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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER
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 No.)
400 South El Camino Real, Suite 1275, San Mateo, California 94402
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (650) 548-0808
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
As of March 31, 1998 there were 1,310,230 shares of the Registrant's
common stock outstanding and 23,085,351 shares of the Registrant's preferred
stock outstanding. Each such share of preferred stock is currently
convertible into one share of the Registrant's common stock.
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF
THE REGISTRANT, WHICH INVOLVE RISKS AND UNCERTAINTIES. THE REGISTRANT'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN IMPORTANT FACTORS,
INCLUDING THOSE SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," PARTICULARLY THOSE SET FORTH
UNDER "--ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN
THIS ANNUAL REPORT ON FORM 10-K.
PART I
ITEM 1. BUSINESS
THE FOLLOWING DESCRIPTION OF THE BUSINESS OF THE REGISTRANT IS QUALIFIED
IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON
FORM 10-K. AS USED HEREIN, THE TERM "THE COMPANY" REFERS TO THE REGISTRANT
AND ITS WHOLLY OWNED SUBSIDIARY, INTERNATIONAL WIRELESS COMMUNICATIONS, INC.
("IWC"), UNLESS THE CONTEXT OTHERWISE REQUIRES OR UNLESS OTHERWISE EXPRESSLY
STATED. AN "OPERATING COMPANY" REFERS TO A WIRELESS COMMUNICATIONS COMPANY OR
PROJECT IN WHICH THE COMPANY HAS INVESTED AND THAT HAS COMMENCED PROVIDING
WIRELESS COMMUNICATIONS SERVICE ON A COMMERCIAL BASIS. REFERENCE TO "DOLLARS"
AND "$" REFERS TO UNITED STATES DOLLARS, UNLESS OTHERWISE EXPRESSLY STATED.
I. OVERVIEW
The Company is a leading operator, owner and developer of wireless
communications networks in major emerging markets in Asia and Latin America.
Through its operating companies, the Company constructs cellular networks in
China, provides cellular services in Pakistan and Indonesia, and is
developing a digital enhanced specialized mobile radio ("ESMR") network in
Brazil. These four markets (the "Markets") comprise four of the six largest
developing countries in the world based on population. The companies in which
the Company has an interest in the Markets (the "Operating Companies") have
licenses or, as in the case of China, cooperative arrangements, covering an
estimated 752 million POPs. In Brazil, the Company owns or controls the right
to vote a majority of the equity of the Operating Company. In China, Pakistan
and Indonesia, the Company owns a significant minority position in, and
exercises substantial influence over, the Operating Companies. As of December
31, 1997, the Company's equity interests in the Operating Companies
represented an estimated 218 million equity POPs. Based on its equity POPs,
the ompany believes that it is one of the largest cellular operators in Asia
and in the developing world.
The following table provides certain summary information with respect to
the Operating Companies as of December 31, 1997. The information set forth
below is qualified by reference to, and should be read in conjunction with,
the more complete descriptions of the Operating Companies set forth under
"Operating Companies."
<TABLE>
<CAPTION>
PPP EQUITY
ADJUSTED POPS POPS
GDP PER COVERED BY COVERED BY
TYPE OF OPERATING EQUITY CAPITA LICENSES LICENSES TOTAL
COUNTRY PROJECT COMPANY INTEREST ($)(1) (MM) (MM) SUBSCRIBERS
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<S> <C> <C> <C> <C> <C> <C> <C>
China............ Cellular Star Digitel 40.0%(3) 3,483 351.8(3)(4) 93.0(3) 43,000
(regional) Limited (2)
Brazil........... SMR/ESMR Via 1 62.0%(5) 6,102 53.1(6) 51.6(5) 19,000
(regional) RMD-Brasil 100.0%
Pakistan......... Cellular Mobilink 23.4%(7) 2,424 143.8(8) 33.6(7) 52,000
(national)
Indonesia........ Cellular Mobisel 19.8% 4,730 203.5(8) 40.3 30,000
(national) ------------ -------- --------
Total: 752.2 218.6 144,000
</TABLE>
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(1) Source: EIU/Datastream. Figures refer to country PPP Adjusted GDP per
capita for 1996.
(2) Star Digitel Limited has entered into, or expects to enter into,
cooperative joint venture agreements with local partners that operate
regional cellular networks.
(3) IWC owns a 40% interest in Star Digitel Limited, which in turn shares
the revenues or profits derived from the cellular networks in each
province in which it cooperates with its local partners. Equity POPs
covered by licenses in China reflect such sharing arrangements.
(4) Source: China Business Weekly/GRS Company.
(5) Reflects the Company's estimated equity interest in Via 1 after
giving effect to the completion of its formation and the
consolidation of existing licenses, as currently anticipated, and the
proposed addition of a new equity partner. See "--Operating
Companies--Brazil--Via 1 and RMD."
(6) Source: IBGE population statistics and New York Times Atlas.
(7) Gives effect to the exercise of two options to purchase shares in the
holding company through which the Company holds its interest in
Mobilink from the other shareholders of such holding company.
Includes the Company's pro rata share of a 4% indirect interest held
in escrow. See "--Operating Companies--Pakistan--Mobilink."
(8) Source: United Nations Population Fund. Population figures for mid-year
1997.
Star Digitel Limited ("Star Digitel"), the Operating Company in China,
is developing cellular networks with its local partners in the eastern
portion of the province of Guangdong ("Eastern Guangdong") and in the
provinces of Hebei, Shandong, Yunnan, Hainan, Sichuan and Gansu
(collectively, the "Star Digitel Provinces"). These areas cover a total of
approximately 351 million POPs, which exceeds the combined population of the
U.S. and Canada. In addition, Star Digitel is participating in the
development of a CDMA network being constructed in the city of Beijing. As of
December 31, 1997, there were approximately 43,000 subscribers on these
networks. Star Digitel has been involved in developing cellular networks with
its local partners since 1992. The Company believes that, through Star
Digitel, the Company is involved in the development of networks with the
potential to provide cellular services to more POPs than any other foreign
company in China.
Via Movel 1 Comunicacoes S.A. ("Via 1") and RMD do Brasil Ltda.
("RMD-Brasil"), the Operating Companies in Brazil (collectively, the
"Combined Company"), provide specialized mobile radio ("SMR") services in
major cities in Brazil. Subject to receipt of various governmental approvals
and the consent of its local partners in Via 1, the Company plans to combine
the operations of Via 1 and RMD-Brasil. The Combined Company holds licenses
for 1,760 channels covering an estimated 53 million POPs. As of December 31,
1997, Via 1 had approximately 7,000 subscribers and RMD had approximately
12,000 subscribers in Brazil. The Company plans to upgrade the Combined
Company's networks from SMR to ESMR services in selected markets to increase
capacity and offer additional services and features such as enhanced dispatch
(group calling and instant conferencing), high-quality telephone and text
messaging.
Pakistan Mobile Communications (Pvt.) Limited ("Mobilink"), the
Operating Company in Pakistan, is the sole licensed provider of GSM digital
cellular services in Pakistan, holding a nationwide GSM cellular license
covering approximately 143 million POPs. Mobilink is currently providing
services in twelve of the major urban areas of Pakistan, including the cities
of Karachi, Lahore and Faisalabad. Mobilink has experienced rapid subscriber
growth during 1997, increasing from 16,000 subscribers on January 1, 1997 to
approximately 52,000 subscribers as of December 31, 1997.
PT Mobile Selular Indonesia ("Mobisel"), the Operating Company in
Indonesia, operates a cellular network and holds a nationwide license in
Indonesia covering approximately 203 million POPs. The network currently
provides coverage to portions of Java, Bali, Lombok and the Lampung region of
Southern Sumatra. Mobisel seeks to leverage the wide area and low cost
characteristics inherent in the 470 MHz frequency band in which it operates
to offer superior geographic coverage, including service to the rural areas
of Indonesia and Indonesia's major road systems. As of December 31, 1997,
Mobisel had approximately 30,000 subscribers.
The Company also holds interests in certain smaller providers of SMR,
wireless local loop and paging services in Asia and Latin America. In 1997,
as part of the realignment of the Company's business strategy toward
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larger-scale projects which the Company controls or over which it exercises
significant influence, the Company decided to offer for sale all or a portion
of its interests in certain of these projects.
RECENT DEVELOPMENTS
RMD ACQUISITION
On January 23, 1998, the Company acquired all of the outstanding capital
stock of Radio Movil Digital Americas, Inc. ("RMD") 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. In addition, the Company paid $4.8 million of RMD's expenses
incurred in connection with the RMD Acquisition. See "--Acquisition of RMD."
As a result of the RMD Acquisition, the Company acquired, among other assets,
RMD's wholly owned Brazilian subsidiary, RMD-Brasil. RMD-Brasil holds 960
channels and provides SMR services in major cities in central and south
Brazil. RMD also has SMR operations in Venezuela, with 480 channels and 6,000
subscribers as of December 31, 1997, and Argentina, with 150 channels and
2,400 subscribers as of December 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results--Risks Associated with Integration of
RMD-Brasil and Via 1" and "--Operating Companies--Brazil--Via 1 and RMD."
In connection with the RMD Acquisition, the Company and RMD entered into
an Amended and Restated Senior Secured Note and Warrant Purchase Agreement
dated January 23, 1998 (the "BT Purchase Agreement") with BT Foreign
Investment Corporation ("BTFIC"). Pursuant to the BT Purchase Agreement, RMD
refinanced certain existing indebtedness to BTFIC and borrowed an additional
$10 million, thereby increasing to $25 million the total principal amount of
its indebtedness to BTFIC (the "BT Loan"). The Company granted BTFIC warrants
initially exercisable for 155,840 shares of its Common Stock in connection
with the BT Loan. The warrants have a 10-year term and an exercise price of
$0.01 per share. The BT Loan is secured by all of the Company's assets in
Brazil, including the Company's interests in Via 1 and RMD-Brasil. The BT
Purchase Agreement also contains significant restrictions on the Company's
ability to utilize proceeds from the sale of assets in Latin America. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
FINANCING EFFORTS; ASSET SALES
In December 1997, the Company deferred its proposed initial public offering
of its Common Stock and began efforts to raise additional capital through the
sale of its interests in certain of its smaller wireless communications
businesses in Asia and Latin America and through an interim equity financing. In
addition, in March 1998 the Company retained financial advisors to assist it in
its review of various strategic and financial alternatives.
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 are subject to numerous conditions, and there can be
no assurance that these sales will close.
On March 10, 1998, Vanguard Cellular Systems, Inc., the Company's largest
stockholder ("Vanguard") purchased shares of the Company's Series J Preferred
Stock and a related Warrant to Purchase Common Stock for $10 million as the
first tranche of an $18 million interim financing (the "Series J Financing").
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 must close on or before April 24, 1998. The Company has offered its
remaining stockholders the right to participate in the second tranche of the
Series J Financing and is currently in discussions with various stockholders
regarding their participation. Although the Company has received indications of
interest from various stockholders, there can be no assurance that the Company
will receive commitments for the entire amount of the second tranche of the
Series J Financing.
As of March 31, 1998 the Company had approximately $1.5 million in cash
and cash equivalents, of which $1.0 million is restricted pursuant to the
IWCH Pakistan Facility (as defined below). See "Certain Relationships and
Related Transactions--Pakistan Facilities." The Company estimates that these
cash resources should be sufficient to allow it to continue operations at
anticipated levels through approximately May 31, 1998, assuming that the
Company obtains a waiver of a minimum cash reserve covenant contained in the
IWCH Pakistan Facility and without giving effect to any proceeds that might
be available to the Company from the sale of its interests in certain smaller
wireless communications businesses or the second tranche of the Series J
Financing. However, there can be no assurance that the Company will not
require additional debt or equity financing before such time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
On April 6, 1998, the Company entered into a share purchase and sale
agreement (the "Prismanet Sale Agreement") to sell its 22.5% interest in
Prismanet (M) Sdn. Bhd. ("Prismanet"), a wireless local loop service provider in
Malaysia, to Shubila Holding Sdn. Bhd. ("Shubila"), the majority shareholder of
Prismanet, 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
Collateral Agreement, entered into by Prismanet, the Company and the other
shareholders of Prismanet and Permata Merchant Bank Berhad, as arranger (the
"Prismanet Collateral Agreement"), in connection with a ringgit 91 million
(approximately $24.6 million as of March 31, 1998) credit facility provided by
such banks. Prismanet is currently in payment default under this facility, and
the banks declared the entire amount of the facility to be due and payable.
Pursuant to the Prismanet Collateral Agreement, the Company and such other
shareholders would be jointly and severally liable for amounts due under the
credit facility. Further, Prismanet's default under its credit facility or a
default under the collateral agreement may be deemed events of default under the
Indenture dated August 15, 1996, between the Company and Marine Midland Bank as
Trustee (the "Indenture"), either of which would have a material adverse effect
on the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "--Additional
Factors that May Affect Future Results--Risks Associated with Indebtedness."
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, the Prismanet Sale Agreement and the
indications of interest from various stockholders regarding the second tranche
of the Series J Financing, 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 an
approximately 15% equity interest, and the Company 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MANAGEMENT CHANGES
Since December 31, 1997, the Company has undergone various management
changes. In March 1998, the Company hired Van E. Snowdon as President and Chief
Executive Officer to succeed John D. Lockton, who was elected Vice Chairman of
the Board of Directors (the "Board"). Mr. Snowdon is a director of the Company
and formerly served as President of Vanguard Communications, Inc., an affiliate
of Vanguard. In February 1998, the Company hired Steven D. Overly as Senior Vice
President and General Counsel. Mr. Overly formerly served as Vice President and
General Counsel of Lockheed Martin Telecommunications, a major satellite
manufacturer and telecommunications service provider. A number of persons have
recently ceased to provide services to the Company, including Douglas S.
Sinclair, who ceased serving as Executive Vice President and Chief Financial
Officer in March 1998 and James M. Dixon, who ceased serving as Executive Vice
President in February 1998. The Company believes that the recent management
changes will not have a material adverse effect on the Company's operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Additional Factors That May Affect Future Results--Dependence on Key
Personnel; Recent Management Changes."
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5
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THE MARKETS
The Company believes that the wireless communications opportunities in
the Markets are attractive due to their substantial populations, large unmet
demand for telecommunications services, historically strong economic growth
and favorable competitive environments.
<TABLE>
<CAPTION>
CHINA BRAZIL PAKISTAN INDONESIA UNITED STATES
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<S> <C> <C> <C> <C> <C>
SUBSTANTIAL POPULATION
Population (mm)(1)............................................... 1,243.7 163.1 143.8 203.5 271.6
Population Growth-Year Ended December 31, 1996(2)................ 1.1% 1.3% 2.7% 1.4% 0.6%
LARGE UNMET DEMAND
Telephone Lines per 100 POPs(3).................................. 4.5 9.6 1.8 2.1 64.0
Waiting Time for Installation of Wireline Telephone (months)(4).. 2.4 8.4 8.4 2.4 0
Cellular Penetration (% of POPs)(5).............................. 0.6% 1.9% 0.05% 0.3% 16.3%
ECONOMIC GROWTH
Annual Real GDP Growth 1996(6)................................... 9.7% 3.0% 4.1% 7.8% 2.4%
</TABLE>
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(1) Source: United Nations Population Fund. Population figures for mid-year
1997.
(2) Source: Economist Intelligence Unit, Second Quarter and Third Quarter
1997 Report.
(3) Source: ITU, Data as of 1996.
(4) Source: ITU, World Telecommunication Development Report 1996/1997. Data
as of 1995.
(5) Source: Global Mobile, September 18, 1997. Data as of December 31, 1996.
"Cellular Penetration" means the number of cellular subscribers as a
percentage of the total population.
(6) Source: IMF, World Economic Outlook, May 1997 and EIU Country Forecasts,
August 31, 1997. "Real GDP Growth" means growth in gross domestic
product after adjustment for inflation during the relevant measurement
period.
SUBSTANTIAL POPULATION. The Markets are among the largest in the world and
are characterized by rapidly growing populations. The Markets comprise
four of the six largest developing countries in the world based on population.
LARGE, UNMET DEMAND FOR TELECOMMUNICATIONS SERVICES. The Markets are
characterized by large unmet demand for telecommunications services, as
evidenced by low wireline and cellular penetration and long waiting times for
the installation of phone lines. In the Markets, wireless communications
services are often a substitute for wireline telephone services. The wireline
penetration rate per 100 inhabitants in the Markets in 1996 ranged from 1.8
to 9.6, versus 64.0 for the U.S.
ECONOMIC GROWTH. Although several of the Markets (including in particular
Indonesia) have recently experienced significant economic downturns, the
Markets have experienced strong economic growth in recent years. During the
period from 1991 to 1996, the Markets experienced a weighted average compound
annual growth rate in real GDP of 7.8% versus 2.4% for the U.S.
FAVORABLE COMPETITIVE ENVIRONMENTS. The Company believes that the Markets
have generally favorable competitive environments. In each of Pakistan and
China, there are only three cellular operators. In Indonesia, although there
are a number of competitors, the Company focuses on serving non-urban areas
where there is frequently less competition. In Brazil, there will be two
cellular operators and up to two ESMR competitors in each market.
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STRATEGY
The Company's principal business objective is to become a leading
provider of wireless communications services focusing on large emerging
markets where significant opportunities for growth in telecommunications
services exist. Key business strategies for achieving this objective have
included the following.
BUILD ON STRONG PARTNER RELATIONSHIPS. The Company seeks to maintain close
working relationships with financially strong and/or strategically
well-positioned partners. The Company's partners include: in China, the
People's Liberation Army (the "PLA"); in Brazil, Rede Brasil Sul ("RBS"); in
Pakistan, Motorola, Inc. ("Motorola"); and in Indonesia, PT (Persero)
Telecomunikasi Indonesia ("Telkom Indonesia"). The Company's strategy is to
work with its partners both to build its existing businesses and to identify
and develop incremental business opportunities which could leverage off the
current businesses.
ACQUIRE LICENSES AT LOW COST. By avoiding expensive auction payments for
licenses the Company has been successful in acquiring its interest in
wireless licenses at relatively low cost. The Company believes that having a
low cost basis will be increasingly important as the telecommunications
industries in the Markets develop and competition based on price becomes more
prevalent.
CONTROL OVER OPERATING COMPANIES. The Company controls or exercises
significant management control over each of the Operating Companies. In
addition to holding substantial equity interests and contractual rights in
the Operating Companies, the Company seeks to participate in their day-to-day
operations. Contractual arrangements generally allow the Company to approve
key matters such as operating budgets, business plans, human resource
decisions and major corporate transactions. Additionally, members of senior
management of the Company frequently serve as senior executives and directors
of each Operating Company, thereby giving the Company direct influence over
the strategy and operations of the Operating Companies.
PURSUE DEBT FINANCING AT OPERATING COMPANY LEVEL. Whenever possible, the
Company generally seeks to finance the Operating Companies with debt at the
project level. Although start-up funding is typically provided by equity
contributions from the Company and its project partners, initial construction
and expansion of the wireless network is usually financed by debt provided by
equipment vendors, commercial banks and other third parties. Once the project
becomes operational, the Company seeks to obtain long-term debt financing
with limited or no recourse to the Company or its project partners.
II. OPERATING COMPANIES
For a discussion of the risks associated with the ownership and
operation of the Operating Companies, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results."
CHINA - GREAT WALL CELLULAR
The Company currently holds a 40% indirect equity interest in Star
Digitel. Vanguard also holds a 7% indirect interest in Star Digitel. Star
Digitel was founded in 1992 and since its inception has been involved in the
development and construction of cellular networks in China, in cooperation
with various local commercial entities (the "PLA Partners") that have close
relationships with the PLA.
In 1995, the Ministry of Posts and Telecommunications (together with its
successor ministry as of March 1998, the Ministry of Information Industry,
the "MPT"), the principal government agency responsible for regulation of the
telecommunications industry and the principal provider of wireless services
in China, agreed to cooperate with the PLA in developing networks using
spectrum in the 800 MHz frequency band which had previously been allocated to
the PLA (the "PLA/MPT Cooperation").
Star Digitel is developing 800 MHz cellular networks in the Star Digitel
Provinces, which include Eastern Guangdong and the provinces of Hebei,
Shandong, Yunnan, Hainan, Sichuan and Gansu. The Star Digitel
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Provinces encompass a total of 351 million POPs and approximately 124 million
urban POPs. In addition, Star Digitel is participating in developing one of
the first commercial CDMA cellular networks in China in the municipality of
Beijing. Beijing has a population of 11.1 million people.
Within the Star Digitel Provinces, as of December 31, 1997, Star Digitel
had established eight networks with 128 cellular base stations. These
networks served approximately 43,000 subscribers as of December 31, 1997.
Cellular services are currently being provided in 14 of Star Digitel's
networks in six of the seven Star Digitel Provinces: Eastern Guangdong,
Hebei, Shandong, Hainan, Sichuan and Gansu.
COUNTRY OVERVIEW
With over 1.2 billion people, China is the most populous country in the
world, and has a land area of approximately 3.7 million square kilometers.
For political and administrative purposes, China is divided into 23
provinces, five autonomous regions and four municipalities, each reporting
directly to the central government. Each of the 23 provinces has a population
larger than most European countries. In recent years, China has experienced
rapid economic and significant population growth, as evidenced by real GDP
and population growth rates of approximately 9.7% and 1.1% respectively, for
the year ended December 31, 1996.
Guangdong is the fifth largest province in China, with a population of
over 66 million people, including an urban population estimated at 17 million
people. Guangdong ranks first among Chinese provinces in terms of GDP and had
an estimated 3 million wireless subscribers as of August 31, 1997. Located
immediately to the north of Hong Kong, Guangdong has been a major focus of
economic development since the early 1980s.
Hebei has a population of over 63 million people, with 20 million people
living in urban areas. Hebei ranks seventh among Chinese provinces in terms
of GDP and had approximately 230,000 wireless subscribers as of December 31,
1996. Hebei borders both the province of Shandong and the municipality of
Beijing.
Shandong is the third largest province in China with a population of
over 86 million people, including an urban population of over 44 million
people. Shandong ranks second among the provinces in China in terms of GDP.
As of December 1996, Shandong had approximately 320,000 wireless subscribers.
Shandong includes the Yantai Region in the northeastern part of the province,
which consists of 12 major urban and business centers with a population of
over 16 million people, as well as the coastal city of Qingdao, economic
development zone established by the Chinese government. Both the Yantai
Region and Qingdao are among the 14 coastal open cities currently promoted by
the Chinese government to attract foreign investment.
Yunnan has a population of approximately 38 million people, including an
urban population estimated at 10 million people. As of December 31, 1996,
Yunnan had approximately 100,000 wireless subscribers. Because Yunnan borders
the countries of Myanmar, Laos and Vietnam, it has become the gateway to
China for these neighboring countries.
Hainan is one of the smallest provinces in China, with a population of
only seven million people. Despite its small size, however, Hainan had over
50,000 wireless subscribers as of December 31, 1996. Hainan has been
designated by the Chinese government as a special economic zone.
Sichuan is the largest province in China, with a population of over 97
million people, including an urban population of over 23 million people. It
ranks fourth among Chinese provinces in terms of GDP, and had approximately
260,000 wireless subscribers as of December 31, 1996. Sichuan is currently at
the center of the Chinese government's plan to develop the economies of its
western provinces.
Gansu has a population of approximately 23 million people, including an
urban population of over 8 million people. Gansu has been chosen by the
Chinese government to receive economic incentives in order to lure business.
Lanzhou, the capital of Gansu, is the gateway for companies seeking to do
business in the northwestern frontier areas of China.
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Beijing, the capital of China, has a population of over 11 million
people. As of October 31, 1997, Beijing had approximately 575,000 wireless
subscribers.
The telecommunications industry has become one of the fastest developing
industries in China. Currently, China ranks third in the world in terms of
the number of people using mobile phones, after the United States and Japan.
According to FT Mobile, it is estimated that this number exceeded 11 million
as of the end of 1997 and will exceed 30 million by the year 2000. Despite
the rapid growth in the number of subscribers, the wireless penetration rate
in China is still low compared to other Asian and international markets. FT
Mobile estimates that between 1991 and the year 2000, investment in China's
telecommunications infrastructure will be US $100 billion, with investments
in wireless infrastructure representing approximately 30% of this total.
OPERATING COMPANY OVERVIEW
Star Digitel's cellular networks are being constructed in cooperation
with the PLA Partners, who the Company believes have been granted or
delegated by the PLA the right to use certain frequencies in the 800 MHz
spectrum to construct regional cellular networks for commercial use in each
of the Star Digitel Provinces. See "License and Interconnection." Pursuant to
the PLA/MPT Cooperation, in each region in which a cellular network has been
or will be built, the relevant PLA Partner is to provide the frequencies to
be used by the local network, and the MPT, through its corresponding local
Posts and Telecommunications Administrative Bureau ("PTA"), is to provide all
necessary numbers and interconnection to the MPT's existing wireline network.
STRUCTURE IN STAR DIGITEL PROVINCES
Star Digitel has entered into various cooperative arrangements with the
PLA Partner in each of the Star Digitel Provinces in order to develop AMPS
cellular networks. Currently, certain regulatory restrictions exist in China
which prohibit participation by foreigners or foreign investment enterprises
in the operation and management of companies providing telecommunications
services in China. See "--Additional Factors That May Affect Future
Results--Risks Inherent in Foreign Investment." As a result, Star Digitel has
structured and will structure its operations such that it is a provider of
telecommunications equipment, services and financing to Chinese
telecommunications providers rather than a direct provider of cellular
services.
In the province of Hebei, the city of Qingdao in the province of
Shandong and in Eastern Guangdong, Star Digitel has implemented the CJV Model
as an operating model which it has developed to comply with the Chinese
foreign ownership prohibition. The CJV Model generally involves the formation
of a domestic cooperation company (a "Great Wall Company") in a province by
the local PLA Partner and, in some cases, with the local PTA, and the
formation by Star Digitel of a cooperative joint venture company (a "CJV
Company") with the local PLA Partner or Great Wall Company. The Great Wall
Company will operate the cellular network. The CJV Company will enter into an
Equipment and Services Contract with the Great Wall Company pursuant to which
the CJV Company will build the cellular network and provide technical
services in return for a network usage and technical services fee from the
Great Wall Company, which will typically equal a percentage of the revenues
or net profits earned in operating the cellular network, plus, in some cases,
connection fees or a fixed equipment fee for a set amount of years. Star
Digitel will, in turn, receive a percentage of the revenues or profits of the
CJV Company. Although the percentage of revenues or profits to be received by
Star Digitel will vary by province, Star Digitel will, in most cases, be
entitled to receive a percentage of the revenues or profits of the CJV
Company that is greater than that distributable to the PLA Partner (or Great
Wall Company) until its capital contributions are recovered. In most cases,
Star Digitel will hold a majority of the seats on the CJV Company's board of
directors and will be responsible for directing the day-to-day operations of
the CJV Company. The typical contract forming a CJV Company (the "CJV
Contract") has a term of approximately 20 years, at the expiration of which
the CJV Company will be dissolved or all fixed assets of the CJV Company will
either become the property of the local PLA Partner (or Great Wall Company)
or be distributed to Star Digitel and the local PLA Partner (or Great Wall
Company) according to their equity interests in the CJV Company. If, in the
future, foreign participation in the operations or ownership of companies
providing telecommunications services in China is permitted, the Equipment
and Services Contract or CJV Contract will typically provide that the parties
will use their best efforts to permit Star Digitel to operate the cellular
network and to convert the rights and interests of the CJV Company, or Star
Digitel, as applicable, under the Equipment and
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<PAGE>
Services Contract, into an equity interest in the Great Wall Company and, in
some cases, extend the 20 year term of the CJV Contract.
Although the legality of the CJV Model has not yet been formally tested
in a court proceeding or administrative tribunal and there can be no
assurance that the CJV Model is legally binding and complies with the Chinese
foreign ownership prohibition, the Company understands that similar models
are in use by other foreign companies that are investing in the Chinese
telecommunications services market, including by foreign investors who are
investing in China United Telecommunications Corporation ("Unicom"), China's
second national carrier, in the construction of its GSM cellular and wireless
paging networks. However, the Company is not aware of the exact terms of
these structures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Additional Factors That May Affect
Future Results--Risks Inherent in Foreign Investment."
In the provinces of Yunnan, Hainan, Sichuan and Gansu and in the
provinces of Shandong aside from Qingdao, Star Digitel has not yet begun
implementation of the CJV Model. To date, Star Digitel has entered into
agreements with the local PLA Partner in these provinces that set forth a
general scheme for the cooperation of the parties in constructing and
operating a cellular network in each respective province. These agreements
typically provide for the provision by Star Digitel of equipment and
technical and engineering services to the cellular network in exchange for
the allocation to Star Digitel of a portion of the revenues or profits of the
network. The Company believes that the legal enforceability of these
agreements is unlikely, due to their generality and the lack of approval of
such agreements by appropriate authorities in China. However, because of the
good relations that Star Digitel has forged with its local partners and the
past compliance of the PLA Partners with the terms of these agreements, the
Company believes that the local partners will continue to honor the terms and
conditions of these agreements until the CJV Model can be implemented. The
failure of the PLA Partners to honor their obligations under these agreements
would have a material adverse effect on the business and prospects of Star
Digitel and the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Risks Inherent in Foreign Investment."
The Company believes that implementation of the CJV Model in each Star
Digitel Province is necessary in order to improve the enforceability of Star
Digitel's agreements with its local partners. The Company further believes
that implementation of the CJV Model will allow Star Digitel to enhance
further its relationships with the PLA Partners and with the Great Wall
Companies. While, under the CJV Model, Star Digitel does not control the
Great Wall Companies and their operation of the cellular networks, the
Company believes that such relationships will enable Star Digitel to exert a
certain degree of influence on the management and operations of the cellular
networks on a day-to-day basis without violating the current written Chinese
policies and regulations prohibiting foreign ownership and operation of
telecommunications enterprises.
The Company believes that the MPT supports the construction of cellular
networks by the Great Wall Companies using the PLA's 800 MHz spectrum.
However, there can be no assurance that such support will continue,
especially in light of the MPT's recent sale to the public of an interest in
its cellular networks in Guangdong, which compete with Star Digitel's
cellular network in Eastern Guangdong. See "--Competition." Neither the MPT
nor the local PTA has yet formally approved the agreements between Star
Digitel and the local PLA Partners in Hebei, Qingdao and Eastern Guangdong.
In addition, in certain of the Star Digitel Provinces, the brand name "China
Telecom", a trademark owned by the MPT, is used in the marketing of cellular
services by the
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PLA Partners (or Great Wall Companies). However, the MPT has not formally
granted to the PLA Partners (or Great Wall Companies) the right to use the
"China Telecom" brand name to market cellular services. Any decision by the
MPT not to support the development of cellular networks using the PLA's 800
MHz spectrum would have a material adverse effect on Star Digitel and the
Company.
BEIJING CDMA PROJECT
Star Digitel is currently participating in a project to develop and
construct an 800 MHz CDMA cellular network in Beijing. Star Digitel has
invested in the project through its subsidiary, Shenzhen China Telecom
Technology Company Limited ("SCTT"), a Chinese foreign equity joint venture
company in which Star Digitel holds a 95% equity interest. On August 12,
1997, SCTT and two other investors each entered into identical contracts with
the Beijing Shenzhou Great Wall Telecommunications Technology Development
Center ("Shenzhou Great Wall"), a company affiliated with the PLA, to invest
jointly in the development and construction of the CDMA network in Beijing
(the "Beijing Cellular Network") by Shenzhou Great Wall and the Beijing PTA.
Shenzhou Great Wall and the Beijing PTA have formed a Great Wall Company to
operate the network. The Beijing Cellular Network is still in the early
stages of development and commenced commercial operations in December 1997.
Star Digitel does not have any active involvement in the management of the
development of the Beijing Cellular Network. In addition, it is unclear
whether the business license of SCTT permits it to make such an investment.
If such investment were successfully challenged, the Company could be
required to divest its interest in the Beijing Cellular Network, which could
have a material adverse effect on Star Digitel and the Company. Subsequent to
year end, one of the two other investors withdrew from the project. Star
Digitel and the other remaining investor were given the right of first
refusal to take up its share of the investment in the project on a pro-rata
basis.
CURRENT OPERATIONS AND DEVELOPMENT PLAN
Services are currently offered in certain cities in the Star Digitel
Provinces. As of December 31, 1997, the cellular networks in the Star Digitel
Provinces had 128 operational cell sites. Currently, these cellular networks
have the capacity to serve in the aggregate approximately 112,300 subscribers
based on various operating and usage assumptions. Star Digitel intends to
expand the coverage and increase significantly the capacity of the cellular
networks in the Star Digitel Provinces. As of December 31, 1997, the Beijing
Cellular Network had 31 operational cell sites, a total capacity of
approximately 45,000 subscribers and served approximately 2,000 subscribers.
As of December 31, 1997, Star Digitel's cellular networks had the number
of subscribers set forth below.
<TABLE>
<CAPTION>
TOTAL URBAN NUMBER OF
PROVINCE POPS POPS SUBSCRIBERS
-------- ----- ------ -----------
<S> <C> <C> <C>
(MILLIONS)
Guangdong.............................. 35.2 17.0 22,900
Hebei.................................. 63.3 20.1 7,200
Shandong............................... 86.4 44.5 5,900
Yunnan................................. 38.9 10.0 -
Hainan................................. 7.0 1.1 1,200
Sichuan................................ 97.5 23.8 3,500
Gansu.................................. 23.5 8.1 2,700
------------------ --------------- ----------------
Total: 351.8 124.6 43,400
------------------ --------------- ----------------
</TABLE>
The cellular networks in each of the Star Digitel Provinces are being
constructed using AMPS technology. However, pursuant to the PLA/MPT
Cooperation, the PLA and MPT contemplated the construction of a nationwide
CDMA network in China using the PLA's 800 MHz frequency spectrum.
Accordingly, it is contemplated that all cellular networks operating using
the PLA's frequency will ultimately employ CDMA technology. As a result, Star
Digitel will ultimately be required or may otherwise determine to upgrade its
cellular networks to CDMA technology. However, in certain of the Star Digitel
Provinces, Star Digitel does not currently have agreements granting to it the
right to construct networks using CDMA technology. See "--Regulatory
Overview" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Additional Factors That May Affect Future Results--
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Risks Associated with Licenses." Star Digitel currently purchases network
equipment from Motorola and Northern Telecom.
LICENSE AND INTERCONNECTION
In each Star Digitel Province, the Company believes that the PLA has
granted to the PLA Partner the right to use 2x10 MHz of spectrum in the 800
MHz frequency band which the PLA has informed the Company has been allocated
to the PLA and the Central Military Commission, and that the PLA Partner has,
in turn, contributed such right to the Great Wall Company in each Star
Digitel Province where the CJV Model is being implemented. The use of such
spectrum for the development of commercial cellular networks is subject in
all circumstances to the needs and military requirements of the PLA. While
the Company believes that the PLA has been allocated such spectrum and that
the use of such spectrum has been granted to the PLA Partners (or Great Wall
Companies), in many circumstances Star Digitel has not been provided with
definitive documentation relating to such grants. In the event it is
determined that the PLA has not been allocated such spectrum, or that the PLA
Partner (or Great Wall Company) has not been granted the right to use such
spectrum in a Star Digitel Province, or in the event the PLA determined that
it required the use of such spectrum for military purposes, the PLA Partner
(or Great Wall Company) would not have the right to operate the cellular
network in such Star Digitel Province, which would have a material adverse
effect on Star Digitel and the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results--Continuing Losses; Limited Operating History"
and "--Risks Associated with Licenses."
Star Digitel anticipates that its networks will occupy all of the 2x10
MHz of spectrum granted to the PLA Partner in each Star Digitel Province.
However, the Company understands that approximately 2x3 MHz of spectrum has
been reserved by the PLA for use in the operation of a CDMA network. As a
result, in the event that the PLA Partner in a Star Digitel Province
determines to grant the right to develop the CDMA network to a party other
than Star Digitel, the amount of spectrum available for Star Digitel's
networks would be reduced, which could have a material adverse effect on Star
Digitel and the Company.
Although current Chinese regulations provide that the approval of the
State Radio Regulatory Commission (the "SRRC") is required for the transfer
of any PLA-controlled frequency band from military to civilian use, the
Company understands that the PLA has neither sought nor obtained any such
SRRC approval for the use of the spectrum by the PLA Partner (or Great Wall
Company). The consequences of failing to obtain such SRRC approval are
unclear.
The PTA in each Star Digitel Province currently provides interconnection
to the local wireline network. While the PLA/MPT Cooperation contemplates
that the local PTA in each province will provide interconnection, other than
in Qingdao, there is currently no formal interconnection agreement between
the local PTA and the cellular network in each Star Digitel Province. The
inability of a cellular network in a Star Digitel Province to interconnect
with the MPT's wireline network would have a material adverse effect on Star
Digitel and the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Dependence on Other Telecommunications Providers."
SALES AND MARKETING
Star Digitel and its partners intend to launch a promotional advertising
campaign that will target local business users in the Star Digitel Provinces.
The strategy of Star Digitel and its partners is designed to take advantage
of the unmet demand for cellular services in the Star Digitel Provinces. Star
Digitel and its partners plan to create a consistent service package within
each of the Star Digitel Provinces in terms of equipment prices, tariff
packages and value added services. Star Digitel and its partners intend to
distribute cellular services through retail stores, independent agents and
dealers and through the sale of prepaid services. In addition, continued
efforts are being made to develop new sales channels such as retail-oriented
organizations and co-marketing opportunities with key industry players.
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<PAGE>
COMPETITION
Currently, the principal provider of cellular mobile telephone services
in the Star Digitel Provinces is the MPT, which operates GSM and TACS
networks. The MPT, through the local PTAs, is also the monopoly wireline
provider in each of the Star Digitel Provinces. In late 1997, the MPT
transferred its cellular networks in Guangdong and Zheijang provinces to
China Telecom (Hong Kong) Limited and sold an interest therein to the public
in an initial public offering. The second largest provider of cellular
services in the Star Digitel Provinces is Unicom, a joint venture whose
principal shareholders are the Ministry of Information Industry as the
successor to the Ministry of Electronics Industry, the Ministry of Power and
the Ministry of Railways, which is in the process of constructing cellular
networks using GSM technology and wireless paging networks in most major
cities in China. Unicom is also positioning itself as a competitor of the MPT
for providing wireline services. The MPT is likely to remain the dominant
provider of cellular services in China.
INVESTMENT; CAPITAL EXPENDITURES; FINANCING
As of December 31, 1997, the Company had expended approximately $33.3
million to acquire its 40% equity interest in, and make shareholder loans to,
Star Digitel. In January 1998, the Company deposited an additional $400,000
into escrow to serve as collateral in connection with a $1 million short term
debt facility provided by ING Barings. Further, in March 1998, the Company
funded an additional $4 million to Star Digitel as its pro-rata share of a
$10 million capital call declared by Star Digitel. Subject to raising
sufficient debt or equity capital, the Company currently expects and is
contractually obligated to contribute an additional $19 million to Star
Digitel on or before June 17, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Star Digitel has in the past funded a significant portion of its
expenditures with 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.
See "Certain Relationships and Related Transactions--TD Bridge Loans to Star
Digitel." 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.
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Negative Operating Cash Flow; Critical Dependence on
Additional Financing."
CORPORATE GOVERNANCE
Pursuant to an Amended and Restated Shareholders' Agreement entered into
as of April 4, 1997 among the Company, Star Digitel, Star Telecom Holding
Limited ("STHL") and a subsidiary of Vanguard, the Company has the right to
designate five of 10 members of the board of directors of Star Digitel,
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<PAGE>
including the vice chairman of the board of directors of Star Digitel. In
addition, the Company has the right, subject to the consent of STHL, to
appoint the chief executive officer, the vice president of engineering and
the chief financial officer of Star Digitel. Certain significant corporate
actions require unanimous approval of the board of directors of Star Digitel.
In addition, certain significant corporate actions require approval by a 75%
vote of the shareholders of Star Digitel.
LOCAL STRATEGIC PARTNERS
In addition to the Company's 40% interest in Star Digitel, STHL owns
53% of Star Digitel and Vanguard owns 7% of Star Digitel.
STHL is a publicly traded Hong Kong company that owns one of the
largest paging and internet service providers in Hong Kong. It is
majority owned by China Strategic Holdings Ltd. ("CSH"). The Chairman of
CSH, Mr. Oei Hong Leong, is the Co-Chairman of Star Digitel. Shareholders
of CSH include Hutchison Whampoa Co. and Morgan Stanley.
REGULATORY OVERVIEW
The telecommunications industry in China is subject to a high degree of
regulation by the Chinese government through a number of government
ministries. The most important of these is the MPT, which has overall
responsibility for the regulation of postal and public telecommunications
operations and services in China. The MPT is also the primary provider of
both wireline and wireless telecommunications services in China. See
"Competition." Among other things, the MPT, together with the State Planning
Commission, regulates the pricing of tariffs and handset financing.
Prior to 1993, the Chinese telecommunications industry was operated and
managed exclusively by the Chinese central government and foreign investment
in telecommunications businesses was prohibited. However, in 1993, under
immense pressure from the State Council, the MPT liberalized certain
telecommunications businesses, allowing domestic entities not controlled by
the MPT to operate such businesses. Notwithstanding such liberalization, a
complete ban on foreign investment in telecommunications businesses was
maintained.
In 1994, the State Council authorized the establishment of Unicom as a
second telecommunications network operator. Unicom was officially established
on July 1, 1994. In November 1994, the MPT issued a notice (the "Notice")
permitting local governments, state owned enterprises and institutions and
domestic telecommunications network operators to invest jointly with the MPT
and its subordinate enterprises in telecommunications projects. The Notice
further provided that, subject to certain conditions, domestic enterprises
engaging in the telecommunications business should actively utilize overseas
investment and that foreign investment in the construction of
telecommunications networks was allowed and encouraged.
Despite these developments, foreign investors are currently still not
permitted to operate or manage telecommunications networks or provide
telecommunications services in China. See "--Additional Factors That May
Affect Future Results--Risks Inherent in Foreign Investment." The current
policy emphasizes that while some foreign investment is now to be allowed, it
is not to extend to a direct equity share in a telecommunications enterprise.
The ban on the operation of telecommunications networks by foreign companies
or domestic companies in which foreign companies have invested (i.e.,
foreign-invested enterprises such as Chinese-foreign joint ventures) remains.
Foreign investment is only allowed in the construction of the networks.
The Company has been informed that on February 8, 1998, China
Electronics Systems Engineering Company ("CESEC"), an entity that the Company
believes was formed by the PLA to engage in the provision of commercial
communications services, issued an unpublished supplemental notice (the
"CESEC Notice") on cooperative construction and investment in CDMA cellular
projects in China. The CESEC Notice established guidelines for participation
and investment in CDMA projects by the PLA and other investors, including
Star Digitel. The CESEC Notice provides, among other things, that the
expansion of the construction of AMPS networks shall no longer be conducted
and that existing AMPS investors will be permitted to participate in the
investment of CDMA networks. Based upon Star Digitel's discussions with its
local partners, the Company does not believe that the CESEC Notice will be
interpreted by the relevant governmental authorities to require a termination
of the construction of Star Digitel's existing AMPS networks. Further, the
Company believes that completion of such networks will not require any
further approvals from any governmental authorities that may be bound by the
provisions of the CESEC Notice. However, it is unclear how the relevant
authorities will interpret and apply the foregoing restrictions on expansion
of Star Digitel's networks and whether Star Digitel's local partners in the
Star Digitel Provinces will be bound by such interpretations. Accordingly,
there can be no assurance that the CESEC Notice will not prohibit Star
Digitel from expanding its existing AMPS networks, which would have a
material adverse on Star Digitel and the Company. The CESEC Notice also
includes various restrictions relating to the structure of investments in
CDMA projects. Although the effect of these provisions is not clear, Star
Digitel may be required to renegotiate its existing agreements with its local
partners in connection with the proposed transition of its existing AMPS
networks to CDMA. See "--Current Operations and Development Plan." If such
renegotiations are required, there can be no assurance that new agreements
will be reached on acceptable terms or at all, which may have a material
adverse effect on Star Digitel and the Company.
In order to provide a uniform regulatory framework to encourage the
orderly development of the telecommunications industry in China, the MPT is
currently preparing an initial draft of a telecommunications law. The MPT has
not yet submitted such law to the National People's Congress. If such
telecommunications law is adopted, it is expected to become the basic
telecommunications statute in China. Although the Company expects that such
telecommunications law would have a positive effect on the overall
development of the telecommunications industry in China and in the overall
climate for foreign investment and participation in the
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Chinese telecommunications sector, the nature and scope of the regulation
contemplated by such law is not fully known. There can be no assurance that
such telecommunications law, if adopted, would not have a material adverse
effect on Star Digitel's business. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Regulation."
To ensure the orderly development of telecommunications infrastructure
and services, the State Planning Commission ("SPC") is empowered by the State
Council to exercise responsibility over the approval of all
telecommunications development projects with domestic investment involving
total capital investment in excess of Renminbi 50 million. With respect to
any telecommunications development project involving foreign investment,
under general foreign investment policies, the approval of the SPC is
required if the project's total investment exceeds $30 million. Accordingly,
project proposals and feasibility study reports for such projects, following
review and approval by the MPT or the relevant local PTA, must be submitted
for approval to the SPC.
As of December 1, 1996, the Renminbi yuan, the currency of China, became
fully convertible for current account transactions, including profit
repatriation and interest payments. No approvals are needed in order to
acquire foreign exchange for a current account transaction. Strict controls
continue for capital account transactions in foreign exchange. Capital
account transactions include loans, direct and portfolio investments and
investments in negotiable securities.
Star Digitel is permitted under Chinese law to receive profits and
distributions from its Chinese investments, including from the CJV Companies.
Star Digitel, in turn, is permitted under Hong Kong law to remit dividends
and profits to foreign shareholders, including the Company.
BRAZIL - VIA 1 AND RMD
Via 1 was formed in April 1997 as the entity through which RBS, Grupo
Arbi, a Brazilian industrial financial group ("Grupo Arbi"), and the Company
will provide SMR services in the major cities in Brazil. The Company
currently holds a 47.3% indirect equity interest in Via 1. The remaining
52.7% equity interest is owned by a wholly owned subsidiary of RBS. After
completion of the initial capitalization of Via 1, including the planned
addition of Grupo Arbi as an equity partner in Via 1 and the capitalization
of various shareholder loans and other contributions made by the Company and
RBS to Via 1 to date, the Company expects to hold an equity interest of
approximately 62% in Via 1. The Company's equity interest will be subject to
adjustment in the future for capital contributions made by the shareholders
of Via 1. See "--Project Background; Corporate Governance."
In January 1998, the Company consummated the RMD Acquisition and thereby
acquired RMD-Brasil. The Company is currently in discussions with its
partners regarding the formation of the Combined Company and is in the
preliminary stages of combining the operations of Via 1 and RMD-Brasil in
order to realize operational and other synergies. See "--Project Background;
Corporate Governance." The Company believes that upon its formation, the
Combined Company will have sufficient channel capacity to transition selected
markets in Brazil to ESMR services and will be one of the leading SMR/ESMR
service providers in Brazil.
COUNTRY OVERVIEW
With a population of over 160 million people, Brazil is the fifth most
populous country in the world and has the highest real GDP in Latin America,
estimated at $749 billion in 1996. Brazil has experienced a significant
increase in international trade due in part to steady economic growth and
structural economic reforms, including the implementation of a successful
anti-inflation plan (the "Real Plan"), and a free-trade and customs union
with Argentina, Uruguay, Paraguay and Chile ("Mercosur"). Under the Real
Plan, Brazil has lowered inflation from an annual rate of 2,709% in 1993 and
910% in 1994 to 14.8% in 1995 and 9.3% in 1996 as measured by the IGP-DI, a
widely used indicator of inflation in Brazil.
The Company believes that there is a significant unmet demand for both
wireline and wireless communication services in Brazil. Although Brazil is
the fifth most populous country in the world, it ranks thirty-ninth in terms
of teledensity, with only 19% of all residences receiving telephone service.
In addition,
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substantial waiting times exist for both landline and cellular service in
Brazil. For example, the waiting time for installation of a landline
telephone in Brazil is approximately 8.4 months.
The Company believes that a significant portion of Brazil's unmet demand
for telecommunications services is for the business communications needs of
various industries such as transportation, communications, media,
construction, technical maintenance, security and agriculture. The wireless
communication needs of these industries are currently being addressed by a
combination of cellular and SMR services. However, the Company believes that
many of the wireless communication needs of these segments could be better
served by ESMR services.
OPERATING COMPANY OVERVIEW
CURRENT OPERATIONS AND DEVELOPMENT PLAN. In anticipation of the
incorporation of Via 1, the Company and RBS commenced operations under the
tradename "Via 1" in Porto Alegre, Novo Hamburgo and Caxias do Sul in July
1996 and in Rio de Janeiro in March 1997. The Company and RBS are currently
managing the operations of Via 1 through SRC, the Company's indirect wholly
owned Brazilian subsidiary and Telcom-Telecomunicacoes Brasil, Ltda., a
wholly owned subsidiary of Via 1. The Company anticipates that SRC will be
contributed to Via 1 as part of the initial capitalization of Via 1. As of
December 31, 1997, Via 1 was operational in 18 cities in Brazil. Via 1 is
using a combination of Uniden and Nokia infrastructure equipment in these
operations. As of December 31, 1997, Via 1 had approximately 7,000
subscribers and had installed 21 transmission sites and constructed 520
channels.
In January 1998, the Company acquired RMD-Brasil, which began providing
SMR services in Brazil in September 1995 and which had approximately 12,000
subscribers as of December 31, 1997. RMD-Brasil currently offers services in
14 cities in Brazil, including Sao Paulo and Rio de Janeiro. As of December
31, 1997 RMD-Brasil had installed 22 transmission sites and had constructed
211 channels.
LICENSES AND INTERCONNECTION. Via 1 has four wholly owned subsidiaries
and a 50% interest in a fifth company that hold licenses for an aggregate of
540 channels in the 800 MHz frequency band. The Company, through SRC,
indirectly holds licenses for 140 channels in the same frequency band. The
Company and RBS have agreed that the Company will contribute SRC to Via 1 as
part of the initial capitalization of Via 1. See "--Project Background;
Corporate Governance." (Via 1's licenses together with SRCs licenses are
referred to herein as the "Via 1 Licenses.") The Via 1 Licenses cover
approximately 48 million POPs located primarily in southern and central
Brazil.
After the initial capitalization of Via 1, the Company anticipates that
Grupo Arbi will contribute licenses for 120 channels in the 800 MHz range
(the "Grupo Arbi Licenses") in exchange for a minority equity interest in Via
1. The Grupo Arbi Licenses cover areas located primarily in southern Brazil
and include channels in the State of Sao Paulo and the city of Rio de
Janeiro. In anticipation of the execution of a formal agreement with Grupo
Arbi that provides for its contribution of the Grupo Arbi Licenses and its
participation as an equity holder in Via 1, Via 1 has been constructing and
operating the Grupo Arbi Licenses since July 1996. Although Grupo Arbi has
permitted the unrestricted use of the Grupo Arbi Licenses by Via 1 to date,
there can be no assurance that the Company, RBS and Grupo Arbi will
successfully formalize Grupo Arbi's participation in Via 1, which could have
a material adverse affect on Via 1 and the Combined Company.
RMD, through RMD-Brasil, holds licenses for 960 channels, covering
approximately 49 million POPs in Brazil (the "RMD-Brasil Licenses"). Key
cities in which RMD-Brasil has licenses include Sao Paulo and Rio de Janeiro.
Assuming the contribution of the Grupo Arbi Licenses to Via 1 and the
consolidation of Via l and RMD-Brasil, the Combined Company will hold
licenses for an aggregate of 1,760 channels in the 800 MHz frequency band
covering approximately 53 million POPs as shown in the following table:
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<PAGE>
COMBINED COMPANY LICENSE POSITION(A)
<TABLE>
<CAPTION>
GRUPO ARBI RMD-BRASIL
POPS VIA 1 LICENSES LICENSES LICENSES TOTAL
(MM)(B) (CHANNELS) (CHANNELS) (CHANNELS) (CHANNELS)
-------- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATE OF RIO GRANDE DO SUL
Caxias do Sul....................... 0.33 20 _ _ 20
Novo Hamburgo....................... 0.23 20 _ _ 20
Osorio.............................. 0.03 20 _ _ 20
Porto Alegre........................ 2.91 80 20 60 160
Santa Maria......................... 0.23 20 _ _ 20
STATE OF SANTA CATARINA
Blumenau............................ 0.23 20 _ _ 20
Criciuma............................ 0.16 5 _ _ 5
Florianopolis....................... 0.27 40 20 40 100
Itajai.............................. 0.13 5 _ _ 5
Joinville........................... 0.40 20 _ _ 20
Tubarao............................. 0.08 5 _ _ 5
STATE OF PARANA
Curitiba............................ 1.97 20 _ 100 120
STATE OF SAO PAULO
Bauru............................... 0.29 20 _ _ 20
Campinas............................ 0.91 15 20 60 95
Jundiai............................. 0.29 60 _ _ 60
Limeira............................. 0.23 20 _ _ 20
Piracicaba.......................... 0.30 30 _ _ 30
Ribeirao Preto...................... 0.46 10 _ 60 70
Sao Jose dos Campos................. 0.49 20 20 80 120
Sao Jose do Rio Preto............... 0.32 20 _ 60 80
Santos.............................. 0.41 40 20 80 140
Sao Paulo........................... 17.11 10 _ 20 30
Sorocaba............................ 0.43 40 _ 20 60
STATE OF RIO DE JANEIRO
Duque de Caxias..................... 0.72 20 _ _ 20
Rio de Janeiro...................... 11.21 20 20 80 120
STATE OF MINAS GERAIS
Belo Horizonte...................... 3.62 20 _ 40 60
DISTRITO FEDERAL
Brasilia............................ 1.82 _ _ 100 100
STATE OF ESPIRITO SANTO
Vitoria............................. 0.27 20 _ _ 20
STATE OF BAHIA
Salvador............................ 2.42 20 _ 40 60
STATE OF PERNAMBUCO
Recife.............................. 2.81 _ _ 100 100
STATE OF CEARA
Fortaleza........................... 1.97 20 20 40
----------- ------------ ------------- ------------ -----------
TOTALS..................................... 53.05 680 120 960 1760
</TABLE>
- -------------
(a) The licenses are subject to substantial risk. See "--Additional
Factors That May Affect Future Results--Risks Associated with
Licenses."
(b) Source: IBGE and the New York Times Atlas.
17
<PAGE>
The Via 1 Licenses, the Grupo Arbi Licenses and the RMD-Brasil Licenses,
most of which were granted between 1992 and 1994, generally have terms of 15
years. Under Brazilian law in effect when such licenses were granted, the
licensee was required to commence commercial operations using its license
within one year after the grant date. Current law has increased this
operational deadline to two years after the date that the Agreement between
the licensee and the public authority relating to the license is published in
the Official Gazette. Extensions of such deadline are available from the
relevant governmental agency under certain circumstances. Via 1 failed to
meet the operational deadlines with respect to Via 1 Licenses and Grupo Arbi
Licenses covering an aggregate of 300 channels, 160 of which were not built
out, due in part to radio interference from television stations. Such radio
interference has recently been eliminated in most areas, and Via 1 has
applied for extensions of the applicable operational deadlines with respect
to these 160 channels. Via 1 expects that extensions will be granted for such
channels. With regard to the remaining 140 channels, the Company believes
that Via 1 can cure these failures by constructing and commencing operations
using such channels in the future and that such channels are therefore not
subject to a substantial risk of forfeiture. RMD-Brasil has, in the past,
failed to meet the applicable operational deadlines with respect to certain
RMD-Brasil Licenses covering a total of 330 channels. The Company believes
that RMD-Brasil can cure these failures by constructing and commencing
operations using such channels in the future and that such channels are
therefore not subject to a substantial risk of forfeiture. However, there can
be no assurance that any of the extensions described above will be granted
and failure to obtain such extensions could have a material adverse effect on
the Combined Company and the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results--Risks Associated with Licenses."
None of the licenses proposed to be held by the Combined Company contain
restrictions regarding the technology which may be used under such licenses,
provided that the equipment used by the Combined Company is approved by the
Brazilian Telecommunications Agency. Except for type approvals with respect
to certain radios, the equipment used by Via 1 and RMD-Brasil in connection
with their respective current operations has been approved by the Brazilian
Telecommunications Agency.
The continued joint operation and the consolidation of the Via 1
Licenses and the Grupo Arbi Licenses as well as the consolidation of such
licenses with the RMD-Brasil Licenses and the joint operation of Via 1 and
RMD-Brasil are subject to receipt of certain approvals, authorizations or
exemptions from the Brazilian Telecommunications Agency. Further, the legal
formation of the Combined Company may require certain additional governmental
approvals, authorizations or exemptions. There can be no assurance that such
approval, authorizations or exemptions will be received. Failure to obtain
such approvals could result in, among other things, the forfeiture of some or
all of the Via 1 Licenses, Grupo Arbi Licenses and could have a material
adverse effect on Via 1, RMD-Brasil and the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Additional Factors That May Affect Future Results--Risks
Associated With Licenses."
Subject to certain limitations, Brazilian law currently permits SMR
operators to interconnect with the PSTN. However, neither Via 1 nor
RMD-Brasil currently has any formal agreements providing for interconnection
with the PSTN at specified rates, primarily because interconnecting traffic
is minimal in Via 1's and RMD-Brasil's current respective operations and does
not account for a significant portion of their respective revenues. However,
interconnecting traffic will likely account for a significant portion of the
future revenues of the Combined Company as it transitions selected markets to
ESMR services. As such, it will become increasingly important for the
Combined Company to enter into interconnection agreements with local exchange
carriers that provide for interconnection to the PSTN at acceptable rates.
There can be no assurance that the Combined Company will be able to enter
into such agreements on acceptable terms or at all. The failure of the
Combined Company to enter into such agreements or the inability to
interconnect to the PSTN at acceptable rates would have a material adverse
effect on the Combined Company and the Company.
SALES AND MARKETING STRATEGY. Each of Via 1's and RMD-Brasil's sales and
marketing efforts currently focus primarily on providing cost-effective
communications services to businesses in the local distribution, financial
services, utility and construction industries in southern and central Brazil.
The Company believes that the Combined Company will have more capacity for
wide area coverage than any other SMR operator in Brazil and intends to use
this capacity to develop a wide area ESMR network for businesses in these
areas.
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<PAGE>
COMPETITION
The Combined Company's primary competition consists of two other
multi-site SMR service providers, MComcast and Airlink Servicos e Comercio
Ltda. ("Airlink"). In much of its planned network, the Company does not
believe that the Combined Company will compete directly with MComcast or
Airlink as these two operators have historically focused on the largest
cities in Brazil, as compared to the Combined Company, whose operations are
expected to focus on coverage of the broader geographic area of southern and
central Brazil. In Sao Paulo, the Combined Company's primary competitors are
Airlink and, to a lesser extent, MComcast. In Rio de Janeiro, the Combined
Company's primary competitor is Airlink. Competition in other cities is
characterized by diverse, small, single market SMR operations.
INVESTMENT; CAPITAL EXPENDITURES; FINANCING
As of December 31, 1997, the Company had funded approximately $20.7
million into the operations of Via 1. In addition, in connection with license
rights obtained by the Company in the Vanguard Project Exchange, the Company
allocated $5.9 million to those license rights derived from Vanguard's right
to participate in Via 1. As of December 31, 1997, Via 1 had approximately
$11.9 million in capital expenditures, which were used primarily for the
construction of its network.
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Competition."
In January 1998, in connection with the RMD Acquisition, RMD entered
into the BT Loan Agreement, pursuant to which it refinanced $15 million of
existing indebtedness to BTFIC and borrowed an additional $10 million. A
significant portion of the amount borrowed pursuant to the BT Loan 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 RMD of the BT Loan.
Subject to receipt of RBS' consent and in connection with the completion of
the capitalization of Via 1, it is anticipated that the Company will also
pledge the assets of Via 1 to BTFIC to secure the BT Loan. See "--Project
Background; Corporate Governance" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
STRATEGIC PARTNERS.
RBS, the Company's partner in Via 1, is one of Brazil's largest media
companies, with operations in television and radio broadcasting and newspaper
publishing predominantly located in southern Brazil. In addition to its
contribution of licenses to Via 1, RBS has expedited the importation of
infrastructure equipment, assisted in negotiations with governmental
regulatory authorities and has permitted Via 1 to co-locate its transmitters
on RBS' transmission sites in various cities in Brazil. The Company has
provided Via 1 technical services, operational management and assisted in
procuring the equipment necessary for the development of Via 1's network.
Grupo Arbi, the Company's proposed additional partner in Via 1, holds
interests in several areas of the Brazilian economy, including pension funds,
telecommunications, metal-mechanics and banking. Grupo Arbi is affiliated
with Arbi Transnational, Inc., an international financial advisory company
specializing in Latin American mergers and acquisitions.
19
<PAGE>
PROJECT BACKGROUND; CORPORATE GOVERNANCE
In August 1995, IWC and a wholly owned subsidiary of RBS entered into a
stockholders agreement providing for the initial capitalization of Via 1 (the
"Via 1 Stockholders Agreement"). As the first step of this initial
capitalization, RBS incorporated Via 1 as its wholly owned indirect
subsidiary and contributed to Via 1 four companies that hold a total of 530
channels and a 50% equity interest in a fifth company holding 10 channels
covering the city of Sao Paulo to Via 1. In May 1997, the Company contributed
$4 million in cash to Via 1 for a 47.3% indirect equity interest in Via 1,
thereby diluting RBS' equity interest from 100% to 52.7%. Pursuant to the
planned second step of the initial capitalization of Via 1, the Company will
contribute SRC, which indirectly holds licenses for 140 channels, to Via 1,
thereby initially increasing the Company's indirect equity interest in Via 1
to 62.5% and diluting RBS' equity interest in Via 1 to 37.5%. As part of this
second step, it is anticipated that RBS will also capitalize certain
shareholder loans to Via 1 and that the Company will capitalize certain
shareholder loans to, and other investments in, Via 1's operations. After the
completion of this second step, and subject to adjustment for anticipated
additional capital contributions by the Company and RBS prior to the date
that the second step is consummated, it is anticipated that the Company's
indirect interest in Via 1 will increase and that RBS' equity interest in Via
1 will be correspondingly diluted. However, there can be no assurance that
the Company and RBS will agree on the capitalization of outstanding
shareholder loans and the Company's other investments in Via 1's operations
in the manner described above or at all. In addition, the Company and RBS are
currently negotiating with Grupo Arbi regarding its participation in Via 1.
The current negotiations contemplate Grupo Arbi participating in Via 1 by
contributing the Grupo Arbi Licenses for a 7% equity interest in Via 1, which
interest will be subject to dilution as a result of the capitalization of the
shareholder loans and other investments in Via 1's operations by the Company
and RBS described above. In the event that Grupo Arbi receives an equity
interest in Via 1, the equity interests of the Company and RBS in Via 1 will
correspondingly be diluted.
Based upon the current negotiations among the parties, the Company
anticipates that its indirect equity interest in Via 1 will be approximately
70% after the consummation of the foregoing transactions. There can be no
assurance that the Company, RBS and Grupo Arbi will agree to the proposed
terms of Grupo Arbi's participation in Via 1. The failure of Grupo Arbi to
contribute the Grupo Arbi Licenses to Via 1 could have a material adverse
effect on Via 1, the Combined Company and the Company. See "--Licenses and
Interconnection."
The Company is also in discussions with its partners regarding the
formation of the Combined Company and is in the preliminary stages of
combining the operations of Via 1 and RMD-Brasil in order to realize
operational and other synergies. Based upon the current negotiations among
the parties, the Company anticipates that its equity interest in the Combined
Company will be greater than its equity interest in Via 1. However, there can
be no assurance that the Company, RBS and Grupo Arbi will agree upon the
terms of the formation of the Combined Company. Further, the formation of the
Combined Company is subject to various governmental approvals, authorizations
and exemptions. The failure of the Company and its partners to agree upon the
terms of the formation of the Combined Company or the failure to receive the
requisite governmental approvals, authorizations and exemptions could have a
material adverse effect on Via 1, RMD-Brasil and the Company.
REGULATORY OVERVIEW
Telecommunications services in Brazil are regulated by a number of laws,
decrees and regulations specific to each type of telecommunications service.
The Brazilian Constitution was amended in 1995 to permit the Brazilian
government to grant concessions to entities to provide telecommunications
services. On July 19, 1996, the Brazilian legislature enacted Law No. 9295
(the "Minimum Law") which authorized companies to provide cellular mobile
services, certain other limited services, such as SMR services, and satellite
telecommunication services upon receiving a concession from the Brazilian
government. In July 1997, the Brazilian legislature enacted Law No. 9472 (the
"General Telecommunications Law"), which included, among other things (i) the
creation of a national telecommunications agency ("Anatel") and delegation of
authority to Anatel with respect to license grants for telecommunication
services and (ii) privatization of Telebras, the state-owned telephone
company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Additional Factors That May Affect Future
Results--Regulation."
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<PAGE>
There are no limitations on foreign ownership of SMR service providers
in Brazil. However, new regulations enacted in November 1997 (the "November
1997 Regulations") set forth various restrictions on the SMR operations and
the ownership and transfer of SMR licenses. With regard to ownership and
transfer of SMR licenses, the November 1997 Regulations provide that an SMR
license may not hold more than 200 channels in a single geographic area or
hold more than one license to provide SMR services in a single geographic
area. The November 1997 Regulations allow the transfer of licenses between
controlled and controlling companies as well as to third parties as long as
the transferee fulfills all the technical, financial and economic
requirements of the license, undertakes to comply with all the terms of the
agreement entered into by the transferor with respect to the license and
succeeds to the rights and obligations of the transferor pursuant to the
license. Transfer of licenses (other than between controlled and controlling
companies) is only permitted after the commencement of commercial operations
under the license and requires prior approval of Anatel. Transfer of licenses
between controlled and controlling companies may be done at any time subject
to receipt of prior approval from Anatel.
In addition to various technical operational requirements, the November
1997 Regulations also provide that SMR services in Brazil may only be
provided to corporate persons or groups of corporate persons that are engaged
in a specific activity and that SMR services may not be rendered to
individuals. Further, the November 1997 Regulations impose certain
limitations on SMR service providers with respect to interconnection of their
networks to the PSTN and with other SMR licensees. An SMR service provider
may interconnect with the PSTN only through a single point in a geographic
area, is subject to certain limitations on the amount of traffic that may be
routed through the PSTN and must utilize the PSTN operated by the regional
state-owned telephone companies for any calls between networks outside of the
local service area. Interconnection within SMR networks may also not be
permitted between distinct SMR licensees or by an entity which controls more
than one SMR license in the same service area. Under this regulatory
framework, calls between customers on different networks in different
licensed service areas where an SMR operator controls SMR licenses would have
to be routed through the PSTN.
The Company believes that the restrictions and limitations on SMR
operators contained in the November 1997 Regulations will not have a material
adverse effect on Via 1's current operations or the Combined Company's
proposed operations. However, there can be no assurance that the November
1997 Regulations will be administered as currently anticipated or that
further regulations will not be promulgated that further restrict the
Combined Company's proposed operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results--Risks Associated with Licenses" and
"--Regulation."
PAKISTAN - MOBILINK
The Company currently holds a 32.54% equity interest in International
Wireless Communications Pakistan Limited ("IWCPL"), the holding company
through which the Company holds its 19.1% indirect equity interest in
Mobilink, and exercises voting control over an additional 11.76% equity
interest in IWCPL owned by Vanguard. In addition, the Company holds an option
to acquire shares currently representing an additional 1.54% of IWCPL and is
a party to a put-call option agreement to purchase shares representing 5.71%
of IWCPL on the date of exercise. Upon exercise of both of these options in
their entirety, the Company shall hold or have voting control over a majority
of the equity of IWCPL. IWCPL in turn owns a 58.69% equity interest in
Mobilink. See "--Corporate Governance." Mobilink is the sole licensed
provider of GSM cellular services in Pakistan. Currently, Mobilink provides
GSM cellular services in 12 of the major urban areas of Pakistan, including
Karachi, Lahore and Faisalabad, the three largest cities in Pakistan. The
Company believes that Mobilink has become the fastest growing cellular
provider in Pakistan. The Mobilink network consists of two switches and 59
cellular base stations. As of December 31, 1997, Mobilink had approximately
52,000 subscribers, compared to 16,000 subscribers at the end of 1996. For
the year ended December 31, 1997 Mobilink achieved positive EBITDA.
COUNTRY OVERVIEW
Pakistan is the seventh most populous country in the world, with a
population of approximately 143 million. Pakistan is believed to have one of
the highest population growth rates in the world and has experienced strong
economic growth as evidenced by a real GDP growth rate of 4.1% for the fiscal
year ended
21
<PAGE>
June 30, 1996, and a targeted real GDP growth rate of 3.4% for the fiscal
year ended June 30, 1997. Pakistan has one of the lowest fixed line
penetration rates in the world at 1.77%, and a cellular penetration rate of
only 0.05%. In recent years, the government of Pakistan has taken various
steps to encourage growth in existing sectors and to encourage investment in
sectors previously dominated by the government in an attempt to broaden
Pakistan's economic base. Recent government legislation has significantly
reduced telecommunications infrastructure and cellular handset duties, which
is accelerating the growth in cellular telecommunications in Pakistan.
Until December 31, 1995, the state-owned Pakistan Telecommunications
Company ("PTCL"), or its predecessor, the Pakistan Telegraph and Telephone
Department (the "PTTD"), was the sole supplier of telecommunications services
in Pakistan. On January 1, 1996, as part of the deregulation and
privatization policies described above, PTCL was made into an independent
company and a small percentage of shares were made available to the public.
PTCL currently holds an exclusive license to provide local and international
telephone services in Pakistan until 2003. In addition, Mobilink and its two
competitors hold non-exclusive licenses to provide cellular services in
Pakistan. Mobilink's license provides for the provision of cellular services
using digital GSM technology, whereas the other operators' licenses provide
for the provision of cellular services using analog AMPS technology.
Mobilink's license to provide GSM cellular services expires in 2007, whereas
its competitors' AMPS cellular licenses expire in 2005.
OPERATING COMPANY OVERVIEW
CURRENT OPERATIONS AND DEVELOPMENT PLAN. Mobilink launched its
commercial operations in August 1994, and was operational in six cities in
Pakistan, including Karachi, Lahore and Faisalabad, with approximately 2,500
subscribers as of December 31, 1994. However, operations were suspended in
Karachi due to the suspension of all wireless communications by the Pakistani
government in its effort to curb ethnic violence. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Additional Factors That May Affect Future Results--Risks Inherent
in Foreign Investment."
At the time the ban on wireless telecommunications in Karachi was lifted
at the end of 1996, Mobilink had developed a significant network in the
northern provinces of Pakistan, including Lahore and Faisalabad, with over
16,000 subscribers. Since the relaunch of operations in Karachi in early
1997, Mobilink has experienced markedly increased subscriber growth rates and
had over 52,000 subscribers as of December 31, 1997.
Mobilink's cellular network operates in the 900 MHz frequency band and
is being constructed using GSM technology. Mobilink uses Siemens switching
equipment and Motorola radio equipment in its network. See "Technology."
LICENSES AND INTERCONNECTION. Mobilink holds a non-exclusive nationwide
license to provide cellular services in Pakistan. Mobilink has been assigned
2x10 MHz of spectrum in the 900 MHz frequency band to provide such cellular
services. The license has a term of 15 years, and expires in 2007. At that
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Risks Associated with Licenses."
Mobilink operates under an interconnection agreement with PTCL that
permits Mobilink's cellular network to be connected to the wireline network
operated by PTCL. This interconnection agreement provides for interconnection
at the PTCL's standard interconnection rates subject to certain volume
discounts. The interconnection agreement will remain in force until December
2000 and is renewable for an additional three years upon mutual consent of
the parties. There can be no assurance that PTCL will consent to the renewal
of the interconnection agreement upon its expiration or that the standard
interconnection rates charged by PTCL will continue to enable Mobilink to
operate its business cost-effectively, either of which could have a material
adverse effect on Mobilink and the Company.
SALES AND MARKETING. Mobilink seeks to be the provider of superior
quality cellular services in Pakistan. In addition to being committed to
providing high-quality customer service and broad, geographical coverage,
Mobilink
22
<PAGE>
stresses the technological advantages of its digital GSM service. The Company
believes that the enhancements inherent in Mobilink's digital GSM services,
such as greater security, superior data capabilities, short messaging service
and closed user group capabilities, will assist in differentiating Mobilink's
services from that of the competitive analog AMPs providers. Mobilink is the
only cellular operator in Pakistan that has been granted a single nationwide
access code for all of the subscribers on its network, regardless of their
locations within Pakistan. This means that, unlike Instaphone and Paktel's
subscribers, Mobilink's subscribers traveling within Pakistan need not inform
their callers as to the area code in which they are located in order to
receive a call successfully. Mobilink is currently in the process of
negotiating roaming agreements with other GSM cellular operators that will
permit international roaming between the signatories.
Motorola owns 30% of Mobilink. As a result of its association with
Motorola, Mobilink has the right to use the phrase "a Motorola Network" in
its advertising and promotional materials and seeks to leverage its
association with Motorola in order to position Mobilink as a superior brand
among a wide sector of the population in Pakistan.
COMPETITION
Mobilink currently has two competitors, Pakom Limited ("Instaphone") and
Paktel Limited ("Paktel"), who provide cellular telephone services in all of
the major cities in Pakistan. Both Instaphone and Paktel use analog AMPS
technology and their networks currently offer wider coverage than Mobilink's
network.
In addition, because Mobilink's and its competitors' licenses are
non-exclusive, the PTA may grant additional licenses to provide cellular
services to third parties in the future. Further, pursuant to the Pakistan
Telecommunications (Reorganization) Act, 1996 (the "Pakistan
Telecommunications Act"), the PTA has the express authority, but not the
obligation, to grant a cellular license to PTCL. Based upon discussions by
Mobilink with officials at the PTA, the Company does not believe that any
such additional licenses will be granted in the near future except in the
event of a merger among the existing cellular providers. However, there can
be no assurance that the PTA will not grant one or more of such additional
licenses, which would further increase the competitive environment for
cellular services in Pakistan and could have a material adverse affect on
Mobilink and the Company.
INVESTMENT; CAPITAL EXPENDITURES; FINANCING
As of December 31, 1997, 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 though the PWH Pakistan Facility (as
defined below), pursuant to which Pakistan Wireless Holdings Limited ("PWH"),
a wholly owned subsidiary of the Company and the holding company through
which the Company holds its interest in IWCPL, borrowed $22 million from
various stockholders and affiliates of the Company. See "Certain
Relationships and Related Transactions--Private Placement
Transactions--Pakistan Facilities." 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
$3,639,588 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 an option (the "Vanguard Pakistan Option")
to purchase this equity interest for $1,240,371. The Vanguard Pakistan Option
will expire on May 16, 1998, unless sooner exercised. In addition, pursuant
to the Side Letter dated August 18, 1997, 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. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Additional
Factors that May Affect Future Results--Negative Operating Cash Flow;
Critical Dependence on Additional Financing."
As of December 31, 1997 Mobilink had approximately $18.9 million in
capital expenditures, which were used primarily for the construction of its
network.
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.
23
<PAGE>
("Citibank") and Sanwa Bank Limited ("Sanwa Bank"). As of December 31, 1997,
Mobilink had outstanding an aggregate of approximately $11.8 million in
shareholder loans, which accrue interest at a rate of Euro U.S.$ 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 December 31, 1997, approximately
$12.1 million was outstanding under such facility. Mobilink has also borrowed
$20 million from Sanwa Bank. Interest on such amount accrues at a rate of
Euro U.S.$ LIBOR plus 0.30%, and is payable semi-annually. The Citibank loan
and the Sanwa loan, prior to it being repaid in full, have been guaranteed by
Motorola, a shareholder of Mobilink. Subsequent to December 31, 1997 the
Sanwa Bank loan was replaced by an ABN Amro $20 million local currency loan
facility. This facility is currently guaranteed by Motorola and has a term of
three years. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Additional Factors That May Affect Future
Results--Negative Operating Cash Flow; Critical Dependence on Additional
Financing."
LOCAL AND STRATEGIC PARTNERS
The Company currently holds a 19.09% indirect equity interest in
Mobilink through PWH's 32.54% equity interest in IWCPL. The Company's local
partner in Mobilink is Saif Telecom (Pvt) Limited ("Saif"), which owns an
11.31% interest in Mobilink. Saif is a Pakistan company that is controlled by
the Saifullah Group, a large industrial holding company based in northern
Pakistan. The Company's other partners in Mobilink include Motorola, which
was the majority shareholder of Mobilink prior to the Company's purchase of
an interest in Mobilink and currently owns a 30.00% interest in Mobilink;
South Asia Wireless Communications (M) Ltd. ("SAWC"), an affiliate of the
Asian Infrastructure Fund, an Asian telecommunications investment fund, which
owns a 20.00% indirect interest in Mobilink; Vanguard Pakistan, which owns a
6.91% indirect interest in Mobilink; and Asia Pacific Cellphone Co., Inc.
("APC"), an affiliate of a Saudi financial institution, which owns a 12.69%
indirect interest in Mobilink.
Pursuant to the Vanguard Pakistan Option, the Company has the right
purchase an additional 1.54% interest in IWCPL from Vanguard Pakistan on or
before May 16, 1998. Upon exercise of the Vanguard Pakistan Option in its
entirety, the Company's indirect equity interest in IWCPL would increase to
34.08% and its indirect equity interest in Mobilink would correspondingly
increase to 20.00%. In addition, the Company holds an option (the "Mobilink
Put-Call Option") to purchase an additional 5.71% interest in IWCPL from 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 such 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 and the Vanguard Pakistan
Option, 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%.
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CORPORATE GOVERNANCE
PWH and Vanguard Pakistan are parties to a voting trust agreement (the
"IWC Group Agreement") pursuant to which the Company, through PWH, has the
right to exercise voting control over all of the shares in IWCPL currently
held or hereafter acquired by Vanguard Pakistan. The IWC Group Agreement also
provides, among other things, (i) that Vanguard Pakistan may make PWH's
pro-rata share of any shareholder loans or capital calls declared by IWCPL if
PWH elects not to make such shareholder loans or capital calls; (ii) that
Vanguard Pakistan may exercise the Mobilink Put-Call Option if such option is
not exercised by PWH prior to December 15, 1998; (iii) that Vanguard Pakistan
shall have a right of first refusal with respect to any transfer of shares in
IWCPL by PWH and that each of PWH and Vanguard Pakistan shall have reciprocal
rights of co-sale with respect to any transfer of shares in IWCPL by either
party. See "Directors and Officers of the Registrant--Compensation Committee
Interlocks and Insider Participation."
The shareholders of IWCPL are parties to the IWCPL Shareholders
Agreement, which provides that the Company has the right to appoint 50% of
the directors of IWCPL. The IWCPL Shareholders Agreement also provides that a
vote of 90% of the shareholders of IWCPL is required for certain major
corporate decisions relating to IWCPL and all decisions relating to Mobilink
that require super majority board approval pursuant to the Restated and
Amended Shareholders Agreement dated August 18, 1997, among the shareholders
of Mobilink (the "Mobilink Shareholders Agreement"). The IWCPL Shareholders
Agreement provides further that in the event that such a 90% vote is not
obtained with respect to a matter (a "Deadlock") and the matter is resolvable
by maintaining the status quo, then the IWCPL directors on the Board of
Mobilink will vote to maintain the status quo. However, if the Deadlock
concerns a matter than cannot be resolved by maintaining the status quo and
the parties are unable to resolve the Deadlock after 30 days of good faith
negotiations or an additional 90 days of negotiations relating to a potential
disposition of their respective interests in IWCPL, then IWCPL will be
liquidated and the shares of Mobilink held by IWCPL will be distributed to
IWCPL's shareholders in proportion to their respective equity interests in
IWCPL.
The Mobilink Shareholders Agreement provides that IWCPL has the right to
appoint six of the ten directors of Mobilink. The Mobilink Shareholders
Agreement also requires a super majority vote of 80% of the shareholders of
Mobilink and/or eight of the ten directors of Mobilink for certain major
corporate actions. In addition, pursuant to the Mobilink Side Letter, the
shareholders of Mobilink and the shareholders of IWCPL agreed to contribute
their pro-rata share of shareholder loans in an aggregate principal amount of
$15 million during 1998. The Company's pro-rata share of such loans required
to be made during the remainder of 1998 is $2.1 million. If the Company fails
to provide such loans, then PWH's equity 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 such equity interest
at a purchase price equal to 50% of the then fair market value of such equity
interest. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Additional Factors that May Affect Future
Results--Negative Operating Cash Flow; Critical Dependence on Additional
Financing." Further, pursuant to the Mobilink Side Letter, IWCPL agreed to
place shares of Mobilink representing a 4% equity interest in Mobilink in
escrow, pending the termination or reduction of certain shareholder
guarantees of the indebtedness of Mobilink issued by Motorola on or before
August 26, 1998. If such guarantees are not terminated by such date, up to
all of such escrowed shares will be forfeited to Motorola, thereby decreasing
IWCPL's equity interest in Mobilink to 54.69%.
