing shall be in an aggregate amount of
$2,000,000 or an integral multiple of $1,000,000 in excess thereof. Each
Borrowing shall consist of Advances made on the same day by the Lender. The
Borrower acknowledges and agrees that the Lender shall not provide more than
three Borrowings under the Facility.
SECTION 2.02. MAKING THE ADVANCES.
(a) Each Borrowing shall be made on notice from the Borrower, which
notice shall be received by the Lender, not later than 11:00 A.M. (Singapore
time) on the third Business Day prior to the date of the proposed Borrowing.
Such notice (each, a "NOTICE OF BORROWING") shall be irrevocable and binding
on the Borrower, and shall be given in writing, in substantially the form of
Exhibit B hereto, specifying therein the requested (i) date of such
Borrowing, (ii) the aggregate amount of such Borrowing, and (iii) the initial
Interest Period for each such Advance. No later than 11:00 A.M. (Singapore
time) on the date of such Borrowing, and upon fulfillment of the applicable
conditions set forth in Article III, the Lender shall make available, in
immediately available funds by crediting an account at Societe Generale, New
York Branch, Account No. 00150231, for the account of the Borrower (or such
other account which may be specified to the Lender in writing) for further
credit to Societe Generale, Hong Kong Branch, Account No.
081-842-02-34002-0081-01-7 in the amount of such Borrowing, net of any fees,
expenses or other amounts owing to any Lender by the Borrower on the date of
such Borrowing.
(b) The Borrower shall indemnify the Lender against any loss, cost
or expense incurred by the Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Lender to fund
such Borrowing when such Borrowing, as a result of such failure, is not made
on such date. A certification as to such amounts, submitted by the Lender,
shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.03. FEES.
(a) COMMITMENT FEE. The Borrower agrees to pay the Lender for its
account a commitment fee on the unused portion of the Facility from the date
hereof until the Termination Date at a rate per annum equal to 0.5% per
annum, payable in arrears, on the Termination Date.
(b) EXTENSION FEE. Subject to Section 2.04(b), the Borrower agrees
to pay the Lender for its account an extension fee equal to $100,000 (the
"EXTENSION FEE") at the Extension Date.
<PAGE>
SECTION 2.04. REPAYMENT.
(a) Subject to Section 2.04(b), the Borrower shall repay to the
Lender on the Final Maturity Date the aggregate principal amount of the
Advances then outstanding.
(b) The Borrower may, at any time prior to the 30th day preceding
the Initial Maturity Date, request in writing that the maturity of the Note
be extended to the Final Maturity Date (the "EXTENSION"). Within 14 days of
such request, the Lender shall notify the Borrower of its decision, which
shall be in its sole discretion, with respect to the Extension (such day
being the "ELECTION DATE"). If, as of the Election Date, the Lender elects
to extend the maturity of the Note, the Note shall be extended to the Final
Maturity Date, PROVIDED that at the date of such Election Date (i) the Note
is outstanding, (ii) no Default or Event of Default shall have occurred and
be continuing and (iii) all fees, expenses and other payments due to the
Lender in connection with the Extension or otherwise shall be paid in full in
cash.
SECTION 2.05. INTEREST.
(a) SCHEDULED INTEREST. The Borrower shall pay interest on the
unpaid principal amount of the Advance owing to the Lender from the date of
such Advance until such principal amount shall be paid in full, at a rate per
annum equal at all times during each Interest Period for such Advance to the
sum of (i) LIBOR for such Interest Period for such Advance PLUS (ii) the
Applicable Margin in effect from time to time, payable in arrears on the last
day of such Interest Period.
(b) DEFAULT INTEREST. Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay, on demand,
(i) the interest on the unpaid principal amount of each Advance owing to the
Lender, payable in arrears on the dates referred to in clause (a) above, at a
rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Advance pursuant to clause (a) above and (ii) to
the fullest extent permitted by law, the interest on the amount of any
interest, fee or other amount payable hereunder that is not paid when due,
from the date such amount shall be due until such amount shall be paid in
full, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on the Advances pursuant to clause (a) above
during such period.
(c) NOTICE OF INTEREST RATE. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.02(a), the Lender shall give notice to the
Borrower and the applicable interest rate determined by the Lender for
purposes of clause (a) above.
SECTION 2.06. OPTIONAL PREPAYMENTS.
(a) The Borrower may, upon at least 30 Business Days' notice to the
Lender stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given the Borrower shall, prepay the
outstanding principal amount of the Advances comprising part of the same
Borrowing in whole or on part, together with accrued interest to the date of
such prepayment on the principal amount prepaid; PROVIDED, HOWEVER, that
(x) each partial
<PAGE>
prepayment shall be in an aggregate principal amount of $2,000,000 or an
integral multiple of $100,000 in excess thereof and (y) the Borrower shall be
obligated to reimburse the Lender in respect thereof pursuant to
Section 7.04(c).
(b) MANDATORY.
(i) Upon the sale, lease, transfer or other disposition of any
assets of the Borrower or any of its Subsidiaries (other than under
clauses (i) and (ii) of Section 5.02(k)), the Borrower shall prepay the
then aggregate unpaid principal amount of Advances in an amount equal to
the lesser of (A) the then outstanding principal amount of such Advances
and (B) the amount of such Net Proceeds from such sale, lease, transfer
or other disposition, in either case together with accrued interest to
the date of such prepayment on the principal amount prepaid and all
fees, expenses and other payments due to the Lender under the Loan
Documents.
(ii) Upon receipt by the Borrower or any of its Subsidiaries of
the Net Proceeds from (A) the incurrence or issuance by the Borrower or
any of its Subsidiaries of any Debt or (B) the sale or issuance by the
Borrower or any of its Subsidiaries of any capital stock, any securities
convertible into or exchangeable for capital stock, any securities
convertible into or exchangeable for capital stock or any warrants,
rights or options to acquire capital stock, debt or equity securities,
the Borrower shall prepay the then outstanding principal amount of the
Advances, together with accrued interest to the date of such prepayment
on the principal amount prepaid and all fees, expenses and other
payments due to the Lender under the Loan Documents.
SECTION 2.07. INCREASED COSTS.
(a) If, due to either (i) the introduction of or any change in or
in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any
increase in the cost to the Lender of agreeing to make or making, funding or
maintaining Advances (excluding for purposes of this Section 2.07 any such
increased costs resulting from (i) Taxes or Other Taxes (as to which Section
2.10 shall govern) and (ii) changes in the basis of taxation of overall net
income or overall gross income by the United States or by the foreign
jurisdiction or state under the laws of which the Lender is organized or has
its Lending Office or any political subdivision thereof), then the Borrower
shall from time to time, upon demand by the Lender, pay to the Lender
additional amounts sufficient to compensate the Lender for such increased
cost. A certificate as to the amount of such increased cost, submitted to
the Borrower by the Lender, shall be conclusive and binding for all purposes,
absent manifest error.
(b) If the Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
the Lender or any corporation controlling the Lender and that the amount of
such
<PAGE>
capital is increased by or based upon the existence of the Lender's
commitment to lend hereunder and other commitments of this type, then, upon
demand by the Lender, the Borrower shall pay to the Lender, from time to time
as specified by the Lender, additional amounts sufficient to compensate the
Lender or such corporation in the light of such circumstances, to the extent
that the Lender reasonably determines such increase in capital to be
allocable to the existence of the Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to the Borrower by the Lender shall
be conclusive and binding for all purposes, absent manifest error.
SECTION 2.08. ILLEGALITY. Notwithstanding any other provision of
this Agreement, if the Lender shall notify the Borrower that the introduction
of or any change in or in the interpretation of any law or regulation makes
it unlawful, or any central bank or other governmental authority asserts that
it is unlawful, for the Lender or its Lending Office to perform its
obligations hereunder to make Advances or to fund or maintain Advances
hereunder, the obligation of the Lender to make, fund or maintain Advances
shall be suspended until the Lender shall notify the Borrower that the
circumstances causing such suspension no longer exist.
SECTION 2.09. PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder and under the
Notes only and exclusively in Dollars and in immediately available funds not
later than the time specified herein or therein therefor, or if no time is
specified, by not later than 11:00 A.M. (Singapore time) on the day when due
for the account of the Lender at the Lender's Account (or such other account
which may be specified to the Borrower in writing).
(b) All computations of interest and fees shall be made by the
Lender on the basis of a year of 360 days, in each case for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by
the Lender. of an interest rate or fee hereunder and under the Note shall be
conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Note shall be
stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or any fee,
as the case may be; PROVIDED, HOWEVER, that, if such extension would cause
payment of interest on or principal of Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(d) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder or under the Note
held by the Lender, to charge from time to time against any or all of the
Borrower's accounts with the Lender any amount so due.
(e) To the fullest extent permitted by law, the Borrower shall make
all payments hereunder and under the Note regardless of any defense or
counterclaim, including, without limitation, any defense or counterclaim
based on any law, rule or policy which is now or
<PAGE>
hereafter promulgated by any governmental authority or regulatory body and
which may adversely affect the Borrower's obligation to make, or the right of
the holder of the Note to receive, such payments.
(f) The obligation of the Borrower to make payments hereunder and
under the Note in Dollars when due in accordance with this Section 2.09 is
absolute.
SECTION 2.10. TAXES.
(a) Any and all payments by the Borrower hereunder or under the
Note shall be made, in accordance with Section 2.10, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, EXCLUDING taxes imposed on its overall net income, and franchise
taxes imposed on it in lieu of net income taxes, by the jurisdiction under
the laws of which the Lender is organized or has its Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Note being hereinafter referred to as "TAXES"). If
the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under the Note to the Lender, (i) the sum
payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 2.10) the Lender receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Note
or from the execution, delivery or registration of, performing under, or
otherwise with respect to, this Agreement or the Note (hereinafter referred
to as "OTHER TAXES").
(c) The Borrower shall indemnify the Lender for and hold it
harmless against the full amount of Taxes or Other Taxes (including, without
limitation, taxes of any kind imposed by any jurisdiction on amounts payable
under this Section 2.10) imposed on or paid by the Lender and any liability
(including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within
30 days from the date the Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Lender, at its address referred to in
Section 7.02, the original or a certified copy of a receipt evidencing such
payment. In the case of any payment hereunder or under the Note by or on
behalf of the Borrower through an account or branch outside the United States
or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect
thereof, the Borrower shall furnish, or shall cause such payor to furnish, to
the Lender, an opinion of counsel acceptable to the Lender stating that such
<PAGE>
payment is exempt from Taxes. For purposes of this clause (d) and
clause (e), the terms "UNITED STATES" and "UNITED STATES PERSON" shall have
the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section 2.10 shall survive the payment in full of all amounts due
hereunder and under the Note.
SECTION 2.11. USE OF PROCEEDS. The proceeds of the Advances shall
be available (and the Borrower agrees that it shall use such proceeds) solely
for general corporate purposes of the Borrower.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO EFFECTIVENESS OF SECTION
2.01. Section 2.01 of this Agreement shall become effective on and as of the
first date (the "EFFECTIVE DATE") on which the following conditions precedent
have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1996.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Loan Parties or any of their Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i) could
be reasonably likely to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Agreement or the Note
or the consummation of the transactions contemplated hereby.
(c) The Lender shall have completed a due diligence investigation
of the Loan Parties and their Subsidiaries in scope, and with results,
satisfactory to the Lender; without limiting the generality of the foregoing,
the Lender shall have been given such access to the management, records,
books of account, contracts and properties of the Loan Parties and its
Subsidiaries as it shall have requested.
(d) All governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby shall have
been obtained (without the imposition of any conditions that are not
acceptable to the Lender) and shall remain in effect, and no law or
regulation shall be applicable in the reasonable judgment of the Lender that
restrains, prevents or imposes materially adverse conditions upon the
transactions contemplated hereby.
(e) The Borrower shall have paid all reasonable accrued fees and
expenses of the Lender (including the accrued fees and expenses of counsel to
the Lender).
<PAGE>
(g) On the Effective Date, (i) the representations and warranties
shall be true and correct in all material respects on and as of such date
(other than any such representation and warranties that, by their terms,
refer to a specific date other than the Effective Date, in which case such
specific date); and (ii) no event shall have occurred and shall be continuing
that constitutes a Default.
(h) The Lender shall have received on or before the Effective Date
the following, each dated such day, in form and substance satisfactory to the
Lender and in sufficient copies for the Lender:
(i) The Note to the order of the Lender.
(ii) A guaranty of STHL, substantially in the form of Exhibit C-1
hereto, as amended, supplemented or otherwise modified from time to time
in accordance with its terms and with the terms of the other Loan
Documents (the "STHL GUARANTY"), duly executed and delivered by STHL.
(iii) A guaranty of VCFC, substantially in the form of Exhibit C-2
hereto, as amended, supplemented or otherwise modified from time to time
in accordance with its terms and with the terms of the other Loan
Documents (the "VCFC GUARANTY"), duly executed and delivered by VCFC.
Subject to the terms of the VCFC Guaranty, VCFC shall be subrogated to
the rights of the Lender resulting from the VCFC Guaranty.
(iv) Certified copies of the resolutions of the Board of Directors
of each Loan Party approving the Loan Documents to which it is a party,
and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect thereto.
(v) A certificate of each Loan Party, signed on behalf of such
Loan Party by its President or a Vice President and the Secretary or
Assistant Secretary (the statements made in which certificate shall be
true on and as of the date of the Effective Date), certifying as to: (A)
true and complete copies of the charter and by-laws of such Loan Party
as in effect on the dates the resolutions specified in clause (ii) and
were adopted and the absence of any amendments to the charter or by-laws
since such dates; (B) the due incorporation and good standing of such
Loan Party in its respective jurisdiction of incorporation and the
absence of any proceeding for the dissolution or liquidation of such
Loan Party; (C) the truth of the representations and warranties made by
such Loan Party in each Loan Document to which it is a party; (D) in the
case of the Borrower the absence of any Event of Default or a Default;
and (E) in the case of the Borrower the satisfaction of all conditions
precedent by such Loan Party.
(vi) A signed copy of a certificate of the Secretary or an
Assistant Secretary or other appropriate officer of each Loan Party
certifying the names and true signatures of the officers of such Loan
Party authorized to sign each Loan Document to which such Loan Party is
a party, and the other documents to be delivered hereunder or thereunder.
<PAGE>
(vii) (A) A favorable opinion of Winthrop, Stimson, Putnam &
Roberts, special New York counsel for the Borrower;
(B) a favorable opinion of S. H. Chan & Co., special Hong
Kong counsel for the Borrower;
(C) a favorable opinion of S. H. Chan & Co., special Hong
Kong counsel for STHL;
(D) a favorable opinion of Latham & Watkins, special New
York counsel to VCFC; and
(E) a favorable opinion of Anthony Dillon, Vice President-Law
for VCFC.
(viii) A favorable opinion of Shearman & Sterling, counsel for the
Lender, in form and substance satisfactory to the Lender.
(ix) Evidence, in form and substance satisfactory to the Lender,
that the Borrower shall use its best efforts to complete an offering and
sale of debt or equity securities of the Borrower or other financing
transactions referred to in Section 2.06(b), for the purpose of
refinancing the Facility (the "REFINANCING"), which shall yield an
amount sufficient to prepay the aggregate unpaid principal amount of the
Advances in full PLUS accrued interest thereon to the date of repayment
and all other amounts payable under the Loan Documents in accordance
with Section 2.06(b).
(x) Such other approvals, opinions or documents as the Lender may
reasonably request.
SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING. The
obligation of the Lender to make an Advance on the occasion of each Borrowing
shall be subject to the conditions precedent that the Effective Date shall
have occurred and on the date of such Borrowing (a) the following statements
shall be true (and each of the giving of the applicable Notice of Borrowing
and the acceptance by the Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty by the Borrower that on the date of
such Borrowing such statements are true):
(i) the representations and warranties contained herein are correct
on and as of the date of such Borrowing, before and after giving effect
to such Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds therefrom, that
constitutes a Default;
<PAGE>
and (b) the Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) DUE INCORPORATION, ETC. Each of the Borrower and its
Subsidiaries (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) is duly
authorized to do business in which it owns or leases property or assets or in
which the conduct of its business requires it to be so authorized, and (iii)
has all requisite power and authority (A) to own or hold under lease and to
operate all of its property and assets and (B) to execute, deliver and
perform all its obligations under each Loan Document to which it is or will
be a party.
(b) CORPORATE POWER, ETC. Each of the Borrower and its
Subsidiaries has full corporate power and authority to enter into, deliver
and perform its obligations under each Loan Document to which it is or will
be a party and to consummate each of the transactions contemplated hereby and
thereby, and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of each Loan Document to which it
is or will be a party. Each Loan Document to which any of the Borrower and
its Subsidiaries is or will be a party constitutes the legal, valid and
binding obligation of the Borrower or such Subsidiary, enforceable against
such the Borrower or such Subsidiary in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
(c) NO CONFLICT. Neither the execution and delivery of any Loan
Document to which any of the Borrower and its Subsidiaries is a party nor the
performance by the Borrower or such Subsidiary of its obligations thereunder,
nor the consummation of the transactions contemplated thereby will,
(i) conflict with the charter or by-laws of any of the Borrower or its
Subsidiaries, or (ii) conflict with or result in a breach of, or constitute a
default under, or result in the creation or imposition of any Lien upon any
of the property or assets of the Borrower or such Subsidiary under, any
applicable laws (including, without limitation, Regulation X issued by the
Board of Governors of the Federal Reserve System) or any indenture, mortgage,
deed of trust or other instrument or agreement to which the Borrower or such
Subsidiary may be or become a party or by which it may be or become bound or
to which any of the property or assets of the Borrower or such Subsidiary may
be subject.
<PAGE>
(d) APPROVALS, ETC. No order, license, consent, authorization or
approval of, or exemption by, or notice to or registration with, any
governmental authority or regulatory body, and no filing, recording,
publication or registration in any public office or any other place, is
required in connection with the execution, delivery and performance by each
of the Borrower and its Subsidiaries of any Loan Document to which it is or
will be a party, or for the legality, validity, binding effect or
enforceability thereof.
(e) FINANCIAL STATEMENTS. The balance sheets of the Borrower as at
December 31, 1996, and the related statements of income and cash flows of the
Borrower for the fiscal year then ended, accompanied by an opinion of the
independent chartered or public accountants of the Borrower, copies of which
have been furnished to the Lender, fairly present the financial condition of
the Borrower as at such date and the results of the operations thereof for
the period ended on such date. All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with
U.S. GAAP for the Borrower applied consistently throughout the periods
involved.
(f) NO MATERIAL ADVERSE EFFECT. Since December 31, 1996, there has
been no, nor has there been threatened any, Material Adverse Effect (or any
development involving a prospective Material Adverse Effect).
