<PAGE>
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UNITED STATES
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 March 31, 1998
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.
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(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
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(2) Yes X No
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As of March 31, 1998, there were 1,310,230 shares of the Registrant's
common stock, par value $0.01 per share outstanding and 22,934,856 shares of
the Registrant's preferred stock, par value $0.01 per share outstanding. Each
such share of preferred stock is currently convertible into one share of
common stock.
This document (excluding Exhibits) contains 39 pages.
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<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
Consolidated Balance Sheets as of December 31, 1997
(audited) and March 31, 1998 (unaudited)..................... 4
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1998 (unaudited)............. 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1998 (unaudited)............. 6
Notes to Consolidated Financial Statements................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 22
PART II. OTHER INFORMATION
Item 2. Changes in Securities....................................... 31
Item 4. Submission of Matters to a Vote of Security Holders......... 34
Item 6. Exhibits and Reports on Form 8-K............................ 35
SIGNATURES............................................................ 39
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, MARCH 31,
1997 1998
---------- ----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash of
$1,500 and $2,635 as of 1997 and 1998, respectively) . . . . $4,410 5,890
Investments in affiliates held for sale . . . . . . . . . . . . . 1,873 16,025
Other current assets. . . . . . . . . . . . . . . . . . . . . . . 10,533 7,727
-------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 16,816 29,642
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 22,406 37,187
Notes receivable from affiliates . . . . . . . . . . . . . . . . . . . 4,583 9,094
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . 57,432 40,695
Telecommunication licenses and other intangibles, net. . . . . . . . . 12,521 90,807
Debt issuance costs, net . . . . . . . . . . . . . . . . . . . . . . . 7,961 8,462
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650 3,267
-------- -------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $123,369 219,154
-------- -------
-------- -------
LIABILITIES, MINORITY INTERESTS, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . $11,012 15,003
Current maturities of long-term debt. . . . . . . . . . . . . . . -- 187
Bank liability. . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
-------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . 16,012 20,190
Long-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . . 123,072 155,653
-------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 139,084 175,843
Commitments and contingencies (Note 12)
Minority interests in consolidated subsidiaries . . . . . . . . . . . 8,675 8,476
Redeemable convertible preferred stock, $.01 par value per
share; 43,231,480 shares designated; 15,981,876 and
22,001,656 shares issued and outstanding in 1997 and
1998, respectively; net of note receivable from stockholder of
$26 in 1997 and 1998; liquidation and minimum redemption
value of $192,854 . . . . . . . . . . . . . . . . . . . . . . . . 105,306 185,831
Stockholders' deficit:
Preferred stock, $.01 par value per share;
6,768,520 shares designated; 933,200 shares issued and
outstanding in 1997 and 1998; liquidation value of $793. . . 9 9
Common stock, $.01 par value per share; 76,000,000
shares authorized; 1,310,230 shares issued and
outstanding in 1997 and 1998 . . . . . . . . . . . . . . . . 13 13
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 52,937 56,596
Note receivable from stockholder. . . . . . . . . . . . . . . . . (152) (152)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . (1,209) (1,118)
Cumulative translation adjustment . . . . . . . . . . . . . . . . (1,970) (2,217)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (179,324) (204,127)
-------- -------
Total stockholders' deficit. . . . . . . . . . . . . . . . . (129,696) (150,996)
Total liabilities, minority interests, redeemable
-------- -------
convertible preferred stock and stockholders' deficit. . . . $123,369 219,154
-------- -------
-------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $519 3,530
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 589 1,241
------- -------
(70) 2,289
Operating expenses:
Selling, general and administrative expenses. . . . . . . . . . . 6,254 9,601
Equity in losses of affiliates. . . . . . . . . . . . . . . . . . 4,672 3,074
Impairment in asset value . . . . . . . . . . . . . . . . . . . . -- 3,481
Minority interests in losses of consolidated subsidiaries . . . . (219) (199)
------- -------
Loss from operations. . . . . . . . . . . . . . . . . . . . . (10,777) (13,668)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 527 269
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . (4,236) (9,435)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (1,383)
------- ------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(14,479) (24,217)
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(14,479) (24,217)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 1,495
Amortization of telecommunication licenses and other intangibles . . . . . 338 1,173
Amortization of debt issuance costs. . . . . . . . . . . . . . . . . . . . 252 2,605
Amortization of long-term debt discount. . . . . . . . . . . . . . . . . . 3,983 4,900
Amortization of deferred compensation. . . . . . . . . . . . . . . . . . . -- 91
Equity in losses of affiliates . . . . . . . . . . . . . . . . . . . . . . 4,672 3,074
Impairment in asset value. . . . . . . . . . . . . . . . . . . . . . . . . -- 3,481
Accrual of interest on long-term debt. . . . . . . . . . . . . . . . . . . -- 1,760
Minority interests in losses of consolidated subsidiaries. . . . . . . . . (152) (199)
Issuance of common stock warrants. . . . . . . . . . . . . . . . . . . . . -- 499
Unrealized loss on investments . . . . . . . . . . . . . . . . . . . . . . (73) --
Changes in operating assets and liabilities:
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . (1,540) 3,603
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 1,056 (1,027)
--------- -------
Net cash used in operating activities . . . . . . . . . . . . . . (5,721) (708)
--------- -------
Cash flows from investing activities:
Issuance of notes receivable from affiliates . . . . . . . . . . . . . . . (3,503) (4,511)
Repayment of notes receivable from affiliates. . . . . . . . . . . . . . . (545) --
Repayment of notes receivable. . . . . . . . . . . . . . . . . . . . . . . -- 100
Investments in affiliates held for sale. . . . . . . . . . . . . . . . . . -- (9)
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . (2,232) (3,207)
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . (3,287) --
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . (2,162) --
Telecommunication licenses and other intangibles . . . . . . . . . . . . . -- (7,628)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 571
--------- -------
Net cash used in investing activities . . . . . . . . . . . . . . (11,696) (14,684)
--------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . -- 25,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . -- (16,070)
Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,611)
Proceeds from issuance of redeemable convertible preferred stock . . . . . -- 9,800
--------- -------
Net cash provided by financing activities . . . . . . . . . . . . -- 17,119
--------- -------
Effect of foreign currency exchange rates on cash and cash equivalents . . . . . . . (269) (247)
--------- -------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . (17,686) 1,480
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . 41,657 4,410
--------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . $23,971 5,890
--------- -------
--------- -------
Supplemental cash flow information
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 106
--------- -------
--------- -------
Non-cash financing and investing activities:
Issuance of redeemable convertible preferred stock in connection
with the RMDA Acquisition . . . . . . . . . . . . . . . . . . . . . . . $ -- 71,805
--------- -------
--------- -------
Recognition of additional telecommunication licenses and other
intangibles in connection with the RMDA Acquisition . . . . . . . . . $ -- 3,551
--------- -------
--------- -------
Issuance of common stock warrants in connection with the RMDA
Loan Agreement and Series J Financing . . . . . . . . . . . . . . . . $ -- 3,160
--------- -------
--------- -------
Accretion of redeemable convertible preferred stock . . . . . . . . . . . . . . $ 535 586
--------- -------
--------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<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 notes receivable
from IWC (IWC Holdings and IWC are collectively referred to herein as the
"Company"). IWC was incorporated in Delaware in January 1992 and develops,
owns and operates wireless communications companies in major emerging
markets in Asia and Latin America. The Company, together with its strategic
partners, provides cellular services in China, Pakistan and Indonesia, and
is developing a digital enhanced specialized mobile radio ("ESMR") network
in Brazil. In January 1998, the Company acquired Radio Movil Digital
Americas, Inc. ("RMDA"), an ESMR operator in South America (see Note 2).
The Company has suffered significant recurring losses from operations
and has a capital deficiency that raise substantial doubt about its ability
to continue as a going concern. To date, the Company has invested
principally in local wireless businesses ("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. The Company's
losses have been funded from cash previously raised through the sale of
debt and equity securities. The losses of the LWBs in which the Company is
a significant shareholder have been funded principally from equity
infusions and advances from the Company or other shareholders of the LWB.
Pursuant to their business strategies, all of the Company's subsidiaries
and affiliates expect to continue making expenditures to build-out their
telecommunications networks and fund operating losses which will require
substantial amounts of cash. Each of the Company's LWBs intends to raise
the required level of cash through combinations of capital infusions from
existing or new shareholders, equipment financing from equipment vendors or
lending banks and/or debt financing. The Company is committed to
participate in such financings, when necessary, for its core investments in
China, Pakistan, Indonesia and Brazil in order to maintain its current
level of ownership, and in certain cases, to try and increase its level of
ownership. In order to obtain the additional funds it needs to continue
operating at planned levels, the Company will need substantial funds from
additional debt and equity financing. The Company's plans with respect to
obtaining additional capital include additional shareholder investment and
sale of core and/or non-core investments. In recent months, the Company
and its LWBs have experienced significant difficulties in obtaining
adequate financing to fund operations. As a result, the majority of the
LWB's business plans have been delayed. Additional delays may negatively
affect the ability of the Company to realize the full value of the
Company's investments. The Company has further retained a financial
advisor for the purpose of evaluating other strategic and financial
alternatives. The Company is currently offering for sale virtually all of
its non-core investments. There can be no assurance that the Company or
any of its interests in any of its LWBs can be sold or that the Company or
its LWBs can obtain any additional debt or equity financing. If the
Company cannot obtain additional financing, the Company will have to
significantly curtail its operations including delaying, scaling back or
eliminating one or more of its projects or merging, selling, liquidating or
suffering dilution in one or more of its investments. The failure of the
Company to participate in certain required capital calls for Star Digitel
Limited ("Star Digitel") and International Wireless Communications Pakistan
Limited ("IWCPL"), in particular, will result in substantial
disproportionate dilution. The curtailment of operations could result in
the loss or revocation of telecommunication licenses held by the LWBs.
Consistent with industry practice, the Company considers itself to be
operating in one business segment.
6
<PAGE>
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of IWC, its wholly-owned subsidiaries, Servicos de Radio
Comunicacoes Ltda. ("SRC"), TeamTalk Limited ("TeamTalk"), various
off-shore holding companies, and several majority-owned subsidiaries,
including PeruTel S.A. ("PeruTel"), Wireless Data Services, Ltd.
("WDS"), Star Telecom Overseas (Cayman Islands) Limited ("STOL") and
Uniworld S.A. ("Uniworld"). On January 23, 1998, upon completion of the
RMDA Acquisition (see Note 2), RMDA became a wholly-owned subsidiary,
and as such, the accompanying consolidated financial statements also
include the accounts of RMDA and its subsidiaries, including Radio Movil
Digital do Brasil Ltda. ("RMD Brasil"), Radio Movil Digital "RMD" de
Venezuela C.A. ("RMD Venezuela"), Radio Movil Digital Argentina S.A.
("RMD Argentina"), RMD Chile S.A. ("RMD Chile") and Comovec S.A.
("Comovec") since the date of acquisition. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(2) RMDA ACQUISITION
In January 1998, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), a wholly owned subsidiary of IWC merged with and into
RMDA (the "RMDA Acquisition"). RMDA is a company engaged in the
acquisition and operation of ESMR wireless dispatch communications services
and the sale, lease and servicing of related equipment in certain countries
of South America, particularly Brazil, Venezuela and Argentina. The
aggregate consideration paid by IWC pursuant to the Merger Agreement, after
giving effect to various purchase price adjustments set forth in the Merger
Agreement, consisted of 5,381,009 shares of the Company's Series I
redeemable convertible preferred stock with a fair value of $71,805,000 and
$4,800,000 in cash (collectively, the "Consideration"), which was used to
pay certain fees and expenses related to the RMDA Acquisition. Of the
shares of Series I redeemable convertible preferred stock issued pursuant
to the Merger Agreement, 4,652,571 shares were issued to the former
security holders of RMDA, and the remaining 728,438 shares were deposited
in escrow, pending future release to the former security holders of RMDA or
to the Company in accordance with the Merger Agreement. All existing
outstanding capital stock and redeemable convertible preferred stock of
RMDA as of January 23, 1998, was surrendered and the RMDA shareholders
received their pro rata share of the equity portion of the Consideration
paid by the Company, net of the escrowed shares.