REGULATORY OVERVIEW
Pursuant to the Pakistan Telecommunications (Re-Organization) Ordinance,
1995 and the Pakistan Telecommunications (Re-Organization) Act, (1996) the
Government of Pakistan established the PTA. The Pakistan Telecommunications
Act grants to the PTA overall responsibility for the regulation and
administration of the telecommunications industry in Pakistan, including
responsibility with respect to the issuance of licenses, the setting of
technical standards, the setting of guidelines for interconnection and the
regulation of tariffs.
The Pakistani government may, as and when it considers necessary, issue
policy directives on matters relating to telecommunications with which PTA
must comply, including with respect to the number of licenses which can be
issued, foreign ownership of telecommunications businesses and national
security matters.
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The Pakistan Telecommunications Act also provides for the constitution
of a Frequency Allocation Board ("FAB") to be funded by the PTA and governed
by regulations promulgated by the FAB. The FAB has the exclusive authority to
allocate and assign portions of the radio frequency spectrum to the
government, providers of telecommunications services and systems, radio and
television broadcasting operations, public and wireless operators and others.
Under Pakistani law, there are currently no restrictions on the foreign
ownership of telecommunications companies providing basic telecommunication
services (such as Mobilink).
Pursuant to the Foreign Exchange Regulation Act, 1947, permission of the
State Bank of Pakistan is required for the acquisition of shares in
telecommunication entities, unless the entity is a listed company or conducts
business as a manufacturing concern. The transfer of securities held by a
person resident outside Pakistan to another person resident outside Pakistan
on the same basis against payment outside Pakistan is subject to a general
exemption granted by the State Bank of Pakistan. Dividends, all accretions to
the capital by way of bonus or rights shares and proceeds on sale may be
repatriated or remitted from Pakistan at the official rate of exchange
through an authorized dealer in foreign exchange.
The import of goods, including telecommunications apparatus and
equipment, is subject to customs duties and sales tax at varying rates, and
may require specific authorization/permission from the Pakistani government.
INDONESIA - MOBISEL
The Company currently owns a 19.8% indirect equity interest in Mobisel,
a provider of cellular services in Indonesia, through its 28.3% direct equity
interest in RHP, which owns 70.0% of Mobisel. The shareholders of RHP are
currently considering a $10 million shareholder capital call (the "Mobisel
Capital Call"). In addition, the Company is currently negotiating options to
acquire an additional 33% interest in RHP from the other shareholders of RHP
(collectively, the "Mobisel Option"). If the Company exercises the Mobisel
Option in its entirety and if no shareholder of Mobisel other than the
Company participates in the Mobisel Capital Call, the Company would acquire a
majority equity interest in RHP and Mobisel. There can be no assurance that
the Mobisel Option or the Mobisel Capital Call will be consummated. Mobisel
is the sole provider of NMT-450i cellular services in Indonesia. Mobisel's
nationwide license has no expiration date, and no requirements on the number
of subscribers. Mobisel provides cellular services throughout Indonesia and
is currently providing services to over 30,000 subscribers in portions of
Java, Bali, Lombok and the Lampung region of Southern Sumatra. Mobisel
markets its services under the name "ORBIT."
Mobisel seeks to leverage the wide area and low cost characteristics
inherent in the NMT-450i technology being utilized by Mobisel to offer
superior geographical coverage, including service to the rural areas of
Indonesia and Indonesia's major road systems. As of December 31, 1997,
Mobisel's cellular network included five switches and 92 cellular base
stations.
COUNTRY OVERVIEW
Indonesia is the fourth most populous country in the world, with a
population of approximately 203 million. Although the Indonesian economy has
experienced a severe economic downturn in recent months, Indonesia previously
experienced rapid economic and significant population growth, as evidenced by
real GDP and population growth rates of approximately 7.8% and 1.4%,
respectively, for the year ended December 31, 1996. The current fixed line
penetration in Indonesia is approximately 2.1 lines per 100 people, with the
majority of the line concentration in urban areas. Cellular penetration is
estimated at 0.3 lines per 100 people.
In recent years, the government of Indonesia has taken various steps to
encourage growth in existing sectors and to encourage investment in sectors
previously dominated by the government. Recent government legislation has
lead to an acceleration in cellular penetration. New legislation includes the
removal of import duties on subscriber handsets and wireless infrastructure.
In addition, cellular operators are now allowed to carry domestic long
distance traffic. Legislation has also lead to the formation of joint
ventures between Telkom Indonesia, the national telephone company of
Indonesia, and cellular operators.
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The Company believes that there is significant pent-up demand for
telecommunications services which results in attractive growth prospects for
the cellular telecommunications industry in Indonesia.
OPERATING COMPANY OVERVIEW
CURRENT OPERATIONS AND DEVELOPMENT PLAN. As of December 31, 1997,
Mobisel provided cellular services to approximately 30,000 subscribers.
Mobisel offers subscribers traditional cellular services as well as
value-added services such as voice mail, call waiting, three-way conference
calling and call forwarding. Mobisel intends to expand further its cellular
services in the future and is currently exploring opportunities to provide
additional value-added services such as closed user groups, caller line
identification and short message services.
As of December 31, 1997, Mobisel's cellular network had 92 operational
cell sites. Mobisel's network currently provides coverage to portions of
Java, Bali, Lombok and the Lampung region of Southern Sumatra and has a
capacity to serve approximately 58,500 subscribers. Mobisel currently intends
to expand the geographic coverage of its cellular network as well as to
increase the capacity of its cellular network in existing areas of coverage.
Mobisel's cellular network operates in the 470 MHz frequency band and is
being constructed using NMT-450i technology. See "Technology." Mobisel
purchases network equipment from Nokia, Ericsson, Hans Damm and Tecnomen OY.
Mobisel also has technical assistance agreements with Sema Group UK Limited
and Telecon Ltd.
LICENSE AND INTERCONNECTION. Mobisel holds a license to offer cellular
services throughout Indonesia. Pursuant to the terms of the license, Mobisel
is obligated to provide coverage in Java, Bali, Lombok and the Lampung region
of Southern Sumatra by April 1998. The license has no fixed term and does not
limit the number of subscribers. The Ministry of Tourism, Post and
Telecommunications of Indonesia (the "MTPT") has granted to Mobisel a license
to use 2x4.5 MHz of spectrum in the 470 MHz frequency band to provide
cellular services. Mobisel has applied to the MTPT for a license to use an
additional 2x4.5 MHz of spectrum in the 470 MHz frequency band. The Director
General of the MTPT has issued a letter of "no objection" for the issuance of
such frequency license subject to payment of the necessary fees and
coordination with any existing users. If it receives such frequency, Mobisel
intends to use it to ease the introduction of the new digital service.
Mobisel has received permission from the MTPT to operate a service based
on CDMA technology within the existing NMT band. Mobisel will seek to exploit
this using the existing network of cell sites.
Mobisel operates under an interconnection arrangement with Telkom
Indonesia that permits Mobisel's cellular network to be connected to the
wireline network operated by Telkom Indonesia. This interconnection agreement
provides for interconnection at the rates published from time to time by the
MTPT and will remain in effect as long as Mobisel's operating license remains
in effect. There can be no assurance that the interconnection rates set by
the MTPT will continue to enable Mobisel to operate its business
cost-effectively.
SALES AND MARKETING. Mobisel's marketing strategy focuses on increasing
brand awareness, improving the coverage and capacity of its cellular network,
introducing additional distribution channels and providing superior customer
service. While Mobisel's competitors are focusing on providing services
primarily in Indonesia's urban markets, Mobisel utilizes the advantages
inherent in NMT-450i systems to provide increased coverage more cost
effectively than competing cellular providers. This cost-effective coverage
will enable Mobisel to provide nationwide roaming services and coverage in
suburban and rural areas not served by Indonesia's other cellular operators.
Mobisel currently markets its services through independent distributors,
dealers, retailers and agents. In addition, Mobisel markets its services
through company-owned stores operated under the name "ORBIT Station" as well
as company-owned mobile vans and kiosks. In 1997, Mobisel also entered into
joint promotion arrangements with local banks and credit card companies in
order to increase the distribution of its services in a manner that reduces
exposure to bad debt.
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COMPETITION
Mobisel's primary competitors in the Indonesian telecommunications
market are PT Kommikasi Selular Indonesia, PT Telekomindo Primabhakti and PT
Metro Selular Nusantara, each of which operates a non-overlapping regional
AMPS network, and PT Satelit Palapa Indonesia, PT Telekommunikasi Selular and
PT Excelkomindo Pratama, each of which operates a nationwide GSM network. In
addition, the MTPT recently awarded two licenses to operate DCS 1800 or PHS
networks in and around Jakarta, which will result in the entry of two
additional competitors into the Indonesian cellular market and is in the
final stage of the tender process for the issuance of PCS/PCN operation
permits for Sumatra, Java and the Eastern Region of Indonesia. GSM and
PCS/PCN networks enjoy certain advantages over NMT-450i networks,
particularly in the areas of international roaming, higher capacity in urban
environments and lower handset costs. Competition is limited to handset
pricing, marketing and services.
INVESTMENT; CAPITAL EXPENDITURES; FINANCING
As of December 31, 1997, the Company had expended approximately $22.8
million to acquire its 28.3% interest in, and to make capital contributions
and shareholder loans to, RHP. In addition, in connection with the Vanguard
Project Exchange (as defined herein), the Company allocated $11.5 million to
license rights derived from Vanguard's right to participate in Mobisel that
were obtained by the Company in the Vanguard Project Exchange. The Company is
currently negotiating the terms of the Mobisel Capital Call and the Mobisel
Option with the other shareholders of RHP. The Company anticipates that the
Company will acquire a majority equity interest in RHP if the Mobisel Option
is exercised in its entirety and if no shareholder other than the Company
participates in the Mobisel Capital Call. There can be no assurance that the
Company will be able to negotiate the Mobisel Option or the Mobisel Capital
Call on favorable terms, or at all.
In March 1996, Mobisel obtained a five-year $60.0 million credit
facility from Nissho Iwai to finance the construction of its network and the
purchase of subscriber terminals. Borrowings under such credit facility bear
interest at a floating rate based on LIBOR plus a 2.5% margin per annum and
are secured by all of Mobisel's assets and a pledge of all of the capital
stock of Mobisel held by RHP. RHP has also guaranteed the credit facility,
but no guarantee was required by the Company or the other RHP shareholders.
In addition, Mobisel has agreed to assign to and deposit with Nissho Iwai all
of its cash, including revenues, loan drawings and shareholders' advances.
Currently, approximately $60.0 million of indebtedness is outstanding under
this credit facility. Mobisel is currently negotiating the rescheduling of
the principal and interest payments currently due under this facility.
In January 1997, Mobisel issued approximately Rp. 75 billion of
Indonesian Rupiah-denominated short-term notes to a group of lenders led by
PT Bank Umum Servitia ("BUS") and arranged by PT Makindo Securities
("Makindo"). Such short-term notes have a term of six months, extendable to
one year, and bear interest at a rate of a weighted average of 6-month JIBOR
plus 3.5% per annum. Mobisel has successfully negotiated the rescheduling of
such short-term notes with BUS and Makindo until 1999.
Mobisel has budgeted capital requirements of approximately $1.3 million
for 1998, primarily to provide an upgrade to its customer service and billing
system and to implement a pre-paid service. Mobisel currently expects to fund
such capital requirements through capital contributions from its
shareholders. However, Mobisel does not have commitments from its
shareholders for such funds. While Mobisel is also currently negotiating with
a number of financial institutions to obtain such financing, there can be no
assurance that Mobisel will be successful in obtaining any such financing.
The failure by Mobisel to obtain such funding would have a material adverse
effect on the ability of Mobisel to continue to conduct its business and
could result in the merger, sale, bankruptcy or liquidation of Mobisel.
Because of such lack of funding, Mobisel is currently unable to purchase
handsets from suppliers, which has prevented Mobisel from enrolling
additional subscribers to its network. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Additional Factors That May Affect
Future Results--Negative Operating Cash Flow; Critical Dependence on
Additional Financing."
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LOCAL AND STRATEGIC PARTNERS
The Company's three principal strategic partners in Mobisel are Telkom
Indonesia and Telkom Indonesia's pension fund foundation, Yayasan Dana
Pensiun Pegawai PT Telkom, which own 25% and 5% of Mobisel, respectively; PT
Deltona Satya Dinamika ("DSD"), which indirectly owns approximately 17% of
Mobisel through its approximate 24% equity interest in RHP; PT Bina Reksa
Perdana ("BRP"), which indirectly owns approximately 31% of Mobisel through
its approximate 44% equity interest in RHP; and Nissho Iwai, which indirectly
owns 2.1% of Mobisel through its 3% equity interest in RHP. Telkom Indonesia
also holds an interest in, and provides interconnection to, each of Mobisel's
competitors. See "Competition."
CORPORATE GOVERNANCE
In accordance with the Shareholders Agreement among the shareholders of
RHP dated November 9, 1995, as amended and the Articles of Association of RHP
(collectively, the "RHP Shareholders Agreement"), RHP is managed by three
directors under the supervision of four commissioners. Pursuant to the RHP
Shareholders Agreement, the Company has the right to designate one of the
three directors of RHP and one of the four commissioners of RHP. Currently,
David Venn, the Company's Senior Vice President, Operations Asia, is the
acting President-Director of Mobisel. Further, pursuant to the RHP
Shareholders Agreement, certain significant corporate actions require
unanimous approval of the directors or approval of the commissioners or
shareholders of RHP.
Pursuant to the Cooperation Agreement dated November 30, 1995, "Mobisel
Shareholders Agreement"), Mobisel is managed by five directors under the
supervision of five commissioners. RHP, as the majority shareholder of
Mobisel, has the right to appoint three directors, including the
President-Director, and three commissioners of Mobisel. Telkom Indonesia has
the right to appoint two directors and two commissioners, including
President-Commissioner, of Mobisel. Pursuant to the Mobisel Shareholders
Agreement, all decisions of the directors and commissioners of Mobisel shall
be reached through a process of discussion and consensus. However, if the
parties are unable to reach such a consensus, actions may be taken upon the
vote of a majority of the directors or commissioners present, as applicable.
In the event of a tie, the President-Director or President-Commissioner, as
applicable, will have a casting vote.
REGULATORY OVERVIEW
The telecommunications industry in Indonesia is subject to a high degree
of regulation by the Indonesian government through a number of government
ministries, the most important of which is the MTPT, which has overall
responsibility for the regulation and administration of the
telecommunications industry in Indonesia. The Directorate General of Post and
Telecommunications (the "DGPT") implements regulatory policies, awards and
enforces the licenses granted by the MTPT to sector participants, and
supervises frequency management and standardization of equipment. As part of
this standardization function, the DGPT approves the network configurations
and systems of cellular network operators and is responsible for quality
checks to assure compliance with national technological and equipment
standards. As a result of the foregoing, major policy and management
decisions by Mobisel that can affect national telecommunications development
in Indonesia, including decisions with respect to the coverage and
technological capabilities of Mobisel's cellular network, may require
consultation with, or the approval of, Indonesian government agencies. In
addition, the Indonesian government regulates tariffs charged by
telecommunications operators, including cellular operators.
Under Indonesian law, there are currently no restrictions on the foreign
ownership of telecommunications companies providing basic telecommunications
services (such as Mobisel) except that in respect of such companies, (i) at
least 5% of the capital stock must be owned by an Indonesian entity, (ii)
either Telkom Indonesia or PT. (Persero) Indonesian Satelite Corporation Tbk
is required to hold shares therein and (iii) the MTPT appears to have a
policy of restricting foreign ownership to a maximum of 35% of the capital
stock therein, although exceptions to this policy have been granted. The
Company's indirect ownership interest in Mobisel upon the exercise of the
Mobisel Option and if no shareholder other than the Company participated in
the Mobisel Capital Call would be
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greater than 35%. In addition, the MTPT is currently considering issuing
additional restrictions on foreign investment in telecommunications
companies. The extent of any such regulation is currently unknown.
Both RHP and Mobisel are regulated by the Investment Coordination Board
("BKPM"). RHP is licensed as a Penanaman Modal Asing (PMA) company by BKPM,
and Mobisel is licensed as a Penanaman Modal Dalam Negire (PMDN) company by
BKPM. RHP is permitted under Indonesian law to remit dividends and profits to
foreign shareholders, including the Company, if RHP meets certain legal
reserve requirements. Mobisel has been granted an exemption from import
duties and a deferral of value added taxes on plant and equipment imported to
construct its cellular network.
III. OTHER OPERATING COMPANIES
As part of the realignment of its overall business strategy towards
larger scale projects in which the Company either directly or effectively
exercises significant operational control, the Company is currently
re-evaluating its strategic alternatives regarding its other investments and
opportunities in smaller scale projects. As part of this re-evaluation, the
Company is considering, among other things, the sale of all or a part of
certain of these investments.
WIRELESS LOCAL LOOP
The Company currently holds a 22.5% equity interest in Prismanet, a
provider of wireless local loop services in Malaysia. Prismanet currently
holds a national license to provide wireless telecommunications services
throughout Malaysia and has been granted 2x6 MHz of spectrum nationwide in
the 800 MHz frequency band. As of December 31, 1997, Prismanet had
approximately 8,000 subscribers. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations" and "--Liquidity and Capital Resources."
SPECIALIZED MOBILE RADIO
The Company has interests in a number of SMR/ESMR projects in the
Asia-Pacific region and Latin America. These interests include the following
operational projects:
VENEZUELA. Radio Movil Digital de Venezuela, C.A., ("RMD Venezuela"), a
wholly owned subsidiary of RMD, currently holds one of two nationwide SMR 20
year licenses, renewable for one 20-year period, in Venezuela comprising 480
channels (40 assigned and 440 reserved for future use) in six regions
covering 21.9 million POPs. RMD Venezuela commenced operations in March 1994,
and as of December 31, 1997, had approximately 6,000 subscribers.
ARGENTINA. Radio Movil Digital Argentina S.A., a wholly owned subsidiary
of RMD, and Radio Servicios S.A., an 80% owned subsidiary of RMD (together,
"RMD Argentina"), together hold licenses covering 180 channels covering major
cities in Argentina with a term of 15 years and encompassing a total of 14.9
million POPs. RMD Argentina commenced operations in May 1995, and as of
December 31, 1997 had approximately 2,400 subscribers.
NEW ZEALAND. TeamTalk, a wholly owned subsidiary of the Company, owns
333 channels nationwide in New Zealand. These licenses cover 3.5 million POPs
and have no expiration date. TeamTalk commenced operations in August 1994,
and as of December 31, 1997 had approximately 8,000 subscribers.
INDONESIA. The Company indirectly owns a 15% equity interest in PT
Mobilkom Telekomindo ("Mobilkom"), an Indonesian entity which has a national
ESMR operating license. Mobilkom owns over 200 channels nationwide covering
approximately 203 million POPs. Mobilkom commenced operations in September
1995, and as of December 31, 1997, Mobilkom had approximately 3,900
subscribers.
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PHILIPPINES. The Company owns an equity interest of approximately 15.4%
in Universal Telecommunications Service, Inc. ("UTS"), an entity that owns a
provisional SMR license covering the provinces of Visayas and Mindanao, and
has received provisional authority to expand into the provinces of Manila and
Luzon. UTS owns 362 channels covering approximately 27 million POPs. UTS
commenced operations in July 1996, and as of December 31, 1997, UTS had
approximately 1,000 subscribers.
In addition to the foregoing SMR projects, the Company has majority
interests in developmental stage SMR projects in Peru, Chile and Ecuador.
PAGING
The Company, either directly or through its 56% interest in Star Telecom
Overseas (Cayman Islands) Limited ("STOL"), has equity interests in a number
of paging projects in Asia and Latin America. The Company's partners in STOL
are STHL, the Company's partner in Star Digitel, and Barings Communication
East Asia, an affiliate of ING Barings. These paging interests include the
following projects:
INDIA. Through STOL, the Company indirectly owns a 10.64% equity
interest in RPG Paging Service Limited ("RPSL"), an entity providing paging
services in the Indian cities of New Delhi, Ahmedabad and Madras. RPSL
commenced operations in Ahmedabad and Madras in May 1995, and in New Delhi in
June 1995, and as of December 31, 1997, RPSL had approximately 71,000
subscribers.
THAILAND. Through STOL, the Company indirectly owns an 11.2%
indirect equity interest in WorldPage Co. Ltd. ("WorldPage"), an
entity providing paging services throughout Thailand. WorldPage
commenced operations in June 1994, and as of January 31, 1998, had
approximately 51,000 subscribers.
TAIWAN. Through STOL, the Company indirectly owns a 6.7% equity
interest in First International Telecommunications Co. Ltd. ("FIT"), a
Taiwanese entity. FIT launched paging services in the northern and southern
regions of Taiwan in December 1997 and as of December 31, 1997, had
approximately 20,000 subscribers..
PERU. The Company owns a 66.0% interest in Uniworld S.A. ("Uniworld"),
a Peruvian entity which owns a nationwide paging license. Uniworld
commenced operations in December 1997, and as of December 31, 1997 had
approximately 300 subscribers.
IV. COMPETITION
Because the implementation of advanced wireless technologies is in the
early stages of deployment in many of the Markets, the Company believes there
are significant opportunities to form, develop and operate companies that
deploy these technologies. The Company believes its business will become
increasingly competitive, particularly as businesses and foreign governments
realize the market potential of wireless technologies. A number of large
American, Japanese and European companies, including RBOCs and large
international telecommunications companies, are actively engaged in programs
to develop and commercialize wireless technologies in emerging markets which
will compete with the Operating Companies. In some of the Markets, the
Company will also compete with local wireline carriers, including
government-owned telephone companies. Most of these companies have
substantially greater financial and other resources than the Company,
including research and development staffs and technical and marketing
capabilities. The Company's competitive strategy depends on the service
offered and the competitor. Subject to the availability of additional
spectrum, the Company anticipates that there will be increasing competition
for additional licenses and increased competition once licenses are obtained
from other wireless operators and, in some cases, from government-owned
telephone companies. In view of the continuing development of the
telecommunications industry, it is anticipated that there will be a
continuing competitive threat from new technologies which may render the
technologies employed by certain Operating Companies obsolete or place the
Company at a cost disadvantage. There can be no assurance that any of the
Operating Companies will compete successfully in the marketplace. See
"--Additional Factors That May Affect Future Results--Competition" and
"--Technological Risk; Risk of Obsolescence."
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V. TECHNOLOGY
CELLULAR
A cellular system consists of a series of overlapping cell sites, each
with a cellular tower. These cell sites are linked by wireline or microwave
to a mobile telephone switching office, which consists of a central computer
that controls the network and a switch to route calls between cells and the
public switched telephone network. Many cellular systems significantly
enhance their capacity by adopting a system of frequency reuse whereby the
same frequencies are used in non-contiguous cells. Historically, most
cellular systems have been based on analog technologies such as AMPS (the
U.S. standard), TACS (the UK/European standard) or NMT (the Nordic/European
standard). Analog technologies are now being superseded by digital systems,
which have the benefit of greater spectrum efficiency, resulting in higher
subscriber capacity. Other benefits of digital technologies include higher
quality, international roaming and greater security.
Spectrum for cellular servicer is usually allocated in the 470 MHz, 800
MHz or 900 MHz frequency bands, depending on the country and the standard
used. Additionally, in many countries, spectrum is also being made available
in the 1.8 and 1.9 GHz bands for Personal Communications Services ("PCS") or
Personal Communications Networks ("PCN"). PCS and PCN are variants of
cellular services operating in higher frequency ranges, but providing similar
services.
The cellular technologies currently used in the Operating Companies are:
AMPS. AMPS is a North American analog standard currently used by Star
Digitel in the Star Digitel Provinces. The AMPS system operates in the 800
MHz frequency band, typically using 333 channels per operator in a 10+10 MHz
allocation of spectrum.
DAMPS. DAMPS was developed as a digital upgrade for operators of AMPS
systems and uses time division multiple access ("TDMA"), with three times the
number of conversations carried in each radio channel as compared to AMPS.
DAMPS is not currently used by the Company in cellular projects. It is,
however, used by Prismanet in its wireless local loop network.
GSM. GSM, used by Mobilink, is a digital cellular standard initially
developed in Europe and now widely deployed throughout the world. GSM uses
TDMA technology in which each radio channel is divided into eight timeslots,
and therefore supports eight simultaneous conversations. One important
feature of GSM is automatic global roaming (subject to certain regulatory and
other approvals), whereby a subscriber can automatically obtain service in
any GSM country, with inward calls routed to the country and network that is
being used at the time.
NMT 450. NMT 450 technology was developed in Scandinavia as one of the
first cellular standards. NMT 450 is similar to AMPS, but generally operates
at frequencies in the 400 to 500 MHz frequency band. A key advantage of the
470 MHz spectrum compared with 800 MHz technologies such as AMPS lies in its
superior propagation characteristics. These characteristics provide operators
with cost and coverage advantages in providing service to highways and
suburban and rural areas, where significantly fewer sites are required
compared to AMPS and GSM networks. Although a mature technology, NMT has been
enhanced recently to NMT 450-i, which provides NMT-450 networks with features
similar to GSM, including calling number display, short message service,
voice mail indicator and real-time clock. While NMT 450-i improvements allow
the design of smaller handsets, such handsets are still generally larger and
more expensive than the comparable GSM handsets. Furthermore, as with AMPS,
NMT-450i provides limited global roaming capability. Mobisel uses NMT-450i
technology.
CDMA. CDMA is a technology designed to provide both high capacity and
superior voice quality for cellular and wireless local loop operators. CDMA
operates in the 800 MHz "AMPS" frequency band, in the 1900 MHz "PCS"
frequency band, and is under development for several other commonly used
frequency bands. Star Digitel currently has plans to implement CDMA in the
networks in certain of the Star Digitel Provinces in China. In addition, CDMA
technology is currently being used in the construction of the Beijing
Cellular Network.
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CDMA uses "spread spectrum" radio transmission, with multiple
simultaneous calls on each radio channel. CDMA is claimed to be able to
deliver between six and 12 times analog AMPS capacity. CDMA can be used as a
digital upgrade path for existing AMPS operators such as Star Digitel, as
dual mode handsets which operate on both CDMA and AMPS networks are available
for CDMA at 800 MHz.
SMR/ESMR
SMR refers to a group of technologies designed to provide a combination
of dispatch services, wireless telephone and wireless data services on a
single system. The technology initially was used for dispatch and management
of fleet vehicles such as trucks and taxis, but has now evolved into use as a
tool for business communications, providing communication services to a wide
range of mobile workgroups, including public utilities, couriers, transport
companies, field service companies, and public safety organizations. With
these types of users, usage is characterized by large numbers of relatively
short voice calls, as compared with cellular traffic, which tends to be
characterized by a lesser number of longer calls. This usage results in an
SMR network typically being able to support a larger number of subscribers on
each radio channel, with a lower capital cost per subscriber. Common SMR
technologies are able to provide dispatch (group call) services, telephone
interconnect and wireless data services. SMR networks use higher site
elevations and higher power than cellular technologies, thereby providing
wide coverage from each base station.
Enhanced Specialized Mobile Radio ("ESMR") is a group of technologies
that have resulted from the evolution of SMR to increased functionality,
higher subscriber capacity, wide-area service and the use of digital
technologies. ESMR networks can typically provide what is often described as
"business cellular" services, combining cellular-like telephone calling and
specialized services for intra-organizational use by companies that subscribe
to the service. These services typically include group calling, mobile data
service, 2-way alphanumeric paging and computer-aided dispatch.
A wide range of ESMR technologies are available. This includes the
European MPT-1327 standard, Motorola's "iDEN" product which is based on TDMA
digital cellular technology, a down-banded version of DAMPS digital cellular
technology from Ericsson, and a number of proprietary systems. A key
attribute of the digital ESMR technologies is high subscriber capacity, which
is often equivalent to or better than digital cellular technologies.
WIRELESS LOCAL LOOP
Wireless local loop refers to a group of technologies designed to
provide customer access to the public switched telephone network using
wireless radio technologies rather than traditional wire or fiber optic
lines. A wireless local loop network typically consists of a number of radio
base stations (similar to cell sites used for cellular networks) covering the
target market area, a switching center and fixed subscriber terminals on the
subscriber's premises.
PAGING
Paging is a well-established technology, with service widely available
in most developed and developing countries. A paging system typically
consists of a number of transmitter sites, connected to a central messaging
center. The messaging center receives incoming messages from the public
telephone network and prepares batches of messages for transmission to
subscribers. Two way paging systems are now available, allowing message
acknowledgment responses and short data messages to be sent back by the
paging subscriber. These systems normally require multiple receiver sites in
the network to ensure reliable reception of low power transmissions from
pagers. Depending on the technology used, existing paging systems can be
upgraded to incorporate this capability.
As paging networks are essentially broadcast messaging systems
additional applications can also be supported by the existing infrastructure,
such as news retrieval, stock market quotes and weather forecasts. In
developing countries where telephone penetration is low, paging often
provides an affordable alternative to public telephone service. The high
penetration rates of paging in China and Hong Kong are indicative of this
phenomenon.
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<PAGE>
When used in conjunction with public voice mail services (which are often
provided by paging operators), a "virtual telephone" service can be provided.
VI. ACQUISITION OF RMD
On January 23, 1998 a subsidiary of the Company merged with and into RMD
and RMD became a wholly owned subsidiary of the Company. The purchase price
of RMD was 5,381,009 shares of the Company's Series I Preferred Stock (the
"Series I Preferred Stock"), with an aggregate liquidation preference of
$73.9 million. In addition, the Company paid $4.8 million of RMD's expenses
incurred in connection with the RMD Acquisition.
Pursuant to the Agreement and Plan of Merger dated November 21, 1997,
between the Company and RMD (as amended, the "RMD Merger Agreement"), 728,438
shares of the Series I Preferred Stock issued in the RMD Acquisition are held
in escrow for one year. The Company is entitled to make claims against the
escrow based on, among other things, (i) decreases in RMD's subscribers
between the number at June 30, 1997, and the closing of the RMD Acquisition,
(ii) RMD's channels which were not "good and deliverable" and (iii) breaches
of RMD's representations and warranties contained in the RMD Merger Agreement.
VII. EMPLOYEES
The Company had 37 employees as of December 31, 1997 and 32
employees as of March 31, 1998, as a result of voluntary and involuntary
terminations. The Company has adopted an employee retention program to retain
key personnel. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Additional Factors That May Affect
Future Results--Dependence on Key Personnel; Recent Management Changes." None
of the Company's employees are subject to collective bargaining agreements.
VIII. INCORPORATION HISTORY
IWC was incorporated in Delaware in January 1992. In July 1996, the
Registrant was formed as a holding company with no business operations of its
own. In August 1996, through a merger transaction, IWC became a wholly-owned
subsidiary of the Registrant, and each outstanding share of the capital stock
of IWC was exchanged for 40 shares of the same class and series of the
capital stock of the Registrant (the "IWC Reorganization").
ITEM 2. PROPERTIES
The Registrant leases approximately 8,600 square feet of space in a
facility located in San Mateo, California. The lease provides for current
annual rent, including expenses, of approximately $219,000 per year. Lease
payments are subject to adjustment in the event of increases in property
taxes and other events.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any material legal proceedings at the
present time.
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 fourth quarter of 1997: On December 13, 1997,
the stockholders voted in favor of the merger of a subsidiary of the
Registrant with and into RMD. See "--Acquisition of RMD."
In addition, on March 9, 1998, the stockholders approved the Series J
Preferred Stock Financing. See "Certain Relationships and Related
Transactions--Series J Preferred Stock Financing."
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
I. TRADING MARKET.
There is no established trading market for the Registrant's capital
stock. As of March 31, 1998, there were 1,310,230 shares of the Registrant's
Common Stock outstanding held of record by nine stockholders, and 23,085,351
shares of the Registrant's Preferred Stock outstanding held of record by 135
stockholders. The Registrant's outstanding shares of Preferred Stock
consisted of 933,200 shares of Series A Preferred Stock, 1,229,240 shares of
Series B Preferred Stock, 1,762,280 shares of Series C Preferred Stock,
3,661,636 shares of Series D Preferred Stock, 3,972,240 shares of Series E
Preferred Stock and 5,356,480 shares of Series F Preferred Stock, 5,381,009
shares of Series I Preferred Stock and 789,266 shares of Series J Preferred
Stock.
II. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has completed the following unregistered sales of securities
since January 1, 1997:
(i) The Company granted stock options to purchase an aggregate of
936,296 shares of its Common Stock at exercise prices ranging from $9.375 to
$12.375 per share to employees, consultants and directors.
(ii) On May 5, 1997, the Company issued a warrant to purchase 249,970
shares of its Common Stock at a price of $0.25 per share and a warrant to
purchase 554,750 shares of its Common Stock at an exercise price of $9.375
per share to Vanguard in exchange for warrants to purchase 323,880 shares of
its Series C Preferred Stock, 416,720 shares of its Series D Preferred Stock
and 64,120 shares of its Series F Preferred Stock.
(iii) On August 18, 1997, PWH issued $22.0 million principal amount of
its PWH Pakistan Notes to 31 Pakistan Lenders. The PWH Pakistan Notes may be
exchanged for the Company's Series H Preferred Stock (consisting of voting
Series H-1 Preferred Stock and non-voting Series H-2 Preferred Stock) on one
occasion (i) on or after February 17, 1999 or (ii) upon the occurrence of
specified events of default.
(iv) On August 18, 1997, the Company issued to 31 Pakistan Lenders
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.
(v) On September 17, 1997, the Company issued Y.F. Severn a warrant to
purchase 81,982 shares of its Common Stock pursuant to a Payment Agreement
dated as of September 16, 1997, by and among the Company, Y.F. Severn, Asian
Infrastructure Fund Advisers Limited, Vanguard Pakistan, Inc., Pakistan
Wireless Holdings Limited, South Asia Wireless Communications (Maritius)
Limited, and Asia Pacific Cellphone Co., Inc. The warrant has a seven-year
term and an exercise price of $0.01 per share.
(vi) On September 18, 1997, the Company issued Vanguard a warrant
currently exercisable to purchase 172,763 shares of its Common Stock pursuant
to the Reimbursement Agreement. The warrant has a seven year term and an
exercise price of $0.01 per share.
(vii) On October 20, 1997 and December 12, 1997, the Company issued an
aggregate of $7.0 million principle amount of its IWCH Pakistan Notes to 31
Pakistan Lenders. The IWCH Pakistan Notes may be exchanged for the Company's
Series G Preferred Stock (consisting of voting Series G-1 Preferred Stock and
non-voting Series G-2 Preferred Stock) on one occasion (i) in full, at any
time upon the request of holders of at least 75% of the unpaid principal
amount of the IWCH Pakistan Notes or (ii) in certain circumstances, at the
request of individual IWCH Pakistan Note holders.
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<PAGE>
(viii) On January 23, 1998, the Company issued 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.
(ix) On March 10, 1998, the Company issued Vanguard 789,266 shares of
its Series J Preferred Stock and a related warrant currently exercisable to
purchase 173,639 shares of its Common Stock (with the number of shares
issuable upon exercise of the warrant increasing if the Company does not
achieve certain specified milestones) for an aggregate of $10 million in cash.
(x) On March 10, 1998, the Company issued Vanguard a warrant currently
exercisable to purchase up to 323,408 shares of its Common Stock pursuant to
the Support Services Agreement (as defined herein). The warrant has a 10-year
term and an exercise price of $0.01 per share.
The issuances described in clauses (i) were deemed exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance on Rule 701 thereunder or Section 4(1) thereof. The
issuances of Company's Common Stock, Series J Preferred Stock and warrants to
purchase the Company's Common Stock described in clauses (ii) through (x)
above were deemed exempt from registration under the Securities Act in
reliance upon Section 4(1) thereof. The recipients of the securities issued
in the transactions described in clauses (ii) to (x) above represented their
intentions to acquire the securities for investment only and not with a view
to or in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through the relationships
with the Company or otherwise, to inform themselves about the Company.
III. DIVIDENDS
The Registrant has never paid cash dividends on its capital stock. The
Registrant currently intends to retain its available funds from earnings for
future growth and, therefore, does not anticipate paying any cash dividends
on its capital stock in the foreseeable future. In addition, the indenture
agreement governing the Notes (the "Indenture") prohibits the Registrant from
paying dividends while the Notes are outstanding.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived
from, and are qualified by reference to, the Company's consolidated financial
statements, which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, whose report indicated a reliance on other
auditors relative to certain amounts relating to the Company's investment in
RHP as of and for the year ended December 31, 1996 and to the Company's
investment in Star Digitel as of and for the year ended December 31, 1997.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and the notes thereto
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- -------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................ $ - - - 869 3,275
Cost of revenues.......................... - - - 1,948 3,471
------------- ------------- -------------- ------------- ---------------
(196) (1,079)
Operating expenses:
Selling, general and administrative
expenses............................... 809 2,481 6,365 17,333 31,174
Equity in losses of affiliates......... - - 3,756 11,258 42,584
Impairment in Asset Value.............. - - - 525 24,000
------------- ------------- -------------- ------------- ---------------
Minority interests in losses of
consolidated subsidiaries.............. - - - (275) (1,148)
------------- ------------- -------------- ------------- ---------------
Loss from operations................... (809) (2,481) (10,121) (29,920) (96,806)
Other income (expense):
Interest income........................ 2 106 232 1,823 1,599
Interest expense....................... (33) (115) (1,354) (6,790) (27,524)
Other expense.......................... (1) (13) (28) (1,021) (919)
------------- ------------- -------------- ------------- ---------------
Net loss............................... $ (841) (2,503) (11,271) (35,908) (123,650)
------------- ------------- -------------- ------------- ---------------
------------- ------------- -------------- ------------- ---------------
DECEMBER 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total current assets...................... $ 701 12,580 26,851 54,408 16,816
Long-term debt, net....................... - - - 75,466 123,072
Redeemable convertible preferred stock.... - 19,578 98,845 103,021 105,306
Total stockholders' equity (deficit)...... 425 (3,154) (14,759) (22,127) (129,696)
Working capital........................... (1,514) 10,580 15,294 47,095 804
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND OTHER PARTS OF THIS ANNUAL REPORT ON
FORM 10-K CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED HEREIN. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "--ADDITIONAL FACTORS THAT MAY
AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
INTRODUCTION
The Company, through the Operating Companies, constructs cellular
networks in China, provides cellular services in Pakistan and Indonesia, and
is developing an ESMR network in Brazil. As of December 31, 1997, the
Operating Companies had licenses or, in the case of China, cooperative
arrangements, covering an estimated 752 million POPs which, based on the
Company's equity interests in the Operating Companies, represented an
estimated 218 million equity POPs. As of December 31, 1997, the Operating
Companies, which are generally in the early stages of operations and
expansion, served an aggregate subscriber base of approximately 144,000.
The Company has reported net losses for each fiscal year since the date
of its organization. The Company anticipates that its net losses will
continue for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Additional Factors
That May Affect Future Results--Continuing Losses; Limited Operating History."
Following the recent review of its investment and operating strategy,
the Company decided to focus its resources on developing its larger cellular
and SMR investments. As part of this realignment and in order to raise
additional capital, the Company proposes to sell all or a portion of its
interests in certain smaller scale projects, including interests in TeamTalk,
Mobilkom, UTS and its non-Brazilian Latin American wireless businesses
acquired primarily through its acquisition of RMD. The Company anticipates
that the sale of these investments will occur in 1998. However, in part
because there exists no public market for the Company's ownership interests
in these investments, there can be no assurance that any of these investments
will be sold upon terms acceptable to the Company within such time period or
at all. Moreover, even if such sales are consummated on acceptable terms,
there can be no assurance that the Company will be able to utilize the entire
proceeds from such sales as a result of restrictions contained in the BT Loan
and the Indenture. See "--Additional Factors That May Affect Future
Results--Risks Associated With Indebtedness."
See "Business--Recent Developments" for a summary of recent developments
of the Company.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
The Company recognized $869,000 of operating revenues, offset by cost of
revenues of $1.9 million for 1996 as compared to $3.3 million in operating
revenues, offset by cost of revenues of $3.5 million, for the corresponding
period in 1997. Operating results are represented by the consolidated
commercial operations of TeamTalk, SRC, STOL and Uniworld.
The Company's selling, general and administrative expenses increased
from $17.3 million for 1996 to $31.2 million for the corresponding period in
1997, an increase of 80%. This increase was primarily due to an increase in
selling, general and administrative expenses associated with the Company's
consolidated operations, consisting principally of TeamTalk, SRC, STOL and
Uniworld, as well as an increase in its corporate overhead. The Company's own
general and administrative expenses increased from $12.5 million for 1996 to
$16.8 million for the corresponding period in 1997, an increase of 34%, as
the Company expanded its corporate and regional operations to manage the
growth in its wireless projects and recognized a management advisory expense
of $2.5
38
<PAGE>
million in connection with the Vanguard Warrant Exchange (as defined herein).
The selling, general and administrative expenses of the Company's
consolidated operations increased from $4.8 million for 1996 to $14.3 million
for the corresponding period in 1997, an increase of 198%. These entities
continued to develop their operations and expand their services resulting in
the increase in the Company's selling, general and administrative expenses.
The Company's equity in losses of affiliates increased from $11.3
million for 1996 to $42.6 million for the corresponding period in 1997, an
increase of 278%. This increase was attributable primarily to the increase in
the underlying operating losses of Prismanet, Mobisel and Star Digitel, and a
moderate increase of equity in losses of affiliates attributable to the
amortization of telecommunication licenses.
During 1997, the Company's equity in losses of affiliates attributable
to Prismanet increased from $3.6 million in 1996 to $4.3 million in 1997, an
increase of 22%. However, the Company believes that a significant impairment
in value of its investment in Prismanet has occurred due to its recent
determination that there are diminished prospects for the grant of additional
spectrum at a different frequency band to Prismanet by the government of
Malaysia in the forseeable future. Thus, the Company recorded a significant
write-down in its investment in Prismanet as discussed further below. See
"Business-Other Operating Companies".
The Company's equity in losses of affiliates attributable to its 19.8%
indirect interest in Mobisel, through RHP, increased from $3.5 million for
1996 to $25.3 million for the corresponding period in 1997, an increase of
628%. Mobisel continued to expand its operations and build-out its
nationwide cellular network, and as part of this expansion effort, Mobisel
experienced significant growth in its promotional selling expenses and its
general and administrative expense base increased in order to meet the
anticipated growth in its operations. Mobisel's interest expense increased
for the year ended December 31, 1997, as Mobisel had fully drawn down the
$60.0 million credit facility arranged in October 1996 to finance the
construction of its nationwide network. In addition, in order to finance this
expansion effort, Mobisel entered into, and utilized the majority of, a
syndicated short-term notes facility arranged in January 1997. These funds
enabled Mobisel to continue to build-out its nationwide cellular network and
were also utilized for general corporate purposes. Mobisel also recognized
significant foreign exchange translation losses associated with the
remeasurement of its U.S. dollar-denominated credit facility due to the
devaluation of the Indonesian Rupiah during the year ended December 31, 1997.
Due to the continuing economic crisis in Indonesia, the Company further
wrote-down its investment in Mobisel as discussed further below. See
"Business--Operating Companies--Indonesia-Mobisel."
The Company's equity in losses of affiliates attributable to its 40%
indirect interest in Star Digitel, which the Company acquired in November
1996, increased from $1.0 million in 1996 to $7.8 million for the year ended
December 31, 1997. Star Digitel's operating losses are anticipated to
increase for the foreseeable future as Star Digitel continues to expand its
operations in China. See "Business--Operating Companies--Chine-Great Wall
Cellular."
The Company's increase in equity in losses of affiliates also reflects a
$1.5 million increase in losses 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. See
"Business-Operating Companies-Pakistan-Mobilink".
The Company recognized a subtantial charge for impairment in asset value
during 1997. The impairment in assets charge increased from $525,000 in 1996
to $24.0 million in 1997, a significant increase due to its recognition of
impairment in value attributed to its investments in Prismanet, Mobisel and
Mobilkom. In addition, the Company recognized a partial write-off of its
intangible assets attributed to telecommunication licenses and other
intangibles and its right to an equity interest in an ECTR project in
Pakistan. As discussed above, the Company believes that a significant, other
than temporary, impairment in value has occurred in Prismanet and has
accordingly written-off its remaining investment in Prismanet of $11.7
million. Furthermore, the Company recorded a $5.0 million general reserve
attributed to the Prismanet "keep well" covenant. Also, due to the continuing
economic uncertainty in Indonesia, the Company wrote off its remaining
investments in Mobisel and Mobilkom of $1.1 million and $1.5 million,
respectively. Lastly, consistent with the recent realignment of its business
strategy, the Company wrote off intangible assets totaling
39
<PAGE>
$4.7 million associated with the right to participate in a Pakistan ECTR
business.
The Company's minority interests in losses of consolidated subsidiaries
increased from $275,000 in 1996 to $1.1 million in 1997, an increase of 317%.
The increase in minority interests in losses of consolidated subsidiaries is
primarily due to a decrease in the Company's ownership interest in STOL.
During 1997, the Company's ownership interest decreased from 70% to 56%
thereby increasing the amount of minority interest in losses of consolidated
subsidiaries recognized.
The Company's interest expense increased from $6.8 million for 1996 to
$27.5 million for the corresponding period in 1997, an increase of 305%. The
increase in interest expense was primarily due to interest expense associated
with the Unit Offering, which occurred in August 1996, and the Pakistan
Facility, which occurred in August 1997.
The Company's interest income and other expense experienced only minor
decreases from 1996 to 1997.
YEARS ENDED DECEMBER 31, 1995 AND 1996
The Company recorded no operating revenues or cost of revenues in 1995
as compared to $869,000 in operating revenues, offset by $1.9 million in cost
of revenues, in 1996 attributable to TeamTalk. The majority of operating
revenues and cost of revenues in 1996 resulted from the acquisition,
effective April 30, 1996, of the remaining 50% equity interest in TeamTalk,
which increased the Company's equity ownership in TeamTalk to 100%.
The Company's selling, general and administrative expenses increased
from $6.4 million in 1995 to $17.3 million in 1996, an increase of 172%. This
increase was primarily due to continued growth in the Company's corporate
overhead and the selling, general and administrative expenses associated with
the Company's consolidated SMR operations. The Company experienced continued
growth in its own general and administrative expenses as the Company
increased the development of its corporate and regional operations to manage
the growth in its wireless projects. The Company's own general and
administrative expenses reflected an increase in salaries and benefits from
$2.1 million in 1995 to $4.0 million in 1996, an increase in professional
fees from $463,000 in 1995 to $1.9 million in 1996 and an increase in outside
consulting expense from $1.2 million in 1995 to $1.9 million in 1996. The
selling, general and administrative expenses of the Company's consolidated
SMR operations increased from $528,000 in 1995 to $3.4 million in 1996, an
increase of 544%. These entities continued to develop their SMR operations
and expand their services resulting in the increase in selling, general and
administrative expenses.
The Company's equity in losses of affiliates increased from $3.8 million
in 1995 to $11.3 million in 1996, an increase of 214%. This increase in
equity in losses of affiliates is attributable primarily to the increase in
the underlying operating losses of Prismanet, Mobisel and Star Digitel.
During 1996, Prismanet incurred operating losses as it continued to
expand its wireless local loop operations. The Company's equity in losses of
affiliates attributable to Prismanet increased from $1.3 million in 1995 to
$3.6 million in 1996, an increase of 176%. Although Prismanet's operating
revenue increased from $749,000 in 1995 to $1.9 million in 1996, an increase
of 149%, such increase was offset by the increase in Prismanet's costs of
revenues from $593,000 in 1995 to $1.8 million in 1996, an increase of 209%.
The majority of Prismanet's operating losses was generated by an increase in
interest expense from $663,000 in 1995 to $3.8 million in 1996, an increase
of 479%, resulting from the draw down of substantially all of Prismanet's
Malaysian ringgit 91 million secured loan facility during 1996. As previously
discussed, the Company recorded a write-down of its investment in Prismanet
during 1997.
During 1996, Mobisel, incurred increased operating losses due primarily
to the expansion of its sales and administrative operations. The Company's
equity in losses of affiliates attributable to Mobisel increased from
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$1.0 million in 1995 to $3.5 million in 1996, an increase of 250%, as Mobisel
continued to expand its operations and roll-out its nationwide cellular
network. During this expansion phase, Mobisel focused its efforts on network
expansion and the development of customer care and other internal systems.
During this time, it chose not to actively market its services, and although
revenues increased from $7.3 million in 1995 to $10.3 million in 1996, an
increase of 45%, Mobisel's cost of revenues increased from $3.4 million in
1995 to $11.5 million in 1996, an increase of 248%. This increase in
Mobisel's cost of revenues was due primarily to greater interconnection
costs. Mobisel also incurred higher selling, general and administrative
expenses in order to meet the anticipated growth in its operations. Mobisel's
employee headcount increased by approximately 200% to 286 employees for the
year ended December 31, 1996. During 1996, Mobisel implemented its own
customer billing and collection system. These services had previously been
performed on behalf of Mobisel by Telkom Indonesia, the national Indonesian
telephone company. Mobisel increased its allowance for doubtful accounts as a
result of more accurate customer data being available from the new internal
billing system.
The Company's increase in equity in losses of affiliates also reflects a
$1.0 million increase in losses attributable to its 40% interest in Star
Digitel, which the Company acquired in November 1996.
The Company's interest income increased from $232,000 in 1995 to $1.8
million in 1996, an increase of 686%. This increase was due primarily to
interest earned on interest-bearing government securities in which the
Company invested the proceeds received from the sale and issuance of shares
of the Company's Preferred Stock in December 1995 and from the Unit Offering
completed in August 1996.
The Company's interest expense increased from $1.4 million in 1995 to
$6.8 million in 1996, an increase of 401%, primarily due to interest expense
associated with the Unit Offering.
The Company's other expense increased from $28,000 in 1995 to $1.0
million in 1996, as the Company elected not to exercise, and therefore
permitted to lapse, an option purchased for $1.0 million from the
shareholders of Laranda, a minority shareholder of Prismanet, to acquire 50%
of Laranda.
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 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.
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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
currency exchange rate fluctuations. The Company does not carry foreign
currency convertibility risk insurance.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company has 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, 1996 and December
31, 1997, the Company had cash balances of $41.7 million and $4.4 million,
respectively. As of March 31, 1998, the Company had cash balances of $1.5
million, principally as a result of the first closing of the Series J
Financing.
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. See
"--Additional Factors That May Affect Future Results--Negative Operating Cash
Flow; Critical Dependence on Additional Financing" and "--Holding Company
Structure; Limitations on Access to Cash Flow of Operating Companies." 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 has and proposes to raise a portion
of these funds through an interim equity financing and sale of its interests
in certain of its smaller wireless communications 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.
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 consummation of these sales are subject to
numerous conditions, and there can be no assurance that these sales will close.
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On March 10, 1998, Vanguard purchased shares of the Company's Series J
Preferred Stock and a related Warrant to Purchase Common Stock for $10 million
in the first tranche the Series J Financing. 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 must close on or before April 24,
1998. The Company has offered its remaining stockholders the right to
participate in the second tranche of the Series J Financing and is currently in
discussions with various stockholders regarding their participation. Although
the Company has received indications of interest from various stockholders,
there can be no assurance that the Company will receive commitments for the
entire amount of the second tranche of the Series J Financing.
As of March 31, 1998 the Company had approximately $1.5 million in cash and
cash equivalents, of which $1.0 million was restricted pursuant to the IWCH
Pakistan Facility (as defined below). See "Certain Relationships and Related
Transactions--Pakistan Facilities." The Company estimates that these cash
resources should be sufficient to allow it to continue operations at anticipated
levels through approximately May 31, 1998, assuming that the Company obtains a
waiver of a minimum cash reserve covenant contained in the IWCH Pakistan
Facility and without giving effect to any proceeds that might be available to
the Company from the sale of its interests in certain smaller wireless
communications businesses or the second tranche of the Series J Financing (as
defined below). 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. See
"--Additional Factors that May Affect Future Results--Risks Associated with
Indebtedness."
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, the Prismanet Sale Agreement and the
indications of interest from various stockholders regarding the second tranche
of the Series J Financing, 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 an
approximately 15% equity interest, and the Company 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. 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. See "--Additional Factors that
May Affect Future Results--Risks Associated with Indebtedness."
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. See "Certain
Relationships and Related Transactions--TD Bridge Loans to Star Digitel." 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.
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Additional Factors That May
Affect Future Results--Negative Operating Cash Flow; Critical Dependence on
Additional Financing."
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Via 1 has funded its operational expenditures through the Company's
capital contributions approximating $20.7 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Additional Factors That May Affect Future
Results--Competition."
In January 1998, in connection with the RMD Acquisition, RMD entered
into the BT Loan Agreement, pursuant to which it refinanced $15 million of
existing indebtedness to BTFIC and borrowed an additional $10 million. A
significant portion of the amount borrowed pursuant to the BT Loan 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 RMD of the BT Loan.
Subject to receipt of RBS' consent and in connection with the completion of
the capitalization of Via 1, it is anticipated that the Company will also
pledge the assets of Via 1 to BTFIC to secure the BT Loan. See "--Project
Background; Corporate Governance" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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 Sanwa Bank Limited (Sanwa Bank). As of December 31, 1997,
Mobilink had outstanding an aggregate of approximately $11.8 million in
shareholder loans, which accrue interest at a rate of Euro U.S.$ 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 December 31, 1997, approximately
$12.1 million was outstanding under such facility. Mobilink has also borrowed
$20 million from Sanwa Bank. Interest on such amount accrues at a rate of
Euro U.S.$ LIBOR plus 0.30%, and is payable semi-annually. The Citibank loan
and the Sanwa loan, prior to it being repaid in full, have been guaranteed by
Motorola, a shareholder of Mobilink. Subsequent to December 31, 1997 the
Sanwa Bank loan was replaced by an ABN Amro $20 million local currency loan
facility. This facility is currently guaranteed by Motorola and has a term of
three years. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Additional Factors That May Affect Future
Results--Negative Operating Cash Flow; Critical Dependence on Additional
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. See "Certain Relationships
and Related Transactions--Private Placement Transactions--Pakistan
Facilities." 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 on May 16, 1998, unless sooner
exercised. In addition, pursuant 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. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Additional
Factors that May Affect Future Results--Negative Operating Cash Flow;
Critical Dependence on Additional Financing."
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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
December 31, 1997, 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. See
"Certain Relationships and Related Transactions--Private Placement
Transactions--Pakistan Facilities."
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 being created to address Mobisel's
short-term cash contraints 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
December 31, 1997). 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. See "--Additional Factors That May Affect Future
Results--Negative Operating Cash Flow; Critical Dependence on Additional
Financing."
During 1997, the Company, consistent with its write-down in its
investment in Prismanet, decided it would not participate in a RM20.0 million
capital contribution. The Company and Shubila Holding Sdn. Bhd. ("Shubila")
entered into a side agreement whereby Shubila funded the Company's pro rata
capital contribution amount, and accordingly, the Company's equity ownership
interest in Prismanet was reduced from 30% to 22.5%. See "Business--Operating
Companies" and Notes to Consolidated Financial Statements for additional
information regarding the credit facilities of Prismanet.
Prismanet arranged a Malaysian Ringgit 91.0 million (approximately $24.6
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. In addition
to pledging their capital stock in Prismanet, the Company, the Malaysian bank
syndicate and the other Prismanet shareholders 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. See "--Additional Factors that May
Affect Future Results--Risks Associated With Indebtedness. The Company and
its 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. See "--Additional Factors That May Affect Future
Results That May Affect Future Results--Negative Operating Cash Flow;
Critical Dependence on Additional Financing."
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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
NEGATIVE OPERATING CASH FLOW; CRITICAL DEPENDENCE ON ADDITIONAL FINANCING
The Company used cash in operating and investing activities of $73.2
million and $57.3 million, respectively, for the years ended December 31,
1996 and 1997, respectively, and expects such negative cash flows to continue
in the foreseeable future. See "--Holding Company Structure; Limitation on
Access to Cash Flow of Operating Companies." Because of such negative cash
flow and negative working capital and the capital intensive nature of the
Company's business, the Company will require continuing sources of outside
debt and equity financing to fund its working capital needs, investments and
other cash requirements.
In recent months, the Company and certain of its Operating Companies and
other subsidiaries and affiliates have experienced difficulties in obtaining
financing to fund their operations. In December 1997, the Company initial
public offering of its common stock and began efforts to raise additional
capital through an interim equity financing and the sale of its interests in
certain of its smaller wireless communications businesses in Asia and Latin
America. On March 10, 1998, Vanguard purchased shares of the Company's Series
J Preferred Stock and a related warrant to purchase Common Stock for $10
million as the first tranche of an $18 million interim financing (the "Series
J Financing"). On March 17, 1998, the Company entered into a letter agreement
to sell its SMR Business in Venezuela. The purchase price will be based upon
the number of qualified channels held in the business, which has not been
determined. The closing is subject to numerous conditions, and there can be
no assurance that the sale will close. Pursuant to the BT Purchase Agreement,
100% of the net proceeds from the sale must be deposited in escrow until
certain conditions in the BT Purchase Agreement are satisfied, and thereafter
50% of the net proceeds must be applied to repay indebtedness under the BT
Loan until the unpaid principal amount of the BT Loan is $20 million and
thereafter 30% of the net proceeds must be applied to repay the indebtedness
under the BT Loan. There can be no assurance that the conditions to release
of the purchase price from escrow will be satisfied.
As of March 31, 1998 the Company had approximately $1.5 million in cash
and cash equivalents of which $1.0 million is restricted pursuant to the IWCH
Pakistan Facility (as defined below). See "Certain Relationships and Related
Transactions--Pakistan Facilities." The Company estimates that these cash
resources should be sufficient to allow it to continue operations through
approximately May 31, 1998, without giving effect to any proceeds that might
be available to the Company from the sale of its interests in certain smaller
wireless communications businesses or the second closing of the Series J
Financing. However, there can be no assurance that the Company will not
require additional debt or equity financing before then.
Except for the letter agreement for the sale of its Venezuelan SMR
operations, and the non-binding letter of intent of the sale of its interests
in development stage SMR projects in Peru, Chile and Ecuador, the Company has
no commitments to sell any of its assets or to obtain any additional debt or
equity financing. There can be no assurance that any of the Company's
interests in certain of its smaller wireless communications businesses can be
sold or that the Company can obtain any additional debt or equity financing
on acceptable terms, or at all. If adequate sources of additional financing
are not available, the Company will be forced to curtail its operations
(which may result in the loss or revocation of licenses held by Operating
Companies, the delay, scale back or elimination 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 herein)) 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 Digital by
June 17, 1998 its 40% equity interest in Star Digitel could be reduced to an
approximately 15% equity interest and the Company could be forced to sell its
equity interest in Star Digitel. In addition, if the Company does not make
its pro rata share of a required $2.1 million shareholder loan to Mobilink,
its equity interest in Mobilink could be subject to significant dilution or a
forced sale. Any of such events would have a material adverse effect on the
Company. To the extent the Company raises additional funds through debt
financing, the Company's leverage will increase. See "--Risks Associated with
Indebtedness." To the extent the Company raises additional funds through
equity issuances, the interests of its existing stockholders will be diluted.
In order to secure financing for the 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.
The businesses of the Operating Companies and the Company's other
projects are capital intensive and will require substantial additional
financing in order to fund working capital needs, capital expenditures and
other cash requirements. In the past, each of the Operating Companies has
generated negative cash flow from operations, and the Company expects that
certain of the Operating Companies will continue to generate negative cash
flow from operations for the foreseeable future. As a result, the Operating
Companies will require continuing sources of external financing, including in
particular, Star Digitel, Mobilink and Mobisel. The Company's strategy is to
seek such additional financing for the Operating Companies primarily from
third parties where possible and not from the Company or its partners.
However, there can be no assurance that the Operating Companies will be able
to obtain the financing required to make planned capital expenditures,
provide working capital or meet other cash needs. In addition, in many cases
the Company and its partners may be contractually required to make additional
equity investments in Operating Companies, and the Company's or such
partners' inability or unwillingness to do so could result in the dilution of
such party's equity interest or a significant impairment or loss of the value
of the Company's investment. See "--Liquidity and Capital Resources."
The failure of the Operating Companies to obtain adequate additional
financing would have a material adverse effect on the Company and, among
other things, could result in the loss or revocation of licenses held by
certain of the Operating Companies, require that certain planned projects be
delayed, scaled back or abandoned, delay or prevent growth in subscriber
levels, harm relationships with the Operating Companies' local partners
and/or require the Company to raise substantial additional financing. For
example, Star Digitel currently requires substantial additional capital to
build out its network and make required payments. The failure to obtain such
capital would likely delay growth in adding subscribers and result in the
loss of Star Digitel's right to cooperate with its local partners in one or
more of the Star Digitel Provinces or in the Beijing municipality. Moreover,
Mobisel currently lacks sufficient financing to continue its existing
operations. The failure to obtain such financing could result in the merger,
sale or liquidation of Mobisel. See "Business--Operating Companies--China-Great
Wall Cellular" and "--Indonesia-Mobisel."
GOING CONCERN ASSUMPTION
The Company's independent accountant's report on the Company's financial
statements for the year ended December 31, 1997 contains an explanatory
paragraph indicating that the Company has suffered recurring losses from
operations and has a net capital deficiency at December 31 1997 that raises
substantial doubt about its ability to continue as a going concern. See
"--Negative Operating Cash Flow; Critical Dependence on Additional Financing;
Proposed Sale of Company." The existence of the explanatory paragraph may
have a material adverse effect on the Company's relationship with lenders,
strategic and local partners and suppliers, and therefore could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTINUING LOSSES; LIMITED OPERATING HISTORY
The Company has incurred net losses since its inception and had an
accumulated stockholders' deficit of approximately $179.3 million as of
December 31, 1997. The Company anticipates that its net losses will continue
for the foreseeable future, and there can be no assurance as to whether or
when the Company's operations will become profitable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Since its inception in January 1992, the Company's activities have been
concentrated primarily on the initial
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development of its wireless projects, including the selection of local
partners, the formation of Operating Companies and the pursuit of operating
licenses. Thus, the Company has a limited operating history.
Although the Operating Companies currently provide wireless
communications services on a commercial basis, they are in the early stage of
operations, have a limited number of subscribers and are expected to incur
losses for a substantial period of time. The successful development and
commercialization of each Operating Company will depend on a number of
significant financial, logistical, technical, engineering, marketing,
administrative, regulatory and other factors, the outcomes of which cannot be
predicted. See "--Negative Operating Cash Flow; Critical Dependence on
Additional Financing," "--Risks Inherent in Foreign Investment," "--Risks
Associated with Indebtedness," "--Dependence on Local Economics; Inflation;
Currency Devaluations and Fluctuations," "--Risks Associated with Licenses,"
"--Competition," "--Regulation," "--Dependence on Other Telecommunications
Providers," "--Technological Risks; Risks of Obsolescence," "--Construction
and Operating Risks," "--Customer Risks; Subscriber Fraud," and "--Radio
Frequency Emission Concerns."
RISKS INHERENT IN FOREIGN INVESTMENT
The Company has invested substantially all of its resources outside of
the U.S. and plans to continue to invest substantially all of its resources
outside of the U.S. in the future. Governments of many developing countries
have exercised and continue to exercise substantial influence over many
aspects of the sector. In some cases, the government owns or controls (i)
companies that are or may in the future become competitors of the Company or
(ii) companies (such as national telephone companies) upon which the
Operating Companies may depend for required interconnections to wireline
telephone networks and other essential services, such as the leasing of
lines. In many developing countries, foreign ownership of telecommunication
enterprises is limited or prohibited.
In China, the ownership or operation of telecommunications enterprises
by foreigners is prohibited. The Company believes that the CJV Model
implemented by Star Digitel in three Star Digitel Provinces is consistent
with this ownership prohibition. However, there can be no assurance that the
Chinese government will not determine that the CJV Model violates the Chinese
foreign ownership prohibition. Any such determination by the Chinese
government would have a material adverse effect on Star Digitel and the
Company. In four of the Star Digitel Provinces and in portions of a fifth
Star Digitel Province, Star Digitel has not yet begun implementation of the
CJV Model and is currently operating under cooperative arrangements with its
local partners that are not likely to be enforceable under Chinese law. The
failure of Star Digitel's local partners to honor these cooperative
arrangements would have a material adverse effect on Star Digitel and the
Company. See "Business--Operating Companies--China-Great Wall
Cellular--Operating Company Overview-Structure in Star Digitel Provinces."
Government actions in the future could have a significant adverse effect
on economic conditions in a foreign country or may otherwise have a material
adverse effect on the Company and the Operating Companies. The Company does
not have political risk insurance in the countries in which it currently
conducts business. Expropriation, confiscatory taxation, nationalization,
political, economic or social unrest or instability or other developments in
foreign countries could materially adversely affect the value of the
Company's interests in the Operating Companies and other investments in
particular developing countries. For example, from January 1995 to January
1997, the government of Pakistan shut down all cellular services in the city
of Karachi, which forced Mobilink to cease its operations in that city. The
shutdown ordered by the Pakistani government contributed to significantly
slower growth in Mobilink's subscriber base during the two-year shut down.
See "Business--Operating Companies--Pakistan-Mobilink." In addition, in
China, there can be no assurance that the CESEC Notice will not be
interpreted or enforced by the relevant governmental authorities to require
Star Digitel to terminate the construction of its existing AMPS networks or
to require the renegotiation by Star Digitel of the CJV Model as currently
implemented and Star Digitel's other existing agreements in connection with
the proposed transition from AMPS to CDMA. The interpretation or enforcement
of the CESEC Notice in such a manner would have a material adverse effect on
Star Digitel and the Company. See "Business--Operating Companies--China-Great
Wall Cellular--Regulatory Overview." There can be no assurance that other
countries where the Company has Operating Companies will not impose similar
restrictions in the future. The imposition of any such restriction could have
a material adverse effect on the Company. In addition, although there are no
laws, regulations or binding
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judgments in Pakistan that bar a lender's right to receive interest from a
borrower under a debt obligation, the Federal Shari' at Court, a court
established under the Constitution of Pakistan, has voided a number of
statutory provisions which it determined violated Islamic principles relating
to RIBA (an Islamic term analogous to interest). This determination is being
appealed and reviewed in the courts in Pakistan. If the determination that
interest is contrary to Islamic principles is upheld, ordinary civil courts
in Pakistan might be persuaded to void contracts pertaining to interest
payments on moneys borrowed, including such contracts made by the Government
of Pakistan. This would result in substantial economic disruption and could
have a material adverse effect on the Pakistani economy, Mobilink and the
Company, including the unavailability to Mobilink of financing from foreign
lenders. There can be no assurance that the appeal or review petition will be
successful.
Many of the agreements the Company enters into with the Operating
Companies are governed by the laws of, and are subject to dispute resolution
in the courts of, or through arbitration proceedings in, the country,
province or state in which the Operating Company is located. The Company
cannot predict whether such forums will provide it with an effective and
efficient means of resolving disputes that may arise in the future. Moreover,
even if the Company is able to obtain a satisfactory decision through
arbitration or a court proceeding, there can be no assurance of the
enforcement of the award or judgment, and the Company's ability to obtain or
enforce relief in the U.S. is uncertain.
RISKS ASSOCIATED WITH INDEBTEDNESS
The Company has indebtedness that is substantial in relation to its
stockholders' equity. As of December 31, 1997, the Company's (i) long term
debt was $123.1 million, including approximately $92.8 million in notes (the
"Unit Notes") issued under the Indenture, which was entered into by the
Company in August 1996 in connection with a unit offering (the "Unit
Offering") consisting of the Unit Notes and related warrants (the "Unit
Warrants"), and (ii) total stockholders' deficit was $129.7 million. The high
level of the Company's indebtedness will have important consequences to the
Company, including that (i) the Company may be restricted in the future from
obtaining additional financing, whether for future working capital,
additional capital expenditures or other general corporate purposes, and (ii)
the Company's level of indebtedness could limit its flexibility in planning
for or reacting to changes in its business, and general economic and industry
conditions.
Because the Company does not expect to generate positive cash flow
through dividends or other distributions from the Operating Companies for the
foreseeable future, its ability to repay the Unit Notes and any other
indebtedness which it may incur from time to time will be dependent on
developing one or more sources of financing prior to the repayment of such
indebtedness. The Company may, among other things, (i) seek to refinance all
or a portion of such indebtedness through issuance of additional debt or
equity securities of the Company or other borrowings, (ii) seek to sell all
or a portion of its interests in one or more of the Operating Companies or
its other investments (subject to the restrictions described below under
"--Restrictions on Transfer of Ownership Interests") or (iii) negotiate with
its financial and strategic partners to permit the cash, if any, produced by
the Operating Companies to be distributed to the Company and other equity
holders. There can be no assurance that the Company will be successful in
taking any of these steps. Any failure by the Company to repay the Unit Notes
or other indebtedness when due would have a material adverse effect on the
Company.
The Indenture and other loan agreements to which the Company is a party
or by which it is bound impose significant restrictions on the Company. For
example, the Indenture significantly restricts the ability of the Company to
make investments in, or guarantee the indebtedness of, the Operating
Companies, which may further restrict the Company in providing adequate
financing for the Operating Companies. The Indenture also imposes certain
requirements with respect to sales or other dispositions of assets (including
capital stock in Operating Companies) with a fair market value in excess of
$500,000 by the Company and certain of its subsidiaries ("Asset Sales"),
particularly with respect to the uses to which the net proceeds from such
Asset Sales may be put. These restrictions also apply to Asset Sales
compelled by governmental action, including confiscation or expropriation of
assets by governmental authorities. To the extent that any such expropriation
or confiscation fails to satisfy such requirements, such a violation will be
deemed an event of default under the Indenture. Any default under the
Indenture would entitle holders of the Unit Notes to demand immediate
repayment thereof and to proceed against their collateral. A default under
the Unit Notes or such other indebtedness which the Company may incur in the
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future could also permit lenders at the Operating Company level to declare
borrowings outstanding thereunder to be due and payable pursuant to
cross-default clauses, permitting the lenders under such debt instruments to
proceed against any capital stock or other collateral pledged as security
therefor.
Each of the Operating Companies and certain of the Company's other
subsidiaries have substantial indebtedness and, to the extent that additional
debt financing is available, may in the future incur substantial additional
indebtedness, in relation to its base of equity capital. Such indebtedness
has important consequences to the future operations of the Operating
Companies and such subsidiaries, including that: (i) such entities have
significant, and in some cases escalating, cash requirements to service debt,
reducing funds available for operations and future business opportunities and
increasing the vulnerability of the Operating Companies to adverse general
economic and industry conditions; (ii) such entities may be restricted in the
future from obtaining additional financing, whether for future working
capital, additional capital expenditures or other general corporate purposes;
(iii) such entities' high level of indebtedness may adversely impact their
flexibility in planning for, or reacting to, changes to their businesses and
market conditions and their ability to compete with less highly leveraged
competitors; (iv) such entities may be restricted in their ability to pay
dividends or make other distributions to the Company; and (v) a default in
the indebtedness of such entities may result in an event of default under the
Indenture. There can be no assurance that the Operating Companies will be
able to pay their indebtedness or other liabilities when due. Any failure to
pay such indebtedness or other liabilities when due could have a material
adverse effect on the Operating Companies and the Company, including
resulting in a default under the Unit Notes. See "--Negative Operating Cash
Flow; Critical Dependence on Additional Financing."
For example, the Company entered into the Prismanet Collateral Agreement in
connection with Prismanet's ringgit 91 million credit facility. Prismanet has
failed to make payments required under this credit facility, and, in February
1998, the banks declared the entire amount of the facility, including accrued
interest, to be due and payable. Pursuant to the Prismanet Collateral Agreement,
the Company and such other shareholders would be jointly and severally liable
for amounts due under the credit facility. There can be no assurance that the
banks will not commence legal proceedings against the Company to enforce the
Prismanet Collateral Agreement or, if such proceedings are commenced, that such
proceedings would not have a material adverse effect on the Company. Among
other things, Prismanet's default under its credit facility or a default under
the Prismanet Collateral Agreement may be deemed events of default under the
Indenture, which would have a material adverse effect on the Company.
The Company has in the past been required, and in the future likely will
be required, to guarantee and/or pledge its equity interests to secure
certain indebtedness of the Operating Companies and otherwise to provide
certain assurances to lenders. At the present time, the stock held by the
Company in each Operating Company is pledged to secure outstanding
indebtedness or guarantees of such indebtedness. In the event the Operating
Companies are unable to make payments under such indebtedness when due, the
lenders under such indebtedness would have the right to foreclose on such
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources" and
"Business--Operating Companies." Moreover, to date, most of the debt
financing obtained by the Operating Companies has been secured by assets of
the respective Operating Companies, and it is likely that any debt financing
the Operating Companies obtain in the foreseeable future will also be
similarly secured. The pledge of assets to secure debt financing may limit
the operations of the Operating Companies and make it substantially more
difficult to obtain additional financing.
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF OPERATING
COMPANIES
The Company is a holding company with no business operations of its own.
The Operating Companies and other subsidiaries and affiliates of the Company
are separate and distinct legal entities and have no obligation, contingent
or otherwise, to make any funds available to the Company to enable it to make
investments in Operating Companies, meet working capital needs or other
liabilities of the Company, or for any other reason. To the extent that any
of the Operating Companies generates positive cash flow, the Company may be
unable to access such cash flow because: (i) it owns 50% or less of the
equity of most of such entities and, therefore, does not have the requisite
control to cause such entities to pay dividends to their equity holders; (ii)
certain of such entities are currently or may become parties to credit or
other borrowing agreements that restrict or prohibit the payment of
dividends, and such entities are likely to continue to be subject to such
restrictions and prohibitions for the foreseeable future; (iii) the Company
expects that the Operating Companies will generally reinvest all of their
cash flow in their respective operations for the foreseeable future; and/or
(iv) some of the countries in which such entities conduct business tax, or
may in the future tax, the payment and repatriation of dividends or otherwise
restrict the repatriation of funds. As a result, the Company does not expect
that it will be able to generate any cash flow through dividends or other
distributions from the Operating Companies in the foreseeable future, and
there can be no assurance that the Company will be able to generate any
significant cash flow from the Operating Companies at any time in the future.
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RESTRICTIONS ON TRANSFER OF OWNERSHIP INTERESTS
The Company's ability to sell or transfer its ownership interests in the
Operating Companies and its other projects (i) is generally subject to
limitations contained in the agreements between the Company and its local
partners including, in certain cases, restrictions on sales or transfers,
co-sale rights and/or rights of first refusal and (ii) may be subject to
provisions in local operating licenses and local governmental regulations
that, in certain cases, prohibit or restrict the transfer of the Company's
ownership interests without prior governmental consent. For example, the
consent of the Comision Nacional de Telecomunicaciones (CONATEL) is required
for the sale of the controlling interests in the Company's SMR business in
Venezuela. Moreover, the Company has pledged all or a portion of its capital
stock in each Operating Company and in certain other projects to secure
credit facilities obtained by such Operating Companies and projects, and the
Company may be prohibited from transferring or otherwise disposing of such
capital stock so long as it is pledged as collateral for such credit
facilities. See "--Risks Associated with Indebtedness." In addition, none of
the Operating Companies or the Company's other investments currently has any
publicly traded securities and there can be no assurance that in the future
there will be a public or private market for the securities of these
investments. As a result, the Company's ability to liquidate any or all of
its investments may be substantially limited and there can be no assurance
that the Company will be able to do so in a timely manner, or at all, in the
event that the Company is required to do so in order to satisfy its cash
needs, including to make necessary capital expenditures or to repay
indebtedness.
RISKS ASSOCIATED WITH INTEGRATION OF RMD-BRASIL AND VIA 1
Successful integration of RMD-Brasil and Via 1 will, among other things,
require that the Company combine two distinct wireless communications
networks, coordinate sales and marketing efforts, combine management
information, billing and collections systems, integrate personnel with
different business backgrounds, blend two different corporate cultures and
comply with certain applicable regulatory requirements. There can be no
assurance that the Company can successfully integrate RMD-Brasil and Via 1
and realize any of the anticipated benefits of the RMD Acquisition. Moreover,
unanticipated contingencies could significantly increase the costs of
combining Via 1 and RMD. See "Summary--Recent Developments" and
"Business--Operating Companies--Brazil-Via 1 and RMD" and
"Business--Acquisition of RMD."
DEPENDENCE ON LOCAL ECONOMIES; SIGNIFICANT ECONOMIC DOWNTURN; INFLATION;
CURRENCY DEVALUATIONS AND FLUCTUATIONS
The Operating Companies are dependent, in large part, on the economies
of the developing countries in which they have operations. The economies of
many developing countries, particularly those in Asia, have recently
experienced significant economic downturns. In addition, many developing
countries have experienced extremely high rates of inflation and resulting
high interest rates for many years, as well as significant fluctuations in
their exchange rates. For example, several Latin American countries,
including Brazil, experienced extremely high rates of inflation in 1993 and
1994. See "Business--Operating Companies--Brazil-Via 1 and RMD." Recently,
many developing countries have experienced devaluations of their currencies
relative to the U.S. dollar. For example, since mid-1997, a number of
currencies of Southeast Asian countries, including Indonesia, have
experienced dramatic declines in their exchange rates relative to the U.S.
dollar. Such inflation, fluctuations and devaluations have had, and may
continue to have, significant negative effects on the economies and
securities markets of developing countries, including rapid increases in
interest rates, which occurred recently in Brazil, limited credit
availability and solvency problems experienced by many companies and banks
with dollar-denominated loans. Developments such as these could result in
higher unemployment and slower economic growth in the Markets, which in turn
could have a material adverse effect on the Operating Companies in such
countries, including an adverse effect on their subscriber levels and on
their ability to obtain financing. Revenues generated by the Operating
Companies are generally paid to the Operating Companies in the local
currency. By contrast, many significant liabilities of the Operating
Companies (such as liabilities for the financing of telecommunications
equipment) are payable in U.S. dollars. Because tariffs in many of the
countries in which the Operating Companies operate are regulated, certain
Operating Companies may often be unable to increase tariffs in response to
inflation or currency devaluations. As a result, any devaluation in the local
currency relative to the U.S dollar could have a material adverse effect on
the Operating Companies and the Company. For example, in Indonesia, a
substantial part
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of Mobisel's debt is U.S. dollar denominated. Unless the Indonesian
government permits a tariff increase, Mobisel could experience difficulties
in servicing such debt, which could have a material adverse effect on Mobisel
and the Company. For the year ended December 31, 1997, Mobisel recognized
significant foreign exchange translation losses associated with the
remeasurement of its U.S. dollar denominated credit facility due to the
devaluation of the Indonesian Rupiah.
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 the local
currency and, accordingly, the Company's results of operations may be
adversely affected by changes in currency exchange rates between those
currencies and the U.S. dollar. In general, the Company does not hedge
against foreign currency exchange rate risks. As a result, the Company may
experience economic loss with respect to its investments and fluctuations in
its results of operations solely as a result of foreign currency exchange
rate fluctuations. The Company does not carry currency convertibility risk
insurance.
RISKS ASSOCIATED WITH LICENSES
Each Operating Company's or, in the case of Star Digitel, each PLA
Partner's ability to retain and utilize its telecommunications licenses, to
renew such licenses when they expire and to obtain new licenses in the future
is essential to the Company's operations. However, there can be no assurance
that governmental agencies will not seek to unilaterally limit, revoke or
otherwise adversely modify the terms of these licenses in the future, any of
which could have a material adverse effect on the Company. The Company may
have limited or no legal recourse if any of these events were to occur. See
"--Risks Inherent in Foreign Investment." In the future, additional licenses
may be sought to expand operations, and no assurance can be given that any
such licenses will be obtained. In addition, certain of the licenses will
automatically revert back to the government after a specified period of time,
and there can be no assurance that renewals to licenses will be granted or,
if renewed, that the renewal terms will not be substantially less favorable
to the Operating Companies than the original license terms, any of which
could have a material adverse effect on the Company.
Moreover, the transfer of licenses often requires the approval of
governmental entities. For example, the Brazilian government must approve the
transfer to Via 1 of licenses contributed or to be contributed to it by its
current and proposed shareholders, and there can be no assurance that such
approvals will be obtained. The failure to obtain such approvals, and other
approvals, licenses and/or renewals could have a material adverse effect on
Via 1, the Combined Company and the Company. See "Business--Operating
Companies--Brazil-Via 1 and RMD."
Because foreign ownership of telecommunications ventures is prohibited
in China, Star Digitel is not itself the holder of any telecommunications
licenses, and is therefore dependent on its local partners, including the
PLA, to obtain, retain and renew the licenses necessary for the commercial
operations of Star Digitel's cellular networks. In addition, the cooperative
joint ventures being formed between Star Digitel and Star Digitel's local
partners pursuant to the CJV Model to build local cellular networks will
generally have a term of 20 years, at the end of which the cooperative joint
ventures will be terminated. See "Business--Operating Companies--China-Great
Wall Cellular." Any failure by Star Digitel's local partners to retain such
licenses or to extend the term of such cooperative joint ventures would have
a material adverse effect on Star Digitel and the Company. It is currently
expected that the networks being constructed in the Star Digitel Provinces
may ultimately be required to upgrade to CDMA technology. However, in certain
of the Star Digitel Provinces, Star Digitel does not currently have
agreements granting to it the right to construct networks using CDMA
technology. The failure of Star Digitel to obtain such rights could have a
material adverse effect on Star Digitel and the Company. See
"Business--Operating Companies--China--Great Wall Cellular."