(g) LITIGATION, ETC. There is no pending or threatened litigation,
investigation, action or proceeding of or before any court, arbitrator or
governmental agency (including any Environmental Action) binding upon or
affecting any of the Borrower or its Subsidiaries respective properties and
assets that (i) may cause a Material Adverse Effect to occur or (ii) purports
to affect the legality, validity or enforceability of any Loan Document.
(h) NO VIOLATION, ETC. Each of the Borrower and its Subsidiaries
is not in violation of, nor does the execution by the Borrower or such
Subsidiary of the Loan Documents to which such it is a party or the
consummation of the transactions contemplated thereby result in the violation
of, (i) any term of its charter or by-laws or (ii) any term of any other
agreement or instrument to which it is a party or by which it is bound in any
respect, which has or could be reasonably expected to have a Material Adverse
Effect.
(i) DEBT. At the time of and immediately after giving effect to
the Advances, there is no Debt other than Debt permitted under
Section 5.02(b).
(j) MARGIN STOCK. Each of the Borrower and its Subsidiaries is not
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock within the meaning of Regulations G, T and X issued by
the Board of Governors of the Federal Reserve System; and no part of the
proceeds of the Facility will be used to purchase or carry any margin stock
or extend credit to others for the purpose of purchasing or carrying any
margin stock.
<PAGE>
(k) USE OF PROCEEDS. No proceeds of the Facility will be used to
acquire any equity security of a class which is registered pursuant to
Section 12 of the U.S. Securities Exchange Act of 1934, as amended.
(l) INVESTMENT COMPANY ACT AND PUBLIC UTILITY HOLDING COMPANY ACT.
Each of the Borrower and its Subsidiaries is not, and is not directly or
indirectly controlled by any Person which is, required to register as an
"investment company" within the meaning of the U.S. Investment Company Act of
1940, as amended. Neither the Borrower nor any of its Subsidiaries is a
"holding company" or a "subsidiary" or an "affiliate" of a "holding company"
or a "public utility" within the meaning of the U.S. Public Utility Holding
Company Act of 1935, as amended.
(m) TAXES. Each of the Borrower and its Subsidiaries has filed all
tax returns required to be filed by it and has paid all taxes, assessments,
fees and other charges (including interest and penalties) due with respect to
the years covered by such returns, except for any such failures to file or to
pay such amounts which, in the aggregate, would not have a Material Adverse
Effect.
(n) ENVIRONMENTAL LAWS. The operations and properties of each of
the Borrower and its Subsidiaries comply in all material respects with all
Environmental Laws, all necessary Environmental Permits have been obtained
and are in effect for the operations and properties of the Borrower and its
Subsidiaries, EXCEPT for such Environmental Permits where the failure to
obtain the same, in the aggregate, could not be reasonably expected to have a
Material Adverse Effect.
(o) SHAREHOLDERS. Set forth on Schedule 4.01(o) hereto is a
complete and accurate list of the owners of 100% of the Shares as of the date
hereof, specifying therein the number of Shares owned or controlled by each
of the Shareholders.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. Each of the Borrower and its
Subsidiaries covenants and agrees (except in the case of covenants that do
not include the Borrower or any of its Subsidiaries) that so long as the
Lender shall have any Obligation under Section 2.01 or any amount is owing
under any Loan Document, unless the Lender shall otherwise consent in
writing, the Borrower shall and shall cause each of its Subsidiaries to:
(a) CORPORATE EXISTENCE. Preserve and maintain in full force and
effect its corporate existence, rights (charter and statutory), franchises
and privileges and qualify and remain qualified, as a corporation in good
standing in each jurisdiction in which such qualification is from time to
time necessary or desirable in view of its business and operations or the
ownership of its properties, except for such jurisdictions where the failure
to so qualify would
<PAGE>
not have a Material Adverse Effect; PROVIDED, HOWEVER, that neither the
Borrower nor any of its Subsidiaries shall be required to preserve any right,
privilege or franchise if the Board of Directors thereof shall determine in
good faith that such right, privilege or franchise is no longer useful in the
conduct of the business of the Borrower or such Subsidiary, as the case may
be, and the loss thereof is not disadvantageous in any material respect to
the Lender.
(b) COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, compliance with ERISA.
(c) MAINTENANCE OF PROPERTY; INSURANCE. Preserve and maintain all
of its properties, owned or leased, that are used or useful in the conduct of
its business in good working order and condition, ordinary wear and tear
excepted; and maintain insurance with financially sound and reputable
insurers in such amounts and against such risks, as are usually and
customarily insured by companies engaged in a similar business with respect
to properties of a similar character.
(d) KEEPING OF BOOKS. Keep proper books of record and accounts, in
which full and correct entries shall be made of all financial transactions
and the assets and business of the Borrower and its Subsidiaries in
accordance with generally accepted accounting principles in effect from time
to time or as otherwise required by applicable rules and regulations of any
governmental agency or regulatory authority having jurisdiction over the
Borrower and any of its Subsidiaries.
(e) ACCESS TO RECORDS. Provide the Lender and its authorized
advisors and representatives reasonable access to all books, records, offices
and other facilities and properties of the Borrower and its Subsidiaries upon
reasonable notice, and allow the Lender or its authorized advisors or
representatives (as the case may be) to make such examinations thereof and
copies of and abstracts from such books and records as the Lender or its
authorized advisors or representatives (as the case may be) may reasonably
request.
(f) PAYMENT OF TAXES, ETC. Pay and discharge before the same shall
become delinquent (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property and (ii) all lawful claims that,
if unpaid, might become a lien upon its property; PROVIDED, HOWEVER, that
neither the Borrower nor any of its Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim that is being contested
in good faith and by proper proceedings and as to which appropriate reserves
are being maintained, unless and until any Lien resulting therefrom attaches
to its property and becomes enforceable against its other creditors.
(g) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and reasonable
and no less favorable to the Borrower or any of its Subsidiaries than it
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
<PAGE>
(h) FINANCIAL STATEMENTS, ETC.
(i) as soon as available and in any event within 45 days after the
end of each quarter of each fiscal year of the Borrower and its
Subsidiaries, furnish to the Lender and the Guarantors, without cost to
the Lender or the Guarantors, (A) quarterly unaudited Consolidated
balance sheets, statements of income and cash flows of the Borrower and
its Subsidiaries, all in reasonable detail and duly certified (subject
to normal year-end audit adjustments) by senior financial officer of the
Borrower as having been prepared in accordance with U.S. GAAP for the
Borrower and (B) a Compliance Certificate of the Borrower dated as of
the last day of such quarter, executed by such senior financial officer;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower and its Subsidiaries, furnish to
the Lender and the Guarantors, without cost to the Lender or the
Guarantors, (A) a copy of the annual audit report for such fiscal year
for the Borrower and its Subsidiaries, including therein Consolidated
balance sheets, statements of income and cash flows for such year
certified by independent chartered or public accountants satisfactory to
the Lender and (B) a Compliance Certificate of the Borrower dated as of
the last day of such year, executed by a senior financial officer
thereof;
(iii) furnish to the Lender and the Guarantors, without cost to the
Lender or the Guarantors, copies of all (A) documents and certificates
delivered to any other lender or holder of Debt promptly after delivery
thereof to such other lender or holder of Debt, and (B) reports which
the Borrower or any of its Subsidiaries sends to any of its security
holders, and copies of all reports and registration statements which the
Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission or any national securities exchange; and
(iv) furnish to the Lender and the Guarantors, without cost to the
Lender or the Guarantors, any other information with respect to the
financial condition, business and property of the Borrower and its
Subsidiaries, as the Lender may from time to time reasonably request.
(i) NOTICE OF DEFAULTS. Promptly upon any officer of any of the
Borrower or its Subsidiaries obtaining knowledge thereof, give notice to the
Lender and the Guarantors, (i) of any development, including, without
limitation, any litigation, investigation or proceeding affecting the
Borrower or such Subsidiary, which has a Material Adverse Effect, could
reasonably be expected to have a Material Adverse Effect or, in the case of
any litigation, investigation or other proceeding, which could, if adversely
decided, reasonably be expected to have a Material Adverse Effect and (ii) of
a Default or Event of Default under the Loan Documents, each such notice
being in the form of an officers' certificate, signed by an authorized
officer of the Borrower or such Subsidiary, specifying the nature and period
of existence of any
<PAGE>
such event and what action the Borrower or such Subsidiary, has taken, is
taking or proposes to take with respect thereto.
(j) REFINANCING. Use its best efforts to complete the Refinancing
prior to the Final Maturity Date, which Refinancing shall yield an amount
sufficient to repay the aggregate unpaid principal amount of the Advances in
full PLUS accrued interest thereon to the date of repayment and all other
amounts payable under the Loan Documents.
(k) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply with all
Environmental Laws and Environmental Permits applicable to its operations and
properties, noncompliance with which could have a Material Adverse Effect;
obtain and renew all Environmental Permits necessary for its operations and
properties; and conduct any investigation, study, sampling and testing, and
undertake any cleanup, removal, remedial or other action necessary to remove
and clean up Hazardous Materials from any of its properties, in accordance
with the requirements of all applicable Environmental Laws; PROVIDED,
HOWEVER, that the Borrower or any of its Subsidiaries shall not be required
to undertake any such cleanup, removal, remedial or other action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect
to such circumstances.
SECTION 5.02. NEGATIVE COVENANTS. Each of the Borrower and its
Subsidiaries covenants and agrees (except in the case of covenants that do
not include the Borrower or any of its Subsidiaries) that so long as the
Lender shall have any obligation under Section 2.01 or any amount is owing
under any Loan Document, unless the Lender shall otherwise consent in
writing, the Borrower shall not and shall cause each of its Subsidiaries not
to:
(a) LIENS, ETC. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien on or with respect to any
of its properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, other
than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real property or equipment
acquired or held by the Borrower or any Subsidiary in the ordinary
course of business to secure the purchase price of such property or
equipment or to secure Debt incurred solely for the purpose of financing
the acquisition of such property or equipment, or Liens existing on such
property or equipment at the time of its acquisition (other than any
such Liens created in contemplation of such acquisition that were not
incurred to finance the acquisition of such property) or extensions,
renewals or replacements of any of the foregoing for the same or a
lesser amount, PROVIDED, HOWEVER, that no such Lien shall extend to or
cover any properties of any character other than the real property or
equipment being acquired, and no such extension, renewal or replacement
shall extend to or cover any properties not theretofore subject to the
Lien being extended, renewed or replaced, PROVIDED FURTHER that the
aggregate principal amount of the indebtedness secured by the Liens
referred to in this clause (ii) shall not exceed $150,000,000 (or the
equivalent in any other currency) at any time outstanding,
<PAGE>
(iii) the Liens existing on the Effective Date and described on
Schedule 5.02(a)(iii) hereto,
(iv) Liens arising in connection with Finance Leases permitted under
Section 5.02(b)(iv); and
(v) the replacement, extension or renewal of any Lien permitted by
clause (iii) above upon or in the same property therefore subject
thereto or the replacement, extension or renewal (without increase in
the amount or change in any direct or contingent obligor)of the Debt
secured thereby.
(b) DEBT. Create, incur, assume or suffer to exist,
or permit any of its Subsidiaries to create, incur or suffer to
exist, any Debt other than:
(i) Permitted Debt;
(ii) Debt Secured by Liens permitted by Section 5.02(a)(ii) not to
exceed $150,000,000 (or the equivalent in any other currency) at anytime
outstanding;
(iii) Debt secured by Liens permitted by Section 5.02(a)(iii);
and
(iv) Finance Leases not to exceed in the aggregate $100,000,000 (or
the equivalent thereof in any other currency;
(c) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist,
any obligations (other than Operating Leases of the Borrower or any of its
Subsidiaries in respect of any Cell Sites) as lessee (i) for the rental or
hire of real or personal property in connection with any sale and leaseback
transaction, or (ii) for the rental or hire of other real or personal
property of any kind under leases or agreements to lease including Finance
Lease having an original term of one year or more that would cause the direct
and contingent liabilities of the Borrower and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations to exceed $10,000,000
(or the equivalent in any other currency payable in any period of 12
consecutive months.
(d) MERGERS, ETC. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries to do
so, except that any Subsidiary of the Borrower may merge into or consolidate
with any other Subsidiary of the Borrower provided that, in the case of any
such merger or consolidation, the Person formed by such merger or
consolidation shall be a wholly-owed Subsidiary of the Borrower; PROVIDED,
HOWEVER, that in each case, immediately after giving effect thereto, no event
shall occur and be continuing that constitutes a Default.
(e) INVESTMENTS, LOANS, ADVANCES. Make any advance, loan, or
extension of credit to, or make any acquisitions or investments (whether by
way of transfers of property, contributions to capital, acquisitions of
stock, securities, evidences of indebtedness or otherwise)
<PAGE>
in, or purchase any stock, bonds, notes, debentures or other securities of,
any other Person, except for Permitted Investments.
(f) OPERATE OTHER THAN IN ORDINARY COURSE. Operate its business,
other than in the usual and ordinary course and other than that which is
consistent with the past practice established by the Borrower or such
Subsidiary, as the case may be.
(g) DIVIDENDS, ETC. (i) Declare or make any dividend payment or
other distribution of assets, property, cash, rights, obligations or
securities (on account of any shares of capital stock of the Borrower or such
Subsidiary, or (ii) purchase, redeem, retire, defease or otherwise acquire
for value any shares of any class of the capital stock of the Borrower or
such Subsidiary as the case may be, or any warrants, rights or options to
acquire any such shares, now or hereafter outstanding; PROVIDED that nothing
in this Section 5.02(g) shall be deemed to prohibit cash dividends paid to
the Borrower by its wholly-owned Subsidiaries the proceeds of which are used
to repay the aggregate principal amount of Advances then outstanding.
(h) MERGER OR CONSOLIDATION. Merge into or consolidate with, or
convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to, or acquire all or substantially
all of the assets of, any Person, except that nothing in this Section 5.02(h)
shall prohibit (i) any direct or indirect wholly-owned Subsidiary of the
Borrower from merging into or consolidating with, or disposing of assets to,
or acquiring assets of, any other wholly-owned direct or indirect Subsidiary
of the Borrower, (ii) any Subsidiary of the Borrower from merging into or
disposing of assets to the Borrower and (iii) sales of assets otherwise
permitted under Section 5.02(k).
(i) RESTRICTION ON PAYMENTS AND TRANSFERS. Other than Liens
permitted under Section 5.02(a), create or otherwise cause or suffer to exist
or to become effective any consensual encumbrance or restriction on the
Borrower's or such Subsidiary's ability to (i) pay dividends or make
distributions of the Borrower's or such Subsidiaries' capital stock, as the
case may be, (ii) pay any debt owed to the Borrower or such Subsidiary,
(iii) make loans or advances to the Borrower or such Subsidiary or
(iv) transfer assets to, or create Liens in favor of, the Borrower or such
Subsidiary, as the case may be.
(j) AMENDMENTS OR WAIVERS. Amend, modify or change in any manner,
or waive any rights of the Borrower or any of its Subsidiaries pursuant to
the charter or by-laws (or other organizational documents) thereof, which, in
the reasonable judgment of the Lender, could adversely affect the Refinancing
or the Lender's rights and benefits under the Loan Documents and the
documents delivered pursuant thereto.
(k) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise
dispose of any assets, except for:
<PAGE>
(i) sales, leases, transfers and other dispositions of assets in
the ordinary course of business by the Borrower and such Subsidiary of
inventory consistent with the practice of the Borrower and such
Subsidiaries as of the date hereof;
(ii) sales, leases, transfers and other dispositions of assets no
longer useful in the conduct of its business, or the business of its
Subsidiaries, consistent with its practice on the date hereof, the Fair
Market Value of such assets not to exceed in the aggregate for Borrower
and its Subsidiaries $1,000,000 (or the equivalent in any other
currency);
(iii) the sale of any assets for Fair Market Value for cash to
the extent the Net Cash Proceeds of such sales are used to repay the
outstanding aggregate unpaid principal amount of the Advances Loan as
required under Section 2.06(b).
(l) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Sell or otherwise
dispose of any shares of capital stock of any Subsidiary or any warrants,
rights or options to acquire such capital stock or permit any Subsidiary to
issue, sell or otherwise dispose of any shares of its capital stock or the
capital stock of any other Subsidiary or any warrants, rights or options to
acquire such capital stock except (i) in accordance with Section 5.02(g) and
(ii) to the extent that the Net Cash Proceeds of such sale or disposition are
used to repay the outstanding aggregate unpaid principal amount of the Loan
as required under Section 2.06(b).
(m) TRANSACTIONS WITH AFFILIATES. Enter into any transaction or
agreement with any Affiliate, except any transaction or agreement which is in
the ordinary course of the Borrower's or such Subsidiary's business and which
is upon fair and reasonable terms not less favorable to the Borrower or such
Subsidiary than it would obtain in an arm's-length transaction with a Person
not an Affiliate.
(n) ISSUANCE OF CAPITAL STOCK. Issue any capital stock or any
warrants, rights or options to acquire any such capital stock, except for the
issuance of capital stock by the Borrower pursuant to the Refinancing to the
extent the Net Cash Proceeds of such issuance are used to repay the
outstanding aggregate unpaid principal amount of the Loan as required under
Section 2.06(b).