The cash portion of the Consideration paid by the Company was financed
using funds borrowed pursuant to an Amended and Restated Senior Secured
Note and Warrant Purchase Agreement (the "RMDA Loan Agreement"), dated
January 23, 1998, among the Company, RMDA and BT Foreign Investment
Corporation (See Note 10).
The purchase price, including direct merger costs, has been allocated
to assets acquired and liabilities assumed based on fair market value at
the date of acquisition. The fair value of assets and liabilities assumed
is summarized as follows (in thousands):
<TABLE>
<S> <C>
Current assets . . . . . . . . . $ 5,795
Property and equipment . . . . . 13,069
Telecommunication licenses and
other intangibles . . . . . . . . 82,984
Other assets . . . . . . . . . 759
Current liabilities . . . . . . . 5,504
Noncurrent liabilities . . . . . 17,670
</TABLE>
The Company accounted for the RMDA Acquisition using the purchase
method and allocated the entire Consideration to telecommunication licenses
and other intangibles. Additionally, due to the negative fair value of RMDA
net assets at the time of acquisition, the Company recognized an additional
intangible asset in RMDA totaling $3,551,000, which has also been allocated
to telecommunication licenses and other intangibles.
7
<PAGE>
In connection with the Merger Agreement, RMDA incurred certain fees
and expenses. Such costs, which total approximately $2,828,000, were
capitalized and have also been allocated to telecommunication licenses and
other intangibles. Telecommunication licenses and other intangibles
totaling $82,984,000 attributable to the RMDA Acquistion are amortized over
20 years.
(3) 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 March
31, 1998, the Company had cash of $1,483,000 and cash equivalents
consisting of money market mutual funds and seven day fixed term deposits
totaling $3,157,000 and $1,250,000, respectively.
The Company has been required by certain governmental regulatory
authorities to post performance bonds to guarantee the completion of
channel construction and loading in the countries of Argentina and Ecuador
(see Note 12). As of March 31, 1998, the Company has pledged cash and cash
equivalents in the amount of approximately $1,100,000 and $10,000 to
satisfy these requirements in Argentina and Ecuador, respectively. As of
December 31, 1997, the Company had not yet consummated the RMDA Acquisition
and therefore did not have this restriction on cash.
As required under the Company's credit facility with the Overseas
Private Investment Corporation ("OPIC"), the Company has deposited with a
financial institution certain amounts to cover future principal and
interest repayments. As of March 31, 1998, the Company had cash and cash
equivalents totaling $224,000 deposited with a financial institution for
such purpose (see Note 10). As of December 31, 1997, the Company had not
yet consummated the RMDA Acquisition and therefore did not have this
restriction on cash.
The Company's Venezuelan subsidiary, RMD Venezuela, is required to
maintain a performance bond with a financial institution of $301,000 in
order to operate certain ESMR channels in Venezuela. As of March 31, 1998,
this requirement has been satisfied through the issuance of a cash
collateralized letter of credit by a local financial institution. As of
December 31, 1997, the Company had not yet consummated the RMDA Acquisition
and therefore did not have this restriction on cash.
As required under the Company's Pakistan Bridge Facility (as defined
in the Company's Form 10-K as filed with the Securities and Exchange
Commission on April 15, 1998) with Toronto Dominion Investments, Inc., the
Company must maintain a minimum cash balance. As of December 31, 1997 and
March 31, 1998, restricted cash under the terms of the Pakistan Bridge
Facility was $1,500,000 and $1,000,000, respectively.
8
<PAGE>
(4) BALANCE SHEET COMPONENTS
Balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Other current assets
Employee receivables . . . . . . . . . . . . . $ 272 304
Taxes receivables . . . . . . . . . . . . . . 805 562
Accounts receivable . . . . . . . . . . . . . 1,797 2,916
Other receivables. . . . . . . . . . . . . . . 5,487 1,315
Notes receivable . . . . . . . . . . . . . . . 776 219
Notes receivable from affiliates . . . . . . . 290 296
Inventory. . . . . . . . . . . . . . . . . . . 322 716
Prepaid expenses and other . . . . . . . . . . 784 1,399
------- -------
$10,533 7,727
------- -------
------- -------
Property and equipment
Furniture and fixtures . . . . . . . . . . . . $ 296 775
Computer and office equipment. . . . . . . . . 1,412 1,463
Automobiles. . . . . . . . . . . . . . . . . . 248 278
Leasehold improvements . . . . . . . . . . . . 545 665
Telecommunication equipment. . . . . . . . . . 17,854 33,678
Construction in process. . . . . . . . . . . . 4,788 4,560
------- -------
25,143 41,419
Less accumulated depreciation . . . . . . . . . 2,737 4,232
------- -------
Property and equipment, net . . . . . . . . . . $22,406 37,187
------- -------
------- -------
Telecommunication licenses and other intangibles
SRC . . . . . . . . . . . . . . . . . . . . . . $ 6,680 6,680
TeamTalk. . . . . . . . . . . . . . . . . . . . 1,760 --
STOL. . . . . . . . . . . . . . . . . . . . . . 3,965 3,065
Uniworld. . . . . . . . . . . . . . . . . . . . 1,557 --
WDS . . . . . . . . . . . . . . . . . . . . . . 221 221
RMD Brasil. . . . . . . . . . . . . . . . . . . -- 61,551
RMD Venezuela . . . . . . . . . . . . . . . . . -- 18,285
RMD Argentina . . . . . . . . . . . . . . . . . -- 2,520
RMD Chile . . . . . . . . . . . . . . . . . . . -- 400
Comovec . . . . . . . . . . . . . . . . . . . . -- 228
------- -------
14,183 92,950
Less accumulated amortization . . . . . . . . . 1,662 2,143
------- -------
Telecommunication licenses and other
intangibles, net. . . . . . . . . . . . . $12,521 90,807
------- -------
------- -------
Accounts payable and accrued expenses
Accounts payable. . . . . . . . . . . . . . . . $ 4,187 4,162
Professional services . . . . . . . . . . . . . 1,237 764
Employee compensation and benefits. . . . . . . 886 2,495
Equipment purchases . . . . . . . . . . . . . . 3,393 3,886
Interest. . . . . . . . . . . . . . . . . . . . 525 1,830
Accrued taxes . . . . . . . . . . . . . . . . . -- 903
Other . . . . . . . . . . . . . . . . . . . . . 784 963
------- -------
$11,012 15,003
------- -------
------- -------
</TABLE>
9
<PAGE>
(5) INVESTMENTS IN AFFILIATES AND SUBSIDIARIES HELD FOR SALE
During 1997, the Company initiated plans for the disposition of
TeamTalk and Universal Telecommunications Service, Inc. ("UTS") as the
Company re-aligned its investment strategy and re-distributed its resources
to its larger cellular and ESMR investments. The Company expects that the
sale of TeamTalk and UTS will occur in 1998. The Company anticipates that
the proceeds from disposition of UTS will not materially differ from the
Company's historical cost basis. However, the Company believes that the
anticipated proceeds of a sale of TeamTalk will be at an amount less than
the Company's historical cost basis in TeamTalk and, therefore, in March
1998, wrote off the remaining amount of telecommunication licenses and
other intangibles associated with TeamTalk totaling $1,258,000, net of
accumulated amortization. This write-off is classified as impairment in
asset value on the accompanying consolidated statement of operations for
the three months ended March 31, 1998. The Company has not written off
intangible gross assets of $3,065,000 associated with STOL's investments in
underlying STOL investee companies.
In February 1998, the Company signed a letter of agreement with an
unrelated third party to sell PeruTel, RMD Chile and Comovec for total cash
consideration of $3,125,000 subject to adjustments as outlined in the
letter of intent. Additionally, in March 1998, the Company signed a letter
agreement with an unrelated third party to sell RMD Venezuela and a smaller
Venezuelan interest the Company acquired through the RMDA Acquisition,
Venezolana de Telecomunicaciones, C.A. ("Venetel"), for total cash
consideration of $19,500,000 subject to adjustments as outlined in the
letter of intent.
In March 1998, the Company initiated plans for the disposition of
three additional direct investments. STOL, in which the Company has three
indirect investments consisting of WorldPage Company Limited ("WorldPage"),
RPG Paging Services Limited ("RPSL") and First International
Telecommunication Company, Limited ("FIT"), Uniworld and Telecomunicaciones
Globales, S.A. de C.V. ("Global Telecom"). The Company expects that the
sale of all three of these investments will occur in 1998. The Company
believes that the anticipated proceeds of a sale of both STOL and Uniworld
will be at an amount less than the Company's historical cost basis in both
companies and, therefore, in March 1998, wrote off the remaining amount of
telecommunication licenses and other intangibles associated with STOL and
Uniworld totaling $825,000 and $1,398,000, net of accumulated amortization,
respectively. These write-offs are classified as impairment in asset value
on the accompanying consolidated statement of operations for the three
months ended March 31, 1998. The Company anticipates that the proceeds
from the sale of Global Telecom will equal or exceed the Company's
historical cost basis in this investment.
Investments in affiliates held for sale are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
1997 1998
-------- ---------
<S> <C> <C>
UTS . . . . . $1,873 1,882
Venetel . . . -- 480
WorldPage . . -- 4,294
RPSL. . . . . -- 3,526
FIT . . . . . -- 5,781
Global. . . . -- 62
-------- ---------
$1,873 16,025
-------- ---------
-------- ---------
</TABLE>
10
<PAGE>
The Company continues to consolidate TeamTalk, STOL, Uniworld, RMD
Venezuela, Perutel, RMD Chile and Comovec and has not reclassified these
investments as assets held for sale. The Company's investments in and
advances to TeamTalk, STOL, Uniworld, PeruTel, RMD Venezuela, RMD Chile and
Comovec, net of the Company's pro-rata share of accumulated losses,
amounted to $9,527,000, $10,620,000, $1,239,000, $371,000, $1,405,000, zero
and zero, respectively, as of March 31, 1998. Selected unaudited financial
information for TeamTalk, STOL, Uniworld and RMD Venezuela are as follows
as of and for the three months ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
RMD
TEAM TALK STOL UNIWORLD VENEZUELA
--------- ----- -------- ---------
<S> <C> <C> <C> <C>
Current . . . . $1,121 2,901 760 1,940
Noncurrent. . . 12,310 16,463 821 2,712
Current . . . . 4,571 83 702 1,070
Noncurrent. . . 10,330 -- 2,791 6,057
Net . . . . . . 589 -- 34 305
Net loss. . . . (935) (452) (497) (160)
</TABLE>
(6) INVESTMENTS IN AFFILIATES
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 investments in companies in LWBs 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 of gains or
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 (dollars in
thousands):
11
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA INDONESIA CHINA PHILIPPINES PAKISTAN THAILAND
--------- --------- --------- ------------ ---------- ----------
PT RAJASA
PRISMANET HAZANAH
(M) SDN. BHD. PERKASA STAR
("PRISMANET") ("RHP") DIGITEL UTS IWCPL WORLDPAGE TOTALS
--------------- ----------- --------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of ownership............ 22.5% 28% 40% 15% 34% 11%
Investments in affiliated companies
as of December 31, 1996........... $ 16,910 28,030 18,653 1,875 -- -- 65,468
Additional investment
(reclassification)................. (4,000) -- 9,000 (1,662) 26,127 4,500 33,965
Impairment in asset value.......... (7,683) (1,103) -- -- -- -- (8,786)
Amortization....................... (885) (1,676) (731) (23) -- (37) (3,352)
Losses............................. (4,342) (25,251) (7,800) (190) (1,518) (131) (39,232)
--------- --------- --------- --------- -------- --------- ---------
Equity in losses of affiliates..... (5,227) (26,927) (8,531) (213) (1,518) (168) (42,584)
--------- --------- --------- --------- -------- --------- ---------
Investments in affiliated companies
as of December 31, 1997............ $ -- -- 19,122 -- 24,609 4,332 48,063
--------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- -------- --------- ---------
Portion of investment exceeding the
Company's share of the underlying
historical net assets as of
December 31, 1997.................. $ -- -- 18,922 -- -- 2,764 21,197
--------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- -------- --------- ---------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
------------------------------------------------------------------
CHINA PAKISTAN THAILAND
------------- ------------ -----------
STAR DIGITEL IWCPL WORLDPAGE TOTALS
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Percentage of ownership . . . . . . . 40% 33% (1) 11%
Investments in affiliated
companies as of December 31, 1997. . $19,122 24,609 4,332 48,063
Additional investment
(reclassification). . . . . . . . . . -- -- (4,294) (2) (4,294)
Amortization . . . . . . . . . . . . . (278) -- (35) (313)
Losses . . . . . . . . . . . . . . . . (2,433) (325) (3) (2,761)
------------- ------------ ----------- ----------
Equity in losses of affiliates . . . . (2,711) (325) (38) (3,074)
------------- ------------ ----------- ----------
Investments in affiliated
companies as of March 31, 1998 . . . . $16,411 24,284 -- 40,695
------------- ------------ ----------- ----------
------------- ------------ ----------- ----------
Portion of investment exceeding
the Company's share of the
underlying historical net assets
as of March 31, 1998 . . . . . . . . . $16,411 -- -- 16,411
------------- ------------ ----------- ----------
------------- ------------ ----------- ----------
</TABLE>
(1) In February 1998, the Company did not participate in a capital call in
IWCPL, thereby reducing the Company's ownership interest from 34.08% to
32.54%. However, the Company has an option to buy back this 1.54%
interest during 1998 (see Note 12).