To the extent the Operating Companies require additional licenses to
expand their respective businesses, they may be forced to participate in
competitive bidding processes or to purchase licenses from other license
holders at higher prices than may have historically been paid. Furthermore,
relevant governmental authorities may grant additional telecommunications
licenses to third parties, possibly on better terms, covering the same
geographical areas as the Operating Companies' or their local partners'
licenses or otherwise grant licenses which allow other companies to compete
directly with the Operating Companies for wireless subscribers. Although the
inherent
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limitation on suitable spectrum may provide some protection against the
issuance of competing licenses, there can be no assurance that such
competitive licenses will not be granted. The issuance of competing licenses
could have a material adverse effect on the Company. See "--Competition."
For example, the Pakistan Telecommunications Authority (the "PTA"), which
regulates the provision of telecommunications services, has the authority to
grant a GSM license to Pakistan Telecommunications Company Limited, the
current provider of national wireline services.
Many of the licenses granted to the Operating Companies contain
significant restrictions and other requirements, including those relating to
geographic coverage, network capacity, technology, interconnection to the
public wireline network, attainment of minimum subscriber levels, network
construction and commercial operation deadlines and the local manufacturing
of equipment. Failure to comply with these restrictions and other
requirements may result in the loss, revocation or restriction of the
licenses, penalties or increased costs. Certain of the Operating Companies
and RMD have in the past failed to comply or may presently not be in
compliance with certain restrictions and other requirements. In Brazil, the
Company, its current and proposed partners and RMD were unable to comply with
deadlines for the commencement of commercial operations with respect to
certain of their licenses and, as a result, were required to obtain
extensions of such deadlines. Although such failures have not to date led to
the loss of any licenses, there can be no assurance that the relevant
governmental authorities will not seek to revoke licenses as a result of
these past defaults or refuse to grant further deadline extensions, which
could have a material adverse effect on Via 1, RMD and the Company.
REPORTING STANDARDS; FINANCIAL STATEMENTS OF OPERATING COMPANIES; TIMELY
COMPLIANCE WITH INFORMATIONAL AND FILING REQUIREMENTS
Companies in developing countries are subject to accounting, auditing
and financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. companies. In addition, there
may be substantially less publicly available information about companies in a
developing country than there is about U.S. companies. The Company's ability
to comply with the informational and filing requirements of the Indenture and
the Exchange Act will depend on the timely receipt of accurate and complete
financial and other information from the Operating Companies. The Company
frequently experiences delays in the receipt of such information. The failure
to receive such information on a timely basis could have a material adverse
effect on the Company, including preventing it from satisfying the
informational and filing requirements of the Indenture and the Exchange Act.
LIMITS ON CONTROL OF OPERATING COMPANIES
Although the Company controls or exerts significant influence over the
Operating Companies, such control or influence is subject to significant
contractual, regulatory or other restrictions. In most cases, the Company's
local partners in the Operating Companies have veto powers over significant
operational, financial and management matters that may preclude the Company
from controlling or directing the operations of such entities and
implementing strategies that it favors, including strategies involving the
expansion or development of projects or the pursuit of certain financing
alternatives. Moreover, because of the Chinese foreign ownership prohibition,
Star Digitel is prohibited from operating or managing any of its
telecommunications ventures in China, which significantly limits its
influence over all project matters. As a result, the success of Star
Digitel's business is dependent upon the continuing cooperation of Star
Digitel's partners. See "--Risks Inherent in Foreign Investment." In
addition, regardless of whether it holds a majority or minority interest, the
Company may be unable to access the cash flow, if any, of the Operating
Companies as a result of contractual, regulatory and other limitations. See
"--Holding Company Structure; Limitations on Access to Cash Flow of Operating
Companies."
COMPETITION
Although the implementation of advanced wireless technologies is in the
early stages of deployment in many of the Markets, the Company believes that,
just as in the U.S., the Operating Companies will face increasing
competition. A number of large American, Japanese and European companies,
including U.S.-based regional Bell operating companies ("RBOCs") and large
international telecommunications companies, are actively engaged in programs
to develop and commercialize wireless technologies in emerging markets which
will compete with the Operating Companies. In some of the Markets, the
Company will also compete with local wireline carriers,
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including government-owned telephone companies. Most of these companies have
substantially greater financial and other resources than the Company,
including research and development staffs and technical and marketing
capabilities. Subject to the availability of additional spectrum, the Company
anticipates that there will be increasing competition for additional licenses
and increased competition in the Markets to the extent such licenses are
obtained by others. In view of the continuing development of the
telecommunications industry, it is anticipated that there will be a
continuing competitive threat from new technologies which may render the
technologies employed by the Company obsolete or place the Company at a cost
disadvantage.
RISK OF REGISTRATION UNDER INVESTMENT COMPANY ACT OF 1940
Because the Company currently owns minority interests in all of the
Operating Companies and in many of its other investments, there is a risk
that these ownership positions could be deemed to be investment securities
and that the Company could be characterized as an investment company under
the Investment Company Act of 1940 (the "Investment Company Act"). Due to the
Company's active role in developing and managing the Operating Companies and
its contractual rights as an equity holder, the Company believes that its
interests in the Operating Companies are the equivalent of joint venture
interests rather than investment securities. Therefore, the Company believes
that it is not an investment company and intends to continue its business and
conduct its operations so as not to become subject to the Investment Company
Act. If the Commission or its staff were to take the position, or if it were
otherwise asserted, that the Company is an investment company, the Company
could be required either (i) to liquidate its investments in one or more
Operating Companies and change the manner in which it conducts its operations
to avoid registration as an investment company or (ii) to register as an
investment company. If the Company were required to register under the
Investment Company Act, it would be subject to substantive and restrictive
regulations with respect to capital structure, operations, transactions with
affiliates and other matters. In addition, a determination that the Company
is subject to the Investment Company Act would constitute an event of default
under the Indenture and permit acceleration of the Unit Notes. If the Company
were found to be an investment company but was not registered under the
Investment Company Act, the Company would be prohibited from, among other
things, conducting public offerings in the U.S. or engaging in interstate
commerce in the U.S., the Company would be subject to monetary penalties and
injunctive relief in an action brought by the Commission, and certain
contracts to which the Company is a party (including the Indenture and the
Unit Notes) might be rendered unenforceable or subject to rescission by any
party thereto. As a result, any determination that the Company is an
investment company would have a material adverse effect on the Company and
would likely require that the Company cease operations.
REGULATION
The Operating Companies are generally subject to a high degree of
regulation by the governments in the countries in which they operate. Such
regulations are constantly evolving and may change significantly over time.
Many of the countries in which the Operating Companies are located have only
recently adopted laws and regulations pertaining to telecommunications
services, and in many cases these laws and regulations are undergoing
significant revision and re-evaluation. There can be no assurance that
material and adverse changes in the regulation of the Operating Companies
will not occur in the future. For example, in China the MPT is preparing an
initial draft of a telecommunications law which, if adopted, is expected to
become the basic telecommunications statute in China. The nature and scope of
the regulation contemplated by such law is not fully known, and there can be
no assurance that the law, if adopted, would not have a material adverse
effect on Star Digitel's business.
To date, certain Operating Companies have been subject to regulations in
many areas, including with respect to restrictions on foreign ownership or
operation, service requirements, foreign debt registration and approval
requirements, restrictions on interconnection of wireless systems to
government-owned or telephone networks, subscriber rate-setting, technology
and construction requirements. As in the U.S., these regulations can impose
significant restrictions on operations. An Operating Company's failure to
comply with applicable governmental regulations or operating requirements
could result in the loss of licenses, limit the ability of the Operating
Company to add subscribers or otherwise have a material adverse effect on the
Company. In addition, delays caused by governmental approval or licensing
procedures could have a material adverse effect on the Operating Companies
and the Company. See "--Risks Inherent in Foreign Investment."
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Moreover, to the extent that any of the Operating Companies seeks to
make a dividend or other distribution to the Company, or to the extent that
the Company seeks to liquidate its investment in an Operating Company and
repatriate monies from a relevant country, local taxes, foreign exchange
controls or other restrictions may effectively prevent the transfer of funds
to the Company or the exchange of local currency for U.S. dollars.
DEPENDENCE ON OTHER TELECOMMUNICATIONS PROVIDERS
Just as is the case with cellular operators in the U.S., the success of
the Company's wireless networks will in many cases depend upon services
provided by other telecommunications providers, some of which are competitors
of the Company or the Operating Companies. For example, the Operating
Companies generally require interconnection arrangements with national or
regional telephone companies in order for their wireless networks to
interconnect with wireline telephone networks, and may require the use of
microwave, fiber optic or other lines belonging to other parties to link
their wireless networks. The revocation, loss or modification of any of these
existing agreements or arrangements or the failure to obtain necessary
agreements and/or arrangements in the future on reasonable terms, could have
a material adverse effect on the Operating Companies and the Company. In
Brazil, however, neither Via 1 nor RMD has entered into a written agreement
providing for interconnection to the PSTN. As the Combined Company expands
its operations and transitions selected markets from SMR to ESMR services, it
will become increasingly important for the Combined Company to enter into
agreements with local exchange carriers providing for interconnection to the
PSTN at acceptable rates. The failure of the Combined Company to enter into
such agreements or its inability to interconnect to the PSTN at acceptable
rates would have a material adverse effect on the Combined Company and the
Company. The terms under which the Operating Companies are currently
permitted to interconnect with certain other networks, or may be permitted to
do so in the future, may restrict their ability to exploit significant
opportunities, or to otherwise manage their respective businesses
efficiently. Similarly, in China, although the PTA in each Star Digitel
Province provides interconnection to the local wireline network, Star Digitel
currently has no formal interconnection agreements in place. The loss of
interconnection between a Star Digitel Province and the local PTA would have
a material adverse effect on Star Digitel and the Company. Further, the
support of the MPT is required for Star Digitel to continue to construct its
cellular networks. Although the Company believes that the MPT supports the
construction of such networks, there can be no assurance that such support
will continue. Any decision by the MPT not to support the development by Star
Digitel and its local partners of cellular networks would have a material
adverse effect on Star Digitel and the Company. See "Business--Operating
Companies--China-Great Wall Cellular."
TECHNOLOGICAL RISK; RISK OF OBSOLESCENCE
Although the Operating Companies currently use well-established
technologies, they may in the future deploy advanced technologies that may
only recently have been developed and commercially introduced. There can be
no assurance that the Operating Companies will not experience technical
problems in the commercial deployment of any such advanced technologies,
particularly if they are initially introduced in developing countries. In
addition, the technologies used in wireless communications are evolving
rapidly and one or more of the technologies currently utilized or planned by
the Company to be utilized may, when deployed, be poorly received by its
customers or may become obsolete, which, in either case, would likely have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to keep pace with ongoing technological changes in the
wireless telecommunications industry. Any technical problems or obsolescence
could have a material adverse effect on the Company.
CONSTRUCTION AND OPERATING RISKS
The Operating Companies typically require substantial construction of
new wireless networks and additions to existing wireless networks.
Construction activity requires the Operating Companies to obtain qualified
subcontractors and necessary equipment on a timely basis, the availability of
which varies significantly from country to country. Construction projects are
subject to cost overruns and delays not within the control of the Operating
Company or its subcontractors, such as those caused by acts of governmental
entities, financing delays and catastrophic occurrences. Delays can also
arise from design changes, material and equipment shortages, delays in
delivery and the inability to obtain required financing. Accordingly, there
can be no assurance that the Operating Companies will be able to complete
current or future construction projects for the amount budgeted or within the
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time periods projected, or at all. Failure to complete construction for the
amount budgeted or on a timely basis could jeopardize predicted subscriber
growth, contracts, franchises or licenses and could have a material adverse
effect on the Operating Company and the Company.
In addition, the success of the Operating Companies will depend on
effective and cost-efficient management information, billing and collection
systems and procedures that allow the Operating Companies to send bills and
collect payments on a timely basis. The failure by the Operating Companies to
implement such systems and procedures could result, among other things, in
substantial amounts of uncollectible accounts receivable and inaccurate
subscriber records. For example, in 1997, Mobisel installed a new billing and
collection system which created a more accurate subscriber database. As a
result, Mobisel was required to write down a portion of its subscriber base.
CUSTOMER RISKS; SUBSCRIBER FRAUD
Customer attrition (commonly referred to in the telecommunications
industry as "churn") results in the loss of future revenue from subscribers
whose service is disconnected and the inability to recoup any unrecovered
costs incurred in acquiring the subscriber, typically equipment subsidies and
dealer commissions. Churn occurs for several reasons, including primarily
disconnection by a company for non-payment of bills and to a lesser extent
disconnection by the subscriber who chooses to switch to a competing service
or terminate service, particularly when two or more vendors offer the same
wireless service in a single market. The Company expects that as the
subscriber bases of the Operating Companies grow and the industry matures,
the churn rates of the Operating Companies may increase. The inability of the
Operating Companies to maintain their churn at a relatively low level could
have a material adverse effect on the Operating Companies and the Company. In
addition, because it may be more difficult for Operating Companies to
ascertain the creditworthiness of potential customers as a result of the
early stage of development of the Markets, the Operating Companies may
experience a higher level of bad debt expense than otherwise would be the
case. The failure of the Operating Companies to effectively manage customer
credit risk would have a material adverse effect on the Company.
All cellular networks are subject to fraud. Fraud can take many forms,
including subscribers misrepresenting their backgrounds or financial
capabilities to obtain cellular service ("subscription fraud"), persons using
sophisticated technology to steal subscriber identification codes for use on
stolen cellular phones ("cloning") and users employing false identification
to roam into a network ("roaming fraud"). All types of cellular fraud are
found in developing countries. In the Markets, it is often more difficult to
ascertain the creditworthiness of potential customers than in the U.S., and
as a result, subscription fraud can be particularly wide spread. While the
Company believes it is taking reasonable steps to forestall fraud in its
networks, there can be no assurance that fraud will not substantially effect
the revenues or profits of one or more Operating Companies.
CONTROL OF THE COMPANY
As of March 15, 1998, Vanguard beneficially owned approximately 24.2% of
the Company's equity on a fully diluted basis. Vanguard has made available to
the Company its expertise in the formation, development and operation of
wireless communications businesses, including the identification and
evaluation of wireless communications opportunities, the review of business
and technical plans, the training of operating company personnel and the
obtaining of project-level financing. Vanguard has the right to elect three
of the ten members of the Company's Board of Directors and currently has two
representatives on such Board, including Haynes G. Griffin, Chairman of the
Board of Directors (but excluding Van E. Snowdon, who ceased serving as
President of Vanguard Communications, Inc., a subsidiary of Vanguard, in
connection with being elected President and Chief Executive Officer of the
Company in March 1998). As a result, Vanguard may have the ability to control
the Company effectively and to direct its business and affairs. See
"--Conflicts of Interest," "Management--Arrangements Concerning Election of
Directors" and "--Certain Relationships and Related
Transactions--Transactions with Vanguard." In addition, such concentration of
ownership may have the effect of delaying or preventing a change in control
of the Company and could have an adverse effect on the market price of the
Class A Common Stock.
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CONFLICTS OF INTEREST
Vanguard is not precluded from competing with the Company by itself or
through affiliates by developing, owning and/or operating international
wireless communications businesses, including businesses that use the same or
similar technologies or provide the same services as do the Operating
Companies. Further, Vanguard is not precluded from investing separately from
the Company in its joint ventures. For example, in April 1997, Vanguard
purchased a 7% equity interest in Star Digitel directly from the Company's
local partner in Star Digitel, and, in August 1997, Vanguard invested with
the Company in Mobilink and acquired a 6% indirect interest therein.
See "Business--Operating Companies--China-Great Wall Cellular" and
"--Pakistan-Mobilink."
Vanguard has from time to time engaged in transactions with the Company
or its subsidiaries, including debt and equity financing with the Company and
guarantees of debt financing at the Operating Company level. In addition,
until his election as the Company's President and Chief Executive Officer in
March 1998, Van E. Snowdon served as the President of Vanguard
Communications, Inc., a subsidiary of Vanguard. See also
"Management--Arrangements Concerning Elections of Directors" regarding
Vanguards' right to elect three of the ten members of the Company's Board of
Directors and "--Certain Relationships and Related Transactions" (including
"--Transactions with Vanguard"). Although the directors designated by
Vanguard may abstain from voting on matters in which the interests of the
Company and Vanguard are in conflict, they are not obligated to do so, and
the Company has not adopted any formal policies or procedures designed to
prevent actual conflicts of interest from occurring. As a result, the
presence of potential or actual conflicts could affect the process or outcome
of deliberations of the Board of Directors. There can be no assurance that
such conflicts of interest will not have a material adverse effect on the
financial condition and results of operations of the Company.
Other stockholders of the Company and their affiliates have engaged, or
may engage, in transactions with the Company or its subsidiaries and
participate in wireless communications businesses that are competitive with
those of the Company. See "Certain Relationships and Related Transactions."
DEPENDENCE ON KEY PERSONNEL; RECENT MANAGEMENT CHANGES
The success of the Company and its growth strategy depends in large part
on the ability of the Company to attract and retain key management, marketing
and operating personnel at the Company and the Operating Companies. Since
December 31, 1997, the Company has undergone a series of personnel changes,
including the departure from the Company of various former management
personnel as a result of voluntary and involuntary terminations. The Company
believes that these management changes will not have a material adverse
effect on the Company, particularly in light of the recent hiring of Van E.
Snowdon as President and Chief Executive Officer and Steven D. Overly as
Senior Vice President and General Counsel of the Company and the continuing
involvement of John D. Lockton in the operations of the Company in his
capacity as Vice Chairman of the Board. See "Business--Recent
Developments--Management Changes." The Company has also adopted an employee
retention program to retain its key employees. However, there can be no
assurance that such employee retention program will be successful or that the
recent personnel changes will not have a material adverse effect on the
Company.
RISKS INHERENT IN GROWTH STRATEGY
The Company has grown rapidly since its inception and, as of December
31, 1997, had Operating Companies or other investments in 15 foreign
countries. Subject to the availability of additional financing and other
factors, the Company may make additional investments in wireless projects in
other foreign countries. This strategy entails risks inherent in assessing
the value, strengths and weaknesses of development opportunities, in
evaluating the costs and uncertain returns of building and expanding the
facilities for operating systems and in integrating and managing the
operations of additional operating systems. The Company's growth strategy
will place significant demands on the Company's operational, financial and
marketing resources and on its management. Any failure to manage the Company
effectively could have a material adverse effect on the Company.
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FOREIGN CORRUPT PRACTICES ACT
The Foreign Corrupt Practices Act ("FCPA") generally prohibits U.S.
companies and their intermediaries from making corrupt payments to foreign
officials for the purpose of obtaining or keeping businesses or licenses or
otherwise obtaining favorable treatment. Although the Company has taken
precautions to comply with the FCPA, there can be no assurance that such
precautions will protect the Company against liability under the FCPA,
particularly as a result of actions which may in the past have been taken or
which may be taken in the future by agents and other intermediaries for whose
actions the Company may be held liable under the FCPA. In particular, the
Company may be held responsible for actions taken by its local partners even
though such local partners are themselves typically foreign companies which
are not subject to the FCPA and even through the Company has no ability to
control such local partners. In addition, the Company may be held responsible
for acts taken by employees of an Operating Company or a local partner, even
though the Company does not control such Operating Company or local partner.
Any determination that the Company has violated the FCPA could have a
material adverse effect on the Company.
NO CASH DIVIDENDS ON COMMON STOCK
The Company is prohibited under the terms of the Indenture from paying
dividends or making other distributions with respect to the Company's capital
stock, including the Common Stock, while the Unit Notes are outstanding. The
Company anticipates that all earnings, if any, will be retained for the
operation and expansion of the Company's business.
IMPORT DUTIES ON NETWORK EQUIPMENT AND HANDSETS
The Operating Companies are highly dependent upon the successful and
cost-efficient importation of infrastructure equipment and handsets from
North America, Europe and Japan. In certain of the countries in which the
Company operates, network equipment and handsets are subject to significant
import duties and other taxes. There can be no assurance that these import
duties will not increase significantly in the future, which could have a
material adverse effect on the applicable Operating Company.
RADIO FREQUENCY EMISSION CONCERNS
Certain consumers have alleged that serious health risks have resulted
from the use of certain mobile communications devices. The actual or
perceived health risks of mobile communications devices could adversely
affect wireless service providers, including the Company, through, among
other things, reduced subscriber growth, reduced network usage, the threat of
product liability suits and limitations on financing.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result, in
less than two years, computer systems and software used by many companies,
including the billing systems used by the Operating Companies, may need to be
upgraded to comply with such "Year 2000" requirements. The Operating
Companies are in the process of evaluating and, in some cases, their
potential Year 2000 problems. The Company does not believe that resolution of
Year 2000 problems at Mobisel, Via 1 or RMD will require significant
financial or personnel resources. However, the Company has not yet completed
its review of potential Year 2000 problems at Star Digitel or Mobilink, and
accordingly the amount of financial and personnel resources that will be
required to address such problems remains uncertain.
TAX RISKS
The Company's operating subsidiaries and affiliates (including the
Operating Companies) will be subject to tax in the jurisdictions in which
they operate. The complexity of the tax rules, the application of the rules
to the
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Company's business model and the sophistication of the administration of the
tax rules varies across jurisdictions and could lead to differing effective
tax rates in various jurisdictions.
Distributions of earnings and other payments received by the Company
from such operating subsidiaries and affiliates are likely to be subject to
local jurisdiction withholding taxes. In addition, such distributions and
payments will be subject to U.S. income taxes. In general a U.S. corporation
may claim a foreign tax credit against its federal income tax expense for
foreign withholding taxes and foreign taxes paid directly by corporate
entities in which the Company owns 10% or more of the voting stock. The
ability to claim foreign tax credits is subject to numerous limitations, and
the Company may incur incremental U.S. tax costs as a result of these
limitations.
Some of the Company's foreign subsidiaries may be classified as
controlled foreign corporations or foreign personal holding companies. In
certain cases the Company may be required to include in its income for U.S.
tax purposes a proportionate share of earnings of these subsidiaries prior to
receiving distributions or payments from these subsidiaries.
Some of the Company's foreign subsidiaries may be classified as passive
foreign investment companies (PFICs). In such case, the effective U.S. tax
rate, on earnings distributions received by the Company from a PFIC, could
increase above the U.S. tax rate otherwise applicable. Similarly, the
effective U.S. tax rate, on gains recognized from the disposal of shares in
the PFIC, could increase above the U.S. tax rate otherwise applicable.
Alternatively, the Company may elect to include in its income for U.S. tax
purposes a proportionate share of earnings of these PFIC subsidiaries prior
to receiving distributions or payments from these subsidiaries.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
International Wireless Communications Holdings, Inc. and Subsidiary
Independent Auditors' Reports................................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.................................................... F-5
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997...................... F-6
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1995, 1996 and 1997........... F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997...................... F-8
Notes to Consolidated Financial Statements...................................................................... F-10
</TABLE>
International Wireless Communications Holdings, Inc. ("IWC
Holdings") is a holding company which conducts all of its operations through
its sole direct subsidiary, International Wireless Communications, Inc. and
its subsidiaries ("IWC"). IWC Holdings had no assets, liabilities or
operations other than its investment in IWC as of December 31, 1995. Separate
consolidated financial statements of IWC would be identical to the
consolidated financial statements of IWC Holdings as of December 31, 1995. As
of December 31, 1996, the financial statements of IWC Holdings and IWC are
identical except for the Debt Offering (as defined herein), related warrants
and debt issuance costs (collectively the "1996 Adjustments") which are
recorded at the IWC Holdings level. IWC has executed an intercompany note to
IWC Holdings in a principal amount equal to the net proceeds of the Debt
Offering. As of December 31, 1997, the financial statements of IWC Holdings
and IWC are identical except for the 1996 Adjustments and the IWCH Pakistan
Facility (as defined herein), which are recorded at the IWC Holdings level.
IWC has executed an intercompany note to IWC Holdings in a principal amount
equal to the net proceeds of the IWCH Pakistan facility and the value of the
Common Stock issued in connection with the purchase of an equity interest in
International Wireless Communications Pakistan Limited. Although separate
financial statements of IWC are required by Regulation S-X, they are not
included as management believes they would not be meaningful due to the
separately identifiable differences described above.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
International Wireless Communications Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
International Wireless Communications Holdings, Inc. and subsidiary ("IWC
Holdings" or the "Company") as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of IWC Holdings'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of PT Rajasa Hazanah Perkasa ("RHP"), an investment which is
reflected in the accompanying consolidated financial statements using the
equity method of accounting as of and for the year ended December 31, 1996
(see Note 5). The Company's investment in RHP as of December 31, 1996 was
$28,030,000 and its equity in losses of RHP was $4,746,000 for the year ended
December 31, 1996. In addition, we did not audit the financial statements of
Star Digitel Limited ("Star Digitel"), an investment which is reflected in
the accompanying consolidated financial statements using the equity method of
accounting as of and for the year ended December 31, 1997 (See Note 5). The
Company's investment in Star Digitel as of December 31, 1997 was $19,122,000
and its equity in losses of Star Digitel was $8,531,000 for the year ended
December 31, 1997. These statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to
the amounts included for RHP as of and for the year ended December 31, 1996
and Star Digitel as of and for the year ended December 31, 1997, is based on
the reports of other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, based on our audit and the reports of other
auditors for 1996 and 1997, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of IWC
Holdings as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company has
suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Mountain View, California
April 10, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
REPORT NO. 27181S
The Board of Directors and Stockholders
PT RAJASA HAZANAH PERKASA AND SUBSIDIARY
We have audited the consolidated balance sheets of PT Rajasa
Hazanah Perkasa and Subsidiary as of December 31, 1996 and the related
consolidated statements of income and deficit and cash flows for the year
then ended (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards
established by the Indonesian Institute of Accountants, which are
substantially similar to the generally accepted auditing standards in the
United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of PT
Rajasa Hazanah Perkasa and its subsidiary as of December 31, 1996 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles in the Republic of
Indonesia.
Generally accepted accounting principles in Indonesia vary in
certain respects with those in the United States of America. A description of
the significant differences between those two generally accepted accounting
principles and the approximate effects of those differences on net income and
stockholders' equity are set forth in Notes 22 and 23 to the consolidated
financial statements (not presented separately herein).
PRASETIO, UTOMO & CO.
Drs M.P. Sibarani
License No. SI.570/MK.17/1993
March 24, 1997
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the shareholders of Star Digitel Limited
We have audited the consolidated balance sheets of Star Digitel
Limited and subsidiaries as of December 31, 1997, and the related
consolidated profit and loss account and cash flow statement for the year
then ended (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards in Hong Kong, which are substantially similar to generally
accepted auditing standards in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Star Digitel Limited and subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles in Hong Kong.
Generally accepted accounting principles in Hong Kong vary in
certain respects with those in the United States of America. A description of
the significant differences between those two generally accepted accounting
principles and the approximate effects of those differences on net loss and
shareholders' deficit are set forth in Note 23 to the consolidated financial
statements (not presented separately herein).
Hong Kong, Arthur Andersen & Co.
April 13, 1998.
F-4
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash of $1,500 in 1997)................... $ 41,657 4,410
Investments in affiliates held for sale................................................... 2,062 1,873
Other current assets...................................................................... 10,689 10,533
-------------- --------------
Total current assets.................................................................... 54,408 16,816
Property and equipment, net.................................................................. 18,426 22,406
Notes receivable from affiliate.............................................................. -- 4,583
Investments in affiliates.................................................................... 68,394 57,432
Telecommunication licenses and other intangibles, net........................................ 18,484 12,521
Debt issuance costs, net..................................................................... 6,431 7,961
License deposit and other assets ............................................................ 3,215 1,650
-------------- --------------
Total assets.......................................................................... $ 169,358 123,369
-------------- --------------
-------------- --------------
LIABILITIES, MINORITY INTERESTS, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses.................................................. $ 7,313 11,012
Bank liability.......................................................................... -- 5,000
-------------- --------------
Total current liabilities............................................................ 7,313 16,012
Long-term debt, net...................................................................... 75,466 123,072
-------------- --------------
Total liabilities.................................................................... 82,779 139,084
Commitments and contingencies (Note 13)
Minority interests in consolidated subsidiaries.......................................... 5,685 8,675
Redeemable convertible preferred stock, $.01 par value per share;
21,541,480 and 33,231,480 shares designated in 1996 and 1997,
respectively; 15,973,200 and 15,981,876 shares issued and
outstanding in 1996 and 1997, respectively; net of note receivable from
stockholder of $26 in 1996 and 1997; liquidation and minimum
redemption value of $107,459......................................................... 103,021 105,306
Stockholders' deficit:
Preferred stock, $.01 par value per share;
6,768,520 shares designated; 933,200 shares issued and
outstanding in 1996 and 1997; liquidation value of $793............................ 9 9
Common stock, $.01 par value per share; 26,000,000 and 66,000,000
shares authorized in 1996 and 1997, respectively; 636,720 and 1,310,230
shares issued and outstanding in 1996 and 1997, respectively....................... 6 13
Additional paid-in capital................................................................. 31,060 52,937
Note receivable from stockholder........................................................... (152) (152)
Deferred compensation...................................................................... -- (1,209)
Unrealized gain on investments............................................................. 68 --
Cumulative translation adjustment.......................................................... 271 (1,970)
Accumulated deficit........................................................................ (53,389) (179,324)
-------------- --------------
Total stockholders' deficit.......................................................... (22,127) (129,696)
-------------- --------------
Total liabilities, minority interests, redeemable
convertible preferred stock and stockholders' deficit.............................. $ 169,358 123,369
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Operating revenues......................................................... $ -- 869 3,275
Cost of revenues........................................................... -- 1,948 3,471
------------ ------------ -------------
-- (1,079) (196)
Operating expenses:
Selling, general and administrative expenses............................ 6,365 17,333 31,174
Equity in losses of affiliates.......................................... 3,756 11,258 42,584
Impairment in asset value............................................... -- 525 24,000
Minority interests in losses of consolidated subsidiaries............... -- (275) (1,148)
------------ ------------ -------------
Loss from operations.................................................. (10,121) (29,920) (96,806)
Other income (expense):
Interest income......................................................... 232 1,823 1,599
Interest expense........................................................ (1,354) (6,790) (27,524)
Other................................................................... (28) (1,021) (919)
------------ ------------ -------------
Net loss................................................................... $ (11,271) (35,908) (123,650)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In thousands)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL NOTE RECEIVABLE
--------------------- --------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER
------ ------ ------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1994... 1,200,000 $ 12 76,080 $ 1 625 (152)
Issuance of common stock........... -- -- 251,920 2 124 --
Accretion of redeemable
convertible preferred stock...... -- -- -- -- -- --
Foreign currency translation....... -- -- -- -- -- --
Net loss........................... -- -- -- -- -- --
--------- ------- ----------- ------- ---------- -------------
Balances as of December 31, 1995... 1,200,000 12 328,000 3 749 (152)
Conversion of Series A
preferred stock to common stock.. (266,800) (3) 266,800 3 -- --
Exercise of stock options.......... -- -- 41,920 -- 11 --
Issuance of common stock warrants.. -- -- -- -- 30,300 --
Unrealized gain on investments..... -- -- -- -- -- --
Foreign currency translation....... -- -- -- -- -- --
Accretion of redeemable
convertible preferred stock...... -- -- -- -- -- --
Net loss........................... -- -- -- -- -- --
--------- ------- ----------- ------- ---------- -------------
Balances as of December 31, 1996... 933,200 9 636,720 6 31,060 (152)
Exercise of stock options.......... -- -- 180,000 2 43 --
Issuance of common stock warrants.. -- -- -- -- 11,701 --
Issuance of common stock........... -- -- 493,510 5 6,154 --
Value assigned to Debt
Conversion Feature of IWCH
Pakistan Facility................ -- -- -- -- 3,979 --
Deferred compensation.............. -- -- -- -- -- --
Amortization of deferred
compensation...................
Net warrant exercises of
redeemable convertible -- -- -- -- -- --
preferred stock................
Accretion of redeemable
convertible preferred stock.... -- -- -- -- -- --
Unrealized loss on investments..... -- -- -- -- -- --
Foreign currency translation....... -- -- -- -- -- --
Net loss........................... -- -- -- -- -- --
--------- ------- ----------- ------- ---------- -------------
Balances as of December 31, 1997... 933,200 $ 9 1,310,230 $ 13 52,937 (152)
--------- ------- ----------- ------- ---------- -------------
--------- ------- ----------- ------- ---------- -------------
<CAPTION>
UNREALIZED CUMULATIVE TOTAL
DEFERRED GAIN (LOSS) ON TRANSLATION ACCUMULATED STOCKHOLDERS'
COMPENSATION INVESTMENTS ADJUSTMENT DEFICIT DEFICIT
------------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1994... -- -- -- (3,640) (3,154)
Issuance of common stock........... -- -- -- -- 126
Accretion of redeemable
convertible preferred stock...... -- -- -- (459) (459)
Foreign currency translation....... -- -- (1) -- (1)
Net loss........................... -- -- -- (11,271) (11,271)
------------- ------------- ------------- ------------ --------------
Balances as of December 31, 1995... -- -- (1) (15,370) (14,759)
Conversion of Series A
preferred stock to common stock.. -- -- -- -- --
Exercise of stock options.......... -- -- -- -- 11
Issuance of common stock warrants.. -- -- -- -- 30,300
Unrealized gain on investments..... -- 68 -- -- 68
Foreign currency translation....... -- -- 272 -- 272
Accretion of redeemable
convertible preferred stock...... -- -- -- (2,111) (2,111)
Net loss........................... -- -- -- (35,908) (35,908)
------------- ------------- ------------- ------------ --------------
Balances as of December 31, 1996... -- 68 271 (53,389) (22,127)
Exercise of stock options.......... -- -- -- -- 45
Issuance of common stock warrants.. -- -- -- -- 11,701
Issuance of common stock........... -- -- -- -- 6,159
Value assigned to Debt
Conversion Feature of IWCH
Pakistan Facility................ -- -- -- -- 3,979
Deferred compensation.............. (1,453) -- -- -- (1,453)
Amortization of deferred
compensation................... 244 -- -- -- 244
Net warrant exercises of
redeemable convertible -- -- -- (81) (81)
preferred stock................
Accretion of redeemable
convertible preferred stock.... -- -- -- (2,204) (2,204)
Unrealized loss on investments..... -- (68) -- -- (68)
Foreign currency translation....... -- -- (2,241) -- (2,241)
Net loss........................... -- -- -- (123,650) (123,650)
------------- ------------- ------------- ------------ --------------
Balances as of December 31, 1997... (1,209) -- (1,970) (179,324) (129,696)
------------- ------------- ------------- ------------ --------------
------------- ------------- ------------- ------------ --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................................................. $(11,271) (35,908) (123,650)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation..................................................................... 37 732 1,885
Amortization of telecommunication licenses and other intangibles................. 294 1,103 1,249
Amortization of debt issuance costs.............................................. -- 369 9,196
Amortization of long-term debt discount.......................................... -- 5,764 17,319
Amortization of deferred compensation............................................ -- -- 244
Equity in losses of affiliates................................................... 3,756 11,258 42,584
Gain on sale of affiliate........................................................ -- -- (1,156)
Accrual of interest on long-term debt............................................ -- -- 1,287
Minority interests in losses of consolidated subsidiaries........................ -- 275 1,148
Issuance of common stock warrants................................................ -- -- 10,248
Impairment in asset value........................................................ -- 525 24,000
Unrealized gain (loss) on investments............................................ -- 68 (68)
Changes in operating assets and liabilities:
Other current assets........................................................... (350) (2,480) (6,377)
Accounts payable and accrued expenses.......................................... 5,557 1,246 3,699
Net cash used in operating activities........................................ (1,977) (17,048) (18,392)
Cash flows from investing activities:
Issuance of notes receivable from affiliates -- (1,058) (4,873)
Repayment of notes receivable from affiliates......................................... (113) 583 635
Issuance of notes receivable.......................................................... -- (3,231) (563)
Repayment of notes receivable......................................................... -- 1,800 1,496
Advances to affiliate................................................................. (728) (1,921) --
Investments in affiliates held for sale............................................... -- -- (211)
Proceeds from sale of affiliate....................................................... -- -- 3,218
Purchases of property and equipment................................................... (4,218) (8,657) (5,865)
Purchase of subsidiary................................................................ -- (3,198) --
Investments in affiliates............................................................. (19,589) (31,943) (41,411)
Minority interest in consolidated subsidiaries........................................ -- 5,410 1,842
Purchase of telecommunication licenses and other intangibles.......................... (12,153) (5,772) --
License deposits and other assets..................................................... 70 (8,197) 6,820
Net cash used in investing activities........................................ (36,731) (56,184) (38,912)
Cash flows from financing activities:
Proceeds from issuance of notes payable............................................... 28,138 -- --
Repayment of notes payable............................................................ (2,050) (4,000) --
Proceeds from revolving credit facility............................................... -- 7,000 --
Repayment of revolving credit facility................................................ -- (7,000) --
Net proceeds from issuance of stock and warrants...................................... 27,720 30,300 --
Exercise of stock options............................................................. -- 11 45
Debt issuance costs................................................................... -- (6,800) (6,747)
Proceeds from issuance of long-term debt.............................................. -- 69,702 29,000
Net cash provided by financing activities ................................... 53,808 89,213 22,298
Effect of foreign currency exchange rates on cash and cash equivalents................... -- 278 (2,241)
Net increase (decrease) in cash and cash equivalents.................................... 15,100 16,259 (37,247)
Cash and cash equivalents at beginning of year .......................................... 10,298 25,398 41,657
Cash and cash equivalents at end of year ................................................ $ 25,398 41,657 4,410
---------- ---------- ---------
---------- ---------- ---------
Supplemental cash flow information
Cash paid for interest ............................................................. $ 949 662 --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-8
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<S> <C> <C> <C>
Noncash financing and investing activities:
Conversion of loans to equity................................................... $ 24,307 2,052 --
---------- ---------- ---------
---------- ---------- ---------
Conversion of note receivable to investment in affiliate........................ $ 2,020 -- --
---------- ---------- ---------
---------- ---------- ---------
Net warrant exercises of redeemable convertible preferred stock ................ $ -- -- 81
---------- ---------- ---------
---------- ---------- ---------
Issuance of common stock warrants in connection with Pakistan Bridge Facility,
Mobilink Finder's Fee and Vanguard/Star Digitel Guarantee.......................... $ -- -- 7,967
---------- ---------- ---------
---------- ---------- ---------
Value assigned to Debt Conversion Feature of IWCH Pakistan Facility............. $ -- -- 3,979
---------- ---------- ---------
---------- ---------- ---------
Exchange of redeemable convertible preferred stock for investments in
affiliates and telecommunication licenses and other intangibles................ $ 25,000 -- --
---------- ---------- ---------
---------- ---------- ---------
Exchange of common stock for investment in subsidiary/affiliate................. $ 125 -- 6,159
---------- ---------- ---------
---------- ---------- ---------
Note payable assumed in connection with an affiliate............................ $ 4,000 -- --
---------- ---------- ---------
---------- ---------- ---------
Effect of net assets of subsidiary previously accounted for by the
equity method................................................................... $ -- 4,395 --
---------- ---------- ---------
---------- ---------- ---------
Accretion of redeemable convertible preferred stock............................. $ 459 2,111 2,204
---------- ---------- ---------
---------- ---------- ---------
Vanguard Warrant/Option Exchange................................................ $ -- -- 3,734
---------- ---------- ---------
---------- ---------- ---------
Bank liability assumed in connection with an affiliate.......................... $ -- -- 5,000
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-9
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(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.
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
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/or equity financings. The
Company's plans with respect to obtaining additional capital include
additional shareholder investment of which $10,000,000 was obtained in March
1998, (see Note 16) and sale of non-strategic wireless 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 its strategic and financial alternatives. 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 capital calls for Star Digitel
Limited ("Star Digitel") and International Wireless Communications Pakistan
Limited ("IWCPL") in particular will result in substantial dilution. The
curtailment of operations could result in the loss or revocation of
telecommunication licenses held by the LWBs.
In connection with the Debt Offering (see Note 9), IWC Holdings and IWC
completed a reorganization in which IWC became a wholly owned subsidiary of
IWC Holdings through the conversion of each share of the then-outstanding
capital stock of IWC into 40 shares of the corresponding class and series of
stock of IWC Holdings (the "Stock Conversion"). All data related to shares
and per share amounts for all periods presented have been adjusted to reflect
the effect of the reorganization and the Stock Conversion.
Consistent with industry practice, the Company considers itself to be
operating in one business segment.
F-10
<PAGE>
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of IWC, its wholly owned subsidiary, Servicos de Radio Comunicacoes Ltda.
("SRC"), various offshore holding companies, and a majority owned subsidiary,
PeruTel S.A. ("PeruTel"). The consolidated financial statements for the years
ended December 31, 1996 and 1997 also include the accounts of TeamTalk
Limited ("TeamTalk"), a wholly-owned subsidiary, since April 30, 1996, the
effective date of the acquisition (see Note 5); Wireless Data Services, Ltd.
("WDS") since February 1996 (64% interest as of December 31, 1997); Star
Telecom Overseas (Cayman Islands) Limited ("STOL") since August 1996 (56%
interest as of December 31, 1997) and Uniworld S.A. (formerly Promociones
Telefonicas S.A. ("Protelsa")) ("Uniworld") since December 1996 (66% interest
as of December 31, 1997). All significant intercompany accounts and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operating entities is
the applicable local currency, except for those entities located in highly
inflationary countries. Translation from the applicable foreign currencies to
U.S. dollars is performed for monetary assets and liabilities using current
exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period.
The gains or losses, net of applicable deferred income taxes, resulting from
such translation, if material, are included in stockholders' deficit. Gains
or losses resulting from foreign currency transactions are included in other
income. Foreign currency gains or losses associated with transactions of
investments accounted for under the equity method of accounting are reflected
as a component of equity in gains or losses from affiliates. For
non-operating foreign investees and for the Company's investee in Brazil, a
highly inflationary country, the functional currency is the U.S. dollar.
Remeasurement adjustments for foreign entities, where the U.S. dollar is the
functional currency, and exchange gains and losses arising from transactions
denominated in a currency other than the functional currency, are included in
other income and are not material in any of the years presented.
REVENUE RECOGNITION
Revenue includes primarily access and usage charges for subscriber units
under service agreements with the Company's consolidated subsidiaries that
have commenced operations. The terms of these service agreements range from
monthly to 36 month periods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
90 days or less at the time of acquisition to be cash equivalents.
The Company has classified its investments in certain debt and equity
securities as "available for sale". Such investments are recorded at fair
value, with unrealized gains and losses reported as a separate component of
stockholders' deficit. The cost of securities sold is based upon the specific
identification method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the respective assets, generally three to five years for
non-telecommunication equipment and ten years for telecommunication equipment.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of interests in entities
that have been awarded telecommunication licenses to provide various wireless
telecommunication services.
The cost method of accounting is used for the Company's investments in
affiliated companies where the Company's voting interest is generally less
than 20% and the Company does not exert significant influence. Under the cost
method, the investment is recorded at cost, and income is recognized only to
the extent distributed by the investee as dividends. No such dividends were
declared or distributed for any of the years presented. Write-downs to the
F-11
<PAGE>
recorded historical cost are recognized when the Company believes that an
other than temporary decline in value of the investment has occurred.
Where the Company's voting interest is 20% to 50% and the Company does
not exercise control, 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 net earnings or losses of the investee, limited, in
the case of losses, to the extent of the Company's investment therein (except
where the Company has extended guarantees of debt of the affiliate) and the
amortization of telecommunication licenses and other intangibles, if any.
Write-downs from the adjusted historical cost are made when the Company
believes an impairment in value has occurred. The amount of the purchase
price that exceeded the fair value of the Company's percentage ownership of
the equity investee's tangible assets at the date of acquisition reflects the
existence of intangible assets of the equity investee. The primary intangible
asset of each equity investee consists of the equity investee's
telecommunication licenses or rights to participate in such licenses. Amounts
attributable to other intangibles, such as workforce, customer lists, and
agreements with local companies for transmitter and antenna locations, are
not material. Accordingly, the Company has accounted for the excess purchase
price as attributable primarily to telecommunication licenses and
participation rights and amortizes such intangibles generally over a period
of up to 20 years commencing upon the date of completion of the acquisition
or commencement of project operations in the case of Star Digitel. To the
extent that goodwill exists, the Company believes that the difference in
amortization lives between telecommunication licenses and goodwill would not
have a material effect on the accompanying consolidated financial statements.
In some cases, the terms of the licenses held by the equity investees are
less than twenty years. However, the Company believes that it will be able to
renew the licenses indefinitely if it builds out the infrastructure and
establishes commercial service. The costs of license renewal are expected to
be nominal.
The Company consolidates entities it controls, generally through greater
than 50% ownership interest.
TELECOMMUNICATION LICENSES AND OTHER INTANGIBLES
The Company has acquired majority ownership interest in various LWBs.
These acquisitions have been accounted for under the purchase method and are
included in the accompanying consolidated financial statements. The amount of
the purchase price that exceeded the underlying fair value of the Company's
pro rata ownership in the LWB's net tangible assets at the date of
acquisition represents the level of intangible assets of the LWB. The primary
intangible asset of each LWB consists of the LWB's telecommunication licenses
or rights to participate in such licenses. Given the early stage nature of
the acquired entities, amounts attributable to other intangibles, such as
workforce, customer lists, and agreements with local companies for
transmitter and antenna locations, are not material. Accordingly, the Company
has accounted for the excess purchase price as attributable primarily to
telecommunication licenses and participation rights. To the extent that
goodwill exists, the Company believes that the difference in amortization
lives between licenses and goodwill would not have a material effect on the
accompanying consolidated financial statements. Licenses are amortized
generally over a period of 20 years, commencing upon the date of completion
of the acquisition. In some cases, the terms of the licenses held by the
LWB's are less than twenty years. However, the Company believes that it will
be able to renew the licenses indefinitely if it builds out the
infrastructure and establishes commercial service. The costs of license
renewal are expected to be nominal. Amortization expense was approximately
$294,000, $1,103,000, and $1,249,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method of Accounting
Principles Board ("APB") Opinion No. 25 to account for its employee
stock-based compensation plans.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
F-12
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
BUSINESS AND CREDIT CONCENTRATIONS AND RISK FACTORS
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist of cash and cash equivalents. The
Company's cash equivalents are comprised of investment grade short-term debt
instruments. Management believes that the financial risks associated with
such deposits are minimal.
Included in the Company's consolidated balance sheet as of December 31,
1996 and 1997, are long-term investments in various LWBs in such developing
countries as Brazil, China, India, Indonesia, Malaysia, Pakistan, New
Zealand and Peru.
Each IWC subsidiary and affiliate has a unique and distinct market,
operating and regulatory environment, and local economy with different
subscription rates and costs to build and operate the systems. Achieving each
operating plan is dependent upon successfully contending not only with normal
risks associated with constructing and operating wireless properties, but
also risks unique to operating in foreign emerging countries, such as
regulatory compliance, contractual restrictions, labor laws, expropriation,
nationalization, political, economic or social instability, and confiscatory
taxation.
The Company anticipates that it will often have a minority interest in
operating companies, in part because applicable laws often limit foreign
investors to minority equity positions. As such, the Company may be unable to
access the cash flow, if any, of its operating companies. Additionally, the
Company's ability to sell or transfer its ownership interest in its operating
companies is generally subject to limitations based on agreements with its
strategic and financial partners, as well as provisions in local operating
licenses and local government regulations that may prohibit or restrict the
transfer of the Company's ownership interest in such operating companies.
The U.S. dollar-denominated value of the Company's investment in its
operating companies and other wireless projects is partially a function of
the currency exchange rate between the U.S. dollar and the applicable local
currency. In addition, such operating companies and other wireless projects
will report their results of operations in the local currency and,
accordingly, the Company's results of operations may be adversely affected by
changes in currency exchange rate risks. As a result, the Company may
experience economic loss with respect to its investments and fluctuations in
its results of operations solely as a result of currency exchange rate
fluctuations. During the latter half of 1997, the Company experienced
significant equity losses relating to its investments in Asia, particularly
in PT Rajasa Hazanah Perkasa ("RHP"), the Company's cellular affiliate in
Indonesia, due in large part to the significant devaluation of the Indonesian
rupiah and the related remeasurement of its U.S. dollar-denominated credit
facility. The Company expects to experience continued foreign currency
translation losses in Asia, particularly where U.S. dollar-denominated debt
exists. This may also impact the Company's ability to raise debt at the
operating company level in Asia in the foreseeable future. The company does
not carry currency convertibility risk insurance or engage in foreign
currency hedge transactions.
The Company's ability to retain and exploit its existing
telecommunication licenses, and to obtain new licenses in the future, is
essential to the Company's operations. However, these licenses are typically
granted by governmental agencies in developing countries, and there can be no
assurance that these governmental agencies will not seek to unilaterally
limit, revoke, or otherwise adversely modify the terms of these licenses in
the future, any of which could have a material adverse effect on the Company,
and the Company may have limited or no legal recourse if any of these events
were to occur. In addition, licenses typically require renewal from time to
time and there can be no assurance that renewals to these licenses will be
granted.
Most of the LWBs currently operating have incurred operating losses and
negative cash flow from operations since inception, and the Company expects
that most of its operating companies will continue to generate operating
F-13
<PAGE>
losses and negative cash flow from operations for the foreseeable future and
accordingly, the Company expects its losses to increase. Most of these
operating companies have only recently initiated providing commercial
services and have a limited subscriber base. This is not uncommon in the
wireless telecommunications industry, which requires significant capital
investments in the initial years prior to obtaining a sufficient subscriber
revenue base to support operations. Achievement of positive cash flow from
operations will depend on successful execution of management's business
plans. Those plans assume significant additional capital investment, in some
cases, to expand the wireless network. There can be no assurance that such
funding capacity will be available in the future.
RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimated future cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount.
The recoverability of property and equipment, investments in equity and
cost investee companies, and the value attributed to telecommunications
licenses, is dependent upon the successful build-out of system
infrastructure, obtaining additional licenses by investee companies, and
successful development of systems in each of the respective markets in which
the Company's investees operate or through the sale of such assets. In 1996,
the Company wrote off its investments in HFCL Mobile Radio, Ltd. ("HFCL") and
PT Binamolti Visvalindo ("PTBV") of $320,000 and $205,000, respectively,
based on management's decision to no longer pursue such projects. In 1997,
the Company wrote off its investments in M/S Mobilcom (Pte) Ltd. ("Mobilcom
Pakistan") and PT Mobilkom Telekomindo ("Mobilkom") of $4,714,000 and
$1,500,000, respectively, and wrote down its investment in Prismanet (M) Sdn.
Bhd. (formerly STW) ("Prismanet") by $11,683,000 ($7,683,000 as an equity
investment and $4,000,000 as a cost investment) and RHP by $1,103,000 based
on management's decision to no longer pursue the Mobilcom Pakistan project
and significant other than temporary impairments in the Company's estimate of
the net realizable value in both Mobilkom, Prismanet and RHP (see Notes 4 and
5). In addition, the Company recorded its pro rata share of reserves
associated with the Prismanet "keep well" of $5,000,000 (see Note 13). All
such impairment write-offs and write-downs are classified as impairment in
asset value on the accompanying consolidated statements of operations for the
years ended December 31, 1996 and 1997.
RECLASSIFICATIONS
Certain amounts in the accompanying 1995 and 1996 consolidated financial
statements have been reclassified to conform with the 1997 consolidated
financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE
INCOME. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Company will adopt SFAS No. 130 in fiscal 1998.
The Financial Accounting Standards Board recently issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This
statement establishes standards for the way public business enterprises are
to report information about operating segments in annual financial statements
and requires those enterprises to report selected information about operating
segments in interim financial reports. The Company will adopt SFAS No. 131 in
fiscal 1998. The Company has determined that it does not have any separately
reportable business segments.
(2) CASH AND CASH EQUIVALENTS
The Company has invested in a variety of short-term, highly liquid
investments all with original maturities of 90 days or less. As of December
31, 1996, the Company had cash of $11,811,000, and cash equivalents
consisting of money market mutual funds and U.S. government and agency
obligations totaling $3,009,000 and
F-14
<PAGE>
$26,837,000, respectively. Unrealized gains on U.S. government and agency
obligations of $68,000 is included as a component of stockholders' deficit on
the accompanying consolidated balance sheet as of December 31, 1996. As of
December 31, 1997, the Company had cash of $669,000 and cash equivalents
consisting of money market mutual funds and seven day fixed term deposits
totaling $2,141,000 and $1,600,000, respectively.
F-15
<PAGE>
(3) BALANCE SHEET COMPONENTS
Balance sheet components as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------------- ---------------
<S> <C> <C>
Other current assets
Employee receivables............................................................... $ 179 272
Taxes receivables.................................................................. 820 805
Accounts receivable................................................................ 348 1,797
Other receivables.................................................................. 1,373 5,487
License deposit.................................................................... 5,255 --
Notes receivable................................................................... 1,431 776
Notes receivable from affiliates................................................... 813 290
Prepaid expenses and other......................................................... 470 1,106
-------------- ---------------
$ 10,689 10,533
-------------- ---------------
-------------- ---------------
Property and equipment
Furniture and fixtures............................................................. $ 320 296
Computer and office equipment...................................................... 935 1,412
Automobiles........................................................................ 197 248
Leasehold improvements............................................................. 276 545
Telecommunication equipment........................................................ 9,930 17,854
Construction in process............................................................ 7,620 4,788
-------------- ---------------
19,278 25,143
Less accumulated depreciation........................................................ 852 2,737
-------------- ---------------
Property and equipment, net..................................................... $ 18,426 22,406
-------------- ---------------
-------------- ---------------
Telecommunication licenses and other intangibles
SRC/Via 1 project.................................................................. $ 6,680 6,680
Mobilcom Pakistan.................................................................. 5,439 725
TeamTalk........................................................................... 1,760 1,760
STOL............................................................................... 3,965 3,965
Protelsa........................................................................... 1,557 1,557
WDS................................................................................ 221 221
Other.............................................................................. 200 200
-------------- ---------------
19,822 15,108
Less accumulated amortization...................................................... 1,338 2,587
-------------- ---------------
Telecommunication licenses and other intangibles, net....................... $ 18,484 12,521
-------------- ---------------
-------------- ---------------
Accounts payable and accrued expenses
Accounts payable.................................................................. $ 5,163 4,187
Professional services............................................................. 718 1,237
Employee compensation and benefits................................................ 619 886
Equipment purchases............................................................... 27 3,393
Interest.......................................................................... -- 525
Other............................................................................. 786 784
-------------- ---------------
$ 7,313 11,012
-------------- ---------------
-------------- ---------------
</TABLE>
F-16
<PAGE>
(4) INVESTMENTS IN AFFILIATES HELD FOR SALE
In June 1997, the Company sold its 1.56% equity interest in Corporation
Mobilcom S.A. de C.V. ("Mobilcom Mexico") for $3,218,000 to a third party
affiliated with an existing shareholder in Mobilcom Mexico. The Company
carried this investment in Mobilcom Mexico at its historical cost basis of
$2,062,000. As a result, the Company reported a gain of $1,156,000 in other
income as of December 31, 1997. In compliance with the Indenture (see Note
9), proceeds from the disposition of the Company's interest in Mobilcom
Mexico were used for Permitted Investments (as defined) within 270 days after
the date of disposition.
In June 1997, the Company initiated the disposition of three additional
enhanced capacity trunked radio ("ECTR") investments as the Company re-aligns
its investment strategy and re-distributes its resources to its larger
cellular and ESMR investments. The investments held for sale include
TeamTalk, the Company's wholly owned New Zealand subsidiary; Universal
Telecommunications Service, Inc. ("UTS") in the Philippines and Mobilkom in
Indonesia. In December 1997, the Company wrote off its investment in Mobilkom
of $1,500,000 (see Note 1) as it does not expect to receive any proceeds from
a sale of this interest as a result of Mobilkom's delay in the execution of
its business plan and the effects of the Asian economic crisis on this
investment. The Company expects that the sale of Team Talk and UTS may occur
in 1998. The Company anticipates that the proceeds from disposition of Team
Talk and UTS will not materially differ from the Company's historical cost
basis.
Investments in affiliates held for sale as of December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997
----------------- ------------------
<S> <C> <C>
Mobilcom Mexico..................................... $ 2,062 --
UTS................................................. -- 1,873
----------------- ------------------
$ 2,062 1,873
----------------- ------------------
----------------- ------------------
</TABLE>
In July 1997, the Company changed its method of accounting for its
investment in UTS from the equity method to the cost method since its
ownership interest was reduced from 19.04% to 15.41% as the Company elected
not to participate in a recent capital call. The Company has not changed the
basis of accounting for the remaining investments held for sale. The Company
continues to consolidate TeamTalk and has not reclassified this investment as
an asset held for sale. The Company's investment in, and advances to,
TeamTalk amounted to $17,979,000 as of December 31, 1997. Selected audited
financial information for TeamTalk is as follows as of and for the year ended
December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Current assets.................................................................... $ 803
Noncurrent assets................................................................. 12,913
Current liabilities............................................................... 3,889
Noncurrent liabilities ........................................................... 9,427
Net revenues...................................................................... 1,811
Net loss.......................................................................... (3,235)
</TABLE>
(5) 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):
F-17
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
--------------------------------------------------------------------------
MALAYSIA INDONESIA NEW ZEALAND INDIA INDONESIA
--------- ---------- ---------- ------ ---------
PRISMANET RHP TEAMTALK HFCL PTBV TOTALS
--------- --------- ----------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Percentage of ownership............................... 30%(1) 25% 50% 49% 49%
Investments in affiliated companies as of
December 31, 1994................................. $ 1,400 -- 284 -- -- 1,684
Additional investment................................. 20,770 25,530 2,569 243 206 49,318
Amortization.......................................... (638) (319) (7) (1) (1) (966)
Losses................................................ (1,291) (991) (508) -- -- (2,790)
--------- -------- -------- ------ ----- --------
Equity in losses of affiliates........................ (1,929) (1,310) (515) (1) (1) (3,756)
--------- -------- -------- ------ ----- --------
Investments in affiliated companies as of
December 31, 1995................................. $ 20,241 24,220 2,338 242 205 47,246
--------- -------- -------- ------ ----- --------
--------- -------- -------- ------ ----- --------
Portion of investment exceeding the Company's share
of the underlying historical net assets as of
December 31, 1995................................. $ 16,821 23,361 1,526 242 205 42,155
--------- -------- -------- ------ ----- --------
--------- -------- -------- ------ ----- --------
</TABLE>
(1) The Company, along with the other Prismanet shareholders, agreed to
provide certain support in connection with a Malaysian Ringgit 91,000,000
(approximately $23,400,000 as of December 31, 1997) senior credit facility
obtained by Prismanet with a Malaysian bank syndicate (see Note 13).
F-18
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
MALAYSIA INDONESIA CHINA PHILIPPINES NEW ZEALAND INDIA INDONESIA
--------- ---------- ------------ ----------- ----------- ------ ---------
PRISMANET RHP STAR DIGITEL UTS TEAMTALK HFCL PTBV TOTALS
--------- ---------- ------------ ----------- ----------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of ownership................. 30%(1) 28% 40% 19%(2) 100%(3) 49%(4) 49%(4)
Investments in affiliated companies as
of December 31, 1995.................... $ 20,241 24,220 -- -- 2,338 242 205 47,246
Additional investment (reclassification) 1,201 8,556 20,000 1,906 (1,736) 78 -- 30,005
Impairment in asset value............... -- -- -- -- -- (320) (205) (525)
Amortization............................ (969) (1,278) (347) (51) -- -- -- (2,645)
(Losses) gains.......................... (3,563) (3,468) (1,000) 20 (602) -- -- (8,613)
--------- --------- -------- ------- ------- ------ ------- -------
Equity in losses of affiliates.......... (4,532) (4,746) (1,347) (31) (602) -- -- (11,258)
--------- --------- -------- ------- ------- ------ ------- -------
Investments in affiliated companies as
of December 31, 1996....................$ 16,910 28,030 18,653 1,875 -- -- -- 65,468
Portion of investment exceeding the
Company's share of the underlying
historical net assets as of
December 31, 1996.......................$ 15,852 28,030 10,653 882 -- -- -- 55,417
</TABLE>
(1) The Company, along with the other Prismanet shareholders, agreed to
provide certain support in connection with a Malaysian Ringgit
91,000,000 (approximately $23,400,000 as of December 31, 1997) senior
credit facility obtained by Prismanet with a Malaysian bank syndicate
(see Note 13).
(2) Reflects an additional investment of $532,000, of which $354,000 was
paid in 1996 and the remainder was paid in January 1997, pursuant to an
agreement dated September 25, 1996. This investment was previously
accounted for as a cost investment.
(3) Reflects acquisition of the remaining 50% of TeamTalk, effective April
30, 1996, pursuant to an agreement dated June 24, 1996.
(4) HFCL and PTBV were fully written off during 1996 based on management's
decision to no longer pursue these projects.
F-19
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------
MALAYSIA INDONESIA CHINA PHILIPPINES PAKISTAN THAILAND
--------- --------- -------- ----------- ----------- -------------
WORLDPAGE
STAR COMPANY LIMITED
PRISMANET RHP DIGITEL UTS IWCPL ("WORLDPAGE") TOTALS
--------- --------- -------- ----------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of ownership..................... 22.5%(1) 28% 40% 15%(2) 34% 11%
Investments in affiliated companies as of
December 31, 1996...........................$ 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>
(1) The Company, along with the other Prismanet shareholders, agreed to
provide certain support in connection with a Malaysian Ringgit
91,000,000 (approximately $23,400,000 as of December 31, 1997) senior
credit facility obtained by Prismanet with a Malaysian bank syndicate
(see Note 13). The Company's ownership interest in Prismanet was reduced
from 30% to 22.5% during 1997 as the Company elected not to participate in
a recent capital call. Additionally, during 1997 the Company changed its
method of accounting for its investment in Prismanet from the equity
method to the cost method as the company believes it no longer exerts
significant influence.
(2) During 1997, the Company decided to offer UTS for sale and has
reclassified this investment to investments in affiliates held for sale
(see Note 4).
F-20
<PAGE>
In June 1996, the Company entered into an agreement with the other 50%
owner of TeamTalk to acquire their 1,700,000 shares of TeamTalk's common
stock, as well as to assume TeamTalk's indebtedness to the shareholder
totaling $3,022,000, for a total purchase price of approximately $3,198,000.
The transaction was accounted for by the purchase method effective April 30,
1996, with the majority of the purchase price paid in July 1996. As of
December 31, 1996, TeamTalk was consolidated into the financial statements of
the Company as a wholly owned subsidiary. In connection with the incremental
investment, the Company reclassified the associated unamortized portion of
investment exceeding the Company's share of underlying historical net assets
to telecommunication licenses and other intangibles. The fair value of the
assets acquired and the liabilities assumed in connection with the
acquisition were $8,327,000 and $3,584,000, respectively.
In September 1996, IWC entered into a subscription agreement (the "Star
Digitel Subscription Agreement") with Star Telecom Holding Limited ("STHL"),
the Company's partner in STOL, to purchase a 40% equity interest in Star
Digitel for an aggregate purchase price of $20,000,000 and accounted for by
the purchase method. Pursuant to the Subscription Agreement, in September
1996, IWC also entered into an escrow agreement (the "Star Digitel Escrow
Agreement") and deposited, in escrow, $9,000,000 of the $20,000,000 purchase
price. In November 1996, in connection with the closing of the Company's
acquisition of an equity interest in Star Digitel, the $9,000,000 held in
escrow was released to STHL, and the Company funded an additional $11,000,000
to acquire its 40% interest in Star Digitel for an aggregate purchase price
of $20,000,000 and assigned $11,000,000 to participation rights in Star
Digitel's underlying projects, representing the amount of the purchase price
that exceeded the fair value of the Company's percentage ownership of Star
Digitel's tangible net assets.
In October 1996, the Company paid $8,556,000 to increase its interest in
RHP to 29.2% and accounted for this additional acquisition using the purchase
method. The Company assigned the entire amount of the purchase price to the
telecommunication license as the purchase price exceeded the fair value of
the Company's percentage ownership of RHP's tangible net assets in full at
the date of purchase. In December 1996, Nissho Iwai International (Singapore)
Pte. Ltd. purchased 3% of RHP, diluting the Company's ownership interest in
RHP down to 28.3%.
In October 1996, the Company paid $1,000,000 for an option to purchase
50% of Laranda Sdn. Bhd., a 10% shareholder of Prismanet, for an exercise
price of $7,200,000 and certain other contractual rights. The Company, at its
discretion, allowed the option to lapse on November 6, 1996 and subsequently
expensed the entire $1,000,000, which is classified as other expense in the
accompanying consolidated statement of operations.
In June 1997, the Company, including the designated assignee of IWC, IWC
China Limited ("IWC China"), amended the Star Digitel Subscription Agreement.
The Amendment to Subscription Agreement and Waiver ("Amendment and Waiver")
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 and pay and deliver
to STHL the second $9,000,000 premium in June 1997. The Company funded the
$9,000,000 premium in June 1997. The Company assigned the entire amount of
the premium to the participation rights in Star Digitel's underlying projects.
In August 1997, the Company through its wholly owned subsidiary,
Pakistan Wireless Holdings Limited ("PWH"), acquired a 43.48% indirect equity
interest in IWCPL for an aggregate purchase price of $22,000,000 (see note
9), of which $15,841,000 was paid in cash and $6,159,000 of which was paid
with 493,510 shares of IWCH's common stock. IWCPL used these funds and the
proceeds from the sale of the remaining equity of IWCPL to an unrelated party
and to Vanguard Pakistan, Inc., a wholly owned indirect subsidiary of
Vanguard Cellular Systems, Inc., a significant stockholder of the Company
("Vanguard"), to acquire a 46% equity interest in Pakistan Mobile
Communications (Pvt) Limited ("Mobilink"), a cellular telephone service
provider in Pakistan, for an aggregate purchase price of $50,600,000. In
September 1997, IWCPL consummated the sale of newly issued shares in IWCPL to
an unrelated third party for $13,959,000 and used the proceeds to purchase an
additional 12.69% equity interest in Mobilink, thereby increasing its equity
interest in Mobilink to 58.69%. The Company's indirect equity interest in
Mobilink and IWCPL was 20% and 34.08%, respectively, after the consummation
of the foregoing transactions. During 1997, the Company also funded an
aggregate of $4,127,000 to IWCPL, which amount represents the Company's pro
rata share of various capital calls declared by IWCPL. This additional
funding brought the Company's investment in IWCPL to $26,127,000, as of
December 31, 1997. The Company accounted for its investment in IWCPL using
the purchase method of accounting and subsequently has reported this
investment under the equity method of accounting.
F-21
<PAGE>
In September 1997, the Company paid its pro rata share of a finder's fee
to an unrelated third party in connection with its indirect investment in
Mobilink primarily through the issuance of a warrant to purchase 81,982
shares of the Company's common stock at an exercise price of $0.01 per share
(the "Mobilink Finder's Fee"). The Company recognized a total fee of
$1,022,000 million related to the Mobilink Finder's Fee which is included as
a component of the cost basis of IWCPL's investment in Mobilink.
In September 1997, STOL, a company that holds interests in various
paging projects in Asia and in which the Company holds a 56% indirect equity
interest, invested $4,500,000 for a 20% equity interest in WorldPage, a Thai
paging operator. The Company's corresponding indirect equity interest in
WorldPage is 11.2%. STOL recorded its investment in WorldPage using the
purchase method of accounting and assigned $2,801,000 of its investment to
telecommunication licenses and other intangibles, representing the amount of
the purchase price that exceeded the fair value of STOL's percentage
ownership of WorldPage's tangible net assets.
In September 1997, the Company recorded a write-down of $7,683,000 in
the Company's equity investment in Prismanet based on the Company's estimate
of the net realizable value of this investment using a discounted cash flow
analysis of Prismanet's revised business plan. The Company believes that a
significant other than temporary impairment in the value had occurred due to
then recently diminished prospects for the allocation of additional spectrum
at a different frequency band to Prismanet by the government of Malaysia in
the then foreseeable future. This allocation of additional spectrum is
believed by the Company to be critical to support the value of Prismanet's
business as proposed to be conducted. In December 1997, the Company changed
its method of accounting for its investment in Prismanet from the equity
method to the cost method since its ownership interest was reduced from 30%
to 24% as the Company elected not to participate in a recent capital call and
the Company is no longer able to exercise significant influence over this
investment. In December 1997, the Company further wrote down the investment
by $4,000,000 and recorded a $5,000,000 reserve associated with the Prismanet
"keep well" (see Note13). The remaining investment in Prismanet is zero as of
December 31, 1997.
In December 1997, the Company wrote off its remaining investment in RHP
of $1,103,000. As a result of the economic crisis in Asia, the inability of
PT Mobile Selular Indonesia ("Mobisel") (the operating company and subsidiary
of RHP) to extend bank financing with Nissho Iwai International (Singapore)
Pte. Ltd. ("Nissho Iwai"), the negative net equity of RHP and the
postponement in the execution of Mobisels' business plan, the Company
believes the impairment in the RHP investment is other than temporary. As a
result the Company wrote off the remaining equity investment balance. The
Company has no further obligations with respect to guarantees or commitments
pertaining to RHP or Mobisel.
Condensed financial statement data, presented in accordance with U.S.
generally accepted accounting principles and stated in U.S. dollars for
significant affiliated companies accounted for by the equity method follows
(in thousands):
F-22
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------------------------------------------
PRISMANET RHP (A) TEAM TALK
-------------- -------------- -------------------
<S> <C> <C> <C>
Current assets............................................ $ 2,611 5,316 213
Noncurrent assets......................................... 33,299 21,336 6,307
Current liabilities....................................... 2,988 17,496 3,933
Noncurrent liabilities.................................... 21,925 6,257 1,492
Net revenues.............................................. 749 5,463 348
Net loss.................................................. (5,898) (3,186) (1,490)
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996 (B)
------------------------------------------------------
PRISMANET RHP STAR DIGITEL
-------------- -------------- -------------------
<S> <C> <C> <C>
Current assets............................................ $ 820 13,354 11,215
Noncurrent assets......................................... 41,686 64,556 55,617
Current liabilities....................................... 6,909 23,341 12,460
Noncurrent liabilities.................................... 33,526 63,834 47,817
Net revenues.............................................. 1,858 10,268 436
Net loss.................................................. (11,873) (12,072) (2,618)
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------------------------------------------------------------------------
RHP STAR DIGITEL IWCPL (C) WORLDPAGE (D)
----------------- --------------------- --------------------- --------------------
(unaudited)
<S> <C> <C> <C> <C>
Current assets......... $ 5,176 12,543 15,710 1,865
Noncurrent assets...... 56,105 114,748 118,071 7,651
Current liabilities.... 118,475 77,520 45,794 3,324
Noncurrent liabilities. 1,126 49,727 17,981 298
Net revenues........... 8,300 5,372 8,580 1,016
Net loss............... (89,151) (17,149) (4,453) (504)
</TABLE>
- ------------
(A) For the period March 28, 1995 through December 31, 1995. Net revenues
and net loss for the period from January 1, 1995 through March 27,
1995 were $1,821,000 and $387,000, respectively.
(B) Effective April 30, 1996, TeamTalk became a wholly owned subsidiary
of the Company. Net revenues and net loss for the period from January
1, 1996 through April 30, 1996 were $282,000 and $645,000, respectively.
(C) Net revenues and net loss are from August 18, 1997, the date of the
acquisition. IWCPL had no revenues and net loss prior to this date.
(D) Net revenues and net loss are from September 25, 1997, the date of
acquisition. WorldPage had net revenues and net loss (unaudited) of
$3,263,000 and $3,383,000 respectively, for the year ended December 31,
1997.
F-23
<PAGE>
COST INVESTMENTS
The Company uses the cost method of accounting for four other long-term
investments as of December 31, 1997. These are Prismanet, RPG Paging Services
Limited ("RPSL"), First International Telecommunication Company, Limited
("FIT") and Telecomunicaciones Globales, S.A. de C.V. ("Global Telecom"). In
December 1997, the Company began to account for its investment in Prismanet
as a cost investment (see above). As of December 31, 1997, the Company's
equity interest in Prismanet was 22.5% and the Company's investment in
Prismanet has been reduced to zero. The Company holds its interest in RPSL
and FIT indirectly through STOL. In January 1997, STOL purchased an
additional 9% of RSPL for $2,100,000, thereby increasing its equity interest
in RPSL from 10% to 19%, and correspondingly increasing the Company's
indirect interest in RPSL to 10.64% as of December 31, 1997. In September
1997, STOL invested $5,781,000 for a 12% equity interest in FIT, a Taiwanese
paging operator, which corresponds to a 6.72% indirect equity interest in FIT
held by the Company as of December 31, 1997. In January 1997, the Company
acquired a 1.56% equity interest in Global Telecom, a Mexican long distance
company, for $62,000.
The Company's carrying value of these investments as of December 31 are
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------------- ---------------
<S> <C> <C>
Mobilkom........................................ $ 1,500 --
RPSL............................................ 1,426 3,526
FIT............................................. -- 5,781
Global Telecom.................................. -- 62
----------------- ---------------
$ 2,926 9,369
----------------- ---------------
----------------- ---------------
</TABLE>
During 1997, the Company reclassified Mobilkom to investments in
affiliates held for sale (see Note 4). The investment was subsequently
written off.
PRO FORMA SUMMARY
The following unaudited pro forma summary combines the consolidated
results of operations of the Company as if (i) TeamTalk had been a wholly
owned consolidated subsidiary as of January 1, 1996, (ii) ownership in RHP
had been 28.3% as of January 1, 1996 and (iii) the acquisitions of STOL, Star
Digitel, Uniworld and IWCPL had occurred as of January 1, 1996.
This pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company had acquired the entities
as of January 1, 1996.
Unaudited pro forma consolidated results of operations for the various
acquisitions and mergers as described above are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997
---------------- --------------
<S> <C> <C>
Revenues......................................................................... $ 1,161 3,275
Net loss......................................................................... (46,408) (127,063)
</TABLE>
F-24
<PAGE>
(6) RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates as of December 31, 1996, consisted
primarily of the note due from Mobilcom Mexico for $158,000, plus cumulative
accrued interest of $20,000; and a series of interest-free promissory notes
loaned to Mobisel, an entity which the Company indirectly owns 19.8% through
its investment in RHP, totaling $635,000. In April 1997, the Company
collected the $635,000 note receivable from Mobisel. Concurrent with the sale
of Mobilcom Mexico in June 1997, the Company reclassified the Mobilcom Mexico
note from notes receivable from affiliates to notes receivable (see Note 7).
In March 1997, the Company loaned $3,500,000 to Star Digitel. This loan,
which is evidenced by a promissory note, accrues interest at 9% per annum and
is due upon written demand by the Company. In September 1997, the Company,
through its wholly owned subsidiary, IWC China, loaned $800,000 to Star
Digitel. This loan accrues interest at 9% per annum and is due upon written
demand by the Company. These loans have been classified as non-current as
repayment is not expected within the next 12 months.
VANGUARD MERGER
On December 18, 1995, the Company merged with Vanguard International
Telecommunications, Inc. ("VIT") (See Note 11), a wholly owned subsidiary of
Vanguard. Prior to this merger, Vanguard owned 10.46% of the Company and
provided a variety of services relating to the formation, development and
operation of the Company's wireless communication businesses. In exchange for
3,972,240 shares of Series E Redeemable Convertible Preferred Stock with a
liquidation preference of $6.29 per share, the Company acquired VIT's
interests in TeamTalk and VIT's rights to acquire an interest in various
international LWBs. The liquidation value was equal to the fair market value
of the Series E preferred stock on the date of the merger. The resulting
total value of $25,000,000, was allocated to the various LWBs based on their
respective stage of development and an independent valuation study of the
LWBs. As a result of this merger, Vanguard increased its ownership position
to approximately 36% and continues to provide the services described above.
The original cost to Vanguard of the net assets acquired by IWC in the merger
was approximately $550,000. The value of these assets, however, appreciated
significantly over time as licenses were subsequently granted, joint ventures
and other strategic alliances formed and business plans developed.
The excess of the allocated portion of the merger value to TeamTalk over
the net book value of TeamTalk was attributed to telecommunication licenses
and other intangibles. This excess amounted to $1,712,000 and is amortized on
a straight-line basis over 20 years.
The Company also acquired VIT's rights to participate in RHP, SRC,
Mobilcom Pakistan, HFCL and PTBV and other yet to be developed projects.
Approximately $23,288,000 was allocated to telecommunication licenses and
other intangibles in the LWBs based on their relative stage of development.
These amounts are amortized on a straight-line basis over 20 years.
Subsequently, Mobilcom Pakistan, HFCL and PTBV have been written off.
VANGUARD WARRANT/OPTION EXCHANGE
On May 5, 1997, the Company entered into an agreement with Vanguard,
pursuant to which Vanguard surrendered then-outstanding warrants to purchase
323,880 shares of Series C preferred stock, 416,720 shares of Series D
preferred stock and 64,120 shares of Series F preferred stock in exchange for
the issuance by the Company of a warrant to acquire 249,970 shares of common
stock at a purchase price of $0.25 per share and a second warrant to purchase
554,750 shares of common stock at an exercise price of $9.375 per share. This
second warrant was subsequently surrendered by Vanguard in exchange for the
issuance to certain officers and employees of Vanguard of an option to
purchase 53,330 shares of common stock at an exercise price of $9.375 per
share under International Wireless Communications Holdings, Inc.'s 1996 Stock
Option/Stock Issuance Plan (the "1996 SO/SIP") and options to purchase an
aggregate of 501,420 shares of common stock at a purchase price of $9.375 per
share outside the
F-25
<PAGE>
1996 SO/SIP (see Note 11) (The foregoing transaction is hereinafter referred
to as the "Vanguard Warrant/Option Exchange"). Vanguard agreed to guarantee
from time to time, as part of the management advisory services in connection
with the Vanguard Warrant/Option Exchange, up to an aggregate of $3.2 million
of indebtedness incurred by the Company or its wholly owned subsidiaries
until the Company receives at least $3.2 million in alternative debt
financing or consummates an initial public offering ("IPO") of its common
stock, but in no event later than February 3, 1999. In addition, certain
Vanguard employees agreed to perform management advisory services over a four
year period. The Company recognized management advisory service expense of
$2.3 million related to the Vanguard Warrant/Option Exchange, which is
classified in selling, general and administrative expenses in the
accompanying consolidated statement of operations, and deferred compensation
of $1.5 million, which is presented net of amortization of $244,000, on the
accompanying balance sheet as of December 31, 1997. Pursuant to an $8 million
bridge loan agreement dated May 19, 1997 between Star Digitel and The
Toronto-Dominion Bank, each shareholder of Star Digitel agreed to guarantee
its pro rata share of the bridge loan. Pursuant to the guarantee facility
provided by it in connection with the Vanguard Warrant/Option Exchange,
Vanguard guaranteed the Company's $3.2 million pro rata share of the
guarantee.
VANGUARD STAR DIGITEL GUARANTEE
In September 1997, at the request of IWC China, Vanguard guaranteed
$8,000,000 of indebtedness to be incurred by Star Digitel (the "Vanguard Star
Digitel Guarantee"). Pursuant to a reimbursement agreement (the
"Reimbursement Agreement"), IWC China agreed to pay Vanguard (i) an up-front
guarantee fee of $240,000 in cash, (ii) a quarterly in-kind guarantee fee at
an initial rate of 6.75% that increases over time to 17.75% and (iii) an
additional guarantee fee payable in shares of Star Digitel owned by IWC China
if Vanguard is required to make any payments under the guarantee. In
addition, the Company granted Vanguard a ten-year warrant to purchase shares
of its common stock at an exercise price of $0.01 per share. The number of
shares issuable upon exercise of the warrant is initially set at 68,819 and
increases in quarterly increments thereafter until Vanguard's obligations
under the guarantee have been permanently released and discharged. In
December 1997, under this arrangement, the number of additional shares of the
Company's common stock issuable upon exercise of this warrant increased by
51,864 to an aggregate of 120,683 shares as of December 31, 1997 (see Note
11). The Company recognized an expense of $1,755,000 related to the Vanguard
Star Digitel Guarantee through December 31, 1997. The Company has recorded
this expense in other expense in the accompanying consolidated statement of
operations. The Company recognized additional expense related to incremental
quarterly warrant grants associated with this Vanguard Star Digitel Guarantee
in 1998 (see Note 16). Pursuant to a Pledge Agreement dated September 18,
1997, IWC China pledged all of its Star Digitel Shares to secure performance
of its obligations under the Reimbursement Agreement (and certain related
agreements).
(7) NOTE RECEIVABLE
On June 6, 1996, the Company loaned $3,080,000 to a co-shareholder of
Mobilcom Mexico, a trunked radio services operator in Mexico. The loan, in
the form of a promissory note, accrues interest at 13% per annum and was due
upon written demand by the Company. The Company's belief was that this loan
may facilitate future strategic investments in projects in which this
co-shareholder is involved. As of December 31, 1996, the co-shareholder had
repaid $1,800,000 of the total amount loaned, bringing the remaining
principal plus interest owed to $1,431,000. During 1997, this note, including
accrued interest, totaling $1,496,000 was repaid in full.
In March 1997, the Company loaned $500,000 to an unrelated third party.
This loan, which has a one year term, accrues interest at the rate of 15% per
annum and is guaranteed by another unrelated third party. In March 1998, the
Company agreed on a repayment plan with such party (see Note 16). Concurrent
with the sale of Mobilcom Mexico, the Company reclassified its note
receivable with Mobilcom Mexico from notes receivable with
F-26
<PAGE>
affiliates to notes receivable (see Note 6). Consequently, as of December 31,
1997, principal plus interest on this note of $213,000 in the aggregate, is
included in notes receivable on the accompanying consolidated balance sheet.