(o) INVESTMENT COMPANY. Be or become an investment company subject
to the registration requirements under the Investment Company Act of 1940, as
amended.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Borrower, or subject to the Guaranties, the Guarantors,
shall fail to
<PAGE>
pay the principal of the Note or interest on the Advances when due or any
Loan Party shall fail to pay any other amount payable under principal
interest other fees any Loan Document within 3 days after the same shall
become due and payable; or
(b) Any representation or warranty made by any Loan Party (or any
of their respective officers) under or in connection any Loan Document shall
prove to have been incorrect in any material respect when made and such
failure shall remain unremedied for 30 days after the earlier of the date on
which (i) an officer of the Borrower becomes aware of such failure or (ii)
written notice thereof shall have been given to the Borrower by the Lender; or
(c) (i) The Borrower shall fail to perform or observe (A) any term,
covenant or agreement contained in Section 2.11, 5.01(a), (b) or (j) or 5.02;
or (B) any other term, covenant or agreement contained in this Agreement or
any other Loan Document to which it is a party (excluding any term, covenant
or agreement covered by Section 6.01(a)), if any such failure shall remain
unremedied for 10 days after written notice thereof shall have been given to
the Borrower by the Lender, or (ii) any other Loan Party shall fail to
perform or observe any term, covenant or agreement contained in any Loan
Document to which it is a party (excluding any term, covenant or agreement
covered by Section 6.01(a)), if any such failure shall remain unremedied for
10 days after written notice thereof shall have been given to the Borrower by
the Lender; or
(d) (i) Any Loan Party or any of its Subsidiaries shall fail to
pay any principal of, premium or interest on, or other amount payable in
respect of, any Debt which is outstanding in a principal amount of at least
$5,000,000 (or the equivalent in any other currency) in the aggregate (but
excluding Debt evidenced by the Note) of such Person when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; (ii) or any other default or Event of Default (as
defined in such agreement or instrument) shall occur (or any other event or
condition shall exist under applicable law of any relevant jurisdiction,
which shall have an analogous effect under such agreement or instrument)
relating to such Debt; or (iii) any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise cause, or permit the holder thereof to cause, such Debt to mature;
or any such Debt shall be declared to be due and payable, or required to be
prepaid or redeemed (other than by a regularly scheduled required prepayment
or redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each case
prior to the stated maturity thereof; or
(e) Any Loan Party shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against any Loan Party or any of
its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debt under any law relating to
bankruptcy, insolvency or reorganization
<PAGE>
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property; or seeking a warrant of attachment,
execution or similar process against any substantial part of its property
and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, or for any substantial part of, its property) shall
occur; or any Loan Party shall take corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$5,000,000 (or the equivalent thereof in any other currency) with respect to
any of the Borrower and its Subsidiaries or any other Loan Party, and either
(i) an enforcement proceeding shall have been commenced by any creditor upon
such judgment or order or (ii) there shall have been a period of 10
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(g) Any non-monetary judgment or order shall be rendered against
any Loan Party or any of its Subsidiaries that could be reasonably likely to
have a Material Adverse Effect, and there shall be any period of 10
consecutive days during which a stay of enforcement or such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(h) Any provision of any Loan Document after delivery thereof shall
for any reason cease to be valid and binding on any Loan Party thereto or
such Loan Party shall so state in writing; provided, however, that such event
could have a Material Adverse Effect; or
(i) Any Loan Party or any of its ERISA Affiliates shall incur, or
in the reasonable discretion of the Lender, shall be reasonably likely to
incur liability as a result of one or more of the following: (i) the
occurrence of any ERISA Event; (ii) the partial or complete withdrawal of
such Loan Party or any of its ERISA Affiliates from a Multiemployer Plan; or
(iii) the reorganization or termination of the Multiemployer Pan, which
liability has or could reasonably be expected to result in a Material Adverse
Effect; or
(j) The Shareholders (other than Vanguard China, Inc.) shall own,
directly or indirectly, less than 75% of the Voting Stock of the Borrower or
shall cease to direct or cause the direction of the management and policies
of the Borrower, whether through Voting Stock, by contract or otherwise; or
(k) There shall occur in the judgment of the Lender any Material
Adverse Change;
then, and in any such event, (i) the Lender may, by notice to the Borrower,
declare its obligation to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) the Lender may by notice to the Borrower,
declare the Note, all interest thereon and all other amounts payable under
this Agreement to be forthwith due and payable, whereupon the Note, all such
interest and all such other amounts shall become and be forthwith due and
payable, without
<PAGE>
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that upon an
Event of Default under Section 6.01(e) or (f) with respect to any Loan Party,
(A) the obligation of the Lender to make Advances shall automatically
terminate and (B) the Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived
by each Loan Party.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of hereunder or under the Note, nor consent to any departure by any
party hereto therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and the Lender shall have received
the consent in writing of the Guarantors, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 7.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy,
telex or cable communication) and mailed, telegraphed, telecopied, telexed,
cabled or delivered, if to the Borrower, at its address at 12th Floor, Sun
Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong, Attention: Mr. Alfred
Shao, Telecopier No. (852) 2343-5693; if to the Lender, at its address at 1
Temasek Avenue #15-02 Millenia Tower, Singapore 039192, Attention: Mrs.
Mabel Sim, or if to the Guarantors at the addresses set forth in the
respective Guaranties or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails, telecopied,
delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively, addressed as aforesaid, except
that notices to the Lender pursuant to the provisions of Article II shall not
be effective until received by the Lender.
SECTION 7.03. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under
any Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 7.04. COSTS AND EXPENSES.
(a) The Borrower agrees to pay on demand all reasonable costs and
expenses of the Lender in connection with the preparation, execution,
delivery, administration, modification and amendment of the Loan Documents
and the other documents to be delivered hereunder, including, without
limitation, (A) all due diligence, transportation, computer,
<PAGE>
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and responsibilities under
the Loan Documents. The Borrower further agrees to pay on demand all
reasonable costs and expenses of the Lender, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Loan Documents and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for
the Lender in connection with the enforcement of rights under this
Section 7.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Lender
and its Affiliates and their officers, directors, employees, agents and
advisors (each, an "INDEMNIFIED PARTY") from and against any and all claims,
damages, losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by or asserted
or awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation or proceeding or preparation of a defense
in connection therewith) the Note, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances or, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence
or willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 7.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any other Person or any Indemnified
Party is otherwise a party thereto and whether or not the transactions
contemplated hereby are consummated.
(c) If any payment of principal of any Advance is made by the
Borrower or any other Loan Party to or for the account of a Lender other than
on the last day of the Interest Period for such Advance, as a result of a
payment, acceleration of the maturity of the Notes pursuant to Section 6.01
or for any other reason, the Borrower shall, upon demand by the Lender, pay
to the Lender for its account any amounts required to compensate the Lender
for any additional losses, costs or expenses that it may reasonably incur as
a result of such payment, including, without limitation, any loss (including
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender
to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in Sections 2.07, 2.10 and 7.04 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the
Note.
SECTION 7.05. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, the Lender or any of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and
<PAGE>
other indebtedness at any time owing by the Lender or such Affiliate to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under the Loan
Documents, whether or not the Lender shall have made any demand thereunder
and although such obligations may be unmatured. The Lender agrees promptly
to notify the Borrower after any such set-off and application, PROVIDED that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of the Lender and its Affiliates under this
Section 7.05 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that the Lender and its Affiliates may
have.
SECTION 7.06. BINDING EFFECT. This Agreement shall become
effective (other than Section 2.01, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Lender and thereafter shall
be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that no Loan Party shall have
the right to assign or otherwise transfer all or any part of its rights or
obligations hereunder or any interest herein. The Lender may assign or sell
participations in or to all or a portion of its rights and obligations under
the Loan Documents.
SECTION 7.07. GOVERNING LAW. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of
New York.
SECTION 7.08. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties thereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
SECTION 7.09. CONSENT TO JURISDICTION.
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or federal court of the United
States of America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the Note, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each of the Parties agrees that process served
either personally or by registered mail, return receipt requested, shall, to
the extent permitted by law, constitute adequate service of process in any
such proceeding. Without limiting the foregoing, the parties hereto hereby
appoint, in the case of any such action or proceeding brought in the courts
of or in the State of New York, CT Corporation System, with offices on the
date hereof at 1633 Broadway, New York, New York 10019, to receive, for them
and on their behalf, service of process in the State of New York with respect
thereto, PROVIDED that any party hereto may appoint any other person, with
offices in the State of New York to replace such agent for service of process
upon delivery to each other Loan Party notice thereof. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other
<PAGE>
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement
or the Note in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or
the Note in any New York State or federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
<PAGE>
SECTION 7.10. JUDGMENT CURRENCY. If any sum due from the Borrower
hereunder, under the Note or any order or judgment given or made in relation
thereto has to be converted from the currency (the "FIRST CURRENCY") in which
the same is payable hereunder, thereunder or under such order or judgment
into another currency (the "SECOND CURRENCY") for the purpose of (a) making
or filing a claim or proof against the Borrower, (b) obtaining an order or
judgment in any court or other tribunal or (c) enforcing any order to
judgment given or made in relation thereto, the Borrower shall indemnify and
hold harmless each of the persons to whom such sum is due from and against
any loss suffered or incurred as a result of any discrepancy between (i) the
rate of exchange used for such purpose to convert the sum in question from
the first currency into the second currency and (ii) the rate or rates of
exchange at which such person may in the ordinary course of business purchase
the first currency with the second currency upon receipt of a sum paid to it
in satisfaction, in whole or in part, of any such order, judgment, claim or
proof.
SECTION 7.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, ANY DOCUMENT
DELIVERED UNDER THE LOAN DOCUMENTS, ANY ADVANCE OR THE ACTIONS OF THE LENDER
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR
THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
STAR DIGITEL LIMITED
By
-------------------------------------
Title:
THE TORONTO-DOMINION BANK
By
-------------------------------------
Title:
<PAGE>
PROMISSORY NOTE
$8,000,000 Dated: May 16, 1997
FOR VALUE RECEIVED, the undersigned, STAR DIGITEL LIMITED, a
corporation organized under the laws of Hong Kong (the "BORROWER"), HEREBY
PROMISES TO PAY to the order of THE TORONTO-DOMINION BANK (the "LENDER") on
May 16, 1997 (or if the maturity of this Promissory Note is extended to a
later date pursuant to Section 2.04(b) of the Bridge Loan Agreement referred
to below, on such later date) the principal amount of EIGHT MILLION DOLLARS
($8,000,000) or, if less, the aggregate unpaid principal amount of the
Advances (as defined below) made by the Lender to the Borrower pursuant to
the Bridge Loan Agreement (referred to below); capitalized terms that are not
defined herein having the respective meanings specified in the Bridge Loan
Agreement) which is outstanding on May 16, 1997 or such later date, as the
case may be.
The Borrower promises to pay interest on the principal amount of
each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Bridge Loan Agreement.
Both principal and interest are payable in the lawful money of the
United States of America to the Lender at Bank of America, New York Branch,
in immediately available funds. Such payments shall be made by wire transfer
to the account of the Lender at Bank of America, New York Branch with its
office at 1 World Trade Center, 10th Floor, New York, NY, 10048-1191, USA,
Account No. 6550 2-97469 CHIPS 361042, or such other account as the Lender
may designate. The Lender is authorized but not required to record the date
and amount of each Advance owing to it and the date and amount of each
principal payment on the schedule annexed hereto and made a part hereof, or
on a continuation thereof which shall be attached hereto and made a part
hereof, and any such recordation shall, in the absence of manifest error,
constitute PRIMA FACIE evidence of the accuracy of the information so
recorded. Prior to any transfer of this Promissory Note, the Lender shall
record the foregoing on such schedule or continuation thereof; PROVIDED,
HOWEVER, that the Lender's so to record shall not limit the obligations of
the Borrower hereunder and under the Bridge Loan Agreement to repay the
actual outstanding principal of and interest on each Advance.
This Promissory Note is the Note referred to in, and is entitled to
the benefits of, (a) the Bridge Loan Agreement dated as of May 16, 1997 (the
"BRIDGE LOAN AGREEMENT") between the Borrower and the Lender, (b) the IWC
Pledge Agreement, (c) the STHL Guaranty, and (d) the VCFC Guaranty. The
Bridge Loan Agreement, among other things, (i) provides for the making of
advances (the "ADVANCES") by the Lender to the Borrower in an aggregate
amount not to exceed at any time outstanding the U.S. Dollar amount first
above mentioned, the
<PAGE>
indebtedness of the Borrower resulting from each such Advance being evidenced
by this Promissory Note, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.
This Promissory Note shall be governed by, and construed in
accordance with, the law of the State of New York.
STAR DIGITEL LIMITED
By:
-----------------------------------
Name:
Title:
<PAGE>
LOAN AND PAYMENTS OF PRINCIPAL
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AMOUNT OF PRINCIPAL PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
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<PAGE>
EXHIBIT B
NOTICE OF BORROWING
[Date]
The Toronto-Dominion Bank
1 Temasek Avenue
#15-02 Millenia Tower
Singapore 039192
Attention: Mabel Sim
Ladies and Gentlemen:
The undersigned, STAR DIGITEL LIMITED refers to the Bridge Loan
Agreement, dated as of _______________, 1997 (the "BRIDGE LOAN AGREEMENT",
the terms defined therein being used herein as therein defined), among the
undersigned and The Toronto Dominion Bank, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Bridge Loan Agreement that the
undersigned hereby requests a Borrowing under the Bridge Loan Agreement, and
in that connection sets forth below the information relating to Bridge (the
"PROPOSED BORROWING") as required by Section 2.02(a) of the Bridge Loan
Agreement:
(i) The Business Day of the Proposed Borrowing is
_______________, 19__.
(ii) The amount of the Proposed Borrowing is $__________.
(iii) The initial Interest Period for each Advance made as of
part of the Proposed Borrowing is one month.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed
Borrowing:
(A) the representations and warranties contained in the Bridge Loan
Agreement are correct, before and after giving effect to the Proposed
Borrowing and the application of the proceeds therefrom, as through made
on and as of such date (other than any such representations or
warranties that, by their terms, refer to a specific date other than the
date of the Proposed Borrowing in which case, as of such specific date);
and
(B) no event has occurred and is continuing, or would result from
such Proposed Loan, or the application of proceeds therefrom, which
constitutes a Default.
Very truly yours,
<PAGE>
STAR DIGITEL LIMITED
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT C-1
FORM OF GUARANTY FROM STHL
GUARANTY dated May 16, 1997 made by STAR TELECOM HOLDING LIMITED, a
corporation organized under the laws of Hong Kong, (the "Guarantor"), in favor
of the Lender (as defined in the Credit Agreement referred to below).
PRELIMINARY STATEMENT. The Lender is party to the Bridge Loan
Agreement, dated as of May 16, 1997 (said Agreement, as it may hereafter
be amended, supplemented or otherwise modified from time to time, being
the "Credit Agreement") with STAR DIGITEL LIMITED, a corporation
organized under the laws of Hong Kong (the "Borrower"). It is a
condition precedent to the making of Advances under the Credit Agreement
that the Guarantor shall have executed and delivered this Guaranty.
Capitalized terms used but not defined herein shall have the meaning
ascribed to such terms in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make Advances under the Credit Agreement from time
to time, the Guarantor hereby agrees as follows:
Section 1. GUARANTY. The Guarantor hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of (a) Advances under the Credit
Agreement in an aggregate principal amount not to exceed $4,240,000 at
any time outstanding and (b) the product of (x) the STHL Guaranteed
Percentage (as defined below) and (y) the aggregate amount of all
Obligations of the Borrower other than Advances under the Credit
Agreement now or hereafter existing under the other Loan Documents,
whether for interest, fees, expenses or otherwise (the sum of clause (a)
and clause (b) above being the "Guaranteed Obligations"), and in
addition agrees to pay any and all expenses (including reasonable
counsel fees and expenses) incurred by the Lender in enforcing any
rights under this Guaranty. Without limiting the generality of the
foregoing, the Guarantor's liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by the
Borrower to the Lender under the Loan Documents but for the fact that
they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.
For the purpose of this Guaranty, the "STHL Guaranteed Percentage"
means, at any date of determination, 53%.
Section 2. GUARANTY ABSOLUTE. The Guarantor guarantees the payment
of the Guaranteed Obligations, which will be paid in accordance with the
terms of the Loan Documents, regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Lender with respect thereto. The Obligations
of the Guarantor under this Guaranty are independent of the Guaranteed
Obligations or any other Obligations of any other Loan Party under the
Loan Documents, and a separate action or actions may be brought and
prosecuted against the Guarantor to enforce this Guaranty, irrespective
of whether any action is brought against the Borrower or any other Loan
Party or
C1-1
<PAGE>
whether the Borrower or any other Loan Party is joined in any such
action or actions. The liability of the Guarantor under this Guaranty
shall be irrevocable, absolute and unconditional irrespective of, and
the Guarantor hereby irrevocably waives any defenses it may now or
hereafter have in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan
Document or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations or any
other Obligations of any other Loan Party under the Loan Documents, or
any other amendment or waiver of or any consent to departure from any
Loan Document; PROVIDED, HOWEVER, that any amendment to any Loan
Documents other than the VCFC Guaranty and the IWC Pledge Agreement
shall require the prior written consent of STHL;
(c) any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries;
(e) any failure of the Lender to disclose to any Loan Party
any information relating to the financial condition, operations,
properties or prospects of any other Loan Party now or in the future
known to the Lender (the Guarantor waiving any duty on the part of the
Secured Parties to disclose such information); or
(f) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any
representation by the Lender that might otherwise constitute a defense
available to, or a discharge of, any Loan Party or any other guarantor
or surety.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by the Lender or
any other Person upon the insolvency, bankruptcy or reorganization of
any Loan Party or otherwise, all as though such payment had not been
made.
Section 3. WAIVERS AND ACKNOWLEDGEMENTS. (a) The Guarantor
hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Guaranteed Obligations and this
Guaranty and any requirement that the Lender protect, secure, perfect or
insure any Lien or any property subject thereto or exhaust any right or
take any action against any Loan Party or any other Person or any
Collateral.
(b) The Guarantor hereby waives any right to revoke this Guaranty,
and acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
C1-2
<PAGE>
(c) The Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in
this Section 3 are knowingly made in contemplation of such benefits.
Section 4. SUBROGATION. The Guarantor will not exercise any
rights that it may now or hereafter acquire against the Borrower or any
other insider guarantor that arise from the existence, payment,
performance or enforcement of the Guarantor's Obligations under this
Guaranty or any other Loan Document, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of
the Lender against the Borrower or any other insider guarantor or any
Collateral, whether or not such claim, remedy or right arises in equity
or under contract, statute or common law, including, without limitation,
the right to take or receive from the Borrower or any other insider
guarantor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such
claim, remedy or right, unless and until all of the Obligations and all
other amounts payable under this Guaranty shall have been paid in full
in cash and the Commitment shall have expired or terminated. If any
amount shall be paid to the Guarantor in violation of the preceding
sentence at any time prior to the later of the payment in full in cash
of the Guaranteed Obligations and all other amounts payable under this
Guaranty and the Termination Date, such amount shall be held in trust
for the benefit of the Lender and shall forthwith be paid to the Lender
to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Guaranty, whether matured or unmatured, in
accordance with the terms of the Loan Documents, or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. If (i) the Guarantor shall make
payment to the Lender of all or any part of the Guaranteed Obligations,
(ii) all of the Guaranteed Obligations and all other amounts payable
under this Guaranty shall be paid in full in cash and (iii) the
Termination Date shall have occurred, the Lender will, at the
Guarantor's request and expense, execute and deliver to the Guarantor
appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the
Guarantor of an interest in the Guaranteed Obligations resulting from
such payment by the Guarantor.
Section 5. PAYMENTS FREE AND CLEAR OF TAXES, ETC. (a) Any and
all payments made by the Guarantor hereunder shall be made free and
clear of and without deduction for any and all present or future Taxes.
If the Guarantor shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this Section) the Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Guarantor
shall make such deductions, and (iii) the Guarantor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Guarantor shall pay any present or
future Other Taxes in respect of all or any part of the Guaranteed
Obligations.