(2) In March 1998, the Company decided to offer WorldPage for sale, through
its investment in STOL, and has reclassified this investment to
investments in affiliates held for sale (see Note 5).
13
<PAGE>
COST INVESTMENTS
During 1998, the Company decided to offer RPSL and FIT for sale, through its
investment in STOL, as well as Global Telecom, and has reclassified these
investments to investments in affiliates held for sale (see Note 5).
The Company's carrying value of these investments are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998
----------- ---------
<S> <C> <C>
RPSL . . . . . . . . . $3,526 --
FIT. . . . . . . . . . 5,781 --
Global Telecom . . . . 62 --
----------- ---------
$9,369 --
----------- ---------
----------- ---------
</TABLE>
(7) NOTES RECEIVABLE FROM AFFILIATES
In March 1998, the Company, through its wholly-owned subsidiary, IWC
China Limited ("IWC China"), loaned $4,000,000 to Star Digitel. This
loan is the Company's pro-rata share of a pending capital call by Star
Digitel and will be converted into equity in Star Digitel.
(8) 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 an Ecuadorian paging
corporation that is wholly owned by the borrower. In March 1998, the
Company received $100,000 as the first installment under an agreed
repayment plan.
(9) RELATED PARTY TRANSACTIONS
Concurrent with the Series J Financing (see Note 11), the Company
entered into a Support Services Agreement with Vanguard Cellular Systems,
Inc. ("Vanguard"), a significant shareholder of the Company (the "Vanguard
Support Services Agreement"), whereby Vanguard will assist Star Digitel for
a period of up to one year in (i) completing its proposed unit offering of
notes and warrants or alternative financing, and (ii) entering into an
equipment financing agreement with a vendor in exchange for a warrant to
purchase 323,408 shares of common stock at an exercise price of $0.01 per
share (the "Vanguard Support Services Agreement Warrant"). Such warrant
will vest (i) 50% upon Star Digitel raising $50.0 million in the proposed
unit offering or alternative financing and (ii) 50% upon Star Digitel
entering into an agreement with a vendor with financing up to $150.0
million for such equipment.
(10) LONG-TERM DEBT AND DEBT ISSUANCE COSTS
SENIOR SECURED NOTE
In January 1998, the Company borrowed funds pursuant to the RMDA Loan
Agreement, which provides up to $35.0 million and works as a three-tiered
facility, with (i) the first $15.0 million being a refinancing of existing
RMDA Subordinated Convertible Notes, (ii) the next $10.0 million issued
immediately upon closing of the RMDA Acquisition (together with the
Subordinated Convertible Notes, the "Senior Secured Note") and (iii)
another $10.0 million being available at such place and on such date in the
future as may be mutually agreeable by the parties involved. The $25.0
million Senior Secured Note has a
14
<PAGE>
stated interest rate of 14.5% per annum with interest paid quarterly
beginning May 23, 1998 (with the first payment including any accrued but
unpaid interest on the previously existing Subordinated Convertible
Notes) and principal due the earlier of August 23, 1999 or an Event of
Default (as defined). The Senior Secured Note is collateralized by
certain Brazilian assets of the Company. Warrants to purchase 155,840
shares of IWC's common stock at an exercise price of $0.01 per share
were also issued in connection with the RMDA Loan Agreement (the "RMDA
Loan Agreement Warrants"). The value attributed to the RMDA Loan
Agreement Warrants, totaling $1,495,000, along with other debt issuance
costs associated with the RMDA Loan Agreement, which in the aggregate
amount to $3,106,000 have been capitalized as debt issuance costs and
are being amortized to interest expense using the effective interest
method over the life of the debt.
OPIC CREDIT FACILITY
The Company's Venezuelan subsidiary, RMD Venezuela, entered into a
loan agreement with OPIC, a U.S. governmental agency, whereby OPIC agreed
to lend RMD Venezuela up to $7,500,000 for the construction and operation
of an ESMR system in Venezuela (the "OPIC Credit Facililty"). As of March
31, 1998, RMD Venezuela had drawn $2,100,000 from this credit facility,
which bears interest at an average fixed rate of 10.16% per annum and is
payable over eight years, the first two of which require interest payments
only. The OPIC loan is secured by a guarantee from RMDA and first priority
liens on substantially all of RMD Venezuela's real and personal property,
fixtures and equipment, as well as a pledge of 90% of the common stock of
RMD Venezuela. The OPIC loan agreement contains, among other provisions,
requirements related to RMD Venezuela maintaining certain working capital
and other financial ratios, and restrictions on incurring additional
indebtedness and declaring or paying dividends.
Under the terms of the OPIC loan, RMD Venezuela is subject to
commitment fees of 0.33% and 0.50% per annum on the undrawn balance, which
is expensed to interest. Additional disbursements under the loan agreement
are subject to certain conditions, including the requirement that RMD
Venezuela generate earnings or receive contributions from the Company of
additional equity.
As of March 31, 1998, the unpaid principal on the OPIC Credit Facility
was $1,787,000, of which $187,000 is classified as current on the
accompanying consolidated balance sheet.
As required under the agreement, the Company has deposited with a
financial institution certain amounts to cover future principal and
interest repayments. Those deposits, which are included in cash and cash
equivalents in the accompanying consolidated balance sheets, amounted to
$224,000 as of March 31, 1998 (see Note 3).
(11) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDER'S DEFICIT
The Company is authorized to issue 50,000,000 shares of preferred
stock, of which 43,231,480 are designated redeemable convertible preferred
stock, 1,200,000 are designated nonredeemable convertible preferred stock,
5,568,520 are undesignated, and 76,000,000 shares of common stock of which
70,000,000 are designated class 1 and 6,000,000 are designated class 2.
All shares have a par value of $0.01 per share.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company issued 5,381,009 shares of its Series I redeemable
convertible preferred stock with an aggregate liquidation
preference of $75,395,000 in connection with the RMDA Acquisition (see
Note 2). In the event of Company liquidation, the holders of Series I
redeemable convertible preferred stock will be subordinate to Series G, H,
J and F shareholders and PARI PASSU with the rights of Series B, C, D and E
shareholders. Series I redeemable convertible preferred stock is
redeemable at any time on or after the later of (i) such date as all of the
Company's Exchange Notes (as defined in the
15
<PAGE>
Company's Form 10-K as filed with the Securities and Exchange Commission
on April 15, 1998) and the Pakistan Bridge Facility have been repaid in
full and (ii) December 31, 1998.
There exists a Special Adjustment of Series I conversion price whereby
if a Series I Valuation Event (as defined) occurs on or before December 1,
1998, the conversion price for Series I in effect immediately prior to a
Series I Valuation Event is adjusted to a price equal to the Series I
Valuation Price (as defined). Alternatively, if no Series I Valuation
Event occurs by December 1, 1998, the conversion price for Series I in
effect immediately prior to such time shall be adjusted to a price equal to
the lower of (i) $12.48, as adjusted, or (ii) if applicable, 93% of the low
end of the pricing range for common stock indicated in the latest
registration statement relating to the public offering. Notwithstanding
the foregoing, in the event of a distribution, on the earlier of (i)
December 1, 1998 and (ii) the Series I Adjustment Date (as defined), the
Series I conversion price shall equal the sum of (i) the Series I
conversion price and (ii) the value of such distribution per share of
Series I preferred stock.
In March 1998, the Company completed the first closing (the "First
Closing") of its Series J Preferred Stock and Warrant financing (the
"Series J Financing") with a $10.0 million investment from Vanguard by
issuing 789,266 shares of its Series J redeemable convertible preferred
stock (the "Vanguard Series J Preferred Stock and Warrant Purchase
Agreement"). The Company expects to raise up to a total of $18.0 million
(the "Face Amount") from the Series J Financing. Vanguard committed to and
funded $10.0 million of the facility with all existing IWC shareholders
having the option to participate at their pro rata share of the $18.0
million Face Amount to raise up to an additional $8.0 million (the "Second
Closing"). The Second Closing closed subsequent to March 31, 1998 (see
Note 13). In the event of Company liquidation, the holders of Series J
redeemable convertible preferred stock will be subordinate to Series G and
H shareholders and be superior to the rights of all other shareholders.
Series J redeemable convertible preferred stock is redeemable at any time
on or after the later of (i) such date as all of the Company's Exchange
Notes and the Pakistan Bridge Facility have been repaid in full and (ii)
December 31, 1998. In connection with the Series J Financing, the Company
issued a warrant to purchase shares of the Company's common stock at an
exercise price of $0.01 per share (the "Series J Financing Warrant"). The
number of shares issuable of the Company's common stock at the First
Closing upon exercise of such warrant is initially set at 173,639 and
increases upon the occurrence of certain events. The costs related to the
issuance of Series J redeemable convertible preferred stock of $1,865,000,
which includes the value of the Series J Financing Warrant, were offset
against the proceeds of the First Closing. Additional warrants were issued
upon the Second Closing (see Note 14).
As part of the Vanguard Series J Preferred Stock and Warrant Purchase
Agreement, Vanguard shall have the right to exchange (the "Exchange
Right"), upon the closing of an initial public offering ("IPO"), its direct
or indirect equity interests in Star Digitel and Pakistan Mobile
Communications (Pvt) Limited ("Mobilink"), which the Company indirectly
owns 19% through its 33% ownership in IWCPL, and any other of the Company's
core investments (as defined) that Vanguard may acquire an interest in
(collectively, the "Vanguard Assets"), into the Company's common stock.
Such Exchange Right is contingent upon, but shall occur prior to an IPO, to
allow the Company to include the Vanguard Assets in the offering document.
The conversion of the Vanguard Assets shall be valued on a per share basis
at the midpoint of the underwriter's valuation for the Vanguard Assets
entities which form the basis of the IPO pricing, net of any discounts
applicable to the Company's interests.
STOCK OPTION/STOCK ISSUANCE PLAN
In January 1998, the Board of Directors granted options to an employee
to purchase 165,000 shares of common stock at an exercise price of $9.60
per share under the 1996 Stock Option/Stock Issuance Plan.
16
<PAGE>
WARRANTS
In February 1998, pursuant to the terms of the IWCH Pakistan Facility
(as defined in the Company's Form 10-K as filed with the Securities and
Exchange Commission on April 15, 1998), the number of shares of the
Company's common stock issuable upon exercise of the Initial Pakistan
Warrants (as defined in the Company's Form 10-K as filed with the
Securities and Exchange Commission on April 15, 1998) increased by 196,018
shares to an aggregate of 889,594.