(8) LICENSE DEPOSITS
In June 1996, the Company deposited $3,042,000 for a 20% interest in a
consortium pursuing ECTR licenses in Taiwan, which the Company classified as
license deposit and other assets in the accompanying consolidated balance
sheet as of December 31, 1996. The consortium was successful in winning four
of twelve license applications. In August 1997, the Company received a refund
of $1,933,000, which represents its pro rata portion of the deposit applied
to the unsuccessful applications, net of the Company's pro rata share of
application expenses and foreign currency loss of $105,000. The remaining
deposit of $1,004,000 was to represent the Company's initial capital
contribution to the ECTR venture to be formed; however, in September 1997,
the Company sold this interest to a third party for $1,153,000.
In August 1996, STOL and the Company deposited $3,005,000 and
$2,250,000, respectively, representing a combined 30% equity interest in a
proposed Taiwan paging project. In early February 1997, it was announced that
the respective bid applications were unsuccessful and the Company
reclassified the deposits to other current assets in the accompanying
consolidated balance sheet as of December 31, 1996. In 1997, STOL received a
refund of $1,881,000 of its deposit, net of its pro rata share of application
expenses of $347,000. In order to mitigate its transactional foreign currency
exposure, the remaining balance of $777,000, which was denominated in New
Taiwanese dollars, was used to pay fees associated with STOL's investment in
FIT. In 1997, the Company received a refund of $2,030,000, net of its pro
rata share of application expenses of $230,000.
(9) LONG-TERM DEBT AND DEBT ISSUANCE COSTS
DEBT OFFERING
In August 1996, the Company issued 196,720 units, each consisting of a
$1,000 principal amount 14% Senior Secured Discount Note due 2001 (a "Note"
and, collectively, the "Notes") and one warrant to purchase 11.638 shares
(for an aggregate of 2,289,421 shares) of common stock (the "Unit Warrants"),
$0.01 par value, for total gross proceeds of $100.0 million (the "Debt
Offering") (see note 11). Net proceeds, after repayment of $7.4 million,
including interest and fees, borrowed under a 1996 revolving credit agreement
with Toronto Dominion Capital (U.S.A.), Inc., an affiliate of Toronto
Dominion Bank, a stockholder of the Company, and other offering expenses,
totaled $86,602,000. Of the $100.0 million gross proceeds, $30.3 million was
allocated to additional paid-in capital related to the fair value of the
warrants issued in the Debt Offering. The Debt Offering is governed by the
Indenture dated as of August 15, 1996 between the Company, as issuer, and
Marine Midland Bank, as trustee (the "Indenture"). In November 1996, the
Company exchanged new 14% Senior Secured Discount Notes due 2001 (the
"Exchange Notes") which were registered under the Securities Act of 1933, as
amended (the "1933 Act"), for its outstanding Notes that were issued and sold
in a transaction exempt from registration under the 1933 Act. The terms of
the Exchange Notes are substantially identical (including principal amount,
interest rate, maturity, security and ranking) to the terms of the Notes.
Long-term debt associated with the Notes, net of unamortized discount, is
$92,785,000 on the accompanying consolidated balance sheet as of December 31,
1997.
The aggregate principal amount of the Notes is $196,720,000. The Notes
are due on August 15, 2001 and bear interest at an effective interest rate of
23.06%, compounded semi-annually. There are no scheduled cash interest
payments on the Notes. The Notes are senior secured obligations of the
Company and will rank pari passu in right of payment with all existing and
future senior indebtedness of the Company and senior to all subordinated
indebtedness of the Company. The Notes are effectively subordinated to all
indebtedness and other liabilities (including trade payables) of the
Company's subsidiaries and affiliated companies. The collateral securing the
Notes consists of a pledge of all of the capital stock of the Company.
There are no sinking fund requirements with respect to the principal of,
or the interest on, the Notes. Upon the occurrence of a change of control (as
defined in the indenture governing the Notes), each holder of the Notes will
have the option to require the Company to repurchase all or a portion of such
holder's Notes at 101% of the accreted value thereof to the date of
repurchase.
F-27
<PAGE>
In connection with the Debt Offering, the Company entered into the
Indenture, which contains certain covenants that, among other things, limits
the ability of the Company and its subsidiaries and affiliates to incur
additional indebtedness, limits the ability of the Company to merge,
consolidate or sell substantially all of its assets; and limits the ability
to make investments. In addition, the Indenture prohibits making restricted
payments (as defined) and creating certain liens (as defined).
The Indenture also contained a provision that in the event the Company
did not complete an IPO of common stock on or prior to May 15, 1997, each
unexercised Unit Warrant issued in connection with the Debt Offering, would
entitle the holder thereof to purchase an additional 2.645 shares (for an
aggregate of 520,324 shares) of common stock. The Company issued such
additional warrants on May 15, 1997 (see Note 11).
The warrants are supported by a warrant agreement (the "Warrant
Agreement"). The Warrant Agreement includes a provision that if the Company
issues any options, warrants, or other securities convertible into or
exchangeable or exercisable for common stock, for a consideration per share
of common stock less than the current market value per share on the date of
issuance of such securities, the warrant number for each Note holder shall be
adjusted in accordance with the formula provided in the Warrant Agreement.
Such additional Unit Warrants have been issued (see Notes 11 and 16).
The costs related to the issuance of the Notes were capitalized and are
being amortized to interest expense using the effective interest method over
the life of the debt. Debt issuance costs are presented, net of amortization,
as $5,369,000 on the accompanying consolidated balance sheet as of December
31, 1997.
PAKISTAN BRIDGE FACILITY
In August 1997, the Company closed a bridge financing facility (the
"Pakistan Bridge Facility"), with Toronto Dominion Investments, Inc. ("TDI"),
Vanguard and other stockholders, whereby the Company received written
commitments for an aggregate amount of $29,000,000 in exchangeable bridge
loans. The Pakistan Bridge Facility is structured as a two-tier facility,
with $7,000,000 available to IWCH for general corporate and other purposes
(the "IWCH Pakistan Facility") and $22,000,000 loaned to PWH for the specific
purpose of financing the cash portion of the purchase price of the Company's
indirect investment in Mobilink and the Company's pro rata share of the
shareholder capital calls and shareholder loans required to finance the
operations of Mobilink (the "PWH Pakistan Facility"). The Pakistan Bridge
Facility contains significant restrictions on the Company's ability to raise
additional debt or equity financing until all amounts outstanding under the
Pakistan Bridge Facility are repaid in full. The Pakistan Bridge Facility
bears interest payable in-kind on a quarterly basis beginning at 14% and
increases over time to 25% (14% as of December 31, 1997). There are no
scheduled cash interest payments on the Pakistan Bridge Facility. Principal
plus accrued but unpaid interest on the Pakistan Bridge Facility matures in
August 2002. Principal plus accrued but unpaid interest on the Pakistan
Bridge Facility may be exchanged for the Company's Series G and H redeemable
convertible preferred stock upon certain occasions (as defined). As of
December 31, 1997, the $7,000,000 IWCH Pakistan Facility had been fully drawn
down. Accrued but unpaid interest on the Pakistan Bridge Facility as of
December 31, 1997 totaled $1,287,000.
Warrants to purchase shares of the Company's common stock at an exercise
price of $0.01 per share were also issued in connection with the IWCH
Pakistan Facility (the "Initial Pakistan Warrants"). The number of shares
issuable of the Company's common stock at the closing of the Pakistan Bridge
Facility upon exercise of the Initial Pakistan Warrants was initially set at
247,737 and increases upon the occurrence of certain events. During 1997, the
number of shares of the Company's common stock issuable upon exercise of the
Initial Pakistan Warrants increased by 445,839 to an aggregate of
693,576. The number of shares of the Company's common stock issuable upon
exercise of the Initial Pakistan Warrants subsequently increased (see Note
16). The Company also agreed to grant to the lenders under the Pakistan
Bridge Facility, upon the occurrence of a specified liquidity event (as
defined), additional warrants (the "Pakistan Liquidity Warrants"; together
with the Initial Pakistan Warrants, including its subsequent increases, the
"Pakistan Warrants") to purchase a number of shares of the Company's common
stock equal to the quotient of (i) 35% of the greater of (A) $2.0 million and
(B) the unpaid principal amount of and unpaid accrued interest in the IWCH
Pakistan Facility and (ii) the value of the Company's common stock with
respect to such liquidity event. As of December 31, 1997, no Pakistan
Liquidity warrants have been issued.
The costs related to the issuance of the Notes, which include all
warrants expected to be earned through December 1997 in accordance with the
terms of the IWCH Pakistan Facility and certain fees paid to TDI, were
F-28
<PAGE>
capitalized and are being amortized to interest expense using the effective
interest method over the estimated term of the debt. In addition, the IWCH
Pakistan Facility contains a conversion feature whereby debt can be converted
to Series G redeemable convertible preferred stock at a price less than fair
value (the "Debt Conversion Feature"). The difference between fair value and
the conversion price (as defined) at the date of drawdown of the IWCH
Pakistan Facility, amounting to $3,979,000, was also capitalized and is being
amortized to interest expense using the effective interest method over the
estimated term of the debt. Debt issuance costs related to the Pakistan
Bridge Facility are presented, net of amortization, as $2,592,000 on the
accompanying consolidated balance sheet as of December 31, 1997.
(10) MINORITY INTEREST
In February 1996, the Company formed WDS, a joint venture, to develop,
install and support mobile data systems throughout the Pacific Rim. The
Company initially had a 50% equity interest in WDS, and funded its operations
on a pro rata basis for total funding during 1996 of $433,000. The Company
increased its equity interest in WDS to 64% during 1997 through the
conversion of shareholder advances into equity.
In August 1996, the Company acquired a 70% equity interest in STOL for
an aggregate purchase price of $13,500,000 which has been accounted for using
the purchase method. STOL holds a minority interest in RPSL, FIT and World
Page and is currently pursuing additional paging opportunities in Asia. The
Company's partner in STOL is STHL, the Company's partner in Star Digitel. The
Company allocated $3,965,000 of the purchase price to participation rights.
In July 1997, the Company, STOL and STHL entered into an agreement with a
third party providing for the issuance and sale to such third party of new
shares equivalent to up to a 20% interest in STOL, subject to STOL entering
into valid and binding agreements to invest in certain specified paging
companies. In September 30, 1997, STOL entered into such agreements with
these specified paging companies and, as a result, the third party paid STOL
$4,160,000 for a 20% interest in STOL, thereby diluting the Company's
interest in STOL to 56%.
In December 1996, the Company paid $1,600,000 to acquire a 66% equity
interest in Uniworld, which has been awarded a national license to provide
paging services in Peru and accounted for the acquisition using the purchase
method. The Company allocated $1,557,000 of the purchase price to the
telecommunication license.
Minority shareholders' interests is principally related to STOL and was
$5,315,000 and $8,675,000 as of December 31, 1996 and 1997, respectively.
(11) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
The Company is authorized to issue 40,000,000 shares of preferred stock,
of which 33,231,480 are designated redeemable convertible preferred stock,
1,200,000 are designated nonredeemable convertible preferred stock, 5,568,520
are undesignated, and 66,000,000 shares of common stock, of which 60,000,000
are designated class 1 and 6,000,000 are designated class 2. All shares have
a par value of $0.01 per share.
Nonredeemable convertible preferred stock as of December 31, 1996 and
1997, was comprised of 933,200 issued and outstanding shares of Series A
preferred stock. In August 1996, a stockholder of the Company converted
266,800 shares of Series A preferred stock into 266,800 shares of common
stock. Series A preferred stock has a liquidation value per share of $.85 and
an aggregate liquidation value of $793,000.
F-29
<PAGE>
Redeemable convertible preferred stock as of December 31, 1997, was
comprised of the following (in thousands except share and per share amounts):
<TABLE>
<CAPTION>
LIQUIDATION AGGREGATE
REDEEMABLE CONVERTIBLE PREFERRED STOCK: SHARES SHARES ISSUED AND VALUE PER LIQUIDATION
DESIGNATED OUTSTANDING SHARE VALUE
- ---------------------------------------- --------------- --------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Series B.............................. 1,229,240 1,229,240 .9652 $ 1,186
Series C.............................. 2,460,000 1,762,280 2.3343 4,114
Series D.............................. 5,800,000 3,652,960 6.8775 25,183
Series E.............................. 3,972,240 3,972,240 6.7365 26,759
Series F-1............................ 7,000,000 7,000,000 9.3750 43,505
Series F-2............................ 1,080,000 1,080,000 9.3750 6,712
Series G-1............................ 1,928,000 -- see below --
Series G-2............................ 1,292,000 -- see below --
Series H-1............................ 5,072,000 -- see below --
Series H-2............................ 3,398,000 -- see below --
--------------- --------------------- ----------------
33,231,480 15,981,876 $ 107,459
--------------- --------------------- ----------------
--------------- --------------------- ----------------
</TABLE>
Each series of redeemable preferred stock is being accreted to its
respective minimum redemption amount, which is equal to the liquidation value.
The rights, preferences, and privileges of the holders of preferred
stock are as follows:
- LIQUIDATION
In the event of Company liquidation, the holders of Series G
preferred stock shall be entitled to receive, prior and in preference
to the holders of Series A, B, C, D, E, F and H preferred stock and
common stock an amount equal to the sum of (i) the IWCH Note Exchange
Price (as defined in the Company's Form 8-K as filed with the
Securities and Exchange Commission on September 12, 1997) and (ii) an
amount equal to declared but unpaid dividends on such share. The IWCH
Note Exchange Price is the lesser of (A) the conversion price
applicable to Series F preferred stock as of the date of the exchange
and (B) 65% of the share value applicable to the liquidity event (as
defined) or 65% of the appraised value if no liquidity event (as
defined) has occurred.
Then, the holders of Series H preferred stock shall be entitled to
receive an amount per share equal to the sum of (i) the PWH Note
Exchange Price (as defined in the Company's Form 8-K as filed with
the Securities and Exchange Commission on September 12, 1997) and
(ii) an amount equal to declared but unpaid dividends on such share.
The PWH Note Exchange Price is the net cash price per share used when
determining the number of shares of Series H preferred stock to issue
in order to equal the aggregate amount of the unpaid principal and
accrued interest on the PWH Pakistan Facility at the date of the
exchange.
Then, the holders of Series F preferred stock shall be entitled to
receive an amount per share equal to the sum of (i) the product of
(A) .50 multiplied by (B) the liquidation value per share specified
above, as adjusted, and (ii) any declared but unpaid dividends
thereon. Holders of Series B, C, D and E preferred stock ("Junior
preferred stock") shall next be entitled to receive an amount per
share equal to the sum of (i) the product of (A) .55 multiplied by
(B) an amount per share of .9193, 2.223, 6.55 and 6.2938,
respectively, as adjusted and (ii) any declared but unpaid dividends
thereon. Holders of Series B, C, D, E and F preferred stock shall
next be entitled to receive the product of (1) .50 multiplied by (2)
an amount per share of .9193, 2.223, 6.55, 6.55 and 9.375,
respectively, as adjusted.
Upon the completion of the distribution to the holders of the Series
B, C, D, E, F, G and H preferred stock, holders of the Series A
preferred stock shall be entitled to receive an amount per share
equal to .85, as adjusted, plus any declared but unpaid dividends
thereon. After the distributions described above, and after
F-30
<PAGE>
the distribution related to common stock described below, the remaining
assets of the Company shall be distributed among the holders of the
preferred stock and common stock pro rata assuming full conversion of
preferred stock into common stock.
- DISTRIBUTIONS
The holders of preferred stock are entitled to receive noncumulative
dividends at the same time and on the same basis as holders of common
stock when, and if, declared by the Board of Directors. No dividends
had been declared through December 31, 1997.
- REDEMPTION
Each share of Series B, C, D, E, F, G and H preferred stock is
redeemable at any time on or after December 31, 1998, but within 45
days after the receipt by the Company of a written request from the
holders of a majority of the then outstanding shares of Series B, C,
D, E, F, G and H preferred stock. The Company shall redeem all such
shares by paying in cash a sum per share equal to the greater of (1)
the then fair market value of such share of preferred stock on an
as-converted basis, or (2) the redemption value of such share of
preferred stock (hereinafter referred to as the redemption price). In
the event the assets of the Company are insufficient to effect such
redemption in full, the shares of preferred stock not redeemed shall
remain outstanding and entitled to all the rights and preferences
provided herein.
In addition to the above redemption, at any time on or after December
31, 2000, but within 45 days after the receipt by the Company of a
written request from the majority of the holders of Series F
preferred stock, the Company shall redeem all outstanding shares of
such stock by paying, in cash, an amount per share equal to the
redemption price of such stock.
Upon the occurrence of a change of control of the Company that is not
approved by certain directors designated by the holders of Series F
preferred stock, the holders of a majority of the shares of Series F
preferred stock then outstanding shall have the right, by written
demand to the Company, to require the Company to redeem immediately
all the shares of Series F preferred stock then outstanding at a
price per share equal to the redemption price of the Series F
preferred stock.
In addition, at any time on or after the later of (i) the Pakistan
Bridge Facility Payment Date (as defined), (ii) the Series G or
Series H Exchange Date (as defined), (iii) December 31, 1998 or (iv)
a Series F Redemption (as defined), but within 45 days after the
receipt by the Company of a written request from the majority of the
Series G or Series H preferred stock, the Company shall redeem all
outstanding shares of such stock by paying, in cash, an amount per
share equal to the redemption price of such stock.
In addition, in the case of any redemption request made by the
holders of a majority of the Series F, G or H redeemable convertible
preferred stock, the holders of a majority of such other series of
preferred stock will be deemed to have made a redemption request
unless they decline such redemption by giving the Company written
notice to that effect within 10 days after delivery of the related
redemption notice.
- CONVERSION AND VOTING RIGHTS
Each share of preferred stock is convertible, at the option of the
holder, into such number of fully paid and nonassessable shares of
common stock as is determined by dividing the original preferred
stock issue price by the conversion price applicable to such
preferred share. Series A, B, C, D, E, F-1, G-1 and H-1 preferred
stock is convertible into Class 1 common stock, while Series F-2, G-2
and H-2 preferred stock is convertible into Class 2 common stock. In
addition each share of Series F-2, G-2 and H-2 preferred stock can be
converted into Series F-1, G-1 and H-1 preferred stock, respectively,
at any time. The conversion price per share for each series of
preferred stock is equal to the preferred stock issue price of the
respective series of preferred stock, subject to adjustment under
certain circumstances. An automatic conversion into common stock will
occur in the event of a firm commitment underwritten public offering
of at least $13.10 per share, as adjusted, and $8,000,000 in the
aggregate. However, the Series F preferred stock shall not
automatically be converted in Common Stock unless: (i) the
underwritten public offering is consummated
F-31
<PAGE>
on or prior to December 31, 1998, (ii) the public offering per share is at
least $18.75, as adjusted, and (iii) the aggregate offering price is not
less than $25,000,000.
Each share of preferred stock has voting rights equal to that of
common stock on an "as if converted" basis. The holder of Series E
preferred stock is entitled to elect three directors to the Company's
Board of Directors, and, for so long as 20% of the shares of Series F
preferred stock remain outstanding, the holders of Series F preferred
stock are entitled to elect three directors. The holders of the
Series G-1 and H-1 preferred stock are entitled to elect one
director. However, if the holders of more than 10% of Series G and H
stock are entitled to elect a director by virtue of holding any other
Series of preferred stock, such right to elect a director may not be
exercised. As of December 31, 1997, the Company had 16,915,076 shares
of common stock reserved for the conversion of preferred stock.
PREFERRED STOCK TRANSACTIONS
- THE SERIES D FINANCING
In connection with the issuance of bridge notes on April 6, 1995, the
Company issued warrants (the "April Bridge Warrants") to purchase
10,760 shares, of which 5,960 related to Vanguard, of Series D
preferred stock at $6.55 per share. The warrants issued to Vanguard
were included in the May 1997 Vanguard Warrant/Option Exchange (see
Note 6). The remaining warrants are outstanding and are exercisable
until April 6, 1998.
In July 1995, convertible secured bridge financing notes issued on
April 24, 1995 were converted into 1,147,600 shares of Series D
preferred stock for an aggregate purchase price of $7,517,000 (a
purchase price of $6.55 per share).
In connection with the Series D Financing, Vanguard loaned $1.8
million to the Company in exchange for two convertible notes in the
amount of $900,000 each. Each note was due upon the earlier of April
26, 1996 or the occurrence of certain events which did not occur
prior to that date. On April 26, 1996, Vanguard converted both notes
including accrued interest into an aggregate of 274,800 shares of
Series D redeemable convertible preferred stock.
In July 1995, the Company entered into a merger agreement with
Vanguard and VIT, a wholly-owned subsidiary of Vanguard, whereby VIT
would merge their international interests in a number of
international wireless projects into the Company in exchange for
3,972,240 shares of Series E preferred stock. This merger was
completed on December 18, 1995, concurrent with the issuance of
Series F preferred stock (see Note 6).
In connection with the Vanguard Merger, the Company entered into an
agreement with an investor to amend previously existing warrant
agreements granted in connection with the Series C Financing. The
investor's original warrant to purchase 50,440 shares of Series C
preferred stock was amended to extend the warrant through December
18, 1997. The investor's original warrant to purchase 222,200 shares
of preferred stock was amended to increase the number of shares to
393,120 and to define the preferred stock as Series D preferred stock
at $6.55 per share. The warrant was exercisable until December 18,
1997. The investor's original warrant to purchase 444,360 shares of
preferred stock was amended to decrease the number of shares to
273,440 and to define the preferred stock as Series C preferred stock
at $2.22 per share. The warrant was exercisable until May 15, 1997.
In May 1997, the Series C and D Vanguard Merger warrants were
exchanged in the Vanguard Warrant/Option Exchange (see Note 6).
- THE SERIES F FINANCING
In connection with the issuance of a note payable to Vanguard in July
1995, the Company issued for a purchase price of $15,000, a warrant
to purchase 32,000 shares of Series F preferred stock at an exercise
price of $9.38 per share. The number of shares and the exercise price
are subject to adjustment in certain circumstances. The warrant is
exercisable until December 18, 1998.
F-32
<PAGE>
Concurrent with the July 1995 Financing, for an aggregate purchase
price of $72,000, the Company issued warrants to purchase an
aggregate of 153,800, of which 32,120 related to Vanguard, shares of
Series F preferred stock (not including the warrant issued to
Vanguard in connection with the first July 1995 note) at an exercise
price of $9.38 per share. All share amounts and the exercise price
are subject to adjustment in certain circumstances. The warrants are
exercisable until December 18, 1998. In May 1997, all of Vanguard's
Series F Warrants were exchanged in the Vanguard Warrant/Option
Exchange (see Note 6).
On August 15, 1995 pursuant to a Note and Warrant Purchase Agreement
dated as of August 14, 1995, the Company issued for a purchase price
of $50,000 a warrant (the "First Warrant") to purchase 106,680 shares
of Series F preferred stock at an exercise price of $9.38 per share,
with the number of shares and exercise price subject to adjustment in
certain circumstances. The First Warrant is exercisable until
December 18, 1998.
Pursuant to a Loan Agreement dated August 14, 1995 between the
Company and an investor, the Company issued a second warrant (the
"Second Warrant") to purchase 106,680 shares of Series F preferred
stock at an exercise price of $9.38 per share, with the number of
shares and the exercise price subject to adjustment in certain
circumstances. The Second Warrant is exercisable until December 18,
1998, with the date being subject to change in the same
circumstances.
On December 18, 1995, the Company sold and issued 5,356,480 shares of
Series F preferred stock for $50,217,000. Prior to the share issuance
of the Series F preferred stock, the Company entered into bridge
financing agreements with certain existing shareholders. Certain
bridge loans were repaid with proceeds from the issuance of shares of
Series F preferred stock, while the remaining bridge loans were
converted into 1,147,600 shares of Series D preferred stock.
WARRANTS
On or prior to June 12, 1997 holders of warrants to purchase an
aggregate of 28,800 shares of Series D redeemable convertible preferred stock
exercised such warrants pursuant to the cashless "net-exercise" provisions
thereof. Upon such exercises, such warrantholders received an aggregate of
8,676 shares of Series D redeemable convertible preferred stock.
During 1997, pursuant to the terms of the Unit Warrants, the
number of additional shares of the Company's common stock issuable upon
exercise of the Unit Warrants increased by an aggregate of 92,987 shares to
an aggregate of 2,902,732 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 and the Vanguard Star Digitel Guarantee.
F-33
<PAGE>
The Company had the following warrants outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
PREFERRED AND WARRANTS EXERCISE
COMMON 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...................... 2,902,732 0.01 August 15, 2001
Pakistan Warrants.................. 693,576 0.01 August 18, 2007
Mobilink Finder's Fee Warrant...... 81,982 0.01 September 17, 2007
Vanguard Star Digitel Guarantee
warrant......................... 120,683 0.01 September 18, 2007
Vanguard Warrant/Option Exchange
options......................... 501,420 9.38 May 5, 2007
Vanguard Warrant/Option Exchange
Warrant......................... 249,970 .25 May 5, 2007(1)
------------------
4,890,203
------------------
------------------
</TABLE>
- -----------
(1) Warrants expire in the event of an IPO.
COMMON STOCK
In the event of a liquidation, holders of common stock will be entitled
to receive an amount equal to $.50 per share, as adjusted, plus any declared
and unpaid dividends, after completion of distributions to the holders of
preferred stock.
The remaining assets of the Company, after satisfaction of the
stipulated distribution requirements related to the various preferred stock
and common stock liquidation preferences, will be distributed on a pro rata
basis among all of the holders of common stock and all of the holders of the
preferred stock, assuming full conversion of the preferred stock into common
stock.
STOCK OPTION/STOCK ISSUANCE PLAN
Under the Company's 1994 Stock Option/Stock Issuance Plan (the "Plan")
incentive stock options may be granted to employees and officers, and
non-qualified (supplemental) stock options may be granted to employees,
officers, directors, and consultants to purchase shares of the Company's
common stock. Accordingly, the Company, as of December 31, 1995, had reserved
a total of 1,000,000 shares of the Company's common stock for issuance upon
the exercise of options granted pursuant to the Plan. Options granted under
the Plan generally expire 10 years following the date of grant and are
subject to limitations on transfer. During 1996, the Board of Directors
approved the amendment to and restatement of the Plan, the 1996 SO/SIP, and
authorized this issuance of an additional 1,400,000 shares of common stock
thereunder. In May 1997, the stockholders of the Company approved a further
amendment to the 1996 SO/SIP increasing the aggregate number of shares of
Common Stock available for issuance over the term of the plan by 411,526
shares to a total of 2,811,526 shares.
Option grants under the 1996 SO/SIP are subject to various vesting
provisions, all of which are contingent upon the continuous service of the
optionee and may not impose vesting criterion more restrictive than 20% per
year. The exercise price of options granted under the 1996 SO/SIP must equal
or exceed the fair market value of the Company's common stock on the date of
grant. Unless otherwise terminated by the Board of Directors, the 1996 SO/SIP
automatically terminates in January 2004.
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for stock options issued to employees. Accordingly,
no compensation cost has been recognized in the accompanying consolidated
financial statements for the 1996 SO/SIP because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as
of the grant date for each option. The Company has
F-34
<PAGE>
adopted the pro forma disclosure provisions of SFAS No. 123. Pro forma
results may not be representative of the effects on reported net loss for
future years. Had compensation cost for the Company's stock-based
compensation plans been determined in a manner consistent with the fair value
approach described in SFAS No. 123, the Company's net loss would be increased
to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss As reported..................... $ (11,271) (35,908) (123,650)
Pro forma....................... (11,290) (36,110) (124,029)
</TABLE>
Pro forma net loss reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts above
because compensation cost is reflected over the options' vesting period of
four to five years and compensation cost for options granted prior to January
1, 1995 is not considered.
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for granted options in 1995, 1996 and 1997, respectively:
zero dividend yield; zero expected volatility; risk-free interest rates of
5.91%, 5.88% and 6.14%; and weighted average expected lives of 2.65 years,
2.04 years and 2.87 years.
A summary of the status of the Company's Plan as of December 31, is as
follows:
F-35
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------- -------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- -------------- -------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year...... 761,920 $ 0.41 881,920 $ 1.51 1,982,000 $ 5.52
Granted................ 160,000 6.41 1,142,000 8.43 936,296 10.00
Exercised.............. -- -- (41,920) 0.25 (180,000) 0.25
Canceled............... (40,000) 0.25 -- -- (237,239) 9.15
----------- -------------- ---------------
Outstanding at
end of year............ 881,920 1.51 1,982,000 5.52 2,501,057 7.23
----------- -------------- ---------------
----------- -------------- ---------------
Options exercisable at
end of year............ 433,001 568,080 950,184
Shares available for
grant..................
118,080 376,080 88,549
Weighted average fair
value of options
granted during the
year...................
$ 0.90 $ 0.93 $ 1.56
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE PRICE OUTSTANDING EXERCISE
EXERCISE PRICES OPTIONS LIFE OPTIONS PRICE
---------------- --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.25......................... 432,000 6.50 $ 0.25 384,998 $ 0.25
From $0.25 to $2.50........... 68,000 6.83 2.09 56,750 2.08
From $2.51 to $8.13........... 979,916 8.08 7.87 463,401 7.77
From $8.14 to $9.38 .......... 845,457 9.14 9.38 45,035 9.38
From $9.39 to $12.48.......... 175,684 9.77 12.48 -- --
---------------- ----------------
From $0.25 to $12.48.......... 2,501,057 8.25 7.23 950,184 4.46
---------------- ----------------
---------------- ----------------
</TABLE>
(12) INCOME TAXES
The Company has incurred net losses since inception and has not recorded
any provision for income taxes. The reconciliation between the amount
computed by applying the U.S. federal statutory tax rate of 34% to net loss
before income taxes and the actual provision for income taxes as of December
31 follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ------------ -----------
<S> <C> <C> <C>
Income tax (benefit) at statutory rate................................ $ (3,832) (12,208) (36,244)
License amortization.................................................. 341 302 --
Other................................................................. -- 18 35
Net operating loss and temporary differences for which no tax benefit
was recognized..................................................... 3,791 11,888 36,209
---------- ------------ -----------
$ -- -- --
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
F-36
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Loss carryovers and deferred start-up expenditures.................... $12,788 31,953
Equity in foreign investments......................................... 501 23,618
Debt issuance costs................................................... -- 2,497
---------------- ---------------
Total gross deferred tax assets...................................... 13,289 58,068
Less valuation allowance............................................ (9,948) (55,614)
---------------- ---------------
Total deferred tax assets.......................................... 3,341 2,454
Deferred tax liabilities:
Fixed assets.......................................................... (153) (266)
Equity in foreign investments......................................... -- --
License fees.......................................................... (3,103) (2,188)
Debt issuance costs................................................... (85) --
---------------- ---------------
Total deferred tax liabilities................................... (3,341) (2,454)
---------------- ---------------
Net deferred tax assets............................................ $ -- --
---------------- ---------------
---------------- ---------------
</TABLE>
Management has established a valuation allowance for the portion of
deferred tax assets for which realization is uncertain. The valuation
allowances as of December 31, 1996 and 1997 were $9,948,000 and $55,614,000,
respectively. The net changes in valuation allowance during 1996 and 1997 was
an increase of $9,293,000 for 1996 and an increase of $45,666,000 for 1997.
As of December 31, 1997, the Company has cumulative U.S. federal net
operating losses of approximately $64,631,000, which can be used to offset
future income subject to federal income taxes. The federal tax loss
carryforwards will expire from 2008 through 2012. The Company has cumulative
California net operating losses of approximately $37,400,000, which can be
used to offset future income subject to California income taxes. The
California tax loss carryforwards will expire from 1998 through 2002.
The Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" as defined. Most of the U.S. federal and California net
operating loss carryforwards are subject to limitation as a result of these
restrictions. The ownership change restrictions are not expected to impair
the Company's ability to utilize the affected carryforward items. If there
should be a subsequent ownership change, as defined, of the Company, its
ability to utilize its carryforwards could be reduced.
The Company's foreign subsidiaries have aggregate net operating
losses of approximately $22,456,768. The foreign loss carryovers expire
over periods varying from six years to indefinitely.
(13) COMMITMENTS AND CONTINGENCIES
LEASE AND OTHER COMMITMENTS
The Company and its consolidated subsidiaries lease their facilities and
certain equipment under noncancelable operating lease agreements expiring
through 2001. Future minimum lease payments due under noncancelable operating
leases total approximately $1,752,000, $1,227,000, $667,000, $406,000 and
$129,000 in 1998 through 2002, respectively.
Total rent expense was approximately $60,000, $324,000 and $1,341,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
In October 1996, SRC entered into a contract with Nokia
Telecommunications Oy to acquire approximately $12.3 million of trunking
equipment and related services in six phases. It is anticipated that this
contract will be
F-37
<PAGE>
assigned to Via 1 upon the legal formation of the joint venture, which is
anticipated to occur during 1998. In the event the Company is unable to fund
this subscription, the Company will suffer significant dilution in its
ownership interest.
CAPITAL CONTRIBUTIONS
The Company, indirectly through its wholly owned subsidiary, IWC China,
owns a 40% equity interest in Star Digitel. 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 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. In the event
the Company is unable to fund this subscription, the Company will suffer
significant dilution in its ownership 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. Subject to the availability of necessary additional
financing, for the year ended December 31, 1998, the Company anticipates
making additional investments in various operating and nonoperating companies
totaling approximately $38,500,000.
NOTE PAYABLE
The Company was jointly and severally liable on a $16,000,000 note
payable to an unrelated party in connection with its RHP investment. The note
bore interest at 6.95% with principal and interest due October 10, 1996. The
Company had recorded its pro rata share of this note on the accompanying
consolidated balance sheet. In October 1996, the Company paid its $4,000,000
pro rata share of this note, plus $278,000 of accrued interest and the other
shareholders of RHP paid their pro rata share.
GUARANTEE OF DEBT OF EQUITY INVESTEE
In connection with a Malaysian Ringgit 91,000,000 (approximately
$23,393,000 as translated using effective exchange rates at December 31,
1997) 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 December 31, 1997, 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 sheet as of December 31,
1997.
The Company indirectly owns a 19.8% equity interest in 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 December 31, 1997, 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
December 31, 1997, this facility has been fully drawn down.
F-38
<PAGE>
In September 1997, at the request of IWC China, Vanguard guaranteed
$8,000,000 of indebtedness to be reimbursed by Star Digitel (see Note 6). 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.
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 OPTION
As of December 31, 1997, the Company had expended approximately $26.1
million to acquire its 20% 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 APC for an aggregate
purchase price of approximately $6.0 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 such 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%.
F-39
<PAGE>
(14) GEOGRAPHIC INFORMATION
Information about the Company's consolidated operations in different
geographic areas as of and for the years ended December 31 is as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Latin America...................................... $ -- -- 26
Southeast Asia..................................... -- -- --
Pacific and Far East............................... -- 869 3,249
United States...................................... -- -- --
---------------- -------------- --------------
$ -- 869 3,275
---------------- -------------- --------------
---------------- -------------- --------------
Operating loss:
Latin America...................................... $ (154) (3,844) (7,301)
Southeast Asia..................................... -- (692) (7,090)
Pacific and Far East............................... (3,756) (13,717) (66,413)
United States...................................... (6,211) (11,667) (16,002)
---------------- -------------- --------------
$ (10,121) (29,920) (96,806)
---------------- -------------- --------------
---------------- -------------- --------------
Identifiable assets:
Latin America...................................... $ 13,017 19,712 22,937
Southeast Asia..................................... 5,658 6,541 29,316
Pacific and Far East............................... 50,017 104,966 60,026
United States...................................... 26,951 38,139 11,090
---------------- -------------- --------------
$ 95,643 169,358 123,369
---------------- -------------- --------------
---------------- -------------- --------------
</TABLE>
The Company's consolidated operations in Latin America are in Brazil and
Peru. The Company's consolidated operations in Southeast Asia are in
Pakistan. The Company's consolidated operations in Pacific and Far East are
in New Zealand. The Company's equity method and cost investees are included
in the geographic areas in which principal operations exist or will exist
(see Note 5).
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, notes
receivable from and advances to affiliates, accounts payable and accrued
expenses, notes payable to related party and note payable approximates the
fair market value due to the relatively short maturity of these instruments.
The fair value of other financial instruments is described below.
The following methods and assumptions were used to estimate the fair
value of each category of financial instruments for which it is practicable
to estimate that value:
INVESTMENT IN AFFILIATE HELD FOR SALE -- The fair value of this
instrument is determined by management to be the same as its carrying amount.
INVESTMENTS IN AFFILIATES CARRIED ON THE COST METHOD -- The fair value
of these instruments is estimated based upon recent transactions in this
portfolio (see Note 5).
LONG-TERM DEBT, NET -- The fair value of the Exchange Notes was based on
recent trading prices of the related debt. The fair value of the Pakistan
Bridge Facility was estimated by management to be the same as the carrying
amount as no significant change in prevailing interest rates had occurred
since the issuance of the debt facility.
The estimated fair values of the Company's financial assets
(liabilities) as of December 31 are summarized as follows (in thousands):
F-40
<PAGE>
<TABLE>
<CAPTION>
1997
-------------------------------------
CARRYING AMOUNT ESTIMATED
FAIR VALUE
------------------ ---------------
<S> <C> <C>
Investment in affiliate held for sale...... $ 1,873 1,873
Investment in affiliates carried on the
cost method............................. 9,369 10,383
Long-term debt, net........................ 75,466 74,754
</TABLE>
(16) SUBSEQUENT EVENTS
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 SO/SIP.
In January 1998, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), a wholly owned subsidiary of IWC merged with and into
Radio Movil Digital Americas, Inc. ("RMDA"). 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 an aggregate liquidation preference of
$73,871,000 and $4,800,000 in cash (collectively, the "Consideration"). Of
the shares of Series I redeemable convertible preferred stock issued pursuant
to the Merger Agreement, 4,652,608 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 outstanding capital
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. After closing
of the merger, RMDA became a wholly-owned subsidiary of IWC. 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 and the Pakistan
Bridge Facility have been repaid in full and (ii) December 31, 1998.
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. The RMDA
Loan Agreement, which provides up to $35.0 million, 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 Merger (the "Initial Closing", and 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 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. A warrant to
purchase 155,840 shares of IWC's common stock at an exercise price of $0.01
per share was also issued in connection with the RMDA Loan Agreement (the
"RMDA Loan Agreement Warrant").
In January 1998, as a result of the RMDA Loan Agreement Warrant and
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 14,594 shares to an aggregate of 2,917,326 shares.
In February 1998, pursuant to the terms of the IWCH Pakistan Facility,
the number of shares of the Company's common stock issuable upon exercise of
the Initial Pakistan Warrants increased by 196,018 shares to an
F-41
<PAGE>
aggregate of 889,594. As a result, pursuant to the terms of the Unit
Warrants, the number of shares of the Company's common stock issuable upon
exercise of the Unit Warrants increased by 18,334 shares to an aggregate of
2,935,660 shares.
In February 1998, the Company signed a binding letter of intent with an
unrelated third party to sell PeruTel and RMDA's interests in Ecuador and
Chile for total cash consideration of $3,125,000 subject to adjustments as
outlined in the letter of intent.
In March 1998, the Company signed a letter agreement with an unrelated
third party to sell RMDA's interests in Venezuela for total cash
consideration of $19,500,000, subject to adjustments as outlined in the
letter of intent.
In March 1998, the Company agreed on a repayment plan for its $500,000
note receivable to an unrelated third party that was issued in March 1997 and
received the first installment of $100,000. The Company expects to collect
the remainder of the note during 1998.
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
is expected to close 45 days after the First Closing. 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 173,638 and
increases upon the occurrence of certain events. Additional warrants will be
issued upon the Second Closing.
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 IPO, its direct or indirect equity interests in Star
Digitel and Mobilink 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.
Concurrent with the Series J Financing, the Company entered into a
Support Services Agreement with Vanguard (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
equipment supply agreement with a vendor with financing up to $150.0 million
for such equipment.
In March 1998, as a result of the Series J Financing Warrant and the
Vanguard Support Services Agreement Warrant 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 45,339 shares to 2,980,999 shares.
In March 1998, pursuant to the terms of the Vanguard Star Digitel
Guarantee, the number of shares of the
F-42
<PAGE>
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. As a
result, pursuant to the terms of the Unit Warrants, the number of shares of
the Company's common stock issuable upon exercise of the Unit Warrants
increased by 4,825 shares to an aggregate of 2,985,824 shares.
F-43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
60
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The directors, executive officers and key employees of the Company as
of March 31, 1998 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Haynes G. Griffin(1)(4)................................. 50 Chairman of the Board
John D. Lockton......................................... 60 Vice Chairman of the Board
Hugh B. L. McClung...................................... 55 Vice Chairman of the Board
Van E. Snowdon(4)....................................... 41 Director, President and Chief Executive Officer
Clarence "Sam" Endy..................................... 59 Executive Vice President and Chief Operating Officer
Robin M.G. Maule........................................ 56 Senior Vice President, Business Development--Asia
Roger Quayle............................................ 43 Senior Vice President, Technology
Steven D. Overly........................................ 39 Senior Vice President, General Counsel
David T. Venn........................................... 38 Senior Vice President, Operations--Asia
Keith D. Taylor......................................... 36 Vice President and Controller
Sanford L. Antignas(4).................................. 36 Director
Carl C. Cordova III(1)(2)(3)(4)......................... 36 Director
Stephen R. Leeolou...................................... 42 Director
John S. McCarthy(2)(4).................................. 49 Director
Brian Rich(4)........................................... 36 Director
</TABLE>
___________________
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Option Committee.
(4) Member of Finance Subcommittee.
MR. GRIFFIN has served as Chairman of the Board of Directors of
the Company since June 1996. Mr. Griffin is a co-founder of Vanguard, and
has served as Chairman of the Board and Co-Chief Executive Officer of
Vanguard since November 1996. From July 1984 to November 1996, he was
President and Chief Executive Officer of Vanguard. Mr. Griffin also
serves as a director of Lexington Global Asset Managers, Inc. and Geotek
Communications, Inc. Mr. Griffin holds a B.A. from Princeton University.
MR. LOCKTON is a co-founder of the Company and has served as Vice
Chairman of the Board of Directors since March 1998. From January 1992 to
March 1998, he served as President, Chief Executive Officer and a director of
the Company. From May 1990 to August 1991, he was Managing Partner of
Corporate Technology Partners ("CTP"), a partnership formed to pursue
wireless communications licenses and form local wireless communications
businesses in developing countries, which was the predecessor to the Company.
In August 1988, he founded Cellular Data, Inc., a wireless company, and Star
Associates, Inc., a cellular radio RSA company. From December 1983 to
July 1986, Mr. Lockton was Executive Vice President for Pacific Bell Company,
with responsibility for more than 20,000 employees and $10 billion in
revenues including the Pacific Bell wireless business. From November 1980 to
September 1983, Mr. Lockton was President of Warner Amex (now Time Warner)
Cable Television, Inc. From 1968 to 1980, he served in various positions with
Dun and Bradstreet Corporation, including President of Dun and Bradstreet
International and President of Moody's Investor Services, Inc. Mr. Lockton
was a director of Interactive Network, Inc., a wireless based interactive
television company, from December 1987 to April 1996 and was Chairman of the
Board of Directors until December 1994. He was also a director of Centex
Telemanagement, Inc., a shared access telephone service provider from May
1992 until the company was acquired by MFS, Inc. in July 1994. Mr. Lockton
holds a B.A. in Economics from Yale
61
<PAGE>
University, an L.L.B. from Harvard Law School and an Executive M.B.A. from
the Columbia University Business School.
MR. MCCLUNG is a co-founder of the Company and has served as a
director of the Company since its inception in January 1992 and as Vice Chairman
of the Board of Directors since December 1995. Mr. McClung served as Chairman of
the Board of Directors of the Company from January 1992 to December 1995, and
served as Chief Financial Officer of the Company from January 1992 until April
1995. From 1986 to 1991, he was a general partner of CTP, which he co-founded to
pursue wireless communications licenses and form local wireless communications
businesses in developing countries. Mr. McClung holds a B.A. in Economics and an
M.B.A. from the University of Washington.
MR. SNOWDON has served as a director of the Company since March
1996 and as President and Chief Executive Officer since March 1998. From
August 1995 to March 1998, Mr. Snowdon had served as President and Vice
President of Vanguard Communications, Inc., a subsidiary of Vanguard. From
January 1992 to August 1995, he was Vice President of Vanguard International
Telecommunications, Inc., a subsidiary of Vanguard. Mr. Snowdon also serves
on the Board of Directors of Cellular Telecommunications Services, Ltd., and
Digitel Telecommunications Services Ltd. Mr. Snowdon holds a B.S. in
Management, a B.S. in Marketing and an M.B.A. from James Madison University.
MR. ENDY has served as Chief Operating Officer of the Company since
June 1996 and has served as Executive Vice President of the Company since August
1994. In addition, since August 1997, Mr. Endy has responsibility for the
Company's Asian operations. From July 1988 to May 1994, Mr. Endy held the
positions of Senior Vice President, Sales and Service, Senior Vice President,
Sales and Marketing, and Chief Service Officer at Centex Telemanagement, Inc., a
telecommunications management company. From 1982 to 1988, Mr. Endy was with
Sprint Communications, Inc., most recently as Corporate Vice President for
Operations, where he was responsible for the management and operation of the
national and international network optical fiber and switching network. From
1977 to 1982, Mr. Endy served as a tenured professor and Deputy Head, Department
of Electrical Engineering at the U.S. Military Academy at West Point, N.Y.
Mr. Endy holds a B.S. in Military Science from the U.S. Military Academy, West
Point, an M.S. in Electrical Engineering from Purdue University and a Ph.D. in
Electrical Engineering from Purdue University.
MR. MAULE has served as Senior Vice President, Business
Development-Asia, of the Company since January 1997. From 1994 to October 1996,
Mr. Maule served as Chief Operating Officer of Mobisel. From 1993 to 1994 Mr.
Maule served as a consultant for Islacom, a Philippine telecommunications
network operator, where he was responsible for the design and construction of a
fixed telephone network, international gateway and nationwide GSM network. From
July 1987 to 1993, Mr. Maule served as Group Director of Strategic Planning of
Hutchison Telecom, a Hong Kong telecommunications network operator. From 1972 to
July 1987, Mr. Maule held various positions with Motorola in Asia. Mr. Maule
holds a B.S. in Math and Physics from St. Andrews University and an HNC in
Electronics and Business Studies from Reading Technical College.
MR. OVERLY has served as Senior Vice President and General Counsel of
the Company since February 2, 1998. From 1992 to January 1998, Mr. Overly was
Vice President and General Counsel of Lockheed Martin Telecommunications
(including its predecessors, Martin Marietta Astro Space and GE Astro Space), a
major satellite manufacturer and telecommunications service provider. From 1990
to 1992, Mr. Overly was Division Counsel, Aircraft Electronics & Defense Systems
Division, General Electric Company. Mr. Overly holds a B.A. in Political Science
from Gettysburg College, an M.P.A. from Pennsylvania State University, a J.D.
from Stetson University College of Law and a Master of Laws in International and
Comparative Law from Georgetown University.
MR. QUAYLE has served as Senior Vice President, Technology of the
Company since May 1996. From May 1995 to April 1996, he served as the Company's
Vice President, Technology, and from August 1994 to May 1995, he served as the
Company's Vice President, Asian Operations. From July 1991 to August 1996,
Mr. Quayle held various management positions with Broadcast Communications
Ltd., a New Zealand broadcasting and telecommunications network and engineering
company, most recently as General Manager of Technology and
62
<PAGE>
Business Development, in which he was responsible for developing wireless
communications and media strategies and for developing international
businesses. From 1989 to 1991, Mr. Quayle was Senior Consultant and Principal
of Amos Aked Swift, an Australian telecommunications consulting company,
engaged primarily in assisting clients to develop new wireless businesses.
Prior to that time, he was the founder and Managing Director of Datacomm
Equipment Ltd., a New Zealand data communications products and services
company.
MR. VENN has served as Senior Vice President, Operations-Asia of the
Company since May 1997. From May 1994 to May 1997, Mr. Venn was Managing
Director of London Interconnect, Ltd., a telecommunications and multimedia
company in London, where he was responsible for building and managing a new high
speed networking operation, an advertising sales operation and a pay-per-view TV
service. From May 1992 to May 1994, Mr. Venn served as a director of Focus
Business Services, Ltd., a management consulting company. From December 1989 to
July 1991, Mr. Venn served as International Product Development Manager for Hong
Kong Telephone Co., Ltd. From 1983 to December 1989, Mr. Venn held various
positions with Mercury Communications, Ltd., a telecommunications company in the
United Kingdom. Mr. Venn holds a B.S. in Telecommunications from University
SouthWest and an M.B.A. from Ashridge Management College.
MR. TAYLOR has served as a Vice President of the Company since
October 1997 and Controller of the Company since February 1996. From March 1994
to February 1996, Mr. Taylor served as Senior Sector Analyst of Becton Dickinson
& Company, a medical device manufacturer. From October 1989 to March 1994,
Mr. Taylor served as Manager, Financial Reporting of Becton Dickinson Canada,
Inc. Mr. Taylor holds a B.B.A. in Accounting from Bishop's University and is a
member of the Ontario Institute of Chartered Accountants.
MR. ANTIGNAS has served as a director of the Company since December
1996. Mr. Antignas is a Principal of Bassini Playfair + Associates LLC, an
emerging markets equity investment firm, which he joined in April 1996. From
August 1994 to April 1996, he was Director of International Direct Investments
for a unit of American International Group, Inc., and from September 1987 to
August 1994, he held various positions with GE Capital Corporation. Mr. Antignas
is a Certified Public Accountant, having previously been employed by Deloitte
Haskins & Sells. Mr. Antignas holds a B.S. in Business Administration from the
University of California, Berkeley and an M.B.A. from New York University.
MR. CORDOVA has served as a director of the Company since
December 1995. Mr. Cordova is a Principal of Electra Fleming Inc., an
affiliate of Electra Investment Trust PLC ("Electra"), which he joined in
1993. He serves on the Boards of Directors of a number of companies. Prior
to joining Electra Fleming Inc., he was a Vice President of Columbia Capital
Group. Mr. Cordova received a B.A. from Gettysburg College and an M.B.A.
from The Wharton School of the University of Pennsylvania.
MR. LEEOLOU has served as a director of the Company since February
1994 and served as Chairman of the Board of Directors of the Company from
December 1995 to June 1996. Mr. Leeolou is a co-founder of Vanguard and has
served as its President and Co-Chief Executive Officer since November 1996. From
July 1984 to November 1996, he was Executive Vice President and Chief Operating
Officer of Vanguard. Mr. Leeolou holds a B.A. in Communications from James
Madison University.
MR. MCCARTHY has served as a director of the Company since May 1993.
Since December 1984, Mr. McCarthy has been a General Partner of Gateway
Associates, a venture capital firm which he co-founded ("Gateway Associates").
Mr. McCarthy serves on the Board of Directors of Transaction Network Services,
Inc., a publicly held electronic data telecommunications company. Mr. McCarthy
also serves on the boards of directors of Tek Now, Inc., a paging networks
system company, NetSolve, Inc., a data communications network company, Savvis
Communications Corp., a ATM network provider, and Omnilink Communication Corp.,
an ISDN terminal products manufacturer. Mr. McCarthy holds a B.S. in Business
from Washington University and an M.B.A. from St. Louis University.
MR. RICH has served as a director of the Company since December 1995.
Since July 1995, Mr. Rich has served as Managing Director and Group Head of
Toronto-Dominion Capital, the U.S. merchant bank affiliate of The
Toronto-Dominion Bank. From September 1990 to July 1995 he served as Managing
Director of the
63
<PAGE>
Communications Finance Group of The Toronto-Dominion Bank where he focused on
transactions in the wireless communications, cable and broadcast industries.
Mr. Rich also serves as a member of the Board of Directors of Teletrac, Inc.,
a vehicle location company, and InterAct, Inc., an electronic couponing and
brand promotion company. Mr. Rich holds a B.S. in Engineering from the State
University of New York at Buffalo and an M.B.A. from Columbia University.
The Company currently has authorized eleven directors with nine
directors currently serving and two vacancies. Each director holds office until
the next annual meeting of stockholders or until his successor is duly elected
and qualified. The Officers serve at the discretion of the Board of directors of
the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has four standing committees: (i) an
Audit Committee (the "Audit Committee"); (ii) a Compensation Committee (the
"Compensation Committee"); (iii) an Option Committee (the "Option Committee")
and (iv) a Finance Subcommittee (the "Finance Subcommittee"). The Board of
Directors has from time to time established other committees to assist in the
discharge of its responsibilities.
The duties of the Audit Committee include recommending independent
auditors to the Board of Directors, reviewing the intended scope of the annual
audit, the audit methods and principles being applied by the independent
auditors and the fees charged by the independent auditors, reviewing and
discussing the results of the audit, reviewing the Company's significant
accounting principles, policies and practices and undertaking related matters.
KPMG Peat Marwick LLP presently serves as the independent auditors of the
Company. The Audit Committee is currently comprised of Messrs. Cordova and
McCarthy.
The duties of the Compensation Committee include providing guidance
and periodic monitoring for all corporate compensation, benefit, perquisite and
employee equity programs, including those for all corporate officers, and
succession planning for corporate officers, other than the 1996 Stock Incentive
Plan (as defined herein). The Compensation Committee is currently comprised of
Messrs. Cordova and Griffin. The duties of the Option Committee include
administering the 1996 Stock Incentive Plan. The Option Committee is currently
comprised of Mr. Cordova.
The duties of the Finance Subcommittee consist of such matters as are
delegated to it from time to time by the Board of Directors. The Finance
Subcommittee is currently comprised of Messrs. Antignas, Cordova, Griffin,
McCarthy, Rich and Snowdon.
ARRANGEMENTS CONCERNING ELECTION OF DIRECTORS
Pursuant to the Company's Amended and Restated Certificate of
Incorporation (the "Certificate"), (i) Vanguard, as the holder of Series E
Preferred Stock (as defined herein), is entitled to elect three directors to the
Company's Board of Directors and (ii) for so long as 20% of the shares of Series
F Preferred Stock (as defined herein) remain outstanding, the holders of Series
F-1 Preferred Stock (as defined herein) are entitled to elect three directors,
one of whom Electra has the right to elect, one of whom Central Investment
Holdings, Inc. ("CIH") has the right to elect and one of whom Toronto-Dominion
Investments Inc. ("TDI") has the right, subject to the conversion of its Series
F-2 Preferred Stock (as defined herein) into Series F-1 Preferred Stock, to
elect (subject, in each case, to minimum stock ownership requirements). Pursuant
to the Investor Rights Agreement ("IRA", as defined herein), upon termination of
the rights referred to in clause (ii) of the preceding sentence, for so long as
20% of the Series F Preferred Stock or the Common Stock issued or issuable upon
conversion thereof (the "Series F Conversion Shares") are held by Series F
Holders (as defined in the IRA), holders of Preferred Stock and certain
transferees thereof have agreed to vote for three directors designated by a
majority of the Series F Conversion Shares, one of whom Electra has the right to
designate, one of whom CIH has the right to designate and one of whom TDI has
the right to designate (subject, in each case, to minimum stock ownership
requirements). The holders of Series F-1 Preferred Stock have certain additional
rights with respect to the election of one additional director
64
<PAGE>
upon the occurrence of certain events specified in the Series F Purchase
Agreement (as defined herein). In satisfaction of such provisions, the
Company's Board of Directors presently includes: Messrs. Griffin, Leeolou and
Snowdon, who are representatives of Vanguard; Mr. Cordova, who is a
representative of Electra; and Mr. Rich, who is a representative of TDI. CIH
has the right to elect a director to fill the one existing vacancy on the
Board of Directors.
Pursuant to a Memorandum of Understanding entered into in August 1997
among Vanguard, Electra and certain funds managed by BEA Associates or entities
affiliated with BEA Associates (collectively, the "BEA Funds"), each of the
parties agreed that until the Company completes an initial public offering or is
sold or merges with another entity, it will not take any actions that would
result in a representative of BEA Associates from being removed from the Board
of Directors of the Company, so long as the BEA Funds retain their current level
of ownership. As of November 15, 1997, the BEA Funds beneficially owned
approximately 8.45% of the Company's Common Stock. Bassini Playfair+ Associates
LLC is a consultant to BEA Associates and provides services to the BEA Funds
with respect to their investment in the Company. Mr. Antignas, a Principal of
Bassini Playfair+ Associates LLC, currently serves as the representative of the
BEA Funds on the Company's Board of Directors.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The Certificate limits the liability of the Company's directors for
monetary damages arising from a breach of their fiduciary duty as directors, to
the maximum extent permitted by the DGCL. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission. The Company's Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by the DGCL. The Company
has also entered into indemnification agreements with its officers, directors,
and certain other employees containing provisions that may require the Company,
among other things, to indemnify such persons against certain liabilities that
may arise by reason of their status or service as officers, directors or
employees of the Company (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the
Company's Chief Executive Officer and four other most highly compensated
executive officers, each of whom earned salary and bonus for the fiscal year
ended December 31, 1997 in excess of $100,000 (collectively, the "Named
Officers"), for services rendered in all capacities to the Company during its
previous fiscal year.
65
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) OPTIONS(#) ($)(2)
- ----------------------------------------------------- -------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
John D. Lockton 1997 180,000 70,200 51,573 2,327
Former President and Chief Executive Officer, 1996 157,500 50,000 200,000 2,327
Vice Chairman of the Board(3) 1995 120,000 50,000 0 2,327
Hugh B.L. McClung 1997 180,000 70,200 51,573 2,695
Vice Chairman of the Board 1996 157,500 50,000 200,000 4,115
1995 120,000 50,000 0 2,574
Clarence Endy 1997 205,000 61,500 33,154 3,973
Executive Vice President 1996 195,000 45,000 40,000 3,804
Operations and Chief Operating Officer 1995 195,000 20,000 0 3,804
Douglas S. Sinclair(4) 1997 165,000 38,775 28,733 47,745(5)
Former Executive Vice President and 1996 155,000 38,000 36,000 48,383(5)
Chief Financial Officer 1995 100,104 15,000 120,000 116,122(5)
James M. Dixon(6) 1997 147,126 60,000 120,000 --
Former Executive Vice President
</TABLE>
________________________
(1) Table does not include Van E. Snowdon, President and Chief Executive
Officer of the Company, who joined the Company in March 1998 and whose
annualized base salary for 1998 is $250,000, and Steven D. Overly,
Senior Vice President and General Counsel, who joined the Company in
February 1998 and whose annualized base salary for 1998 is $230,000.
(2) Represents premium for life insurance paid by the Company, unless
otherwise noted.
(3) Mr. Lockton resigned as President and Chief Executive Officer and was
elected Vice Chairman of the Board in March 1998.
(4) Mr. Sinclair ceased serving as Executive Vice President and
Chief Financial Officer in March 1998.
(5) Includes a cost of living adjustment of $47,745 paid by the Company in
1997, a cost of living adjustment of $47,745 and life insurance premiums
in the amount of $638 paid by the Company in 1996 and a cost of living
adjustment of $47,480 and reimbursement for relocation expenses of $68,642
in 1995.
(6) Mr. Dixon ceased serving as an Executive Vice President of the Company in
February 1998.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option
grants made to each of the Named Officers for the fiscal year ended December 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
--------------------------------------- --------------------------
NUMBER OF % OF TOTAL
SHARES OF OPTIONS
COMMON STOCK GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5% ($) 10%($)
- ------------------------------------------------- ---------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John D. Lockton............ 51,573 6% $9.375 2/3/07 304,067 770,567
Hugh B.L. McClung.......... 51,573 6% 9.375 2/3/07 304,067 770,567
Clarence Endy.............. 33,154 4% 9.375 2/3/07 195,472 495,365
Douglas S. Sinclair........ 28,733 3% 9.375 2/3/07 169,405 429,307
James M. Dixon............. 120,000 13% 9.375 2/3/07 707,506 1,792,960
</TABLE>
____________
(1) Each option is immediately exercisable. The shares purchased thereunder
are subject to repurchase by the Company at the original exercise price
paid per share upon the optionee's cessation of service prior to vesting
in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of one year of service from the
date of grant and the balance in a series of equal monthly installments
over the next 36 months of service thereafter. The option shares will
vest upon an acquisition of the Company by merger or asset sale, unless
the Company's repurchase right with respect to the unvested option
shares is transferred to the acquiring entity. The options have a
maximum term of ten years, subject to earlier termination in the event
of the optionee's cessation of employment with the Company.
(2) The exercise price may be paid in cash, in shares of the Company's
Common Stock valued at fair market value on the exercise date or through
a cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also, at its discretion, finance the option
exercise by lending the optionee sufficient funds to pay the exercise
price for the purchased shares, together with any federal and state
income tax liability incurred by the optionee in connection with such
exercise.
(3) The 5% and 10% assumed annual rates of compounded stock price
appreciation are provided for informational purposes only based on rules
of the Commission. The Company is unable to predict whether the stock
price will increase or decrease and, if it does increase, there can be
no assurance that the actual stock price appreciation over the ten-year
option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning option holdings
for the fiscal year ended December 31, 1997 with respect to each of the Named
Officers. No options were exercised during the fiscal year ended December 31,
1997, and no stock appreciation rights were exercised during such year or were
outstanding at the end of that year.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)
--------------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John D. Lockton.......................... 331,573 0 $1,054,604 0
Hugh B. L. McClung....................... 331,573 0 $1,054,604 0
Clarence Endy............................ 213,154 0 $1,375,460 0
Douglas S. Sinclair...................... 184,733 0 $461,565 0
James M. Dixon........................... 120,000 0 $27,000 0
</TABLE>
______________
(1) Based on the estimated fair market value of Common Stock as of
December 31, 1997 ($9.60 per share) less the exercise price payable
for such shares.
(2) The options are immediately exercisable for all the option shares, but
any shares of Common Stock purchased under the options will be subject
to repurchase by the Company at the original exercise price per share
upon the optionee's cessation of service prior to vesting in such
shares. The repurchase right had lapsed as to the following number of
shares as of December 31, 1997: Mr. Lockton--154,165 shares; Mr.
McClung--167,499 shares; Mr. Endy--134,165 shares; Mr. Sinclair--94,998
shares; and Mr. Dixon--0 shares.
DIRECTOR COMPENSATION
Directors other than Haynes G. Griffin do not receive any cash
compensation for their service as members of the Board of Directors, although
they are reimbursed for their expenses in attending Board and Committee
meetings. Mr. Griffin receives compensation in the amount of $50,000 per year
for his services as an employee and Chairman of the Board. Further, certain
outside directors have been granted options to purchase shares of Common Stock
in connection with their service as directors of the Company as follows: Van E.
Snowdon-14,735 shares at an exercise price of $9.375 per share granted in
February 1997 and 65,250 shares at an exercise price of $9.375 granted in May
1997; Stephen R. Leeolou-80,000 shares at an exercise price of $8.125 per share
granted in March 1996; and John S. McCarthy-12,000 shares at an exercise price
of $2.00 per share granted in October 1994. The foregoing option grants exclude
options to purchase an aggregate of 465,250 shares of Common Stock at an
exercise price of $9.375 per share granted to Messrs. Griffin and Snowdon
pursuant to the Vanguard Warrant Exchange (as defined herein). See "Certain
Relationships and Related Transactions--Vanguard Warrant Exchange."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not currently have employment contracts with the
Named Officers, except as described below.
In April 1997, the Company entered into an employment agreement with
Mr. Dixon pursuant to which he became an Executive Vice President of the
Company. The agreement provided for an annual salary of $200,000 plus a target
bonus (guaranteed for 1997) equal to 30% of salary and a performance-based bonus
payable in cash or
68
<PAGE>
Common Stock based on the achievement of certain targets relating to the
valuation of the Company's Latin American operations. Mr. Dixon's employment
agreement also provided that if Mr. Dixon's severance payments from his prior
employer ceased or were reduced for any reason prior to the end of 1997, the
Company would make payments to Mr. Dixon in an amount equal to such
reduction, up to a maximum of $150,000. In addition, the agreement provided
that the Company would pay Mr. Dixon certain relocation expenses if he moved
to a location closer to Latin America at the Company's request. Further,
pursuant to the agreement the Company granted Mr. Dixon an option to purchase
120,000 shares of Common Stock at $9.375 per share. The agreement also
provided for payment of one-half year of salary plus any accrued bonus up to
the date of termination if Mr. Dixon were terminated for any reason other
than for cause. In February 1998, the Company entered into a settlement
agreement with Mr. Dixon pursuant to which the employment agreement was
terminated and Mr. Dixon resigned as Executive Vice President of the Company.
The agreement provides a cash bonus to Mr. Dixon in the amount of $60,000,
payable in four equal installments commencing April 1, 1998. The agreement
also provides that the Company will make four additional payments to
Mr. Dixon in the amount of $23,000 each commencing on April 1, 1998.
In March 1998, the Company entered into an agreement with John D.
Lockton concerning the terms of Mr. Lockton's resignation as President and Chief
Executive Officer of the Company. The agreement guarantees Mr. Lockton
employment or pay in lieu of employment for one year as the Vice Chairman of the
Company with a salary of $180,000. The agreement also provides guaranteed
bonuses for 1997 and 1998 in the sum of $70,200 for each year. In addition,
Mr. Lockton's stock options will continue to vest regardless of his employment
with the Company. Further, pursuant to the agreement, Mr. Lockton has agreed not
to compete with the Company for a period of three years in the wireless industry
in any country in which the Company is doing business, or commences doing
business within 90 days of March 2, 1999.
In February 1998, the Company entered into a settlement agreement
with Douglas S. Sinclair pursuant to which Mr. Sinclair resigned as Executive
Vice President and Chief Financial Officer of the Company. The agreement
provides a cash bonus to Mr. Sinclair in the amount of $38,750 payable on
July 1, 1998. The agreement also provides that the Company will pay a monthly
severance payment to Mr. Sinclair of $13,750 per month over a nine month period
commencing on March 6, 1998.
The Option Committee has the authority to provide for accelerated
vesting of Common Stock subject to outstanding options, in connection with
certain changes in control in the Company or termination of employment following
such change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Griffin and Cordova.
Mr. Griffin serves as its Chairman. Mr. Griffin is Chairman of the Board of
Directors and an employee of the Company and Chairman of the Board and
Co-Chief Executive Officer of Vanguard. Mr. Cordova is a principal of Electra
Fleming, Inc., an affiliate of Electra. As of December 31, 1997, Vanguard and
Electra each held more than 5% of a class of outstanding voting equity
securities of the Company.
In May 1994, the Company issued May 1994 Bridge Notes (as defined
herein) in a principal amount of $770,234 to Vanguard. In connection with such
financing, the Company issued warrants exercisable for shares of Series D
Preferred Stock (as defined herein), including warrants to purchase 17,640
shares issued to Vanguard.
In the Series D Financing (as defined herein), the Company sold
445,400 shares of Series D Preferred Stock to Vanguard for an aggregate purchase
price of $2,917,370, including cancellation of a May 1994 Bridge Note in the
principal amount of $770,234. In connection with the Series D Financing,
Vanguard loaned $1.8 million to the Company in exchange for two convertible
notes in the amount of $900,000 each. On April 26, 1996, Vanguard converted both
notes, as amended, into an aggregate of 274,800 shares of Series D Preferred
Stock.
On April 6, 1995, the Company issued April 6, 1995 Bridge Notes (as
defined herein) in the principal amount of $390,000 to Vanguard, which were
canceled in a subsequent financing. In connection with issuing such
69
<PAGE>
notes, the Company issued warrants exercisable for shares of Series D
Preferred Stock, including warrants to purchase 5,960 shares issued to
Vanguard.
On April 24, April 25, and June 27, 1995, the Company issued the
April 24, 1995 Bridge Notes (as defined herein) in principal amounts of
$1,541,070 to Vanguard. Of the $1,541,070 loaned by Vanguard, $390,000 was in
the form of cancellation of the April 6, 1995 Bridge Note held by Vanguard.
On July 31, 1995, the Company issued the First July 1995 Vanguard
Note (as defined herein) in the principal amount of $1,485,000 to Vanguard. The
Company paid Vanguard a $20,000 fee in connection with the transaction. The
First July 1995 Vanguard Note was canceled in the Series F Financing (as defined
herein). The Company also issued Vanguard, for a purchase price of $15,000,
warrants to purchase 32,000 shares of Series F-1 Preferred Stock at an exercise
price of $9.375 per share.
In the July 1995 Financing (as defined herein), the Company issued
additional notes in the principal amount of $1,490,013 to Vanguard. The Company
also issued (i) 380,880 shares of Series D Preferred Stock to Vanguard and
(ii) warrants to purchase shares of Series F-1 Preferred Stock (not including
the warrant issued to Vanguard in connection with the First July 1995 Vanguard
Note) at an exercise price of $9.375 per share, including warrants to purchase
32,120 shares issued to Vanguard. Certain notes previously issued by the
Company were canceled in the July 1995 Financing.
In November and December 1995, the Company borrowed $1,000,000 from
Vanguard and issued the Winter 1995 Notes (as defined herein) that bore interest
at 10% per annum. In connection with these transactions, the Company paid loan
fees of $30,000 to Vanguard.
In the Series F Financing, the Company sold Series F-1 Preferred
Stock to Electra (1,066,640 shares for an aggregate purchase price of
$9,999,750) and Vanguard (424,000 shares for an aggregate purchase price of
$3,975,000, including the conversion of certain outstanding notes). In
connection with Series F Financing, the Company paid fees of $265,000 to
Vanguard.
In April 1997, Vanguard purchased a 7% equity interest in Star
Digitel directly from STHL, a shareholder in Star Digitel. In September 1997, at
the request of IWC China Limited (as defined herein), Vanguard guaranteed $4.0
million of indebtedness incurred by Star Digitel. Pursuant to a Reimbursement
Agreement, IWC China Limited agreed to pay Vanguard (i) an up-front fee of
$240,000 in cash, (ii) a quarterly in-kind guarantee fee at an initial rate of
6.75% that increases over time to 17.75% (iii) a guarantee fee payable in Star
Digitel Shares (as defined herein) owned by IWC China Limited if Vanguard is
required to make any payments under the guarantee and (iv) a guarantee fee equal
to 40% of the outstanding Star Digitel Shares if the guarantee is not
permanently released and discharged within a specified period after the
occurrence of certain financings and asset sales by the Company and certain
related entities. In addition, the Company granted Vanguard a ten-year warrant
to purchase shares of its Common Stock at an exercise price of $.01 per share.
The number of shares issuable upon exercise of the warrant is initially set at
68,817 and increases in quarterly increments thereafter until Vanguard's
obligations under the guarantee have been permanently released and discharged.
In August 1997, Vanguard Pakistan, Inc., a wholly owned subsidiary of
Vanguard ("VPI"), acquired an indirect 6% interest in Mobilink by acquiring
an equity interest in International Wireless Communications Pakistan, Limited
("IWCPL"). In addition, pursuant to the Pakistan Facilities entered into by
the Company and PWH in August 1997, (i) PWH issued the PWH Pakistan Notes to
Vanguard in the principal amount of $3,034,483 and (ii) the Company obtained
commitments to receive $965,517 of additional debt financing from Vanguard.
Pursuant to such commitments, in October and December 1997, the Company issued
the IWCH Pakistan Notes to Vanguard in the aggregate principal amount of
$965,517. In addition, pursuant to the Pakistan Facilities, (i) Vanguard
received, or are eligible to receive certain commitment and issuance fees,
(ii) Vanguard received Pakistan Initial Warrants (as defined herein)
currently exercisable to purchase 122,704 shares of Common Stock at an
exercise price of $0.01 per share (with the number of shares issuable upon
exercise of such warrants increasing over time) and (iii) Vanguard will
receive certain Pakistan
70
<PAGE>
Liquidity Warrants (as defined herein) upon the repayment of the IWCH Pakinstan
Facility.
In August 1997, Vanguard Pakistan, Inc., a wholly owned subsidiary of
Vanguard ("VPI"), acquired an indirect 6% equity interest in Mobilink by
acquiring an equity interest in IWCPL. Pursuant to the IWC Group Agreement
entered into between PWH and VPI in August 1997 (the "IWC Group Agreement"),
(i) PWH and VPI agreed that each party could exercise certain rights and
perform certain duties of the other party under the IWCPL shareholders
agreement, if such other party was unable or unwilling to do so, and (ii) VPI
entered into a voting trust agreement whereby it granted an officer of PWH
the right to vote all voting securities of IWCPL now owned or hereafter
acquired by VPI during the term of the voting trust. Pursuant to a letter
agreement between PWH and VPI in February 1998, VPI exercised its right under
Section 2.5 of the IWC Group Agreement to make a capital contribution to
IWCPL on behalf of PWH by purchasing 1,240,275 redeemable preference shares
of IWCPL for $1,240,275. Pursuant to the letter agreement, PWH has the right
to purchase the shares at any time on or before May 16, 1998 for a purchase
price of $1.00 per share and VPI has the right to put the shares to PWH at
any time on or before May 16, 1998 for a purchase price of $1.00 per share.
In addition, PWH has agreed to pay VPI a fee of $18,600 pursuant to the
letter agreement.
Pursuant to the Vanguard Project Exchange, the Company acquired the
interests or rights to acquire interests of Vanguard Sub (as defined herein) in
ten wireless projects in Indonesia, New Zealand, Brazil, India and Pakistan in
exchange for 3,972,240 shares of Series E Preferred Stock. Vanguard's cost of
acquiring such projects was in excess of approximately $550,000.
Pursuant to the Vanguard Warrant Exchange, Vanguard surrendered
then-outstanding warrants to purchase 323,880 shares of the Company's Series C
Preferred Stock (as defined herein), 416,720 shares of its Series D Preferred
Stock and 64,120 shares of its Series F Preferred Stock in exchange for the
issuance by the Company of a warrant to acquire 249,970 shares of Common Stock
at a purchase price of $0.25 per share and second warrant to purchase 554,750
shares of Common Stock at an exercise price of $9.375 per share. The second
warrant was subsequently surrendered by Vanguard in exchange for the issuance to
certain officers and employees of Vanguard of an option to purchase 53,330
shares of Common Stock at an exercise price of $9.375 per share under the 1996
Stock Incentive Plan and options to purchase an aggregate of 501,420 shares of
Common Stock at a purchase price of $9.375 per share outside the Prior Stock
Plan, including options granted to the following directors of the Company:
Haynes G. Griffin-400,000 shares; and Van E. Snowdon-65,250 shares. Pursuant to
the Vanguard Warrant Exchange, Vanguard agreed to guarantee from time to time up
to an aggregate of $3.2 million of indebtedness incurred by the Company or its
wholly owned subsidiaries until the Company receives at least $3.2 million in
alternative debt financing or consummates an initial public offering of its
Common Stock, but in no event later than February 3, 1999.
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 (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 173,638 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 (i) 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 (ii) 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 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
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<PAGE>
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 subsequent qualifying private placement of its equity securities. The
SJPS Agreement contains certain other customary representations, warranties
and covenants.
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.
In March 1998, the Company entered into a Support Services Agreement
(the "Support Services Agreement") with Vanguard China, Inc. ("VCI"). Pursuant
to the Support Services Agreement, the Company granted Vanguard a warrant to
purchase up to 323,408 shares of its Common Stock (the "SSA Warrant Shares") in
exchange for VCI agreeing to provide certain services relating to the financing
of Star Digitel. One-half of the SSA Warrant Shares become exercisable upon Star
Digitel executing definitive financing documents relating to a $50 million
financing acceptable to Star Digitel's board of directors, and one-half of the
SSA Warrant Shares become exercisable upon Star Digitel entering into an
agreement for vendor financing acceptable to Star Digitel's board of directors.
The SSA Warrant has a ten-year term and an exercise price of $0.01 per share of
Common Stock.
Van E. Snowdon was elected President and Chief Executive
Officer of the Company in March 1998. Prior to such time, he had served as
President of Vanguard Communications, Inc., a subsidiary of Vanguard. See
"Item 11. Executive Compensation."
For additional information regarding the above transactions, see
"Certain Relationships and Related Transactions." For a description of
compensation of executive officers and directors of the Company and the
eligibility of executive officers and directors to participate in the 1996 Stock
Incentive Plan, see other parts of this "Executive Compensation."
1996 STOCK INCENTIVE PLAN
The 1996 Stock Option/Stock Issuance Plan (the "1996 Stock Incentive
Plan") was initially adopted by the Board of Directors of the Company and
approved by its stockholders on August 7, 1996. The 1996 Stock Incentive Plan is
the successor to the International Wireless Communications, Inc. 1994 Stock
Option/Stock Issuance Plan (the "1994 Plan"), and no additional options will be
granted under the 1994 Plan. A total of 2,811,526 shares of Common Stock have
been authorized for issuance under the 1996 Stock Incentive Plan. January 1998,
the Board of Directors approved the reservation of an additional 2,000,000
shares of Common Stock for issuance pursuant to the 1996 Stock Incentive Plan,
subject to stockholder approval.
The individuals eligible to receive option grants or share issuances
under the 1996 Stock Incentive Plan are employees (including officers and
directors), non-employee members of the Board of Directors and consultants of
the Company or any parent or subsidiary corporation. As of December 31, 1997
options to purchase a total of 2,501,057 shares of Common Stock were outstanding
under the 1996 Stock Incentive Plan. In addition, the Board of Directors of the
Company granted options to purchase an additional 165,000 shares pursuant to the
1996 Stock Incentive Plan subsequent to December 31, 1997.
The 1996 Stock Incentive Plan is divided into two separate programs:
the option grant program and the stock issuance program. Under the option grant
program, eligible individuals may be granted options to purchase shares of
Common Stock at a discount of up to 15% of the fair market value of such shares
on the grant date, and options may be structured as installment options that
become exercisable for vested shares over the optionee's period of service or as
immediately exercisable options for unvested shares that may be subject to
repurchase upon the optionee's termination of employment. The stock issuance
program allows eligible individuals to purchase
72
<PAGE>
shares of Common Stock at fair market value or at discounts of up to 15% of
the fair market value of the shares on the grant date. Such shares may be
fully vested when issued or may vest over time. In addition, shares of Common
Stock may be issued as bonus awards in recognition of services rendered to
the Company.
The 1996 Stock Incentive Plan is administered by the Board of
Directors of the Company or a committee thereof. The Board or such committee
will select the individuals to receive option grants or share issuances and the
number of shares subject to each such grant or issuance; determine the exercise
or vesting schedule for each granted option or share issuance; and determine
whether a granted option is to be an incentive stock option affording favorable
tax treatment to the optionee at the loss of a deduction to the Company or a
non-statutory option entitling the Company to a deduction upon exercise. Each
granted option will have a maximum term of ten years, subject to earlier
termination following the optionee's cessation of service with the Company.
In the event the Company is acquired by merger or asset sale, each
outstanding option under the 1996 Stock Incentive Plan that is not to be assumed
or replaced with a comparable option from the successor corporation will
automatically terminate. The Company's outstanding repurchase rights under the
1996 Stock Incentive Plan will also terminate, and the shares subject to those
repurchase rights will become fully vested, upon the merger or asset sale,
unless such repurchase rights are assigned to the successor corporation.
The Board has the authority to effect the cancellation of outstanding
options under the 1996 Stock Incentive Plan in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the lower fair market value of the Common Stock on the new
grant date. The Board may also amend or modify the 1996 Stock Incentive Plan at
any time, provided that no such amendment may adversely affect the rights and
obligations of the participants with respect to their outstanding options
without their consent. The 1996 Stock Incentive Plan will terminate on
January 6, 2006, unless sooner terminated upon the occurrence of certain
events.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the
Company with respect to the beneficial ownership of the Company's Common Stock
and Preferred Stock as of March 31, 1998 by (i) each person (or group of
affiliated persons) who is known by the Company to beneficially own more than
five percent of any class of the Company's capital stock, (ii) each of the
Company's directors, (iii) each Named Officer and (iv) the Company's directors
and executive officers as a group.
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<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------------------------
COMMON STOCK PREFERRED STOCK
----------------------------- -----------------------------
5% STOCKHOLDERS,
DIRECTORS, NAMED OFFICERS AND
OFFICERS AND DIRECTORS AS A GROUP NUMBER(1) PERCENT(2) NUMBER(1) PERCENT(3)
---------------------------------
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Vanguard Cellular Operating Corp.(4)
c/o Vanguard Cellular Systems, Inc.
2002 Pisgah Church Road, Suite 300
Greensboro, NC 27455..................................... 545,437 5.87% 7,298,105 31.15%
BEA Funds(5)
c/o BEA Associates
153 East 53rd Street
New York, NY 10022....................................... 59,983 * 1,504,960 6.42%
Gateway Venture Partners III, L.P.(6)
8000 Maryland Ave., Suite 1190
St. Louis, MO 63105...................................... -- -- 1,148,727 4.90%
Electra Investment Trust PLC(7)
70 East 55th Street
New York, NY 10022....................................... -- -- 1,018,000 4.35%
Toronto Dominion Investments, Inc.(8)
31 West 52nd Street
New York, NY 10019-6101.................................. 593,958 6.39% 1,061,360 4.53%
Central Investment Holding, Inc.