C1-3
<PAGE>
(c) The Guarantor will indemnify the Lender for the STHL
Guaranteed Percentage of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section) paid by the Lender and any liability
(including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto; the Guarantor shall have the right to
contest in good faith such tax levied upon it; provided, however, that
such contest shall in no way limit the Guarantor's Obligations
hereunder. This indemnification shall be made within 30 days from the
date the Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes by
or on behalf of the Guarantor, the Guarantor will furnish to the Lender,
at its address referred to in the Credit Agreement, the original receipt
of payment thereof or a certified copy of such receipt. In the case of
any payment hereunder by or on behalf of the Guarantor through an
account or branch outside the United States or on behalf of the
Guarantor by a payor that is not a United States person, if the
Guarantor determines that no Taxes are payable in respect thereof, the
Guarantor shall, at the request of the Lender, furnish, or shall cause
such payor to furnish, to the Lender, at such address, an opinion of
counsel acceptable to the Lender stating that such payment is exempt
from Taxes. For purposes of this subsection (d), the terms "United
States" and "United States person" shall have the meanings specified in
Section 7701 of the Internal Revenue Code.
(e) Without prejudice to the survival of any other agreement
of the Guarantor hereunder or under any other Loan Document, the
agreements and obligations of the Guarantor contained in this Section 5
shall survive the payment in full of the Guaranteed Obligations and all
other amounts payable under this Guaranty.
Section 6. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants as follows:
(a) DUE INCORPORATION, ETC. The Guarantor (i) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (ii) is duly authorized to do business in each jurisdiction
in which such authorization is required by law or in which the failure to be
so authorized would not have material adverse effect on (x) the business,
condition (financial or otherwise), operation, performance or properties of
the Guarantor and its subsidiaries, taken as a whole, (y) the rights and
remedies of the Lender under this Guaranty, or (z) the ability of the
Guarantor to perform its obligations under this Guaranty (each, a "Material
Adverse Effect"), and (iii) has all requisite power and authority (A) to own
or hold under lease and to operate all of its property and assets and (B) to
execute, deliver and perform all its obligations under each Loan Document to
which it is or will be a party.
(b) CORPORATE POWER, ETC. The Guarantor has full corporate
power and authority to enter into, deliver and perform its obligations
under each Loan Document to which it is a party and to consummate each
of the transactions contemplated hereby and thereby, and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of each Loan Document to which it is a party. Each
Loan Document to which the Guarantor is a party constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the
C1-4
<PAGE>
Guarantor in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect affecting the enforcement of creditors'
rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(c) NO CONFLICT. Neither the execution and delivery of each
Loan Document to which it is or will be a party nor the performance by
the Guarantor of its obligations thereunder, nor the consummation of the
transactions contemplated thereby, will (i) conflict with the
Certificate of Incorporation or by-laws of the Guarantor, or (ii)
conflict with or result in a breach of, or constitute a default under,
or result in the creation or imposition of any Lien upon any property or
assets of the Guarantor under, any applicable laws (including, without
limitation, Regulation X issued by the Board of Governors of the Federal
Reserve System) or any indenture, mortgage, deed of trust or other
instrument or agreement to which the Guarantor may be or become a party
or by which it may be or become bound or to which any of the property or
assets of the Guarantor may be subject.
(d) APPROVALS. ETC. No order, license, consent,
authorization or approval of, or exemption by, or notice to or
registration with, any governmental authority or regulatory body, and no
filing, recording, publication or registration in any public office or
any other place (other than, in each case, such filings as may be
required under applicable securities laws), is required in connection
with the execution, delivery and performance by the Guarantor of any
Loan Document to which it is or will be a party, or for the legality,
validity, binding effect or enforceability thereof.
(e) FINANCIAL STATEMENTS. The Consolidated balance sheets of
STIHL as at December 31, 1996, and the related Consolidated statements
of income and cash flows of STIHL for the fiscal year then ended,
accompanied by an opinion of the independent chartered or public
accountants of STIHL, copies of which have been furnished to the Lender,
fairly present the Consolidated financial condition of STIHL and its
Subsidiaries as at such date and the results of the operations thereof
for the period ended on such date. All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with U.S. GAAP for STIHL applied consistently throughout the
periods involved.
(f) NO MATERIAL ADVERSE EFFECT. Since December 31, 1996,
there has been no, nor, to the best of the Guarantor's knowledge, has
there been any event which could reasonably be elected to have a,
Material Adverse Effect.
(g) LITIGATION, ETC. There is no pending or, to the best of
the Guarantor's knowledge, threatened litigation, investigation, action
or proceeding of or before any court, arbitrator or governmental agency
(including any Environmental Action) binding upon or affecting any of
the Guarantor or its Subsidiaries or their respective properties and
assets that (i) could reasonably be expected to cause a Material Adverse
Effect to occur or (ii) purports to affect the legality, validity or
enforceability of any Loan Document to which the Guarantor is a party.
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(h) NO VIOLATION, ETC. The Guarantor is not in violation of,
nor does the execution by the Guarantor of the Loan Documents to which
it is a party or the consummation of the transactions contemplated
thereby result in the violation of, (i) any term of its charter or
by-laws, (ii) the Shareholders Agreement, or (ii) any term of any other
agreement or instrument to which it is a party or by which it is bound
in any respect, which, in each case, has or could be reasonably expected
to have a Material Adverse Effect.
(i) MARGIN STOCK. The Guarantor is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock within
the meaning of Regulations G, T and X issued by the Board of Governors of the
Federal Reserve System.
(j) INVESTMENT COMPANY ACT AND PUBLIC UTILITY HOLDING COMPANY
ACT. The Guarantor is not, and is not directly or indirectly controlled
by any Person which is, required to register as an "investment company"
within the meaning of the U.S. Investment Company Act of 1940, as
amended. The Guarantor is not a "holding company" or a "subsidiary" or
an "affiliate" of a "holding company" or a "public utility" within the
meaning of the U.S. Public Utility Holding Company Act of 1935, as
amended.
(k) TAXES. The Guarantor has filed all tax returns required
to be filed by it and has paid all taxes, assessments, fees and other
charges (including interest and penalties) due with respect to the years
covered by such returns, except for any such failures to file or to pay
such amounts which, in the aggregate, would not have a Material Adverse
Effect or which are being contested in good faith by appropriate
proceedings.
(l) ENVIRONMENTAL LAWS. The operations and properties of the
Guarantor comply in all material respects with all applicable Environmental
Laws, except where the failure to so comply could not be reasonably expected to
have a Material Adverse Effect, and all necessary Environmental Permits have
been obtained and are in effect for the operations and properties of the
Guarantor and its Subsidiaries, EXCEPT for such Environmental Permits where the
failure to obtain the came, in the aggregate, could not be reasonably expected
to have a Material Adverse Effect.
(m) CONDITIONS PRECEDENT. Upon execution hereof and the
other Loan Documents by all parties, there are no conditions precedent
to the effectiveness of this Guaranty that have not been satisfied or
waived.
(n) CREDIT ANALYSIS; OTHER INFORMATION. The Guarantor has,
independently and without reliance upon the Lender and based on such
documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Guaranty, and the
Guarantor has established adequate means of obtaining from the Borrower
on a continuing basis information pertaining to, and is now and on a
continuing basis will be completely familiar with, the financial
condition, operations, properties and prospects of the Borrower.
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Section 7. AFFIRMATIVE COVENANTS. The Guarantor covenants and agrees
that, so long as any part of the Guaranteed Obligations shall remain unpaid
or the Lender shall have any Commitment, the Guarantor will, unless the
Leader shall otherwise consent in writing:
(a) CORPORATE EXISTENCE. Preserve and maintain in full force
and effect its corporate existence, rights (charter and statutory),
franchises and privileges and qualify and remain qualified, as a
corporation in good standing in each jurisdiction in which such
qualification is from time to time necessary, except for such
jurisdictions where the failure to so qualify would not have a Material
Adverse Effect; PROVIDED, HOWEVER, that the Guarantor shall not be
required to preserve any right, privilege or franchise if the board of
directors thereof shall determine in good faith that such right,
privilege or franchise is no longer useful in the conduct of the
business of the Guarantor, and the loss thereof is not disadvantageous
in any material respect to the Lender.
(b) COMPLIANCE WITH LAWS. Comply in an material respects
with all applicable laws, rules, regulations and orders, such compliance
to include, without limitation, compliance with ERISA, except where the
failure to so comply would not have a Material Adverse Effect.
(c) INSURANCE. Maintain insurance with financially sound and
reputable insurers in such amounts and against such risks, as are
usually and customarily insured by companies engaged in a similar
business with respect to properties of a similar character.
(d) KEEPING OF BOOKS. Keep proper books of record and
accounts, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Guarantor in
accordance with generally accepted accounting principles in effect from
time to time or as otherwise required by applicable rules and
regulations of any governmental agency or regulatory authority having
jurisdiction over the Guarantor.
(e) ACCESS TO RECORDS. Provide the Lender and its authorized
advisors and representatives reasonable access to all books, records,
offices and other facilities and properties of the Guarantor upon
reasonable notice, and allow the Lender or its authorized advisors or
representatives (as the case may be) to make such examinations thereof
and copies of and abstracts from such books and records as the Lender or
its authorized advisors or representatives (as the case may be) may
reasonably request.
(f) PAYMENT OF TAXES, ETC. Pay and discharge before the same
shall become delinquent (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all
lawful claims that, if unpaid, might become a lien upon its property;
PROVIDED, HOWEVER, that Guarantor shall not be required to pay or
discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
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(g) REPORTING. Furnish to the Lender at the request of the
Lender, without cost to the Lender, copies of all documents and
certificates delivered to any holder of Debt of the Guarantor promptly
after delivery thereof to such Lender or holder of Debt.
(h) NOTICE OF DEFAULTS. Promptly upon any officer of the
Guarantor obtaining knowledge thereof, give notice to the Lender, (i) of
any development, including, without limitation, any litigation,
investigation or proceeding affecting the Guarantor, which has a
Material Adverse Effect, could reasonably be expected to have a Material
Adverse Effect or, in the case of any litigation, investigation or other
proceeding, which could, if adversely decided, reasonably be expected to
have a Material Adverse Effect.
(i) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply with all
Environmental Laws and Environmental Permits applicable to its
operations and properties, noncompliance with which could have a
Material Adverse Effect; obtain and renew all Environmental Permits
necessary for its operations and properties; and conduct any
investigation, study, sampling and testing, and undertake any cleanup,
removal, remedial or other action necessary to remove and clean up
Hazardous Materials from any of its properties, in accordance with the
requirements of all applicable Environmental Laws; PROVIDED, HOWEVER,
that the Guarantor shall not be required to undertake any such cleanup,
removal, remedial or other action to the extent that its obligation to
do so is being contested in good faith and by proper proceedings and
appropriate reserves are being maintained with respect to such
circumstances.
(j) PARI PASSU. Ensure that the Guaranteed Obligations shall
rank PARI PASSU with all present and future senior secured and unsecured
Obligations of the Guarantor.
(k) REFINANCING. Use its best efforts to cause the Borrower
to complete the Refinancing prior to the Final Maturity Date, which
Refinancing shall yield an amount sufficient to repay the aggregate
unpaid principal amount of the Advances in full PLUS accrued interest
thereon to the date of repayment and all other amounts payable under the
Loan Documents.
Section 8. NEGATIVE COVENANT. The Guarantor covenants and agrees that,
so long as any part of the Guaranteed Obligations shall remain unpaid, or the
Lender shall have any Commitment, the Guarantor will not, without the prior
written consent of the Lender:
(a) MERGERS, ETC. Merge into or consolidate with any Person,
except after giving effect any such merger or consolidation, the
corporation formed by such merger or consideration shall assume the
Guarantor's obligations and the performance of the Guarantor's covenants
under this Guaranty in a writing reasonably satisfactory in form and
substance to the Lender.
(b) OPERATE OTHER THAN IN ORDINARY COURSE. Operate its
business, other than in the usual and ordinary course and other than
that which is consistent with the past practice established by the
Guarantor.
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(c) NEGATIVE PLEDGE. Enter into or suffer to exist any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any of
its property or assets (including, without limitation, any Shares) other than
(i) in favor of the Lender or (ii) in respect of any Debt of the Guarantor
outstanding as of the date hereof.
(d) AMENDMENTS OR WAIVERS. Amend, modify or change in any manner or
waive any of its rights pursuant to the charter or by-laws (or other
organizational documents) of the Guarantor, which, in the reasonable judgment of
the Lender, would adversely affect the Lender's rights and benefits under the
Loan Documents and the documents delivered pursuant thereto.
(e) INVESTMENT COMPANY. Be or become an investment company subject
to the registration requirements under the Investment Company Act of 1940, as
amended.
(f) MAINTENANCE OF OWNERSHIP OF THE BORROWER. Dispose of any
shares of capital stock of the Borrower or any warrants, rights or
options to acquire such capital stock, if, as a result of such disposal,
STHL and IWC shall in the aggregate retain possession of, or the right,
directly or indirectly, to vote less than 75% of the Shares or the
ability to direct or to cause the direction of the management and
policies of the Borrower, whether through the ownership of Shares, by
contract or otherwise.
Section 9. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Guaranty and no consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 10. NOTICE, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic,
telecopy or telex communication) and mailed, telegraphed, telecopied,
telexed or delivered to it, at its address at 6th Floor, Star Telecom
Tower, 414 Kwun Tong Road, Kowloon, Hong Kong Attention: Mr. Wong Kam Fu
(Fax No. 852-2771-7421). All such notices and other communications
shall, when mailed, telegraphed, telecopied or telexed, be effective
when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively.
Section 11. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
Section 12. RIGHT OF SET-OFF. Upon (a) the occurrence and during
the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 6.01 of the
Credit Agreement to authorize the Lender to declare the Note due and
payable pursuant to the provisions of said Section 6.01, the Lender and
any of its Affiliates is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set
C1-9
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off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any
time owing by the Lender or such Affiliate to or for the credit or the
account of the Guarantor against any and all of the Obligations of the
Guarantor now or hereafter existing under this Guaranty, whether or not
the Lender or such Affiliate shall have made any demand under this
Guaranty and although such Obligations may be unmatured. The Lender
agrees promptly to notify the Guarantor after any such set-off and
application; PROVIDED, HOWEVER, that the failure to give such notice
shall not affect the validity of such set-off and application. The
rights of the Lender and its Affiliates under this Section are in
addition to other rights and remedies (including, without limitation,
other rights of set-off) that the Lender may have.
Section 13. INDEMNIFICATION. Without limitation on any other
Obligations of the Guarantor or remedies of the Lender under this
Guaranty, the Guarantor shall, to the fullest extent permitted by law,
indemnify, defend and save and hold harmless the Lender from and
against, and shall pay on demand, any and all losses, liabilities,
damages, costs, expenses and charges (including the reasonable fees and
disbursements of the Lender's legal counsel) suffered or incurred by the
Lender as a result of any failure of any Guaranteed Obligations to be
the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms.
Section 14. CONTINUING GUARANTY; ASSIGNMENTS UNDER THE CREDIT
AGREEMENT. This Guaranty is a continuing guaranty and shall (a) remain
in full force and effect until the later of the payment in full in cash
of the Guaranty Obligations and an other amounts payable under this
Guaranty and the Termination Date, (b) be binding upon the Guarantor,
its successors and assigns and (c) inure to the benefit of and be
enforceable by the Lender and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), the Lender
may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation,
all or any portion of the Commitment, the Advances owing to it and the
Note held by it) to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted
to the Lender herein or otherwise, in each case as and to the extent
provided under the Credit Agreement.
Section 15. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL,
ETC. (a) This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of New York.
(b) The Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction
of any New York State court or federal court of the United States of
America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Guaranty, or for recognition or enforcement of any judgment, and the
Guarantor hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined
in any such New York State court or, to the extent permitted by law, in
such federal court. The Guarantor agrees that process served either
personally or by registered mail, return receipt requested, shall, to
the extent permitted by law, constitute adequate service of process in
any
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<PAGE>
such proceeding. Without limiting the foregoing, the Guarantor hereby
appoints, in the case of any such action or proceeding brought in the
courts of or in the State of New York, CT Corporation System, with
offices on the date hereof at 1633 Broadway, New York, New York 10019,
to receive, for them and on their behalf, service of process in the
State of New York with respect thereto, PROVIDED that the Guarantor may
appoint any other person, with offices in the State of New York to
replace such agent for service of process upon delivery to each other
Loan Party notice thereof. The Guarantor agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Guaranty shall affect any right that
any Loan Party may otherwise have to bring any action or proceeding
relating to this Guaranty in the courts of any jurisdiction.
(c) The Guarantor hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Guaranty in any New York State or federal court. The Guarantor hereto
hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) If any sum due from the Guarantor under this Guaranty or
any order or judgment given or made in relation thereto has to be
converted from the currency (the "first currency") in which the same is
payable hereunder or under such order or judgment into another currency
(the "second currency") for the purpose of (a) making or filing a claim
or proof against the Guarantor, (b) obtaining an order or judgment in
any court or other tribunal or (c) enforcing any order to judgment given
or made in relation thereto, the Guarantor shall indemnify and hold
harmless each of the persons to whom such sum is due from and against
any loss suffered or incurred as a result of any discrepancy between (i)
the rate of exchange used for such purpose to convert the sum in
question from the first currency into the second currency and (ii) the
rate or rates of exchange at which such person may in the ordinary
course of business purchase the first currency with the second currency
upon receipt of a sum paid to it in satisfaction, in whole or in part,
of any such order, judgment, claim or proof.
(e) The Guarantor hereby waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to this Guaranty, any document
delivered under this Guaranty, any Advance or the actions of the Lender
in the negotiations, administration, performance or enforcement hereof.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
duly executed and delivered by its officer thereunto duly authorized as
of the date first above written.
STAR TELECOM HOLDING LIMITED
By:
------------------------------------
Name:
Title:
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EXHIBIT C-2
FORM OF GUARANTY FROM VCFC
GUARANTY dated May 16, 1997 made by VANGUARD CELLULAR FINANCIAL
CORP., a North Carolina corporation (the "Guarantor"), in favor of the
Lender (as defined in the Credit Agreement referred to below).
PRELIMINARY STATEMENT. The Lender is party to the Bridge Loan
Agreement, dated as of May 16, 1997 (said Agreement, as it may hereafter
be amended, supplemented or otherwise modified from time to time, being
the "Credit Agreement") with STAR DIGITEL LIMITED, a corporation
organized under the laws of Hong Kong (the "Borrower"). It is a
condition precedent to the making of Advances under the Credit Agreement
that the Guarantor shall have executed and delivered this Guaranty.
Capitalized terms used but not defined herein shall have the meaning
ascribed to such terms in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make Advances under the Credit Agreement from time
to time, the Guarantor hereby agrees as follows:
Section 1. GUARANTY. (a) The Guarantor hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of the sum of (i) Advances under
the Credit Agreement in an aggregate principal amount not to exceed
$3,760,000 and (ii) the product of (x) the VCFC Guarantee Percentage (as
defined below) and (y) the aggregate amount of all Obligations of the
Borrower other than Advances under the Credit Agreement now or hereafter
existing under the other Loan Documents, whether for interest, few,
expenses or otherwise (the sum of clauses (i) and (ii) being the
"Guaranteed Obligation"), and in addition agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by
the Lender in enforcing any rights under this Guaranty. Without
limiting the generality of the foregoing, the Guarantor's liability
shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by the Borrower to the Lender under the
Loan Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or
similar proceeding involving the Borrower. The "VCFC Guaranteed
Percentage" means, at any date of determination, 47%.