In March 1998, pursuant to the terms of the Vanguard Star Digital
Guarantee (as defined in the Company's Form 10-K as filed with the
Securities and Exchange Commission on April 15, 1998), the number of shares
of the Company's common stock issuable upon exercise of the Vanguard Star
Digitel Guarantee warrant increased by 52,080 shares to an aggregate of
172,763. The Company recognized an expense of $499,000 related to this
increase, which is classified as other expense in the accompanying
consolidated statement of operations.
During the three months ended March 31, 1998, pursuant to the terms of
the Unit Warrants (as defined in the Company's Form 10-K as filed with the
Securities and Exchange Commission on April 15, 1998), the number of
additional shares of the Company's common stock issuable upon exercise of
the Unit Warrants increased by an aggregate of 83,092 shares to an
aggregate of 2,985,824 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, the Vanguard Star Digitel Guarantee, the RMDA
Loan Agreement, the Series J Financing and the Vanguard Support Services
Agreement.
The Company had the following warrants outstanding as of March 31, 1998:
<TABLE>
<CAPTION>
PREFERRED AND COMMON WARRANTS EXERCISE
STOCK OUTSTANDING PRICE EXPIRATION
--------------------- ----------- -------- --------------------
<S> <C> <C> <C>
Series D preferred . . . . . . . . . . . . . . . . . . 4,800 $ 6.55 April 6, 1998 (1)
Series F preferred . . . . . . . . . . . . . . . . . . 335,040 9.38 December 18, 1998(1)
Unit Warrants. . . . . . . . . . . . . . . . . . . . . 2,985,824 0.01 August 15, 2001
Pakistan Warrants. . . . . . . . . . . . . . . . . . . 889,594 0.01 August 18, 2007
Mobilink Finder's Fee Warrant. . . . . . . . . . . . . 81,982 0.01 September 17, 2007
Vanguard Star Digitel Guarantee Warrant. . . . . . . . 172,763 0.01 September 18, 2007
Vanguard Warrant/Option Exchange
options . . . . . . . . . . . . . . . . . . . . . 501,420 9.38 May 5, 2007
Vanguard Warrant/Option Exchange
Warrant . . . . . . . . . . . . . . . . . . . . . 249,970 0.25 May 5, 2007(1)
RMDA Loan Agreement Warrants . . . . . . . . . . . . . 155,840 0.01 January 23, 2008
Series J Financing Warrant . . . . . . . . . . . . . . 173,639 0.01 March 10, 2008
Vanguard Support Services Agreement
Warrant . . . . . . . . . . . . . . . . . . . . . 323,408 0.01 March 10, 2008
----------
5,874,280
----------
----------
</TABLE>
-------------------------
(1) Warrants expire in the event of an IPO.
(12) COMMITMENTS AND CONTINGENCIES
CAPITAL CONTRIBUTIONS
The Company, indirectly through its wholly owned subsidiary, IWC
China, owns a 40% equity interest in Star Digitel. On June 18, 1997, the
Company, including the Designated Assignee of IWC, IWC China, amended
the Subscription Agreement, dated as of September 23, 1996, among Star
Digitel and STHL. The Amendment and Waiver (as defined in the Company's
Form 10-Q as filed with the Securities and Exchange Commission on August
15, 1997), modified certain provisions in the Star Digitel Subscription
Agreement, including waiving the fulfillment of the conditions precedent
to its obligations to enter into and complete a second subscription of
Star Digitel 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 Star Digitel shares no later than June 17, 1998.
17
<PAGE>
Pursuant to the Side Letter (as defined in the Company's Form 10-K as
filed with the Securities and Exchange Commission on April 15, 1998) among
the Company, the shareholders of Mobilink and the other shareholders of
IWCPL (the "Mobilink Side Letter"), the Company has agreed to contribute an
additional $2.1 million in shareholder loans to Mobilink through the end of
1998. If the Company fails to provide such loans, then the Company's
interest in IWCPL shall be converted into a direct equity interest in
Mobilink, and the other shareholders of Mobilink shall have a pro-rata
right to purchase all of the Company's equity interest in Mobilink at a
purchase price equal to 50% of the then fair market value of such equity
interest.
In order to protect the Company's investments in affiliates from
ownership dilution, the Company has committed to make additional capital
contributions to the LWBs as needed besides the second subscription of
shares in Star Digitel. For the year ended December 31, 1998, the Company
anticipates making additional investments in various operating and
nonoperating companies totaling approximately $38,500,000.
GUARANTEE OF DEBT OF EQUITY INVESTEE
In connection with a Malaysian ringgit 91,000,000 (approximately
$24,930,000 as translated using effective exchange rates at March 31, 1998)
senior credit facility with a Malaysian bank obtained by the Company's
22.5% cost investee, Prismanet, the Company along with other Prismanet
shareholders, 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 timely completed and to make additional debt and equity
investments in Prismanet 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 March 31, 1998, this facility has
been fully drawn down. In December 1997, the Company recorded its pro rata
share of this facility associated with the "keep well" covenant totaling
$5,000,000 due to the likelihood of the bank enforcing the "keep well".
This is reflected as bank liability on the accompanying consolidated
balance sheets as of December 31, 1997 and March 31, 1998.
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 million credit facility from 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 March 31,
1998, this facility has been fully drawn down.
The Company, through its subsidiary, IWC China, owns 40% of Star
Digitel. Star Digitel has obtained a $7 million credit facility from Bank
Bira, which it has used to continue the roll-out of its network. Borrowings
under this facility are secured by substantially all of Star Digitel's
assets and guarantees from its shareholders, including IWC China, on a pro
rata basis. The guarantee by IWC China is non-recourse to the Company. As
of March 31, 1998, this facility has been fully drawn down.
In September 1997, at the request of IWC China, Vanguard guaranteed
$8,000,000 of indebtedness to be reimbursed by Star Digitel. On the
occurrence of certain events, including an IPO of equity securities by the
Company or certain related entities and the receipt of a specified amount
of cash proceeds from private equity issuances or asset sales by the
Company or certain related entities, IWC China will be required to pay an
additional guarantee fee equal to 4.0% of the outstanding Star Digitel
Shares as of the date of such event unless Vanguard's obligations under the
guarantee are permanently released and discharged.
18
<PAGE>
The Company's indirect 19% equity investee, Mobilink, has obtained a
$15.0 million credit facility with Citibank Plc. London, UK ("Citibank")
and a Pakistan rupee 881,000,000 (approximately $20.2 million as translated
using effective exchange rates at March 31, 1998) credit facility with ABN
AMRO Bank N.V. (ABN AMRO") which are both currently guaranteed by Motorola
International Development Corporation ("Motorola"), a co-shareholder of
Mobilink. Pursuant to the Mobilink Side Letter, IWCPL has agreed that if
the guarantees of indebtedness of Mobilink issued by Motorola are not
terminated on or before August 1998, IWCPL will forfeit to Motorola shares
in Mobilink corresponding to up to a 4% equity interest in Mobilink. In
addition, in March 1998, Mobilink entered into a $32.0 million vendor
financing agreement with Motorola Credit Corporation ("Motorola Credit"),
an affiliate of Motorola, for the purchase of certain infrastructure
equipment. Amounts borrowed under such agreement accrue interest at a rate
of LIBOR plus 1.5% and are secured by a lien on such equipment. IWCPL has
also pledged shares in Mobilink representing an 8.5% equity interest in
Mobilink to Motorola Credit to secure the indebtedness of Mobilink under
such agreement.
LICENSES AND INTERCONNECTION
Mobilink holds a non-exclusive nationwide license to provide cellular
services in Pakistan. The license has a term of 15 years, and expires in
2007, at which time Mobilink will be required to seek governmental approval
to renew the license. The license by its terms contains certain conditions
on construction and operation of the network. Mobilink may not be in
technical compliance with certain requirements of the license.
MOBILINK PUT-CALL OPTION
As of March 31, 1998, the Company had expended approximately $26.1
million to acquire its 19% indirect equity interest in, and to make capital
contributions and shareholder loans to, Mobilink. Pursuant to the
Shareholder's Agreement dated August 18, 1997, among the shareholders of
Mobilink, the Company holds an option (the "Mobilink Put-Call Option") to
purchase an additional 5.71% interest in IWCPL from one of the other IWCPL
shareholders, Asia Pacific Cellphone Co., Inc. ("APC"), for an aggregate
purchase price of approximately $6.5 million, which amount is subject to
adjustment based upon the capital contributions and shareholder loans made
by APC in respect of such 5.71% interest and the period of time elapsed
between the date APC originally purchased 5.71% and the date that the
option is exercised. APC has a corresponding right to put such interest to
the Company at the same purchase price at any time during the term of the
option. The Mobilink Put-Call may be exercised only once by the Company or
APC and will expire on December 31, 1998, unless sooner exercised. Upon
exercise of the Mobilink Put-Call Option in its entirety, the Company's
indirect equity interest in IWCPL would increase to 39.79%, and its
corresponding indirect equity interest in Mobilink would increase to
23.35%.
VANGUARD PAKISTAN OPTION
In February 1998, the Company entered into an agreement with Vanguard
Pakistan, Inc., a wholly owned subsidiary of Vanguard and a shareholder of
IWCPL ("Vanguard Pakistan"), pursuant to which Vanguard Pakistan agreed to
contribute the Company's pro-rata share of a $3,640,000 capital call by
IWCPL, which pro-rata share currently represents a 1.54% equity interest in
IWCPL in exchange for a $18,600 fee. Vanguard Pakistan also granted the
Company an option (the "Vanguard Pakistan Option") to purchase this equity
interest for $1,240,000. The Vanguard Pakistan Option will expire in
September 1998, unless sooner exercised.
BUILD-OUT REQUIREMENTS
The Company has been required by certain government regulatory
authorities to post performance bonds to guarantee the completion of
channel construction and loading. The Company's Argentinean subsidiary is
required to fulfill certain channel and loading
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requirements by May 1998, related to which $1,100,000 has been pledged.
The Company's Ecuadorian subsidiary is required to commence operations
in two cities of Ecuador by June 1998, related to which Ecuadorian sucre
47,500,000 (approximately $10,000 as translated using effective exchange
rates as of March 31, 1998) has been pledged. As of March 31, 1998, the
Company had pledged cash and cash equivalents in the amount of
approximately $1,110,000 to satisfy these requirements (see Note 3).
In connection with certain of the Company's assigned ESMR licenses,
the Company has radio load and build out commitments. Should these load
and build out commitments not be complied with, the Company could be
subject to the revocation of the applicable licenses. At the present time,
certain regulatory build out requirements relating to channels licensed to
RMD Brasil have not been fully complied with. The Company's Brazilian
affiliate has received an extension until November 1998 from the Brazilian
regulatory authorities to comply with certain of these requirements.
CONTINGENT LIABILITY
One of the Company's Brazilian subsidiaries, RMD Brasil, has reported
certain transactions subject to Brazilian value added tax (ICMS) in a
manner consistent with its historical practices, which Company
management and its legal counsel believe are proper. The ICMS
legislation as applied to telecommunication providers has not been
interpreted on a uniform basis by the Brazilian tax authorities. The
Company believes that it could have a contingent liability of up to
$5,851,000 should its reporting position be successfully challenged by
the tax authorities.
(13) COMPREHENSIVE LOSS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards of reporting and
display of comprehensive income or loss and its components of net income or
loss and "other comprehensive income or loss in a full set of general
purpose financial statements. "Other comprehensive income or loss" refers
to revenues, expenses, gains and losses that are not included in net income
but rather are recorded directly in shareholders' deficit in accordance
with SFAS No. 52, FOREIGN CURRENCY TRANSLATION; SFAS No. 80, ACCOUNTING FOR
FUTURES CONTRACTS; SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS; and
SFAS No. 115, ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES. SFAS No.