KMT Business Management Committee
9F. 6 Chung Hsing W. Road, Section 1
Taipei, Taiwan ROC(9).................................... 30,676 * 1,066,640 4.55%
Haynes G. Griffin(10).................................... 945,437 10.16% 7,298,105 31.15%
John D. Lockton(11)...................................... 437,337 4.70% 510,000 2.18%
Hugh B. L. McClung(12)................................... 701,653 7.54% 167,000 *
Clarence "Sam" Endy(13).................................. 213,154 2.29% -- --
Carl C. Cordova III(14).................................. - -- 1,018,000 4.35%
Sanford L. Antignas(15).................................. 613 * -- --
Stephen R. Leeolou(16)................................... 625,437 6.72% 7,298,105 31.15%
John S. McCarthy(17)..................................... 12,000 * 1,148,727 4.90%
Brian Rich(18)........................................... 593,958 6.39% 1,061,360 4.53%
Van E. Snowdon(19)....................................... 702,268 7.55% 7,302,025 31.17%
All directors and executive officers as a group
(15 persons)......................................... 3,641,152 39.15% 11,215,112 47.88%
</TABLE>
________________________
* Less than 1%
(1) Except as indicated in the other footnotes to this table, based on
information provided by such persons to the Company. Subject to
applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all of the
shares of Common Stock shown as beneficially owned by them.
(2) Percentage ownership is based on 1,310,230 shares of Common Stock
outstanding on March 31, 1998. The number of shares of Common Stock
beneficially owned includes the shares issuable pursuant to stock
options and warrants that are exercisable within 60 days of March 31,
1998. Shares issuable pursuant to stock options or warrants are
deemed outstanding for computing the percentage owned by the person
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<PAGE>
holding such options or warrants but are not deemed outstanding for
computing the percentage of any other person.
(3) Percentage ownership is based on 23,085,351 shares of Preferred Stock
outstanding on March 31, 1998. The number of shares of Preferred
Stock beneficially owned includes the shares issuable pursuant to
warrants exercisable within 60 days of March 31, 1998. Shares
issuable pursuant to warrants are deemed outstanding for computing
the percentage owned by the person holding such warrants but are not
deemed outstanding for computing the percentage of any other person.
(4) Includes (i) 837,880 shares of Series C Preferred Stock, 1,101,080
shares of Series D Preferred Stock, 3,972,240 shares of Series E
Preferred Stock, 424,000 shares of Series F Preferred Stock and
789,266 shares of Series J Preferred Stock, (ii) 173,639 shares of
Series J Preferred Stock issuable upon the exercise of warrants to
purchase such shares and (iii) 545,437 shares of Common Stock
issuable upon the exercise of warrants to purchase such shares held
by Vanguard Cellular Operating Corp. See "Certain Relationships and
Related Transactions" and "--Transactions with Vanguard." Mr.
Griffin, Chairman of the Board of the Company, is Chairman of the
Board and Co-Chief Executive Officer of Vanguard, the sole
stockholder of Vanguard Cellular Operating Corp., Mr. Leeolou, a
director of the Company, is President and Co-Chief Executive Officer
of Vanguard, and Mr. Snowdon, President, Chief Executive Officer and
a director of the Company, is Vice President of Vanguard
Communications, Inc., a subsidiary of Vanguard. See notes 10, 16 and
19 below. Excludes options to purchase shares of Common Stock held by
Messrs. Griffin, Leeolou and Snowdon in their individual capacities.
The capital stock of the Company held by Vanguard has been pledged to
secure certain indebtedness of Vanguard. In the event of a default by
Vanguard in respect of such indebtedness, the pledgee of such capital
stock would be entitled to exercise voting and investment power in
respect of such shares.
(5) Includes (i) 1,423,760 shares of Series D Preferred Stock and 77,440
shares of Series F Preferred Stock, (ii) 3,760 shares of Series F
Preferred Stock issuable upon the exercise of warrants to purchase
such shares and (iii) 59,983 shares of Common Stock issuable upon the
exercise of warrants to purchase such shares held by The Emerging
Markets Telecommunications Fund, Inc., The Emerging Markets
Infrastructure Fund, Inc., CUC & Co. F/B/O Latin America Investment
Fund, Inc., Latin America Equity Fund, Inc., Latin America Capital
Partners and Argentina Equity Investments Partnership,
(as previously defined, the "BEA Funds"), all of which are affiliated
with and/or managed by BEA Associates.
(6) Includes (i) 707,080 shares of Series B Preferred Stock, 224,920
shares of Series C Preferred Stock, 111,007 shares of Series D
Preferred Stock and 94,200 shares of Series F Preferred Stock,
(ii) 8,440 shares of Series F Preferred Stock issuable upon the
exercise of warrants to purchase such shares and (iii) 3,080 shares
of Series D Preferred Stock issuable upon the exercise of warrants
to purchase such shares held by Gateway. Mr. McCarthy, a director
of the Company, is a General Partner of Gateway Associates, the
general partner of Gateway. See note 17 below.
(7) Includes an aggregate of 58,000 shares of Series A Preferred Stock
and an aggregate of 960,000 shares of Series F Preferred Stock held
by Electra Investment Trust, P.L.C. Mr. Cordova, a director of the
Company, is a principal of Electra Fleming Inc., an affiliate of
Electra. See note 14 below.
(8) Includes (i) 848,000 shares of Series F Preferred Stock, (ii) 213,360
shares of Series F Preferred Stock issuable upon the exercise of
warrants to purchase such shares and (iii) 593,958 shares of Common
Stock issuable upon exercise of warrants to purchase such shares held
by TDI. Mr. Rich, a director of the Company, is Managing Director and
Group Head of Toronto Dominion Capital, an affiliate of TDI. See note
18 below.
(9) Includes 30,676 shares of Common Stock issuable upon the exercise
of warrants to purchase such shares.
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(10) Includes 7,843,542 shares beneficially owned by Vanguard Cellular
Operating Corp., 346,670 shares of Common Stock issuable upon the
exercise of warrants to purchase such shares and an option to
purchase 53,330 shares of Common Stock granted to Mr. Griffin.
Mr. Griffin is the Chairman of the Board and Co-Chief Executive
Officer of Vanguard, the sole stockholder of Vanguard Cellular
Operating Corp., and disclaims beneficial ownership of the shares
held by this entity. See note 4 above.
(11) Includes options to purchase 331,573 shares that are immediately
exercisable, subject to certain rights of repurchase held by the
Company and an aggregate of 2,484 shares issuable upon exercise of
warrants. In addition, the number of shares beneficially owned
includes 103,280 shares issued to Mr. Lockton pursuant to the CTP
Exchange on December 18, 1995. Excludes 45,360 shares deposited in
escrow pursuant to the CTP Exchange in which Mr. Lockton may have a
beneficial interest. See "Certain Relationships and Related
Transactions."
(12) Includes options to purchase 331,573 shares that are immediately
exercisable, subject to certain rights of repurchase held by the
Company. In addition, the number of shares beneficially owned
includes 103,280 shares issued to Mr. McClung pursuant to the CTP
Exchange on December 18, 1995. Excludes 45,360 shares deposited in
escrow pursuant to the CTP Exchange in which Mr. McClung may have a
beneficial interest. See "Certain Relationships and Related
Transactions--Transactions with Founders."
(13) Represents options to purchase 213,154 shares that are immediately
exercisable, subject to certain rights of repurchase held by the
Company.
(14) Includes 1,018,000 shares beneficially owned by Electra. Mr. Cordova,
a principal of Electra Fleming Inc., an affiliate of Electra,
disclaims beneficial ownership of shares held by Electra Investment
Trust PLC and Electra Associates, Inc., except to the extent of his
pecuniary interest therein.
(15) Includes 613 shares of Common Stock issuable upon the exercise of
warrants to purchase such shares. Does not include shares of capital
stock beneficially owned by the BEA Funds. Mr. Antignas, a Principal
of Bassini Playfair + Associates LLC, which is a consultant to BEA
Associates, disclaims beneficial ownership of shares held by the BEA
Funds.
(16) Includes an option to purchase 80,000 shares that is immediately
exercisable, subject to repurchase by the Company, as well as
7,843,542 shares beneficially owned by Vanguard Cellular Operating
Corp. Mr. Leeolou is the President and Co-Chief Executive Officer of
Vanguard, the sole stockholder of Vanguard Cellular Operating Corp.,
and disclaims beneficial ownership of shares held by Vanguard
Cellular Operating Corp.
(17) Includes an option to purchase 12,000 shares that is immediately
exercisable, subject to repurchase by the Company, as well as
1,148,727 shares beneficially owned by Gateway. Mr. McCarthy is a
general partner of Gateway Associates, a general partner of Gateway,
and disclaims beneficial ownership of shares held by Gateway except
to the extent of his pecuniary interest therein.
(18) Includes 1,655,318 shares beneficially owned by TDI. Mr. Rich,
Managing Director and Group Head of Toronto Dominion Capital, an
affiliate of TDI, disclaims beneficial ownership of shares held by
TDI.
(19) Includes (i) 76,080 shares of Common Stock and 3,920 shares of Series
D Preferred Stock held by Mr. Snowdon and (ii) 7,843,542 shares
beneficially owned by Vanguard Cellular Operating Corp. Mr. Snowdon,
Vice President of Vanguard Communications, Inc., a subsidiary of
Vanguard, the sole stockholder of Vanguard Cellular Operating Corp.,
disclaims beneficial ownership of shares held by Vanguard Cellular
Operating Corp. Also includes options to purchase 14,735 shares which
options are immediately exercisable and warrants to purchase 66,016
shares.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
SERIES D FINANCING
In May 1994, the Company issued convertible notes (the "May 1994
Bridge Notes") in an aggregate principal amount of $2,028,993, including
$500,000 to Gateway and $770,234 to Vanguard. The May 1994 Bridge Notes were due
in 180 days and bore interest at prime plus 1% per annum. The purchasers also
received warrants exercisable for an aggregate of 46,440 shares of Series D
Preferred Stock, including warrants to purchase 11,440 shares issued to Gateway;
and warrants to purchase 17,640 shares issued to Vanguard. The warrants have an
exercise price of $6.55 per share and were exercisable until May 6, 1997, or, in
the case of the warrants issued to certain of the other lenders, May 23, 1997 or
June 12, 1997. The warrants issued to Vanguard were included in the Vanguard
Warrant Exchange. See "--Transactions with Vanguard." The remaining warrants
were exercised on a net basis in 1997.
In September and October 1994, the Company sold an aggregate of
2,226,640 shares of Series D Preferred Stock for an aggregate purchase price of
$14,584,492 or $6.55 per share (the "Series D Financing"), including (i) 106,880
shares sold to Gateway for an aggregate purchase price of $700,064, including
cancellation of May 1994 Bridge Notes in the principal amount of $500,000, and
(ii) 445,400 shares sold to Vanguard for an aggregate purchase price of
$2,917,370, including cancellation of May 1994 Bridge Notes in the principal
amount of $770,234. In addition, the BEA Funds purchased an aggregate of
1,221,440 shares of Series D Preferred Stock for an aggregate purchase price of
$8,000,432. The Company also entered into an agreement with the BEA Funds
providing that, where feasible, appropriate and mutually advantageous, the
Company and the BEA Funds will bring to the attention of each other trunked
radio, wireless local loop, PCS and other existing and future wireless projects.
In connection with the Series D Financing, Vanguard loaned $1.8
million to the Company in exchange for two convertible notes in the amount of
$900,000 each. Each note was due upon the earlier of April 26, 1996, on which
date Vanguard converted both notes, as amended, pursuant to the Vanguard Project
Exchange, into an aggregate of 274,800 shares of Series D Preferred Stock.
APRIL 1995 FINANCINGS
On April 6, 1995, the Company issued convertible notes (the "April 6,
1995 Bridge Notes") in an aggregate principal amount of $696,700, including
notes in principal amounts of $390,000 to Vanguard and $200,000 to Gateway. The
April 6, 1995 Bridge Notes bore interest at prime plus 1%, were due in 150 days,
and were automatically convertible into equity securities, subsequently
determined to be Series D Preferred Stock, upon the closing of the Company's
next equity financing in which at least $5 million was raised. The April 6, 1995
Bridge Notes were canceled in connection with the July 1995 Financing (as
defined herein) of the Company.
In connection with the issuance of the April 6, 1995 Bridge Notes,
the Company issued warrants (the "April Bridge Warrants") exercisable for an
aggregate of 10,720 shares of Series D Preferred Stock, including warrants to
purchase 5,960 shares issued to Vanguard and 3,080 shares issued to Gateway. The
warrants have an exercise price of $6.55 per share and are exercisable until
April 6, 1998, provided that the warrants shall no longer be exercisable upon
the occurrence of a Termination Event. In May 1997, Vanguard's warrants were
exchanged in the Vanguard Warrant Exchange. See "--Transactions with Vanguard."
On April 24, April 25, and June 27, 1995, the Company issued
convertible secured notes (the "April 24, 1995 Bridge Notes" and, together
with the April 6, 1995 Bridge Notes, the "April 1995 Bridge Notes") in an
aggregate principal amount of $6,144,070, including notes in principal
amounts of $1,541,070 to Vanguard, $4,000,000 to the BEA Funds and $200,000
to Gateway. Of the $1,541,070 loaned by Vanguard, $390,000 was in the form of
cancellation of the April 6, 1995 Bridge Note held by Vanguard. The April 24,
1995 Bridge Notes bore interest at prime plus 1% per annum, were due 45 days
after their respective issue dates and were secured by a lien on
substantially all of the Company's assets. The April 24, 1995 Bridge Notes
provided that principal thereon was
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to be automatically converted on the respective due dates into Series D
Preferred Stock at a price of $6.55 per share, provided that no holder was
required to convert to the extent that conversion would result in the holder
owning 20% or more of the Company's capital stock.
JULY 1995 FINANCING
On July 31, 1995, the Company issued a convertible unsecured note
(the "First July 1995 Vanguard Note") in the principal amount of $1,485,000 to
Vanguard (such issuance, together with the July 1995 Notes, as described herein,
the "July 1995 Financing"). The note bore interest at prime plus 1% per annum
and was due 180 days after the issue date or, at the Company's option, 270 days
after the issue date. The note provided that the principal balance thereof was
automatically convertible into the Company's equity securities upon the closing
of the Company's next equity financing meeting certain conditions (at a
conversion price per share equal to the share price in such equity financing,
but not to exceed $10.40). The Company paid Vanguard a $20,000 fee in connection
with the note transaction. The First July 1995 Vanguard Note was canceled in the
Series F Financing.
In connection with the issuance of the First July 1995 Vanguard Note,
the Company issued to Vanguard, for a purchase price of $15,000, a warrant to
purchase 32,000 shares of Series F-1 Preferred Stock at an exercise price of
$9.375 per share. The warrant is exercisable until December 18, 1998, provided
that the warrants shall no longer be exercisable upon the occurrence of a
Termination Event.
In the July 1995 Financing, the Company issued additional notes in an
aggregate principal amount of $7,118,025 (the "July 1995 Notes"), including
notes in the amount of $1,490,013 to Vanguard, $460,116 to the BEA Funds,
$199,066 to Northwood and $391,576 to Gateway. The July 1995 Notes were
unsecured and contained terms substantially identical to those contained in the
First July 1995 Vanguard Note. The July 1995 Notes were canceled in the Series F
Financing.
In the July 1995 Financing, the Company issued an aggregate of
1,147,600 shares of Series D Preferred Stock for an aggregate purchase price of
$7,516,780, or $6.55 per share, including 380,880 shares to Vanguard, 539,600
shares to the BEA Funds and 680 shares to Gateway. All of the remaining April
1995 Bridge Notes were canceled in the July 1995 Financing.
In the July 1995 Financing, for an aggregate purchase price of
$71,901, the Company issued warrants to purchase an aggregate of 153,760 shares
of Series F-1 Preferred Stock (not including the warrant issued to Vanguard in
connection with the First July 1995 Vanguard Note) at an exercise price of
$9.375 per share, including warrants to purchase 32,120 shares issued to
Vanguard, 8,440 shares issued to Gateway and 9,920 shares issued to the BEA
Funds. All share amounts and the exercise price are subject to adjustment in
certain circumstances. The warrants are exercisable until December 18, 1998,
provided that the warrants shall no longer be exercisable upon the occurrence of
a Termination Event. In May 1997, Vanguard's warrants were exchanged in the
Vanguard Warrant Exchange. See "--Transactions with Vanguard."
In connection with the July 1995 Financing, Messrs. Lockton and
McClung agreed, pursuant to letter agreements dated July 28 and July 31, 1995,
respectively, to vote their shares of the Company's capital stock in favor of
the election to the Company's Board of Directors of a person designated by the
BEA Funds. This obligation terminated on July 31, 1996.
1995 TDI FINANCING
On August 15, 1995, the Company borrowed $4,950,000 from TDI and
issued to TDI an unsecured convertible note in the principal amount of
$4,950,000 (the "TDI Unsecured Note"). The TDI Unsecured Note bore interest
at 9.75% per annum and was due on January 27, 1996, subject to extension to
April 26, 1996 at the Company's option. The principal balance of the TDI
Unsecured Note was automatically convertible into shares of the Company's
equity securities upon the closing of the Company's next equity financing in
which the gross proceeds to the Company exceeded $15,000,000, provided that
such equity financing closed on or before
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January 27, 1996. The July 1995 Notes and the First July 1995 Vanguard Note
were amended at the time of the financing to provide that such notes were
pari passu with the TDI Unsecured Note and with each other.
On August 15, 1995, for a purchase price of $50,000, the Company also
issued TDI a warrant (the "First TDI Warrant") to purchase 106,680 shares of
Series F-2 Preferred Stock at an exercise price of $9.375 per share. The First
TDI Warrant is exercisable until December 18, 1998, provided that the warrants
shall no longer be exercisable upon the occurrence of a Termination Event.
Pursuant to a Loan Agreement dated as of August 14, 1995, between the
Company and TDI (the "1995 TDI Loan Agreement"), the Company borrowed $5,000,000
from TDI and issued a note in the principal amount of $5,000,000 (the "TDI
Secured Note"). The TDI Secured Note was due on the earlier of (i) 180 days from
its issue date or (ii) the closing of the Company's next equity financing in
which the Company received net proceeds of at least $5,000,000, and bore
interest at 11% per annum for the first 90 days and 13% per annum thereafter.
Pursuant to the 1995 TDI Loan Agreement, the Company paid TDI a fee of $125,000.
The Company's obligations under the 1995 TDI Loan Agreement were secured by
substantially all of the Company's assets and a pledge of the stock of certain
wireless projects owned by the Company. At the closing of the Series F
Financing, the Company repaid the TDI Secured Note in full through the issuance
to TDI of $3,000,000 in Series F-2 Preferred Stock (320,000 shares at $9.375 per
share), and cash in the amount of $2,000,000, plus accrued interest. Upon such
repayment, TDI released its security interest and returned the pledged stock to
the Company.
Pursuant to the 1995 TDI Loan Agreement, the Company issued to TDI a
warrant (the "Second TDI Warrant") to purchase 106,680 shares of Series F-2
Preferred Stock at an exercise price of $9.375 per share. The Second TDI Warrant
is exercisable pursuant to the same terms as the First TDI Warrant.
THE SERIES F FINANCING
In November and December 1995, the Company borrowed a total of
$1,797,415, including $1,000,000 from Vanguard and $450,000 from Gateway and
issued 90-day convertible unsecured notes (the "Winter 1995 Notes") that bore
interest at 10% per annum. In connection with these transactions, the Company
paid the lenders an aggregate of $53,925 in loan fees, including $30,000 to
Vanguard and $13,500 to Gateway.
On December 18, 1995, the Company sold an aggregate of 4,508,480
shares of Series F-1 Preferred Stock and sold 848,000 shares of Series F-2
Preferred Stock, for an aggregate purchase price of $50,217,000, or $9.375 per
share (the "Series F Financing"). The purchasers of Series F-1 Preferred Stock
included Vanguard (424,000 shares for $3,975,000, including the conversion of
certain outstanding notes), the BEA Funds (123,560 shares for $1,158,375,
including the conversion of certain outstanding notes), Gateway (94,200 shares
for $883,125, including the conversion of certain outstanding notes), CIH
(1,066,640 shares for $9,999,750) and Electra (1,066,640 shares for $9,999,750).
TDI purchased 848,000 shares of non-voting Series F-2 Preferred Stock for
$7,950,000, all of which was paid for by conversion of the TDI Unsecured Note
and conversion of $3,000,000 in principal amount of the TDI Secured Note. In
addition, the Company paid Electra financing fees of $265,000 and paid TDI fees
for services performed as placement agent.
Pursuant to the Series F Purchase Agreement, the Company agreed to
covenants customary in financing transactions of such type, including limits on
incurring debt and granting liens and pledges and other negative covenants
including limitations on payments, dividends, investments, mergers, asset sales,
amendments of its Certificate or Bylaws that would adversely impact the rights
of the Series F-1 Preferred Stock and Series F-2 Preferred Stock, changes to its
business, changes in control and sales of equity securities. Upon the occurrence
of certain events in the nature of defaults by the Company under the Series F
Purchase Agreement, the holders of Series F-1 Preferred Stock have the right to
(i) cause the Company to increase the size of its Board of Directors and (ii)
elect one additional director.
In connection with the Series F Financing, the Company entered
into the Fifth Amended and Restated Investor Rights Agreement dated as of
December 18, 1995 (as subsequently amended and restated, the "IRA"), with
certain investors, including holders of its Series B, C, D, E and F Preferred
Stock, and the Registration Rights
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Agreement dated as of December 18, 1995 (the "Registration Rights Agreement")
with holders of its Series F Preferred Stock. The IRA and Registration Rights
Agreement provided, among other things, for certain registration, first
offer, co-sale, board observer, board representation and voting rights. See
"Management--Arrangements Concerning Election of Directors" and "Description
of Capital Stock--Registration Rights."
1996 TD LOAN AGREEMENT
In July 1996, the Company entered into a Loan Agreement with Toronto
Dominion (Texas), Inc., an affiliate of Toronto Dominion (the "1996 TD Loan
Agreement"), providing for a $10.0 million revolving credit facility. Under the
terms and conditions of the 1996 TD Loan Agreement, the Company was able to
borrow funds in an initial amount of at least $2.0 million and additional
amounts in integral multiples of at least $1.0 million. All borrowings were
evidenced by a promissory note bearing interest at a specified base rate plus a
margin increasing from 2.25% to 3.75% over the term of the facility, or a
specified LIBOR rate plus a margin increasing from 3.5% to 5.0% over the term of
the facility, and were due in July 1997, subject to mandatory repayment, without
premium, from the net proceeds of any public or sale of debt or equity
securities (including the net proceeds of the Unit Offering), the net proceeds
from certain asset sales by the Company or its subsidiaries, or certain other
events. The obligations of the Company under the 1996 TD Loan Agreement and the
note issued pursuant thereto were secured by pledge of all of the Company's
capital stock in certain of the Company's subsidiaries and affiliates. Under the
1996 TD Loan Agreement, Toronto Dominion (Texas), Inc. received a facility fee
of $300,000 and was reimbursed for certain costs and expenses. In addition, the
Company agreed to pay Toronto Dominion (Texas), Inc. a commitment fee of 0.5% of
the average unused available portion of such facility, payable quarterly in
arrears. On August 15, 1996, the Company used $7.4 million of the net proceeds
of the Unit Offering to repay in full all outstanding borrowings under the 1996
TD Loan Agreement.
UNIT OFFERING
On August 15, 1996, the Company sold in the Unit Offering 196,720
Units (the "Units"), each consisting of a $1,000 principal amount 14% Senior
Secured Discount Note due 2001 (collectively, the "Old Notes") and one Unit
Warrant to purchase 11.638 shares of Common Stock to BT Securities Corporation,
Toronto Dominion Securities (USA) Inc. and Salomon Brothers Inc. (the "Initial
Purchasers") at 35.43% of the principal amount thereof. The Units were resold by
the Initial Purchasers in a placement. Each Unit Warrant provides that if the
Company does not complete an initial public offering of Common Stock that
results in net cash proceeds to the Company of at least $50 million (a
"Threshold Initial Public Offering") or a Qualified Reorganization (which is
defined as being any reorganization that (a) occurs simultaneously with or
following a change of control and (b) results in there being deliverable upon
exercise of any Unit Warrant, cash and/or securities registered under Section 12
of the Exchange Act that are freely tradeable and listed on a national
securities exchange or traded on a national quotation service) on or prior to
May 15, 1997, each unexercised Unit Warrant will entitle the holder thereof to
purchase an additional 2.645 shares of Common Stock. Because the Company did not
complete a Threshold Initial Public Offering or Qualified Reorganization by May
15, 1997, each unexercised Unit Warrant entitled the holder thereof to purchase
an aggregate of 14.283 shares of Common Stock.
Under the terms of the Unit Offering, the Company filed a
registration statement with the Commission registering Unit Notes that were on
terms substantially identical (including principal amount, interest rate,
maturity, exchange and ranking) to the Old Notes which were offered in exchange
for the Old Notes (the "Exchange Offer"). This Registration Statement was
declared effective by the Commission on November 21, 1996, and the Exchange
Offer was completed on December 27, 1996.
The Old Notes and the Unit Warrants became separately transferable on
November 15, 1996.
The Old Notes were issued pursuant to the Indenture and were
secured pursuant to a pledge agreement by a first priority pledge of all of
the capital stock of IWC and the intercompany note due to the Company by IWC.
Under the terms of the Indenture, the Company is subject to certain covenants
including, but not limited to, (i) restrictions on certain payments by the
Company and certain subsidiaries and affiliates of the Company including
restrictions on the payment of dividends, and the redemption and/or
repurchase of equity interests, (ii) restrictions
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on the issuance of additional indebtedness or the issuance of preferred
stock, (iii) limitations on heirs, (iv) limitations on lines of business, (v)
restrictions on transactions with affiliates, (vi) limitations on the
structure of the Company and its subsidiaries, and (vii) reporting
requirements.
TD BRIDGE LOANS TO STAR DIGITEL
Pursuant to a Bridge Loan Agreement dated May 16, 1997 (the "Star
Digitel Bridge Loan Agreement") between Star Digitel Limited ("Star Digitel")
and The Toronto-Dominion Bank, an affiliate of TDI ("TD Bank"), TD Bank agreed
to provide up to $8.0 million of bridge financing to Star Digitel. IWC China
Limited, an indirect wholly owned subsidiary of the Company ("IWC China
Limited"), currently owns a 40% equity interest in Star Digitel. See
"Business--Operating Companies--China-Great Wall Cellular." On May 16, 1997,
Star Digitel borrowed $4.0 million under the Star Digitel Bridge Loan Agreement
and on May 27, 1997, Star Digitel borrowed the remaining $4.0 million available
under the Star Digitel Bridge Loan Agreement. The notes issued under the Star
Digitel Bridge Loan Agreement (i) were originally due on November 22, 1997,
provided that, upon Star Digitel's request and on payment of an extension fee,
TD Bank agreed to extend the maturity to May 11, 1998, (ii) bear interest at
LIBOR plus 2.25% until November 22, 1992 and plus 2.5% thereafter, (iii) may be
prepaid at Star Digitel's discretion without penalty in minimum prepayments of
$2.0 million and (iv) must be prepaid in whole upon the occurrence of certain
events. Under the Star Digitel Bridge Loan Agreement, Star Digitel must pay TD
Bank a commitment fee of 0.5% of the unused portion of the facility.
Pursuant to the Star Digitel Bridge Loan Agreement, each shareholder
of Star Digitel agreed to guarantee its pro rata share of the bridge loan. IWC
China Limited's pro rata share of the bridge loan, $3.2 million, was guaranteed
by Vanguard pursuant to the guarantee facility provided by it in connection with
the Vanguard Warrant Exchange. See "--Transactions with Vanguard."
Pursuant to a Bridge Loan Agreement Supplement No. 1 dated September
18, 1997 (the "Star Digitel First Bridge Loan Supplement") between Star Digitel
and TD Bank, which amended and supplemented the Star Digitel First Bridge Loan
Agreement, TD Bank agreed to provide an additional $10 million in supplemental
bridge financing to Star Digitel. On September 18, 1997, Star Digitel borrowed
the full $10 million available under the Star Digitel First Bridge Loan
Supplement. The notes issued under the Star Digitel First Bridge Loan Supplement
(i) are due May 11, 1998, (ii) bear interest at LIBOR plus 2.25% until November
22, 1998 and 2.5% thereafter, (iii) may be prepaid at Star Digitel's discretion
without penalty in minimum prepayments of $2.0 million and (iv) must be prepaid
in whole upon the occurrence of certain events. Under the Star Digitel First
Bridge Loan Supplement, (i) Star Digitel paid TD Bank an up-front fee of
$125,000 and must pay to TD Bank a commitment fee of 0.5% of the unused portion
of the facility and (ii) the amount of the extension fee was increased from
$100,000 to $225,000.
Pursuant to the Star Digitel First Bridge Loan Supplement, each
shareholder agreed to guarantee its pro rata share of the supplemental bridge
financing to Star Digitel. IWC China Limited's pro rata share of the
guarantee, $4.0 million, was guaranteed by Vanguard pursuant to a
Reimbursement Agreement dated September 18, 1997 (the "Reimbursement
Agreement") between Vanguard Cellular Financial Corp. ("VCFC"), a wholly
owned subsidiary of Vanguard, and IWC China Limited. As consideration to VCFC
for providing the guarantee, IWC China Limited agreed to pay VCFC (i) an
up-front fee of $240,000, payable in cash, and (ii) a quarterly in-kind
guarantee fee while the Reimbursement Agreement is in effect, payable in kind
in the Company's Common Stock (valued at $12.48 per share) based on an
initial annual rate of 6.75% that increases in increments to 17.75% on and
after December 18, 1998. IWC China Limited also agreed to pay VCFC an
additional guarantee fee if VCFC is required to make any payments under the
guarantee, payable in ordinary shares of Star Digitel ("Star Digitel
Shares"). The amount of the Star Digitel Shares payable by IWC China Limited
equals the sum of (i) 0.205% of the outstanding Star Digitel Shares on the
date VCFC makes its initial payment under the guarantee multiplied by the
number of months from September 18, 1997 to the date of such payment, (ii)
0.41% of the outstanding Star Digitel Shares on the date of any subsequent
payment under the guarantee multiplied by the number of months from the date
immediately preceding payment to the date of such payment and (iii) 0.41% of
the outstanding Star Digitel Shares on the date that IWC China Limited
satisfies in full its obligations to VCFC under the Reimbursement Agreement
(and certain related agreements) multiplied by the number of months since the
immediately preceding payment by VCFC under the guarantee to the date of such
satisfaction. Pursuant to a Pledge Agreement dated September 18, 1997, IWC
China
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Limited pledged all of its Star Digitel Shares to secure performance of its
obligations under the Reimbursement Agreement (and certain related
agreements). On the occurrence of certain events, including the initial
public offering of equity securities by the Company or certain related
entities and the receipt of a specified amount of cash proceeds from equity
issuances or asset sales by the Company or certain related entities, IWC
China Limited 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.
Pursuant to the Reimbursement Agreement, the Company granted VCFC a
10-year warrant to purchase shares of its Common Stock at an exercise price of
$.01 per share. The number of shares issuable upon exercise of the warrant
currently equals .69% of the Company's fully diluted equity on September 18,
1997 (or, 172,763 shares) plus, unless VCFC's obligations under the guarantee
have not been permanently released and discharged prior to such date and subject
to reduction in certain circumstances, an additional (i) 0.207% on June 18,
1998, (ii) 0.345% on September 18, 1998, (iii) 0.553% on December 18, 1998, and
(iv) 0.691% on the 18th day of each March, June, September and December
thereafter.
Pursuant to a Bridge Loan Agreement Supplement No. 2 dated November
17, 1997 (the "Star Digitel Second Bridge Loan Supplement") between Star Digitel
and TD Bank, which further amended and supplemented the Star Digitel Bridge Loan
Agreement, TD Bank agreed to provide an additional $4.7 million in supplemental
bridge financing to Star Digitel. On November 17, 1997, Star Digitel borrowed
the full $4.7 million available under the Star Digitel Second Bridge Loan
Supplement. The notes issued under the Star Digitel Second Bridge Loan
Supplement (i) are due on May 11, 1998, (ii) bear interest at LIBOR plus 2.5%,
(iii) may be prepaid at Star Digitel's discretion without penalty in minimum
prepayments of $2.0 million and (iv) must be prepaid in whole upon the
occurrence of certain events. Under the Star Digitel Second Bridge Loan
Supplement, Star Digitel paid TD Bank an up-front fee of $117,500 and must pay
to TD Bank a commitment fee of 0.5% per annum on the unused portion of the
supplemental bridge financing facility.
In connection with the Star Digitel Second Bridge Loan Supplement,
the Reimbursement Agreement and the Pledge Agreement were amended on January 23,
1998 to increase the amount guaranteed to TD Bank by VCFC on behalf of IWC China
Limited to US$11.2 million.
Star Digitel is currently negotiating with TD Bank to extend the
maturity date of the bridge loan facilities to November 11, 1998. The Star
Digitel Bridge Loan Agreement, the Star Digitel First Bridge Loan Supplement and
the Star Digitel Second Bridge Loan Supplement are referred to herein as the
"Star Digitel Bridge Facilities."
PAKISTAN FACILITIES
In August 1997, the Company closed a bridge financing facility for an
aggregate amount of $29.0 million in exchangeable bridge loans. Such bridge
financing facility is structured as a two-tier facility, with (i) a $22.0
million credit facility for the specific purpose of financing the cash portion
of the purchase price of the Company's indirect 20.0% equity interest in
Mobilink, certain related expenses and certain required capital calls to
Mobilink (the "PWH Pakistan Facility"), and (ii) a $7.0 million credit facility
available to the Company for general corporate purposes and other purposes (the
"IWCH Pakistan Facility"; and together with the PWH Pakistan Facility, the
"Pakistan Facilities"). See "Business--Operating Companies--Pakistan--Mobilink."
The lenders under the Pakistan Facilities are a group of the Company's
stockholders and/or affiliated entities led by TDI and Vanguard (each a
"Pakistan Lender" and collectively the "Pakistan Lenders").
Pursuant to the PWH Pakistan Facility, on August 18, 1997, PWH
issued $22.0 million principal amount of exchangeable senior secured notes
(the "PWH Pakistan Notes"). PWH used $15.8 million of the net proceeds,
along with certain other consideration, to acquire an equity interest in
IWCPL which in turn acquired an equity interest in Mobilink. The PWH Pakistan
Notes bear interest payable in-kind on a quarterly basis at the following
rates: 14.0% for the first six months; 15.0% for the next three months; 17.0%
for the next three months; 19.0% for the 13th month; 21.0% for the 14th
month; 23.0% for the 15th month; and 25.0% thereafter. Principal plus accrued
but unpaid interest on the PWH Pakistan Notes matures on August 10, 2002. The
PWH Pakistan Notes may be called at any time by the Company for a price equal
to principal plus accrued but unpaid interest, are senior to any
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other indebtedness of PWH and are secured by substantially all of PWH's
assets, including the shares of IWCPL, the entity which directly owns the
shares of Mobilink representing the Company's indirect 20.0% equity interest
in Mobilink, owned by PWH.
Principal plus accrued but unpaid interest on the PWH Pakistan Notes
may be exchanged by such holder in full for the Company's Series H Preferred
Stock (which consists of voting Series H-1 Preferred Stock and non-voting Series
H-2 Preferred Stock) on one occasion (i) on or after February 17, 1999 or (ii)
upon certain specified events of default. The number of shares of Series H
Preferred Stock issuable upon such exchange shall equal the principal plus
accrued but unpaid interest on the PWH Pakistan Notes that are exchanged divided
by the price that an identified third party would pay for the Series H Preferred
Stock in a placement conducted by a nationally-recognized investment banking
firm.
Pursuant to the PWH Pakistan Facility, (i) PWH paid TDI a commitment
fee equal to 0.5% of the principal amount of the PWH Pakistan Notes, (ii) PWH
paid each Pakistan Lender a commitment fee equal to 1.50% of the principal
amount of the PWH Pakistan Note that such lender committed to purchase and (iii)
PWH paid each Pakistan Lender an issuance fee equal to 1.0% of the principal
amount of the PWH Pakistan Note issued to such lender. The loan agreement dated
August 18, 1997 among the Company and the Pakistan Lenders contains extensive
representations, warranties and covenants of PWH.
Pursuant to the IWCH Pakistan Facility, each Pakistan Lender agreed
to provide its pro rata share (based upon its participation in the PWH Pakistan
Facility) of up to $7.0 million principal amount of exchangeable senior notes of
the Company (the "IWCH Pakistan Notes"). On October 13, 1997, IWCH issued $3.5
million principal amount of the IWCH Pakistan Notes. The IWCH Pakistan Notes
bear interest payable in-kind on a quarterly basis at the following rates: 14.0%
for the first six months; 15.0% for the next three months; 17.0% for the next
three months; 19.0% for the 13th month; 21.0% for the 14th month; 23.0% for the
15th month; and 25.0% thereafter. Principal plus accrued but unpaid interest on
the IWCH Pakistan Notes will mature on August 10, 2002.
The IWCH Pakistan Notes may be prepaid at the Company's discretion at
any time after payment in full of all amounts due under the PWH Pakistan
Facility. The Company must (i) use the cash proceeds of certain specified
liquidity events, including a public offering or issuance of the Company's
equity in which it raises a specified amount of proceeds, a change in control
of the Company (as defined in the PWH Pakistan Facility) or a sale of all or
substantially all of the Company's consolidated assets (each, a "Liquidity
Event") to repay in full the IWCH Pakistan Notes and (ii) subject to certain
terms and conditions (including payment in full of all amounts due under the PWH
Pakistan Facility), must use the cash proceeds from certain issuances of debt
and equity securities of the Company and certain asset sales by the Company to
repay principal plus accrued but unpaid interest on the IWCH Pakistan Notes. The
IWCH Pakistan Notes shall be the most senior security of the Company and shall
be pari passu with the Unit Notes.
Principal plus accrued but unpaid interest on the IWCH Pakistan Notes
may be exchanged for the Company's Series G Preferred Stock (which consists of
voting Series G-1 Preferred Stock and non-voting Series G-2 Preferred Stock) on
one occasion (i) in full, at any time upon the request of holders of at least
70% of the unpaid principal amount of the IWCH Pakistan Notes or (ii) in certain
circumstances, at the request of individual IWCH Pakistan Note holders. The
number of shares of Series G Preferred Stock issuable upon such exchange shall
equal the principal plus accrued but unpaid interest on the IWCH Pakistan notes
that are exchanged divided by the lower of (i) the conversion price of the
Company's Series F Preferred Stock (currently $9.375 per share) and (ii) 65% of
the appraised value of the Company's equity where the share value of the
Company's Common Stock is determined in connection with a Liquidity Event in
accordance with a specified process.
Pursuant to the IWCH Pakistan Facility, the Company (i) paid TDI a
structuring fee equal to 0.5% of the principal amount of such facility, (ii)
paid each Pakistan Lender a commitment fee equal to 1.5% of the principal
amount of the IWCH Pakistan Note that such lender committed to purchase and
(iii) paid each Pakistan Lender a drawdown fee equal to 1.0% of the principal
amount of each IWCH Pakistan Note issued to such lender.
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As consideration for entering into the Pakistan Facilities, the
Company (a) granted the Pakistan Lenders warrants (collectively, the
"Pakistan Initial Warrants") to purchase a specified percentage (the "Earned
Warrant Percentage") of the Company's fully diluted Common Stock outstanding
on August 18, 1997 (24,499,440 shares of Common Stock), which percentage will
increase upon the occurrence of certain events, and (b) agreed to grant to
the Pakistan Lenders, upon the occurrence of a Liquidity Event, additional
warrants (collectively, the "Pakistan Liquidity Warrants"; and, together with
the Pakistan Initial Warrants, the "Pakistan Warrants") to purchase a number
of shares of Common Stock equal to the quotient of (i) 35% of the greater of
(A) $2.0 million and (B) the unpaid principal amount of and unpaid accrued
interest on the IWCH Pakistan Notes and (ii) the Share Value (as defined in
the Pakistan Facilities) with respect to such Liquidity Event. As of March
31, 1998, the Earned Warrant Percentage was 3.51% and will increase as follows:
(a) by the following percentages (multiplied by
the Commitment Percentage) on the corresponding dates unless the IWCH
Pakistan Notes have been repaid in full: May 17, 1998-0.18%; August 17,
1998-0.30%; November 17, 1998-0.48%; and February 17, 1999-0.60%; and
(b) by the following percentages (multiplied by
the aggregate unpaid principal amount of the PWH Pakistan Notes divided by
$22.0 million) on the corresponding dates: May 17, 1998-0.65%; August 17,
1998-1.09%; November 17, 1998-1.74%; and February 17, 1999-2.18%.
The Commitment Percentage equals (A) the sum of the aggregate
unpaid principal amount of the outstanding IWCH Pakistan Notes plus the
aggregate additional amount which Pakistan Lenders have committed to lend
under the IWC Pakistan Facility divided by (B) $7.0 million. The Pakistan
Warrants have a 10-year term and an exercise price of $.01 per share of
Common Stock. The Pakistan Initial Warrants have been, and the Pakistan
Liquidity Warrants when granted will be, issued to each Pakistan Lender pro
rata based on such lender's participation in the Pakistan Facilities. As of
March 31, 1998, an aggregate of 889,594 shares of Common Stock were issuable
upon exercise of the Pakistan Initial Warrants.
The shares of Preferred Stock issuable upon exchange of the PWH
Pakistan Notes and the IWCH Pakistan Notes and the Common Stock issuable upon
exercise of the Pakistan Warrants are entitled to certain registration
rights. See "Description of Stock--Registration Rights." The Company plans to
repay all amounts due under the PWH Pakistan Facility and to permanently
terminate the IWCH Pakistan Facility upon the closing of the Offering.
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The Pakistan Lenders include the following beneficial owners of
more than 5% of the Company's Common Stock (or affiliated entities) and
executive officers and directors of the Company, which have purchased the
following PWH Pakistan Notes and IWCH Pakistan Notes and received the
following Initial Warrants as of March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
COMMON STOCK
ISSUABLE UPON
PRINCIPAL AMOUNT PRINCIPAL AMOUNT EXERCISE OF
OF PWH PAKISTAN OF IWCH PAKISTAN PAKISTAN INITIAL
INDIVIDUAL OR ENTITY NOTE NOTE WARRANT (3)
- -------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
TDI.............................. 14,688,539 4,673,626 593,958
Vanguard......................... 3,034,483 965,517 122,704
BEA Funds and Affiliated 1,468,255 467,172 59,370
Entities(1)..................
Central Investment Holding (BVI) 758,621 241,379 30,676
Co., Ltd.(2).................
Northwood........................ 436,207 138,793 17,638
James M. Dixon................... 227,586 72,414 9,202
John D. Lockton.................. 61,448 19,552 2,484
Van E. Snowdon................... 18,966 6,034 766
Sanford L. Antignas.............. 15,172 4,828 613
Douglas S. Sinclair.............. 15,172 4,828 613
</TABLE>
- ------------
(1) Excludes Sanford L. Antignas and BPPA IWC LLC. See
"Management--Arrangements Concerning Election of Directors."
(2) Affiliated with Central Investment Holding, Inc. See "Principal
Stockholders."
(3) Excludes shares of Common Stock issuable upon exercise of Pakistan
Liquidity Warrants.
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 (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 173,638 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 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 subsequent qualifying
private placement of its equity securities. The Series J Agreement contains
certain other customary representations, warranties and covenants.
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
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provide, among other things, for certain registration, first offer, co-sale,
board observer, board representation and voting rights.
TRANSACTIONS WITH VANGUARD
In connection with the issuance of the April 24, 1995 Bridge Notes,
the Company and Vanguard agreed that a wholly owned subsidiary of Vanguard would
contribute its interests in ten wireless projects to the Company in exchange for
shares of Preferred Stock (as amended, the "Vanguard Project Exchange")
resulting in Vanguard owning not less than a 50% equity interest in the Company
on a fully diluted basis. On July 28, 1995, the Company, Vanguard and a wholly
owned subsidiary of Vanguard ("Vanguard Sub"), entered into an Agreement and
Plan of Reorganization (as amended, the "Vanguard Reorganization Agreement")
which specified the terms and conditions of the Vanguard Project Exchange. The
Vanguard Reorganization Agreement provided that Vanguard Sub would be merged
into the Company, with the Company as the surviving corporation, and in exchange
therefor Vanguard would receive 3,972,240 shares of Series E Preferred Stock,
subject to adjustment in certain circumstances. The Vanguard Project Exchange
occurred on December 18, 1995, concurrently with the closing of the Series F
Financing.
Pursuant to the Vanguard Project Exchange, the Company acquired
Vanguard Sub's interests or rights to acquire interests in ten wireless projects
in Indonesia, New Zealand, Brazil, India and Pakistan. Vanguard's cost of
acquiring such projects was in excess of approximately $550,000. The terms of
the Vanguard Project Exchange were arrived at through arms-length negotiations
and were approved by a majority of disinterested directors of the Company and by
the Company's stockholders. See "Business--Other Operating Companies." In
connection with the Vanguard Project Exchange, the warrants issued to Vanguard
in connection with a previous financing were amended to, among other things,
extend the maturity of certain of these warrants.
On May 5, 1997, the Company entered into an agreement with Vanguard
Cellular Financial Corp., a wholly owned subsidiary of Vanguard, pursuant to
which such subsidiary surrendered then-outstanding warrants to purchase 323,880
shares of the Company's Series C Preferred Stock, 416,720 shares of its Series D
Preferred Stock and 64,120 shares of its Series F Preferred Stock in exchange
for the issuance by the Company of a warrant to acquire 249,970 shares of Common
Stock at a purchase price of $0.25 per share and second warrant to purchase
554,750 shares of Common Stock at an exercise price of $9.375 per share. The
second warrant was subsequently surrendered by Vanguard in exchange for the
issuance to certain officers and employees of Vanguard of an option to purchase
53,330 shares of Common Stock at an exercise price of $9.375 per share under the
Stock Plan and options to purchase an aggregate of 501,420 shares of Common
Stock at a purchase price of $9.375 per share outside the 1996 Stock Incentive
Plan, including options granted to the following directors of the Company:
Haynes G. Griffin - 400,000 shares; and Van Snowdon - 65,250 shares. In
addition, Vanguard agreed to guarantee from time to time up to an aggregate of
$3.2 million of indebtedness incurred by the Company or its wholly owned
subsidiaries until the Company receives at least $3.2 million in alternative
debt financing or consummates an initial public offering of its Common Stock,
but in no event later than February 3, 1999. (The foregoing transactions are
hereinafter referred to as the "Vanguard Warrant Exchange.") The Vanguard
Warrant Exchange was approved by the Board of Directors of the Company on
February 28, 1997, and by the stockholders of the Company on May 5, 1997.
In August 1997, Vanguard Pakistan, Inc., a wholly owned subsidiary
of Vanguard ("VPI"), acquired an indirect 6% equity interest in Mobilink by
acquiring an equity interest in IWCPL. Pursuant to the IWC Group Agreement
entered into between PWH and VPI in August 1997 (the "IWC Group Agreement"),
(i) PWH and VPI agreed that each party could exercise certain rights and
perform certain duties of the other party under the IWCPL shareholders
agreement, if such other party was unable or unwilling to do so, and (ii) VPI
entered into a voting trust agreement whereby it granted an officer of PWH
the right to vote all voting securities of IWCPL now owned or hereafter
acquired by VPI during the term of the voting trust. Pursuant to a letter
agreement between PWH and VPI in February 1998, VPI exercised its right under
Section 2.5 of the IWC Group Agreement to make a capital contribution to
IWCPL on behalf of PWH by purchasing 1,240,275 redeemable preference shares
of IWCPL for $1,240,275. Pursuant to the letter agreement, PWH has the right
to purchase the shares at any time on or before March 16, 1998 for a purchase
price of $1.00 per share and VPI has the right to put the shares to PWH at
any time
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on or before April 15, 1998 for a purchase price of $1.00 per share. In
addition, PWH paid VPI a fee of $9,302 pursuant to the letter agreement.
In September 1997, at the request of IWC China, Vanguard guaranteed
$8,000,000 of indebtedness to be incurred by Star Digitel (the "Vanguard SDL
Guarantee"). Pursuant to a reimbursement agreement (the "Reimbursement
Agreement"), IWC China Limited agreed to pay Vanguard (i) an up-front guarantee
fee of $240,000 in cash, (ii) a quarterly in-kind guarantee fee at an initial
rate of 6.75% that increases over time to 17.75% and (iii) an additional
guarantee fee payable in shares of Star Digitel owned by IWC China Limited if
Vanguard is required to make any payments under the guarantee. In addition, the
Company granted Vanguard a ten-year warrant to purchase shares of its Common
Stock at an exercise price of $0.01 per share. The number of shares issuable
upon exercise of the warrant is initially set at 68,819 and increases in
quarterly increments thereafter until Vanguard's obligations under the guarantee
have been permanently released and discharged.
In March 1998, the Company entered into a Support Services Agreement
(the "Support Services Agreement") with Vanguard China, Inc. ("VCI"). Pursuant
to the Support Services Agreement, the Company granted Vanguard a warrant to
purchase up to 323,408 shares of its Common Stock (the "SSA Warrant Shares") in
exchange for VCI agreeing to provide certain services relating to the financing
of Star Digitel. One-half of the SSA Warrant Shares become exercisable upon Star
Digitel executing definitive financing documents relating to a $50 million
financing acceptable to Star Digitel's board of directors, and one-half of the
SSA Warrant Shares become exercisable upon Star Digitel entering into an
agreement for vendor financing acceptable to Star Digitel's board of directors.
The SSA Warrant has a ten-year term and an exercise price of $0.01 per share of
Common Stock.
Van E. Snowdon was elected President and Chief Executive
Officer of the Company in March 1998. Prior to such time, he had served as
President of Vanguard Communications, Inc., a subsidiary of Vanguard. See
"Item 11. Executive Compensation."
TRANSACTIONS WITH FOUNDERS
In January 1992, the Company issued 1,200,000 shares of Series A
Preferred Stock to Corporate Technology International ("CTI"), an entity
beneficially owned by Messrs. Lockton and McClung and another individual, for
an aggregate purchase price of $300,000. CTI subsequently distributed 510,000
shares to each of Messrs. Lockton and McClung.
In January 1994, the Company entered into an agreement (the "CTP
Agreement") with Messrs. Lockton, McClung and a third party to exchange
251,920 shares of Common Stock (the "CTP Exchange") for 70% of the then
outstanding equity of CTP, a partnership owned by Messrs. McClung, Lockton
and others that was formed to pursue wireless communications opportunities.
The CTP Exchange was consummated on December 18, 1995. Pursuant to the CTP
Exchange, the Company issued 103,280 shares of Common Stock to each of
Messrs. Lockton and McClung and deposited an additional 45,360 shares of
Common Stock into escrow for the benefit of certain parties, including
Messrs. Lockton and McClung. The terms of the CTP Exchange were arrived at
through arms' length negotiations and were approved by a majority of
disinterested directors of the Company.
In August 1996, Mr. McClung converted 266,800 shares of Series
A Preferred Stock into a like number of shares of Common Stock.
In January 1997, the Company loaned $100,000 to Mr. McClung
pursuant to an unsecured promissory note. The loan accrues interest at a rate
of 14% per annum and is due and payable upon demand of the Company.
INDEBTEDNESS OF MANAGEMENT
On October 19, 1994, pursuant to a Stock Purchase Agreement and a
Compensation Agreement, the Company sold Mr. Snowdon, who is a director of
the Company and Vice President of Vanguard Communications, Inc., a subsidiary
of Vanguard, 76,080 shares of Common Stock at a purchase price of $2.00 per
share and 3,920
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shares of Series D Preferred Stock at a purchase price of $6.55 per share,
for an aggregate purchase price of $177,836. The Company loaned Mr. Snowdon
the purchase price, which loan is evidenced by a note from Mr. Snowdon to the
Company dated October 19, 1994. The note bears interest at 7.69% per annum.
Principal and accrued interest are due on October 19, 2004. The note is
secured by a pledge of the stock purchased by Mr. Snowdon and is non-recourse
to him.
OTHER TRANSACTIONS
In 1995 the Company paid Coriander Willow, an entity owned by Vicky
Bratten, who is Mr. McClung's wife, $90,330 for accounting services performed by
Coriander Willow for the Company. Management believes that this transaction was
upon terms substantially equivalent to or more favorable to the Company than
those that could have been obtained from unaffiliated third parties.
TD Securities (USA) Inc., previously Toronto Dominion Securities
(USA) Inc. ("TDS"), an affiliate of TDI, in connection with the Debt Offering,
received fees and purchased Units in the Debt Offering at a discount (as an
Initial Purchaser) of $1.2 million from the price offered to other investors.
TDS received a fee of $1.25 million for serving as financial advisor to the
Company in connection with the RMD Acquisition.
For a description of compensation of executive officers and
directors of the Company and the eligibility of executive officers and
directors to participate in the Stock Plan, see "Executive Compensation--1997
Stock Incentive Plan" and "Executive Compensation--Director Compensation."
Steven D. Overly was elected Senior Vice President and
General Counsel of the Company in February 1998. See "Item 11.
Executive Compensation."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. EXHIBIT
----------- -------
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 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)
2.1C 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)
2.1D 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)
2.1E 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)
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")
10.1 Indenture dated as of August 15, 1996 between the Registrant,
as issuer, and Marine Midland Bank, as Trustee (previously
filed as Exhibit 4.1 to the Registrant's November 1996 S-1)
10.1A 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)
10.2 Pledge Agreement dated as of August 15, 1996 by the Registrant
and International Wireless Communications, Inc. in favor of
Bankers Trust Company, as Collateral Agent (previously filed as
Exhibit 4.2 to the Registrant's November 1996 Form S-1)
10.3 Unit Agreement dated as of August 15, 1996 among the Registrant
and Bankers Trust Company, as Unit Agent and Warrant Agent and
Marine Midland Bank, as Trustee (previously filed as Exhibit
4.3 to the Registrant's November 1996 Form S-1)
10.4 Registration Rights Agreement dated as of August 15, 1996 among
the Registrant, BT Securities Corporation, Toronto Dominion
Securities (USA) Inc. and Salomon Brothers Inc (previously
filed as Exhibit 4.4 to the Registrant's November 1996 Form S-1)
10.5 Warrant Agreement dated August 15, 1996 between Registrant and
Bankers Trust Company, as Warrant Agent (previously filed as
Exhibit 10.1 to the Registrant's November 1996 Form S-1)
10.6 Assignment and Assumption Agreement dated as of August 7, 1996
between Registrant and International Wireless Communications,
Inc. (previously filed as Exhibit 10.6 to the Registrant's
November 1996 Form S-1)
10.7 Consent, Waiver, Amendment, Assignment and Assumption Agreement
effective as of August 7, 1996 among Registrant and the other
parties named therein (previously filed as Exhibit 10.7 to the
Registrant's November 1996 Form S-1)
10.8 Consent, Waiver, Amendment, Assignment and Assumption Agreement
effective as of August 7, 1996 among International Wireless
Communications, Inc. and the parties named therein (previously
filed as Exhibit 10.8 to the Registrant's November 1996 Form
S-1)
10.9 Securities Purchase Agreement dated as of December 6, 1995
among Registrant and the parties named therein (previously
filed as Exhibit 10.2 to the Registrant's November 1996 Form
S-1)
10.10 Stock Purchase Agreement dated as of December 18, 1995 among
Registrant, John D. Lockton and Hugh B.L.
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McClung (previously filed as Exhibit 10.5 to the
Registrant's November 1996 Form S-1)
10.11 1996 Stock Option/Stock Issuance Plan, amended and restated as
of February 3, 1997 (previously filed as Exhibit 10.9A to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "March 31, 1997 Form 10-Q"))
10.12 Form of Indemnification Agreement (previously filed as Exhibit
10.10 to the Registrant's November 1996 Form S-1)
10.13A Real Property Lease between International Wireless
Communications, Inc. and PM Realty Group, dated May 5, 1994
(previously filed as Exhibit 10.11 to the Registrant's November
1996 Form S-1)
10.13B First Amendment to Lease between The Prudential Insurance
Company of America and International Wireless Communications,
Inc., dated September 1, 1996 (previously filed as Exhibit
10.11A to the Registrant's November 1996 Form S-1)
10.15C Second Amendment to Lease between Prudential and International
Wireless Communications, Inc., dated November 15, 1996
(previously filed as Exhibit 10.11B to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 (the
"December 31, 1997 Form 10-K"))
10.16A Agreement between Registrant and Vanguard Cellular Financial
Corp., dated May 5, 1997, including:
Exhibit A-Form of Warrant Agreement
Exhibit B-Form of Warrant Agreement
Exhibit C-Form of Incentive Stock Option
Exhibit D-Form of Nonstatutory Option Agreement
Exhibit E-Form of Guaranty
Exhibit F-Form of Investment Representation Letter
Exhibit G-Form of Vanguard Legal Opinion
Exhibit H-Form of IWCH Legal Opinion
previously filed as Exhibit 10.26 to Registrant's March 31, 1997
Form 10-Q)
10.16B Side Letter regarding Guaranty between Vanguard Cellular
Financial Corp. and the Registrant, dated May 29, 1997
(previously filed as Exhibit 10.26A to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (the "June 30, 1997 Form 10-Q"))
10.17 Memorandum of Understanding among Vanguard Cellular Systems,
Inc., Electra Investment Trust PLC and certain other
shareholders of Registrant listed therein, dated August 14,
1997 (previously filed as Exhibit 10.28O to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 (the "September 30, 1997 Form 10-Q"))
10.18A Loan Agreement among Registrant, Vanguard Cellular Financial
Corp., Toronto Dominion Investments, Inc. and the other parties
listed therein, dated August 18, 1997 (previously filed as
Exhibit 10.28A to the Registrant's Current Report on Form 8-K
filed with the Commission on September 12, 1997 (the "September
12, 1997 Form 8-K"))
10.18B Exchange Agreement between Registrant, Vanguard Cellular
Financial Corp., Toronto Dominion Investments, Inc. and the
other parties listed therein, dated August 18, 1997 (previously
filed as Exhibit 10.28B to the Registrant's September 12, 1997
Form 8-K)
10.18C Intercreditor and Collateral Agency Agreement, dated August
18, 1997 (previously filed as Exhibit 10.28D to the
Registrant's September 12, 1997 Form 8-K)
10.18D Tranche A Senior Exchangeable Note (previously filed as Exhibit
10.28E to the Registrant's September 12, 1997 Form 8-K)
10.18E Warrant to Purchase Common Stock (previously filed as Exhibit
10.28F to the Registrant's September 12, 1997 Form 8-K)
10.18F First Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated December 30, 1997
10.18G Second Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated January 15, 1998
10.18H Third Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated January 30, 1998
10.18I Fourth Amendment to Loan Agreement between Registrant
and Toronto Dominion Investments, Inc., dated February 5, 1998
10.18J Fifth Amendment to Loan Agreement between Registrant
and Toronto Dominion Investments, Inc., dated February 13, 1998
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10.18K Sixth Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated February 19, 1998
10.18L Seventh Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated February 25, 1998
10.18M Eighth Amendment to Loan Agreement between Registrant
and Toronto Dominion Investments, Inc., dated March 7, 1998
10.19 Letter Agreement among the Registrant, Hugh McClung,
John D. Lockton, Nezam Tolooee, dated January, 1998
10.20 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
10.20A Form of Warrant to Purchase Common Stock of the Registrant
10.21 Eighth Amended and Restated Investor Rights Agreement among
Registrant and Investors listed on Schedule A attached thereto,
dated March 10, 1998
10.22 Amended and Restated Registration Rights Agreement among
Registrant and individuals and entities listed on Schedule I
attached thereto, dated March 10, 1998
10.23 Support Services Agreement, by and among Registrant and Vanguard
Cellular Operating Corp., dated March 10, 1998
10.24 Compensation Plan for Van Snowdon dated March 27, 1998
10.25 Employee Retention Bonus Plan dated March 27, 1998
10.101A* Shareholders Agreement by and among Shubila Holding Sdn Bhd,
International Wireless Communications, Inc. and Laranda Sdn
Bhd, dated March 26, 1996 (previously filed as Exhibit 10.12A
to the Registrant's November 1996 Form S-1)
10.101B* Loan Agreement among STW, Permata Merchant Bank Berhad and
certain financial institutions listed therein, dated August 18,
1995; Option Agreement between Permata Merchant Bank Berhad and
International Wireless Communications, Inc., dated October 2,
1995; Collateral Agreement among International Wireless
Communications, Inc., Shubila Holding Sdn. Bhd., Laranda Sdn.
Bhd, STW and Permata Merchant Bank Berhad, dated October 2,
1995; Agreement to Allocate Responsibility among International
Wireless Communications, Inc., Shubila Holding Sdn. Bhd. and
Laranda Sdn. Bhd, dated November 1995 (previously filed as
Exhibit 10.12D to the Registrant's November 1996 Form S-1)
10.101C Share Purchase and Sale Agreement between International Wireless
Communications, Inc. and Shubila Holding Sdn. Bhd., dated April
6, 1998
10.102A Shareholders' Agreement among PT Bina Reksa Perdana,
International Wireless Communications, Inc., PT Deltonya Satya
Dinamika and PT Rajasa Hazanah Perkasa, dated November 9, 1995
(previously filed as Exhibit 10.13C to the Registrant's
November 1996 Form S-1)
10.102B Amendment Agreement among PT Rajasa Hazanah Perkasa, Nissho
Iwai Corporation, PT Bina Reksa Perdana, International Wireless
Communications, Inc. and PT Deltonya Satya Dinamika, dated
October 29, 1996 (previously filed as Exhibit 10.13G to the
Registrant's September 30, 1997 Form 10-Q)
10.102C Cooperative Agreement among PT. (Persero) Telekomunikasi
Indonesia, Yayasan Dana Pensiun Pegawai PT Telkom and PT Rajasa
Hazanah Perkasa, dated November 30, 1995 (previously filed as
Exhibit 10.13D to the Registrant's November 1996 Form S-1)
10.102D* Cooperation Agreement on Network Interconnection of Mobisel
STBS with Telkom PSTN between PT. (Persero) Telekomunikasi
Indonesia and PT Mobile Selular Indonesia, dated August 21,
1996 (previously filed as Exhibit 10.13A to the Registrant's
November 1996 Form S-1)
10.102E Facility Agreement between PT Mobile Selular Indonesia and
Nissho Iwai International (Singapore) Pte., Ltd., dated March
12, 1996; Share Pledge Agreement between PT Rajasa Hazanah
Perkasa and Nissho Iwai International (Singapore) Pte., Ltd.,
dated March 12, 1996 (previously filed as Exhibit 10.13F to the
Registrant's November 1996 Form S-1)
10.102F License granted to PT Rajasa Hazanah Perkasa, dated April 28,
1995 (previously filed as Exhibit 10.13E to the Registrant's
November 1996 Form S-1)
10.103 Stockholder Agreement between Teleparbs Participacoes Ltda.
(RBS) and International Wireless Communications, Inc., dated
August 31, 1995 (previously filed as Exhibit 10.14 to the
Registrant's November 1996 Form S-1)
10.104A Subscription Agreement dated September 23, 1996, by and among
International Wireless Communications, Inc., Star Digitel
Limited, Star Telecom Holding Limited and Star Telecom
International Holding Limited, including:
Exhibit A Form of Escrow Agreement
Exhibit B Form of Shareholders' Agreement
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Exhibit C Form of STHL Management Services Agreement
Exhibit D Form of IWC Management Services Agreement
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Loan Agreement
(previously filed as Exhibit 2.2 to the Registrant's
November 1996 Form S-1)
10.104B Letter Agreement between International Wireless Communications,
Inc. and Star Telecom Holding Limited regarding the loan
agreement between Star Digitel Limited and Star Telecom Holding
Limited, dated November 7, 1996 (previously filed as Exhibit
2.3 to the Registrant's November 1996 Form S-1)
10.104C Letter Agreements between International Wireless
Communications, Inc. and Star Telecom Holding Limited regarding
indemnification, dated November 5, 1996 and November 7, 1996
(previously filed as Exhibit 2.4 to the Registrant's November
1996 Form S-1)
10.104D Amended and Restated Shareholders' Agreement among Star Digitel
Limited, Star Telecom Holding Limited, International Wireless
Communications, Inc. and Vanguard China, Inc., dated April 4,
1997 (previously filed as Exhibit 10.16B to the Registrant's
March 31, 1997 Form 10-Q)
10.104E Amended and Restated Noncompetition Agreement between Star
Telecom Holding Limited and International Wireless
Communications, Inc., dated April 4, 1997 (previously filed as
Exhibit 10.16C to the Registrant's March 31, 1997 Form 10-Q)
10.104F Amendment to Subscription Agreement and Waiver among Star
Digitel Limited, Star Telecom Holding Limited, International
Wireless Communications, Inc. and IWC China Limited, dated June
18, 1997 (previously filed as Exhibit 10.16D to the
Registrant's June 30, 1997 Form 10-Q)
10.104G Side Letter regarding Indemnification between IWC China Limited
and Star Digitel Limited, dated June 18, 1997 (previously filed
as Exhibit 10.16E to the Registrant's June 30, 1997 Form 10-Q)
10.104H Deed of Adherence between Star Digitel Limited and IWC China
Limited, dated June 18, 1997 (previously filed as Exhibit
10.16F to the Registrant's September 30, 1997 Form 10-Q)
10.104I Bridge Loan Agreement between Star Digitel Limited and the
Toronto-Dominion Bank, dated May 16, 1997 (previously filed as
Exhibit 10.16G to the Registrant's September 30, 1997 Form 10-Q)
10.104J Supplement No. 1 to Bridge Loan Agreement between Star Digitel
Limited and Toronto Dominion Bank dated September 18, 1997
(previously filed as Exhibit 10.16J to the Registrant's
September 30, 1997 Form 10-Q)
10.104K Supplement No. 2 to Bridge Loan Agreement between Star Digitel
Limited and Toronto Dominion Bank dated November 17, 1997
10.104L Pledge Agreement made by International Wireless
Communications, Inc. in favor of Toronto Dominion Bank, dated
June 5, 1997 (previously filed as Exhibit 10.16H to the
Registrant's September 30, 1997 Form 10-Q)
10.104M Reimbursement Agreement by and among Star Digitel Limited, Star
Telecom Holding Limited and Vanguard Cellular Financial Corp.,
dated May 16, 1997 (previously filed as Exhibit 10.16I to the
Registrant's September 30, 1997 Form 10-Q)
10.104N Reimbursement Agreement between IWC China Limited and Vanguard
Cellular Financial Corp., dated September 18, 1997
10.104O First Amendment to Reimbursement Agreement between IWC China
Limited and Vanguard Cellular Financial Corp., dated January
23, 1998
10.104P First Amendment to Pledge Agreement between IWC China Limited
and Vanguard Cellular Financial Corp., dated January 23, 1998
10.104Q First Amendment to Warrant to Purchase Common Stock between the
Registrant and Vanguard Cellular Financial Corp., dated January
23, 1998.
10.104R Amended and Restated Negative Pledge Agreement made by
International Wireless Communications, Inc. and IWC China in
favor of Toronto Dominion Bank, dated September 18, 1997
(previously filed as Exhibit 10.16L to the Registrant's
September 30, 1997 Form 10-Q)
10.104S Conditional Deed of Adherence between Star Digitel Limited
and Vanguard Cellular Financial Corp. dated September 18,
1997 (previously filed as Exhibit 10.16M to the Registrant's
September 30, 1997 Form 10-Q)
10.105A Share Purchase Agreement between Motorola International
Development Corporation and International Wireless
Communications Pakistan Limited, dated July 17, 1997
(previously filed as Exhibit 10.27A to the Registrant's June
30, 1997 Form 10-Q)
10.105B Share Purchase Agreement between Continental Communications
Limited and International Wireless Communications Pakistan
Limited, dated July 17, 1997 (previously filed as Exhibit
10.27B to the Registrant's June 30, 1997 Form 10-Q)
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10.105C Supplement to Share Purchase Agreement between Registrant and
Continental Communications Limited, dated August 18, 1997
(previously filed as Exhibit 10.28L to the Registrant's
September 12, 1997 Form 8-K)
10.105D Restated and Amended Shareholders Agreement among Motorola
International Development Corporation, Saif Telecom (Pvt) Ltd
and International Wireless Communications Pakistan Limited,
dated August 13, 1997 (previously filed as Exhibit 10.27C to
the Registrant's June 30, 1997 Form 10-Q)
10.105E Side Letter regarding Shareholder Obligations among
International Wireless Communications Pakistan Limited,
Motorola International Development Corporation and Saif Telecom
(Pvt) Ltd , dated August 13, 1997 (previously filed as Exhibit
10.27D to the Registrant's June 30, 1997 Form 10-Q)
10.105F Letter Agreement amending the Restated and Amended Shareholders
Agreement Among Motorola International Development Corporation,
Saif Telecom (Pvt) Ltd and International Wireless
Communications Pakistan Limited, dated August 1997 (previously
filed as Exhibit 2.10J to the Registrant's September 12, 1997
Form 8-K)
10.105G Amended and Restated Shareholders' Agreement among
International Wireless Communications Pakistan Limited,
Pakistan Wireless Holdings Limited, Vanguard Pakistan, Inc. and
South Asia Wireless Communications (Mauritius) Limited, dated
August 13, 1997 (previously filed as Exhibit 2.10E to the
Registrant's September 12, 1997 Form 8-K)
10.105H IWC Group Agreement between Pakistan Wireless Holdings Limited
and Vanguard Pakistan, Inc., dated August 13, 1997; Voting
Trust Agreement between Pakistan Wireless Holdings Limited and
Vanguard Pakistan, Inc., dated August 13, 1997 (previously
filed as Exhibit 2.10F to the Registrant's September 12, 1997
Form 8-K)
10.105I Deed of Adherence to International Wireless Communications
Pakistan Limited Shareholders Agreement among International
Wireless Communications Pakistan Limited, Pakistan Wireless
Holdings Limited, Vanguard Pakistan, Inc. and South Asia
Wireless Communications (Mauritius) Limited, dated August 27,
1997 (previously filed as Exhibit 2.10G to the Registrant's
September 12, 1997 Form 8-K)
10.105J License granted to Pakistan Mobile Communications (Pvt) Ltd by
the Government of Pakistan, Ministry of Communications, dated
July 6, 1992 (previously filed as Exhibit 10.27G to the
Registrant's June 30, 1997 Form 10-Q)
10.105K Re-validation of License granted to Pakistan Mobile
Communications (Pvt) Ltd, dated August 9, 1997 (previously
filed as Exhibit 2.10I to the Registrant's September 12, 1997
Form 8-K)
10.105L Loan Agreement between Pakistan Wireless Holdings Limited,
Vanguard and the Toronto-Dominion Bank, dated August 18, 1997
(previously filed as Exhibit 10.28G to the Registrant's
September 12, 1997 Form 8-K)
10.105M Pakistan Wireless Holdings Limited Tranche A Exchangeable
Senior Secured Note (previously filed as Exhibit 10.28H to the
Registrant's September 12, 1997 Form 8-K)
10.105N Pledge Agreement between Pakistan Wireless Holdings Limited and
the Toronto-Dominion Bank, dated August 18, 1997 (previously
filed as Exhibit 10.28I to the Registrant's September 12, 1997
Form 8-K)
10.105O Security Agreement among Pakistan Wireless Holdings Limited and
the Toronto-Dominion Bank, dated August 18, 1997 (previously
filed as Exhibit 10.28J to the Registrant's September 12, 1997
Form 8-K)
10.105P Stock Option Agreement between Registrant and Pakistan Wireless
Holdings Limited, dated August 18, 1997 (previously filed as
Exhibit 10.28K to the Registrant's September 12, 1997 Form 8-K)
10.105Q** Interconnection Agreement between Pakistan Mobile
Communications (Pvt) Ltd. and Pakistan Telecommunications
Company Limited, dated December 5, 1997
10.105R 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
10.105S 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
10.105T First Amendment to Letter Agreement among Motorola
International Development Corporation, International Wireless
Communications Pakistan Limited and SAIF Telecom (Pvt.) Limited,
dated February 25, 1998
10.106A 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)
10.106B 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)
10.106C 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)
10.106D Pledge Agreement between International Wireless Communications,
Inc. and BT Foreign Investment Corporation,
93
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dated January 23, 1998 (previously filed as Exhibit 10.30D to the
Registrant's February 6, 1998 Form 8-K)
10.106E 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)
10.106F 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)
10.107** Letter Agreement between Telcom Ventures. LLC and Registrant,
dated March 16, 1998
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
- -------------------------------
* 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.
(b) REPORTS ON FORM 8-K.
On September 11, 1997, the Registrant filed a Current Report on
Form 8-K to report the acquisition by the Registrant of an equity interest in
IWCPL. No financial statements were required to be filed with such Report on
Form 8-K.
94
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security
holders.
97
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 14,
1998.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By: /s/ Van E. Snowdon
----------------------------
Van E. Snowdon
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Van E. Snowdon, as his true and lawful
attorneys-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ---------- ----- -----
/s/ Van E. Snowdon President, Chief Executive April 14, 1998
- ----------------------- Officer and Director
VAN E. SNOWDON
/s/ Keith D. Taylor Controller April 14, 1998
- ----------------------- (Principal Accounting Officer)
KEITH D. TAYLOR
/s/ Haynes G. Griffin Chairman of the Board April 14, 1998
- -----------------------
HAYNES G. GRIFFIN
/s/ Sanford L. Antignas Director April 14, 1998
- -----------------------
SANFORD L. ANTIGNAS
/s/ Carl C. Cordova III Director April 14, 1998
- ------------------------
CARL C. CORDOVA III
/s/ Stephen R. Leeolou Director April 14, 1998
- ----------------------
STEPHEN R. LEEOLOU
/s/ John S. McCarthy Director April 14, 1998
- ------------------------
JOHN S. MCCARTHY
/s/ Brian Rich Director April 14, 1998
- -----------------------
BRIAN RICH
/s/ John D. Lockton Director April 14, 1998
- ------------------------
JOHN D. LOCKTON
/s/ Hugh B. L. McClung Director April 14, 1998
- -----------------------
HUGH B. L. MCCLUNG
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
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 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)
2.1C 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)
2.1D 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)
2.1E 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)
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")
10.1 Indenture dated as of August 15, 1996 between the Registrant,
as issuer, and Marine Midland Bank, as Trustee (previously
filed as Exhibit 4.1 to the Registrant's November 1996 S-1)
10.1A 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)
10.2 Pledge Agreement dated as of August 15, 1996 by the Registrant
and International Wireless Communications, Inc. in favor of
Bankers Trust Company, as Collateral Agent (previously filed as
Exhibit 4.2 to the Registrant's November 1996 Form S-1)
10.3 Unit Agreement dated as of August 15, 1996 among the Registrant
and Bankers Trust Company, as Unit Agent and Warrant Agent and
Marine Midland Bank, as Trustee (previously filed as Exhibit
4.3 to the Registrant's November 1996 Form S-1)
10.4 Registration Rights Agreement dated as of August 15, 1996 among
the Registrant, BT Securities Corporation, Toronto Dominion
Securities (USA) Inc. and Salomon Brothers Inc (previously
filed as Exhibit 4.4 to the Registrant's November 1996 Form S-1)
10.5 Warrant Agreement dated August 15, 1996 between Registrant and
Bankers Trust Company, as Warrant Agent (previously filed as
Exhibit 10.1 to the Registrant's November 1996 Form S-1)
10.6 Assignment and Assumption Agreement dated as of August 7, 1996
between Registrant and International Wireless Communications,
Inc. (previously filed as Exhibit 10.6 to the Registrant's
November 1996 Form S-1)
10.7 Consent, Waiver, Amendment, Assignment and Assumption Agreement
effective as of August 7, 1996 among Registrant and the other
parties named therein (previously filed as Exhibit 10.7 to the
Registrant's November 1996 Form S-1)
10.8 Consent, Waiver, Amendment, Assignment and Assumption Agreement
effective as of August 7, 1996 among International Wireless
Communications, Inc. and the parties named therein (previously
filed as Exhibit 10.8 to the Registrant's November 1996 Form S-1)
10.9 Securities Purchase Agreement dated as of December 6, 1995
among Registrant and the parties named therein (previously
filed as Exhibit 10.2 to the Registrant's November 1996 Form S-1)
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10.10 Stock Purchase Agreement dated as of December 18, 1995 among
Registrant, John D. Lockton and Hugh B.L. McClung (previously
filed as Exhibit 10.5 to the Registrant's November 1996 Form S-1)
10.11 1996 Stock Option/Stock Issuance Plan, amended and restated as
of February 3, 1997 (previously filed as Exhibit 10.9A to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (the "March 31, 1997 Form 10-Q"))
10.12 Form of Indemnification Agreement (previously filed as Exhibit
10.10 to the Registrant's November 1996 Form S-1)
10.13A Real Property Lease between International Wireless
Communications, Inc. and PM Realty Group, dated May 5, 1994
(previously filed as Exhibit 10.11 to the Registrant's November
1996 Form S-1)
10.13B First Amendment to Lease between The Prudential Insurance
Company of America and International Wireless Communications,
Inc., dated September 1, 1996 (previously filed as Exhibit
10.11A to the Registrant's November 1996 Form S-1)
10.15C Second Amendment to Lease between Prudential and International
Wireless Communications, Inc., dated November 15, 1996
(previously filed as Exhibit 10.11B to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 (the
"December 31, 1997 Form 10-K"))
10.16A Agreement between Registrant and Vanguard Cellular Financial
Corp., dated May 5, 1997, including:
Exhibit A_Form of Warrant Agreement
Exhibit B_Form of Warrant Agreement
Exhibit C_Form of Incentive Stock Option
Exhibit D_Form of Nonstatutory Option Agreement
Exhibit E_Form of Guaranty
Exhibit F_Form of Investment Representation Letter
Exhibit G_Form of Vanguard Legal Opinion
Exhibit H_Form of IWCH Legal Opinion
previously filed as Exhibit 10.26 to Registrant's March 31, 1997
Form 10-Q)
10.16B Side Letter regarding Guaranty between Vanguard Cellular
Financial Corp. and the Registrant, dated May 29, 1997
(previously filed as Exhibit 10.26A to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (the "June 30, 1997 Form 10-Q"))
10.17 Memorandum of Understanding among Vanguard Cellular Systems,
Inc., Electra Investment Trust PLC and certain other
shareholders of Registrant listed therein, dated August 14,
1997 (previously filed as Exhibit 10.28O to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 (the "September 30, 1997 Form 10-Q"))
10.18A Loan Agreement among Registrant, Vanguard Cellular Financial
Corp., Toronto Dominion Investments, Inc. and the other parties
listed therein, dated August 18, 1997 (previously filed as
Exhibit 10.28A to the Registrant's Current Report on Form 8-K
filed with the Commission on September 12, 1997 (the "September
12, 1997 Form 8-K"))
10.18B Exchange Agreement between Registrant, Vanguard Cellular Financial
Corp., Toronto Dominion Investments, Inc. and the other parties
listed therein, dated August 18, 1997 (previously filed as Exhibit
10.28B to the Registrant's September 12, 1997 Form 8-K)
10.18C Intercreditor and Collateral Agency Agreement, dated August 18,
1997 (previously filed as Exhibit 10.28D to the Registrant's
September 12, 1997 Form 8-K)
10.18D Tranche A Senior Exchangeable Note (previously filed as Exhibit
10.28E to the Registrant's September 12, 1997 Form 8-K)
10.18E Warrant to Purchase Common Stock (previously filed as Exhibit
10.28F to the Registrant's September 12, 1997 Form 8-K)
10.18F First Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated December 30, 1997
10.18G Second Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated January 15, 1998
10.18H Third Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated January 30, 1998
10.18I Fourth Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated February 5, 1998
10.18J Fifth Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated
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<PAGE>
February 13, 1998
10.18K Sixth Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated February 19, 1998
10.18L Seventh Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated February 25, 1998
10.18M Eighth Amendment to Loan Agreement between Registrant and
Toronto Dominion Investments, Inc., dated March 7, 1998
10.19 Letter Agreement among the Registrant, Hugh McClung, John D.
Lockton, Nezam Tolooee, dated January, 1998
10.20 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
10.20A Form of Warrant to Purchase Common Stock of the Registrant
10.21 Eighth Amended and Restated Investor Rights Agreement among
Registrant and Investors listed on Schedule A attached thereto,
dated March 10, 1998
10.22 Amended and Restated Registration Rights Agreement among
Registrant and individuals and entities listed on Schedule I
attached thereto, dated March 10, 1998
10.23 Support Services Agreement, by and among Registrant and
Vanguard Cellular Operating Corp., dated March 10, 1998
10.24 Compensation Plan for Van Snowdon dated March 27, 1998
10.25 Employee Retention Bonus Plan dated March 27, 1998
10.101A* Shareholders Agreement by and among Shubila Holding Sdn Bhd,
International Wireless Communications, Inc. and Laranda Sdn
Bhd, dated March 26, 1996 (previously filed as Exhibit 10.12A
to the Registrant's November 1996 Form S-1)
10.101B* Loan Agreement among STW, Permata Merchant Bank Berhad and
certain financial institutions listed therein, dated August 18,
1995; Option Agreement between Permata Merchant Bank Berhad and
International Wireless Communications, Inc., dated October 2,
1995; Collateral Agreement among International Wireless
Communications, Inc., Shubila Holding Sdn. Bhd., Laranda Sdn.