(b) The liability of the Guarantor under this Guaranty shall
not exceed the greater of (i) the net benefit realized by the Guarantor
from the proceeds of the Advances made from time to time by the Borrower
to the Guarantor or any Subsidiary of the Guarantor and (ii) the greater
of (x) 95% of the Adjusted Net Assets of the Guarantor on the date of
delivery hereof and (y) 95% of the Adjusted Net Assets of the Guarantor
on the date of any payment hereunder. "Adjusted Net Assets" of the
Guarantor at any date means the lesser of (x) the amount by which the
fair value of the property of the Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities, but
excluding liabilities under this Guaranty),
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of the Guarantor at such date and (y) the amount by which the present
fair salable value of the assets of the Guarantor at such date exceeds
the amount that will be required to pay the probable liability of the
Guarantor on its debts, excluding debt in respect of this Guaranty, as
they become absolute and matured.
Section 2. GUARANTY ABSOLUTE. The Guarantor guarantees the
payment of Guaranteed Obligations, which will be paid in accordance with
the terms of the Loan Documents, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of
such terms or the rights of the Lender with respect thereto. The
Obligations of the Guarantor under this Guaranty are independent of any
Obligations of any other Loan Party under the Loan Document, and a
separate action or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether any action
is brought against the Borrower or any other Loan Party or whether the
Borrower or any other Loan Party is joined in any such action or
actions. The liability of the Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and the
Guarantor hereby irrevocably waives any defenses it may now or hereafter
have in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan
Document or any agreement or instrument redating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations or any
other Obligations of any other Loan Party under the Loan Documents, or
any other amendment or waiver of or any consent to departure from any
Loan Document; PROVIDED, HOWEVER, that any amendment to or other
modification of the Loan Documents (other than the STHL Guaranty and the
IWC Pledge Agreement) shall require the prior written consent of VCFC;
(c) any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries;
(e) any failure of the Lender to disclose to any Loan Party
any information relating to the financial condition, operations,
properties or prospects of any other Loan Party now or in the future
known to the Lender (the Guarantor waiving any duty on the part of the
Secured Parties to disclose such information); or
(f) any other circumstance (including, without limitation,
any statute of limitations) or any existence of or reliance on any
representation by the Lender that might otherwise constitute a defense
available to, or a discharge of, any Loan Party or any other guarantor
or surety.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by
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the Lender or any other Person upon the insolvency, bankruptcy or
reorganization of any Loan Party or otherwise, all as though such
payment had not been made.
Section 3. WAIVERS AND ACKNOWLEDGMENTS. (a) The Guarantor hereby
waives promptness, diligence, notice of acceptance and any other notice
with respect to any of the Guaranteed Obligations and this Guaranty and
any requirement that the Lender protect, secure, perfect or insure any
Lien or any property subject thereto or exhaust any right or take any
action against any Loan Party or any other Person or any Collateral.
(b) The Guarantor hereby waives any right to revoke this
Guaranty, and acknowledges that this Guaranty is continuing in nature
and applies to all Guaranteed Obligations, whether existing now or in
the future.
(c) The Guarantor acknowledges that it will receive substantial
direct and indirect benefits from the financing arrangements contemplated by the
Loan Documents and that the waivers set forth in this Section 3 are knowingly
made in contemplation of such benefits.
Section 4. SUBROGATION. The Guarantor will not exercise any
rights that it may now or hereafter acquire against the Borrower or any
other insider guarantor that arise from the existence, payment,
performance or enforcement of the Guarantor's Obligations under this
Guaranty or any other Loan Document, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of
the Lender against the Borrower or any other insider guarantor or any
Collateral, whether or not such claim, remedy or right arises in equity
or under contract, statute or common law, including, without limitation,
the right to take or receive from the Borrower or any other insider
guarantor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such
claim, remedy or right, unless and until all of the Obligations and all
other amounts payable under this Guaranty shall have been paid in full
in cash and the Commitment shall have expired or terminated. If any
amount shall be paid to the Guarantor in violation of the preceding
sentence at any time prior to the later of the payment in full in cash
of the Guaranteed Obligations and all other amounts payable under this
Guaranty and the Termination Date, such amount shall held in trust for
the benefit of the Lender and shall forthwith be paid to the Lender to
be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Gnaranq, whether matured or unmatured, in
accordance with the terms of the Loan Documents, or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. If (i) the Guarantor shall make
payment to the Lender of all or any part of the Guaranteed Obligations,
(ii) all of the Guaranteed Obligations and all other amounts payable
under this Guaranty shall be paid in full in cash and (iii) the
Termination Date shall have occurred, the Lender will, at the
Guarantor's request and expense, execute and deliver to the Guarantor
appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the
Guarantor of an interest in the Guaranteed Obligations resulting from
such payment by the Guarantor.
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Section 5. PAYMENTS FREE AND CLEAR OF TAXES, ETC. (a) Any and all
payments made by the Guarantor hereunder shall be made free and clear of
and without deduction for any and all present or future Taxes. If the
Guarantor shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to the Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this Section) the Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Guarantor
shall make such deductions and (iii) the Guarantor shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Guarantor agrees to pay any present or
future Other Taxes in respect of all or any part of the Guaranteed
Obligations.
(c) The Guarantor will indemnify the Lender for the VCFC
Guaranteed Percentage of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section) paid by the Lender and any liability
(including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto; the Guarantor shall have the right to
contest in good faith such tax levied upon it; provided, however, that
such contest shall in no way limit the Guarantor's Obligations
hereunder. This indemnification shall be made within 30 days from the
date the Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes by
or on behalf of the Guarantor, the Guarantor will furnish to the Lender,
at its address referred to in the Credit Agreement, the original receipt
of payment thereof or a certified copy of such receipt or to the extent
that a receipt is not given, other reasonable evidence of payment
thereof. In the case of any payment hereunder by or on behalf of the
Guarantor through an account or branch outside the United States or on
behalf of the Guarantor by a payer that is not a United States person,
if the Guarantor determines that no Taxes are payable in respect
thereof, the Guarantor shall, at the request of the Lender, furnish, or
shall cause such payor to furnish, to the Lender, at such address, an
opinion of counsel acceptable to the Lender stating that such payment is
exempt from Taxes. For purposes of this subsection (d), the terms
"United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) Without prejudice to the survival of any other agreement
of the Guarantor hereunder or under any other Loan Document, the
agreements and obligations of the Guarantor contained in this Section 5
shall survive the payment in full of the Guaranteed Obligations and all
other amounts payable under this Guaranty.
Section 6. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants as follows:
(a) DUE INCORPORATION, ETC. The Guarantor (i) is duly organized,
valid existing and in good standing under the laws of the jurisdiction of its
organization, (ii) is duly authorized to do business in each jurisdiction in
which such authorization is required by law or in which the failure to be so
authorized would not have material adverse effect on (x) the business,
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condition (financial or otherwise), operation or properties of the
Guarantor and its subsidiaries taken as a whole, (y) the rights and
remedies of the Lender under this Guaranty, or (z) the ability of the
Guarantor to perform its obligations under this Guaranty (each, a
"Guarantor Material Adverse Effect"), and (iii) has all requisite power
and authority (A) to own or hold under lease and to operate all of its
property and assets and (B) to execute, deliver and perform all its
obligations under each Loan Document to which it is or will be a party.
(b) CORPORATE POWER, ETC. The Guarantor has full corporate
power and authority to enter into, deliver and perform its obligations
under each Loan Document to which it is a party and to consummate each
of the transactions contemplated hereby and thereby, and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of each Loan Document to which it is a party. Each
Loan Document to which the Guarantor is a party constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect affecting the enforcement of creditors'
rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(c) NO CONFLICT. Neither the execution and delivery of each
Loan Document to which it is or will be a party nor the performance by
the Guarantor of its obligations thereunder, nor the consummation of the
transactions contemplated thereby, will (i) conflict with the Articles
of Incorporation or bylaws of the Guarantor, or (ii) conflict with or
result in a breach of, or constitute a default under, or result in the
creation or imposition of any Lien upon any of the property or assets of
the Guarantor under, any applicable laws (including, without limitation,
Regulation X issued by the Board of Governors of the Federal Reserve
System) or any indenture, mortgage, deed of trust or other instrument or
agreement to which the Guarantor may be or become a party or by which it
may be or become bound or to which any of the property or assets of the
Guarantor may be subject.
(d) APPROVALS, ETC. No order, license, consent,
authorization or approval of, or exemption by, or notice to or
registration with, any governmental authority or regulatory body, and no
filing, recording, publication or registration in any public office or
any other place (other than, in each case, such filings as may be
required under applicable securities laws), is required in connection
with the execution, delivery and performance by the Guarantor of any
Loan Document to which it is a party, or for the legality, validity,
binding effect or enforceability thereof.
(e) FINANCIAL STATEMENTS. The Consolidated balance sheets of
Vanguard Cellular Systems, Inc., a North Carolina corporation
("Vanguard"), and Subsidiaries as of December 31, 1996, and the related
Consolidated statements of income and cash flows of Vanguard for the
fiscal year then ended, accompanied by an opinion of the independent
chartered or public accountants of Vanguard, copies of which have been
furnished to the Lender, fairly present the Consolidated financial
condition of Vanguard and Subsidiaries as of such date and the results
of the operations thereof for the period ended on such date. All such
financial
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statements, including the related schedules and notes thereto, have been
prepared in accordance with U.S. GAAP for Vanguard applied consistently
throughout the periods involved.
(f) NO GUARANTOR MATERIAL ADVERSE EFFECT. Since December 31, 1996,
there has been no, nor, to the best of the Guarantor's knowledge, has there been
any event that could reasonably be elected to have a, Guarantor Material Adverse
Effect.
(g) LITIGATION, ETC. There is no pending or, to the best of the
Guarantor's knowledge, threatened litigation, investigation, action or
proceeding of or before any court, arbitrator or governmental agency (including
any Environmental Action) binding upon or affecting any of the Guarantor or its
Subsidiaries or their respective properties and assets that (i) could reasonably
be expected to cause a Guarantor Material Adverse Effect to occur or
(ii) purports to affect the legality, validity or enforceability of any Loan
Document to which the Guarantor is a party.
(h) NO VIOLATION, ETC. The Guarantor is not in violation of, nor
does the execution by the Guarantor of the Loan Documents to which it is a party
or the consummation of the transactions contemplated thereby result in the
violation of, (i) any term of its charter or bylaws, (ii) the Shareholders
Agreement, or (iii) any term of any other agreement or instrument to which it is
a party or by which it is bound in any respect, which, in each case, has or
could be reasonably expected to have a Guarantor Material Adverse Effect.
(i) MARGIN STOCKS. The Guarantor is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock within the meaning of Regulations G, T and X issued by the
Board of Governors of the Federal Reserve System.
(j) INVESTMENT COMPANY ACT AND PUBLIC UTILITY HOLDING COMPANY ACT.
The Guarantor is not, and is not directly or indirectly controlled by any
Person which is, required to register as an "investment company" in the
meaning of the U.S. Investment Company Act of 1940, as amended. The
Guarantor is not a "holding company" or a "subsidiary" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the U.S. Public
Utility Holding Company Act of 1935, as amended.
(k) TAXES. The Guarantor has filed all tax returns required
to be filed by it and has paid all taxes, assessments, fees and other
charges (including interest and penalties) due with respect to the years
covered by such returns, except for any such failures to file or to pay
such amounts which, in the aggregate, would not have a Guarantor
Material Adverse Effect or which are being contested in good faith by
appropriate proceedings.
(l) ENVIRONMENTAL LAWS. The operations and properties of the
Guarantor comply in all material respects with all applicable
Environmental Laws, except where the failure to so comply could not be
reasonably expected to have a Guarantor Material Adverse Effect, and all
necessary Environmental Permits have been obtained and are in effect for
the operations and properties of the Guarantor and its Subsidiaries,
EXCEPT for such Environmental Permits where the failure to obtain the
same, in the aggregate, could not be reasonably expected to have a
Guarantor Material Adverse Effect.
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<PAGE>
(m) CONDITIONS PRECEDENT. Upon execution hereof and the other Loan
Documents by all of the parties thereto, there are no conditions precedent to
the effectiveness of this Guaranty that have not been satisfied or waived.
(n) CREDIT ANALYSIS; OTHER INFORMATION. The Guarantor has,
independently and without radiance upon the Lender and based on such
documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Guaranty, and the
Guarantor has established adequate means of obtaining from the Borrower
on a continuing basis information pertaining to, and is now and on a
continuing basis will be completely familiar with, the financial
condition, operations, properties and prospects of the Borrower.
Section 7. AFFIRMATIVE COVENANTS. The Guarantor covenants and
agrees that, so long as any part of the Guaranteed Obligations shall
remain unpaid or the Lender shall have any Commitment, the Guarantor
will, unless the Lender shall otherwise consent in writing:
(a) CORPORATE EXISTENCE. Preserve and maintain in full force
and effect its corporate existence, rights (charter and statutory),
franchises and privileges and qualify and remain qualified, as a
corporation in good standing in each jurisdiction in which such
qualification is from time to time necessary, except for such
jurisdictions where the failure to so qualify would not have a Guarantor
Material Adverse Effect; PROVIDED, HOWEVER, that the Guarantor shall not
be required to preserve any right, privilege or franchise if the board
of directors thereof shall determine in good faith that such right,
privilege or franchise is no longer useful in the conduct of the
business of the Guarantor, and the loss thereof is not disadvantageous
in any material respect to the Lender.
(b) COMPLIANCE WITH LAWS. Comply in an material respects
with all applicable laws, rules, regulations and orders, such compliance
to include, without limitation, compliance with ERISA, except where the
failure to so comply would not have a Guarantor Material Adverse Effect.
(c) INSURANCE. Maintain insurance with financially sound and
reputable insurers in such amounts and against such risks, as are
usually and customarily insured by companies engaged in a similar
business with respect to properties of a similar character.
(d) KEEPING OF BOOKS. Keep proper books of record and
accounts, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Guarantor in
accordance with generally accepted accounting principles in effect from
time to time or as otherwise required by applicable rules and
regulations of any governmental agency or regulatory authority having
jurisdiction over the Guarantor.
(e) ACCESS TO RECORDS. Provide the Lender and its authorized
advisors and representatives reasonable access to all books, records, offices
and other facilities and properties of the Guarantor upon reasonable notice, and
allow the Lender or its authorized advisors or representatives (as the case may
be) to make such examinations thereof and copies of
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<PAGE>
and abstracts from such books and records as the Lender or its
authorized advisors or representatives (as the case may be) may
reasonably request.
(f) PAYMENT OF TAXES, ETC. Pay and discharge before the same
shall become delinquent (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its properly and (ii) all
lawful claims that, if unpaid, might become a lien upon its property;
PROVIDED, HOWEVER, that Guarantor shall not be required to pay or
discharge any such tax, assessment, charge or claim that is being
contested good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
(other than any Lien permitted under that certain Second Amended and
Restated Loan Agreement, dated as of April 10, 1996, by and among
Vanguard Cellular Operating Corp. and the financial institutions party
thereto, as amended and modified (the "SENIOR CREDIT FACILITY"))
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(g) REPORTING. From time to time, furnish without cost to,
at the request of, the Lender, copies of all documents and certificates
delivered to any other lender or holder of Debt of the Guarantor
promptly after such request.
(h) NOTICE OF DEFAULTS. Promptly upon any officer of the
Guarantor obtaining knowledge thereof, give notice to the Lender of any
development, including, without limitation, any litigation,
investigation or proceeding affecting the Guarantor, which has a
Guarantor Material Adverse Effect, could reasonably be expected to have
a Guarantor Material Adverse Effect or, in the case of any litigation,
investigation or other proceeding, which could, if adversely decided,
reasonably be expected to have a Guarantor Material Adverse Effect.
(i) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply with all
Environmental Laws and Environmental Permits applicable to its
operations and properties, noncompliance with which could have a
Guarantor Material Adverse Effect; obtain and renew all Environmental
Permits necessary for its operations and properties; and conduct any
investigation, study, sampling and testing, and undertake any cleanup,
removal, remedial or other action necessary to remove and clean up
Hazardous Materials from any of its properties, in accordance with the
requirements of all applicable Environmental Laws; PROVIDED, HOWEVER,
that the Guarantor shall not be required to undertake any such cleanup,
removal, remedial or other action to the extent that its obligation to
do so is being contested in good faith and by proper proceedings and
appropriate reserves are being maintained with respect to such
circumstances.
(j) PARI PASSU. Ensure that the Guaranteed Obligations shall
rank PARI PASSU with all present and future senior unsecured Obligations
of the Guarantor.
Section 8. NEGATIVE COVENANTS. The Guarantor covenants and agrees
that, so long as any part of the Guaranteed Obligations shall remain
unpaid, or the Lender shall have any Commitment, the Guarantor will not,
without the prior written consent of the Lender:
(a) MERGERS, ETC. Merge into or consolidate with any Person,
if after giving effect any such merger or consolidation, the Guarantor's
obligations under this Guaranty are not assumed by the corporation
formed by such merger or consolidation, and evidence of
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<PAGE>
such assumption shall be evidenced in a writing reasonably satisfactory
in form and substance to the Lender.
(b) OPERATE OTHER THAN IN ORDINARY COURSE. Operate its
business, other than in the usual and ordinary course and other than
that which is consistent with the past practice established by the
Guarantor.
(c) AMENDMENT OR WAIVER. Amend, modify or change in any
manner the charter or bylaws (or other organizational documents) of the
Guarantor, which would materially adversely affect the Lender's rights
and benefits under the Loan Documents and the documents delivered
pursuant thereto.
(d) NEGATIVE PLEDGE. Enter into or suffer to exist any
agreement prohibiting or conditioning the creation or assumption of any
Lien upon any of its property or assets (including, without limitation,
any Shares) (i) other than in respect of any Debt of the Guarantor
outstanding as of the date hereof and (ii) to the extent that the
obligation under this Section 8(d) does not conflict with the Senior
Credit Facility and all agreements related thereto.
Section 9. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Guaranty and no consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 10. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic,
telecopy or telex communication) and mailed, telegraphed, telecopied,
telexed or delivered to it, if to the Guarantor, at 2002 Pisgah Church
Road, Greensboro, NC 27455, U.S.A., Attention: General Counsel, telecopy
number: 1-910-545-2500, and if to the Lender, at 1 Temasek Avenue #15
02 Millenia Tower, Singapore 039192, Attention: Mrs. Mabel Sim, or as to
each party, at such other address or telecopy number as shall be
designated by such party in a written notice to the other party in the
manner set forth herein. All such notices and other communications
shall, when mailed, telegraphed, telecopied or telexed, be effective
when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively.