130 is effective for annual and interim periods beginning after December
15, 1997 and for periods ended before that date when presented for
comparative purposes. The Company has not yet determined the format it
will use to display the information required by SFAS No. 130 in the
financial statements for the year ending December 31, 1998. Total
comprehensive loss was $14,482,000 and $26,434,000 for the three months
ended March 31, 1997 and 1998. The primary components of other
comprehensive loss include unrealized gains and losses resulting from the
translation of the Company's foreign subsidiaries which have a local
functional currency and unrealized holding losses related to the Company's
available-for-sale investments.
(14) SUBSEQUENT EVENTS
In April 1998, holders of warrants to purchase an aggregate of 4,800
shares of Series D preferred stock exercised such warrants pursuant to the
"net-exercise" provisions thereof. Upon such exercise, such warrant
holders received an aggregate of 1,654 shares of Series D preferred stock.
In April 1998, the Company collected $205,000 on a loan the Company
had extended to Corporacion Mobilcom S.A. de C.V.. This amount represents
repayment of principal of $158,000 plus all accrued interest.
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In April 1998, the Company completed the Second Closing of its Series
J Financing. The Company issued an additional 102,604 shares of Series J
redeemable convertible preferred stock for total gross proceeds of
$1,300,000. In connection with this Second Closing, the Company issued
warrants to purchase shares of the Company's common stock at an exercise
price of $0.01 per share (the "Series J Financing Warrants"). The number
of shares issuable of the Company's common stock at the Second Closing upon
exercise of such warrants are initially set at 22,572 and increase upon the
occurrence of certain events.
In April 1998, as a result of the additional Series J Financing
Warrants, 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 2,049 shares to an aggregate of 2,987,873 shares.
On May 7, 1998 Mr. Hugh McClung resigned from the Company and his
position as a director and Vice Chairman of the Board. Mr. McClung will
continue providing services to the Company as a consultant over a period
of six months.
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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, 1997, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1998.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1998
The Company's net loss increased from $14.5 million for the three month
period ended March 31, 1997 to $24.2 million for the corresponding period in
1998, an increase of 67%. This increase was due primarily to higher selling,
general and administrative expenses, a loss associated with the impairment in
asset value and an increase in interest expense, as more fully described below.
The Company recognized $519,000 of operating revenues and $589,000 of cost
of revenues for the three month period ended March 31, 1997 as compared to $3.5
million in operating revenues, offset by cost of revenues of $1.2 million. This
represents an increase of 580% in revenues and 111% in cost of revenues. The
increase was primarily due to the RMDA Acquisition, which occurred on January
23, 1998. The RMDA operating companies in Brazil, Venezuela and Argentina had
combined revenues of $2.7 million and cost of revenues of $565,000. For the
three month period ended March 31, 1997, the Company's New Zealand operations,
TeamTalk and WDS, had combined revenues of $519,000 and combined cost of
revenues of $589,000. For the corresponding period in 1998, combined revenues
were $685,000 and combined cost of revenues were $625,000. Operating results
for the first three months of 1997 are represented by the consolidated
commercial operations of TeamTalk and WDS only, whereas for the corresponding
period in 1998, operating results are represented by the commercial operations
of TeamTalk, WDS, Uniworld and the RMDA operating companies. 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
$6.3 million for the three month period ended March 31, 1997 to $9.6 million for
the corresponding period in 1998, an increase of 54%. This increase was
primarily due to an increase in selling, general and administrative expenses
associated with the RMDA operating companies as well as an increase in corporate
overhead. The RMDA operating companies in Brazil, Venezuela and Argentina had
selling, general and administrative combined costs of $2.7 million. The
Company's own general and administrative expenses increased from $2.9 million
for the three months ended March 31, 1997 to $4.2 million for the corresponding
period in 1998, an increase of 45%. The increase is due primarily to an
increase in salaries and benefits expense from $1.2 million for the three months
ended March 31, 1997 to $2.1 million for the corresponding period in 1998, an
increase of 75% as the Company implemented a cost reduction program and
recognized severance expense associated with this program. In addition, the
Company's amortization expense increased from $223,000 for the three months
ended March 31, 1997 to $1.1 million for the corresponding period in 1998,
primarily due to increase amortization of telecommunication licenses related to
the RMDA acquisition.
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Selling, general and administrative expenses associated with SRC decreased
from $1,987,000 for the three months ended March 31, 1997 to $464,000 for the
corresponding period in 1998, a decrease of 77%. SRC embarked on an aggressive
cost reduction program both prior to and subsequent to the RMDA Acquisition in
an effort to reduce its selling, general and administrative cost base. In
addition, subsequent to the RMDA acquisition, SRC continued to reduce its costs
of operations to benefit from the synergies resulting from the combination
with RMD Brazil.
Selling, general and administrative expenses associated with the Company's
other consolidated operations, TeamTalk, STOL, WDS and Uniworld increased as
these entities continued to develop their operations and expand their services.
Uniworld commenced commercial operations in December 1997.
The Company's equity in losses of affiliates decreased from $4.7 million
for the three month period ended March 31, 1997 to $3.1 million for the
corresponding period in 1998, an overall decrease of 34%.
The Company's equity in losses of affiliates attributable to its 40%
interest in Star Digitel, increased from $1.7 million for the three months
ended March 31, 1997 to $2.4 million for the corresponding period in 1998.
Star Digitel's operating losses are anticipated to increase for the
foreseeable future as Star Digitel continues to expand its operations in
China and as it incurs increased interest expense associated with its debt
facilities.
The Company's equity in losses of affiliates for the three months ended
March 31, 1998 also reflects a $325,000 loss attributable to its 20% indirect
interest in Mobilink, through IWCPL, which the Company acquired in August 1997.
The Company anticipates that the equity in losses of affiliates attributable to
Mobilink will diminish as Mobilink approaches operating profitability.
The Company's equity in losses of affiliates attributable to its indirect
19.8% interest in Mobisel, its 22.5% interest in Prismanet and its interest in
UTS were $1,700,000, $929,000 and $108,000, respectively, during the first three
months of 1997. During 1997, the Company recognized its appropriate portion of
equity in losses of affiliates attributable to Mobisel and recorded an
impairment in asset value. Accordingly, the Company's reduced its carrying
value of its investment in Mobisel to zero, and as a result, the Company did not
recognize further equity in losses of affiliates attributable to Mobisel in
1998. In addition, the Company, during 1997, changed its method of accounting
for Prismanet and UTS from the equity method of accounting to the cost method of
accounting, and accordingly did not recognize equity in losses of affiliates
attributable to these investments in 1998. Also, the Company's investment in
Prismanet had been reduced to zero during 1997.
During the first three months of 1998, the Company recognized losses
attributable to impairment in asset values amounting to $3.5 million. This
consists of a write-off in the unamortized intangible assets associated with
the Company's investment in Uniworld, TeamTalk and STOL of $1,398,000,
$1,258,000 and $825,000, respectively, in order to reduce the book value of
the investments to an amount the Company believes will be realizable. All
three of these investments are available for sale.
The Company's interest income decreased from $527,000 for the three month
period ended March 31, 1997 to $269,000 for the corresponding period in 1998.
The decrease in interest income was primarily due to a reduction in the cash and
cash equivalent balances, as derived from the Unit Offering and Pakistan
facilities, available for investment in short-term interest bearing securities
during the period.
The Company's interest expense increased from $4.2 million for the three
month period ended March 31, 1997 to $9.4 million for the corresponding period
in 1998. The increase in interest expense was primarily due to an increase in
interest expense associated with the Unit Offering and the recognition of
interest expense associated with the Pakistan Facility, the RMDA Loan Agreement
and the OPIC Credit Facility assumed through the RMDA acquisition.
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The Company's other expense for the three months ended March 31, 1998
consisted primarily of the cost assigned to the Vanguard warrants issued in
respect of the Vanguard Star Digitel Guarantee, the write-off of a note
receivable from an unrelated third party and transaction losses associated with
the RMDA operating companies.
IMPACT OF INFLATION AND CURRENCY FLUCTUATION
Many developing countries have experienced substantial, and in some cases
extremely high, rates of inflation which have resulted in high interest rates
for many years. In addition, these countries have experienced significant
fluctuations in their exchange rates. Many of the currencies of developing
countries have experienced steady, and in some cases substantial, devaluation
relative to the U.S. dollar. During the latter half of 1997, a number of
currencies of Southeast Asia countries, including Indonesia, have experienced
dramatic declines in their exchange rates relative to the U.S dollar. Such
inflation and foreign currency fluctuations have had, and may continue to have
significant negative effects on the economies and securities markets of certain
developing countries, and could have a material adverse effect on the Operating
Companies (as defined in the Company's Form 10-K as filed with the Securities
and Exchange Commission on April 15, 1998) in such countries, including an
adverse effect on their subscriber levels and on their ability to obtain
financing. In addition, the Company may not be able to realize the value of its
investment in the Operating Companies due to the negative effect on the
execution of the operating and business plans.
To the extent that the Operating Companies commence, or have commenced,
commercial operations, any revenues they generate will generally be received by
the Operating Companies in the local currency. By contrast, many significant
liabilities of the Operating Companies (such as liabilities for the financing of
telecommunication equipment and external debt financings) may be payable in U.S.
dollars or in currencies other than the local currency. Because subscriber
tariffs in many of the countries in which the Operating Companies operate are
regulated, the Operating Companies, or in the case of China, the Great Wall
Companies, may not be able to increase subscriber tariffs in response to the
negative effects of inflation or currency devaluation. 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. For
example, certain of the Operating Companies have U.S. dollar denominated debt
financings.
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 International (Singapore) Pte.,
Ltd. ("Nissho Iwai"). In addition, 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 experienced a severe unfavorable
fluctuation against the U.S. dollar, consistent with many other currencies in
Southeast Asia, and as a result, the Nissho Iwai credit facility increased
substantially on an Indonesian rupiah-denominated basis. As a consequence,
Mobisel will either have to increase operating revenues, to the extent permitted
by the regulatory authorities, to compensate for this unfavorable fluctuation,
or will have to 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, at least to the extent possible, it is
not always possible due to sovereign foreign capital restrictions or an
unwillingness of the finance community to fund in a currency other than the U.S.
dollar.
The U.S. dollar-denominated value of the Company's investment in an
Operating Company is partially a function of the currency exchange rate between
the U.S. dollar and the applicable local currency. In addition, the Operating
Companies will report their results of operations in their respective local
currencies, 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 the values of its investments and, fluctuations in its results of
operations, solely as a result of foreign
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currency exchange rate fluctuations. The Company does not carry foreign
currency convertibility risk insurance.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had funded its cash requirements
primarily using the net proceeds from a series of Preferred Stock 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
Operating Companies and other projects, and to provide working capital for
general corporate purposes. As of December 31, 1997 and March 31, 1998, the
Company had cash balances of $4.4 million and $5.9 million, respectively.
The Company has generated negative cash flow from operations since
inception, and its Operating Companies and other projects are not expected to
provide any cash distributions to the Company for the foreseeable future. As a
result, the Company is and will remain dependent upon raising additional funds
from outside sources to fund its investments in Operating Companies and
developmental stage projects, to support its working capital needs for general
corporate purposes, to repay the Exchange Notes and any other indebtedness it
may incur when it becomes due and payable.
The Company requires approximately $53,000,000 in additional financing
during 1998 to meet its contractual obligations to the Operating Companies
and other wireless projects and fund its working capital requirements for
general corporate purposes. The Company raised a portion of these funds
through an interim equity financing and proposes to raise the remainder
through additional financings and the sale of its interests in certain of its
smaller non-core businesses in Asia and Latin America. In addition, in March
1998 the Company retained financial advisors to assist it in its evaluation
of various strategic alternatives for raising the remaining financing
required to fund its operations in 1998.
The Company estimates that its cash resources, inclusive of the
anticipated proceeds from the sale of its non-core businesses in Latin
America, should be sufficient to allow it to continue operations at
anticipated levels through approximately June 15, 1998. However, there can be
no assurance that the Company will not require additional debt or equity
financing before such time.