Bhd, STW and Permata Merchant Bank Berhad, dated October 2,
1995; Agreement to Allocate Responsibility among International
Wireless Communications, Inc., Shubila Holding Sdn. Bhd. and
Laranda Sdn. Bhd, dated November 1995 (previously filed as
Exhibit 10.12D to the Registrant's November 1996 Form S-1)
10.101C Share Purchase And Sale Agreement between International
Wireless Communications, Inc. and Shubila Holding Sdn Bhd,
dated April 3, 1998
10.102A Shareholders' Agreement among PT Bina Reksa Perdana,
International Wireless Communications, Inc., PT Deltonya Satya
Dinamika and PT Rajasa Hazanah Perkasa, dated November 9, 1995
(previously filed as Exhibit 10.13C to the Registrant's
November 1996 Form S-1)
10.102B Amendment Agreement among PT Rajasa Hazanah Perkasa, Nissho
Iwai Corporation, PT Bina Reksa Perdana, International Wireless
Communications, Inc. and PT Deltonya Satya Dinamika, dated
October 29, 1996 (previously filed as Exhibit 10.13G to the
Registrant's September 30, 1997 Form 10-Q)
10.102C Cooperative Agreement among PT. (Persero) Telekomunikasi
Indonesia, Yayasan Dana Pensiun Pegawai PT Telkom and PT Rajasa
Hazanah Perkasa, dated November 30, 1995 (previously filed as
Exhibit 10.13D to the Registrant's November 1996 Form S-1)
10.102D* Cooperation Agreement on Network Interconnection of Mobisel
STBS with Telkom PSTN between PT. (Persero) Telekomunikasi
Indonesia and PT Mobile Selular Indonesia, dated August 21,
1996 (previously filed as Exhibit 10.13A to the Registrant's
November 1996 Form S-1)
10.102E Facility Agreement between PT Mobile Selular Indonesia and
Nissho Iwai International (Singapore) Pte., Ltd., dated March
12, 1996; Share Pledge Agreement between PT Rajasa Hazanah
Perkasa and Nissho Iwai International (Singapore) Pte., Ltd.,
dated March 12, 1996 (previously filed as Exhibit 10.13F to the
Registrant's November 1996 Form S-1)
10.102F License granted to PT Rajasa Hazanah Perkasa, dated April 28,
1995 (previously filed as Exhibit 10.13E to the Registrant's
November 1996 Form S-1)
10.103 Stockholder Agreement between Teleparbs Participacoes Ltda.
(RBS) and International Wireless Communications, Inc., dated
August 31, 1995 (previously filed as Exhibit 10.14 to the
Registrant's November 1996 Form S-1)
10.104A Subscription Agreement dated September 23, 1996, by and among
International Wireless Communications, Inc., Star Digitel
Limited, Star Telecom Holding Limited and Star Telecom
International Holding Limited, including:
Exhibit A Form of Escrow Agreement
Exhibit B Form of Shareholders' Agreement
Exhibit C Form of STHL Management Services Agreement
Exhibit D Form of IWC Management Services Agreement
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<PAGE>
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Loan Agreement
(previously filed as Exhibit 2.2 to the Registrant's November
1996 Form S-1)
10.104B Letter Agreement between International Wireless Communications,
Inc. and Star Telecom Holding Limited regarding the loan
agreement between Star Digitel Limited and Star Telecom Holding
Limited, dated November 7, 1996 (previously filed as Exhibit
2.3 to the Registrant's November 1996 Form S-1)
10.104C Letter Agreements between International Wireless
Communications, Inc. and Star Telecom Holding Limited regarding
indemnification, dated November 5, 1996 and November 7, 1996
(previously filed as Exhibit 2.4 to the Registrant's November
1996 Form S-1)
10.104D Amended and Restated Shareholders' Agreement among Star Digitel
Limited, Star Telecom Holding Limited, International Wireless
Communications, Inc. and Vanguard China, Inc., dated April 4,
1997 (previously filed as Exhibit 10.16B to the Registrant's
March 31, 1997 Form 10-Q)
10.104E Amended and Restated Noncompetition Agreement between Star
Telecom Holding Limited and International Wireless
Communications, Inc., dated April 4, 1997 (previously filed as
Exhibit 10.16C to the Registrant's March 31, 1997 Form 10-Q)
10.104F Amendment to Subscription Agreement and Waiver among Star
Digitel Limited, Star Telecom Holding Limited, International
Wireless Communications, Inc. and IWC China Limited, dated June
18, 1997 (previously filed as Exhibit 10.16D to the
Registrant's June 30, 1997 Form 10-Q)
10.104G Side Letter regarding Indemnification between IWC China Limited
and Star Digitel Limited, dated June 18, 1997 (previously filed
as Exhibit 10.16E to the Registrant's June 30, 1997 Form 10-Q)
10.104H Deed of Adherence between Star Digitel Limited and IWC China
Limited, dated June 18, 1997 (previously filed as Exhibit
10.16F to the Registrant's September 30, 1997 Form 10-Q)
10.104I Bridge Loan Agreement between Star Digitel Limited and the
Toronto-Dominion Bank, dated May 16, 1997 (previously filed as
Exhibit 10.16G to the Registrant's September 30, 1997 Form 10-Q)
10.104J Supplement No. 1 to Bridge Loan Agreement between Star Digitel
Limited and Toronto Dominion Bank dated September 18, 1997
(previously filed as Exhibit 10.16J to the Registrant's
September 30, 1997 Form 10-Q)
10.104K Supplement No. 2 to Bridge Loan Agreement between Star Digitel
Limited and Toronto Dominion Bank dated November 17, 1997
10.104L Pledge Agreement made by International Wireless Communications,
Inc. in favor of Toronto Dominion Bank, dated June 5, 1997
(previously filed as Exhibit 10.16H to the Registrant's
September 30, 1997 Form 10-Q)
10.104M Reimbursement Agreement by and among Star Digitel Limited, Star
Telecom Holding Limited and Vanguard Cellular Financial Corp.,
dated May 16, 1997 (previously filed as Exhibit 10.16I to the
Registrant's September 30, 1997 Form 10-Q)
10.104N Reimbursement Agreement between IWC China Limited and Vanguard
Cellular Financial Corp., dated September 18, 1997
10.104O First Amendment to Reimbursement Agreement between IWC China
Limited and Vanguard Cellular Financial Corp., dated January
23, 1998
10.104P First Amendment to Pledge Agreement between IWC China Limited
and Vanguard Cellular Financial Corp., dated January 23, 1998
10.104Q First Amendment to Warrant to Purchase Common Stock between the
Registrant and Vanguard Cellular Financial Corp., dated January
23, 1998.
10.104R Amended and Restated Negative Pledge Agreement made by
International Wireless Communications, Inc. and IWC China in
favor of Toronto Dominion Bank, dated September 18, 1997
(previously filed as Exhibit 10.16L to the Registrant's
September 30, 1997 Form 10-Q)
10.104S Conditional Deed of Adherence between Star Digitel Limited and
Vanguard Cellular Financial Corp. dated September 18, 1997
(previously filed as Exhibit 10.16M to the Registrant's
September 30, 1997 Form 10-Q)
10.105A Share Purchase Agreement between Motorola International
Development Corporation and International Wireless
Communications Pakistan Limited, dated July 17, 1997
(previously filed as Exhibit 10.27A to the Registrant's June
30, 1997 Form 10-Q)
10.105B Share Purchase Agreement between Continental Communications
Limited and International Wireless Communications Pakistan
Limited, dated July 17, 1997 (previously filed as Exhibit
10.27B to the Registrant's June 30, 1997 Form 10-Q)
10.105C Supplement to Share Purchase Agreement between Registrant and
Continental Communications Limited, dated
101
<PAGE>
August 18, 1997 (previously filed as Exhibit 10.28L to
the Registrant's September 12, 1997 Form 8-K)
10.105D Restated and Amended Shareholders Agreement among Motorola
International Development Corporation, Saif Telecom (Pvt) Ltd
and International Wireless Communications Pakistan Limited,
dated August 13, 1997 (previously filed as Exhibit 10.27C to
the Registrant's June 30, 1997 Form 10-Q)
10.105E Side Letter regarding Shareholder Obligations among
International Wireless Communications Pakistan Limited,
Motorola International Development Corporation and Saif Telecom
(Pvt) Ltd , dated August 13, 1997 (previously filed as Exhibit
10.27D to the Registrant's June 30, 1997 Form 10-Q)
10.105F Letter Agreement amending the Restated and Amended Shareholders
Agreement Among Motorola International Development Corporation,
Saif Telecom (Pvt) Ltd and International Wireless
Communications Pakistan Limited, dated August 1997 (previously
filed as Exhibit 2.10J to the Registrant's September 12, 1997
Form 8-K)
10.105G Amended and Restated Shareholders' Agreement among
International Wireless Communications Pakistan Limited,
Pakistan Wireless Holdings Limited, Vanguard Pakistan, Inc. and
South Asia Wireless Communications (Mauritius) Limited, dated
August 13, 1997 (previously filed as Exhibit 2.10E to the
Registrant's September 12, 1997 Form 8-K)
10.105H IWC Group Agreement between Pakistan Wireless Holdings Limited
and Vanguard Pakistan, Inc., dated August 13, 1997; Voting
Trust Agreement between Pakistan Wireless Holdings Limited and
Vanguard Pakistan, Inc., dated August 13, 1997 (previously
filed as Exhibit 2.10F to the Registrant's September 12, 1997
Form 8-K)
10.105I Deed of Adherence to International Wireless Communications
Pakistan Limited Shareholders Agreement among International
Wireless Communications Pakistan Limited, Pakistan Wireless
Holdings Limited, Vanguard Pakistan, Inc. and South Asia
Wireless Communications (Mauritius) Limited, dated August 27,
1997 (previously filed as Exhibit 2.10G to the Registrant's
September 12, 1997 Form 8-K)
10.105J License granted to Pakistan Mobile Communications (Pvt) Ltd by
the Government of Pakistan, Ministry of Communications, dated
July 6, 1992 (previously filed as Exhibit 10.27G to the
Registrant's June 30, 1997 Form 10-Q)
10.105K Re-validation of License granted to Pakistan Mobile
Communications (Pvt) Ltd, dated August 9, 1997 (previously
filed as Exhibit 2.10I to the Registrant's September 12, 1997
Form 8-K)
10.105L Loan Agreement between Pakistan Wireless Holdings Limited,
Vanguard and the Toronto-Dominion Bank, dated August 18, 1997
(previously filed as Exhibit 10.28G to the Registrant's
September 12, 1997 Form 8-K)
10.105M Pakistan Wireless Holdings Limited Tranche A Exchangeable
Senior Secured Note (previously filed as Exhibit 10.28H to the
Registrant's September 12, 1997 Form 8-K)
10.105N Pledge Agreement between Pakistan Wireless Holdings Limited and
the Toronto-Dominion Bank, dated August 18, 1997 (previously
filed as Exhibit 10.28I to the Registrant's September 12, 1997
Form 8-K)
10.105O Security Agreement among Pakistan Wireless Holdings Limited and
the Toronto-Dominion Bank, dated August 18, 1997 (previously
filed as Exhibit 10.28J to the Registrant's September 12, 1997
Form 8-K)
10.105P Stock Option Agreement between Registrant and Pakistan Wireless
Holdings Limited, dated August 18, 1997 (previously filed as
Exhibit 10.28K to the Registrant's September 12, 1997 Form 8-K)
10.105Q** Interconnection Agreement between Pakistan Mobile
Communications (Pvt) Ltd. and Pakistan Telecommunications
Company Limited, dated December 5, 1997
10.105R 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
10.105S 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
10.105T First Amendment to Letter Agreement among Motorola
International Development Corporation, International
Wireless Communications Pakistan Limited and SAIF Telecom
(Pvt.) Limited, dated February 25,1998
10.106A 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)
10.106B 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)
10.106C 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)
10.106D 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)
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<PAGE>
10.106E 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)
10.106F 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)
10.107** Letter Agreement between Telcom Ventures. LLC and Registrant,
dated March 16, 1998
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
- -------------------------------
* 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.
103
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
a Delaware Corporation
International Wireless Communications Holdings, Inc. (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), does hereby certify that:
FIRST: The name of the Corporation is International Wireless
Communications Holdings, Inc. and the Corporation was originally incorporated on
July 8, 1996.
SECOND: The following resolutions amending and restating the
Corporation's Certificate of Incorporation were duly approved at a meeting of
the Board of Directors of the Corporation on March 3, 1998 and were duly
adopted by the stockholders of the Corporation in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law by written consent of the
stockholders given in accordance with Section 228 of the General Corporation
Law:
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of
Incorporation of the Corporation be, and it hereby is, amended and
restated in its entirety as follows:
ARTICLE I
The name of this corporation is International Wireless Communications
Holdings, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 15 East North Street, Dover, Kent County, Delaware. The name of its
registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law.
ARTICLE IV
The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be as specified in the bylaws of the
Corporation.
<PAGE>
ARTICLE V
A. CLASSES OF STOCK. The Corporation is authorized to issue three
classes of stock to be designated, respectively, "Class 1 Common Stock,"
"Class 2 Common Stock" (together with Class 1 Common Stock, "Common Stock") and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is One Hundred Twenty-Six Million (126,000,000).
Seventy Million (70,000,000) shares shall be Class 1 Common Stock, with a par
value of $0.01 per share, Six Million (6,000,000) shares shall be Class 2 Common
Stock, with a par value of $0.01 per share, and Fifty Million (50,000,000)
shares shall be Preferred Stock, with a par value of $0.01 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series (each a
"Series"). There is hereby designated a Series A Preferred Stock (the "Series A
Preferred Stock"), a Series B Preferred Stock (the "Series B Preferred Stock"),
a Series C Preferred Stock (the "Series C Preferred Stock"), a Series D
Preferred Stock (the "Series D Preferred Stock"), a Series E Preferred Stock
(the "Series E Preferred Stock"), a Series F-1 Preferred Stock (the "Series F-1
Preferred Stock"), a Series F-2 Preferred Stock (the "Series F-2 Preferred
Stock;" and together with the Series F-1 Preferred Stock, the "Series F
Preferred Stock"), a Series G-1 Preferred Stock (the "Series G-1 Preferred
Stock"), a Series G-2 Preferred Stock (the "Series G-2 Preferred Stock;" and
together with the Series G-1 Preferred Stock, the "Series G Preferred Stock"), a
Series H-1 Preferred Stock (the "Series H-1 Preferred Stock"), a Series H-2
Preferred Stock (the "Series H-2 Preferred Stock;" and together with the
Series H-1 Preferred Stock, the "Series H Preferred Stock"), a Series I
Preferred Stock (the "Series I Preferred Stock") and a Series J Preferred Stock
(the "Series J Preferred Stock") (the Series A, Series B, Series C, Series D,
Series E, Series F, Series G, Series H, Series I and Series J Preferred Stock
are collectively referred to as the "Existing Preferred Stock"). The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, which Series shall consist of One Million Two Hundred Thousand
(1,200,000) shares, the Series B Preferred Stock, which Series shall consist of
One Million Two Hundred Twenty-Nine Thousand Two Hundred Forty (1,229,240)
shares, the Series C Preferred Stock, which Series shall consist of Two Million
Four Hundred Sixty Thousand (2,460,000) shares, the Series D Preferred Stock,
which Series shall consist of Five Million Eight Hundred Thousand (5,800,000)
shares, the Series E Preferred Stock, which Series shall consist of Three
Million Nine Hundred Seventy-Two Thousand Two Hundred Forty (3,972,240) shares,
the Series F-1 Preferred Stock, which Series shall consist of Seven Million
(7,000,000) shares, the Series F-2 Preferred Stock, which Series shall consist
of One Million Eighty Thousand (1,080,000) shares, the Series G-1 Preferred
Stock, which Series shall consist of One Million Nine Hundred Twenty-Eight
Thousand (1,928,000) shares, the Series G-2 Preferred Stock, which Series shall
consist of One Million Two Hundred Ninety-Two Thousand (1,292,000) shares, the
Series H-1 Preferred Stock, which Series shall consist of Five Million
Seventy-Two Thousand (5,072,000) shares, the Series H-2 Preferred Stock, which
Series shall consist of Three Million Three Hundred Ninety-Eight Thousand
(3,398,000) shares, the Series I Preferred Stock, which series shall consist of
Eight Million (8,000,000) shares, and the Series J Preferred Stock, which series
shall consist of Two Million (2,000,000) shares, are as set forth below in this
Article V.B;
2
<PAGE>
provided, that anything contained herein to the contrary notwithstanding, the
economic rights, preferences and privileges of (i) the Series F-1 and Series F-2
Preferred Stock shall be identical, (ii) the Series G-1 and Series G-2 Preferred
Stock shall be identical and (iii) the Series H-1 and Series H-2 Preferred Stock
shall be identical. The Board of Directors is hereby authorized to fix or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
additional Series of Preferred Stock, and the number of shares constituting any
such Series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights which have been or may be
granted to the Preferred Stock or Series thereof in Certificates of Designation
or the Corporation's Amended and Restated Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the Preferred
Stock or any Series thereof, the rights, privileges, preferences and
restrictions of any such additional Series may be subordinated to, PARI PASSU
with (including, without limitation, with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or Series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any Series of Preferred Stock (other than the Existing Preferred
Stock), prior or subsequent to the issue of that Series, but not below the
number of shares of such Series then outstanding. In case the number of shares
of any Series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such Series.
1. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, the holders of Series B,
Series C, Series D, Series E, Series F, Series G, Series H, Series I and
Series J Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any assets of the Corporation to the holders of the
Series A Preferred Stock and Common Stock by reason of their ownership thereof,
the following amounts (with respect to each such Series of Preferred Stock, the
"Preferred Preferential Amount") in the following order of priority:
(i) First, the holders of Series G Preferred Stock
shall be entitled to receive an amount per share equal to the sum of (i) the
IWCH Note Exchange Price (as defined below), as appropriately adjusted for any
stock dividends, combinations, splits or the like with respect to such shares
after the initial issuance thereof (the "Original Series G Issue Price"), and
(ii) an amount equal to declared but unpaid dividends on such share, subject to
reduction in accordance with subsection V.B.1(a)(vii);
(ii) Then, the holders of Series H Preferred Stock
shall be entitled to receive an amount per share equal to the sum of (i) the PWH
Note Exchange Price (as defined below), as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares after
the initial issuance thereof (the "Original Series H Issue Price"), and (ii) an
amount equal to declared but unpaid dividends on such share, subject to
reduction in accordance with subsection V.B.1(a)(vii);
3
<PAGE>
(iii) Then, the holders of Series J Preferred Stock
shall be entitled to receive an amount per share equal to the sum of (i) $12.67,
as appropriately adjusted for any stock dividends, combinations, splits or the
like with respect to such shares (the "Original Series J Issue Price"), and (ii)
an amount equal to declared but unpaid dividends on such share, subject to
reduction in accordance with subsection V.B.1(a)(vii);
(iv) Then, the holders of Series F Preferred Stock
shall be entitled to receive an amount per share equal to the sum of (i) the
product of (A) .50 multiplied by (B) $9.375, as appropriately adjusted for any
stock dividends, combinations, splits or the like with respect to such shares
(the "Original Series F Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a)(vii);
(v) Then, the holders of Series B, Series C,
Series D, Series E and Series I Preferred Stock (the "Junior Preferred Stock")
shall be entitled to receive an amount per share calculated as follows:
(A) the holders of Series B Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) the product
of (A) .55 multiplied by (B) $0.9193, as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares (the
"Original Series B Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a)(vii);
(B) the holders of Series C Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) the product
of (A) .55 multiplied by (B) $2.223, as appropriately adjusted for any stock
dividends, combinations, splits, or the like with respect to such shares (the
"Original Series C Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a)(vii);
(C) the holders of Series D Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) the product
of (A) .55 multiplied by (B) $6.55, as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares (the
"Original Series D Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a)(vii);
(D) the holders of Series E Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) the product
of (A) .55 multiplied by (B) $6.2938, as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares (the
"Original Series E Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a) (vii); and
4
<PAGE>
(E) the holders of Series I Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) the product
of (A) .55 multiplied by (B) $13.728, as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares (the
"Original Series I Issue Price"), and (ii) an amount equal to declared but
unpaid dividends on such share, subject to reduction in accordance with
subsection V.B.1(a)(vii);
(vi) Then, the holders of the Junior Preferred Stock
and the Series F Preferred Stock shall be entitled to receive an amount per
share calculated as follows:
(A) the holders of Series B Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series B Issue Price, subject to reduction in
accordance with subsection V.B.1(a)(vii);
(B) the holders of Series C Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series C Issue Price, subject to reduction in
accordance with subsection V.B.1(a)(vii);
(C) the holders of Series D Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series D Issue Price, subject to reduction in
accordance with subsection V.B.1(a)(vii);
(D) the holders of Series E Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series E Issue Price, subject to reduction in
accordance with subsection V.B.1(a)(vii);
(E) the holders of Series F Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series F Issue Price, subject to reduction in
accordance with subsection V.B.1(a)(vii); and
(F) the holders of Series I Preferred Stock shall
be entitled to receive an amount per share equal to the product of (1) .50
multiplied by (2) the Original Series I Issue Price, subject to reduction in
accordance with V.B.1(a)(vii).
(vii) Notwithstanding the foregoing,
(A) If the assets and funds of the Corporation
are insufficient to permit the payment in full to the holders of Series G and
Series H Preferred Stock in accordance with clauses (i) and (ii) above, then,
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of outstanding
shares of Series G and Series H Preferred Stock in proportion to the respective
aggregate Preferred Preferential Amounts of such shares;
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(B) if the assets and funds of the Corporation
are insufficient to permit the payment in full to the holders of Series J
Preferred Stock in accordance with clause (iii) above, then, the entire assets
and funds of the Corporation legally available for distribution, after
completion of the distributions required by clauses (i) and (ii) above, shall be
distributed ratably among the holders of outstanding shares of Series J
Preferred Stock in proportion to the respective aggregate Preferred Preferential
Amounts of such shares;
(C) if the assets and funds of the Corporation
are insufficient to permit the payment in full to the holders of Series F
Preferred Stock in accordance with clause (iv) above), then the entire assets
and funds of the Corporation legally available for distribution, after
completion of the distributions required by clauses (i), (ii) and (iii) above,
shall be distributed ratably among the holders of outstanding shares of Series F
Preferred Stock in proportion to the respective aggregate Preferred Preferential
Amounts of such shares;
(D) if the assets and funds of the Corporation
are insufficient to permit the payment in full to the holders of the Junior
Preferred Stock in accordance with clause (v) above, then, the entire assets and
funds of the Corporation legally available for distribution, after completion of
the distributions required by clauses (i), (ii), (iii) and (iv) above, shall be
distributed ratably among the holders of outstanding shares of such Series of
Junior Preferred Stock in proportion to the respective aggregate Preferred
Preferential Amounts of such shares; and
(E) if the assets and funds of the Corporation
are insufficient to permit the payment in full to the holders of the Junior
Preferred Stock and the Series F Preferred Stock in accordance with clause (vi)
above, then, the entire assets and funds of the Corporation legally available
for distribution, after completion of the distributions required by clauses (i),
(ii), (iii), (iv) and (v) above, shall be distributed ratably among the holders
of such Series of Preferred Stock in proportion to the respective aggregate
Preferred Preferential Amounts of such shares (assuming that the Preferred
Preferential Amount of the Series B, Series C, Series D, Series E and Series I
Preferred Stock calculated pursuant to subsection V.B.1(a)(v) is based upon
multiplying the original issued price of each such respective Series of
Preferred Stock by ".50" rather than ".55" as provided in such subsection).
(b) Upon the completion of the distribution required by
subsection (a) above, if assets remain in the Corporation, the holders of the
Series A Preferred Stock of the Corporation shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $0.85, as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares (the
"Original Series A Issue Price") and (ii) an amount equal to declared but unpaid
dividends on such shares (together, the "Series A Preferential Amount"), subject
to reduction in accordance with the next sentence and subsections V.B.3(a)(i)
and 4(e). If the assets and funds to be distributed among the holders of the
Series A Preferred Stock shall be insufficient to permit the payment to such
holders of the full Series A Preferential Amount, then, the entire assets and
funds of the Corporation legally available for distribution, after completion of
the distribution required by
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subsection (a) above, shall be distributed ratably among the holders of Series A
Preferred Stock in proportion to the number of shares of such Series owned by
each such holder.
(c) Upon the completion of the distribution required by
subsections (a) and (b) above and any other distribution that may be required
with respect to Series of Preferred Stock that may from time to time come into
existence, if assets remain in the Corporation, the holders of the Common Stock
of the Corporation shall be entitled to receive an amount per share equal to the
sum of (i) $0.50 per share of Common Stock, as appropriately adjusted for any
stock dividends, combinations, splits or the like with respect to such shares
(the "Original Common Issue Price"), and (ii) an amount equal to declared and
unpaid dividends on such shares (the "Common Preferential Amount"), subject to
reduction in accordance with the next sentence and subsections V.B.3(a)(i) and
4(e). If assets and funds to be distributed among the holders of the Common
Stock shall be insufficient to permit the payment to such holders of the full
Common Preferential Amount, then, subject to the rights of Series of Preferred
Stock that may from time to time come into existence, the entire assets and
funds of the Corporation legally available for distribution, after completion of
the distributions required by subsections (a) and (b) above, shall be
distributed ratably among the holders of Common Stock in proportion to the
number of shares of Common Stock owned by each such holder.
(d) After the distributions described in subsections (a),
(b) and (c) above have been paid, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Existing Preferred Stock and Common Stock pro rata based on the
number of shares of Common Stock held by each, such that each holder of shares
of Existing Preferred Stock shall be entitled to the same amount of
distributions as would have been paid thereon had such shares been converted
into Common Stock as of the record date fixed for determining the holders of
Common Stock entitled to receive such distribution.
Notwithstanding the foregoing subsections (a) through (d)
above, upon the consummation of a Corporate Transaction (as defined below) in
which the consideration thereunder, net of all direct expenses of the Corporate
Transaction, equals or exceeds $18.75 per share (as adjusted appropriately for
stock dividends, combinations, splits or the like with respect to such shares)
on a fully diluted basis, then in lieu of the distributions set forth in
subsections (a) through (d) above, all proceeds of such Corporate Transaction
shall be distributed (or paid, as the case may be) to the stockholders of the
Corporation pro rata based upon the number of shares of Common Stock owned by
each stockholder (assuming the conversion into Common Stock of all securities
convertible into Common Stock).
(e) (i) For purposes of this Section 1, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, and to include, (A) the acquisition of capital stock of the Corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation but,
excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); (B) a sale of all or substantially all of the
assets of the Corporation; UNLESS the Corporation's stockholders of record as
constituted immediately prior to
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such acquisition or sale will, as a result of such acquisition or sale (by
virtue of securities issued as consideration for the Corporation's acquisition
or sale or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity; or (C) a Triggering Event (as defined in this
subsection (e)(i)). Any such transaction specified in clause (A) or (B) of this
subsection (e)(i) shall be hereinafter referred to as a "Corporate Transaction."
The term "Triggering Event" shall mean any of the following events: (i) the
signing by an authorized officer of the Company of a petition for relief under
Title 11, United States Code, as currently in effect or amended, (ii) the
commencement of any involuntary bankruptcy case or other proceeding against the
Company under Title 11, United States Code, as currently in effect or amended
(provided that if such case or proceeding is dismissed within sixty (60) days
after the date of such commencement, then a Trigging Event arising solely
pursuant to this clause (ii) as a result of such case or proceeding shall be
dismissed) or the appointment of a trustee, receiver, liquidator, custodian or
sequestrator (or other similar official) for the Company or any substantial part
of its property, (iii) the making by the Company of an assignment for the
benefit of creditors generally, or (iv) the Company fails or is unable to pay
its debts generally as they become due.
(ii) In any of such events, if the consideration
received by the Corporation is other than cash, for purposes of determining the
value of any assets (other than cash) of the Corporation which are to be
distributed to the stockholders of the Corporation in any liquidation, winding
up or dissolution (including a Corporate Transaction that is deemed to be a
liquidation, dissolution or winding up of the Corporation pursuant to
Subsection (e)(i)), its value will be deemed to be the fair market value of such
assets, as determined below:
(A) subject to subsection (B) below, the value of
any securities shall be determined as follows:
(1) If such securities are traded on a
securities exchange or through the Nasdaq National Market, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange or market over the thirty (30)-day period ending three (3) days prior
to the closing;
(2) If such securities are actively traded
over-the-counter other than the Nasdaq National Market, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30)-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market for
such securities, the value shall be the fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of the voting power
of all then outstanding shares of Preferred Stock, provided the holders of a
majority of the shares of Series F Preferred Stock vote in favor thereof.
(B) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in subsection (A)(1),
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(2) or (3) to reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of the voting power
of all then outstanding shares of Preferred Stock, provided the holders of a
majority of the shares of Series F Preferred Stock vote in favor thereof.
(C) The value of assets other than securities
will be their fair market value as mutually determined by the Corporation and
the holders of a majority of the voting power of all then outstanding shares of
Preferred Stock, provided the holders of a majority of the shares of Series F
Preferred Stock vote in favor thereof.
(D) If the Corporation and holders of Preferred
Stock are unable to mutually determine the value of any securities or other
assets as provided above, then the fair market value of such securities or other
assets shall be determined as follows:
(1) The Corporation and a representative
(the "Representative") of the holders of a majority of the voting power of all
then outstanding shares of Preferred Stock shall negotiate in good faith to
determine the fair market value of such securities or assets. Such
Representative shall be selected by (x) holders of a majority of the voting
power of all then outstanding shares of Preferred Stock (other than the Series F
and Series J Preferred Stock), (y) holders of a majority of the shares of
Series F Preferred Stock and (z) holders of a majority of the shares of Series J
Preferred Stock. If the holders of Preferred Stock referred to in clauses (x),
(y) and (z) of the preceding sentence are unable to agree upon a Representative
to be selected, they shall each nominate a Representative and the Representative
shall be selected from such nominations by a random selection process reasonably
designated by the Corporation. If the Corporation and the Representative so
agree, the fair market value shall be the amount so agreed upon.
(2) If no such agreement is reached within
thirty (30) days after negotiations commence, the Corporation, on the one hand,
and the Representative, on the other hand, shall within fifteen (15) business
days thereafter each select an investment banker to value such securities or
assets. The Corporation shall give representatives of each investment banker
full access to all information that they may reasonably request concerning the
Corporation. Within thirty (30) days of their selection, each investment banker
must propose a fair market value for such securities or assets.
(3) If the fair market value proposed by the
investment banker selected by the Representative is lower or higher by not more
than 10% of the fair market value proposed by the Corporation's investment
banker, then the fair market value shall be the average of such proposed fair
market values. If, however, the fair market value proposed by the investment
banker selected by the Representative is more than 10% lower or higher than the
fair market value proposed by the Corporation's investment banker, then the
Corporation and the Representative again shall consult as to a fair market
value. If they are unable to agree on a fair market value within fifteen (15)
days after the receipt of the investment bankers' reports, they shall cause
their investment bankers to jointly select a third investment banker who shall
have access to all information it may reasonably request concerning the
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Corporation. If the investment bankers for the Corporation and the
Representative are unable to select a third investment banker, they shall each
nominate a third investment banker and the actual investment banker shall be
selected from such nominations by a random selection process reasonably
designated by the Corporation.
(4) The third investment banker shall within
thirty (30) days after its selection choose the fair market value which best
reflects its professional opinion of the fair market value of such securities or
assets, which value shall be either the fair market value proposed by the
Corporation's investment banker or the fair market value proposed by the
investment banker selected by the Representative and which choice shall be final
and be deemed to be the fair market value. The party whose investment banker's
proposed fair market value was not chosen shall be responsible for all of the
costs and expenses incurred by, and the fees of, the third investment banker.
For such purpose, the holders of the Preferred Stock and Common Stock shall be
deemed to constitute a single party and shall bear the costs, if any, imposed by
the immediately preceding sentence severally in proportion to the number of
shares of Common Stock held (assuming the conversion into Common Stock of all
securities convertible into Common Stock). Otherwise, the Corporation shall be
responsible for all reasonable costs and expenses incurred by the holders and
the Corporation for each of the investment bankers retained in connection with
the Corporation's purchase of the holders' shares of Preferred Stock.
(5) The investment bankers appointed for
purposes of determining the fair market value of such securities or assets may
apply such factors and discounts as are customarily utilized.
(iii) The Corporation shall give each holder of record
of Existing Preferred Stock written notice of any impending Corporate
Transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of such impending transaction
and the provisions of this Section V.B.1, and the Corporation shall thereafter
give such holders prompt notice of any material changes. The transaction shall
in no event take place sooner than twenty (20) days after the Corporation has
given the first notice provided for herein or sooner than ten (10) days after
the Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of (A) holders of Existing Preferred Stock (excluding the Series F-2 Preferred
Stock) that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of Existing Preferred Stock (excluding the Series F-2 Preferred Stock),
(B) holders of a majority of the Series F Preferred Stock (excluding the
Series F-2 Preferred Stock) then outstanding, and (C) holders of a majority of
the Series J Preferred Stock then outstanding.
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(f) The following terms shall have the following meanings:
(i) "Series G Exchange Date" means the date on which
the Corporation issues Series G Preferred Stock pursuant to Section 2 of the
Exchange Agreement.
(ii) "Series H Exchange Date" means the date on which
the Corporation issues Series H Preferred Stock pursuant to Section 3 of the
Exchange Agreement.
(iii) "Exchange Agreement" means that term as defined
in the IWCH Loan Agreement.
(iv) "IWCH Loan Agreement" means the Loan Agreement
dated August 18, 1997 between the Corporation and the lenders named therein.
(v) "IWCH Note Exchange Price" has the meaning set
forth in the Exchange Agreement.
(vi) "IWCH Notes" mean the Notes (as defined in the
IWCH Loan Agreement).
(vii) "PWH Loan Agreement" means the Loan Agreement
dated August 18, 1997 among Pakistan Wireless Holdings Limited and the lenders
named therein.
(viii) "PWH Note Exchange Price" has the meaning set
forth in the Exchange Agreement.
(ix) "PWH Notes" mean the Notes (as defined in the PWH
Loan Agreement).
2. CASH DIVIDENDS. When, as and if declared by the
Corporation's Board of Directors, and subject to the Protective Provisions, for
all cash dividends (except as otherwise provided below), holders of Existing
Preferred Stock shall be entitled to receive cash dividends at the same time and
on the same basis as holders of Common Stock when, as and if declared by the
Corporation's Board of Directors (each holder of shares of Existing Preferred
Stock to be entitled to the same amount of distributions as would have been
declared or paid thereon had such shares been converted into Common Stock as of
the record date fixed for determining the holders of Common Stock entitled to
receive such distribution). Notwithstanding the foregoing, if the aggregate
amount of any single cash dividend (or series of related cash dividends)
proposed to be made pursuant to this Section V.B.2. exceeds two percent (2%) of
the aggregate value of the Corporation, as determined in good faith by the
Corporation's Board of Directors (with the approval of holders of a majority of
the then outstanding shares of Series F Preferred Stock), such distribution
shall be deemed declared and paid pursuant to, and governed by,
Section V.B.4.(e).
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3. REDEMPTION.
(a) (i) On or after the later of (A) such date (the "Note
Payment Date") as all of the Corporation's Senior Secured Discount Notes due
2001 or senior debt securities of the Corporation containing substantially
identical terms issued in exchange therefor (collectively, the "Senior Notes"),
the IWCH Notes and the PWH Notes shall have been repaid in full (whether by
repurchase, redemption, payment at maturity, exchange pursuant to the Exchange
Agreement or otherwise) or (B) December 31, 1998, but within forty-five (45)
days (the "Redemption Date") after the receipt by the Corporation of a written
request from the holders of not less than a majority of all then outstanding
shares of Series B, Series C, Series D, Series E, Series F, Series G, Series H,
Series I and Series J Preferred Stock (voting on an as-converted basis) that
shares of Series B, Series C, Series D, Series E, Series F, Series G, Series H,
Series I and Series J Preferred Stock be redeemed (a "Redemption Request"), the
Corporation shall in accordance with this Section 3, to the extent it may
lawfully do so, redeem all of the shares of Series B, Series C, Series D,
Series E, Series F, Series G, Series H, Series I and Series J Preferred Stock by
paying in cash therefor a sum per share (with respect to each Series of
Preferred Stock, the "Redemption Price") equal to the greater of (1) the then
fair market value of the Series B Preferred Stock on an as-converted basis for
each share of Series B Preferred Stock, the then fair market value of the
Series C Preferred Stock on an as-converted basis for each share of Series C
Preferred Stock, the then fair market value of the Series D Preferred Stock on
an as-converted basis for each share of Series D Preferred Stock, the then fair
market value of the Series E Preferred Stock on an as-converted basis for each
share of Series E Preferred Stock, the then fair market value of the Series F
Preferred Stock on an as-converted basis for each share of Series F Preferred
Stock, the then fair market value of the Series G Preferred Stock on an
as-converted basis for each share of Series G Preferred Stock, the then fair
market value of the Series H Preferred Stock on an as-converted basis for each
share of Series H Preferred Stock, and the then fair market value of the
Series I Preferred Stock on an as-converted basis for each share of Series I
Preferred Stock, and the then fair market value of the Series J Preferred Stock
on an as-converted basis for each share of Series J Preferred Stock, as the case
may be, as determined in accordance with subsection V.B.1.(e)(ii) hereof (except
that, to the extent the holders of Preferred Stock are entitled to vote on any
matters relating to such valuation, only holders of Preferred Stock which is
being redeemed shall be entitled to so vote, and the "closing" as used therein
shall instead refer to the redemption provided for by this subsection 3(a)), or
(2) the full Preferred Preferential Amount (without any reduction pursuant to
V.B.1(a)(vii)) payable in respect of each such Series of Preferred Stock in
accordance with subsection V.B.1(a). All payments by the Corporation in respect
of any redemption shall be made to the holders of the Series F, Series G,
Series H and Series J Preferred Stock and Junior Preferred Stock in the same
priorities or order of distribution and in the same proportions as distributions
of funds and assets are to be made to such holders in the case of a liquidation,
dissolution or winding-up of the Corporation. In the event of a liquidation,
dissolution or winding-up of the Corporation prior to the payment in full of the
Redemption Price for any shares to be redeemed hereunder, the partial payment
hereunder shall be credited toward the payment of the Preferred Preferential
Amount to be paid to the holders of each Series of Preferred Stock.
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(ii) On or after the later of (A) the Note Payment
Date or (B) December 31, 2000, but within forty-five (45) days (a "Series F
Redemption Date") after the receipt by the Corporation of a written request from
the holders of not less than a majority of the then outstanding shares of
Series F Preferred Stock that shares of Series F Preferred Stock be redeemed (a
"Series F Redemption Request"), the Corporation shall in accordance with this
Section 3, to the extent it may lawfully do so, redeem all of the shares of
Series F Preferred Stock by paying in cash therefor at the Redemption Price of
the Series F Preferred Stock.
(iii) Upon the occurrence of a Change of Control (as
defined in the Securities Purchase Agreement dated as of December 6, 1995 among
the Corporation and the investors named therein (the "Securities Purchase
Agreement")) that is not approved by all of the Series F Directors (as defined
in subsection V.B.5(b)), then the holders of a majority of the shares of
Series F Preferred Stock then outstanding shall have the right, by providing to
the Corporation a Series F Redemption Request, to require the Corporation, on or
after the Note Payment Date, to redeem immediately, to the extent it may
lawfully do so, all of the shares of Series F Preferred Stock then outstanding,
at a price per share equal to the Redemption Price of the Series F Preferred
Stock on the date of redemption (a "Series F Redemption Date").
(iv) On or after the later of (A) the Note Payment
Date, (B) the Series G Exchange Date (in the case of Series G Preferred Stock)
or the Series H Exchange Date (in the case of Series H Preferred Stock),
(C) December 31, 1998 and (D) the first date upon which holders of Series F
Preferred Stock shall be entitled to make a redemption request pursuant to
subsection V.B.3(a)(ii) or (iii) above, but within 45 days (a "Series G/H
Redemption Date") after the receipt by the Corporation of a written request from
the holders of not less than the majority of the then outstanding shares of
Series G or Series H Preferred Stock that shares of Series G or Series H
Preferred Stock, respectively, be redeemed (a "Series G/H Redemption Request"),
the Corporation shall in accordance with this Section 3, to the extent it may
lawfully do so, redeem all of the shares of the Series G Preferred Stock or the
Series H Preferred Stock, as appropriate, by paying in cash therefor at the
Redemption Price of the Series G Preferred Stock and the Series H Preferred
Stock, respectively.
(v) On or after the later of (A) the Note Payment
Date or (B) December 31, 2001, but within 45 days (a "Series J Redemption Date")
after the receipt by the Corporation of a written request from the holders of
not less than a majority of the then outstanding shares of Series J Preferred
Stock that shares of Series J Preferred Stock be redeemed (a "Series J
Redemption Request"), the Corporation shall in accordance with this Section 3,
to the extent it may lawfully do so, redeem all of the shares of the Series J
Preferred Stock by paying in cash therefor at the Redemption Price of the
Series J Preferred Stock.
(vi) In the case of any redemption request made by
holders of a majority of the Series F, Series G, Series H or Series J Preferred
Stock pursuant to subsection V.B.3(a)(ii), (iii), (iv) or (v), as appropriate,
the holders of a majority of the shares of each such other Series (e.g., the
holders of the Series G, Series H and Series J Preferred Stock, if the
redemption request is given by the holders of a majority of the Series F
Preferred Stock) will
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be deemed to have made a redemption request pursuant to subsection V.B.3(a)(ii),
(iii), (iv) or (v), as appropriate, unless, with respect to each such other
Series, holders of a majority of the shares of such other Series decline such
redemption by giving the Corporation written notice to that effect within 10
days after delivery of the related Redemption Notice (as defined below in
Section V.B.3(b) below). Such deemed redemption request shall be a valid
Series F Redemption Request, Series G/H Redemption Request, or Series J
Redemption Request, as appropriate, notwithstanding any failure to satisfy the
time requirements of subsections V.B.3(a)(ii), (iii), (iv), or (v),
respectively. If redemptions pursuant to two or more of subsections
V.B.3(a)(ii), (iii), (iv) and (v) above occur on the same date, the order and
priority of payment of the liquidation preference provisions provided in
Section V.B.1 above shall apply.
(b) Within ten (10) days after receipt of a Redemption
Request, a Series F Redemption Request, a Series G/H Redemption Request or a
Series J Redemption Request, written notice shall be mailed, first class postage
prepaid, by the Corporation to each holder of record (at the close of business
on the business day next preceding the day on which notice is given) of
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J Preferred Stock, in the case of a redemption pursuant to
subsection V.B.3(a)(i), or to each holder of Series F, Series G, Series H and
Series J Preferred Stock in the case of a redemption pursuant to subsection
V.B.3(a)(ii), (iii), (iv) or (v), as the case may be, at the address last shown
on the records of the Corporation for such holder, notifying such holder of the
redemption to be effected, specifying the Redemption Date, Series F Redemption
Date, Series G/H Redemption Date and Series J Redemption Date, as the case may
be, the Redemption Price, the place at which payment may be obtained and calling
upon such holder to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as provided in subsection 3(c)
below, on or after the Redemption Date, Series F Redemption Date, Series G/H
Redemption Date or Series J Redemption Date, as the case may be, each holder of
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J Preferred Stock to be redeemed, in the case of a redemption
pursuant to subsection V.B.3(a)(i), or each holder of Series F, Series G,
Series H and Series J Preferred Stock to be redeemed in the case of a redemption
pursuant to subsection V.B.3(a)(ii), (iii), (iv), (v) or (vi), as the case may
be, shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the respective Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled.
(c) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of a holder
of shares of Series B, Series C, Series D, Series E, Series F, Series G,
Series H, Series I and Series J Preferred Stock as a holder of such Preferred
Stock (except the right to receive the Redemption Price without interest upon
surrender of such holder's certificate or certificates) shall cease with respect
to such shares, and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
From and after a Series F Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of a holder of shares of
Series F Preferred Stock as a holder of such Preferred
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Stock (except the right to receive the Redemption Price without interest upon
surrender of such holder's certificate or certificates) shall cease with respect
to such shares, and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
From and after the Series G/H Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of a holder of shares of
Series G or Series H Preferred Stock, as the case may be, as a holder of such
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of such holder's certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred in the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. From and after the Series J Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of a holder of shares of Series J Preferred Stock as a holder of such Preferred
Stock (except the right to receive the Redemption Price without interest upon
surrender of such holder's certificate or certificates) shall cease with respect
to such shares, and such shares shall not thereafter be transferred in the books
of Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J Preferred Stock on any Redemption Date, or of shares of the
Series F, Series G, Series H and/or Series J Preferred Stock to be redeemed
(including, without limitation, pursuant to subsection V.B.3(a)(vi) above) on
any Series F Redemption Date, Series G/H Redemption Date or Series J Redemption
Date, as the case may be, are insufficient to redeem the total number of shares
of Series B, Series C, Series D, Series E, Series F, Series G, Series H,
Series I and Series J Preferred Stock to be redeemed on such date, as the case
may be, those funds which are legally available will be used to redeem shares of
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J Preferred Stock to be redeemed in the order and in the priorities
set forth in subsection V.B.3(a) above. The shares of Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such shares of Preferred
Stock, such funds will immediately be used to redeem the balance of the shares
which the Corporation has become obliged to redeem on any Redemption Date,
Series F Redemption Date, Series G/H Redemption Date or Series J Redemption
Date, but which it has not redeemed.
(d) On or prior to the Redemption Date, a Series F
Redemption Date, a Series G/H Redemption Date or a Series J Redemption Date, as
the case may be, the Corporation shall deposit the respective Redemption Price
of all shares of Preferred Stock designated for redemption in the Redemption
Notice, and not yet redeemed or converted, with a bank or trust corporation
having aggregate capital and surplus in excess of $100,000,000 as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed, with irrevocable instructions and authority to
the bank or trust corporation to pay the Redemption Price for such shares to
their respective holders on or after the Redemption Date, a Series F
Redemption Date, a Series G/H Redemption Date or a Series J Redemption Date, as
the case may be, upon receipt of notification from the Corporation that such
holder has surrendered his, her or its share certificate to the Corporation
pursuant to subsection V.B.3(b) above. From and after the date of the deposit
the shares so called for redemption shall be redeemed, and as of the date of
such deposit, (but only after the Redemption Date, a Series F
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Redemption Date, a Series G/H Redemption Date or a Series J Redemption Date,
as the case may be), the deposit shall constitute full payment of the shares
to their holders, and the shares shall be deemed to be no longer outstanding,
and the holders thereof shall cease to be stockholders with respect to such
shares and shall have no rights with respect thereto except the rights to
receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificates therefor.
Such instructions shall also provide that any moneys deposited by the
Corporation pursuant to this subsection 3(d) for the redemption of shares
thereafter converted into shares of the Common Stock pursuant to Section
V.B.4 below prior to the Redemption Date, a Series F Redemption Date, a
Series G/H Redemption Date or a Series J Redemption Date, as the case may be,
shall be returned to the Corporation forthwith upon such conversion. The
balance of any moneys deposited by the Corporation pursuant to this
subsection 3(d) remaining unclaimed at the expiration of two (2) years
following the Redemption Date, a Series F Redemption Date, a Series G/H
Redemption Date or a Series J Redemption Date, as the case may be, shall
thereafter be returned to this Corporation upon its request expressed in a
resolution of its Board of Directors.
4. CONVERSION. The holders of Existing Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a1) RIGHT TO CONVERT. Each share of Series A Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Class 1 Common Stock as is determined by dividing the
Original Series A Issue Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Class 1 Common Stock as is determined by dividing the Original Series B Issue
Price by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
Each share of Series C Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Class 1 Common Stock as is determined
by dividing the Original Series C Issue Price by the Conversion Price applicable
to such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Each share of Series D Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Class 1 Common Stock as is determined by dividing the
Original Series D Issue Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. Each share of Series E Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Class 1 Common Stock as is determined by dividing the Original
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Series E Issue Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. Each share of Series F-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Class 1 Common Stock as is determined by dividing the Original Series F Issue
Price by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
Each share of Series F-2 Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Class 2 Common Stock (or, subject to
subsection V.B.4(a2) below, Class 1 Common Stock) as is determined by dividing
the Original Series F Issue Price by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. Each share of Series G-1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Class 1 Common Stock as is determined by dividing the Original Series G Issue
Price by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
Each share of Series G-2 Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Class 2 Common Stock (or, subject to
subsection V.B.4(a2) below, Class 1 Common Stock) as is determined by dividing
the Original Series G Issue Price by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. Each share of Series H-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Class 1 Common Stock as is determined by dividing the Original Series H Issue
Price by the Conversion Price applicable to such share, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
Each share of Series H-2 Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Class 2 Common Stock (or, subject to
subsection V.B.4(a2) below, Class 1 Common Stock) as is determined by dividing
the Original Series H Issue Price by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. Each share of Series I Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the close of
business on the Series I Adjustment Date (as defined below), at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Class 1 Common Stock as is determined by
dividing the Original Series I Issue Price by the Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Each share of Series J Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for such stock, into such number of
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fully paid and nonassessable shares of Class 1 Common Stock as is determined by
dividing the Original Series J Issue Price by the Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price; the initial Conversion Price per share for shares of Series B
Preferred Stock shall be the Original Series B Issue Price; the initial
Conversion Price per share for shares of Series C Preferred Stock shall be the
Original Series C Issue Price; the initial Conversion Price per share for shares
of Series D Preferred Stock shall be the Original Series D Issue Price; the
initial Conversion Price per share for shares of Series E Preferred Stock shall
be the Original Series E Issue Price; the initial Conversion Price per share for
shares of Series F Preferred Stock shall be the Original Series F Issue Price;
the initial Conversion Price per share for shares of Series G Preferred Stock
shall be the Original Series G Issue Price; the initial Conversion Price per
share for shares of Series H Preferred Stock shall be the Original Series H
Issue Price; the initial Conversion Price per share for shares of Series I
Preferred Stock shall be the Original Series I Issue Price; and the initial
Conversion Price per share for shares of Series J Preferred Stock shall be the
Original Series J Issue Price; provided, however, that the Conversion Price for
each Series of Existing Preferred Stock shall be subject to applicable
adjustment as set forth in subsection V.B.4(d) below and, to the extent
applicable, subsection V.B.4(a3) and (a4) below.
In addition, each share of Series F-2 Preferred Stock shall,
subject to compliance with subsection V.B.4(a2) below, be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into one (1) fully paid and nonassessable share of Series F-1 Preferred
Stock, each share of Series G-2 Preferred Stock shall, subject to compliance
with subsection V.B.4(a2) below, be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office
of the Corporation or any transfer agent for such stock, into one (1) fully
paid and nonassessable share of Series G-1 Preferred Stock, and each share of
Series H-2 Preferred Stock shall, subject to compliance with subsection
V.B.4(a2) below, be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into one (1) fully paid and
nonassessable share of Series H-1 Preferred Stock.
(a2) ADDITIONAL RESTRICTION ON CONVERSION OF SERIES F-2,
G-2 AND H-2 PREFERRED STOCK.
(i) Upon the occurrence (or the expected occurrences
described in subsection V.B.4(a2)(iii) below) of any Conversion Event (as
defined below), each holder of Series F-2, G-2 and H-2 Preferred Stock shall be
entitled to convert any or all of the shares of such holder's Series F-2, G-2 or
H-2 Preferred Stock being (or expected to be) distributed, disposed of or sold
in connection with such Conversion Event into (a) the same number of shares of
Class 1 Common Stock as the number of shares of Class 2 Common Stock into which
such shares of Series F-2, G-2 or H-2 Preferred Stock, respectively, would
otherwise have been convertible pursuant to subsection V.B.4(a1) above or
(b) the same number of shares of Series F-1, Series G-1 or Series H-1 Preferred
Stock, respectively, as the number of shares of
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Series F-2, G-2 or H-2 Preferred Stock, respectively, being so converted
pursuant to subsection V.B.4(a1) above.
(ii) A "Conversion Event" shall mean (a) any sale of
securities in any public offering or public sale of securities of the
Corporation (including a public offering registered under the Securities Act of
1933, as amended, and a public sale pursuant to Rule 144 of the Securities and
Exchange Commission or any similar rule then in force), (b) any sale of
securities of the Corporation (including by virtue of a merger, consolidation or
similar transaction involving the Corporation) to a person or group of persons
(within the meaning of the Securities Exchange Act of 1934, as amended (the
"1934 Act")) if, after such sale, such person or group of persons in the
aggregate would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the Corporation's directors
(provided that such sale has been approved by the Corporation's Board of
Directors or a committee thereof), (c) any sale of securities of the Corporation
(including by virtue of a merger, consolidation or similar transaction involving
the Corporation) to a person or group of persons (within the meaning of the 1934
Act) if, after such sale, such person or group of persons in the aggregate would
own or control securities of the Corporation (excluding any Class 2 Common Stock
being converted and disposed of in connection with such Conversion Event) which
possess in the aggregate the ordinary voting power to elect a majority of the
Corporation's directors, or (d) any sale of securities of the Corporation to a
person or group of persons (within the meaning of the 1934 Act) if, after such
sale, such person or group of persons in the aggregate would not own, control or
have the right to acquire more than two percent (2%) of the outstanding
securities of any class of voting securities of the Corporation. "Person" shall
include any natural person and any corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization and any other entity
or organization.
(iii) Each holder of Series F-2, G-2 and H-2 Preferred
Stock shall be entitled to convert such shares of Preferred Stock in connection
with any Conversion Event if such holder reasonably believes that such
Conversion Event will be consummated. A written request for conversion from any
holder of Series F-2, G-2 or H-2 Preferred Stock to the Corporation stating such
holder's reasonable belief that a Conversion Event will occur shall be
conclusive and shall obligate the Corporation to effect such conversion in a
timely manner so as to enable each such holder to participate in such Conversion
Event. The Corporation will not cancel the shares of Series F-2, G-2 or H-2
Preferred Stock so converted before the tenth day following such Conversion
Event and will reserve such shares until such tenth day for reissuance in
compliance with the next sentence. If any shares of Series F-2, G-2 or H-2
Preferred Stock are converted into shares of Class 1 Common, Series F-1
Preferred Stock, Series G-1 Preferred Stock or Series H-1 Preferred Stock, as
the case may be, in connection with a Conversion Event and such shares of
capital stock are not actually distributed, disposed of or sold pursuant to such
Conversion Event, such shares of capital stock shall be promptly converted back
into the same number of shares of Series F-2, G-2 and H-2 Preferred Stock, as
the case may be.
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(a3) SPECIAL ADJUSTMENT OF SERIES I PREFERRED STOCK
CONVERSION PRICE.
(i) The following terms shall have the following
meanings:
(A) "Series I Adjustment Date" means the date
which is the earlier of (i) the date on which a Series I Valuation Event occurs
or (ii) December 1, 1998.
(B) [intentionally left blank]
(C) "RMD Agreement" means the Agreement and Plan
of Merger dated as of November 22, 1997 among the Corporation, RMD Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of the Corporation,
and Radio Movil Digital Americas, Inc.
(D) "Series I Valuation Event" means (i) any IPO
(as defined in the RMD Merger Agreement), or (ii) any Corporate Transaction.
Notwithstanding the foregoing, if the consideration received by the stockholders
in connection with such Corporate Transaction is not cash or securities that are
salable in a securities market without restriction (other than restrictions on
transfer that lapse within 180 days after the closing of such Corporate
Transaction or restrictions arising solely by virtue of a stockholder's status
as an affiliate or former affiliate), then such Corporate Transaction (a
"Private Corporate Transaction") shall be deemed to constitute a Series I
Valuation Event only if holders of more than fifty percent (50%) of the then
outstanding shares of Series I Preferred Stock consent to such Private Corporate
Transaction constituting a Series I Valuation Event.
(E) "Series I Valuation Price" with respect to
any Series I Valuation Event means:
(i) in the case of any IPO, the gross sale
price offered to the public (before any underwriting discount or commission) of
the Corporation's Common Stock in the IPO; and
(ii) in the case of any Corporate
Transaction described in clause (ii) of the definition of the term "Series I
Valuation Event," the price per share of the Corporation's Common Stock (taking
into account cash consideration and the fair market value of all consideration
other than cash) reflected in such Corporate Transaction as determined in
accordance with Section V.B.1(e)(ii), provided that in the case of a Private
Corporate Transaction holders of a majority of the then outstanding Series I
Preferred Stock consent to the calculation of such price per share.
(ii) (A) If a Series I Valuation Event occurs on or
before the close of business on December 1, 1998, the Conversion Price for the
Series I Preferred Stock in effect immediately prior to a Series I Valuation
Event shall be adjusted to a price equal
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to the Series I Valuation Price, provided that no adjustment pursuant to this
subsection V.B.4(a3)(ii)(A) shall be made after the first Series I Valuation
Event.
(B) If no Series I Valuation Event occurs on or
before the close of business on December 1, 1998, the Conversion Price for the
Series I Preferred Stock in effect immediately prior to such time shall be
adjusted to a price equal to the lower of (i) $12.48 (as appropriately adjusted
pursuant to Section V.B.4(d) for any transactions specified in subsections (i),
(iii) and (iv) thereof that occur after the Effective Time (as defined in the
RMD Agreement) assuming for purposes of such adjustment that the Conversion
Price of the Series I Preferred Stock at the Effective Time equals such price)
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 IPO, as filed
with the Securities and Exchange Commission, if such registration statement
includes a pricing range (as appropriately adjusted pursuant to
Section VI.B.4(d) for any transactions specified in subsections (i), (iii) and
(iv) thereof that occur after the Effective Time assuming for purposes of such
adjustment that the Conversion Price of the Series I Preferred Stock Time at the
Effective Time equals such price).
Notwithstanding the foregoing, in the event of any distribution covered by
Section V.B.4(e) on or before the close of business on the earlier of (i)
December 1, 1998 and (ii) the Series I Adjustment Date, the Conversion Price for
the Series I Preferred Stock calculated pursuant to this Section V.B.4(a3)(ii)
shall equal the sum of (i) the Conversion Price per share of Series I Preferred
Stocks calculated pursuant to this Section V.B.4(a3)(ii) without regard to this
sentence, and (ii) the value of such distribution per share of Series I
Preferred Stock (as determined in good faith by the Corporation's Board of
Directors).
(a4) SPECIAL ADJUSTMENT OF SERIES J PREFERRED STOCK
CONVERSION PRICE.
(i) The following terms shall have the following
meanings:
(A) "Series J Adjustment Date" means the first
date on which a Series J Valuation Event occurs.
(B) "Series J Valuation Event" means (i) any
public or private issuance, or sale or series of related issuances and sales, of
equity securities of the Corporation (an "Equity Issuance") which results in
aggregate gross cash proceeds to the Corporation equal to not less than the
product of (A) the number of shares of Series J Preferred Stock originally
issued by the Corporation (regardless of whether such shares are converted into
Class 1 Common Stock or repurchased or the number of such outstanding shares is
adjusted as a result of any stock dividend, combination, split or the like)
multiplied by (B) $12.67, or (ii) any Corporate Transaction.
(C) "Series J Valuation Price" with respect to
any Series J Valuation Event means:
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(i) in the case of any Equity Issuance, the
gross sale price per share (before any discount or commission) of the equity
security of the Corporation issued and sold in such Equity Issuance; and
(ii) in the case of any Corporate
Transaction the price per share of the Corporation's Common Stock (taking into
account cash consideration and the fair market value of all consideration other
than cash and assuming the exercise and/or conversion of all outstanding
exercisable and/or convertible securities of the Corporation) reflected in such
Corporate Transaction as determined in accordance with Section V.B.1(e)(ii),
provided that holders of a majority of the then outstanding Series J Preferred
Stock consent to the calculation of such price per share.
(ii) At the close of business on the Series J
Adjustment Date, the Conversion Price for the Series J Preferred Stock in effect
immediately prior to the Series J Valuation Event shall be adjusted to a price
equal to the Series J Valuation Price, provided that no adjustment pursuant to
this subsection V.B.4(a4)(ii) shall be made after the first Series J Valuation
Event.
Notwithstanding the foregoing, in the event of any distribution covered by
Section V.B.4(e) on or before the close of business on the Series J Adjustment
Date, the Conversion Price for the Series J Preferred Stock calculated pursuant
to this Section V.B.4(a4)(ii) shall equal the sum of (i) the Conversion Price
per share of Series J Preferred Stock calculated pursuant to this
Section V.B.4(a4)(ii) without regard to this sentence, and (ii) the value of
such distribution per share of Series J Preferred Stock (as determined in good
faith by the Corporation's Board of Directors).
(b) AUTOMATIC CONVERSION. Each share of Existing Preferred
Stock (other than Series F-2, G-2 and H-2 Preferred Stock) shall automatically
be converted into shares of Class 1 Common Stock, and each share of Series F-2,
G-2 and H-2 Preferred Stock shall automatically be converted into shares of
Class 2 Common Stock, at the then effective Conversion Price immediately upon,
except as provided in subsection V.B.4(c) below, the Corporation's sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended (a "Public
Offering"), the public offering per share price of which is not less than two
times the then applicable Conversion Price for the Series D Preferred Stock and
the aggregate offering price of which is not less than $8,000,000, provided that
upon such Public Offering (i) the shares of Series F Preferred Stock shall not
automatically be converted into Common Stock unless the following shall occur (a
"Threshold Public Offering"): (A) the Public Offering is consummated on or
prior to December 31, 1998, (B) the Public Offering per share price is at least
two times the Original Series F Issue Price and (C) the aggregate offering price
is not less than $25,000,000 and (ii) the shares of Series G, Series H and
Series J Preferred Stock shall not be automatically converted into Common Stock
unless all other shares of Preferred Stock are converted into Common Stock at
the consummation of such Public Offering. The provisions of this subsection
V.B.4(b) shall not limit or restrict in any way the Conversion Rights of each
holder under subsection (a1) or (a2) above.
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(c) MECHANICS OF CONVERSION. Before any holder of Existing
Preferred Stock shall be entitled to convert the same into shares of Common
Stock (or, if applicable, Series F-1, G-1 or H-1 Preferred Stock) pursuant to
subsection (a1) or subsection (a2) (collectively "subsection (a)" above), or in
the event that any Existing Preferred Stock is automatically converted pursuant
to subsection (b) above, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock. If the conversion is pursuant to
subsection (a) above, the holder electing to convert any Existing Preferred
Stock shall give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock (or,
if applicable, Series F-1, G-1 or H-1 Preferred Stock) are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
(or, if applicable, Series F-1, G-1 or H-1 Preferred Stock) to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock (or, if applicable, Series F-1,
G-1 or H-1 Preferred Stock) issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock (or,
if applicable, Series F-1, G-1 or H-1 Preferred Stock) as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Existing Preferred Stock (including
Series F-2, Series G-2 or Series H-2 Preferred Stock) for conversion, be
conditioned upon the closing with the underwriter(s) of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Existing Preferred Stock shall not be deemed
to have converted such Series of Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of
the Existing Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) Subject to subsection V.B.4(d)(i)(B), if the
Corporation shall issue, after the time this Amended and Restated Certificate of
Incorporation becomes effective ("Effective Time"), any Additional Stock (as
defined below) without consideration or for a consideration per share less than
the applicable Conversion Price for such Series of Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the applicable
Conversion Price:
(i) for the Series B, Series C, Series D,
Series E, Series F, Series I, and Series J Preferred Stock in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in
this clause (i)) be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock which would be outstanding immediately prior to such
issuance assuming the conversion of all outstanding shares of Preferred Stock
into Common
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Stock (not including shares excluded from the definition of Additional Stock by
subsection V.B.4(d)(ii)) plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock which would be outstanding immediately prior to
such issuance assuming the conversion of all outstanding shares of Preferred
Stock into Common Stock (not including shares excluded from the definition of
Additional Stock by subsection V.B.4(d)(ii)) plus the number of shares of such
Additional Stock;
(i) for the Series G Preferred Stock in
effect immediately prior to such issuance shall forthwith (except as otherwise
provided in this clause (ii)) be adjusted to a price equal to the average
consideration per share received by the Corporation for such issuance of
Additional Stock (but in no event less than $0.01 per share); provided, however,
that no adjustment shall be made for any issuance of Additional Stock before the
Series G Exchange Date.
(ii)for the Series H Preferred Stock in
effect immediately prior to such issuance shall forthwith (except as otherwise
provided in this clause (iii)) be adjusted to a price equal to the average
consideration per share received by the Corporation for such issuance of
Additional Stock (but in no event less than $0.01 per share); provided that no
adjustment shall be made for any issuance of Additional Stock before the
Series H Exchange Date.
(B) No adjustment of the Conversion Price for the
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
or Series J Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be taken into account in any
subsequent adjustment. Notwithstanding the foregoing, if a Series I Valuation
Event occurs on or before December 1, 1998, any adjustment to the Conversion
Price for the Series I Preferred Stock as a result of any issuance of Additional
Stock that occurs on or before the Series I Adjustment Date shall be disregarded
and given no effect (it being understood that this sentence shall not apply and
such adjustment shall not be disregarded and given no effect as a result of an
adjustment to the Conversion Price of the Series I Preferred Stock pursuant to
Section V.B.4(a3)(ii)(B)). Except to the limited extent provided for in
subsections (E)(3) and (E)(4) below, no adjustment of such Conversion Price
pursuant to this subsection V.B.4(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash
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shall be deemed to be the fair value thereof as determined in good faith by the
Corporation's Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before,
on or after the Effective Time) of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including, without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections V.B.4(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation
upon the issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account potential
antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections V.B.4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B, Series C, Series D, Series E, Series F,
Series G, Series H, Series I or Series J Preferred Stock, to the extent in any
way affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
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(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series B, Series C, Series D, Series E,
Series F, Series G, Series H, Series I or Series J Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to
subsections V.B.4(d)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
subsection V.B.4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
V.B.4(d)(i)(E)) by the Corporation after the Effective Time other than
(A) shares of Common Stock issued pursuant to
a transaction described in subsection V.B.4(d)(iii), (e) or (f) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of the Corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the stockholders and the Board
of Directors of the Corporation at any time when the total number of shares of
Common Stock so issuable or issued (and not repurchased at cost by the
Corporation in connection with the termination of employment) does not exceed
3,000,000 (as appropriately adjusted for any stock dividends, combinations,
splits or the like with respect to shares of Common Stock) plus such additional
number of shares of Common Stock as shall be approved by holders of at least
sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
and Series J Preferred Stock;
(C) shares of Common Stock or Existing Preferred
Stock issuable as a result of the conversion of any shares of Existing Preferred
Stock;
(D) shares of Common Stock issued or deemed
issued to a corporation, partnership or other entity with which the Corporation
has a partnership, joint venture or other business relationship, provided that
such issuances are for other than primarily equity financing purposes; provided
that holders of at least eighty percent (80%) of the Series F Preferred Stock
then outstanding shall have consented thereto in writing;
(E) shares of Common Stock issued or deemed
issued in connection with the acquisition by the Corporation of the stock or
assets of another
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corporation, partnership or other entity; provided that holders of at least
eighty percent (80%) of the Series F Preferred Stock then outstanding shall have
consented thereto in writing;
(F) shares of Common Stock issued or deemed
issued in connection with any equipment lease financing or the incurrence by the
Corporation of any indebtedness for money borrowed; provided that holders of at
least eighty percent (80%) of the Series F Preferred Stock then outstanding
shall have consented thereto in writing;
(G) shares of Common Stock issued or deemed
issued by the Corporation in connection with the merger of a wholly owned
subsidiary of the Corporation with and into International Wireless
Communications, Inc. (including shares of Common Stock (aa) issued or issuable
upon the exercise of options assumed in such merger (bb) issued or issuable upon
the conversion of Preferred Stock issued in such merger and (cc) issued and
issuable upon the exercise of warrants assumed in such merger);
(H) shares of Common Stock issued or deemed
issued pursuant to warrants issued by the Corporation in connection with the
Senior Notes or pursuant to (aa) the IWCH Loan Agreement, (bb) the PWH Loan
Agreement, (cc) the Reimbursement Agreement dated September 18, 1997 between IWC
China Limited and Vanguard Cellular Operating Corp., (dd) the Series J Preferred
Stock and Warrant Purchase Agreement dated March 10, 1998 among the Corporation
and the Investors named therein, including Vanguard Cellular Operating Corp., or
(ee) the Support Services Agreement dated March 10, 1998 among the Corporation
and Vanguard China, Inc.
(I) shares of Common Stock issued or issuable for
the purchase from Continental Communications Limited of shares of Pakistan
Mobile Communications Limited; or
(J) shares of Series I Preferred Stock or Common
Stock issued or issuable in connection with the transactions contemplated by the
RMD Agreement.
(iii) Subject to the following sentence, in the event
the Corporation should at any time or from time to time after the Effective Time
fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Existing Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such Series shall be increased in
proportion to such increase of the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
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with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
subsection V.B.4(d)(i)(E). Notwithstanding the foregoing, upon the occurrence
of a Series I Valuation Event, any adjustment of the Conversion Price for the
Series I Preferred Stock as a result of any such split, subdivision, dividend or
other distribution that occurs on or before the close of business on the date on
which a Series I Valuation Event occurs shall be disregarded and given no effect
(it being understood that this sentence shall not affect any adjustment pursuant
to subsection V.B.4(a3)(ii)(B) as a result of any such split, subdivision,
dividend or other distribution).
(iv) Subject to the following sentence, if the number
of shares of Common Stock outstanding at any time after the Effective Time is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Price for the
Existing Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such Series shall
be decreased in proportion to such decrease in outstanding shares.
Notwithstanding the foregoing, no adjustment of the Conversion Price for the
Series I Preferred Stock shall be made for any such combination that occurs on
or before the Series I Adjustment Date.
(e) OTHER DISTRIBUTIONS. Subject to the following
sentence, in the event the Corporation shall declare a distribution payable in
securities of other Persons, evidences of indebtedness issued by the Corporation
or other Persons, assets (excluding cash dividends, except as otherwise provided
in Section V.B.2) or options or rights not referred to in subsection
V.B.4(d)(iii), then, in each such case for the purpose of this subsection 4(e),
the holders of the Existing Preferred Stock shall be entitled to a share of any
such distribution as follows: All such distributions shall be made to the
holders of the Preferred Stock and the Common Stock in the same priorities and
order of distribution and in the same proportions as distributions of funds and
assets are to be made in the case of a liquidation, dissolution or winding-up of
the Corporation. All amounts so distributed to the holders of any Series of
Preferred Stock or Common Stock, as the case may be, in accordance therewith
shall be credited toward the payment of the Preferred Preferential Amount, the
Series A Preferential Amount or Common Preferential Amount, as the case may be,
to be paid to the holders of each Series of Preferred Stock or Common Stock, as
the case may be. If any dividends are declared which are payable in shares of
Common Stock, then dividends shall be declared which are payable at the same
rate on both classes of Common Stock and the dividends payable in shares of
Class 1 Common Stock shall be payable to holders of Class 1 Common Stock and the
dividends payable in shares of Class 2 Common Stock shall be payable to holders
of Class 2 Common Stock. If any dividends on any Preferred Stock consist of
voting securities of the Corporation, then the Corporation shall make available
to each holder of Series F-2, Series G-2 and Series H-2 Preferred Stock, at such
holder's request, dividends consisting of securities of the Corporation having
voting rights comparable to the Series F-2, Series G-2 or Series H-2 Preferred
Stock, as the case may be, and which are otherwise identical to such voting
securities and which are convertible into or exchangeable for such voting
securities on the same terms as Series F-2,
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Series G-2 or Series H-2 Preferred Stock, as the case may be, are convertible
into Class 1 Common.
(f) RECAPITALIZATIONS. Subject to the following sentence,
if at any time or from time to time there shall be a recapitalization of the
Common Stock (other than a subdivision, combination or merger, sale of assets or
other transaction provided for elsewhere in this Section 4 or in Section 2)
provision shall be made so that the holders of the Existing Preferred Stock
shall thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property of the Corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization (provided, in the case of any
such recapitalization occurring on or before the close of business on the
Series I Adjustment Date, the number of shares of Common Stock issuable upon
conversion of each share of Series I Preferred Stock shall be the number of
shares of Common Stock issuable upon such conversion immediately after the close
of business on the Series I Adjustment Date). In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Existing Preferred Stock after
the recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Existing Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Existing Preferred Stock against
impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Existing Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Existing Preferred Stock pursuant to
this Section 4, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock of a Series of which the applicable
Conversion Price has been adjusted a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
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readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Existing Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth such adjustment and
readjustment, the Conversion Price for such Series of Preferred Stock at the
time in effect, and the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of a
share of each Series of Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Existing Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Existing Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Existing Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Existing Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Existing Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to this Amended and Restated Certificate of Incorporation.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, by registered or certified
mail, postage prepaid, by courier or by facsimile (with confirmation of
receipt), and in each case addressed to each holder of record at his address
appearing on the books of the Corporation.
5. VOTING RIGHTS.
(a) Except as otherwise provided herein, the holder of each
share of Existing Preferred Stock (other than the Series F-2 , G-2 and H-2
Preferred Stock) shall have the right to one vote for each share of Common Stock
into which such Series of Preferred Stock could then be converted (or, with
respect to the Series I Preferred Stock, would be converted were such Series I
Preferred Stock convertible into Common Stock at the time of the applicable
vote), and with respect to such vote, such holder shall have full voting rights
and
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powers not less than the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Existing Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half being rounded
upward). Notwithstanding the foregoing, but in addition to any approval
requirements provided for in subsection V.B.6 or V.C.5, the approval of the
holders of a majority of the outstanding shares of Series F-2, G-2 or H-2
Preferred Stock, as the case may be, shall be required for any merger or
consolidation of the Corporation with or into another entity or entities, any
sale of all or substantially all of the Corporation's assets or any
recapitalization or reorganization, if as a result of any of the foregoing the
shares of such Series would receive or be exchanged for consideration different
on a per share basis than the consideration received with respect to or in
exchange for shares of Series F-1, G-1 or H-1 Preferred Stock, as the case may
be, or would otherwise be treated differently from shares of Series F-1,
Series G-1 or Series H-1 Preferred Stock, respectively, in connection with such
transaction, except that shares of Series F-2, G-2 and H-2 Preferred Stock may
(and, at the request of the holders of a majority of the shares of such Series,
shall), without such a separate class vote, receive or be exchanged for
securities having voting rights comparable to the Series F-2, Series G-2 or
Series H-2 Preferred Stock, as the case may be, and which are otherwise
identical on a per share basis in amount and form to the voting securities
received with respect to or exchanged for Series F-1, G-1 and H-1 Preferred
Stock, as the case may be, so long as (i) such non-voting securities are
convertible into such voting securities on the same terms as Series F-2, G-2 and
H-2 Preferred Stock, as the case may be, is convertible into Class 1 Common
Stock and (ii) all other consideration is equal on a per share basis.
(b) The holders of the Series E Preferred Stock, voting
separately as a class, shall be entitled to elect three (3) directors at each
annual meeting of stockholders of the Corporation at which any director is
elected or at the time of any written consent to action in lieu of any such
meeting. For so long as 20% of the shares of Series F Preferred Stock issued on
the Closing Date (as defined in the Securities Purchase Agreement), pursuant to
the Securities Purchase Agreement remain outstanding, the holders of the
Series F-1 Preferred Stock, voting separately as a class, shall be entitled to
elect at least three (3) directors (the "Series F Directors") at each annual
meeting of stockholders of the Corporation at which any director is elected or
at the time of any written consent to action in lieu of any such meeting;
PROVIDED, that (i) for so long as Electra Investment Trust P.L.C. and Electra
Associates, Inc. (collectively, "Electra") own at least 213,360 shares of
Series F Preferred Stock (as such number may be adjusted appropriately for stock
splits, stock dividends, combinations and other recapitalizations), Electra
shall have the right to elect one (1) of the directors (the "Electra Director")
to be elected by the holders of the Series F-1 Preferred Stock; (ii) for so long
as Central Investment Holdings, Inc. ("CIH") owns at least 213,360 shares of
Series F Preferred Stock (as such number may be adjusted appropriately for stock
splits, stock dividends, combinations and other recapitalizations), CIH shall
have the right to elect one (1) of the directors to be elected by the holder of
the Series F-1 Preferred Stock; and (iii) for so long as
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Toronto Dominion Investments, Inc. (together with its affiliates, "Toronto
Dominion"), owns at least 213,360 shares of Series F Preferred Stock (as such
number may be adjusted appropriately for stock splits, stock dividends,
combinations and other recapitalizations), Toronto Dominion shall have the right
to elect one (1) of the directors to elected by the holders of the Series F
Preferred Stock; PROVIDED, HOWEVER, that Toronto Dominion shall not be entitled
to so elect such director if exercising this right would be in violation of the
Bank Holding Company Act. At least one of the Series F Directors, which shall
be the Electra Director, if any, shall have the right to be a member of the
Audit and Compensation Committees of the Board, if any, or of any committee of
the Board performing comparable functions. The holders of Series G-1 and H-1
Preferred Stock, voting together as a single class, on an as-converted basis,
shall be entitled to elect one (1) director at each annual meeting of
stockholders of the Corporation at which any director is elected or at any time
by written consent to action in lieu of such meeting; provided that such right
to elect a director may not be exercised if holders of more than ten percent
(10%) of the combined shares of Series G and H Preferred Stock then outstanding,
on an as-converted basis, shall have any other rights to elect a director of the
Corporation by virtue of holding any other class or Series of the Corporation's
capital stock.
In addition to the above rights of the holders of the Series F-1
Preferred Stock to elect the Series F Directors of the Corporation and, in
addition to any other rights the holders of the Series F Preferred Stock may
have hereunder, under the Securities Purchase Agreement, or in law or equity, to
the extent provided in Section 7.1 of the Securities Purchase Agreement,
immediately upon written notice to the Corporation from the holders of a
majority of the shares of Series F-1 Preferred Stock then outstanding, the
number of directors constituting the Board of Directors of the Corporation shall
automatically and without further action be increased by one, and upon the
exercise of such right by the holders of the Series F-1 Preferred Stock, the
holders of the shares of Series F-1 Preferred Stock then outstanding shall have
the right to elect, by voting as a class, one additional director to the Board
of Directors of the Corporation; provided, however, that the right of the
holders of Series F-1 Preferred Stock to increase the number of directors
constituting such Board of Directors and to elect such additional director may
only be exercised once. No director(s) so elected by the holders of the
Series E or Series F-1 Preferred Stock, Electra, CIH or Toronto Dominion, as the
case may be, may be removed without the prior consent, given in person or by
proxy, either in writing or at a special meeting called for that purpose, of the
holders of such Series of Preferred Stock, voting separately as a class,
Electra, CIH or Toronto Dominion, as the case may be. In case of the death,
resignation or other removal of the director elected by the holders of the
Series E or Series F-1 Preferred Stock or Electra, as the case may be, such
holders may elect, voting separately as a class, by written notification
delivered to the Board of Directors of the Corporation, a successor to hold
office for the unexpired term of such removed director. Except as provided in
this subsection V.B.5(b), the holders of Series E Preferred Stock may not vote
for the election of directors.
(c) The directors not elected to the Corporation's Board of
Directors pursuant to subsection V.B.5(b) hereof shall be elected by the holders
of the Class 1 Common Stock and Preferred Stock (other than the Series E, F-2,
G-2 and H-2 Preferred Stock and, for so long as the holders of Series F-1
Preferred Stock shall be entitled to elect the Series F
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Directors pursuant to subsection V.B.5(b) hereof, Series F-1 Preferred Stock),
voting separately as a class.
(d) Until the earlier of (i) a Threshold Public Offering
and (ii) the date on which less than 20% of the shares of Series F Preferred
Stock issued on the Closing Date pursuant to the Securities Purchase Agreement
remain outstanding, the majority of the Corporation's Board of Directors may not
be comprised of (y) representatives collectively designated by Vanguard Cellular
Operating Corp. or any of its affiliates pursuant to subsection V.B.5(b) hereof,
and/or (z) officers of the Corporation (or any individual performing a similar
function).
(e) The Corporation shall give to each holder of
Series F-2, Series G-2 or Series H-2 Preferred Stock, or Class 2 Common Stock,
notice of any stockholders' meetings for which notice is sent in accordance with
the bylaws of the Corporation to other stockholders of the Corporation, and
shall permit such holders to attend such meetings.
6. PROTECTIVE PROVISIONS.
(a) In addition to any other applicable approval
requirements provided for herein, so long as any shares of Series B, Series C,
Series D, Series E, Series F-1, Series G-1, Series H-1, Series I or Series J
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least fifty percent (50%) in the aggregate of the then outstanding
shares of Series B, Series C, Series D, Series E, Series F-1, Series G-1,
Series H-1, Series I and Series J Preferred Stock (voting on an as-converted
basis):
(i) authorize or create any new class or Series of
stock or any instrument convertible into such stock or authorize an increase in
the authorized number of shares of any existing class or Series of stock that
has a preference over, or is on a parity with, the Series B, Series C, Series D,
Series E, Series F, Series G, Series H, Series I or Series J Preferred Stock
with respect to voting, dividends, or upon liquidation;
(ii) authorize, issue, redeem or acquire any shares of
capital stock of the Corporation to or from officers, directors or employees of
or consultants to the Corporation, otherwise than pursuant to employee benefit
plans or other compensatory arrangements approved by the Corporation's Board of
Directors; provided, however, that the aggregate number of shares of such
capital stock so approved shall not exceed 3,000,000 shares of Common Stock (as
appropriately adjusted for any stock dividends, combinations, splits or the like
with respect to such shares);
(iii) approve a Corporate Transaction, as defined in
subsection V.B.1(e)(i);
(iv) approve any amendment of this Amended and
Restated Certificate of Incorporation, as the same may be amended from time to
time or of the bylaws of the Corporation;
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(v) permit the Corporation to organize or acquire an
interest in any business unrelated to the international wireless communications
business or the personal communications services (PCS) business;
(vi) declare or pay any dividends in cash, stock or
other property;
(vii) reinvest more than $3 million in proceeds from
the sale or liquidation of any single investment by the Company; or
(viii) liquidate or dissolve the Corporation.