Section 11. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein
provided are cumulative not exclusive of any remedies provided by law.
Section 12. RIGHT OF SET-OFF. Upon (a) the occurrence and during
the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 6.01 of the
Credit Agreement to authorize the Lender to declare the Note due and
payable pursuant to the provision of said Section 6.01, the Lender and
any of its Affiliates is hereby authorized at any time and from time to
time, to the fullest extent permitted
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<PAGE>
by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or such Affiliate to or for
the credit or the account of the Guarantor against any and all of the
Obligations of the Guarantor now or hereafter existing under this
Guaranty, whether or not the Lender or such Affiliate shall have made
any demand under this Guaranty and although such Obligations may be
unmatured. The Lender agrees promptly to notify the Guarantor after any
such set-off and application; PROVIDED, HOWEVER, that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of the Lender and its Affiliates under this
Section are in addition to other rights and remedial (including, without
limitation, other rights of set-off) that the Lender may have.
Section 13. INDEMNIFICATION. Without limitation on any other
Obligations of the Guarantor or remedies of the Lender under this
Guaranty, the Guarantor shall, to the fullest extent permitted by law,
indemnify, defend and save and hold harmless the Lender from and
against, and shall pay on demand, any and all losses, liabilities,
damages, costs, expenses and charges with respect to the Guaranteed
Obligations suffered or incurred by the Lender (including the reasonable
fees and disbursements of the Lender's legal counsel) as a result of any
failure of any Guaranteed Obligations to be the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in
accordance with their terms.
Section 14. CONTINUING GUARANTY; ASSIGNMENTS UNDER THE CREDIT
AGREEMENT. This Guaranty is a continuing guaranty and shall (a) remain
in full force and effect until the later of the payment in full in cash
of the Guaranteed Obligations and all other amounts payable under this
Guaranty and the Termination Date, (b) be binding upon the Guarantor,
its successors and assigns and (c) inure to the benefit of and be
enforceable by the Lender and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), the Lender
may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation,
all or any portion of the Commitment, the Advances owing to it and the
Note held by it) to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted
to the Lender herein or otherwise, in each case as and to the extent
provided under the Credit Agreement.
Section 15. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL,
ETC. (a) This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of New York.
(b) The Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction
of any New York State court or federal court of the United States of
America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Guaranty, or for recognition or enforcement of any judgment, and the
Guarantor hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined
in any such New York State court or, to the extent permitted by law, in
such federal court. The Guarantor agrees that process served either
personally or by registered mail, return recent requested, shall, to the
extent permitted by law, constitute adequate service of process in any
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<PAGE>
such proceeding. The Guarantor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Guaranty shall affect any right that any Loan
Party may otherwise have to bring any action or proceeding relating to
this Guaranty in the courts of any jurisdiction.
(c) The Guarantor hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Guaranty in any New York State or federal court.
(d) The Guarantor hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(e) The Guarantor hereby waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to this Guaranty, any document
delivered under this Guaranty, any Advance or the actions of the Lender
in the negotiations, administration, performance or enforcement hereof.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
duly executed and delivered by its officer hereunto duly authorized as
of the date first above written.
VANGUARD CELLULAR
FINANCIAL CORPORATION
By:
---------------------------------
Name:
Title:
<PAGE>
IWC PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated June 5, 1997 made by International
Wireless Communications, Inc., a corporation organized under the laws of
Delaware (the "PLEDGOR"), in favor of the Lender (as defined in the Credit
Agreement referred to below).
PRELIMINARY STATEMENT. The Lender is party to the Bridge Loan
Agreement, dated as of May 16, 1997 (said Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT", the terms defined therein and not otherwise defined
herein being used herein as therein defined) with STAR DIGITEL LIMITED, a
corporation organized under the laws of Hong Kong (the "BORROWER"). It is a
condition precedent to the making of Advances under the Credit Agreement that
the Pledgor shall have executed and delivered this Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make Advances under the Credit Agreement from time to
time, the Pledgor hereby agrees as follows:
Section 1. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby
represents and warrants as follows:
(a) DUE INCORPORATION, ETC. The Pledgor (i) is duly organized,
validly existing and in good standing under the laws of Delaware, (ii) is
duly authorized to do business in each jurisdiction in which such
authorization is required by law or in which the failure to be so authorized
would not have material adverse effect on (x) the business, condition
(financial or otherwise), operation, performance or properties of the Pledgor
and its subsidiaries, taken as a whole, (y) the rights and remedies of the
Lender under this Pledge Agreement, or (z) the ability of the Pledgor to
perform its obligations under this Pledge Agreement (each, a "MATERIAL
ADVERSE EFFECT"), and (iii) has all requisite power and authority to own or
hold under lease and to operate all of its property and assets.
(b) CORPORATE POWER, ETC. The Pledgor has full corporate power and
authority to enter into, deliver and perform its obligations under this
Pledge Agreement and to consummate each of the transactions contemplated
hereby, and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Pledge Agreement. This
Pledge Agreement constitutes the legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
<PAGE>
(c) NO CONFLICT. Neither the execution and delivery of this Pledge
Agreement nor the performance by the Pledgor of its obligations hereunder,
nor the consummation of the transactions contemplated hereby will,
(i) conflict with the certificate of incorporation or by-laws of the Pledgor,
or (ii) conflict with or result in a breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon, any of the
property or assets of the Pledgor under, any applicable laws (including,
without limitation, Regulation X issued by the Board of Governors of the
Federal Reserve System) or any indenture, mortgage, deed of trust or other
instrument or agreement to which the Pledgor may be or become a party or by
which it may be or become bound or to which any of the property or assets of
the Pledgor may be subject.
(d) APPROVALS, ETC. No order, license, consent, authorization or
approval of, or exemption by, or notice to or registration with, any
governmental authority or regulatory body, and no filing, recording,
publication or registration in any public office or any other place, is
required in connection with the execution, delivery and performance by the
Pledgor of this Pledge Agreement, or for the legality, validity, binding
effect or enforceability thereof.
(e) OWNERSHIP OF SHARES. Pledgor owns beneficially 231.9 million
shares of the Borrower (the "PLEDGOR SHARES") representing 40.35% of the
issued and outstanding shares of the Borrower. The Pledgor owns the Pledgor
Shares free and clear of any encumbrance.
Section 2. AFFIRMATIVE COVENANTS. The Pledgor covenants and agrees
that, so long as any part of obligations of the Borrower under the Credit
Agreement shall remain unpaid or the Lender shall have any Commitment
thereunder, the Pledgor will, unless the Lender shall otherwise consent in
writing:
(a) CORPORATE EXISTENCE. Preserve and maintain in full force and
effect its corporate existence, rights (charter and statutory), franchises
and privileges and qualify and remain qualified, as a corporation in good
standing in each jurisdiction in which such qualification is from time to
time necessary or desirable in view of its business and operations or the
ownership of its properties, except for such jurisdictions where the failure
to so qualify would not have a Material Adverse Effect; PROVIDED, HOWEVER,
that the Pledgor shall not be required to preserve any right, privilege or
franchise if the Board of Directors thereof shall determine in good faith
that such right, privilege or franchise is no longer useful in the conduct of
the business of the Pledgor, and the loss thereof is not disadvantageous in
any material respect to the Lender.
(b) COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, compliance with ERISA, except where the failure to so
comply would not have a Material Adverse Effect.
(c) REFINANCING. Use its commercially reasonable efforts to cause
the Borrower to complete the Refinancing prior to the Final Maturity Date,
which Refinancing shall yield an amount sufficient to repay the aggregate
unpaid principal amount of the Advances in full PLUS accrued interest thereon
to the date of repayment and all other amounts payable under the Loan
Documents.
<PAGE>
Section 3. NEGATIVE COVENANTS. (a) The Pledgor covenants and
agrees that, so long as any part of the obligations of the Borrower under the
Credit Agreement shall remain unpaid, or the Lender shall have any Commitment
thereunder, the Pledgor will not, without the prior written consent of the
Lender, dispose of any shares of capital stock of the Borrower or any
warrants, rights or options to acquire such capital stock, if, as a result of
such disposal, the Pledgor and STHL shall in the aggregate retain possession
of, or the right, directly or indirectly, to vote less than 75% of the Shares
or the ability to direct or to cause the direction of the management and
policies of the Borrower, whether through the ownership of Shares, by
contract or otherwise.
(b) Enter into or suffer to exist any agreement prohibiting or
conditioning the creation or assumption of any Lien upon the Pledgor Shares.
Section 4. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Pledge Agreement and no consent to any departure by the
Pledgor therefrom shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
Section 5. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy
or telex communication) and mailed, telegraphed, telecopied, telexed or
delivered if to the Pledgor, at its address at 400 South El Camino Real,
suite 1275, San Mateo, CA 94402, Attention: Mr. Douglas Sinclair, Telecopier
415-548-1842 and if to the Lender at its address at 1 Temasek Avenue #15-02
Millenia Tower, Singapore 039192, Attention: Mr. David W. Lewing. All such
notices and other communications shall, when mailed, telegraphed, telecopied
or telexed, be effective when deposited in the mails, delivered to the
telegraph company, transmitted by telecopier or confirmed by telex
answerback, respectively.
Section 6. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
Section 7. CONTINUING AGREEMENT; ASSIGNMENTS UNDER THE CREDIT
AGREEMENT. This Pledge Agreement is a continuing obligation of the Pledgor
and shall (a) remain in full force and effect until the payment in full in
cash of all amounts due under the Credit Agreement, (b) be binding upon the
Pledgor, its successors and assigns and (c) inure to the benefit of and be
enforceable by the Lender and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), the Lender may
assign or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement (including, without limitation, all or any portion
of the Commitment, the Advances owing to it and the Note held by it) to any
other Person, and such other Person shall thereupon become vested with all
the benefits in
<PAGE>
respect thereof granted to the Lender herein or otherwise, in each case as
and to the extent provided under the Credit Agreement.
Section 8. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL, ETC.
(a) This Pledge Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
(b) The Pledgor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York
State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Pledge Agreement, or for
recognition or enforcement of any judgment, and the Pledgor hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. The Pledgor
agrees that process served either personally or by registered mail, return
receipt requested, shall, to the extent permitted by law, constitute adequate
service of process in any such proceeding. Without limiting the foregoing,
the Pledgor hereby appoints, in the case of any such action or proceeding
brought in the courts of or in the State of New York, CT Corporation System,
with offices on the date hereof at 1633 Broadway, New York, New York 10019,
to receive, for them and on their behalf, service of process in the State of
New York with respect thereto, PROVIDED that the Pledgor may appoint any
other person, with offices in the State of New York to replace such agent for
service of process upon delivery to each other Loan Party notice thereof.
The Pledgor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Pledge
Agreement shall affect any right that any Loan Party may otherwise have to
bring any action or proceeding relating to this Pledge Agreement in the
courts of any jurisdiction.
(c) The Pledgor hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Pledge Agreement in any
New York State or federal court. The Pledgor hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any
such court.
(d) The Pledgor hereby waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Pledge Agreement, any document
delivered under this Pledge Agreement, any Advance or the actions of the
Lender in the negotiations, administration, performance or enforcement hereof.
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
<PAGE>
INTERNATIONAL WIRELESS
COMMUNICATIONS, INC.
By
---------------------------------
Title:
<PAGE>
REIMBURSEMENT AGREEMENT
This REIMBURSEMENT AGREEMENT is made as of May ___, 1997, by and
among STAR DIGITEL LIMITED, a Hong Kong corporarion (the "BORROWER"), STAR
TELECOM HOLDING LIMITED, a Hong Kong corporation ("STHL") and VANGUARD
CELLULAR FINANCIAL CORP., a North Carolina corporation ("VCFC"). STHL and
VCFC are from time to time referred to collectively as the "GUARANTORS".
1. Reference is made to the Guaranty dated May ___, 1997 (as
amended, supplemented or otherwise modified from time to time, the "GUARANTY")
by each of the Guarantors in favor of Toronto-Dominion Bank (the "LENDER") in
support of certain obligations of the Borrower under a Bridge Loan Agreement
dated as of May ___, 1997 (as amended, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT") by and between the Borrower and
the Lender. Capitalized terms used but not otherwise defined herein have the
meaning prescribed to them in the Credit Agreement and the Guaranty.
2. The Borrower hereby irrevocably and unconditionally undertakes
and agrees to (a) to reimburse the Guarantors immediately upon demand for all
amounts paid by Guarantors under and pursuant to the terms of the Guaranty,
and (b) to indemnify and hold harmless the Guarantors against, and to pay the
Guarantors immediately upon demand, for all actions, proceedings, claims,
demands, costs, charges, damages, losses and expenses (including, without
limitation, consequential damages) of any description whatsoever and to pay
the Guarantors immediately upon demand for all payments, losses, costs and
expenses made, suffered or incurred by the Guarantors in relation to or
arising out of the payment by the suffered or incurred by the Guarantors in
relation to or arising out of the payment by the Guarantors of any amount
under and pursuant to the terms of the Guaranty.
3. Without limiting the Borrower's obligation under Section 2 of
this Reimbursement Agreement, STHL and VCFC hereby agree that any and all
amount recovered from the Borrower in relation to or arising out of this
reimbursement Agreement shall be shared pro-rata between STHL and VCFC in
proportion to the STHL Guaranteed Percentage and the VCFC Guaranteed
percentage, respectively.
4. This Reimbursement Agreement may only be amended by an
instrument in writing signed by each of the parties hereto. The provisions
of the Reimbursement Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, United States
(without reference to choice or conflict of laws of principle).
5. This reimbursement Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Reimbursement Agreement to be duly executed on their respective behalf, by
their respective officers thereunto duly authorized, all as of the day and
year first above written.
STAR DIGITEL LIMITED
By:
-------------------------------------
Title: Vice President
Name: Shao Kwok Keung, Alfred
STAR TELECOM HOLDING LIMITED
By:
-------------------------------------
Title: General Manager
Name: Shao Kwok Keung, Alfred
VANGUARD CELLULAR FINANCIAL CORP.
By:
-------------------------------------
Title:
Name:
2
<PAGE>
BRIDGE LOAN AGREEMENT SUPPLEMENT NO. 1
September 18, 1997
Reference is made to (i) the Bridge Loan Agreement, dated as of May
16, 1997, between Star Digitel Limited, a company organized under the laws of
Hong Kong (the "BORROWER"), and The Toronto-Dominion Bank (the "LENDER"), as
amended by the Waiver Agreement (the "FIRST WAIVER AGREEMENT"), dated as of
July 10, 1997, among the Borrower, the Lender and PT. Bank Indonesia Raya
("BANK BIRA") (as so amended, the "BRIDGE AGREEMENT"), and (ii) the Bridge
Loan Agreement, dated as of July 10, 1997, between the Borrower and Bank BIRA
(the "BANK BIRA AGREEMENT"). Capitalized terms not otherwise defined in this
Bridge Agreement Supplement have the same meanings as specified in the Bridge
Agreement.
WHEREAS, the Borrower desires to enter into this Bridge Agreement
Supplement pursuant to which the Borrower is requesting that the Lender
provide up to an additional $10,000,000 under the Bridge Agreement as set
forth herein;
WHEREAS, Bank BIRA, the Borrower and the Lender are willing pursuant
to a Waiver Agreement to be entered into simultaneously herewith (the "SECOND
WAIVER AGREEMENT"), on the terms and conditions stated therein, to provide
certain waivers under the Bank BIRA Agreement and to enter into certain other
arrangements with the Lender in connection with the transactions contemplated
by this Bridge Agreement Supplement; and
WHEREAS, the Lender, on the terms and conditions stated below and in
the Second Waiver Agreement, has agreed to amend the Bridge Agreement as
hereinafter and thereinafter set forth.
Accordingly, the Lender and the Borrower, intending to be legally
bound, hereby agree that the Bridge Agreement be, and hereby is, amended and
supplemented as follows:
1. AMENDMENTS TO BRIDGE AGREEMENT.
(a) Section 1.01 of the Bridge Agreement is hereby amended as follows:
(i) The definition of "ADVANCE" is amended in full to be and
read as follows: "'ADVANCES' has the meaning specified in Section
2.01(a) and, for the purpose of this Agreement, shall be deemed to
include each First Supplemental Advance, as applicable."
(ii) The definition of "APPLICABLE MARGIN" is amended by adding
to the end thereof: "References to 'APPLICABLE MARGIN' under this
Agreement shall be deemed to include references to First Supplemental
Applicable Margin, as applicable."
(iii) The definition of "COMMITMENT" is amended in full to be and
read as follows: "'COMMITMENT' has the meaning specified in Section
2.01(a) and, for the purpose of this Agreement, shall be deemed to
include the First Supplemental Commitment, as applicable."
<PAGE>
2
(iv) The definition of "EFFECTIVE DATE" is amended in full to be
and read as follows: "'EFFECTIVE DATE' has the meaning specified in
Section 3.01 and, for purpose of this Agreement, shall be deemed to
include the First Supplemental Effective Date, as applicable."
(v) The definition of "FACILITY" is amended in full to be and
read as follows: "'FACILITY' has the meaning specified in Section
2.01(a) and, for purpose of this Agreement, shall be deemed to include
the First Supplemental Facility, as applicable."
(vi) The definition of "NOTE" is amended by adding to the end
thereof: "References to 'NOTE' under this Agreement shall be deemed to
include references to the First Supplemental Note, as applicable."
(vii) The definition of "TERMINATION DATE" is amended by adding to
the end thereof: "References to 'TERMINATION DATE' under this
Agreement shall be deemed to include references to the First
Supplemental Termination Date, as applicable."
(ix) Section 1.01 of the Bridge Agreement is amended to include
the following new terms set forth therein in alphabetical order:
(A) "'FIRST SUPPLEMENTAL ADVANCES' has the meaning
specified in Section 2.01(b)."
(B) "'FIRST SUPPLEMENTAL APPLICABLE MARGIN' means, as of
any date of determination, (a) during the period from the First
Supplemental Effective Date to the Initial Maturity Date, 2.25%
and, subject to the Extension pursuant to Section 2.04(b), (b)
during the period thereafter until the Final Maturity Date,
2.50%."
(C) "'FIRST SUPPLEMENTAL COMMITMENT' has the meaning
specified in Section 2.01(b)."
(D) "'FIRST SUPPLEMENTAL EFFECTIVE DATE' means, with
respect to the First Supplemental Facility, the first date on
which the conditions precedent set forth in Section 3.01 have been
satisfied.
(E) "'FIRST SUPPLEMENTAL FACILITY' has the meaning
specified in Section 2.01(b)."