In addition, on April 6, 1998, the Company entered into the Prismanet Sale
Agreement which provides for the sale of the Company's 22.5% interest in
Prismanet to Shubila for an aggregate purchase price of $4 million payable on or
before October 1, 1999. Conditions precedent to the closing of the Prismanet
Sale Agreement include the release by a syndicate of Malaysian banks of the
Company's shares in Prismanet and the release of the Company from any liability
under the Prismanet Collateral Agreement. In addition, it is a condition
precedent to the closing of the Prismanet Sale Agreement that Shubila indemnify
the Company for any liability under the Prismanet Collateral Agreement and the
other loan documents executed in connection with the credit facility. There can
be no assurance that the sale of the Company's interest in Prismanet will close
on the terms set forth in the Prismanet Sale Agreement or at all.
Except for the non-binding letter of intent for the sale of the Company's
SMR projects in Peru, Chile and Ecuador, the letter agreement for the sale of
the Company's Venezuelan SMR operations, and the Prismanet Sale Agreement, the
Company has no commitments to sell any of its other assets or to obtain any
additional debt or equity financing. If adequate sources of additional financing
are not available, the Company will have to significantly curtail its operations
(which may result in the loss or revocation of licenses held by Operating
Companies, the delay, scale back or elimination of one or more of its projects
or the merger, sale, liquidation or dilution in one or more of its investments),
may be unable to repay its liabilities (including the Unit Notes (as defined
below)) as they become due, and may be unable to meet its working capital and
other cash requirements. For example, if the Company does not make a required
$19.0 million capital contribution to Star Digitel by June 17, 1998, its 40%
equity interest in Star Digitel could be reduced to approximate 15% equity
interest, and the Company
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could be forced to sell its equity interest in Star Digitel. In addition, if
the Company does not make a required $2.1 million shareholder loan to
Mobilink by the end of 1998, its equity interest in Mobilink could be subject
to significant dilution or a forced sale. Any of such events would have a
material adverse affect on the Company.
Moreover, even if the Company is successful in raising funds by selling one
or more of its wireless projects, the Company may not be able to utilize all or
a portion of the proceeds from such sales due to restrictions on the use of such
proceeds contained in the BT Purchase Agreement and the Indenture. Under the BT
Purchase Agreement and the related BT Loan documentation, subject to a
$3,000,000 basket for investments in Brazil, 50% of the net proceeds from the
sale of the Company's non-Brazilian Latin American wireless projects must be
used to prepay the BT Loan until the total amount outstanding under the BT Loan
is decreased to $20,000,000. Thereafter, 30% of the net proceeds from the sale
of such projects must be used to prepay the BT Loan. The Company has entered
into discussions with BTFIC to modify the restrictions on the use of proceeds of
the non-core Latin American investments and permit the Company to access the
funds for general corporate purposes. There can be no assurance that any
negotiations with BTFIC will be successful, which would reduce the Company's
available cash resources. Further, under the Indenture, the Company may not use
the proceeds from the sale of its wireless projects for working capital and is
significantly limited in the amount of net proceeds from the sale of its
wireless projects that it can currently invest in Mobilink, Mobisel and Star
Digitel. Although the Company believes that there are various alternative
financing strategies that would permit it to raise funds for its working capital
needs and fund its commitments to its Operating Companies in compliance with the
restrictions set forth in the Indenture, there can be no assurance that any of
such financing strategies will be successful, which could have a material
adverse effect on the Company.
Historically, the Company and its partners typically fund initial
investments in the Operating Companies using capital contributions either in the
form of equity or shareholder loans. When Operating Companies have become
operational, the Company has sought to fund the ongoing development of the
Operating Companies using third-party financing, preferably on a non-recourse
basis to the Company.
Star Digitel has funded a significant portion of its expenditures with
shareholder capital contributions, including shareholder loans, and
short-term borrowings under its Bank Bira $7 million credit facility, and its
Toronto Dominion $8 million and $20 million bridge loans. Borrowings under
the Bank Bira credit facility bear interest at LIBOR plus 2.75% and have been
guaranteed by the shareholders of Star Digitel. Currently, Star Digitel has
borrowed the full amount available under the Bank Bira credit facility, which
will mature in July 1998. Borrowings under the two Toronto Dominion bridge
loans bear interest at LIBOR plus 2.25%, or 2.50% if the bridge loans are
extended. The two Toronto Dominion bridge loans are guaranteed by each
shareholder of Star Digitel up to its pro rata share, except that the
Company's share of the guarantee has been guaranteed by Vanguard. Currently,
Star Digitel has borrowed the full amounts available under the two Toronto
Dominion bridge loans, which will mature in May 1998. The Company
anticipates that the Toronto Dominion bridge loans will be extended to
______________. The Company is currently negotiating with Toronto Dominion to
extend the expiration date of the loans and believes a resolution will be
reached prior to the maturity of the loans. In addition, in January 1998, ING
Barings provided Star Digitel with a $1 million short term debt facility,
which is currently fully drawn and has been cash collateralized by the
shareholders. The Company's pro rata contribution to the collateral has been
converted into a notes receivable from affiliates.
Star Digitel has budgeted capital expenditures of approximately $139.0
million through 1998, primarily to fund network expansion, including a capital
contribution of $20 million to fund construction of the Beijing Cellular
Network. Star Digitel does not currently have commitments for most of the funds
necessary to finance such capital expenditures. Star Digitel is currently in
negotiations to finance its operations and capital expenditures through vendor
financing and other credit facilities and borrowings. There can be no assurance
that Star Digitel will be successful in obtaining such financing. The failure of
Star Digitel to obtain such financing would have a material adverse effect on
the ability of Star Digitel to continue to conduct its business. In addition,
Star Digitel will in the future require substantial additional financing to
continue the expansion of its networks as well as for other corporate purposes.
In particular, substantial funding will be required to upgrade the networks in
the Star Digitel Provinces using CDMA technology. There can be no assurance that
Star Digitel will be able to obtain any such financing.
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Via 1 has funded its operational expenditures through the Company's capital
contributions approximating $21.4 million. The Combined Company has budgeted
capital expenditures of approximately $18.0 million for 1998 primarily to fund
network expansion and for the subscriber terminals. The Combined Company will
seek to fund its capital expenditures through a combination of external
financing and additional equity or debt investments by the Company and the other
shareholders of Via 1. The Combined Company's inability to obtain necessary
financing in order to make such additional investments on a timely basis may
delay its planned capital expenditures and could have a material adverse effect
on the Combined Company and the Company.
In January 1998, in connection with the RMDA Acquisition, RMDA entered into
the BT Loan Agreement, pursuant to which it refinanced $15 million of existing
indebtedness to BT Foreign Investment Corporation ("BTFIC") and borrowed an
additional $10 million. A significant portion of the amount borrowed pursuant to
the BT Loan Agreement has been used to finance the operations of RMD-Brasil and
Via 1. The Company has pledged its shares in Via 1, SRC and RMD-Brasil as well
as the assets of RMD-Brasil and SRC to BTFIC to secure repayment by RMDA of the
BT Loan.
Mobilink has financed a significant portion of its past capital
expenditures through a combination of shareholder capital contributions,
shareholder loans and short- and long-term debt facilities from Citibank N.A.
(Citibank) and ABN AMRO Bank N.V. ("ABN AMRO"). As of March 31, 1998, Mobilink
had outstanding an aggregate of approximately $15.7 million in shareholder
loans, which accrue interest at a rate of Euro U.S.$ LIBOR plus 1.5% for foreign
currency loans and 15% for local currency loans. Such shareholder loans are
repayable in seven installments commencing September 1999. Mobilink has also
obtained a $15 million long-term finance facility from Citibank which accrues
interest at a rate of LIBOR plus 0.25% to 0.50% based upon the amount of time
borrowings under the facility remain outstanding. Such facility is repayable in
eleven semi-annual installments, which commenced in March 1997, and, as of March
31, 1998, approximately $10.7 million was outstanding under such facility.
Mobilink has also obtained a Pakistan rupee 881,000,000 loan (approximately
$20.2 million as translated using effective exchange rates at March 31, 1998)
credit facility with ABN AMRO. The Citibank loan and the ABN AMRO loan have
been guaranteed by Motorola, a shareholder of Mobilink. Pursuant to the
Mobilink Side Letter, IWCPL has agreed that if the guarantees of indebtedness of
Mobilink issued by Motorola in connection with the foregoing indebtedness of
Mobilink are not terminated on or before August 26, 1998, then IWCPL will
forfeit to Motorola shares in Mobilink corresponding to up to a 4% equity
interest in Mobilink. In addition, in March 1998, Mobilink entered into a $32
million vendor financing agreement with Motorola Credit Corporation ("Motorola
Credit"), an affiliate of Motorola, for the purchase of certain infrastructure
equipment (the "Motorola Vendor Financing"). Amounts borrowed under such
agreement accrue interest at a rate of LIBOR plus 1.5% and are secured by a lien
on such equipment. IWCPL has also pledged shares in Mobilink representing an
8.5% equity interest in Mobilink to Motorola Credit to secure the indebtedness
of Mobilink under such agreement.
Mobilink has budgeted capital expenditures of $40.2 million in 1998,
primarily to fund the continued buildout of the network. Mobilink expects to
fund these capital expenditures through a combination of shareholder loans, the
Motorola Vendor Financing and additional vendor and other financing. There can
be no assurance that Mobilink will be able to obtain any such financing.
The Company had expended approximately $26.1 million to acquire its
19.09% indirect equity interest in, and to make capital contributions and
shareholder loans to, Mobilink. The Company financed $22 million of such
amount through the PWH Pakistan Facility. In February 1998, the Company
entered into an agreement with Vanguard Pakistan, pursuant to which Vanguard
Pakistan agreed to contribute the Company's pro-rata share of a $3,639,588
capital call by IWCPL, which pro-rata share currently represents a 1.54%
equity interest in IWCPL in exchange for an $18,600 fee. Vanguard Pakistan
also granted the Company the Vanguard Pakistan Option to purchase this equity
interest for $1,240,371. The Vanguard Pakistan Option will expire in
September 1998, unless sooner exercised. In addition, pursuant
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<PAGE>
to the Mobilink Side Letter dated August 18, 1997, among the Company, the
shareholders of Mobilink, and the other shareholders of IWCPL, the Company
has agreed to contribute an additional $2.1 million in shareholder loans to
Mobilink through the end of 1998. If the Company fails to provide such loans,
then the Company's interest in IWCPL shall be converted into a direct equity
interest in Mobilink, and the other shareholders of Mobilink shall have a
pro-rata right to purchase all of the Company's equity interest in Mobilink
at a purchase price equal to 50% of the then fair market value of such equity
interest.
In August 1997, the Company completed the Pakistan Facilities (as defined
herein) with TDI (as defined herein) and Vanguard Cellular Financial Corp
("VCFC") and certain other stockholders of the Company for an aggregate amount
of $29 million in exchangeable bridge loans. The Pakistan Facilities are
comprised of: (i) a $22 million PWH Pakistan Facility (as defined herein) for a
wholly owned subsidiary of the Company, 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, and (ii) a $7 million IWCH Pakistan Facility (as defined
herein) for IWCH, which was fully drawn down as of March 31, 1998, and was
available to IWCH for general corporate and other purposes. The Pakistan
Facilities contain 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.
Mobisel obtained a $60.0 million credit facility from Nissho Iwai. This
facility, which is fully drawn, is secured by all of the assets of Mobisel.
Also, RHP has pledged all of its stock in Mobisel and guaranteed the credit
facility. Borrowings under the Nissho Iwai credit facility were used for the
implementation and construction of Mobisel's network. Borrowings outstanding
under this credit facility are to be repaid in six equal semi-annual
installments commencing in May 1998 although the management of RHP and
Mobisel are currently in discussions with Nissho Iwai to reschedule current
and upcoming principal and interest payments. These negotiations form part of
a more substantial restructuring plan under discussion to address Mobisel's
short-term cash constraints and the current economic crisis in Indonesia. As
part of this financing initiative, Mobisel's management have embarked on an
aggressive cost-cutting initiative to reduce short-term cash needs, and are
actively working with all shareholders to create a suitable financing
strategy to meet the Mobisel operating needs for 1998. Mobisel will require
minimal additional financing to complete its planned capital expenditures
through 1998 and working capital needs. Accordingly, Mobisel has commenced
discussions with a number of potential financing sources, including the
existing shareholders, in order to obtain additional financing. Also, Mobisel
entered into a syndicated short-term notes facility agreement in January 1997
with PT Bank Umum 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 the aggregate approximately $17.1 million as at
March 31, 1998). These short-term notes will have a repayment priority to the
existing loans outstanding. Mobisel management have successfully negotiated
the rescheduling of the short term notes to 1999. 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.