(b) So long as any shares of Series B, Series C, Series D,
Series E, Series F-1, Series G-1, Series H-1, Series I or Series J Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least two-thirds (66 2/3%) in the aggregate of the then outstanding shares of
Series B, Series C, Series D, Series E, Series F-1, Series G-1, Series H-1,
Series I and Series J Preferred Stock (voting on an as-converted basis):
(i) increase or decrease the number of authorized
directors of the Corporation (except in accordance with Section V.B.5(b) above);
or
(ii) remove with or without cause any officer or
director of the Corporation, excluding directors elected by the holders of
shares of a Series of Preferred Stock pursuant to subsection V.B.5(b) hereof
(who may only be removed by such holders).
(c) So long as any shares of Series F-1 Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent) of the holders of at least seventy-five percent (75%)
of the then outstanding shares of Series F-1 Preferred Stock, (i) take any
action which would violate any of the provisions of Section 6.9, 6.11(B), 6.13
or 6.15 of the Securities Purchase Agreement, or (ii) take any other actions
which require the consent of the holders of any other Series of Preferred Stock
(whether now existing or created in the future) voting as a class, or with
respect to which a director or other designee of that Series of Preferred Stock
must approve such action.
(d) So long as any shares of the Series F-1 Preferred Stock
are outstanding, the Corporation shall not, and shall not permit any of its
Subsidiaries (as defined in the Securities Purchase Agreement) to, take any
action (or fail to take any action, as the case may be) that would violate any
of the provisions of Sections 6.1 or 6.14 of the Securities Purchase Agreement
without first obtaining the approval (by vote or written consent) of (i) the
holders of at least eighty percent (80%) of the then outstanding shares of
Series F-1 Preferred Stock or (ii) at least (A) a majority of the members of the
Board of Directors of the Corporation (including any Series F Directors) and (B)
all of the Series F Directors. So long as any shares of Series F-1 Preferred
Stock are outstanding, the Corporation shall not, and shall not permit any of
its Subsidiaries to, take any action (or fail to take any action, as the case
may be) that would violate any of the provisions of Section 5.3, 5.4, 5.6, 6.4,
6.8 or 6.16 of the Securities Purchase
34
<PAGE>
Agreement without first obtaining the approval (by vote or written consent) of
(i) the holders of at least seventy-five percent (75%) of the then outstanding
shares of Series F-1 Preferred Stock or (ii) at least (A) a majority of the
members of the Board of Directors of the Corporation (including any Series F
Directors) and (B) one Series F Director, if there shall be two Series F
Directors on the Board of Directors of the Corporation, or a majority of the
Board of Directors of the Corporation, if there shall be more than two Series F
Directors on the Board of Directors of the Corporation. So long as any shares
of Series F-1 Preferred Stock are outstanding, the Corporation shall not, and
shall not permit any of its Subsidiaries to, take any action that would violate
any of the provisions of Section 6.5, 6.6, 6.7, 6.10 or 6.11(A) of the
Securities Purchase Agreement without first obtaining the approval (by vote or
written consent) of (i) the holders of at least seventy-five (75%) of the then
outstanding shares of Series F-1 Preferred Stock or (ii) at least
(A) seventy-five percent (75%) of the members of the Board of Directors of the
Corporation and (B) at least one Series F Director, if there shall be two
Series F Directors on the Board of Directors of the Corporation, or a majority
of the Series F Directors, if there shall be more than two Series F Directors on
the Board of Directors of the Corporation. Notwithstanding the foregoing, if
any the foregoing actions may not be approved by the requisite number of
Series F Directors solely because the number of Series F Directors present at
such meeting is insufficient to approve such action, then such meeting of the
Board of Directors shall be adjourned and held on a date, not less than 10 days
nor more than 20 days following such adjournment, on which such requisite number
of Series F Directors are present at such meeting (whether in person or by
telephone), provided that if there is no date during such period on which the
requisite number of Series F Directors may be present, such action may be taken
at any meeting held not less than 20 days nor more than 30 days following such
originally adjourned meeting if approved by (i) at least a majority or
seventy-five (75%), as the case may be, of the members of the Board of Directors
of the Corporation and (ii) all of the Series F Directors present, if any, at
such meeting.
(e) So long as any shares of a Series of Existing Preferred
Stock (an "Existing Series") are outstanding, the Corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the shares of such Existing Series then
outstanding, amend the Corporation's Amended and Restated Certificate of
Incorporation to alter or change the rights, preferences or privileges of the
shares of such Existing Series, if such Existing Series would be adversely
affected by such amendment in a manner different from other then outstanding
Existing Series (it being understood that, without limiting the foregoing,
different Existing Series shall not be affected differently because of
differences in the amounts of their respective issue prices, liquidation
preferences and redemption prices or because of changes in the public offering
price per share at which Preferred Stock automatically converts to Common Stock
pursuant to subsection V.B.4(b) above).
(f) So long as any shares of Series E Preferred Stock are
outstanding, the Corporation shall not without, first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least
two-thirds (2/3) of the shares of Series E Preferred Stock then outstanding,
amend subsection V.B.5(b) hereof to adversely affect the right of holders of
Series E Preferred Stock to elect a director of the Corporation pursuant
thereto. So long as any shares of Series F-1, Series G-1 or Series H-1
Preferred Stock are outstanding, the
35
<PAGE>
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least two-thirds (2/3) of the
shares of Series F-1, Series G-1 or Series H-1 Preferred Stock then outstanding,
as applicable, amend subsection V.B.5(b) hereof to adversely affect the right of
holders of Series F-1, Series G-1 or Series H-1 Preferred Stock, respectively,
to elect directors of the Corporation pursuant thereto.
(g) So long as any shares of Series G or Series H Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least fifty percent (50%) in the aggregate of the then outstanding shares of
Series G and Series H Preferred Stock (voting on an as-converted basis)
authorize or create any new class or Series of stock or any instrument
convertible into such stock or authorize an increase in the authorized number of
shares of any existing class or Series of stock that has a preference over, or
is on a parity with, the Series G or Series H Preferred Stock with respect to
voting, dividends, or upon redemption or liquidation.
(h) The Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the shares of the Class 2 Common Stock, Series F-2,
Series G-2 and Series H-2 Preferred Stock then outstanding, voting together as a
single class on an as-converted basis, amend the Corporation's Amended and
Restated Certificate of Incorporation to alter or change the rights, preferences
or privileges of the shares of the Class 2 Common Stock, if the Class 2 Common
would be adversely affected by such amendment in a manner different from the
Class 1 Common Stock (it being understood that, without limiting the foregoing,
different Classes of Common Stock shall not be affected differently because of
differences in the amounts of their respective issue prices).
7. STATUS OF REDEEMED AND CONVERTED STOCK. Subject to
subsection V.B.4(a2) above, in the event any shares of Preferred Stock shall be
redeemed or converted pursuant to Sections 3 or 4, respectively hereof, the
shares so redeemed or converted shall be cancelled and shall not be issuable by
the Corporation. The Amended and Restated Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in subsection V.B.1 hereof.
3. REDEMPTION. The Common Stock is not redeemable.
36
<PAGE>
4. CONVERSION OF CLASS 2 COMMON STOCK.
(a) Upon the occurrence (or the expected occurrence as
described in subsection V.C.4(b) below) of any Conversion Event, each holder of
Class 2 Common Stock shall be entitled to convert, into the same number of
shares of Class 1 Common Stock, any or all of the shares of such holder's Class
2 Common Stock being (or expected to be) distributed, disposed of or sold in
connection with such Conversion Event.
(b) Each holder of Class 2 Common Stock shall be entitled
to convert such shares of Class 2 Common Stock in connection with any Conversion
Event if such holder reasonably believes that such Conversion Event will be
consummated. A written request for conversion from any holder of Class 2 Common
Stock to the Corporation stating such holder's reasonable belief that a
Conversion Event will occur shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely manner so as to enable each
such holder to participate in such Conversion Event. The Corporation will not
cancel the shares of Class 2 Common Stock so converted before the tenth day
following such Conversion Event and will reserve such shares until such tenth
day for reissuance in compliance with the next sentence. If any shares of Class
2 Common Stock are converted into shares of Class 1 Common Stock in connection
with a Conversion Event and such shares of Class 1 Common Stock are not actually
distributed, disposed of or sold pursuant to such Conversion Event, such shares
of Class 1 Common Stock shall be promptly converted back into the same number of
shares of Class 2 Common Stock.
5. VOTING RIGHTS. The holder of each share of Class 1 Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law. Notwithstanding the foregoing, but in addition to any approval
requirements provided for elsewhere herein, the approval of the holders of a
majority of the outstanding Class 2 Common Stock, voting together as a single
class, shall be required for any merger or consolidation of the Corporation with
or into another entity or entities, any sale of all or substantially all of the
Corporation's assets or any recapitalization or reorganization, if as a result
of any of the foregoing the shares of Class 2 Common Stock would receive or be
exchanged for consideration different on a per share basis than the
consideration received with respect to or in exchange for shares of Class 1
Common Stock, or would otherwise be treated differently from shares of Class 1
Common Stock in connection with such transaction, except that shares of Class 2
Common Stock may (and, at the request of a majority of the shares of such
Series, shall) receive or be exchanged for securities having voting rights
comparable to the Class 2 Common Stock, so long as (i) such non-voting
securities are convertible into such voting securities on the same terms as
Class 2 Common Stock is convertible into Class 1 Common Stock, and (ii) all
other consideration is equal on a per share basis.
ARTICLE VI
Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board
37
<PAGE>
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the bylaws of the Corporation.
ARTICLE VII
Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.
ARTICLE IX
A director of the Corporation shall, to the full extent permitted by
the General Corporation Law as it now exists or as it may hereafter be amended,
not be liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Neither any amendment nor repeal of
this Article IX, nor the adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article IX, shall eliminate
or reduce the effect of this Article IX, in respect of any matter occurring, or
any cause of action, suit or claim that, but for this Article IX, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision. If the General Corporation Law is amended to authorize, with the
approval of the Corporation's stockholders, further reductions in the liability
of the Corporation's directors, then a director of the Corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law as so amended.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
38
<PAGE>
IN WITNESS WHEREOF, said International Wireless Communications
Holdings, Inc. has caused this certificate to be signed by its Senior Vice
President and General Counsel, Steven D. Overly, and its Assistant Secretary,
Brooks Stough, this 10th day of March, 1998.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By: /s/ Steven D. Overly
-------------------------------
Steven D. Overly,
Senior Vice President and General Counsel
Attest:
/s/ Brooks Stough
- ------------------------------------
Brooks Stough, Assistant Secretary
<PAGE>
EXHIBIT 10.18F
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement is made as of December 30, 1997
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 (the "LOAN AGREEMENT"). Each
capitalized term which is used and not otherwise defined in this First 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
First 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 by
deleting the number "$2,000,000" and replacing such number with the number
"$1,500,000".
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.
* * * *
<PAGE>
The Borrower and TDI have caused this First Amendment to be executed and
delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ DOUGLAS S. SINCLAIR
--------------------------------
Its: EXECUTIVE VICE PRESIDENT AND
-------------------------------
CHIEF FINANCIAL OFFICER
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18G
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement is made as of January 15,
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
(the "LOAN AGREEMENT"). Each capitalized term which is used and not otherwise
defined in this Second 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
Second 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 $750,000.
Notwithstanding the foregoing in this Section 5.01(j), if Borrower
consummates its proposed acquisition of Radio Movil Digital Americas,
Inc. ("RMD") and RMD obtains at least $25,000,000 in proposed
financing from BT Financial Investment Corporation, then the foregoing
minimum cash reserve amount shall increase from $750,000 to
$1,000,000.
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.
* * * *
<PAGE>
The Borrower and TDI have caused this Second Amendment to be executed and
delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /S/ DOUGLAS S. SINCLAIR
--------------------------------
Its: EXECUTIVE VICE PRESIDENT AND
-------------------------------
CHIEF FINANCIAL OFFICER
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18H
THIRD AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Loan Agreement is made as of January 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
and January 15, 1998 (the "LOAN AGREEMENT"). Each capitalized term which is
used and not otherwise defined in this Third Amendment has the meaning which the
Loan Agreement assigns to that term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before January 31, 1998, and has requested that the Lenders
amend Section 6.01(o) of the Loan Agreement as set forth in this Third
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 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "January 31, 1998" and replacing such date with "February 7,
1998."
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.
* * * *
<PAGE>
The Borrower and TDI have caused this Third Amendment to be executed and
delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18I
FOURTH AMENDMENT TO LOAN AGREEMENT
This Fourth Amendment to Loan Agreement is made as of February 5,
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, and January 30, 1998 (the "LOAN AGREEMENT"). Each
capitalized term which is used and not otherwise defined in this Fourth
Amendment has the meaning which the Loan Agreement assigns to that term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before February 7, 1998, and has requested that the Lenders
amend Section 6.01(o) of the Loan Agreement as set forth in this Fourth
Amendment.
The Borrower has also 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 Fourth Amendment.
TDI (which, by itself, constitutes Requisite Lenders) has agreed to
make the foregoing amendments.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "February 7, 1998" and replacing such date with "February 14,
1998."
2. Section 5.01(j) of the Loan Agreement is hereby amended and
restated in its entirety 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 Series J Preferred Stock to Vanguard
Cellular Systems, Inc., or an affiliate thereof, for aggregate cash
proceeds of at least $3,300,000, then the foregoing minimum cash
reserve amount shall increase from $500,000 to $1,000,000 upon closing
of such transaction.
<PAGE>
3. Except as amended by Sections 1 and 2 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 Sections 1 and 2 above (if
necessary), no Default or Potential Event of Default is in existence as at the
date hereof.
[This space intentionally left blank.]
<PAGE>
In witness whereof, the Borrower and TDI have caused this Fourth Amendment
to be executed and delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18J
FIFTH AMENDMENT TO LOAN AGREEMENT
This Fifth Amendment to Loan Agreement is made as of February 13,
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 (the "LOAN
AGREEMENT"). Each capitalized term which is used and not otherwise defined in
this Fifth Amendment has the meaning which the Loan Agreement assigns to that
term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before February 14, 1998, and has requested that the
Lenders amend Section 6.01(o) of the Loan Agreement as set forth in this Fifth
Amendment.
The Borrower has also 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 Fifth Amendment.
TDI (which, by itself, constitutes Requisite Lenders) has agreed to
make the foregoing amendments.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "February 14, 1998" and replacing such date with "February 20,
1998."
2. Section 5.01(j) of the Loan Agreement is hereby amended and
restated in its entirety 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 $375,000.
Notwithstanding the foregoing in this Section 5.01(j), if Borrower
consummates its proposed sale of Series J Preferred Stock to Vanguard
Cellular Systems, Inc., or an affiliate thereof, for aggregate cash
proceeds of at least $3,300,000, then the foregoing minimum cash
reserve amount shall increase from $375,000 to $1,000,000 upon closing
of such transaction.
<PAGE>
3. Except as amended by Sections 1 and 2 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 Sections 1 and 2 above (if
necessary), no Default or Potential Event of Default is in existence as at the
date hereof.
[This space intentionally left blank.]
<PAGE>
In witness whereof, the Borrower and TDI have caused this Fifth
Amendment to be executed and delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18K
SIXTH AMENDMENT TO LOAN AGREEMENT
This Sixth Amendment to Loan Agreement is made as of February 19,
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
and January 15, 1998, January 30, 1998, February 5, 1998, and February 13, 1998
(the "LOAN AGREEMENT"). Each capitalized term which is used and not otherwise
defined in this Sixth Amendment has the meaning which the Loan Agreement assigns
to that term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before February 20, 1998, and has requested that the
Lenders amend Section 6.01(o) of the Loan Agreement as set forth in this Sixth
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 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "February 20, 1998" and replacing such date with "February 28,
1998."
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.
* * * *
<PAGE>
The Borrower and TDI have caused this Sixth Amendment to be executed
and delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18L
SEVENTH AMENDMENT TO LOAN AGREEMENT
This Seventh Amendment to Loan Agreement is made as of February 25,
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, and February 19, 1998 (the "LOAN AGREEMENT"). Each capitalized term which
is used and not otherwise defined in this Seventh Amendment has the meaning
which the Loan Agreement assigns to that term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before February 28, 1998, and has requested that the
Lenders amend Section 6.01(o) of the Loan Agreement as set forth in this Seventh
Amendment.
The Borrower has also 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 Seventh Amendment.
TDI (which, by itself, constitutes Requisite Lenders) has agreed to
make the foregoing amendments.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "February 28, 1998" and replacing such date with "March 7,
1998."
2. Section 5.01(j) of the Loan Agreement is hereby amended and
restated in its entirety 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 $10,000.
Notwithstanding the foregoing in this Section 5.01(j), if Borrower
consummates its proposed sale of Series J Preferred Stock to Vanguard
Cellular Systems, Inc., or an affiliate thereof, for aggregate cash
proceeds of at least $10,000,000, then the foregoing minimum cash
reserve amount shall increase from $10,000 to $1,000,000 upon closing
of such transaction.
<PAGE>
3. Except as amended by Sections 1 and 2 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 Sections 1 and 2 above (if
necessary), no Default or Potential Event of Default is in existence as at the
date hereof.
[This space intentionally left blank.]
<PAGE>
In witness whereof, the Borrower and TDI have caused this Seventh
Amendment to be executed and delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
EXHIBIT 10.18M
EIGHTH AMENDMENT TO LOAN AGREEMENT
This Eighth Amendment to Loan Agreement is made as of March 7, 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, and February 25, 1998 (the "LOAN AGREEMENT"). Each
capitalized term which is used and not otherwise defined in this Eighth
Amendment has the meaning which the Loan Agreement assigns to that term.
The Borrower has informed the Lenders that it anticipates that it will
not enter into an engagement agreement described in Section 7(c)(iii)(D) of the
Exchange Agreement dated as of August 18, 1997, among Borrower and the Persons
named therein, on or before March 7, 1998, and has requested that the Lenders
amend Section 6.01(o) of the Loan Agreement as set forth in this Eighth
Amendment.
TDI (which, by itself, constitutes Requisite Lenders) has agreed to
make the foregoing amendment.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 6.01(o) of the Loan Agreement is hereby amended by
deleting the date "March 7, 1998" and replacing such date with "March 21, 1998."
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.
<PAGE>
In witness whereof, the Borrower and TDI have caused this Eighth
Amendment to be executed and delivered as of the date first set forth above.
INTERNATIONAL WIRELESS COMMUNICATIONS
HOLDINGS, INC.
By: /s/ AARTI C. GURNANI
--------------------------------
Its: VICE PRESIDENT, LEGAL AFFAIRS
-------------------------------
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ MARTHA GARIEPY
--------------------------------
Its: VICE PRESIDENT
-------------------------------
<PAGE>
LETTER AGREEMENT
Letter Agreement dated as of January __, 1998 among International
Wireless Communications Holdings, Inc., a Delaware corporation (the "Company"),
Nezam Tooloee ("Tooloee"), John D. Lockton ("Lockton") and Hugh B.L. McClung
("McClung") (the "Letter Agreement").
WHEREAS each party hereto is a party to that certain CTP Agreement
dated as of January 7, 1994 (the "CTP Agreement");
WHEREAS the Company, Lockton and McClung are each a party to that
certain Stock Purchase Agreement dated as of December 15, 1995 (the "Stock
Purchase Agreement");
WHEREAS Tooloee owns 180,000 shares of the Company's Series A
Preferred Stock (the "Shares") that he desires to publicly resell as soon as
possible following the Company's proposed initial public offering of its Common
Stock (the "Offering"); and
WHEREAS each party desires that Tooloee forfeit any rights he might
have had under the CTP Agreement and the Stock Purchase Agreement, including the
right to receive shares of common stock of the Company;
NOW, THEREFORE, the parties hereby agree as follows:
1. Tooloee agrees to forfeit any and all rights he might have had
pursuant to the CTP Agreement and the Stock Purchase Agreement to receive shares
of the Company's common stock (commonly known as the Escrow Shares (as defined
in the Stock Purchase Agreement)).
2. Pursuant to Section 8.1 of the Stock Purchase Agreement, Tooloee
agrees to provide written instructions to the Escrow Agent (as defined in the
Stock Purchase Agreement), instructing the Escrow Agent to release the Escrow
Shares to the other CTP Partners (as defined in the Stock Purchase Agreement).
3. Tooloee hereby mutually releases and forever discharges the
Company, Lockton and McClung, including each of their respective associates,
owners, stockholders, subsidiaries, predecessors, successors, heirs, assigns,
agents, directors, officers, partners, employees, representatives, lawyers,
trustees, beneficiaries and all persons acting by, through, under or in concert
with them, or any of them, of and from any and all manner of action or actions,
cause or causes of action, in law or in equity, suits, debts, liens, contracts,
agreements, promises, liabilities, claims, demands, damages, losses, costs or
expenses, of any nature whatsoever, known or unknown, fixed or contingent, which
he now has or may hereafter have against the Company, Lockton and/or McClung, by
reason of any matter relating to the business and operations of the Company,
including the CTP Agreement or the Stock Purchase Agreement.
<PAGE>
4. The Company, Lockton and McClung hereby mutually release and
forever discharge Tooloee, including his associates, predecessors, successors,
heirs, assigns, agents, partners, employees, representatives, lawyers, trustees,
beneficiaries and all persons acting by, through, under or in concert with him,
of and from any and all manner of action or actions, cause or causes of action,
in law or in equity, suits, debts, liens, contracts, agreements, promises,
liabilities, claims, demands, damages, losses, costs or expenses, of any nature
whatsoever, known or unknown, fixed or contingent, which they now have or may
hereafter have against him, by reason of any matter relating to the business and
operations of the Company, including the CTP Agreement or the Stock Purchase
Agreement.
5. The Company agrees to waive any and all contractual restrictions
and obligations applicable to Tooloee with regard to the sale or transfer of
Shares following the Offering. Upon Tooloee's request, the Company shall: (i)
promptly deliver to Tooloee, upon tender by Tooloee of his existing share
certificates for cancellation, replacement stock certificates representing the
Shares with all restrictive legends removed; and (ii) on the effective date of
the Offering, deliver to Tooloee certificates for common stock with all
restrictive legends removed, representing the number of Shares converted into
common stock, provided that Tooloee shall have surrendered his existing share
certificates for cancellation, with appropriate instructions to the transfer
agent, at least twenty (20) days prior to the effective date of the Offering.
The Company agrees to use reasonable efforts to inform Tooloee of the
anticipated approximate effective date of the Offering by promptly responding to
all reasonable inquiries made by Tooloee. The Company further agrees not to
interfere with the sale or transfer of Tooloee's Shares following the Offering.
6. Tooloee hereby acknowledges that he remains subject to any
restrictions under applicable state and federal securities laws.
7. MISCELLANEOUS.
(a) Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(b) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
(d) If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees,
2
<PAGE>
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
(e) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(f) This Agreement constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
each of the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
---------------------------------
John D. Lockton
---------------------------------
John D. Lockton
---------------------------------
Hugh B. L. McClung
---------------------------------
Nezam Tooloee
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
SERIES J PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Purchase and Sale of Securities. . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series J Preferred Stock and Warrants. . 1
1.2 First Closing . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Subsequent Sales of Series J Preferred Stock. . . . . . . . . 2
1.4 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Representations and Warranties of the Company. . . . . . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification . . . . . . . . 2
2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization; No Conflict With Other Instruments . . . . . . 4
2.4 Valid Issuance of Securities. . . . . . . . . . . . . . . . . 4
2.5 Governmental Consents . . . . . . . . . . . . . . . . . . . . 5
2.6 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 SEC Filings; Financial Statements . . . . . . . . . . . . . . 5
2.8 Absence of Certain Changes. . . . . . . . . . . . . . . . . . 6
2.9 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . 6
2.10 No Default; Compliance with Applicable Laws. . . . . . . . . 6
2.11 Intellectual Property. . . . . . . . . . . . . . . . . . . . 6
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 8
2.15 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.16 Labor Agreements and Actions; Employee Compensation. . . . . 9
2.17 Section 83(b) Elections. . . . . . . . . . . . . . . . . . . 9
2.18 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Representations and Warranties of the Investors. . . . . . . . . . . . . 9
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . 9
3.3 Disclosure of Information . . . . . . . . . . . . . . . . . .10
3.4 Investment Experience . . . . . . . . . . . . . . . . . . . .10
3.5 Accredited Investor . . . . . . . . . . . . . . . . . . . . .10
3.6 Restricted Securities . . . . . . . . . . . . . . . . . . . .10
3.7 Further Limitations on Disposition. . . . . . . . . . . . . .10
3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.9 Further Representations by Foreign Investors. . . . . . . . .11
4. Conditions of Investors' Obligations at First Closing. . . . . . . . . .11
4.1 Representations and Warranties. . . . . . . . . . . . . . . .12
4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .12
4.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . .12
i
<PAGE>
4.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .12
4.5 Proceedings and Documents . . . . . . . . . . . . . . . . . .12
4.6 Opinion of Company Counsel. . . . . . . . . . . . . . . . . .12
4.7 Investor Rights Agreement . . . . . . . . . . . . . . . . . .12
4.8 Registration Rights Agreement . . . . . . . . . . . . . . . .12
4.9 Support Services Agreement. . . . . . . . . . . . . . . . . .12
4.10 Payment of Fees and Expenses . . . . . . . . . . . . . . . .13
5. Conditions of the Company's Obligations at First Closing . . . . . . . .13
5.1 Representations and Warranties. . . . . . . . . . . . . . . .13
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .13
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .13
5.4 Investor Rights Agreement . . . . . . . . . . . . . . . . . .13
5.5 Registration Rights Agreement . . . . . . . . . . . . . . . .13
5.6 Support Services Agreement. . . . . . . . . . . . . . . . . .13
6. Conditions of Investors' Obligations at Subsequent Closing . . . . . . .13
6.1 Representations and Warranties. . . . . . . . . . . . . . . .14
6.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .14
6.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . .14
6.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .14
6.5 Proceedings and Documents . . . . . . . . . . . . . . . . . .14
6.6 Opinion of Company Counsel. . . . . . . . . . . . . . . . . .14
6.7 Payment of Fees and Expenses. . . . . . . . . . . . . . . . .14
7. Conditions of the Company's Obligations at Subsequent Closing. . . . . .14
7.1 Representations and Warranties. . . . . . . . . . . . . . . .15
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .15
7.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .15
7.4 Investor Rights Agreement . . . . . . . . . . . . . . . . . .15
7.5 Registration Rights Agreement . . . . . . . . . . . . . . . .15
8. Covenants of the Parties . . . . . . . . . . . . . . . . . . . . . . . .15
8.1 Purchase of Securities by Vanguard. . . . . . . . . . . . . .15
8.2 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .15
8.3 Vanguard Exchange Right . . . . . . . . . . . . . . . . . . .16
8.4 Vanguard Co-Sale Right. . . . . . . . . . . . . . . . . . . .17
8.5 Right of First Offer. . . . . . . . . . . . . . . . . . . . .19
8.6 Most Favored Nations Clause . . . . . . . . . . . . . . . . .19
9. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
9.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . .20
9.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . .20
9.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .20
9.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .20
ii
<PAGE>
9.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . .20
9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .20
9.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . .20
9.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .21
9.9 Amendments and Waivers. . . . . . . . . . . . . . . . . . . .21
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . .21
9.11 Corporate Securities Law . . . . . . . . . . . . . . . . . .21
9.12 Aggregation of Stock . . . . . . . . . . . . . . . . . . . .21
9.13 Entire Agreement; Negotiation. . . . . . . . . . . . . . . .21
9.14 Waiver of Conflicts. . . . . . . . . . . . . . . . . . . . .22
SCHEDULE A Schedule of Investors
EXHIBIT A Amended and Restated Certificate of Incorporation
EXHIBIT B Warrant to Purchase Common Stock
EXHIBIT C Amended and Restated Registration Rights Agreement
EXHIBIT D Eighth Amended and Restated Investor Rights Agreements
EXHIBIT E Capitalization Table
EXHIBIT F Support Services Agreement
EXHIBIT G Opinion of Counsel for the Company
EXHIBIT H Right of Participation Schedule
iii
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
SERIES J PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 10th day of March, 1998, by and among
International Wireless Communications Holdings, Inc., a Delaware corporation
(the "Company"), and the investors severally and not jointly listed on
Schedule A hereto, each of which is herein referred to as an "Investor,"
including Vanguard Cellular Operating Corp., a Delaware corporation
("Vanguard").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF SECURITIES.
1.1 SALE AND ISSUANCE OF SERIES J PREFERRED STOCK AND WARRANTS.
(a) The Company shall adopt and file with the Secretary of State
of Delaware on or before the First Closing (as defined below) the Amended and
Restated Certificate of Incorporation in substantially the form attached hereto
as EXHIBIT A (the "Restated Certificate").
(b) On or prior to the First Closing, the Company shall have
authorized (i) the sale and issuance to the Investors of its Series J Preferred
Stock, par value $0.01 per share (the "Series J Preferred Stock"), (ii) the
issuance and sale of Warrants to Purchase Common Stock, in substantially the
form attached hereto as EXHIBIT B (the "Warrants"), and (iii) the issuance of
the shares of its Common Stock, par value $0.01 per share (the "Common Stock")
issuable upon conversion of the Series J Preferred Stock and exercise of the
Warrants (the "Common Shares"). The Series J Preferred Stock and the Common
Shares shall have the rights, preferences, privileges and restrictions set forth
in the Restated Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the First Closing or,
pursuant to Section 1.3, at any Subsequent Closing (as defined below), and the
Company agrees to sell and issue to such Investor at the First Closing or,
pursuant to Section 1.3, at any Subsequent Closing, as the case may be, that
number of shares of the Series J Preferred Stock and Warrants set forth opposite
such Investor's name on SCHEDULE A hereto for the purchase price set forth
thereon. As used herein, the term "Series J Shares" shall mean all or a portion
of the shares of Series J Preferred Stock issued and sold pursuant hereto, and
the term "Securities" shall mean the Series J Shares, the Warrants and the
Common Shares.
1.2 FIRST CLOSING. The purchase and sale of the Series J Shares and
Warrants shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
10:00 A.M., on March 10, 1998, or at such other time and place as the Company
and Investors acquiring in the aggregate
<PAGE>
more than half the Series J Shares mutually agree upon orally or in writing
(which time and place are designated as the "First Closing").
1.3 SUBSEQUENT SALES OF SERIES J PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, the Company may sell up to the balance
of the authorized number of shares of Series J Preferred Stock and related
Warrants not sold at the First Closing to such purchasers as it shall select and
to any Investor that did not purchase that number of shares of Series J
Preferred Stock and the related Warrants set forth opposite such Investor's name
on SCHEDULE A, at the same price and same other terms and conditions as the
Series J Preferred Stock and related Warrants are sold by the Company at the
First Closing. The sale of Series J Preferred Stock and related Warrants
pursuant to this Section 1.3 shall take place at one or more closings (each a
"Subsequent Closing;" together with the First Closing, individually a "Closing"
and collectively the "Closings") not later than forty-five (45) days after the
First Closing at such time and place as the Company and Investors acquiring in
the aggregate more than half of the Series J Shares purchased at such Closing
mutually agreed upon orally or in writing. Any such purchaser or Investor shall
become a party to (i) this Agreement (and thereby become an "Investor"),
(ii) the Amended and Restated Registration Rights Agreement to be entered into
among the Company and the stockholders named therein, in substantially the form
attached hereto as EXHIBIT C (the "Registration Rights Agreement"), and
(iii) the Eighth Amended and Restated Investor Rights Agreement to be entered
into among the Company and the investors named therein, in substantially the
form attached hereto as EXHIBIT D (the "Investor Rights Agreement"), and shall
have the rights and obligations hereunder and thereunder.
1.4 CERTIFICATES. At any Closing, the Company shall deliver to each
Investor a certificate representing the Series J Shares and Warrants that such
Investor is purchasing against payment of the purchase price therefor by check,
wire transfer, or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth on the
disclosure schedule delivered by the Company to Investors prior to the execution
hereof (items disclosed in one section of such schedule shall to the extent
appropriate apply to all other sections unless the context indicates otherwise)
(the "Disclosure Schedule"), which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted in the
draft of its registration statement on Form S-1 dated December 3, 1997 relating
to the proposed initial public offering of its Common Stock (the "Draft S-1").
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect on the Company. As used herein with respect to an entity,
"Material Adverse Effect" shall mean an event, change or effect which has had,
or is reasonably likely to have, a material adverse effect on the financial
condition, assets, liabilities, results of operations, business or prospects of
that entity and its subsidiaries taken as a whole.
2
<PAGE>
2.2 CAPITALIZATION. (a) The authorized capital stock of the Company
consists of (i) 50,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), 1,200,000 of which shares have been designated Series A
Preferred Stock, 933,200 of which are issued and outstanding; 1,229,240 of which
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding; 2,460,000 of which shares have been designated Series C
Preferred Stock, 1,762,280 of which are issued and outstanding; 5,800,000 of
which shares have been designated Series D Preferred Stock, 3,661,636 of which
are issued and outstanding; 3,972,240 of which shares have been designated
Series E Preferred Stock, all of which are issued and outstanding; 7,000,000 of
which shares have been designated Series F-1 Preferred Stock, 4,508,480 of which
are issued and outstanding; 1,080,000 of which shares have been designated
Series F-2 Preferred Stock, 848,000 of which are issued and outstanding;
1,928,000 of which shares have been designated Series G-1 Preferred Stock, none
of which are issued or outstanding; 1,292,000 of which shares have been
designated Series G-2 Preferred Stock, none of which are issued or outstanding;
5,072,000 of which shares have been designated Series H-1 Preferred Stock, none
of which are issued or outstanding; 3,398,000 of which shares have been
designated Series H-2 Preferred Stock, none of which are issued or outstanding;
8,000,000 of which shares have been designated Series I Preferred Stock,
5,381,009 of which are issued and outstanding; and 2,000,000 of which shares
have been designated Series J Preferred Stock, some or all of which may be
issued pursuant to this Agreement; and (ii) 70,000,000 shares of Class 1 Common
Stock, par value $0.01 per share (the "Class 1 Common Stock"), 1,310,230 of
which are issued and outstanding; and 6,000,000 shares of Class 2 Common Stock,
par value $0.01 per share (the "Class 2 Common Stock"; together with the Class 1
Common Stock, the "Common Stock"), none of which are issued and outstanding.
All the outstanding shares of the Company's capital stock are duly authorized,
validly issued, fully paid and nonassessable and have been issued in compliance
with the Securities Act of 1933, as amended (the "Securities Act"). Except for
(i) the conversion privileges of the Preferred Stock, (ii) the rights of first
refusal as set forth in Section 2.3 and 2.5 of the Seventh Amended and Restated
Investor Rights Agreement dated as of December 13, 1997 (the "Prior Investor
Rights Agreement") among the Company and the investors named therein,
(iii) warrants to purchase 339,840 shares of Preferred Stock to the persons and
in the amounts set forth on EXHIBIT E hereto, (iv) Warrants issued pursuant to
this Agreement and warrants issued pursuant to the Support Services Agreement
(the "SSA Warrants"), (v) warrants to purchase 4,939,218 shares of Class 1
Common Stock issued to the persons and in the amounts set forth in Section 2.2
of the Disclosure Schedule, (vi) options to purchase 2,666,057 shares of Class 1
Common Stock granted to employees, consultants, officers, or directors of the
Company, its subsidiaries or its affiliates to the persons and in the amounts
set forth in Section 2.2 of the Disclosure Schedule, (vii) Preferred Stock
issuable upon exchange of the Notes and the PWH Notes (as such terms are defined
in the Loan Agreement dated August 18, 1997 among the Company and the Lenders
named therein), (viii) the redemption rights contained in the Restated
Certificate and (ix) the authorized and issued capital stock described in the
immediately preceding sentence, as of the date of this Agreement, (A) there are
no shares of capital stock of the Company authorized, issued or outstanding and
(B) there are no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company,
obligating the Company to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock of, or other equity interest in,
the Company or securities
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convertible into or exchangeable for such shares or equity interests, or
obligating the Company to grant, extend or enter into any such option, warrant,
call, preemptive right, subscription or other right, agreement, arrangement or
commitment and (C) there are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company.
(b) The outstanding shares of the Company's capital stock and
options, warrants or other rights to acquire such capital stock are owned by the
persons and in the amounts set forth on EXHIBIT E hereto.
2.3 AUTHORIZATION; NO CONFLICT WITH OTHER INSTRUMENTS. All corporate
action on the part of the Company, its officers, directors and stockholders
necessary for (i) the authorization, execution and delivery of this Agreement,
the Warrants, the SSA Warrant, the Registration Rights Agreement, the Investor
Rights Agreement, and the Support Services Agreement to be entered into between
the Company and Vanguard China, Inc. ("Vanguard China"), in substantially the
form attached hereto as EXHIBIT F (the "Support Services Agreement")
(collectively, the "Series J Agreements"), (ii) the performance of all
obligations of the Company under the Series J Agreements, and (iii) the
authorization, issuance (or reservation for issuance), sale and delivery, as
applicable, of the Securities and the SSA Warrant have been taken or will be
taken prior to the First Closing. Each Series J Agreement has been duly
executed and delivered by the Company and constitutes valid and legally binding
obligations of the Company, enforceable in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies and (iii) to the
extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws. The
execution, delivery and performance by the Company of the Series J Agreements,
and the consummation by the Company of the transactions contemplated thereby,
will not result in any violation of any provision of the Restated Certificate or
its bylaws or any instrument, judgment, order, writ, decree, law or contract to
which the Company is a party or by which it is bound or be in conflict with or
constitute, with or without the passage of time or giving of notice, either a
default under the Restated Certificate or its bylaws or any such provision,
instrument, judgment, order, writ, decree, law or contract or an event that
results in the creation of any lien, charge or encumbrance upon the assets of
the Company or the suspension, revocation, impairment, forfeiture or nonrenewal
of any material permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.4 VALID ISSUANCE OF SECURITIES. The Series J Shares and Warrants,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, and the SSA Warrant when issued and
delivered in accordance with the terms of the Support Services Agreement, will
be duly and validly issued, fully paid, and nonassessable, and will be free of
preemptive rights and restrictions on transfer other than restrictions on
transfer under this Agreement, the Investor Rights Agreement, the Registration
Rights Agreement and under applicable state and federal securities laws. The
Common Shares
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have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, the Warrants or the SSA
Warrant, as the case may be, will be duly and validly issued, fully paid, and
nonassessable and will be free of preemptive rights and restrictions on transfer
other than restrictions on transfer under this Agreement, the Investor Rights
Agreement and the Registration Rights Agreement and under applicable state and
federal securities laws.
2.5 GOVERNMENTAL CONSENTS. Except as contemplated by this Agreement,
no consent, approval, order or authorization of, or registration, qualification,
designation, declaration of filing with, any federal, state, local or foreign
governmental authority on the part of the Company is required in connection with
the execution and delivery of the Series J Agreements or consummation of the
transactions contemplated by the Series J Agreements, except (i) the filing of
the Restated Certificate with the Secretary of State of Delaware; (ii) the
filing of a notice on Form D pursuant to Rule 503 under the Securities Act and
(iii) the filing of the Notice of Transaction pursuant to Section 25102(f) of
the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, which filings will be effected within fifteen (15) days after the
First Closing, or such other post-closing filings as may be required, each of
which the Company hereby undertakes to make in a timely manner.
2.6 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are exempt
from the registration requirements of any applicable state or federal securities
laws, and neither the Company nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
2.7 SEC FILINGS; FINANCIAL STATEMENTS. (a) Since September 30,
1996, the Company has filed with the Securities and Exchange Commission ("SEC")
all forms, reports and other documents (the "SEC Reports") required to be filed
by it under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder. As of
their respective dates or, if amended, the date of latest amendment, the SEC
Reports (i) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the Exchange Act
and the Securities Act, as the case may be, and the rules and regulations
thereunder. The financial statements included in the SEC Reports have been
prepared from, and are in accordance with, the books and records of the Company
and its consolidated subsidiaries, comply in all material respects with
applicable accounting requirements, have been prepared in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position and the consolidated
results of operations and cash flows (and changes in financial position, if any)
of the Company and its consolidated subsidiaries as of the respective dates
thereof, subject, in the case of unaudited statements, to normal recurring
year-end adjustments and the absence of footnotes.
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(b) Except with respect to information relating to the Company
and its subsidiaries or the transactions contemplated hereby or as disclosed in
the Disclosure Schedule or the Draft S-1, the Draft S-1 does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. It is understood that
such Draft S-1 may be changed as a result of, among other things, comments from
the SEC, market and other conditions, the passage of time and the occurrence of
events, and that the fact of such change shall not, in itself, suggest that the
Draft S-1 did not meet the standards set forth in the immediately preceding
sentence.
2.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 2.8
of the Disclosure Schedule or in the Draft S-1, since September 30, 1997 and up
to and as of the date of this Agreement, (i) the Company has conducted its
businesses only in the ordinary and usual course, consistent with past practice
and (ii) there have not occurred any events, changes or effects which have had
or which are reasonably likely to have, in the aggregate, a Material Adverse
Effect on the Company.
2.9 NO UNDISCLOSED LIABILITIES. Except for liabilities and
obligations (x) incurred pursuant to the terms of this Agreement or (y) as set
forth in Section 2.9 of the Disclosure Schedule or in the Draft S-1, since
September 30, 1997 through the date of this Agreement, the Company has not
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, whether known or unknown that have, or are reasonably
likely to have, a Material Adverse Effect on the Company, or would be required
by GAAP to be reflected on a consolidated balance sheet of the Company and its
subsidiaries (including the notes thereto).
2.10 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed
in Section 2.10 of the Disclosure Schedule, the Company is not, and the business
of the Company is not being conducted, in default or violation of any term,
condition or provision of (i) its amended and restated certificate of
incorporation, as currently in effect (the "Existing Certificate") or bylaws, as
currently in effect, (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company is a
party or by which the Company or any of its properties or assets may be bound or
(iii) any federal, state, local or foreign statute, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to the
Company (including, without limitation, the Foreign Corrupt Practices Act),
excluding from the foregoing clauses (ii) and (iii), defaults or violations
which would not, in the aggregate, have a Material Adverse Effect on the
Company.
2.11 INTELLECTUAL PROPERTY. The Company and its subsidiaries and
affiliates own or are licensed or otherwise have the rights to use all patents,
trademarks, trade names, service marks, copyrights, technology, trade secrets,
licenses, know-how, processes and other intellectual property rights material to
or necessary for the conduct of its businesses as presently conducted
(collectively, "Intellectual Property Rights"). The Intellectual Property
Rights are set forth in Section 2.11 of the Disclosure Schedule, together with
all related licenses and registrations and
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applications. To the Company's knowledge, the use by the Company, any of its
subsidiaries or affiliates of all Intellectual Property Rights does not infringe
on the rights of any person. To the Company's knowledge, no third person is
infringing on the Intellectual Property Rights of the Company.
2.12 LITIGATION. Except as set forth in Section 2.12 of the
Disclosure Schedule, there is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of the Series J Agreements, or the right of the
Company to enter into the Series J Agreements, or to consummate the transactions
contemplated hereby or thereby, or that have, or are reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on the
Company, nor is the Company aware that there is any basis for any such action,
suit, proceeding or investigation. The foregoing representation includes,
without limitation, actions, suits, proceedings or investigations pending or
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality that has, or is
reasonably likely to have, a Material Adverse Effect on the Company. There is
no action, suit, proceeding or investigation by the Company currently pending or
that the Company intends to initiate.
2.13 TAXES. Except as set forth in Section 2.13 of the Disclosure
Schedule, all Tax Returns (as defined below in this Section 2.13) required to be
filed with respect to the Company for all Taxable Periods (as defined below in
this Section 2.13) ending on or before the date hereof have been timely filed.
All such Tax Returns (i) were prepared in the manner required by applicable law,
(ii) are true, correct and complete in all material respects, and (iii) reflect
the liability for Taxes (as defined below in this Section 2.13) of the Company.
All Taxes shown to be payable on such Tax Returns, and all assessments of Taxes
made against the Company with respect to such Tax Returns, have been paid when
due. No adjustment relating to any such Tax Returns has been proposed or
threatened formally or informally by any taxing authority and no basis exists
for any such adjustment. The Company has made (or there has been made on its
behalf) all required current estimated Tax payments sufficient to avoid any
underpayment penalties. The Company has (i) timely paid or caused to be paid
all Taxes that are or were due on or prior to the date hereof, whether or not
shown (or required to be shown) on a Tax Return, and (ii) provided a sufficient
reserve for the payment of all Taxes not yet due and payable in the financial
statements included in the SEC Reports. The Company has complied in all
material respects with the provisions of the Code (as defined below in this
Section 2.13) relating to the withholding and payment of Taxes, including,
without limitation, the withholding and reporting requirements under Code
sections 1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as
similar provisions under any other laws, and has, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required. No material claim has
ever been made by any taxing authority with respect to the Company in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction. Except for liens for real and
personal property Taxes that are not yet due and payable, there are no liens for
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any Tax upon any asset of the Company. There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company by
reason of Code section 280G. For the purposes of this Agreement: "Code" means
the U.S. Internal Revenue Code of 1986, as amended; "Taxes" means all taxes,
charges, fees, social contributions, levies or other assessments, including,
without limitation, income, gross receipts, employment, excise, withholding,
property, sales, use, transfer, license, payroll and franchise taxes, and
social security payments, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof; "Taxable Period" means any taxable year or any other period
that is treated as a taxable year with respect to such other period, (e.g., a
quarter) with respect to which any Tax may be imposed under any applicable
statute, rule or regulation; and "Tax Return" means any report, return,
election, notice or other information required to be supplied to a taxing
authority in connection with Taxes.
2.14 EMPLOYEE BENEFIT PLANS. (a) Section 2.14(a) of the Disclosure
Schedule contains a true and complete list of all employee profit-sharing,
incentive, deferred compensation, welfare, pension, retirement, group insurance,
bonus, severance, stock option, stock purchase, and other employee benefit
plans, programs or arrangements (oral or written), including, without
limitation, any such plan or arrangement that is an "employee benefit plan," as
such term is defined in section 3(3) of the Employee Retirement Income Security
Act of 1974 (a "Company Plan"), as amended ("ERISA"), maintained or contributed
to by the Company or by any trade or business (an "ERISA Affiliate") that
together with the Company would be deemed a "single employer" within the meaning
of section 4001(a)(14) of ERISA.
(b) No liability under Title IV of ERISA has been incurred by
the Company or any ERISA Affiliate and no condition exists that presents a
material risk of incurring any such liability. No prohibited transaction, as
described in section 406 of ERISA, has occurred with respect to any Company Plan
and no tax has been imposed pursuant to section 4975 or 4976 of the Code. Full
payment has been made of all amounts which the Company or any ERISA Affiliate is
required to pay each Company Plan and no Company Plan has incurred any
"accumulated funding deficiency" (as defined in section 412 of the Code),
whether or not waived. Each Company Plan has been operated and administered in
accordance with its terms and applicable law, there are no pending or, to the
knowledge of the Company, threatened or anticipated claims with respect to any
Company Plan (other than routine claims for benefits) and each Company Plan
which is intended to be "qualified" under section 401(a) of the Code is so
qualified. No Company Plan provides benefits with respect to current or former
employees of the Company or any ERISA Affiliate beyond their retirement or other
termination of service.
(c) Except as disclosed in Section 2.14 of the Disclosure
Schedule, the consummation of the transactions contemplated by the Series J
Agreements (either alone or together with any other event) will not (i) entitle
any current or former director, officer or employee of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment, (ii)
accelerate the time of payment or vesting, or increase
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the amount of compensation due any such director, officer or employee or
(iii) increase the benefits or other rights of any such director, officer or
employee under any Company Plan, or create a funding obligation under any
Company Plan.
2.15 DISCLOSURE. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Securities. Neither the Series J Agreements, nor any other
statements or certificates required to be made or delivered in connection
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
2.16 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. The Company
is not bound by or subject to (and none of its assets or properties is bound by
or subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
best of the Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a Material Adverse Effect on the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company. To the best of its knowledge, the
Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment.
2.17 SECTION 83(b) ELECTIONS. To the best of the Company's knowledge,
all individuals who have purchased unvested shares of the Company's Common Stock
have timely filed elections under Section 83(b) of the Code and any analogous
provisions of applicable state tax laws.
2.18 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into each Series J Agreement to which it is a party, and each such
agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
such Investor in reliance upon such Investor's representation to the Company,
which by such
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Investor's execution of this Agreement such Investor hereby confirms, that the
Series J Shares and Warrants to be received by such Investor and the Common
Shares issuable upon conversion thereof will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of any applicable
federal or state securities law, and that such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, such Investor further represents that such Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series J Shares and Warrants. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series J Shares and Warrants and the business, properties, prospects and
financial condition of the Company. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series J
Shares and Warrants. If other than an individual, Investor also represents it
has not been organized for the purpose of acquiring the Series J Shares and
Warrants.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act, only in certain limited circumstances. In this connection,
such Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3, the Registration Rights Agreement and the Investor Rights
Agreement provided and to the extent that this Section and such agreements are
then applicable, and:
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(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Investor hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by applicable law or any Series J
Agreement.
3.9 FURTHER REPRESENTATIONS BY FOREIGN INVESTORS. If such Investor
is not a United States person, such Investor hereby represents that he or she
has satisfied himself or herself as to the full observance of the laws of his or
her applicable jurisdiction(s) in connection with any invitation to subscribe
for the Securities or any use of this Agreement, including (i) the legal
requirements within his or her jurisdiction(s) for the purchase of the
Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and
(iv) the income tax and other tax consequences, if any, that may be relevant to
the purchase, holding, redemption, sale, or transfer of the Securities. Such
Investor's subscription and payment for, and his or her continued beneficial
ownership of the Securities, will not violate any applicable securities or other
laws of any applicable jurisdiction(s).
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT FIRST CLOSING. The
obligations of each Investor at the First Closing under subsection 1.1(c) of
this Agreement are subject to the
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fulfillment on or before the First Closing of each of the following conditions,
the waiver of which shall not be effective against any Investor who does not
consent thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
First Closing with the same effect as though such representations and warranties
had been made on and as of the date of such First Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the First Closing.
4.3 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the
Company shall deliver to each Investor at the First Closing a certificate
stating that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled and stating that there shall have been no event, change or effect
which has had or which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company since the date of this
Agreement.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the First Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the First Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
the Company, an opinion, dated as of the First Closing, in substantially the
form attached hereto as EXHIBIT G.
4.7 INVESTOR RIGHTS AGREEMENT. The Company and holders of the
requisite number of the Registrable Securities, as defined in the Prior Investor
Rights Agreement, shall have entered into the Investor Rights Agreement.
4.8 REGISTRATION RIGHTS AGREEMENT. The Company and holders of the
requisite number of the Registrable Securities, as defined in the Amended and
Restated Registration Rights Agreement dated August 18, 1997, shall have entered
into the Registration Rights Agreement.
4.9 SUPPORT SERVICES AGREEMENT. The Company and Vanguard China shall
have entered into the Support Services Agreement.
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4.10 PAYMENT OF FEES AND EXPENSES. The Company shall have paid or
made arrangements to pay concurrently with the First Closing (i) the reasonable
fees and expenses of the Investors (excluding fees and expenses of their
counsel, except as provided in clause (ii) below) and (ii) the reasonable fees
and expenses of each counsel incurred in connection with the purchase and sale
of Securities at the First Closing or the review and negotiation of the Series J
Agreements by an Investor or stockholder of the Company (up to a maximum of
$10,000 per counsel) if (A) such Investor or stockholder owns at least four
percent (4%) of any outstanding class of the Company's capital stock or (B) such
counsel represents all of the holders of one or more series of Preferred Stock.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT FIRST CLOSING. The
obligations of the Company to each Investor with respect to the First Closing
under this Agreement are subject to the fulfillment on or before the First
Closing of each of the following conditions by that Investor, any one or more of
which may be waived by the Company:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of such Investor contained in Section 3 shall be true on and as of
the First Closing with the same effect as though such representations and
warranties had been made on and as of the First Closing.
5.2 PERFORMANCE. Such Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the First
Closing, including delivery of the purchase price specified in Section 1.1(c).
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the First Closing.
5.4 INVESTOR RIGHTS AGREEMENT. Such Investor shall have entered into
the Investor Rights Agreement.
5.5 REGISTRATION RIGHTS AGREEMENT. Such Investor shall have entered
into the Registration Rights Agreement.
5.6 SUPPORT SERVICES AGREEMENT. The Company and Vanguard shall have
entered into the Support Services Agreement.
6. CONDITIONS OF INVESTORS' OBLIGATIONS AT SUBSEQUENT CLOSING. The
obligations of each Investor with respect to any Subsequent Closing under
subsection 1.1(c) of this Agreement are subject to the fulfillment on or before
such Subsequent Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent thereto:
13
<PAGE>
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of such
Subsequent Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Subsequent Closing.
6.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before such Subsequent
Closing.
6.3 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the
Company shall deliver to each Investor at such Subsequent Closing a certificate
stating that the conditions specified in Sections 6.1 and 6.2 have been
fulfilled and stating that there shall have been no event, change or effect
which has had or which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company since the date of this
Agreement.
6.4 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of such Subsequent Closing.
6.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at such Subsequent Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
6.6 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
the Company, an opinion, dated as of such Subsequent Closing, in substantially
the form attached hereto as EXHIBIT G.
6.7 PAYMENT OF FEES AND EXPENSES. The Company shall have paid or
made arrangements to pay concurrently with such Subsequent Closing (i) the
reasonable fees and expenses of the Investors (excluding fees and expenses of
their counsel, except as provided in clause (ii) below) and (ii) the reasonable
fees and expenses of each counsel incurred in connection with the purchase and
sale of Securities that occur at such Subsequent Closing or the review and
negotiation of the Series J Agreements by an Investor or stockholder of the
Company (up to a maximum of $10,000 per counsel) if (A) such Investor or
stockholder owns at least four percent (4%) of any outstanding class of the
Company's capital stock or (B) such counsel represents all of the holders of one
or more series of Preferred Stock.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT SUBSEQUENT CLOSING.
The obligations of the Company to each Investor with respect to any Subsequent
Closing under this Agreement are subject to the fulfillment on or before such
Subsequent Closing of each of the following conditions by that Investor, any one
or more or which may be waived by the Company:
14
<PAGE>
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of such Investor contained in Section 3 shall be true on and as of
such Subsequent Closing with the same effect as though such representations and
warranties had been made on and as of such Subsequent Closing.
7.2 PERFORMANCE. Such Investor shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before such Subsequent
Closing, including delivery of the purchase price specified in Section 1.1(c).
7.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Second Closing.
7.4 INVESTOR RIGHTS AGREEMENT. Such Investor shall have entered into
the Investor Rights Agreement.
7.5 REGISTRATION RIGHTS AGREEMENT. Such Investor shall have entered
into the Registration Rights Agreement.
8. COVENANTS OF THE PARTIES.
8.1 PURCHASE OF SECURITIES BY VANGUARD. Subject to the terms and
conditions of this Agreement, Vanguard shall purchase Series J Shares and
Warrants with an aggregate purchase price of at least $10.0 million at the First
Closing. If the aggregate gross proceeds from the sale of Series J Shares and
Warrants purchased by Investors other than Vanguard at any Subsequent Closing
exceeds $8.0 million (the excess of such aggregate gross proceeds over
$8.0 million being referred to as the "Excess Proceeds"), the Company shall at
such Subsequent Closing use the Excess Proceeds to repurchase from Vanguard at
cost, and Vanguard agrees to sell to the Company at cost, such number of
Series J Shares and Warrants purchased by Vanguard at the First Closing
corresponding to the Excess Proceeds at an aggregate purchase price equal to the
Excess Proceeds.
8.2 USE OF PROCEEDS. The Company's use of the net proceeds from the
issuance of the Securities, including any and all expenditures by the Company,
shall be made pursuant to the prior approval of the Finance Committee of the
Board of Directors. Notwithstanding the foregoing, the Company may without such
approval (i) use a portion of such net proceeds to cause Pakistan Wireless
Holdings Limited to purchase 1,240,275 redeemable preference shares of
International Wireless Communications Pakistan Limited (the "Pakistan Shares")
pursuant to paragraph 3 or 4 of that certain letter agreement dated February 12,
1998 between Pakistan Wireless Holdings Limited and Vanguard Pakistan, Inc. and
(ii) use up to $5.0 million of such net proceeds to purchase units offered by
SDL (as defined below in Section 8.3(a)) in the unit offering on the terms and
conditions now or hereafter in effect. The Company hereby covenants that it
will purchase the Pakistan Shares pursuant to such paragraph 3 or 4 within
five (5) business days after the First Closing.
15
<PAGE>
8.3 VANGUARD EXCHANGE RIGHT.
(a) Subject to the terms and conditions of this Section 8.3,
Vanguard shall have the right ("Exchange Right") to exchange its direct or
indirect equity interests (for each company specified hereinafter, an "Equity
Interest") in Star Digitel Limited ("SDL"), Pakistan Mobile Communications (Pvt)
Limited ("PMCL") and any other operating company designated by the Company's
Board of Directors as a core operating company (together with SDL and PMCL, the
"Core Operating Companies"), in exchange for the Company's voting Common Stock
(the "Exchange") .
(b) The Company shall notify Vanguard in writing at least ninety
(90) days before the anticipated effective date of the initial public offering
("IPO") of its Common Stock. Within thirty (30) days after receipt of such
notice, Vanguard shall notify the Company in writing whether it will exercise
the Exchange Right to transfer all or any portion of its Equity Interests (any
Equity Interest that is transferred by Vanguard pursuant to this Section 8.3 or
Section 8.4 is hereinafter referred to as a "Transferred Equity Interest").
(c) If Vanguard exercises the Exchange Right, the Company and
Vanguard shall use commercially reasonable efforts to prepare, execute and
deliver a definitive agreement to effect the Exchange together with any other
necessary or appropriate documents and agreements (collectively, the "Exchange
Documents") in accordance with the following terms and conditions (together with
such other customary terms and conditions as shall be agreed to by the Company
and Vanguard, such agreement not to be unreasonably withheld):
(i) The closing of the Exchange shall occur simultaneously
with, and be conditioned upon, the closing of the IPO;
(ii) Vanguard shall transfer good and marketable title to
the Transferred Equity Interests free and clear of all adverse claims (other
than limitations and restrictions to which the Company's corresponding direct
and indirect equity interests are subject by virtue of the Company's ownership
of such equity interests). Vanguard shall also assign all contractual rights
(and the Company shall assume all contractual obligations) that relate to the
Transferred Equity Interests.
(iii) The number of shares of Common Stock issued to
Vanguard pursuant to an Exchange (the "Exchange Shares") shall equal the
Appraised Value (as defined below) of the Transferred Equity Interests pursuant
to such Exchange divided by the public offering price of Common Stock sold in
the IPO (before any underwriting discounts or commissions). The Exchange Shares
shall be duly and validly issued, fully paid and nonassessable and free and
clear of any adverse claims (other than contractual restrictions generally
applicable to the Common Stock (e.g., a lock-up agreement) and restrictions
arising under applicable law). The Exchange Shares shall have the same
registration rights as those granted to holders of the Company's Series E
Preferred Stock.
(iv) The "Appraised Value" of each Transferred Equity
Interest of a Core Operating Company shall equal the product of (A) the
percentage equity interest in
16
<PAGE>
such Core Operating Company being transferred by Vanguard and (B) the final
valuation of such Core Operating Company by the underwriters in connection with
the IPO net of any discounts applicable to the Company's equity interest in such
Core Operating Company, including any discount for the net present value of the
Company's future corporate overhead costs (or, if there is more than one such
final valuation by the underwriters, the average of such final valuations),
subject to appropriate adjustment in such Appraised Value for contractual rights
and obligations relating to such Equity Interest. Any such discounts and
adjustments shall be approved by the Company and Vanguard, which approval shall
not be unreasonably withheld.
(v) The Exchange Documents shall contain customary
representations, warranties and covenants for transactions similar to the
Exchange and shall be conditioned upon obtaining all required third party and
government consents and waivers.
(vi) Any dispute relating to the terms and conditions of
the Exchange or the Exchange Documents, the interpretation of the Exchange
Documents or the amount of any liability or other recovery resulting from the
breach of this Section 8.3 or the Exchange Documents shall be resolved by
legally binding arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, as then in effect.
(d) The costs incurred by Vanguard and the Company in effecting
an Exchange, including legal fees and expenses, shall be shared equally by
Vanguard and the Company.
8.4 VANGUARD CO-SALE RIGHT.
(a) Subject to the terms and conditions of this Section 8.4,
Vanguard shall have the right (a "Co-Sale Right") to transfer its Equity
Interest in a Core Operating Company.
(b) The Company shall notify Vanguard at least forty-five (45)
days before the anticipated closing date of any transfer of all or any portion
of the Company's equity interest in a Core Operating Company, whether by means
of a merger, reorganization or consolidation of the Company or any of its
subsidiaries (other than with the Company or a wholly owned subsidiary of the
Company) or the sale of all or substantially all the assets of the Company or
any of its subsidiaries (other than to the Company or a wholly owned subsidiary
of the Company). Within fifteen (15) days after receipt of such notice,
Vanguard shall notify the Company in writing whether it will exercise the
Co-Sale Right to transfer its Equity Interest in such Core Operating Company.
(c) If Vanguard exercises the Co-Sale Right, the Company and
Vanguard shall use commercially reasonable efforts to permit Vanguard to sell
all or a portion of its Equity Interest in such Core Operating Company to the
third-party purchaser ("Purchaser") acquiring the Company's equity interest in
such Core Operating Company, including the preparation, execution and delivery
of any necessary or appropriate documents and agreements (collectively, the
"Co-Sale Documents") in accordance with the following terms and conditions
17
<PAGE>
(together with such other customary terms and conditions that shall be agreed to
by the Company and Vanguard, such agreement not to be unreasonably withheld):
(i) Vanguard may transfer the same pro rata share of its
Equity Interest in such Core Operating Company as the pro rata share of the
Company's equity interest that the Company transfers. (For example, if the
Company sells 75% of its equity interest in a Core Operating Company, Vanguard
may sell 75% of its Equity Interest in such Core Operating Company.) If the
Purchaser is unwilling to increase the amount of the equity interest that it
purchases in such Core Operating Company, the amount of the equity interest in
such Core Operating Company that the Company sells shall be reduced so that on a
percentage basis the Company and Vanguard sell the same pro rata share of their
equity interest in such Core Operating Company.
(ii) Vanguard shall transfer its Equity Interest in such
Core Operating Company on the same terms and conditions as the Company sells its
equity interest in such Core Operating Company (including receipt of its pro
rata share of different types of consideration, if more than one type of
consideration is paid by the Purchaser, and payment of its pro rata share of any
applicable commissions and other transaction expenses reasonably incurred by the
Company in connection with transferring its equity interest in such Core
Operating Company (provided that such commissions and expenses apply ratably to
the equity interests in such Core Operating Company being transferred by the
Company and Vanguard), including fees and expenses of any investment bankers
incurred in connection with such transaction). If the Company's equity interest
in such Core Operating Company is part of additional assets being transferred by
the Company to such Purchaser (or liabilities being assumed by the Purchaser in
connection with such transfer), the Company shall obtain an independent third
party appraisal of the value of the assets being transferred by the Company (net
of the liabilities being assumed by the Purchaser) and the value of Vanguard's
Transferred Equity Interest. Such appraisal shall be used to determine the
amount of consideration to be received by Vanguard for transferring all or a
portion of its Equity Interest upon exercise of its Co-Sale Right.
(iii) The appraiser shall be an investment banking firm of
recognized national standing selected by a majority of the directors of the
Company (excluding directors of the Company elected by Vanguard pursuant to the
first sentence of Section V.B.5(b) of the Restated Certificate).
(iv) The Co-Sale Documents shall contain customary
representations, warranties and covenants for transactions similar to the
transfer of the Equity Interest by Vanguard and shall be conditioned upon
obtaining all required third party and government consents and waivers.
(v) Any dispute relating to the terms and conditions upon
which Vanguard exercises its Co-Sale Right, the interpretation of the Co-Sale
Documents or the amount of any liability or other recovery resulting from a
breach of this Section 8.4 or the Co-Sale Documents shall be resolved by legally
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, as then in effect.
18
<PAGE>
(d) The costs incurred by Vanguard and the Company in connection
with effecting Vanguard's exercise of the Co-Sale Right, including legal fees
and expenses and appraisal fees and expenses, shall be borne equally by the
Company and Vanguard.
8.5 RIGHT OF FIRST OFFER. The Company shall offer to each holder of
Deemed Outstanding Shares (defined below) a right to purchase a pro rata share
of the Series J Shares and Warrants offered pursuant to this Agreement.
Promptly after the First Closing, the Company shall deliver a notice (the "Offer
Notice") to each holder of Deemed Outstanding Shares stating (i) the number of
Series J Shares and Warrants to be offered and (ii) the price and terms upon
which it is offering such Securities. By written notice received by the Company
within thirty (30) calendar days after receiving the Offer Notice, each holder
of Deemed Outstanding Shares may elect to purchase, at the price and on the
terms specified in the Offer Notice, up to that portion of such Series J Shares
and Warrants which equals the total number of Series J Shares offered multiplied
by a fraction, the numerator which is the number of Deemed Outstanding Shares
held by such holder and the denominator of which is the total number of Deemed
Outstanding Shares. Any Series J Shares and Warrants not purchased by holders
of Deemed Outstanding Shares pursuant to this Section 8.5 may be offered and
sold by the Company to any other third party. The term "Deemed Outstanding
Shares" shall mean the total number of shares of capital stock of the Company
issued and outstanding as of January 31, 1998 assuming the conversion of all
outstanding shares of Preferred Stock into Common Stock and the exercise of all
outstanding warrants, options and other rights to acquire capital stock of the
Company (but excluding Common Stock issuable upon warrants issued pursuant to
the Warrant Agreement dated as of August 15, 1996 between the Company and
Bankers Trust Company, as warrant agent). Each holder's pro rata share of the
Deemed Outstanding Shares is set forth on the Right of Participation Schedule
attached hereto as EXHIBIT H.
8.6 MOST FAVORED NATIONS CLAUSE. In the event the Company raises
additional capital in a subsequent private placement of its equity securities
(i) subject to clause (ii) below, in a manner consistent with Section 6.01(o)
of the Loan Agreement dated August 18, 1997 among the Company and the investors
named therein and (ii) in an amount at least equal to the aggregate purchase
price for the Series J Shares and related Warrants sold by the Company at the
First and Subsequent Closings (the "Private Placement"), the Company shall
notify each Investor in writing at least twenty (20) days before the initial
closing of the Private Placement. Such notice shall include (i) the number and
type of equity securities to be offered and sold at such closing and (ii) the
price and terms upon which such equity securities will be sold. Within five
(5) business days prior to such closing date, each Investor may elect to
exchange all or a portion of its Series J Shares and Warrants purchased by it
pursuant to this Agreement (provided that such Investor must exchange Warrants
proportionately with Series J Shares) for the equity securities issued in the
Private Placement. The value of the Series J Shares and Warrants at such
closing (for purposes of calculating the purchase price by an Investor who
acquires equity securities in the Private Placement in exchange for Series J
Shares and Warrants) shall equal the aggregate purchase price paid by the
Investor for such Series J Shares and Warrants pursuant to this Agreement.
19
<PAGE>
9. MISCELLANEOUS.
9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
9.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, by
facsimile to the party to be notified (with confirmation of receipt) or upon
deposit with any United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
9.7 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
20
<PAGE>
9.8 EXPENSES. Irrespective of whether any Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. Except as
provided in Sections 4.10 and 6.7 and except as provided in the following
sentence, each Investor shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of any Agreement or the Restated Certificate, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
9.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement (other than waivers of
fulfillment of conditions under Section 4, 5, 6, or 7, which may be waived by
the party who has the benefit of the fulfillment of such conditions) may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock issuable or issued upon conversion of the
Series J Shares. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such Securities, and the
Company.
9.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES THAT ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.12 AGGREGATION OF STOCK. All shares of the Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
9.13 ENTIRE AGREEMENT; NEGOTIATION.
(a) This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein. This Agreement
and the documents referred to herein supersede any other previous
21
<PAGE>
agreements among any of the parties hereto with respect to the subject matter
hereof, and any such previous agreements shall be of no further force and
effect.
(b) The parties hereto hereby acknowledge and agree that this
Agreement and the documents referred to herein to which Vanguard (or its parent
or subsidiary) is a party have been negotiated by Vanguard (or such parent or
subsidiary) on its own behalf, on the one hand, and the Finance Committee of the
Board of Directors of the Company on behalf of the Company, on the other hand.
9.14 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges
that Gunderson Dettmer Stough Villeneuve Franklin and Hachigian, LLP, counsel
for the Company ("Gunderson Dettmer"), has in the past and may continue to
perform legal services for certain of the Investors in matters unrelated to the
transactions described in this Agreement, including the representation of such
Investors in venture capital financings and other matters. Accordingly, each
party to this Agreement hereby (1) acknowledges that they have had an
opportunity to ask for information relevant to this disclosure; (2) acknowledges
that Gunderson Dettmer represented the Company in the transaction contemplated
by this Agreement and has not represented any individual Investor or any
individual shareholder or employee of the Company in connection with such
transaction; and (3) gives its informed consent to Gunderson Dettmer's
representation of certain of the Investors in such unrelated matters and to
Gunderson Dettmer's representation of the Company in connection with this
Agreement and the transactions contemplated hereby.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: 400 S. El. Camino Real, Suite 1275
San Mateo, CA 94402
Facsimile no.: (650) 548-1842
with a copy to:
Steven D. Overly
Senior Vice President and General Counsel
International Wireless Communications
Holdings, Inc.
400 S. El Camino Real
San Mateo, CA 94402
Facsimile no.: (650) 548-1842
INVESTOR:
-------------------------------------------
By:
--------------------------------------
Address:
-------------------------------------------
-------------------------------------------
Facsimile no.:
----------------------------
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
TOTAL PURCHASE
NUMBER OF PRICE OF SERIES J SHARES
NAME AND ADDRESS SERIES J SHARES PURCHASED AND WARRANTS
---------------- ------------------------- ------------
FIRST CLOSING
<S> <C> <C>
Vanguard Cellular Operating Corp. 789,266 $10,000,000.00
2002 Pisgah Church Road
Suite 300
Greensboro, NC 27455
Facsimile no. (___) ___-_____
SUBSEQUENT CLOSING
</TABLE>
S-1
<PAGE>
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE ACT OR PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
No. IWCH (SJPS) - 1 Void after March 10, 2008
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant, dated March 10, 1998, is issued to Vanguard Cellular
Operating Corp., a Delaware corporation (the "Holder"), by International
Wireless Communications Holdings, Inc., a Delaware corporation (the "Company"),
pursuant to the Series J Preferred Stock and Warrant Purchase Agreement, dated
as of March 10, 1998, by and among the Company and the investors named therein,
including the Holder ("Purchase Agreement").
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the Holder hereof in writing), to purchase a number of shares of the
Company's Class 1 Common Stock, par value $0.01 per share (the "Equity
Securities"), at a per share purchase price of No Dollars and One Cent ($0.01)
per share, which is equal to (a) the Total Number of Issuable Warrant Shares (as
defined below) at such time, REDUCED BY (b) the number of Warrant Shares as to
which this Warrant has theretofore been exercised or canceled (as adjusted
pursuant to Section 8, the "PREVIOUSLY ISSUED WARRANT SHARES"). The shares of
Equity Securities issuable at any time as described in clauses (a) and (b) above
are referred to as the "WARRANT SHARES". The purchase price of the Warrant
Shares as provided in this Section 1 (the "Exercise Price") shall be subject to
adjustment pursuant to Section 8 hereof.
2. DEFINITIONS.
(a) CORPORATE TRANSACTION. The term "Corporate Transaction"
shall mean (A) the acquisition of capital stock of the Company by another entity
by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation but, excluding
any merger effected exclusively for the purpose of changing the domicile of the
Company); or (B) a sale of all or substantially all of the assets of the
<PAGE>
Company; UNLESS the Company's stockholders of record as constituted immediately
prior to such acquisition or sale will, as a result of such acquisition or sale
(by virtue of securities issued as consideration for the Company's acquisition
or sale or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity immediately after such acquisition or sale.
(b) EARNED WARRANT PERCENTAGE. During each period set forth
below, the Earned Warrant Percentage will equal the corresponding percentage set
forth below:
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD EARNED WARRANT
PERCENTAGE
---------------------------------------- --------------------
<S> <C>
March 10, 1998 to and including
September 9, 1998 22.0%
September 10, 1998 to and including
December 9, 1998 38.0%
December 10, 1998 and thereafter 58.0%
</TABLE>
; provided that on and after the Termination Date (as defined below), the Earned
Warrant Percentage shall equal the Earned Warrant Percentage in effect on the
Termination Date. Notwithstanding the foregoing, if the Termination Date occurs
pursuant to Section 2(d) before December 10, 1998, the Earned Warrant Percentage
in effect at the beginning of the period in which the Termination Date occurs
shall be increased by an amount computed using the following formula, rounded to
the nearest whole number:
X = A x B
-------
C
Where X - The increase in the Earned Warrant Percentage
A - The difference between the Earned Warrant Percentage in
effect during the period when the Termination Date
occurs and the Earned Warrant Percentage applicable to
the following period
B - The number of days from the first date of the period in
which the Termination Date occurs up to (and including)
the Termination Date
C - The total number of days in the period in which the
Termination Date occurs to (and including) the last date
of such period
(c) SERIES J VALUATION PRICE. The term "Series J Valuation
Price" shall have the meaning given to it in Section V.B.4(a4)(i)(C) of the
Company's Amended and Restated Certificate of Incorporation in the form filed
with the Delaware Secretary of State pursuant to Section 1.1(a) of the Purchase
Agreement.
2
<PAGE>
(d) TERMINATION DATE. The term "Termination Date" shall mean
the date on which either of the following events first occurs: (i) the Company
has raised a total of not less than $50 million from a combination of (A) the
net proceeds from the issuance of public or private equity by the Company or any
subsidiary thereof (including the equity securities issued by the Company
pursuant to the Purchase Agreement) and (B) the net proceeds from any asset
sales by the Company and its subsidiaries and affiliates, to the extent such
proceeds may be used by the Company to make Permitted Investments (as such term
is defined in the Indenture dated as of August 15, 1996, between the Company, as
issuer, and Marine Midland Bank, as trustee) or (ii) a Corporate Transaction.
(e) TOTAL NUMBER OF ISSUABLE WARRANT SHARES. Means the quotient
obtained by dividing the amount in clause (i) below by the amount in clause (ii)
below, rounded up to the nearest whole number, where:
(i) (A) Ten Million Dollars ($10,000,000.00) (representing
the total purchase price paid by the Holder for the Series J Shares (as defined
in the Purchase Agreement) and this Warrant pursuant to the Purchase Agreement)
multiplied by (B) the Earned Warrant Percentage; and
(ii) The lesser of (A) $12.67 per share (subject to
appropriate adjustments for stock splits, combinations, dividends and the like)
and (B) the Series J Valuation Price (subject to appropriate adjustments for
stock splits, combinations, dividends and the like).
3. EXERCISE PERIOD. This Warrant is exercisable at any time on any
business day but only until and including the close of business on March 10,
2008.
4. METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, from
time to time, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of this Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Warrant Shares being purchased.
5. NET ISSUE EXERCISE.
(a) The Holder may elect to exchange the right to purchase all
or a portion of the Warrant Shares subject to this Warrant for Equity Securities
on a net issue basis by surrendering this Warrant at the principal office of the
Company together with the subscription notice of such election. Upon such
surrender, the Company shall issue to the Holder a number of shares of Equity
Securities computed using the following formula:
3
<PAGE>
X = (Y)(A-B)
--------
A
Where X - The number of shares of Equity Securities to be issued to
Holder.
Y - The number of shares of Warrant Shares as to which such
cancellation is to be effected.
A - The fair market value of one share of the Equity
Securities to be issued upon such cancellation.
B - Exercise Price (as adjusted to the date of such
calculations).
(b) For purposes of this Section, the Board of Directors of the
Company shall determine the fair market value in its good faith. Upon such
exchange, this Warrant shall be cancelled as to the number of Warrant Shares
represented by Y in the formula set forth in Section 5(a).
6. RETURN OF WARRANT AND CERTIFICATES FOR WARRANT SHARES. Upon the
exercise or cancellation of the purchase rights evidenced by this Warrant, one
or more certificates for the number of Warrant Shares to be issued shall be
issued as soon as practicable thereafter, and in any event within thirty
(30) days of the delivery of the subscription notice. Together with such share
certificate(s), the Company will return to the Holder (or to such other Person
as the Holder may designate, so long as the Holder has complied with the
applicable provisions of Section 11 as to the transfer of this Warrant to such
other Person) this Warrant, after recording on the attached
Exercise/Cancellation Schedule the date of such exercise or cancellation and the
number of Warrant Shares as to which this Warrant is being exercised or
canceled.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it
will at all times keep available such number of authorized shares of its Equity
Securities issuable upon exercise of this Warrant and shares of its capital
stock issuable upon conversion of such Equity Securities, free from all
preemptive rights with respect thereto, which will be sufficient to permit the
exercise or cancellation of the rights under this Warrant for the full number of
Warrant Shares specified herein and the conversion of the Warrant Shares into
such shares of capital stock. The Company further covenants that (a) such
Warrant Shares, when issued pursuant to the exercise of this Warrant, and (b)
such shares of capital stock, when issued upon conversion of such Warrant
Shares, will be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens, and charges with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number of Warrant Shares, the kind of securities purchasable upon exercise or
cancellation of rights under this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:
4
<PAGE>
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Equity Securities by split-up or otherwise, or combine its capital stock, or
issue additional securities as a dividend with respect to any shares of its
Equity Securities, the number of Warrant Shares shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination. Inversely proportional
adjustments shall also be made to the Exercise Price payable per share, but the
aggregate purchase price payable for the total number of Warrant Shares
purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION, AND CONSOLIDATION. In
case of any reclassification, capital reorganization, or change in the capital
stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of capital stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the Exercise Price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) NOTICE OF ADJUSTMENT. When any adjustment is required to be
made in the Warrant Shares, in the number or kind of shares purchasable upon
exercise of this Warrant, or in the Exercise Price, the Company shall promptly
notify the Holder of such event and the adjusted number of Warrant Shares, the
adjusted Exercise Price and the number of shares and the type of securities or
property thereafter purchasable upon exercise of or cancellation of rights under
this Warrant. The Company shall give the Holder at least twenty (20) business
days' advance notice of any event that has, or with the passage of time or
giving of notice will, give rise to the liquidation or dissolution of the
Company or constitute a "Corporate Transaction" as defined in the Company's
Amended and Restated Certificate of Incorporation as currently in effect.
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or cancellation
of rights under this Warrant, but in lieu of such fractional shares the Company
shall make a cash payment therefor on the basis of the fair market value (as
determined in good faith by the Company's Board of Directors) of one Warrant
Share of the type in question.
5
<PAGE>
10. NO STOCKHOLDER RIGHTS. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Warrant Shares, including (without limitation) the right to vote such Warrant
Shares, receive dividends or other distributions thereon, exercise preemptive
rights or be notified of stockholder meetings, and such Holder shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company. Notwithstanding the foregoing, the Company will give written
notice to the Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (i) with respect to any Distribution
(as defined in the Loan Agreement referred to in the last sentence of this
paragraph) upon the Equity Securities or any capital stock into which such
Equity Securities are convertible, (ii) with respect to any pro rata
subscription offer to holders of the Equity Securities or any capital stock into
which such Equity Securities are convertible or (iii) for determining rights to
vote with respect to any Liquidity Event (as defined below), Change of Control
(as defined below), dissolution or liquidation. The terms "Liquidity Event" and
"Change of Control" shall have the respective meanings given to them in the Loan
Agreement dated August 18, 1997 among the Company and the lenders named on
EXHIBIT A thereto.
11. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Holder
and their respective successors and assigns.
The Holder may transfer in whole or in part the purchase rights
evidenced hereby to any third party to whom such rights may be transferred
without registration or qualification under federal or state securities laws,
provided: (a) the transferee or assignee receives a Warrant to purchase at least
five percent (5%) of the Warrant Shares; (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of the
name and address of such transferee or assignee; (c) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Warrant; and (d) the transferor shall have delivered to the Company, if
reasonably requested by counsel to the Company, an opinion of counsel
substantially to the effect that the transfer or assignment can be effected
without registration or qualification under applicable federal or state
securities laws (or, at the Holder's option, a certification by the Holder to
that effect in which the Holder agrees to indemnify and hold harmless the
Company in respect of any violation of such securities laws in connection with
such transfer). Upon surrender of this Warrant to the Secretary of the Company
at its principal offices after any such transfer, the Company will issue one or
more new Warrants of like tenor (in the name(s) of the Holder and/or the
transferee(s), as appropriate) representing in the aggregate the purchase rights
represented by this Warrant.
12. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of the Warrants representing a
majority of the securities as to which all outstanding Warrants are then
exercisable. Any waiver or amendment effected in accordance with this Section
shall be binding upon each holder of the Warrants, any Warrant Shares thereafter
purchased under this Warrant, each future holder of all such Warrant Shares, and
the Company.