(F) "'FIRST SUPPLEMENTAL NOTE' means a promissory note of
the Borrower payable to the order of the Lender, in substantially
the form of Exhibit A-1 hereto, evidencing the aggregate
indebtedness of the Borrower to the Lender resulting from the
First Supplemental Advances made by the Lender."
<PAGE>
3
(G) "'FIRST SUPPLEMENTAL TERMINATION DATE' means the
earlier of (i) the 30th day immediately following the First
Supplemental Effective Date and (ii) the date of termination of
whole of the First Supplemental Commitments pursuant to Section
6.01.
(b) Section 2.01 of the Bridge Agreement is hereby amended in full
to be and read as follows:
"SECTION 2.01. THE ADVANCES. (a) The Lender agrees, on the terms
and conditions hereinafter set forth, to make advances (the "ADVANCES")
to the Borrower from time to time on any Business Day during the period
from the Effective Date until the Termination Date in an aggregate
amount not to exceed at any time outstanding $8,000,000 (the "FACILITY"
or, as of the date hereof, the "COMMITMENT"). Each Borrowing shall be
in an aggregate amount of $2,000,000 or an integral multiple of
$1,000,000 in excess thereof. Each Borrowing shall consist of Advances
made on the same day by the Lender. The Borrower acknowledges and
agrees that the Lender shall not provide more than three Borrowings
under the Facility.
(b) The Lender agrees, on the terms and conditions hereinafter
set forth, to make advances (the "FIRST SUPPLEMENTAL ADVANCES") to the
Borrower from time to time on any Business Day during the period from
the First Supplemental Effective Date until the First Supplemental
Termination Date in an aggregate amount not to exceed at any time
outstanding $10,000,000 (the "FIRST SUPPLEMENTAL FACILITY" or, as of
the date hereof, the "FIRST SUPPLEMENTAL COMMITMENT"). Each Borrowing
shall be in an aggregate amount of $2,000,000 or an integral multiple
of $1,000,000 in excess thereof. Each Borrowing shall consist of First
Supplemental Advances made on the same day by the Lender. The Borrower
acknowledges and agrees that the Lender shall not provide more than
three Borrowings under the First Supplemental Facility."
(c) Section 2.03 of the Bridge Agreement is hereby amended in full
to be and read as follows:
"SECTION 2.03. FEES.
(a) COMMITMENT FEES. The Borrower agrees to pay the Lender for
its account (i) a commitment fee on the unused portion of the Facility
from May 16, 1997 until the Termination Date at a rate per annum equal
to 0.5% per annum, payable in arrears, on the Termination Date; and (b)
a commitment fee on the unused portion of the First Supplemental
Facility from September 18, 1997 until the First Supplemental
Termination Date at a rate per annum equal to 0.5% per annum, payable
in arrears, on the First Supplemental Termination Date.
(b) EXTENSION FEE. Subject to Section 2.04(b), the Borrower
agrees to pay the Lender for its account an extension fee equal to
$225,000 (the "EXTENSION FEE") at the Extension Date.
(c) UPFRONT FIRST SUPPLEMENTAL FEE. The Borrower agrees to pay
the Lender for its account an upfront fee equal to $125,000 on
September 18, 1997."
<PAGE>
4
2. This Bridge Agreement Supplement shall not become effective
unless and until:
(i) all of the conditions set forth in Section 3.01 of the
Bridge Agreement shall have been satisfied with respect to the First
Supplemental Facility,
(ii) the Lender shall have received (A) counterparts of this
Bridge Agreement Supplement executed by all of the parties hereto, (B)
counterparts of the Guaranty Amendment and Consent executed by STHL
(the "STHL GUARANTY AMENDMENT"), and the Guaranty Amendment and Consent
executed by VCFC (the "VCFC GUARANTY AMENDMENT"), each in the form
attached hereto as Exhibits B and C, respectively, (C) counterparts of
the Second Waiver Agreement executed by all of the parties thereto and
(D) evidence that all necessary corporate action and all necessary
governmental and third party approvals, consents and registrations
relating to the execution, delivery and performance of this Bridge
Agreement Supplement, the Second Waiver Agreement and the obligations
hereunder and thereunder have been duly taken, made or obtained and
remain in full force and effect, and
(iii) provided that, (A) the representations and warranties
contained in Article IV of the Bridge Agreement and Section 6 of each
of the Guaranties are correct on and as of the date hereof as though
made on and as of such date (other than such representations or
warranties that, by their terms, refer to a date other than the date
hereof), and (B) no event has occurred or is continuing, or would
result from the execution, delivery or performance of this Bridge
Agreement Supplement, that constitutes an Event of Default under the
Bridge Agreement.
3. The parties hereto acknowledge that the Borrower is
contemplating the issuance of convertible bonds. The Borrower shall provide
the Lender or its affiliate the right, at the sole discretion of the Lender
or its affiliate, to be part of the selling group for such bonds in such
amount as the Lender or its affiliate shall determine.
4. The effectiveness of this Bridge Agreement Supplement is
conditioned upon the accuracy of the factual matters described herein.
5. On and after the effectiveness of this Bridge Agreement
Supplement, (i) each reference in the Bridge Agreement to "this Agreement",
"hereunder", "hereof" or words of like import referring to the Bridge
Agreement, (ii) each reference in each of the Guaranties to the "Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Bridge Agreement, shall mean and be a reference to the Bridge Agreement, as
amended by the First Waiver Agreement, this Bridge Agreement Supplement and
the Second Waiver Agreement.
<PAGE>
5
6. The Bridge Agreement, as specifically amended and supplemented
by this Bridge Agreement Supplement, is and shall continue to be in full
force and effect and is hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this Bridge Agreement Supplement
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Lender under the Bridge Agreement or either of
the VCFC Guaranty or the STHL Guaranty, nor constitute a waiver of any
provision of the Bridge Agreement or either of the VCFC Guaranty or the STHL
Guaranty.
7. This Bridge Agreement Supplement may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Bridge Agreement
Supplement by telecopier shall be effective as delivery of a manually
executed counterpart of this Bridge Agreement Supplement.
<PAGE>
6
8. This Bridge Agreement Supplement shall be governed by, and
shall be construed in accordance with, New York law.
IN WITNESS WHEREOF, the parties hereto have caused this Bridge
Agreement Supplement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
STAR DIGITEL LIMITED
By:
------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK, as
the Lender
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
FIRST SUPPLEMENTAL PROMISSORY NOTE
$10,000,000 Dated: September 18, 1997
FOR VALUE RECEIVED, the undersigned, STAR DIGITEL LIMITED, a
corporation organized under the laws of Hong Kong (the "BORROWER"), HEREBY
PROMISES TO PAY to the order of THE TORONTO-DOMINION BANK (the "LENDER") on
November 12, 1997 (or if the maturity of this First Supplemental Promissory
Note is extended to a later date pursuant to Section 2.04(b) of the Bridge
Loan Agreement referred to below, on such later date) the principal amount of
TEN MILLION DOLLARS ($10,000,000) or, if less, the aggregate unpaid principal
amount of the First Supplemental Advances (as defined below) made by the
Lender to the Borrower pursuant to the Bridge Loan Agreement Supplement
(referred to below); capitalized terms that are not defined herein having the
respective meanings specified in the Bridge Loan Agreement (referred to
below).
The Borrower promises to pay interest on the principal amount of
each First Supplemental Advance from the date of such First Supplemental
Advance until such principal amount is paid in full, at such interest rates,
and payable at such times, as are specified in the Bridge Loan Agreement
(referred to below).
Both principal and interest are payable in the lawful money of the
United States of America to the Lender Bank of America, New York Branch, in
immediately available funds. Such payments shall be made by wire transfer to
the account of the Lender at Bank of America, New York Branch with its office
at 1 World Trade Center, 10th Floor, New York, NY 10048-1191, USA, Account
No. 6550 2-97469 CHIPS 361042, or such other account as the Lender may
designate. The Lender is authorized but not required to record the date and
amount of each First Supplemental Advance owing to it and the date and amount
of each principal payment on the schedule annexed hereto and made a part
hereof, or on a continuation thereof which shall be attached hereto and made
a part hereof, and any such recordation shall, in the absence of manifest
error, constitute PRIMA FACIE evidence of the accuracy of the information so
recorded. Prior to any transfer of this First Supplemental Promissory Note,
the Lender shall record the foregoing on such schedule or continuation
thereof; PROVIDED, HOWEVER, that the Lender's so to record shall not limit
the obligations of the Borrower hereunder and under the Bridge Loan Agreement
to repay the actual outstanding principal of and interest on each First
Supplemental Advance.
This First Supplemental Promissory Note is the First Supplemental
Note referred to in, and is entitled to the benefits of (a) the Bridge Loan
Agreement, dated as of May 16, 1997, between the Borrower and the Lender, as
amended by the Waiver Agreement, dated as of July 10, 1997, among the
Borrower, the Lender and PT Bank Indonesia Raya, as further amended
<PAGE>
between the Borrower and the Lender (as so amended and supplemented, the
"BRIDGE LOAN AGREEMENT"), (b) the IWC Pledge Agreement, (c) the STHL
Guaranty, as amended, and (d) the VCFC Guaranty, as amended. The Bridge Loan
Agreement, among other things, (I) provides for the making of advances (the
"FIRST SUPPLEMENTAL") by the Lender to the Borrower in an aggregate amount
not to exceed at any time outstanding the U.S. Dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such First
Supplemental Advance being evidenced by this First Supplemental Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.
This First Supplemental Promissory Note shall be governed by, and
construed in accordance with, the law of the State of New York.
STAR DIGITEL LIMITED
By:
------------------------------------
Name:
Title:
<PAGE>
SEPTEMBER 18, 1997
GUARANTY AMENDMENT AND CONSENT
Reference is made to the Bridge Loan Agreement, dated as of May 16,
1997, between Star Digitel Limited, a company organized under the laws of
Hong Kong ("STAR DIGITEL"), and The Toronto-Dominion Bank ("BANK"), as
amended by the Waiver Agreement, dated as of July 10, 1997 (the "FIRST WAIVER
AGREEMENT"), among Star Digitel, the Bank and PT. Bank Indonesia Raya ("BANK
BIRA") (as amended, the "BRIDGE AGREEMENT"). Capitalized terms not otherwise
defined in this Guaranty Amendment and Consent have the same meanings as
specified in the Bridge Agreement.
WHEREAS, Star Telecom Holdings Limited, a corporation organized and
existing under the laws of Hong Kong (the "GUARANTOR"), has provided a
Guaranty, dated May 16, 1997 (the "STHL GUARANTY"), in favor of the Lender in
connection with the bridge Agreement,
WHEREAS, Star Digitel desires to enter into a supplement to the
Bridge Agreement (the "BRIDGE AGREEMENT SUPPLEMENT") pursuant to which Star
Digitel will borrow up to an additional $10 million from the Bank, and
WHEREAS, the Guarantor is willing, on the terms and conditions
stated below, to amend the STHL Guaranty and provide a consent thereunder in
connection with the transactions contemplated by the Bridge Agreement
Supplement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make the First Supplemental Advances under the Credit
Agreement from time to time, the Guarantor hereby agrees as follows:
1. (a) Section 1 of the STHL Guaranty is hereby amended to delete
in line 4 thereof "$4,240,000" and insert in replacement
thereof "$9,540,000".
(b) Section 8(c) of the STHL Guaranty is hereby amended to
delete in line 3 thereof "(including, without limitation,
any Shares)".
2. The Guarantor hereby consents to the Bridge Agreement
Supplement and the transactions contemplated thereby and the
modification of the Loan Documents as provided therein and
hereby confirms and agrees that:
(a) Notwithstanding the effectiveness of the Bridge
Agreement Supplement, the STHL Guaranty is, and shall
continue to be, in
<PAGE>
full force and effect and is hereby ratified and
confirmed in all respects, except that, on and after the
effectiveness of the Bridge Agreement Supplement, each
reference in the STHL Guaranty to the "Credit
Agreement", "thereunder", "thereof" or words of like
import shall mean and be a reference to the Bridge
Agreement, as amended by the Bridge Agreement
Supplement.
(b) Each of the representations and warranties contained in
Section 6 of the STHL Guaranty are true and correct as
if made on and as of the date hereof, except for those
representations and warranties that refer to a specific
date, which shall be true and correct on and as of such
date.
(c) The STHL Guaranty to which the Guarantor is a party
does, and shall continue to, secure the payment of all
the Guaranteed Obligations (as defined therein).
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty
Amendment and Consent to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
STAR TELECOM HOLDING LIMITED
By:
------------------------------------
Name:
Title:
2
<PAGE>
September 18, 1997
GUARANTY AMENDMENT AND CONSENT
Reference is made to the Bridge Loan Agreement, dated as of May 16,
1997, between Star Digitel Limited, a company organized under the laws of
Hong Kong ("STAR DIGITEL"), and The Toronto-Dominion Bank (the "BANK"), as
amended by the Waiver Agreement, dated as of July 10, 1997 (the "FIRST WAIVER
AGREEMENT"), among Star Digitel, the Bank and PT. Bank Indonesia Raya ("BANK
BIRA") (as so amended, the "BRIDGE AGREEMENT"). Capitalized terms not
otherwise defined in this Guaranty Amendment and Consent have the same
meanings as specified in the Bridge Agreement.
WHEREAS, Vanguard Cellular Financial Corp., a North Carolina
corporation (the "GUARANTOR"), has provided a Guaranty, dated May 16, 1997
(the "VCFC GUARANTY"), in favor of the Lender in connection with the Bridge
Agreement,
WHEREAS, Star Digitel desires to enter into a supplement to the
Bridge Agreement (the "BRIDGE AGREEMENT SUPPLEMENT") pursuant to which Star
Digitel will borrow up to an additional $10 million from the Bank, and
WHEREAS, the Guarantor is willing, on the terms and conditions
stated below, to amend the VCFC Guaranty and provide a consent thereunder in
connection with the transactions contemplated by the Bridge Agreement
Supplement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make First Supplemental Advances under the Credit
Agreement (as defined in the VCFC Guaranty) from time to time, the Guarantor
hereby agrees as follows:
1. Section 1 of the VCFC Guaranty is hereby amended to delete in
line 4 thereof "$3,760,000" and insert in replacement thereof "$8,460,000".
2. The Guarantor hereby consents to the Bridge Agreement
Supplement and the transactions contemplated thereby and the modification of
the Loan Documents as provided therein and confirms and agrees that:
(a) Notwithstanding the effectiveness of the Bridge Agreement
Supplement, the VCFC Guaranty is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects including as
provided in paragraph 1 above, except that, on and after the date hereof,
each reference in the VCFC Guaranty to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Bridge
Agreement, as amended by the Bridge Agreement Supplement.
(b) Each of the representations and warranties contained in
Section 6 of the VCFC Guaranty are true and correct as if made on and as of
the date hereof, except for
<PAGE>
those representations and warranties that refer to a specific date, which
shall be true and correct on and as of such date.
(c) The VCFC Guaranty does, and shall continue to, secure the
payment of all of the Guaranteed Obligations (as defined therein).
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty
Amendment to be duly executed and delivered by its officer thereunder duly
authorized as of the date first above written.
VANGUARD CELLULAR FINANCIAL CORP.
By
------------------------------------
Stephen L. Holcomb
Vice President and Treasurer
2
<PAGE>
AMENDED AND RESTATED NEGATIVE PLEDGE AGREEMENT
THIS AMENDED AND RESTATED NEGATIVE PLEDGE AGREEMENT dated as of
September 18, 1997 (the "AMENDED AND RESTATED PLEDGE AGREEMENT") made by
International Wireless Communications, Inc., a corporation organized under
the laws of Delaware ("IWC INC.") and IWC China Limited, a Mauritius
corporation ("IWC CHINA"), in favor of the Lender (as defined in the Credit
Agreement referred to below).
WHEREAS, the Lender is party to the Bridge Loan Agreement, dated as
of May 16, 1997, as amended by the Waiver Agreement, dated July 10, 1997
(said Agreement, as it is now and may hereafter be amended, supplemented or
otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms
defined therein and not otherwise defined herein being used herein as therein
defined) with STAR DIGITEL LIMITED, a corporation organized under the laws of
Hong Kong (the "BORROWER"),
WHEREAS, the Borrower desires to enter into a Bridge Loan Agreement
Supplement No. 1, dated as of September 18, 1997, which amends and
supplements the Credit Agreement, pursuant to which the Borrower is
requesting that the Lender provide up to an additional $10,000,000 under the
Bridge Loan Agreement as set forth therein,
WHEREAS, this Amended and Restated Pledge Agreement amends and
restates in its entirety and replaces and supersedes the IWC Pledge
Agreement, dated as of June 5, 1997 made by IWC Inc. in favor of the Lender,
and
WHEREAS, it is a condition precedent to the making of First
Supplemental Advances under the Bridge Loan Agreement Supplement No. 1 that
the parties hereto shall have executed and delivered this Amended and
Restated Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lender to make First Supplemental Advances under the Credit
Agreement from time to time, IWC Inc. and IWC China hereby agrees as follows:
Section 1. REPRESENTATIONS AND WARRANTIES. IWC Inc. hereby
represents and warrants as follows:
(a) DUE INCORPORATION, ETC. IWC Inc. (i) is duly organized,
validly existing and in good standing under the laws of Delaware, (ii) is
duly authorized to do business in each jurisdiction in which such
authorization is required by law or in which the failure to be so authorized
would not have material adverse effect on (x) the business, condition
(financial or otherwise), operation, performance or properties of IWC Inc.
and its subsidiaries, taken as a whole, (y) the rights and remedies of the
Lender under this Amended and Restated Pledge Agreement, or (z) the ability
of IWC Inc. to perform its obligations under this Amended and
<PAGE>
Restated Pledge Agreement (each, an "IWC INC. MATERIAL ADVERSE EFFECT"), and
(iii) has all requisite power and authority to own or hold under lease and to
operate all of its property and assets.
(b) CORPORATE POWER, ETC. IWC Inc. has full corporate power and
authority to enter into, deliver and perform its obligations under this
Amended and Restated Pledge Agreement and to consummate each of the
transactions contemplated hereby, and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of this
Amended and Restated Pledge Agreement. This Amended and Restated Pledge
Agreement constitutes the legal, valid and binding obligation of IWC Inc.,
enforceable against IWC Inc. in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
(c) NO CONFLICT. Neither the execution and delivery of this
Amended and Restated Pledge Agreement nor the performance by IWC Inc. of its
obligations hereunder, nor the consummation of the transactions contemplated
hereby will, (i) conflict with the certificate of incorporation or by-laws of
IWC Inc., or (ii) conflict with or result in a breach of, or constitute a
default under, or result in the creation or imposition of any Lien upon, any
of the property or assets of IWC Inc. under, any applicable laws (including,
without limitation, Regulation X issued by the Board of Governors of the
Federal Reserve System) or any indenture, mortgage, deed of trust or other
instrument or agreement to which IWC Inc. may be or become a party or by
which it may be or become bound or to which any of the property or assets of
IWC Inc. may be subject.