Prismanet arranged a Malaysian Ringgit 91.0 million (approximately $24.9
million as of March 31, 1998) credit facility through a syndicate of
Malaysian banks. This facility, which is fully drawn, 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,
and has been guaranteed by Shubila, the 60% shareholder 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. The
Company, the Malaysian bank syndicate and the other Prismanet shareholders
also entered into the Prismanet Collateral Agreement. The principal amount
borrowed under the facility must be repaid in eleven semi-annual installments
beginning in October 1997, and accrued interest is payable monthly. Prismanet
has failed to make interest payments under this facility, and the banks have
declared the entire amount of the facility to be due and payable. The Company
and its
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<PAGE>
partners are seeking an extension of Prismanet's payment obligations under
such facility as well as additional debt or equity financing to refinance
outstanding indebtedness under the credit facility and to fund Prismanet's
capital expenditures. There can be no assurance that Prismanet will be able
to secure an extension under the credit facility or refinance the credit
facility, which would have a material adverse effect on the Company. The
Company has recorded a general reserve of $5.0 million, approximating the
Company's pro rata share of the Malaysian ringgit 91.0 million credit
facility, plus accrued interest, with respect to its potential exposure under
the Prismanet Collateral Agreement.
The businesses of the Operating Companies and the Company's other projects
are capital intensive and will generally require continuing sources of outside
financing to fund working capital needs, capital expenditures and other cash
requirements. In particular, Star Digitel, Mobilink and Mobisel will require
substantial additional financing in order to complete planned capital
expenditures. However, there can be no assurance that the Operating Companies
and the other projects will be able to obtain required additional financing 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.
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, 1997, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") ON APRIL 15, 1998.
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 $204.1 million as of March 31, 1998. 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.
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. The Company used cash in operations and investing
activities of $57.3 million for the year ended December 31, 1997, and $15.4
million for the three months ended March 31, 1998, 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
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<PAGE>
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' deficit, including its
redeemable convertible preferred stock. As of March 31, 1998, the Company's
long-term debt was $155.7 million, and its stockholders' deficit and redeemable
convertible preferred stock were $151.0 million and $185.8 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.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is not a party to any material legal proceedings at the
present time.
ITEM 2. CHANGES IN SECURITIES.
SALES OF UNREGISTERED SECURITIES DURING THE THREE MONTHS ENDED MARCH 31, 1998
(i) In January 1998, the Company issued options to purchase an aggregate of
165,000 shares of Common Stock at a purchase price of $9.60 per share under
the 1996 Stock Option/Stock Issuance Plan.
(ii) SERIES I PREFERRED STOCK FINANCING
On January 23, 1998, the Company acquired all of the outstanding
capital stock of Radio Movil Digital Americas, Inc. ("RMDA") in a merger
(the "RMDA Acquisition"). The purchase price was 5,381,009 shares of the
Company's Series I Preferred Stock with a fair value of $71.8 million.
(iii) BTFIC WARRANTS
On January 23, 1998, the Company issued BT Foreign Investment
Corporation ("BTFIC") three warrants currently exercisable to purchase an
aggregate of 155,840 shares of its Common Stock pursuant to the BT Purchase
Agreement. The warrants have a 10-year term and an exercise price of $0.01
per share.
(iv) SERIES J PREFERRED STOCK FINANCING
On March 10, 1998, Vanguard purchased 789,266 shares of the Company's
Series J Preferred Stock ("Series J Preferred Stock") and a related warrant
to purchase the Company's Common Stock (a "Series J Warrant") for $10
million as the first tranche of an $18 million interim financing (the
"Series J Financing"). The Series J Warrant has a ten-year term and an
exercise price of $0.01 per share of Common Stock. The Series J Warrant is
initially exercisable for 173,639 shares of Common Stock. The total number
of shares issuable upon exercise of the Series J Warrant will increase to
299,921 shares on September 10, 1998 and 457,774 shares on December 10,
1998, unless on or before each such respective date the Company raises at
least $50 million through a combination of equity issuances (including
equity issued in the Series J Financing) and/or qualifying asset sales or
completes a Corporation Transaction (as defined).
Pursuant to the Series J Preferred Stock and Warrant Purchase
Agreement dated March 10, 1998 (the "Series J Agreement") between the
Company and Vanguard, the Company, among other things: (i) agreed to
certain restrictions on the use of net proceeds from the Series J
Financing, (ii) granted Vanguard certain rights to exchange its equity
interest in Star Digitel, Mobilink and certain other qualifying
operating companies of the Company (collectively, "Core Operating
Companies") for shares of the Company's Common Stock, (iii) granted
Vanguard certain co-sale rights if the Company transferred its equity
interest in a Core Operating Company, (iv) agreed to give all holders of
the Company's capital stock and holders of options and warrants to acquire
such capital stock (other than holders of the Unit Warrants) a right of
first offer to purchase a pro rata share of the Series J Preferred Stock
and related Series J Warrants offered for sale in the Series J Financing
and (v) in certain circumstances, agreed to allow holders of Series J
Preferred Stock and Series J Warrants purchased pursuant to the Series J
Agreement to exchange such securities for securities issued by the
Company and
31
<PAGE>
subsequent qualifying private placement of its equity securities. The
Series J Agreement contains certain other customary representations,
warranties and covenants.
Concurrent with the Series J Financing, the Company entered into a
Support Services Agreement with Vanguard whereby Vanguard will assist Star
Digitel for a period of up to one year in (i) completing its proposed unit
offering of notes and warrants or alternative financing, and (ii) entering
into an equipment financing agreement with a vendor in exchange for a
warrant to purchase 323,408 shares of Common Stock at an exercise price of
$0.01 per share (the "Vanguard Support Services Agreement Warrant"). Such
warrant will vest (i) 50% upon Star Digitel raising $50.0 million in the
proposed unit offering or alternative financing and (ii) 50% upon Star
Digitel entering into an agreement with a vendor with financing up to
$150.0 million for such equipment.
In connection with the Series J Financing, the Company entered
into the Eighth Amended and Restated Investor Rights Agreement dated as
of March 10, 1998 with certain other investors and an Amended and
Restated Registration Rights Agreement dated as of March 10, 1998 with
certain holders of its securities. These agreements provide, among
other things, for certain registration, first offer, co-sale, board
observer, board representation and voting rights.
Pursuant to the purchase agreement executed by the Company and
Vanguard in connection with the Series J Financing, the second tranche of
the Series J Financing closed on April 24, 1998. The Company has offered
its remaining stockholders the right to participate in the second tranche
of the Series J Financing and various stockholders have given commitments
for less than the entire amount of the second tranche of the Series J
Financing. The Company is considering extending the right to participate
until June 1998.
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.
(v) On February 17, 1998 the Company issued to 31 Pakistan Lenders 196,018
warrants to purchase Common Stock under the "step-up" provisions of
the Pakistan Facility (as defined). The Pakistan Lenders have
warrants currently exercisable to purchase 889,594 shares of the
Company's Common Stock. The warrants have a 10-year term and an
exercise price of $0.01 per share of Common Stock.
(vi) On March 18, 1998 the Company issued to Vanguard 52,080 warrants to
purchase Common Stock under the "step-up" provisions of the Vanguard
Reimbursement Agreement (as defined). Vanguard has warrants
currently exercisable to purchase 172,763 shares of the Company's
Common Stock under the Vanguard Reimbursement Agreement The warrants
have a seven year term and an exercise price of $0.01 per share of
Common Stock.
(vii) During the three months ended March 31, 1998, the Company issued to
the Note holders under the Debt Offering (as defined) warrants to
purchase Common Stock under the "step-up" provisions of the Warrant
Agreement (as defined). There are currently Unit Warrants exercisable
to purchase 2,985,824 shares of the Company's Common Stock. The
warrants have a five year term and an exercise price of $0.01 per
share of Common Stock.
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<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) MOBISEL LOANS
(i) Mobisel obtained a $60.0 million credit facility from Nissho
Iwai, which is fully drawn. Under the terms of the facility, interest
payments are due to be paid to Nissho Iwai every six months after the
date of the first advance under the facility, which occurred on May
23, 1996. The six month interest payment which was due on November
23, 1997 has not been paid to Nissho Iwai. Under the terms of the
facility, any six month interest payment which is not paid on the due
date, with a seven business day grace period, constitutes an event of
default. However, Nissho Iwai has not declared an event of default.
The next six month interest payment is due on May 23, 1998.
Furthermore, the terms of the facility require that principal
installment payments are due to be deposited into a United States
dollar reserve account held by Mobisel in Singapore with the Sanwa
Bank. The principal installment payments are due on the 19th, 20th,
21st, 22nd, 23rd, and 24th months after the date of the first
advance. Mobisel has not made several of the monthly principal
payments which are due, specifically those payments which
were due on December 23, 1997, January 23, 1998, February 23, 1998,
March 23, 1998, and April 23, 1998. Under the terms of the facility,
this nonperformance will not constitute an event of default until May
23, 1998.
(ii) Mobisel also entered into a syndicated short-term notes facility
agreement in January 1997 with PT Bank Umum Servitia, as arranger,
whereby the banks agreed to purchase Indonesian rupiah ("Rp") 60.0
billion of short-term notes and Rp 15.0 billion of interest notes (in
the aggregate approximately $8.7 million as at March 31, 1998).
The date of the first advance on this facility was February 26, 1997,
with full repayment of Rp 75.0 billion due on February 26, 1998.
Mobisel is currently in default on this facility. Although the bank
syndicate did threaten legal action against Mobisel, Mobisel and
the facility agent are currently discussing restructuring the loans
and the possibility of signing a standstill agreement.
(iii) On June 10, 1997, Mobisel entered into a Rp 25.0 billion
(approximately $2.9 million as of March 31, 1998) loan
agreement with PT Bank International Indonesia, under which Mobisel
borrowed Rp 23 billion (approximately $2.7 million as of March 31,
1998). This loan had a six month term, with repayment due on
December 10, 1997. Mobisel has defaulted on its repayment
obligation. However, the bank has not declared an event of default
and is considering a rollover of the loan for a one year period under
certain conditions.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote of the security holders of
the Registrant during the first quarter of 1998:.
(a) On March 9, 1998, the stockholders approved the Series J Preferred
Stock Financing. See "Changes in Securities - Series J Preferred Stock
Financing."
(b) On April 30, 1998, the stockholders approved the sale of certain
interests of the Company in Peru, Chile and Ecuador, as described
herein. In conjunction with these prospective sales, on March 2, 1998,
the Company entered into a non-binding letter of intent to sell its
interests in certain SMR wireless projects in Peru, Chile and Ecuador.
On March 17, 1998, the Company entered into a letter agreement to sell
its Venezuelan SMR operations. The purchase price will be based upon
the number of qualified channels held in the business, which has not
been determined. The consummation of these sales is subject to numerous
conditions, and there can be no assurance that these sales will close.