(d) APPROVALS, ETC. No order, license, consent, authorization or
approval of, or exemption by, or notice to or registration with, any
governmental authority or regulatory body, and no filing, recording,
publication or registration in any public office or any other place, is
required in connection with the execution, delivery and performance by IWC
Inc. of this Amended and Restated Pledge Agreement, or for the legality,
validity, binding effect or enforceability thereof.
(e) OWNERSHIP OF SHARES. IWC China owns beneficially 85,030,000
shares of the Borrower (the "IWC SDL Shares") representing 40% of the issued
and outstanding shares of the Borrower, free and clear of any encumbrances,
other than the Lien created pursuant to the Pledge Agreement, to be dated as
of September 18, 1997, by and between IWC China and Vanguard Cellular
Financial Corp. ("VCFC"), a North Carolina corporation (the "IWC/VCFC PLEDGE
AGREEMENT") and the Amended and Restated Shareholders' Agreement dated as of
April 4, 1997 among the Borrower and its Shareholders (the "SHAREHOLDERS'
AGREEMENT").
Section 2. REPRESENTATIONS AND WARRANTIES. IWC China hereby
represents and warrants as follows:
(a) DUE INCORPORATION, ETC. IWC China (i) is duly organized,
validly existing and in good standing under the laws of Mauritius, (ii) is
duly authorized to do business in each
<PAGE>
jurisdiction in which such authorization is required by law or in which the
failure to be so authorized would not have material adverse effect on (x) the
business, condition (financial or otherwise), operation, performance or
properties of IWC China and its subsidiaries, taken as a whole, (y) the
rights and remedies of the Lender under this Amended and Restated Pledge
Agreement, or (z) the ability of IWC China to perform its obligations under
this Amended and Restated Pledge Agreement (each, an "IWC CHINA MATERIAL
ADVERSE EFFECT"), and (iii) has all requisite power and authority to own or
hold under lease and to operate all of its property and assets.
(b) CORPORATE POWER, ETC. IWC China has full corporate power and
authority to enter into, deliver and perform its obligations under this
Amended and Restated Pledge Agreement and to consummate each of the
transactions contemplated hereby, and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of this
Amended and Restated Pledge Agreement. This Amended and Restated Pledge
Agreement constitutes the legal, valid and binding obligation of IWC China,
enforceable against IWC China in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect affecting the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
(c) NO CONFLICT. Neither the execution and delivery of this
Amended and Restated Pledge Agreement nor the performance by IWC China of its
obligations hereunder, nor the consummation of the transactions contemplated
hereby will, (i) conflict with the certificate of incorporation or by-laws or
other similar organizational documents of IWC China, or (ii) conflict with or
result in a breach of, or constitute a default under, or result in the
creation or imposition of any Lien upon, any of the property or assets of IWC
China under, any applicable laws (including, without limitation, Regulation X
issued by the Board of Governors of the Federal Reserve System) or any
indenture, mortgage, deed of trust or other instrument or agreement to which
IWC China may be or become a party or by which it may be or become bound or
to which any of the property or assets of IWC China may be subject.
(d) APPROVALS, ETC. No order, license, consent, authorization or
approval of, or exemption by, or notice to or registration with, any
governmental authority or regulatory body, and no filing, recording,
publication or registration in any public office or any other place, is
required in connection with the execution, delivery and performance by IWC
China of this Amended and Restated Pledge Agreement, or for the legality,
validity, binding effect or enforceability thereof.
(e) OWNERSHIP OF SHARES. IWC China owns beneficially the IWC SDL
Shares, free and clear of any encumbrances, other than the Lien created
pursuant to the IWC/VCFC Pledge Agreement and the Shareholders' Agreement.
Section 3. AFFIRMATIVE COVENANTS. Each of IWC Inc. and IWC China
covenants and agrees that, so long as any part of obligations of the Borrower
under the Credit Agreement or the Bridge Loan Agreement Supplement No. 1
shall remain unpaid or the Lender shall have any
<PAGE>
Commitment thereunder, each of IWC Inc. and IWC China will, unless the Lender
shall otherwise consent in writing:
(a) CORPORATE EXISTENCE. Preserve and maintain in full force and
effect its corporate existence, rights (charter and statutory), franchises
and privileges and qualify and remain qualified, as a corporation in good
standing in each jurisdiction in which such qualification is from time to
time necessary or desirable in view of its business and operations or the
ownership of its properties, except for such jurisdictions where the failure
to so qualify would not have an IWC Inc. Material Adverse Effect or an IWC
China Material Adverse Effect, as the case may be; PROVIDED, HOWEVER, that
neither IWC Inc. nor IWC China shall be required to preserve any right,
privilege or franchise if the Board of Directors thereof shall determine in
good faith that such right, privilege or franchise is no longer useful in the
conduct of the business of each of IWC Inc. or IWC China, as the case may be,
and the loss thereof is not disadvantageous in any material respect to the
Lender.
(b) COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, compliance with ERISA, except where the failure to so
comply would not have an IWC Inc. Material Adverse Effect or an IWC China
Material Adverse Effect, as the case may be.
(c) REFINANCING. Use its commercially reasonable efforts to cause
the Borrower to complete the Refinancing prior to the Final Maturity Date,
which Refinancing shall yield an amount sufficient to repay the aggregate
unpaid principal amount of the Advances in full PLUS accrued interest thereon
to the date of repayment and all other amounts payable under the Loan
Documents.
Section 4. NEGATIVE COVENANTS. Except as otherwise provided by the
IWC/VCFC Pledge Agreement and the Reimbursement Agreement, dated as of
September 18, 1997, between IWC China and VCFC, each of IWC Inc. and IWC
China covenants and agrees that, so long as any part of the obligations of
the Borrower under the Credit Agreement or the Bridge Loan Agreement
Supplement No. 1 shall remain unpaid, or the Lender shall have any First
Supplemental Commitment thereunder, each of IWC Inc. and IWC China will not,
without the prior written consent of the Lender, (a) dispose of any shares of
capital stock of the Borrower or any warrants, rights or options to acquire
such capital stock, if, as a result of such disposal, IWC Inc., IWC China and
STHL shall in the aggregate retain possession of, or the right, directly or
indirectly, to vote less than 75% of the shares of the Borrower or the
ability to direct or to cause the direction of the management and policies of
the Borrower, whether through the ownership of shares of the Borrower, by
contract or otherwise or (b) enter into or suffer to exist any agreement
prohibiting or conditioning the creation or assumption of any Lien upon the
IWC SDL Shares.
Section 5. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Amended and Restated Pledge Agreement and no consent to any
departure by either IWC Inc. or IWC China therefrom shall in any event be
effective unless the same shall be in writing and
<PAGE>
signed by the Lender, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
Section 6. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy
or telex communication) and mailed, telegraphed, telecopied, telexed or
delivered if to IWC Inc. or IWC China, at 400 South El Camino real, suite
1275, San Mateo, CA 94402, Attention: Mr. Douglas Sinclair, Telecopier
415-548-1842 and if to the Lender at its address at 1 Temasek Avenue #15-02
Millenia Tower, Singapore 039192, Attention: Mr. David W. Lewing. All such
notices and other communications shall, when mailed, telegraphed, telecopied
or telexed, be effective when deposited in the mails, delivered to the
telegraph company, transmitted by telecopier or confirmed by telex
answerback, respectively.
Section 7. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
Section 8. CONTINUING AGREEMENT; ASSIGNMENTS UNDER THE CREDIT
AGREEMENT. This Amended and Restated Pledge Agreement is a continuing
obligation of each of IWC Inc. and IWC China and shall (a) remain in full
force and effect until the payment in full in cash of all amounts due under
the Credit Agreement and the Bridge Loan Agreement Supplement No. 1, (b) be
binding upon each of IWC Inc. and IWC China, their successors and assigns and
(c) inure to the benefit of and be enforceable by the Lender and their
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), the Lender may assign or otherwise transfer all or any
portion of its rights and obligations under the Credit Agreement, as amended
and supplemented by the Bridge Loan Agreement Supplement No. 1 (including,
without limitation, all or any portion of the Commitment and the First
Supplemental Commitment, the Advances and the First Supplemental Advances
owing to it the Note and the First Supplemental Note held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to the Lender herein or otherwise, in
each case as and to the extent provided under the Credit Agreement, as
amended and supplemented by the Bridge Loan Agreement Supplement No. 1.
Section 9. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL, ETC.
(a) This Amended and Restated Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
(b) Each of IWC Inc. and IWC China hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or federal court of the United
States of America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Amended and Restated Pledge Agreement, or for recognition or enforcement of
any judgment, and each of IWC Inc. and IWC China hereby irrevocably and
unconditionally agrees that all claims in respect
<PAGE>
of any such action or proceeding may be heard and determined in any such New
York State court or, to the extent permitted by law, in such federal court.
Each of IWC Inc. and IWC China agrees that process served either personally
or by registered mail, return receipt requested, shall, to the extent
permitted by law, constitute adequate service of process in any such
proceeding. Without limiting the foregoing, each of IWC Inc. and IWC China
hereby appoints, in the case of any such action or proceeding brought in the
courts of or in the State of New York, CT Corporation System, with offices on
the date hereof at 1633 Broadway, New York, New York 10019, to receive, for
them and on their behalf, service of process in the State of New York with
respect thereto, PROVIDED that each of IWC Inc. and IWC China may appoint any
other person, with offices in the State of New York to replace such agent for
service of process upon delivery to each other Loan Party notice thereof.
Each of IWC Inc. and IWC China agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Amended and Restated Pledge Agreement shall affect any right
that any Loan Party may otherwise have to bring any action or proceeding
relating to this Amended and Restated Pledge Agreement in the courts of any
jurisdiction.
<PAGE>
(c) Each of IWC Inc. and IWC China hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection that it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Amended
and Restated Pledge Agreement in any New York State or federal court. Each
of IWC Inc. and IWC China hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each of IWC Inc. and IWC China hereby waives all right to trial
by jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Amended and Restated
Pledge Agreement, any document delivered under this Amended and Restated
Pledge Agreement, any Advance or any First Supplemental Advance or the
actions of the Lender in the negotiations, administration, performance or
enforcement hereof.
IN WITNESS WHEREOF, each of IWC Inc. and IWC China has caused this
Amended and Restated Pledge Agreement to be duly executed and delivered by
its officer thereunto duly authorized as of the date first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS, INC.
By
------------------------------------
Title:
IWC CHINA LIMITED
By
------------------------------------
Title:
<PAGE>
CONDITIONAL DEED OF ADHERENCE
THIS CONDITIONAL DEED OF ADHERENCE is made the 18th day of September 1997
BETWEEN:
(1) Star Digitel Limited, a company incorporated in Hong Kong (the
"Company"); and
(2) Vanguard Cellular Financial Corp., a North Carolina corporation
("VCFC").
WHEREAS:
(A) On the 4th day of April 1997, the Company and its shareholders entered
into an Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement") to which a form of this Deed is attached as Exhibit A.
(B) Concurrently with the execution of this Deed, VCFC and IWC China Limited,
a Mauritius corporation ("IWC China"), are entering into a Pledge
Agreement dated as of even date herewith (the "Pledge Agreement") and a
Reimbursement Agreement dated as of even date herewith (the
"Reimbursement Agreement").
(C) Pursuant to the terms of the Pledge Agreement and/or the Reimbursement
Agreement, upon the occurrence of certain events specified therein, VCFC
may acquire all of IWC China's rights, title and interest in certain or
all of the shares in the share capital of the Company (the "Shares")
that IWC China currently owns or may acquire in the future (such rights,
title and interest in such Shares, the "Title").
(D) The Company enters into this Deed on behalf of itself and as agent for
all the existing Shareholders of the Company.
NOW THIS DEED WITNESSES as follows:
1. INTERPRETATION.
In this Deed, except as the context may otherwise require, all words and
expressions defined in the Shareholders' Agreement shall have the same
meanings when used herein.
2. COVENANT.
VCFC hereby covenants to the Company as trustee for all other persons
who are at present or who may hereafter become bound by the
Shareholders' Agreement, and to the Company itself that upon the
transfer of the Title to any of IWC China's Shares to VCFC, VCFC will
adhere to and be bound by all the duties, burdens and obligations of a
shareholder holding the same class of share capital as the Shares
imposed pursuant to the provisions of the Shareholders' Agreement and
all documents expressed in writing to be supplemental or ancillary
thereto as if VCFC had been an original party to the
<PAGE>
Shareholders' Agreement since the date of such transfer. The Company
hereby acknowledges the Pledge Agreement and the Reimbursement Agreement
and covenants that it will not, directly or indirectly, unreasonably
obstruct or interfere with any exercise of VCFC's rights under the
Pledge Agreement or the Reimbursement Agreement in connection with any
transfers of any Shares, so long as such exercise of rights is in
compliance with the terms of the Shareholders' Agreement and this Deed.
3. AFFILIATE STATUS.
VCFC hereby represents and warrants that Vanguard China, Inc., a
Delaware corporation, is an indirect subsidiary and an Affiliate of VCFC.
4. EFFECTIVENESS.
This Deed shall become effective only upon the transfer to VCFC of the
Title to IWC China's Shares, if any, pursuant to the terms of the Pledge
Agreement and/or the Reimbursement Agreement.
5. ENFORCEABILITY.
Upon the effectiveness of this Deed pursuant to Section 4 above, each
existing Shareholder and the Company shall be entitled to enforce the
Shareholders' Agreement against VCFC, and VCFC shall be entitled to all
rights and benefits of IWC China (other than those that are
non-assignable) under the Shareholders' Agreement with respect to the
Shares transferred by IWC China to VCFC in each case as if VCFC had been
an original party to the Shareholders' Agreement since the date of the
effectiveness of this Deed.
6. GOVERNING LAW.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF ENGLAND AND WALES.
2
<PAGE>
IN WITNESS WHEREOF, this Conditional Deed of Adherence has been executed
as a deed on the date first above written.
STAR DIGITEL LIMITED
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
VANGUARD CELLULAR FINANCIAL CORP.
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT 10.28O
MEMORANDUM OF UNDERSTANDING
Certain stockholders of International Wireless Communications
Holdings, Inc. ("IWC" or the "Company"), Vanguard Cellular Systems, Inc.,
("Vanguard"), BEA Associates, as the manager of certain Investment funds
which are shareholders of IWC ("BEA"), and Electra Investment Trust PLC
("Electra") (together, the "Shareholder Group") have agreed, as a condition
of their consideration of providing additional capital to IWC to finance the
Company's proposed Pakistan cellular investment ("Mobilink") and other
corporate purposes, to use all commercially reasonable efforts (to the extent
permitted by the Company's bond indenture, including without limitation the
exercise of voting rights to appoint as directors of the Company, persons
supportive of the action plan below) to implement the following:
(1) The Shareholder Group will recommend to the Finance Committee
of IWC that it immediately retain a financial advisor to assist the Company
and its Board of Directors in a strategic review of IWC's business and
financial strategy with the goal of maximizing shareholder value and creating
liquidity/exit during the next 18 months, through an initial public offering
("IPO"), merger or sale of the Company. The financial advisor will consider
the desirability of restructuring of the Company into an Asian wireless play
and selling or spinning off its Latin American and other non-core
investments. The financial advisor will report the results of its review no
later than September 30, 1997.
(2) Within 15 days after receipt of the financial advisor's
report, the Finance Committee shall submit a recommendation to the Board of
Directors regarding the Company's business and financial strategy, including
whether to restructure or to sell and spin off non-core investments.
(3) Within 15 days after receipt of the Finance Committee's
recommendation, the Board of Directors shall meet to consider adopting a
business and financial plan for the Company which implements the Finance
Committee's recommendation, including whether to restructure and/or sell or
spin off any non-core investments.
(4) Within 15 days after adoption of a business and financial plan
by the Board of Directors, management of the Company will prepare appropriate
budgets and operating plans to implement such plan, including budgets for
corporate operating expenses and for capital expenditures and operating
expenses for any non-core investments and an operating plan for redeploying
management and other resources.
(5) By August 31, 1997, the Finance Committee shall review the
Company's recently distributed operating and capital budget and shall submit
a recommendation to the Board of Directors regarding such budget, including
the planned level of corporate operating expenses and capital expenditures
and operating expenses for the Company's wireless projects. Within 15 days
after receipt of such recommendation, the Board of Directors shall meet to
consider such recommendation.
<PAGE>
Agreed and accepted by:
VANGUARD CELLULAR SYSTEMS, INC.
/s/ Richard Rowlenson
- --------------------------------
Name: Richard C. Rowlenson
Title: Executive Vice President
Date: 08/13/97
ELECTRA INVESTMENT TRUST PLC THE EMERGING MARKETS
INFRASTRUCTURE FUND, INC.
/s/ Michael Stoddart /s/
- --------------------------------- -----------------------------------
Name: Michael Stoddart Name:
Title: Chairman Title:
Date: 14/08/97 Date: 8-11-97
ARGENTINA EQUITY INVESTMENTS THE EMERGING MARKETS
PARTNERSHIP TELECOMMUNICATIONS FUND, INC.
/s/ David Pauli /s/
- --------------------------------- -----------------------------------
Name: David Pauli Name:
Title: Auth'd Signatory Title:
Date: 13/8/97 Date: 8-11-97
CI EMERGING MARKETS FUND LATIN AMERICA INVESTMENT FUND,
INC.
/s/ David Pauli /s/
- --------------------------------- -----------------------------------
Name: David Pauli Name:
Title: Auth'd Signatory Title:
Date: 13/8/97 Date: 8-11-97
CI GLOBAL FUND LATIN AMERICA EQUITY FUND, INC.
/s/ David Pauli /s/
- --------------------------------- -----------------------------------
Name: David Pauli Name:
Title: Auth'd Signatory Title:
Date: 13/8/97 Date: 8-11-97
CI LATIN AMERICAN FUND LATIN AMERICA CAPITAL PARTNERS
/s/ David Pauli /s/
- --------------------------------- -----------------------------------
Name: David Pauli Name:
Title: Auth'd Signatory Title:
Date: 13/8/97 Date: 8-11-97
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,512
<SECURITIES> 0
<RECEIVABLES> 5,499
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,374
<PP&E> 23,627
<DEPRECIATION> 1,826
<TOTAL-ASSETS> 160,540
<CURRENT-LIABILITIES> 9,553
<BONDS> 110,429
104,718
9
<COMMON> 13
<OTHER-SE> (73,191)
<TOTAL-LIABILITY-AND-EQUITY> 160,540
<SALES> 3,292
<TOTAL-REVENUES> 3,292
<CGS> 3,069
<TOTAL-COSTS> 3,069
<OTHER-EXPENSES> 23,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,726
<INCOME-PRETAX> (50,020)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,212)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