ITEM 5. OTHER INFORMATION
34
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------
<S> <C>
2.1 Agreement and Plan of Merger among the Registrant, Radio Movil Digital
Americas, Inc. and a wholly owned subsidiary of the Registrant dated
November 22, 1997 (previously filed as Exhibit 2.11A to the
Registrant's Current Report on Form 8-K, filed with the Commission on
February 6, 1998 (the "February 6, 1998 Form 8-K"))
2.1A Amendment No. 1 to Agreement and Plan of Merger among the Registrant,
Radio Movil Digital Americas, Inc. and IWC Acquisition Corporation,
dated January 15, 1998 (previously filed as Exhibit 2.11B to the
Registrant's Current Report on Form 8-K, filed with the Commission
on February 6, 1998 (the "February 6, 1998 Form 8-K"))
2.1B Amendment No. 2 to Agreement and Plan of Merger among the
Registrant, Radio Movil Digital Americas, Inc. and IWC Acquisition
Corporation, dated January 23, 1998 (previously filed as Exhibit 2.11C
to the Registrant's February 6, 1998 Form 8-K)
3.1 Amended and Restated Certificate of Incorporation, filed with the
Delaware Secretary of State on March 10, 1998
3.2 Bylaws of the Registrant as currently in effect (previously filed as
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1,
declared effective by the Commission on November 21, 1996 (Reg. No.
333-11987) (the "November 1996 Form S-1")
4.1A Series J Preferred Stock and Warrant Purchase Agreement by and among
Registrant and the Investors listed on Schedule A attached thereto, dated
March 10, 1998 (previously filed as Exhibit 10.20 to the Registrant's 1997
10-K)
4.1B Form of Warrant to Purchase Common Stock of the Registrant (previously
filed as Exhibit 10.20A to the Registrant's 1997 10-K)
4.2 Eighth Amended and Restated Investor Rights Agreement among Registrant and
Investors listed on Schedule A attached thereto, dated March 10,
1998 (previously filed as Exhibit 10.21 to the Registrant's 1997 10-K)
4.3 Amended and Restated Registration Rights Agreement among Registrant and
individuals and entities listed on Schedule I attached thereto, dated March
10, 1998 (previously filed as Exhibit 10.22 to the Registrant's 1997 10-K)
4.4 First Amendment to Warrant to Purchase Common Stock between the Registrant
and Vanguard Cellular Financial Corp., dated January 23, 1998 (previously
filed as Exhibit 10.104Q to the Registrant's 1997 10-K)
4.5 International Wireless Communications Holdings, Inc. Stock Purchase
Warrants between the Registrant and BT Foreign Investment Corporation,
dated January 23, 1998 (previously filed as Exhibit 10.30B to the
Registrant's February 6, 1998 Form 8-K)
10.1 Escrow Agreement among George Billings, the Registrant and Toronto
Dominion Houston, Inc., dated January 23, 1998 (previously filed as
Exhibit 2.11D to the Registrant's February 6, 1998 Form 8-K)
10.2 Consulting Agreement between Robert Dupuis and Radio Movil Digital
Americas, Inc., dated January 23, 1998 (previously filed as
Exhibit 2.11E to the Registrant's February 6, 1998 Form 8-K)
10.3 Non-Competition Agreement between the Registrant and Robert Dupuis, dated
January 23, 1998 (previously filed as Exhibit 2.11F to the Registrant's
February 6, 1998 Form 8-K)
10.4 First Supplemental Indenture dated January 23, 1998, between the
Registrant, as issuer, and Marine Midland Bank, as Trustee (previously
filed as Exhibit 4.1A to the Registrant's February 6, 1998 Form 8-K)
10.5A Second Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated January 15, 1998 (previously filed as Exhibit
10.18G to the Registrant's Annual Report on Form 10-K filed with the
Commission on April 15, 1998 (the "1997 10-K").
10.5B Third Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated January 30, 1998 (previously filed as Exhibit
10.18H to the Registrant's 1997 10-K)
10.5C Fourth Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated February 5, 1998 (previously filed as Exhibit
10.18I to the Registrant's 1997 10-K)
10.5D Fifth Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated February 13, 1998 (previously filed as Exhibit
10.18J to the Registrant's 1997 10-K)
10.5E Sixth Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated February 19, 1998 (previously filed as Exhibit
10.18K to the Registrant's 1997 10-K)
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<PAGE>
10.5F Seventh Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated February 25, 1998 (previously filed as Exhibit
10.18L to the Registrant's 1997 10-K)
10.5G Eighth Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated March 7, 1998 (previously filed as Exhibit 10.18M
to the Registrant's 1997 10-K)
10.5H Ninth Amendment to Loan Agreement between Registrant and Toronto Dominion
Investments, Inc., dated April 30, 1998 (previously filed as Exhibit 10.18N
to the Registrant's 1997 10-K)
10.6 Letter Agreement among the Registrant, Hugh McClung, John D. Lockton, Nezam
Tolooee, dated January, 1998 (previously filed as Exhibit 10.19 to the
Registrant's 1997 10-K)
10.7 Support Services Agreement, by and among Registrant and Vanguard Cellular
Operating Corp., dated March 10, 1998 (previously filed as Exhibit 10.23 to
the Registrant's 1997 10-K)
10.8 Compensation Plan for Van Snowdon dated March 27, 1998 (previously filed as
Exhibit 10.24 to the Registrant's 1997 10-K)
10.9 Employee Retention Bonus Plan dated March 27, 1998 (previously filed as
Exhibit 10.25 to the Registrant's 1997 10-K)
10.11 Share Purchase and Sale Agreement between International Wireless
Communications, Inc. and Shubila Holding Sdn. Bhd., dated April 6, 1998
10.12A First Amendment to Reimbursement Agreement between IWC China Limited and
Vanguard Cellular Financial Corp., dated January 23, 1998 (previously filed
as Exhibit 10.104O to the Registrant's 1997 10-K)
10.12B First Amendment to Pledge Agreement between IWC China Limited and Vanguard
Cellular Financial Corp., dated January 23, 1998 (previously filed as
Exhibit 10.104P to the Registrant's 1997 10-K)
10.13 Side Letter between Vanguard Pakistan, Inc. and Pakistan Wireless
Holdings Limited, dated February 12, 1998; Side Letter between Vanguard
Pakistan, Inc. and Pakistan Wireless Holdings Limited, dated March 12, 1998
(previously filed as Exhibit 10.105R to the Registrant's 1997 10-K)
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<PAGE>
10.14 Financing and Security Agreement among Pakistan Mobile Communications
(Private) Limited and Motorola Credit Corporation, dated March 5, 1998;
Side Letter to Share Pledge Agreement between Motorola Credit Corporation
and International Wireless Communications Pakistan Limited, dated March 5,
1998 (previously filed as Exhibit 10.105S to the Registrant's 1997 10-K)
10.15 First Amendment to Letter Agreement among Motorola International
Development Corporation, International Wireless Communications Pakistan
Limited and SAIF Telecom (Pvt.) Limited, dated February 25, 1998
(previously filed as Exhibit 10.105T to the Registrant's 1997 10-K)
10.16A Amended and Restated Senior Secured Promissory Note and Warrant Purchase
Agreement among the Registrant, Radio Movil Digital Americas, Inc. and BT
Foreign Investment Corporation, dated January 23, 1998 (previously filed as
Exhibit 10.30A to the Registrant's February 6, 1998 Form 8-K)
10.16B Amended and Restated Senior Secured Promissory Note between Radio Movil
Digital Americas, Inc. and BT Foreign Investment Corporation, dated January
23, 1998 (previously filed as Exhibit 10.30C to the Registrant's February
6, 1998 Form 8-K)
10.16C Pledge Agreement between International Wireless Communications, Inc. and BT
Foreign Investment Corporation, dated January 23, 1998 (previously filed as
Exhibit 10.30D to the Registrant's February 6, 1998 Form 8-K)
10.16D Pledge Agreement between Radio Movil Digital Americas, Inc. and BT Foreign
Investment Corporation, dated January 23, 1998 (previously filed as
Exhibit 10.30E to the Registrant's February 6, 1998 Form 8-K)
10.16E Letter Agreement among the Registrant, BT Foreign Investment Corporation
and Radio Movil Digital Americas, Inc., dated January 23, 1998 (previously
filed as Exhibit 10.30F to the Registrant's February 6, 1998 Form 8-K)
10.17** Letter Agreement between Telcom Ventures, LLC and Registrant, dated
March 16, 1998 (previously filed as Exhibit 10.107** to the Registrant's
1997 10-K)
27 Financial Data Schedule
</TABLE>
- --------------------
* Confidential treatment has previously been granted as to certain portions
of this exhibit.
** Confidential treatment has been requested as to certain portions of this
exhibit.
37
<PAGE>
(b) REPORTS ON FORM 8-K
On February 6, 1998, the Company filed a Current Report on Form 8-K
to report the acquisition by the Company of all of the outstanding capital
stock of Radio Movil Digital Americas, Inc. ("RMDA") in a merger (the "RMD
Acquisition"). The purchase price was 5,381,009 shares of the Company's
Series I Preferred Stock with an aggregate liquidation preference of $73.9
million.
38
<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: May 20, 1998 INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
(Registrant)
By: /S/ Van Snowdon
----------------------------
Van Snowdon
President, Chief Executive
Officer and Director
By: /S/ Keith D. Taylor
----------------------------
Keith D. Taylor
Vice President and Acting Chief
Financial Officer
39
<PAGE>
NINTH AMENDMENT TO LOAN AGREEMENT
This Ninth Amendment to Loan Agreement is made as of
April 30, 1998, between International Wireless Communications Holdings, Inc.,
a Delaware corporation (the "BORROWER"), and Toronto Dominion Investments,
Inc. ("TDI").
The Borrower, TDI and certain other Lenders named therein
are parties to a Loan Agreement dated as of August 18, 1997, as amended on
December 30, 1997, January 15, 1998, January 30, 1998, and February 5, 1998,
February 15, 1998, February 19, 1998, February 25, 1998, and March 7, 1998
(the "LOAN AGREEMENT"). Each capitalized term which is used and not
otherwise defined in this Ninth Amendment has the meaning which the Loan
Agreement assigns to that term.
The Borrower has informed the Lenders that it anticipates
being out of compliance with the covenant set forth in Section 5.01(j) of the
Loan Agreement and has requested that the Lenders amend that covenant as set
forth in this Ninth Amendment. TDI (which, by itself, constitutes Requisite
Lenders) has agreed to make such amendment.
Now, therefore, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Section 5.01(j) of the Loan Agreement is hereby amended
and restated as follows:
(j) CASH RESERVE. In the case of Borrower, cause the sum of
the aggregate amount of cash on hand, the value of the Cash
Equivalents (as such term is defined in the indenture) owned
by it and the Unused Commitment Amount at all times to equal
or exceed $500,000. Notwithstanding the foregoing in this
Section 5.01(j), if Borrower consummates its proposed sale of
the second Series J Preferred Stock, the foregoing minimum
cash reserve amount shall increase to $1,000,000 on the
earlier of April 30, 1998 or the closing date of said second
Series J Preferred Stock sale.
2. Except as amended by Section 1 above, the Loan
Agreement remains in full force and effect. The Borrower represents and
warrants that, after giving effect to the amendment set forth in Section 1
above (if necessary), no Default or Potential Event of Default is in
existence as at the date hereof, EXCEPT THAT, by letter dated April 14, 1998
to the Trustee from the Company, a copy of which is attached hereto, the
Company advised the Trustee of a situation which could possibly be construed
as a cross default under the Indenture.
The Borrower and TDI have caused this Ninth Amendment to be executed and
delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ Keith Taylor
------------------------------
Its: Vice President and Acting Chief
Financial Officer
40
<PAGE>
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ Martha Gariepy
------------------------------
Its: Vice President
41
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,890
<SECURITIES> 0
<RECEIVABLES> 3,431
<ALLOWANCES> 0
<INVENTORY> 716
<CURRENT-ASSETS> 29,642
<PP&E> 41,419
<DEPRECIATION> 4,232
<TOTAL-ASSETS> 219,154
<CURRENT-LIABILITIES> 20,190
<BONDS> 155,653
185,831
9
<COMMON> 13
<OTHER-SE> (150,996)
<TOTAL-LIABILITY-AND-EQUITY> 221,864
<SALES> 3,530
<TOTAL-REVENUES> 3,530
<CGS> 1,241
<TOTAL-COSTS> 1,241
<OTHER-EXPENSES> 9,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,435
<INCOME-PRETAX> (24,217)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,217)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,217)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