6
<PAGE>
13. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges that by
the operation of Section 12, the holders of the Warrants representing a majority
of the securities as to which all outstanding Warrants are then exercisable will
have the right and power to diminish or eliminate all rights of the Holder under
this Warrant.
14. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Delaware as applied to agreements among Delaware residents made and to
be performed entirely within the State of Delaware.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
7
<PAGE>
SUBSCRIPTION
International Wireless Communications Holdings, Inc.
Attention: Corporate Secretary
1. The undersigned hereby elects to purchase, pursuant to the
provisions of the Warrant to Purchase _______________ shares of
_________________ stock of International Wireless Communications Holdings, Inc.
and held by the undersigned, ____________ shares of ________ stock of
International Wireless Communications Holdings, Inc. Payment of the exercise
price per share required under such Warrant accompanies this Subscription.
1. The undersigned hereby elects to receive shares equal to the
value of this Warrant as to _________ Warrant Shares in the manner specified in
Section 5 of the Warrant.
[Strike paragraph above that does not apply.]
Date:
------------------------
Signature:
------------------------
Address:
------------------------
------------------------
Name in which shares should be registered:
- ------------------------------------
<PAGE>
EXERCISE/CANCELLATION SCHEDULE
Date Number of Warrant Shares as to which Warrant
Exercised or Canceled
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
EIGHTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
As of March 10, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Request for Registration . . . . . . . . . . . . . . . . . . . 4
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . 5
1.4 Obligations of the Company . . . . . . . . . . . . . . . . . . 6
1.5 Furnish Information. . . . . . . . . . . . . . . . . . . . . . 7
1.6 Expenses of Demand Registration. . . . . . . . . . . . . . . . 8
1.7 Expenses of Company Registration . . . . . . . . . . . . . . . 8
1.8 Underwriting Requirements. . . . . . . . . . . . . . . . . . . 8
1.9 Delay of Registration. . . . . . . . . . . . . . . . . . . . . 9
1.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 9
1.11 Reports Under 1934 Act. . . . . . . . . . . . . . . . . . . .11
1.12 Form S-3 Registration . . . . . . . . . . . . . . . . . . . .12
1.13 Assignment of Registration Rights . . . . . . . . . . . . . .13
1.14 Limitations on Subsequent Registration Rights;
Registration Rights Agreement. . . . . . . . . . . . . . . .13
1.15 "Market Stand-Off" Agreement. . . . . . . . . . . . . . . . .13
1.16 Termination of Registration Rights. . . . . . . . . . . . . .14
2. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . .14
2.1 Delivery of Financial Statements . . . . . . . . . . . . . . .14
2.2 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.3 Right of First Offer on Primary Sales. . . . . . . . . . . . .15
2.4 Restrictions on Sale or Other Disposition of Shares. . . . . .18
2.5 Right of First Offer on Certain Secondary Sales. . . . . . . .19
2.6 Board Representation . . . . . . . . . . . . . . . . . . . . .22
2.7 Observer Rights. . . . . . . . . . . . . . . . . . . . . . . .23
2.8 Co-Sale Rights . . . . . . . . . . . . . . . . . . . . . . . .24
2.9 Stock Purchases by Employees, Officers, Directors and
Consultants. . . . . . . . . . . . . . . . . . . . . . . . .28
2.10 Additional Liquidity Rights . . . . . . . . . . . . . . . . .28
2.11 Termination of Certain Covenants. . . . . . . . . . . . . . .29
2.12 Certain Provisions Relating to BT Holders . . . . . . . . . .29
2A Toronto Dominion Regulatory Compliance. . . . . . . . . .30
2A.1 Violation of BHCA or SBIA . . . . . . . . . . . . . . .30
2A.2 SBIC Requirements . . . . . . . . . . . . . . . . . . .30
2A.3 Acquisition of Shares . . . . . . . . . . . . . . . . .31
2A.4 BHCA Issue, SBIC Issue and SBIC Requirements Defined. .31
3. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
3.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . .32
3.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .32
i
<PAGE>
3.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .32
3.4 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . .32
3.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
3.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .32
3.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . .32
3.8 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . .33
3.10 Aggregation of Stock. . . . . . . . . . . . . . . . . . . . .33
3.11 Entire Agreement; Amendment; Waiver . . . . . . . . . . . . .33
Schedule A Schedule of Investors
ii
<PAGE>
EIGHTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS EIGHTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT is made as
of the 10th day of March, 1998, by and among International Wireless
Communications Holdings, Inc., a Delaware corporation (the "Company"), and the
investors listed on SCHEDULE A hereto, each of which is herein referred to as an
"Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's preferred stock, par value $0.01 per share (the
"Preferred Stock"), and/or shares of its common stock, par value $0.01 per share
(the "Common Stock"), issued upon conversion thereof and/or other securities
convertible or exchangeable into the Company's Preferred Stock or Common Stock
and possess registration rights, information rights, rights of first offer,
co-sale rights and other rights pursuant to the Seventh Amended and Restated
Investor Rights Agreement dated as of December 13, 1997 (the "Prior Agreement"),
among the Company and such Investors; and
WHEREAS, certain of the Existing Investors are lenders under the Loan
Agreement dated August 18, 1997 among the Company and the lenders named therein
(the "IWCH Loan Agreement") and under the Loan Agreement dated August 18, 1997
among Pakistan Wireless Holdings Limited, a Mauritius Company ("PWH"), and the
lenders named therein (the "PWH Loan Agreement;" together with the IWCH Loan
Agreement, the "Loan Agreements"); and
WHEREAS, subject to certain terms and conditions, the Notes, as that
term is defined in the IWCH Loan Agreement (the "IWCH Notes") may be exchanged
for Series G-1 or Series G-2 Preferred Stock of the Company and the Notes, as
that term is defined in the PWH Loan Agreement (the "PWH Notes;" together with
the IWCH Notes, the "IWCH/PWH Notes") may be exchanged for shares of Series H-1
or Series H-2 Preferred Stock of the Company (the shares of Series G-1,
Series G-2, Series H-1 and Series H-2 Preferred Stock issuable upon exchange of
the IWCH/PWH Notes or the conversion of other shares of Series G-1, Series G-2,
Series H-1 or Series H-2 Preferred Stock being referred to as the "Series G/H
Preferred Shares"); and
WHEREAS, the Company has issued or may issue to certain of the
Existing Investors the Warrants, as that term is defined in the IWCH Loan
Agreement (individually an "IWCH Warrant"; collectively, the "IWCH Warrants");
and
WHEREAS, certain of the Existing Investors are former stockholders of
Radio Movil Digital Americas, Inc., a Delaware corporation ("RMD"), that
acquired shares of the Company's Series I Preferred Stock or Common Stock
(collectively, the "Merger Shares") pursuant to the Agreement and Plan of Merger
dated November 22, 1997, as amended (the
<PAGE>
"RMD Merger Agreement") among the Company, a wholly owned subsidiary of the
Company and RMD; and
WHEREAS, certain of the Investors hold warrants to purchase Common
Stock (individually, a "BT Warrant;" collectively, the "BT Warrants") issued
pursuant to the Amended and Restated Senior Secured Note and Warrant Purchase
Agreement dated as of January 23, 1998 (the "BT Note and Warrant Agreement")
among the Company and the investors named therein; and
WHEREAS, the Company desires to grant certain registration rights,
information rights, rights of first offer, co-sale rights and other rights to
holders of the Common Stock issued or issuable upon exercise of the BT Warrants
(the "BT Warrant Shares;" each such holder of BT Warrant Shares being referred
to as a "BT Holder"); and
WHEREAS, certain of the Investors hold shares of the Company's
Series J Preferred Stock (the "Series J Preferred Stock") and warrants to
purchase Common Stock (individually, a "Series J Warrant;" collectively, the
"Series J Warrants") issued pursuant to the Series J Preferred Stock and Warrant
Purchase Agreement dated as March 10, 1998 (the "Series J Agreement") among the
Company and such Investors; and
WHEREAS, the Company desires to grant certain information rights,
rights of first of offer, co-sale rights and other rights to holders of Common
Stock issued or issuable upon conversion of Series J Preferred Stock and
exercise of Series J Warrants; and
WHEREAS, the Existing Investors desire to amend and restate the Prior
Agreement and to accept the rights created pursuant hereto in lieu of the rights
granted to them under the Prior Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1. DEFINITIONS. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof. For purposes of this Agreement, the holders of
securities which are convertible or exchangeable into Registrable Securities, or
which are convertible or
2
<PAGE>
exchangeable into other securities which are convertible or exchangeable into
Registrable Securities, shall be treated as Holders of such underlying
Registrable Securities, and references to Registrable Securities held by such
Holders shall include such underlying Registrable Securities.
(d) The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
(e) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series B, Series C, Series D,
Series E and Series I Preferred Stock of the Company, (ii) the Common Stock
issuable or issued upon conversion of Preferred Stock of the Company issuable or
issued (A) upon exercise of warrants issued to Vanguard Cellular Operating
Corp., a Delaware corporation ("Vanguard"), pursuant to that certain Series C
Preferred Stock Purchase Agreement dated as of February 24, 1994, as such
warrants are amended and restated pursuant to the Warrant Amendment Agreement
dated as of July 31, 1995 (the "Vanguard Warrant Shares") and pursuant to the
Support Services Agreement dated March 10, 1998 between the Company and Vanguard
China, Inc., (B) upon exercise of warrants issued to certain Investors pursuant
to that certain Note and Warrant Purchase Agreement dated as of May 6, 1994 (the
"1994 Warrant Shares"), (C) upon exercise of warrants (the "1995 Warrant
Shares") issued to certain Investors pursuant to that certain Securities
Purchase Agreement dated as of July 12, 1995 (the "Securities Purchase
Agreement"), (D) upon exercise of warrants issued to Vanguard pursuant to the
Note and Warrant Purchase Agreement dated as of July 31, 1995 (the "Additional
Vanguard Warrant Shares"), and (E) upon exercise of warrants issued to Toronto
Dominion Investments, Inc. or its Affiliates (collectively, "Toronto Dominion"),
pursuant to the Note and Warrant Purchase Agreement (the "TD Purchase
Agreement") and the Loan Agreement, each dated as of August 14, 1995 (the "TD
Warrant Shares", together with Vanguard Warrant Shares, the 1994 Warrant Shares,
the 1995 Warrant Shares, and the Additional Vanguard Warrant Shares, the
"Warrant Shares"), (iii) (A) the Common Stock that is issued or issuable upon
exercise of the Warrant to Purchase Common Stock granted to Vanguard Cellular
Financial Corp., a North Carolina corporation ("VCFC"), pursuant to
Section 2.01(c) of the Reimbursement Agreement dated September 18, 1997 between
VCFC and IWC China Limited, (B) the BT Warrant Shares and (C) the Exchange
Shares (as defined in the Series J Agreement), (iv) the Common Stock issuable or
issued upon conversion of Preferred Stock issuable or issued upon conversion of
the two $900,000 notes issued to Vanguard pursuant to that certain Note Purchase
Agreement dated as of October 26, 1994, as amended by the Amendment to Note
Purchase Agreement dated as of July 12, 1995 between the Company and Vanguard
(collectively, the "Vanguard Notes"), and (v) the Common Stock issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
that is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the shares referenced in (i), (ii), (iii) or
(iv) above, excluding in all cases, however, any
3
<PAGE>
Registrable Securities sold by a person in a transaction in which the related
rights under this Section 1 are not assigned pursuant to Section 1.13.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2. REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction)
a written request from the Holders of at least forty percent (40%) of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least forty percent
(40%) of the Registrable Securities then outstanding (or a lesser percent if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $2,500,000), then the Company shall:
(i) within twenty (20) days of the receipt thereof,
give written notice of such request to all Holders; and
(ii) use its best efforts to effect as soon as
practicable, and in any event within sixty (60) days of the receipt of such
request, the registration under the Act of all Registrable Securities which the
Holders request to be registered, subject to the limitations of
subsection 1.2(b), within twenty (20) days of the mailing of such notice by the
Company in accordance with subsection 1.2(a)(i).
(b) If the Holders initiating the registration request
hereunder (the "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subsection 1.2(a)
and the Company shall include such information in the written notice referred to
in subsection 1.2(a)(i). The underwriter will be selected by the Company and
shall be reasonably acceptable to holders of a majority of the Registrable
Securities then held by Initiating Holders. In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by holders of a majority of the Registrable Securities
then held by the Initiating Holders and such Holder) to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in subsection 1.4(e))
enter into an underwriting agreement in usual and customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in
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proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company held by each Holder; provided, however, that, except as otherwise
provided in that certain Amended and Restated Registration Rights Agreement
dated as of March 10, 1998 among the Company and the persons listed on
Schedule 1 thereto (the "Registration Rights Agreement"), the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities (other than Registrable Securities) are
first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than one hundred twenty (120) days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) after the Company has effected two registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration pursuant to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) if the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3. COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders but excluding a
registration pursuant to Section 1.2 above) any of its stock or other securities
under the Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of any Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with
Section 3.5, the Company shall,
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subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to be declared effective by the SEC, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, to keep such registration statement effective for a period of up to
one hundred twenty (120) days or until the distribution contemplated in the
Registration Statement has been completed; provided, however, that (i) such
120-day period shall be extended for a period of time equal to the period the
Holders refrain from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 120-day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Act
governing the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference in the registration statement of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
effective and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
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(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and
prepare and furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to purchasers of such shares, such prospectus shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in light of the circumstances then existing.
(g) Cause all such Registrable Securities registered
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
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1.6. EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders selected by them) shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to
Section 1.2 if the registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses on a pro rata
basis based on the number of Registrable Securities requested to be registered),
unless the Holders of a majority of the Registrable Securities requested to be
registered agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known to the Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2.
1.7. EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing and qualification fees, printing and accounting fees
relating or apportionable thereto and the fees and disbursements of counsel for
the Company (including fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders selected by them),
but excluding underwriting discounts and commissions relating to Registrable
Securities.
1.8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters). If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities to be sold other than
by the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be
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agreed to by such selling stockholders) but in no event, except as otherwise
required by the Registration Rights Agreement, shall (i) the amount of
securities of the selling Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling stockholders may be excluded entirely if
the underwriters make the determination described above and no other
stockholder's securities are included or (ii) notwithstanding clause (i) above,
any shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners or stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10. INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, each of its officers, directors,
partners, employees, agents, attorneys and consultants, any underwriter (as
defined in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint and/or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934
Act or any state securities law; and the Company will pay to each such Holder,
officer, director, partner, employee, agent, attorney, consultant, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the
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Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
officer, director, partner, employee, agent, attorney, consultant, underwriter
or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its officers, directors,
partners, employees, agents, attorneys and consultants, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement, each of its officers,
directors, partners, employees, agents, attorneys and consultants, and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint and/or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided further, that, in no event shall any indemnity under this
subsection 1.10(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own separate counsel (provided that there shall be
only one separate counsel for all indemnified parties to the extent that such
parties may be represented by one counsel without conflict), with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 1.10, but the omission so to deliver written notice to the indemnifying
party will not
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relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 1.10.
(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand, and of the indemnified
party on the other, in connection with the Violation that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the Violation relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such Violation.
(e) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11. REPORTS UNDER 1934 ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the Act and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such
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other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.12. FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of at least twenty percent (20%) in the aggregate of
Registrable Securities a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this
Section 1.12: (1) if Form S-3 is not available for such offering by the Holders;
(2) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$250,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than
sixty (60) days after receipt of the request of the Holder or Holders under this
Section 1.12; provided, however, that the Company shall not utilize this right
more than once in any twelve month period; or (4) in any particular jurisdiction
if the Company would be required to qualify to do business or to execute a
general consent to service of process in such jurisdiction in effecting such
registration, qualification or compliance.
(c) subject to the foregoing, file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with the Registrable Securities, shall be borne by the
Company, unless the Company has within the twelve (12)-month period preceding
the date of such request paid the expenses incurred in connection with a
registration pursuant to Section 1.12, in which case the expenses shall be borne
pro rata by the Holder or
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Holders participating in the Form S-3 registration. Registrations effected
pursuant to this Section 1.12 shall not be counted as demands for registration
or registrations effected pursuant to Section 1.2 or 1.3, respectively.
1.13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the transferee or assignee receives
at least 10,000 shares of Registrable Securities (subject to adjustment for
stock splits, stock dividends and the like) in the transfer of such securities;
(b) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(c) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.15 below; and (d) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act.
1.14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS;
REGISTRATION RIGHTS AGREEMENT. From and after the date of this Agreement, the
Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 1.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the date set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 1.2. Notwithstanding anything
herein to the contrary, the holders of Registrable Securities acknowledge the
terms and provisions of the Registration Rights Agreement and agree that to the
extent that this Agreement conflicts in any respect with the Registration Rights
Agreement, the terms and provisions of the Registration Rights Agreement shall
govern in all respects, including, without limitation, the terms and provisions
of Sections 2, 3, and 12 of the Registration Rights Agreement governing the
priorities of inclusion of securities of the Company in a registration, whether
such registration is by the Company for its own account or on behalf of any
security holder of the Company (including the Holders) exercising a demand or
incidental registration right.
1.15. "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees
that, during the period of duration specified by the Company and an underwriter
of Common Stock or other securities of the Company, following the date of the
first sale to the public pursuant to a registration statement of the Company
filed under the Act, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the
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Company held by it at any time during such period except Common Stock included
in such registration; provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering;
(b) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements;
(c) such market stand-off time period shall not exceed
one hundred twenty (120) days; and
(d) such agreement shall not preclude transfer in a
private transaction to an institutional buyer who agrees to be bound by such
agreement.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a SEC Rule 145 transaction.
1.16. TERMINATION OF REGISTRATION RIGHTS. The right of any
Holder to request registration pursuant to Section 1.2 or inclusion in any
registration pursuant to Section 1.3 shall terminate on the closing of the first
Company-initiated registered public offering of Common Stock of the Company if
all shares of Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately be sold under Rule 144 during any 90-day period,
or on such date after the closing of the first Company-initiated registered
public offering of Common Stock of the Company as all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144 during any 90-day period.
2. COVENANTS OF THE COMPANY.
2.1. DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Investor:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, including notes thereto, such year-end financial
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reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company;
(b) within thirty (30) days after the end of each
month, an unaudited income statement, a balance sheet and a statement of cash
flows for and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event sixty
(60) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including income statements,
balance sheets and statements of cash flows for such months and, as soon as
prepared, any other budgets, including internally prepared quarterly budget
forecasts or revised budgets prepared by the Company;
(d) within fifteen (15) days of the end of each
calendar quarter, a quarterly operations reports summarizing activities during
the preceding quarter;
(e) with respect to the financial statements called for
in subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such financial
statements were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this
subsection (f) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
2.2. INSPECTION. The Company will also permit each Investor
and its authorized representatives, at all reasonable times and as often as
reasonably requested, to visit and inspect, at the expense of such Investor, any
of the properties of the Company, to inspect its books and records and to make
extracts therefrom, and to discuss the affairs, finances and accounts of the
Company with its officers and consult with and advise the officers of the
Company as to the management of the Company, provided that the Investors shall
maintain the confidentiality of any proprietary information of the Company
thereby obtained and provided further that the Investors shall conduct all such
inspections in a manner that is not disruptive to the employees or operations of
the Company.
2.3. RIGHT OF FIRST OFFER ON PRIMARY SALES. Subject to the
terms and conditions specified in this Section 2.3, the Company hereby grants to
each Major Investor (as hereinafter defined) a right of first offer with respect
to future sales by the Company of its Securities (as hereinafter defined). For
purposes of this Section 2.3, a "Major Investor" shall mean (i) any Investor who
is a Holder of at least ten percent (10%) of either the Registrable
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Securities or the Other Registrable Securities (as defined below) initially
acquired by such Investor, but in any event not less than 4,000 shares of either
the Registrable Securities or the Other Registrable Securities and (ii) any
person who acquires at least ten percent (10%) in the aggregate of any of the
Series B, Series C, Series D, Series E, Series F, Series G, Series H, Series I
or Series J Preferred Stock (or the Common Stock issued or issuable upon
conversion thereof) outstanding as of the date hereof (in the case of the Series
J Preferred Stock, after giving effect to the First Closing (as defined in the
Series J Agreement) under the Series J Agreement). For purposes of this
Agreement, the term "Other Registrable Securities" and the term "Holder" as used
in relation thereto shall have the meanings given to the terms "Registrable
Securities" and "Holder" in the Registration Rights Agreement, and the term
"Affiliates" shall have the meaning given to such term in subsection 2.4(e)
below. For purposes of this Section 2.3, Investor includes any general partners
and Affiliates of an Investor. An Investor shall be entitled to apportion the
right of first offer hereby granted it among itself and its partners and
Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock or any debt securities ("Securities"), the Company shall first make an
offering of such Securities to each Major Investor in accordance with the
following provisions:
(a) The Company shall deliver a notice by certified
mail ("Section 2.3 Notice") to each Major Investor stating (i) its bona fide
intention to offer such Securities, (ii) the number of such Securities to be
offered, and (iii) the price and terms, if any, upon which it proposes to offer
such Securities.
(b) By written notification received by the Company
within twenty (20) calendar days after receiving the Section 2.3 Notice, each
Major Investor may elect to purchase or obtain, at the price and on the terms
specified in the Section 2.3 Notice, up to that portion of such Securities which
equals the total number of Securities multiplied by a fraction, (a) the
numerator of which is the sum of the number of Registrable Securities and the
number of Other Registrable Securities then held by such Major Investor, and
(b) the denominator of which is the total number of Registrable Securities and
Other Registrable Securities. The Company shall promptly, in writing, inform
each Major Investor which purchases all of the Securities available to it under
this Section 2.3 ("Fully Exercising Investor") of any other Major Investor's
failure to do likewise. During the ten (10)-day period commencing after receipt
of such information, each Fully Exercising Investor shall be entitled to
purchase up to that portion of the Securities for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
which is equal to the total number of unsubscribed Securities multiplied by a
fraction, (A) the numerator of which is the sum of the number of Registrable
Securities and the number of Other Registrable Securities, as the case may be,
then held by such Fully Exercising Investor, and (B) the denominator of which is
the total number of Registrable Securities and the number of Other Registrable
Securities then held by all Fully Exercising Investors who wish to purchase some
of the unsubscribed shares.
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(c) If all Securities which Major Investors are
entitled to purchase pursuant to subsection 2.3(b) are not elected to be
purchased as provided in subsection 2.3(b) hereof, the Company may, during the
ninety (90)-day period following the expiration of the periods provided in
subsection 2.3(b) hereof, offer the remaining unsubscribed portion of such
Securities to any person or persons at a price not less than, and upon terms no
more favorable to the offeree than those specified in the Section 2.3 Notice.
If the Company does not enter into an agreement for the sale of the Securities
within such period, or if such agreement is not consummated within thirty
(30) days of the execution thereof, the right of first offer provided hereunder
shall be deemed to be revived and such Securities shall not be offered unless
first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this Section 2.3 shall
not be applicable (i) to the issuance or sale of up to 2,811,526 shares of
Common Stock (or such additional number of shares of Common Stock as may be
approved in writing by Holders of a majority of the number of outstanding
Registrable Securities and holders of a majority of the Other Registrable
Securities at the time of such approval) (in each case, as appropriately
adjusted for any stock dividends, contributions, splits, reclassifications or
the like) to officers, directors and employees of and consultants to the Company
for the primary purpose of soliciting or retaining their services, provided each
such person executes an agreement, pursuant to which such person agrees to
resell to the Company at the original purchase price thereof all shares of the
Company's Common Stock that are not vested on the date of termination of such
employee's term of service with the Company and not to transfer any unvested
shares of the Company's Common Stock to any person except to members of his or
her immediate family or to a trust for the benefit of members of his or her
immediate family, or (ii) to or after consummation of a Threshold Public
Offering (as defined in the Amended and Restated Certificate of Incorporation of
the Company), (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities (including the Registrable
Securities as defined in this Agreement and the Registration Rights Agreement),
(iv) to the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, and (v) to the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships provided such issuances are for other
than primarily equity financing purposes (provided that no more than one percent
(1%) of the total number of shares of Common Stock then outstanding (assuming
full conversion of all then outstanding convertible securities of the Company)
may be excluded from the right of first offer pursuant to this clause (v) during
any twelve (12)-month period).
(e) The right of first offer set forth in this
Section 2.3 may not be assigned or transferred, except that (i) such right is
assignable by each Holder and each Holder (within the meaning of the
Registration Rights Agreement) of Other Registrable Securities (an "Other
Holder") to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder or Other Holder, and (ii) such right
may be transferred to a third party who buys (x) at least 40,000 shares of the
Registrable Securities or Other Registrable Securities (subject to
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adjustment for stock splits, stock dividends and the like) or (y) all of the
Registrable Securities or Other Registrable Securities held by an Investor.
2.4. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SECURITIES.
(a) No Investor shall, either directly or indirectly, sell, assign, mortgage,
hypothecate, transfer, pledge, create a security interest in or lien upon,
encumber, give, place in trust, or otherwise voluntarily or involuntarily
dispose of (collectively hereinafter sometimes referred to as "Transfer") any of
the shares of Capital Stock (as defined in the Securities Purchase Agreement)
then owned or controlled by such Investor except in accordance with Section 1,
2.4(b), 2.4(d), 2.5 or 2.8 or pursuant to the Registration Rights Agreement. No
Transfer of any shares of Capital Stock in violation of the provisions of this
Agreement shall be made or recorded on the books of the Company and any such
purported Transfer shall be void and of no force or effect.
(b) Notwithstanding anything to the contrary contained
in this Agreement, any Investor shall have the right at any time to Transfer
any of its shares of Capital Stock of the Company to any Affiliate, upon such
terms as may be agreed upon by such party and its transferee; PROVIDED,
HOWEVER, that (i) any such Transfer shall be made in compliance with the Act
and applicable state securities laws, or pursuant to an exemption therefrom,
and (ii) any such transferee shall (A) acquire the shares so transferred
subject to all the terms and conditions of this Agreement, (B) agree in
writing, at the time of the Transfer, to be bound by all of the provisions of
this Agreement which would be applicable to the Investor if it continued to
own the shares so transferred, and (C) be an "accredited investor" within the
meaning of Regulation D under the Act. In addition to and subject to
compliance with the foregoing, Electra Investment Trust P.L.C. ("EIT") and
Electra Associates, Inc. (collectively, "Electra"), shall have the right to
Transfer any of its shares of Capital Stock of the Company to Electra Fleming
Equity Partners (provided that at the time of such Transfer such entity is an
Affiliate of EIT). Notwithstanding anything to the contrary in this
Agreement, each Investor other than a Section 2.5 Stockholder (as defined
below) shall be permitted to Transfer such Investor's shares of Capital Stock
of the Company, subject only to compliance with clauses (i) and (ii) of the
proviso to the first sentence of this subsection 2.4(b). Notwithstanding
anything to the contrary contained in this Agreement, Toronto Dominion
Investments, Inc. shall have the unrestricted right to assign or transfer any
of its shares of Capital Stock of the Company to an indirect or direct wholly
or majority owned subsidiary of the ultimate parent of Toronto Dominion
Investments, Inc. including, without limitation, a subsidiary established as
(or which is expected by Toronto Dominion Investments, Inc. to become) a
small business investment company pursuant to the Small Business Investment
Act of 1958, as amended from time to time, subject to compliance with clauses
(i) and (ii) of the proviso to the first sentence of this subsection 2.4(b).
Notwithstanding anything to the contrary contained in this Agreement,
Vanguard, VCFC or any of their wholly owned subsidiaries shall have the right
at any time to Transfer any shares of Capital Stock of the Company (whether
now owned or hereafter acquired by Vanguard, VCFC or any of their wholly
owned subsidiaries) to the Vanguard Lenders (as defined below) pursuant to
any pledge agreement now or hereafter in effect ("Pledge Agreement") pursuant
to any credit facility now or hereafter in effect between Vanguard and/or its
wholly owned subsidiaries, on the one hand, and banks or other institutional
lenders (collective, "Vanguard Lenders"), on the other hand, subject to and
in accordance with clauses (i) and (ii) of the proviso to the first sentence
of
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this subsection 2.4(b), and Vanguard Lenders shall have the right to Transfer
any such shares acquired upon the exercise of their rights under any such
Pledge Agreement subject to and in accordance with clauses (i) and (ii) of
the proviso to the first sentence of this subsection 2.4(b). Any Transfer
under this subsection 2.4(b) shall not be subject to the provisions of
Section 2.5.
(c) In the event of any Transfer in accordance with the
provisions of subsection 2.4(b), prompt written notice of the Transfer shall be
delivered by the Transferor to the Company, and, in the case of any Transfer
pursuant to Section 2.4 hereof, references herein to the Investor shall include,
from and after the date of such permitted transfer, each such permitted
transferee (transferees acquiring such shares pursuant to subsection 2.4(b) are
hereinafter sometimes referred to as "Permitted Transferees").
(d) For so long as any shares of Series F Preferred
Stock shall remain outstanding, none of John D. Lockton, Hugh B. L. McClung,
Douglas S. Sinclair, Samuel Endy, Patrick Ciganer, or James Dixon (collectively,
"Management") may Transfer any Capital Stock of the Company owned at any time by
such individual. The foregoing transfer restrictions shall not (i) apply to any
member of Management (other than a director of the Company) who owns 20,000 or
fewer shares of Capital Stock of the Company (calculated on an as converted
basis) or (ii) prevent any member of Management (other than a director of the
Company) who as of the date of this Agreement owns 20,000 or fewer shares of
Capital Stock of the Company (calculated on an as converted basis) and who
hereafter owns more than 20,000 shares of Capital Stock of the Company
(calculated on an as converted basis) from Transferring up to 20,000 shares of
Capital Stock of the Company (calculated on an as converted basis).
(e) For purposes of this Agreement, the term
"Affiliate" means, (i) with respect to any person, any other person (A) which
directly or indirectly of record or beneficially owns or holds fifty percent
(50%) or more of the equity interest of such person, or (B) fifty percent (50%)
or more of the equity interest of which is owned or held, directly or
indirectly, of record or beneficially, by such person and (ii) with respect to
any person that is an investment fund, any other person which is an investment
fund and which has as its investment managers or adviser, the same investment
manager or adviser as such a person or an investment manager or adviser a
majority of the individual investment professionals of which are the same as the
individual investment professionals of the investment manager or adviser of such
other person.
2.5. RIGHT OF FIRST OFFER ON CERTAIN SECONDARY SALES. Subject
to the terms and conditions specified in this Section 2.5, each Investor who, as
of the date of this Agreement or hereafter, holds at least 100,000 shares of
Registrable Securities and/or Other Registrable Securities (as appropriately
adjusted for any stock dividends, contributions, splits, reclassifications or
the like) (individually a "Section 2.5 Stockholder," and collectively the
"Section 2.5 Stockholders"), hereby grants to each other Section 2.5 Stockholder
(but excluding each holder of Series A Preferred Stock) (individually a
"Section 2.5 Rights Holder," and collectively the "Section 2.5 Rights Holders")
a right of first offer with respect to future sales of Securities by such
Section 2.5 Stockholder. Notwithstanding any other provision of this Agreement,
a Section 2.5 Stockholder: (i) includes any general partners and Affiliates of
such
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Section 2.5 Stockholder; and (ii) excludes each Section 2.5A Stockholder (as
defined below), provided that each such Investor shall be excluded only for so
long as such Investor and its Affiliates own in the aggregate in excess of
800,000 shares of the Capital Stock of the Company (calculated on an as
converted basis) (as appropriately adjusted for any stock dividends,
combinations, splits, reclassifications or the like). The Section 2.5
Stockholder, shall be entitled to a portion of the right of first offer hereby
granted it among itself and its partners and Affiliate in such proportions as it
deems appropriate.
Each time a Section 2.5 Stockholder (an "Initiating Section 2.5
Stockholder") proposes to offer any Securities (other than pursuant to the
exercise of registration rights pursuant to this Agreement or the Registration
Rights Agreement), except as provided in subsection 2.4(b) above, the
Section 2.5 Stockholder shall first make an offering of such shares to each
other Section 2.5 Rights Holder in accordance with the following provisions and
the Company shall provide such reasonable information as any Section 2.5
Stockholder shall request to fulfill its obligations or to exercise its rights
hereunder:
(a) The Initiating Section 2.5 Stockholder shall
deliver a written notice by certified mail ("Section 2.5 Notice") to the
Section 2.5 Rights Holders stating (i) its bona fide intention to offer such
Securities, (ii) the number of Securities to be offered ("Section 2.5 Shares")
and (iii) the price and terms, if any, upon which it proposes to offer the
Section 2.5 Shares.
(b) By written notification received by the Initiating
Section 2.5 Stockholder within ten (10) business days after receiving the
Section 2.5 Notice, each Section 2.5 Rights Holder may elect to purchase or
obtain, at the price and on the terms specified in the Section 2.5 Notice, up to
that number of the Section 2.5 Shares equal to the product of the total number
of Section 2.5 Shares multiplied by a fraction (A) the numerator of which is the
sum of the number of Registrable Securities and the number of Other Registrable
Securities, as the case may be, then held by such Section 2.5 Rights Holder and
(B) the denominator of which is the total number of Registrable Securities and
Other Registrable Securities. The Initiating Section 2.5 Stockholder shall
promptly, in writing, inform each Section 2.5 Rights Holder which purchases all
of the Section 2.5 Shares available to it ("Fully Exercising Section 2.5 Rights
Holder") of any other Section 2.5 Rights Holder's failure to do likewise.
During the ten (10) business day period commencing after receipt of such
information, each Fully Exercising Section 2.5 Rights Holder shall be entitled
to purchase up to that portion of the Section 2.5 Shares that the Section 2.5
Rights Holders were entitled to subscribe but which were not subscribed for by
the Section 2.5 Rights Holders which is equal to the proportion that the sum of
the number of Registrable Securities and the number of Other Registrable
Securities then held, by such Fully Exercising Section 2.5 Rights Holder bears
to the sum of the number of Registrable Securities and the number of Other
Registrable Securities then held by all Fully Exercising Section 2.5 Rights
Holders who wish to purchase some of the unsubscribed Securities.
(c) The Initiating Section 2.5 Stockholder may, during
the ninety (90)-day period following the expiration of the periods provided in
such subsection 2.5(b),
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offer any of the Section 2.5 Shares that have not been purchased within thirty
(30) days of the expiration of the periods provided in subsection 2.5(b) by
Section 2.5 Rights Holders pursuant to subsection 2.5(b) to one or more offerees
at a price not less than the price, and upon terms not more favorable to such
offerees than those, specified in the Section 2.5 Notice. If the Initiating
Section 2.5 Stockholder does not enter into an agreement for the sale of such
Section 2.5 Shares within such period, or if such agreement is not consummated
within the ninety (90)-day period following the expiration of the periods
provided in such subsection 2.5(b), the right provided herein shall be deemed to
be revived in such Section 2.5 Shares and shall not be offered unless first
reoffered to the Section 2.5 Rights Holders in accordance herewith.
(d) The Company may, at its discretion, cause any
additional purchaser of Capital Stock of the Company to agree to comply with the
provisions of this Section 2.5 as a Section 2.5 Stockholder.
(e) Notwithstanding the foregoing, the provisions of
this Section 2.5 shall not apply to (i) any pledge of Securities made pursuant
to a bona fide loan transaction that creates a mere security interest; (ii) any
transfer to the ancestors, descendants, spouse or to trusts for the benefit of
such persons of an Investor; (iii) any bonafide gift; (iv) a transfer by an
Investor that is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner; or (v) a transfer by any Investor to any
Affiliate of such Investor; provided in each such case (A) that the pledgee,
transferee or donee, as the case may be, shall furnish to the Company and the
other Investors a written agreement to be bound by and to comply with all of the
provisions of this Section 2.5 and (B) that, with respect to a transfer pursuant
to clause (i), (ii) or (iii) of this subsection 2.5(e), the transferring
Investor shall inform the other Investors of such pledge, transfer or gift prior
to effecting it. Notwithstanding the foregoing, the provisions of this
Section 2.5 shall not apply to the sale of any Securities (i) to the public
pursuant to a registration statement filed with, and declared effective by, the
SEC under the Act or pursuant to Rule 144 or 701 under the Act or (ii) to the
Company.
Notwithstanding any other provision of this Agreement, each of Mitsui
& Co. Ltd. and its Affiliates and Mitsubishi Corporation and its Affiliates
(individually, a "Section 2.5A Stockholder;" collectively, the "Section 2.5A
Stockholders") may, at its sole discretion, elect not to be a Section 2.5
Stockholder for purposes of this Agreement if all of the following conditions
are satisfied:
(i) the Company shall acquire a direct or indirect
interest in a United States PCS License ("License") or an entity that holds a
License;
(ii) at the time of such acquisition by the Company,
such Section 2.5A Stockholder holds a direct or indirect interest in a License
or an entity that holds a License;
(iii) as a result of such acquisition by the Company,
such Section 2.5A Stockholder would violate applicable United States federal or
state communications laws, including the United States Federal Communications
Act, or the rules and
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regulations thereunder, by continuing to hold both its equity interest in the
Company and a direct or indirect interest in a License or an entity that holds a
License; and
(iv) such Section 2.5A Stockholder notifies the
Company within sixty days after receiving notice from the Company that the
Company has acquired a direct or indirect interest in a License or an entity
that holds a License.
2.6. BOARD REPRESENTATION. (a) [intentionally left blank]
(b) From and after such time as the criteria set forth
in Section V.B.5(b) of the Company's Amended and Restated Certificate of
Incorporation with respect to the election of directors by the Series F Holders
are no longer satisfied and for so long as 20% of the Series F Conversion Shares
(as defined below) are held by Series F Holders, each Investor covenants to vote
his or its shares in favor of at least three (3) directors (the "Series F
Directors") designated by the holders of a majority of the Series F Conversion
Shares held by the Series F Holders at each annual meeting of stockholders of
the Company at which any director is elected or at the time of any written
consent to action in lieu of any such meeting; PROVIDED, that (i) for so long as
Electra (or its assignee) owns at least 213,360 Series F Conversion Shares (as
such number may be adjusted appropriately for stock splits, stock dividends,
combinations and other recapitalizations), Electra (or its assignee, provided
such assignee is an Affiliate of Electra) shall have the right to designate
one (1) of the directors (the "Electra Director") to be designated by the
holders of the Series F Conversion Shares, (ii) for so long as Central
Investment Holdings, Inc. ("CIH") (or its assignee) owns at least 213,360 Series
F Conversion Shares (as such number may be adjusted appropriately for stock
splits, stock dividends, combinations and other recapitalizations), CIH (or its
assignee, provided such assignee is an Affiliate of CIH) shall have the right to
designate one (1) of the directors to be designated by the holders of the Series
F Conversion Shares; and (iii) for so long as Toronto Dominion (or its assignee)
owns at least 213,360 Series F Conversion Shares (as such number may be adjusted
appropriately for stock splits, stock dividends, combinations and other
recapitalizations), Toronto Dominion (or its assignee, provided such assignee is
an Affiliate) shall have the right to designate one (1) of the directors to be
designated by the holders of the Series F Conversion Shares, PROVIDED, HOWEVER,
that Toronto Dominion or such Affiliate shall not be entitled to so designate
such director if exercising this right would be in violation of the Bank Holding
Company Act (as defined in Section 2A.4). At least one of the Series F
Directors, which shall be the Electra Director, if any, shall have the right to
be a member of the Audit and Compensation Committees of the Board, if any, or of
any committee of the Board performing comparable functions. For purposes of
this Section 2.6(b), "Series F Conversion Shares" shall mean the shares of
Common Stock issued or issuable upon conversion of the shares of Series F-1
Preferred Stock originally issued pursuant to the Securities Purchase Agreement
dated as of December 6, 1995, as assumed, among the Company and the Investors
named therein (the "Series F Purchase Agreement") or shares of Common Stock
issued or issuable upon conversion of the shares of Series F-1 Preferred Stock
issued upon conversion of the Series F-2 Preferred Stock originally issued
pursuant to the Series F Purchase Agreement.
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No director(s) so designated by the holders of the Series F Conversion
Shares, or Electra, CIH or Toronto Dominion (or its respective assignee,
provided such assignee is an Affiliate of Electra, CIH or Toronto Dominion), as
the case may be, may be removed without the prior consent, given in person or by
proxy, either in writing or at a special meeting called for that purpose, of the
holders of such Series F Conversion Shares, voting separately as a class. In
case of the death, resignation or other removal of any Series F Director,
including the Electra Director, the holders of a majority of the Series F
Conversion Shares held by the Series F Holders, or Electra (or its assignee), as
the case may be, shall have the right to designate a successor director to hold
such office for the unexpired term of such removed director. Each Investor
covenants and agrees to vote his or its shares, as promptly as possible, either
at a special meeting called for such purpose or by written consent in lieu of a
meeting, in favor of the election of such successor designee.
Until the Company completes an initial public offering of its Common
Stock or is sold to or merges with another entity, none of Vanguard or Electra,
in their capacity as stockholders of the Company, will take any actions which
would result in the representative of BEA Associates, as the manager of certain
investment funds that are stockholders of the Company, being removed from the
Board of Directors of the Company, so long as such investment funds retain their
current level of ownership of Registrable Securities (as defined in
subsection 1.1(f) hereof) and Registrable Securities (as defined in the
Registration Rights Agreement) owned by them as of the date hereof.
2.7. OBSERVER RIGHTS. Each Investor who is the Holder of not
less than either 80,000 shares of Registrable Securities or the Holder (within
the meaning of the Registration Rights Agreement) of not less than 80,000 shares
of Other Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations) is entitled
to have one representative designated by such Investor attend all meetings of
its Board in the capacity of a nonvoting observer who may participate in
discussions and, in this respect, copies of all notices, minutes, consents, and
other materials that the Company provides to its directors shall be given to
such representative; PROVIDED, HOWEVER, that such representative shall agree to
hold in confidence and trust and to act in a fiduciary manner with respect to
all information so provided; and, PROVIDED, FURTHER, that the Company reserves
the right to withhold any information and to exclude such representative from
any meeting or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between the
Company and its counsel or would result in disclosure of trade secrets to such
representative or if such Investor or its representative is a direct competitor
of the Company. Each Investor that is an entity may designate a representative
to attend such meetings on its behalf. Each Investor (or representative
thereof) may designate an alternate to attend such meetings on its behalf if
such Investor (or representative thereof) is unable to attend. The Company
acknowledges that it is contractually required to comply with the obligations of
this Section 2.7.
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2.8. CO-SALE RIGHTS.
(a) Any Section 2.5 Rights Holder which does not elect
to purchase any of the Section 2.5 Shares available to it may elect to
participate (a Section 2.5 Rights Holder so electing being herein a
"Participant") in the Initiating Section 2.5 Stockholder's sale of Securities in
accordance with this Section 2.8.
(b) Subject to subsection 2.8(l) below, each Participant
shall have the right (the "Participation Right") to Transfer to the purchaser
of Section 2.5 Shares and any Section 2.5 Rights Holders who have exercised
the right of first offer set forth in Section 2.5 above a number of
Securities equal to the product of (i) the aggregate number of Section 2.5
Shares and (ii) such Participant's Pro Rata Percentage Amount (as defined
below); PROVIDED, HOWEVER, that (A) with respect to any Participant (other
than an Original Series G/H Participant (as defined below)) which is a holder
of Series G/H Registrable Securities (as defined in the Registration Rights
Agreement), until such time as such Participant shall have received proceeds
upon the Transfer of Series G/H Registrable Securities and the Preferred
Stock of the Company underlying such Registrable Securities which equals or
exceeds the product of (x) the aggregate liquidation preference of all such
Series G/H Registrable Securities and underlying Preferred Stock acquired by
such Participant (where the "liquidation preference" of Series G Preferred
Stock and Series H Preferred Stock means the Original Series G Issue Price
and the Original Series H Issue Price (as those terms are defined in the
Company's Amended and Restated Certificate of Incorporation), respectively)
and (y) 0.50, and (B) with respect to any Participant which is a holder of
Series F/J Registrable Securities (as defined in the Registration Rights
Agreement), until such time as such Participant shall have received proceeds
upon the Transfer of Series F/J Registrable Securities which equals or
exceeds the sum of (B1) the product of (x) the number of Series F Registrable
Securities (as defined in the Registration Rights Agreement) purchased by
such Participant, (y) $9.375 (as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares), and
(z) 0.50 and (B2) the product of (x) the number of Series J Registrable
Securities (as defined in the Registration Rights Agreement) purchased by
such Participant, (y) $12.67 (as appropriately adjusted for any stock
dividends, combinations, splits or the like with respect to such shares ) and
(z) .50, each such Participant specified in clause (A) and (B) above shall
have the right to Transfer a number of Securities equal to the product of (i)
the aggregate number of Section 2.5 Shares, (ii) such Participant's Pro Rata
Percentage Amount and (iii) 150% (subject to a pro rata cut back based on the
number of Securities which each such Participant has the right to Transfer
pursuant to this sentence if the total number of Securities to be Transferred
is less than the total number of Securities which all such Participants have
the right to Transfer pursuant to this sentence). For purposes of this
Section 2.8, a Participant's Pro Rata Percentage Amount shall be equal to the
fraction, the numerator of which is the number of shares of Common Stock
owned by such Participant at the time of the sale or transfer (assuming the
full conversion, exchange and exercise of all convertible, exchangeable and
exercisable securities of the Company then owned by such Participant) and the
denominator of which is the total number of shares of Common Stock owned by
the Initiating Section 2.5 Stockholder and all Participants at the time of
the Transfer (assuming the full conversion, exchange and exercise of all
convertible, exchangeable
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and exercisable securities of the Company then owned by the Initiating
Section 2.5 Stockholder and all Participants), and rounded to the nearest
whole number.
(c) Each Participant shall effect its participation in the
sale by promptly delivering to the Initiating Section 2.5 Stockholder for
transfer to the prospective purchaser one or more certificates, properly
endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock
which such Participant elects to sell; or
(ii) that number of shares of Preferred Stock which is
at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in subsection 2.8(c)(i) above. The Company agrees to
make any such conversion concurrent with the actual transfer of such shares to
the purchaser.
(d) The stock certificate or certificates that the
Participant delivers to the Initiating Section 2.5 Stockholder pursuant to
subsection 2.8(c) shall be transferred to the prospective purchaser in
consummation of the sale of the Securities pursuant to the terms and conditions
specified in the Section 2.5 Notice at the price and on the terms which the
prospective purchaser makes its purchase from the Initiating Section 2.5
Stockholder, and the Initiating Section 2.5 Stockholder shall concurrently
therewith remit to such Participant that portion of the sale proceeds to which
such Participant is entitled by reason of its participation in such sale. To
the extent that any prospective purchaser or purchasers prohibits such
assignment or otherwise refuses to purchase shares or other securities from a
Participant exercising its rights of co-sale hereunder, the Initiating
Section 2.5 Stockholder shall not sell to such prospective purchaser or
purchasers any Securities unless and until, simultaneously with such sale, the
Initiating Section 2.5 Stockholder shall purchase such shares or other
securities from such Participant at the price and on the terms which the
prospective purchaser makes its purchase from the Initiating Section 2.5
Stockholder.
(e) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Securities made by
an Initiating Section 2.5 Stockholder shall not adversely affect their rights to
participate in subsequent sales of Securities subject to this Section 2.8.
(f) Notwithstanding the foregoing, the co-sale rights of
the Investors shall not apply to (i) any pledge of Securities made pursuant to a
bona fide loan transaction that creates a mere security interest; (ii) any
transfer to the ancestors, descendants or spouse or to trusts for the benefit of
such persons of an Investor; (iii) any bona fide gift; (iv) a transfer by an
Investor that is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner; or (v) a transfer by any Investor to any
Affiliate of such Investor; provided in each such case (A) that the pledgee,
transferee or donee, as the case may be, shall furnish to the Company
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and the other Investors a written agreement to be bound by and comply with all
the provisions of this Section 2.8 and (B) that, with respect to a transfer
pursuant to clause (i), (ii) or (iii) of this subsection 2.8(f), the
transferring Investor shall inform the other Investors of such pledge, transfer
or gift prior to effecting it. Such transferred Securities shall remain
"Securities" hereunder.
(g) Notwithstanding the foregoing, the provisions of this
Section 2.8 shall not apply to (A) the sale of any Securities (i) to the public
pursuant to a registration statement filed with, and declared effective by, the
SEC under the Act or pursuant to Rule 144 or 701 under the Act or (ii) to the
Company or (B) the Post-Exchange Sale (as that term is defined in the Exchange
Agreement dated August 18, 1997 among the Company and the Lenders named therein
(the "Exchange Agreement")).
(h) In the event an Initiating Section 2.5 Stockholder
should sell any Securities in contravention of the co-sale rights of any
Participant under this agreement (a "Prohibited Transfer"), the Participants, in
addition to such other remedies as may be available at law, in equity or
hereunder, shall have the put option provided below, and the Initiating
Section 2.5 Stockholder shall be bound by the applicable provisions of such
option.
(i) In the event of a Prohibited Transfer, each Participant
shall have the right to sell to the Initiating Section 2.5 Stockholder the type
and number of Securities equal to the number of shares each Investor would have
been entitled to transfer to the purchaser had the Prohibited Transfer been
effected pursuant to and in compliance with the terms hereof. Such sale shall
be made on the following terms and conditions:
(i) The price per share at which the Securities are
to be sold to the Initiating Section 2.5 Stockholder shall be equal to the price
per share paid by the purchaser to the Initiating Section 2.5 Stockholder in the
Prohibited Transfer. The Initiating Section 2.5 Stockholder shall also
reimburse each Investor for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted exercise of the
Investor's rights under this Section 2.8.
(ii) Within ninety (90) days after the later of the
dates on which the Participant (A) received notice of the Prohibited Transfer or
(B) otherwise become aware of the Prohibited Transfer, each Participant shall,
if exercising the option created hereby, deliver to the Initiating Section 2.5
Stockholder the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Initiating Section 2.5 Stockholder shall,
upon receipt of the certificate or certificates for the shares to be sold by a
Participant, pursuant to this subsection 2.8(i), pay the aggregate purchase
price therefor and the amount of reimbursable fees and expense, as specified in
clause (i) of this subsection 2.8(i), in cash or by other means acceptable to
the Participant.
(iv) Notwithstanding the foregoing, any attempt by an
Initiating Section 2.5 Stockholder to transfer Securities in violation of this
Section 2.8 hereof
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shall be void and the Company agrees it will not effect such a transfer nor will
it treat any alleged transferee as the holder of such shares without the written
consent of a majority in interest of the Investors.
(j) Each certificate representing shares of Capital Stock
of the Company now or hereafter owned by each Investor or issued to any person
in connection with a transfer pursuant to subsections 2.8(d) and (i) hereof
shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE
CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
(k) Each Investor agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in subsection 2.8(j) above to
enforce the provisions of this Agreement and the Company agrees to promptly do
so. The legend shall be removed upon termination of this Section 2.8.
(l) Each Original Series G/H Participant (as defined below)
shall have the right (the "Original Series G/H Participation Right") to transfer
to the purchaser and any Section 2.5 Rights Holders who have exercised the right
of first offer set forth in Section 2.5 above, Original Series G/H Registrable
Securities (as defined below in this subsection 2.8(l)) pro rata according to
the respective Original Series G/H Pro Rata Percentage Amounts (as defined below
in this subsection 2.8(l)) of the Original Series G/H Participants who exercise
the Original Series G/H Participation Right with respect to such transfer. The
Original Series G/H Participation Right of each holder of Original Series G/H
Registrable Securities shall terminate when the aggregate amount of the proceeds
received by Original Series G/H Participants in respect of Original Series G/H
Registrable Securities that all Original Series G/H Participants have included
in Transfers pursuant to this subsection 2.8(l) (regardless of whether such
holders have exercised such right) is at least equal to the aggregate principal
amount of, and accrued but unpaid interest on, the IWCH/PWH Notes exchanged for
Series G and Series H Preferred Stock pursuant to the Exchange Agreement. The
Original Series G/H Participation Right may be exercised prior to and in
preference over any Participation Right in subsection 2.8(b) hereof. For
purposes of this subsection 2.8(l):
(i) "Original Series G/H Participant" means any
holder of Original Series G/H Registrable Securities;
(ii) "Original Series G/H Pro Rata Percentage Amount"
for any Original Series G/H Participant means the fraction, the numerator of
which is the number of Original Series G/H Registrable Securities owned by such
participant at the time of the
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<PAGE>
Transfer and the denominator of which is the total number of Original Series G/H
Registrable Securities held by all Original Series G/H Participants at such
time; and
(iii) "Original Series G/H Registrable Securities"
means (A) all shares of Series G and Series H Preferred Stock that were acquired
by the holder thereof (or an Affiliate of such holder) pursuant to Sections 2,
2A or 3 of the Exchange Agreement and not transferred to any third party (other
than an Affiliate of such holder), (B) all shares of Series G and Series H
Preferred Stock held by such holder (or an Affiliate thereof) and issued upon
the conversion of any shares of Series G or Series H Preferred Stock described
in clause (A) above and -C- all shares of Common Stock held by such holder (or
an Affiliate thereof) and issued or issuable upon conversion of such shares of
Series G and Series H Preferred Stock described in clause (A) or clause (B).
2.9. STOCK PURCHASES BY EMPLOYEES, OFFICERS, DIRECTORS AND
CONSULTANTS. Each employee who purchases any of the shares of the Company's
Common Stock that are subject to vesting and are reserved for issuance to
officers and employees of the Company shall execute and deliver to the Company
an employee stock purchase agreement committing each such person to resell to
the Company at the original purchase price thereof all shares of the Company's
Common Stock that are not vested on the date of termination of such employee's
term of employment with the Company, and restricting each such person from
transferring any unvested shares of the Company's Common Stock to any person
except to members of his or her immediate family or to a trust for the benefit
of members of his or her immediate family.
2.10. ADDITIONAL LIQUIDITY RIGHTS. (a) Each Investor with a
representative on the Board shall cause such representative to take all steps
necessary to cause the Board to maintain a committee of the Board (the
"Committee") consisting of a representative of the Board designated by
Vanguard (as long as Vanguard or any Affiliate thereof owns not less than
fifty percent (50%) of the shares of Series C Preferred Stock it holds as of
the date hereof (or an equivalent amount of Common Stock issued upon
conversion thereof)), a Series F Director (but only so long as the holders of
Series F-1 Preferred Stock shall be entitled to elect the Series F Directors
pursuant to subsection V.B.5(b) of the Company's Amended and Restated
Certificate of Incorporation), which shall be the Electra Director, if any, a
representative of the Board designated by the other outside investors and a
representative of the Company's Executive Management. (If Vanguard shall at
any time fail the ownership requirements set forth in the preceding sentence,
the Board at its sole discretion may elect to the Committee a representative
of the Board not designated by Vanguard.) The Committee shall, from time to
time at the request of any member, consult with an investment banking firm of
recognized national standing that is unaffiliated with the Committee members.
The Committee shall request such investment banking firm to thereafter make
a formal presentation to the Committee as to the commercial reasonableness of
proceeding with an initial public offering of the Company's Common Stock
("IPO") in light of then prevailing market conditions and the condition and
performance of the Company. Based on the recommendation of such investment
banking firm, the Committee shall make a recommendation to the full Board
about proceeding with an IPO. If the Board approves proceeding with an IPO,
the Company shall, subject to the rights of the Holders under the
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<PAGE>
Registration Rights Agreement, use commercially reasonable efforts to proceed
with an IPO unless three directors vote to oppose proceeding with the IPO. In
such event, the Company shall submit to binding arbitration to be completed
within thirty (30) days to determine whether it is commercially feasible to
proceed with an IPO. Such arbitration shall be conducted as provided in
subsection 2.10(b) below. The arbitrators shall be representatives of
nationally known investment banking firms unaffiliated with the Company. Upon a
finding of commercial feasibility, the Company shall, subject to the rights of
the Series F Holders under the Registration Rights Agreement, use commercially
reasonable efforts to proceed with an IPO. If no IPO occurs by December 31,
1996, the Committee shall then explore in good faith other means to provide
liquidity for all outside investors. The Committee shall again consult with an
investment banking firm of recognized national standing that is unaffiliated
with any of the Committee members and request such investment banking firm to
submit a written report to the Committee regarding liquidity alternatives,
including the sale of the Company, the repurchase of the Company's stock by all
electing investors and any other commercially feasible liquidity strategies.
(b) Any arbitration pursuant to subsection 2.10(a) shall be
conducted as follows:
(i) The arbitration and all preliminary proceedings
related thereto shall be conducted in accordance with such rules as may be
agreed upon by the parties, or failing agreement on such rules, in accordance
with the Rules for Commercial Arbitration of the American Arbitration
Association ("AAA") as amended from time to time and as modified by this
Agreement. The dispute shall be presented to a single arbitrator sitting in
Wilmington, Delaware.
(ii) The arbitrator shall be selected jointly by the
parties within 15 days after demand for arbitration is made by a party. If the
parties are unable to agree on an arbitrator within that period, then any party
may request that the AAA select the arbitrator.
(iii) Except as may otherwise be agreed in writing by
the parties or as ordered by the arbitrator upon substantial justification
shown, the hearing for the dispute shall be held and concluded, and the
arbitrator shall render its final decision within thirty (30) days following the
selection of the arbitrator. The arbitrator shall state the factual and legal
basis for the decision. The decision of the arbitrator shall be final and
binding, except a provided in the Federal Arbitration Act, 9 U.S.C. Section 1,
ET SEQ., and except for errors of law based on the findings of fact.
2.11. TERMINATION OF CERTAIN COVENANTS. The covenants set forth
in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.7, 2.8, 2.9, and 2.10 shall terminate and
be of no further force or effect upon the consummation of a Threshold Public
Offering.
2.12. CERTAIN PROVISIONS RELATING TO BT HOLDERS.
Notwithstanding any other provisions contained herein, no BT Holder (solely with
respect to such Holder's BT Warrant Shares) shall be entitled to any of the
rights or subject to the obligations of an Investor or Holder under Section 2.7.
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2A. TORONTO DOMINION REGULATORY COMPLIANCE.
2A.1 VIOLATION OF BHCA OR SBIA. If Toronto Dominion or an
affiliate of Toronto Dominion determines that it has a BHCA Issue (as defined
below) or an SBIC Issue (as defined below), the Company and all other Investors
agree to take all such actions as are reasonably requested by Toronto Dominion
or such affiliate in order to, at the option of Toronto Dominion or such
affiliate, either (a) permit Toronto Dominion or such affiliate to convert all
or any portion of any shares of Series F-1 Preferred Stock held by Toronto
Dominion or its affiliate into an equal number of shares of Series F-2 Preferred
Stock (which Series F-2 Preferred Stock shall be convertible back into
Series F-1 Preferred Stock on such terms as may be permitted by regulatory
considerations then prevailing) or (b) effectuate and facilitate a Transfer by
Toronto Dominion or such affiliate of all or a part of its interest in the
Company to a person or entity designated by Toronto Dominion or such affiliate,
provided that such assignment or transfer is in compliance with applicable
federal and state securities laws and the assignee or transferee agrees to be
bound by the Agreement.
2A.2 SBIC REQUIREMENTS.
(a) The Company and each Investor hereby agree to take all
action and execute all such instruments as may be reasonably required by Toronto
Dominion or its permitted assignee or transferee, in either case which may
hereafter become (or which is expected by Toronto Dominion to become) a small
business investment company (an "SBIC") subject to the SBIC Requirements, so
that such SBIC shall be entitled to legally hold its shares of Capital Stock of
the Company as a small business investment company under the SBIC Requirements.
Such actions shall be taken at the reasonable request of Toronto Dominion or
such affiliate within a reasonable time in advance of the earlier of (i) Toronto
Dominion or such affiliate becoming an SBIC or (ii) Toronto Dominion assigning
or transferring the shares of Capital Stock in the Company held by it to an SBIC
or an affiliate of Toronto Dominion which is expected by Toronto Dominion to
become an SBIC.
(b) Such actions referred to in clause (a) above shall include,
without limitation, an amendment to this Agreement providing for (i) the
provision of financial statements and other information by the Company as
required by and on forms specified by SBIC Requirements (including information
with respect to the Company's use of proceeds and to confirm the Company's size
for purposes of eligibility under the SBIC Requirements), (ii) in the event that
the SBIC Requirements are not met for such SBIC to legally hold such Capital
Stock (including, without limitation, as a result of a diversion of the proceeds
from the reported use thereof or a change in the Company's business activities),
the SBIC's right to put its shares of Capital Stock of the Company back to the
Company for prompt payment at the original purchase price of such shares and
(iii) such other representations, warranties and covenants for the benefit of
such SBIC as may be reasonably required by the SBIC Requirements.
Notwithstanding any other provision of this Agreement, SBIC's right under clause
(ii) of the first sentence of this Section 2A.2(b) shall arise solely if (i) the
Company shall become an ineligible investment for SBIC (within the meaning of
the SBIC Requirements) as a result of (A) changing its business activity (within
the meaning of the SBIC Requirements) from that contemplated by the Memorandum
or (B) using the proceeds
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<PAGE>
from the sale of Series F Preferred Stock pursuant to the Series F Purchase
Agreement in a manner different than that contemplated by the Memorandum (as
defined in the Series F Purchase Agreement) and the Series F Purchase Agreement
and (ii) as a result of such change in business activity or use of proceeds,
SBIC would violate the SBIC Requirements by maintaining its investment in the
Company. In addition, before exercising its rights under clause (ii) of the
first sentence of this Section 2A.2(b), SBIC shall use commercially reasonable
efforts to obtain approval of the Small Business Administration to permit it to
maintain its investment in the Company notwithstanding such change in business
activity.
2A.3 ACQUISITION OF SECURITIES. Notwithstanding anything
contained in this Agreement to the contrary, Toronto Dominion shall not be
entitled to acquire any shares of Capital Stock of the Company hereunder,
including, without limitation, under Sections 2.3 and 2.5, if the acquisition of
such shares would cause Toronto Dominion to hold shares of Capital Stock in the
Company in excess of the amount permitted under the Bank Holding Company Act (as
defined below).
2A.4 BHCA ISSUE, SBIC ISSUE AND SBIC REQUIREMENTS DEFINED.
(a) For purposes of this Agreement, a "BHCA Issue" means any
facts or circumstances under which Toronto Dominion or an affiliate of Toronto
Dominion is or may be in violation or potential violation of the Bank Holding
Company Act of 1956, as amended from time to time (and any successor law
thereto), or the rules and regulations promulgated from time to time thereunder
(collectively, the "Bank Holding Company Act"), or any assertion by any
governmental regulatory agency that Toronto Dominion or an affiliate of Toronto
Dominion is or may be in violation or potential violation of the Bank Holding
Company Act by virtue of Toronto Dominion or an affiliate of Toronto Dominion
holding, or exercising any significant right with respect to, any Capital Stock
of the Company.
(b) For purposes of this Agreement, an "SBIC Issue" means any
facts or circumstances under which Toronto Dominion or an affiliate of Toronto
Dominion is or may be in violation or potential violation of the Small Business
Investment Act of 1958, as amended from time to time (and any successor law
thereto), or the rules and regulations promulgated thereunder (collectively, the
"Small Business Investment Act"), or any assertion by the U.S. Small Business
Administration or other governmental agency that Toronto Dominion or an
affiliate of Toronto Dominion is or may be in violation or potential violation
of the Small Business Investment Act or other laws or regulations pertaining to
small business investment companies by virtue of Toronto Dominion or an
affiliate of Toronto Dominion holding, or exercising any significant right with
respect to, any Capital Stock of the Company.
(c) For purposes of this Agreement, "SBIC Requirements" means
all of the requirements of the Small Business Investment Act relating to small
business investment companies and investments by small business investment
companies as in effect on the date hereof or as they may be amended or
supplemented from time to time.
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3. MISCELLANEOUS.
3.1. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
3.3. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.3. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5. NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with any United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by at least ten (10) days' advance written notice to
the other parties.
3.6. EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, the Holders of
seventy-five percent (75%) of the then outstanding Registrable Securities and
Holders (as defined in the Registration Rights Agreement) of a majority of the
Series F Registrable Securities, a majority of the Series G/H Registrable
Securities (as defined in the Registration Rights Agreement) and a majority of
the Series J Registrable Securities. Any amendment or waiver effected in
accordance with this Section 3.7 shall be binding upon each Holder of any
Registrable Securities, Series F Registrable Securities, Series J Registrable
Securities or Series G/H Registrable Securities then outstanding, each future
Holder of all such Registrable Securities or the Series F Registrable
Securities, Series J Registrable Securities or Series G/H Registrable
Securities, and the Company. Notwithstanding the foregoing, (i) the
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rights of Section 2.5 Stockholders pursuant to Section 2.5 hereof, (ii) the
rights of Investors pursuant to Section 2.7 hereof and (iii) the rights of
Investors pursuant to Section 2.10 hereof may not be amended without the written
consent of Holders of a majority of the Registrable Securities and seventy-five
percent (75%) of the Series F Registrable Securities and seventy-five percent
(75%) of the Series G/H Registrable Securities then held by the Section 2.5
Stockholders in the case of clause (i) hereof, each Holder of at least 80,000
shares of Registrable Securities in the case of clause (ii) hereof, and Holders
of a majority of the Registrable Securities and Other Registrable Securities in
the case of clause (iii) hereof. Notwithstanding the foregoing, (i) the rights
of the BT Holders under this Agreement may not be adversely affected in a manner
different than the rights of other holders of Registrable Securities, (ii) the
obligations of the BT Holders may not be increased in a manner different than
the obligations of other holders of Registrable Securities and (iii) this
Section and Section 3.10 may not be amended, in each case, without the written
consent of BT Holders holding a majority of the BT Warrant Shares. By executing
this Agreement, an Existing Investor hereby consents to amending and restating
the Prior Agreement in its entirety as set forth herein upon the effectiveness
of this Agreement and to waive any rights that would otherwise arise under the
Prior Agreement by virtue of the transactions contemplated by the Loan
Agreements. Each Investor also agrees to take such actions as are necessary or
desirable for the Company to comply with Section 4.8 of the BT Note and Warrant
Agreement.
3.8. APPROVALS. Each of the Investors hereby grants any and
all consents, waivers, amendments, assignments, assumptions and agreements
(collectively "Approvals") to effect the transactions contemplated by the
Series J Agreement that are necessary or appropriate under the agreements to
which they are a party, including without limitation, the Amended and Restated
Certificate of Incorporation of the Company as currently in effect (the
"Certificate"), the Series F Purchase Agreement, the Amended and Restated
Registration Rights Agreement dated as of August 18, 1997, among the Company and
the investors named therein (the "Prior Registration Rights Agreement") and the
Prior Agreement, and the execution, delivery and performance thereof and related
documents thereto, including those contained in the Series F Purchase Agreement,
the Prior Registration Rights Agreement, the Prior Agreement and the Certificate
(but excluding, notwithstanding any other provision of this Agreement, any
Approvals that may be necessary or appropriate under the Loan Agreements).
3.9. SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.10. AGGREGATION OF STOCK. All shares of Registrable
Securities and Other Registrable Securities held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
3.11. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
hereby amends and restates the Prior Agreement in its entirety and any other
previous agreements
33
<PAGE>
among any of the parties hereto (other than the BT Note and Warrant Agreement,
which shall continue in full force and effect and shall control in the event of
any conflict), with respect to the subject matter of this Agreement, and any
such previous agreements shall be of no further force and effect. This
Agreement and the documents referred to herein constitute the entire agreement
among the parties with respect to the subject matter hereof.
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Eighth Amended and
Restated Investor Rights Agreement as of the date first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 400 So. El Camino Real, Suite 1275
San Mateo, CA 94402
INVESTOR
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
-------------------------------------
-------------------------------------
<PAGE>
SCHEDULE A
Schedule of Investors
---------------------
Alexandra Building Corporation
American International Underwriters Overseas, Ltd.
ARBOR Company
Antignas, Sanford L.
Argentina Equity Investments Partnership
Aztec Digital Partnership
Bagatelle, Warren D.
BancBoston Investments Inc.
Barger, Matthew R.
Baupost Limited Partnership 1983 C-1
Bayview Investors, Ltd.
Beberman, Richard A.
Behrens, Christopher C.
Bennett, Michael
Bicom Technology, Inc. (Jason Wu)
Billings, George
Biron, Thomas E.
BPPA IWC LLC
Brown University Third Century Fund
BT Foreign Investment Corporation
C.I. Emerging Markets Fund
C.I. Global Fund
C.I. Latin American Fund
Campbell, Edward
CEA Investors, Inc.
Chase Latin American Equity Associates L.P.
CIH
Clarke, Robert L.
Clarke, Robert L. Self Directed IRA
Collis, James J.
Cooper, Jay W.
Crook, Edward T.
Darby Emerging Markets Fund, L.P.
Digital Ventures, Ltd.
Dixon, James
Doll, Dixon R.
Drysdale Partners
Drysdale, George M.
Duhamel Broadcasting Enterprises
Dunn, John Russel
S-1
<PAGE>
Egan, Robert L.
Electra Associates, Inc.
Electra Investment Trust P.L.C.
Emerging Markets Infrastructure Fund, Inc.
Emerging Markets Telecommunications Fund, Inc.
Fairman, Fleur
Fernandes, Jose Carlos Aguilera
First Bank Custodian for D. Kent Anderson
Flax-Davidson, Ron
FLX Fifth, L.P.
Frankum, Ronald B.
Frog & Peach Investors, L.P.
Gateway Venture Partners III, L.P.
GMI/DRI Investment Trust
Gunter, Jonathan
Gunter, L.P.
Harris Corporation
High Point Keller Limited Partnership
Huret , Robert, and Huret, Judy S. as Community Property
Irwin, Edward T.
IW Fund
JAFCO America Ventures, Inc.
JAFCO G-5 Investment Enterprise Partnership
JAFCO R-1(A) Investment Enterprise Partnership
JAFCO R-1(B) Investment Enterprise Partnership
JAFCO R-2 Investment Enterprise Partnership
Japan Associated Finance Co., Ltd.
JMB/RMD Partners, G.P.
John W. Stanton & Theresa E. Gillespie, JTWROS
Kaplow, Mark J.
Keller Enterprises, Inc.
Keller II, Richard B.
Keller II, Richard B., IRA DLJSC as Custodian
Kempner, Alan H., Thomas L. Kempner & William A. Perlmuth, Trustees U/W CML
Trust F/B/O
Kempner, Carl L., Thomas L. Kempner & William A. Perlmuth, Trustees U/W CML
Trust F/B/O
Kempner, Thomas L., Thomas L. Kempner & William A. Perlmuth, Trustees U/W CML
Trust F/B/O
Knafel Family Foundation
Knafel, Sidney R.
Krones, Robert
Kuhn, Loeb & Co.
Latin America Capital Partners
Latin America Equity Fund, Inc.
S-2
<PAGE>
Latin America Investment Fund, Inc.
Leach , Paul C., and Sheila J. Leach as Community Property
LEG Partners, L.P.
LEG RMD Investors LLC
Leight, Nathan D.
Lesser, Joseph S.
Lexington Partners IV, L.P.
Lockton, John
Loeb Children Trust, Henry A. Loeb, Thomas L. Kempner, Elizabeth Loeb Levin,
Jean Loeb Troubh, Trustee U/W Carl M. Loeb 1/3/55 Trust F/B/O Henry A.
Loeb Partners Corporation
Luby, William K.
MAO Holdings S.A.
Mass Mutual
McEvoy, Nan Tucker
McGuinness, Sean
McKay Charitable Remainder Trust
McKay Family Partnership
McKay, Elaine
McKay, Sr., Robert
Mintz, Norman N.
Mitsubishi
Mitsui Tokyo
Morgan, Melissa
Morgenthaler, Gary J.
Nathanson, Marc B.
Northwood Capital Partners LLC
Northwood Ventures
Osterweis Revocable Trust U/A Dated 9/13/93, John R. Osterweis, Trustee
Patrick Latterall Living Trust
Pavey Family Partnership
Pomona Capital II, L.P.
Poovey, Kenneth M. 410810 fbo , North American Trust Co., TTEE for Latham &
Watkins
Puritz, Scott
Quayle, Roger
R & S Co. IV, L.P.
Rahn, Noel P.
RMD Chicago Partners
Rock, Arthur
Rogers, Christopher
Rosenfelt, Barbara A.
Rothenberg, Alan E. and Rothenberg, G. Susan , as Community Property
Rowe, Irwin D.
Ruge, Jan
Salzer, Larry
S-3
<PAGE>
SBC Warburg Dillon Read Inc., as agent
Schwartz, Bradley S.
Snowdon, Van
Steyer, Thomas
Stough, Brooks
Taiwan Asia Pacific Venture Fund Ltd.
Tcherepnine, Jessica
Tepner, Harvey L.
Ticonderoga Partners III, L.P.
Tinicum Investors
Toolooe, Nezam
Toronto Dominion Investments, Inc.
U.S. Information Technology Investment Enterprise Partnership
Unger, Howard D.
Vanguard Cellular Operating Corp.
Wallert, Frederick
Walton, Robert E Benefit Trust
Wasaff, Charles
Willetts, Maria
Wilson, Henry T.
Woodfield, Andrew
S-4
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of March
10, 1998, between International Wireless Communications Holdings, Inc., a
corporation organized under the laws of Delaware (the "Company"), and the
individuals and entities listed on SCHEDULE 1 hereto (each such individual or
entity, a "Stockholder"; and collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, certain of the Stockholders purchased shares of Series F-1
and Series F-2 Preferred Stock, par value $0.01 per share of International
Wireless Communications, Inc., a Delaware corporation and wholly owned
subsidiary of the Company ("IWC"), that were converted into shares of Series F-1
and Series F-2 Preferred Stock of the Company, respectively (the "Series F-1
Preferred Stock" and "Series F-2 Preferred Stock"; respectively; collectively,
the "Series F Preferred Stock"), on August 8, 1996 pursuant to the Agreement and
Plan of Merger among the Company and IWC; and
WHEREAS, such Stockholders were granted registration rights pursuant
to the Registration Rights Agreement dated as of December 18, 1995 among IWC and
such Stockholders; and
WHEREAS, the Company succeeded to the rights and obligations of IWC
under such agreement pursuant to the Consent, Waiver, Amendment, Assignment and
Assumption Agreement among the Company and the parties thereto (such
Registration Rights Agreement, as so amended, being referred to as the "First
Agreement"); and
WHEREAS, certain of the Stockholders are lenders under the Loan
Agreement dated as of August 18, 1997 (the "IWCH Loan Agreement") among the
Company and the lenders named therein and the Loan Agreement dated as of August
18, 1997 (the "PWH Loan Agreement"; together with the IWCH Loan Agreement, the
"Loan Agreements") among Pakistan Wireless Holdings Limited, an indirect wholly
owned subsidiary of the Company ("PWH") and the lenders named therein; and
WHEREAS, subject to certain terms and conditions, the Notes, as that
term is defined in the IWCH Loan Agreement (individually, an "IWCH Note";
collectively, the "IWCH Notes") may be exchanged for shares of Series G-1 and
Series G-2 Preferred Stock, par value $0.01 per share of the Company (the
"Series G-1 Preferred Stock" and "Series G-2 Preferred Stock"; respectively;
collectively, the "Series G Preferred Stock"); and
WHEREAS, subject to certain terms and conditions, the Notes, as that
term is defined in the PWH Loan Agreement (individually, a "PWH Note";
collectively, the "PWH Notes" and, together with the IWCH Notes, the "Notes")
may be exchanged for Series H-1 and Series H-2 Preferred Stock, par value $0.01
per share of the Company (the "Series H-1 Preferred
<PAGE>
Stock" and "Series H-2 Preferred Stock," respectively; collectively, the
"Series H Preferred Stock"); and
WHEREAS, the Company has issued or will issue to certain of the
Stockholders the Warrants, as that term is defined in the IWCH Loan Agreement
(individually, a "Pakistan Warrant"; collectively, the "Pakistan Warrants"); and
WHEREAS, the Company agreed to grant to holders of Series G and
Series H Preferred Stock issuable upon exchange of the Notes and to holders of
the Pakistan Warrants the registration rights set forth herein; and
WHEREAS, certain of the Stockholders amended and restated the First
Agreement to accept, in lieu of the registration rights granted to them
thereunder, the registration rights granted to them pursuant to the Amended and
Restated Registration Rights Agreement dated as of August 18, 1997 (the "Second
Agreement"); and
WHEREAS, certain of the Stockholders purchased shares of the Company's
Series J Preferred Stock (the "Series J Preferred Stock") and warrants to
purchase the Company's Common Stock (individually, a "Series J Warrant";
collectively, the "Series J Warrants") pursuant to the Series J Preferred Stock
and Warrant Purchase Agreement dated as of March 10, 1998 (the "Series J
Agreement") among the Company and such Stockholders; and
WHEREAS, the Company has agreed to issue to Vanguard China, Inc. a
warrant to purchase the Company's Common Stock (the "SSA Warrant") pursuant to
the terms and conditions set forth in the Support Services Agreement dated as of
March 10, 1998 between the Company and Vanguard China, Inc.; and
WHEREAS, the Company agreed to grant to holders of Series J Preferred
Stock and Series J Warrants the registration rights set forth herein; and
WHEREAS, the Stockholders desire to amend and restate the Second
Agreement and the Stockholders desire to accept, in lieu of the registration
rights granted to them thereunder, the registration rights granted to them under
this Agreement:
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, capitalized terms
used herein shall have the meanings set forth in the preambles hereto and in
this Section 1.
1.1 "Class A Holder" shall mean any Holder which has received,
as of the date of any registration request, aggregate proceeds (net of selling
expenses and fees and expenses of counsel), whether received by such Holder in
the form of dividends, redemption payments or other distributions from the
Company in respect of Series F Registrable Securities, or upon the sale or other
disposition of Series F Registrable Securities in a distribution pursuant to a
registration statement filed by the Company under the Securities Act or pursuant
to a sale
2
<PAGE>
under Rule 144 under the Securities Act, equal to or in excess of one-half of
the purchase price paid by such Holder for the Series F Preferred Shares
purchased by such Holder under the Securities Purchase Agreement.
1.2 "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.3 "Common Stock" shall mean the Common Stock of the Company,
par value $.01 per share, or in the case of a conversion, reclassification or
exchange of such shares of such Common Stock, shares of the stock into or for
which such shares of Common Stock shall be converted, reclassified or exchanged,
and all provisions of this Agreement shall be applied appropriately thereto and
to any stock resulting from any subsequent conversion, reclassification or
exchange therefor.
1.4 [Intentionally left blank]
1.5 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
1.6 "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
1.7 "Holder" shall mean any holder of Registrable Securities,
and for purposes of this Agreement holders of Series F, Series G, Series H and
Series J Preferred Stock, the Pakistan Warrants and the Series J Warrants shall
be treated as Holders of the Registrable Securities underlying such Series of
Preferred Stock or Warrants, and references to Registrable Securities held by
such Holders shall include such underlying Registrable Securities; PROVIDED,
HOWEVER, that any Person who acquires any of the Registrable Securities in a
distribution pursuant to a registration statement filed by the Company under the
Securities Act or pursuant to a sale under Rule 144 of the Securities Act shall
not be considered a Holder with respect to such securities.
1.8 "Initiating Holders" shall mean the Holders of Registrable
Securities representing at least twenty percent (20%) of (a) the Series F
Registrable Securities then outstanding, (b) the Series J Registrable Securities
then outstanding, or (c) the Series G/H Registrable Securities then outstanding.
1.9 "IPO" shall mean (i) the time at which the Company becomes a
registered public company under the Exchange Act subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, or (ii) the first time
at which an offering, whether primary or secondary, of Common Stock or options,
warrants or other securities convertible into or exchangeable or exercisable for
Common Stock, is registered pursuant to an effective registration statement
(other than a registration statement on Form S-4 or Form S-8 or any
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<PAGE>
successor forms thereto) filed by the Company under the Securities Act or
(iii) the merger of the Company into a corporation or other entity which at the
time of such merger is required to file reports, proxy statements and other
information with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act. An IPO will be deemed to be consummated (i) on the date such
registration is declared effective by the Commission or (ii) in the case of a
merger, upon the effectiveness of the merger.
1.10 "Person" shall mean any individual, firm, corporation,
limited liability company, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
1.11 "Preferred Stock" shall mean the Preferred Stock, par value
$.01 per share, of the Company, including the Series F, Series G, Series H and
Series J Preferred Stock.
1.12 "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement with the
Commission in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement by the Commission.
1.13 "Registrable Securities" shall mean the Series F/J
Registrable Securities and the Series G/H Registrable Securities
1.14 "Registration Expenses" shall mean all expenses incurred by
the Company in compliance with this Agreement, excluding underwriters' discounts
and commissions but including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, the
compensation of regular employees of the Company and the fees and expenses of
the Company's accountants and a single counsel for the Holders (provided the
Holders' counsel shall also be counsel to the Company or the fees and expenses
of the Holders' counsel payable by the Company in connection with any
registration hereunder shall not exceed $50,000), all blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration.
1.15 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
1.16 "Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement, dated as of December 18, 1995, among the Company
and certain of the Stockholders, as amended from time to time.
1.17 "Selling Expenses" shall mean all underwriting discounts and
commissions applicable to the sale of Registrable Securities.
4
<PAGE>
1.18 "Series F Preferred Shares" shall mean the shares of
Series F Preferred Stock issued by the Company pursuant to the Securities
Purchase Agreement.
1.19 "Series F Registrable Securities" shall mean (i) the shares
of Common Stock issued or issuable upon conversion of the Series F Preferred
Shares (including, without limitation, any shares of Series F-1 Preferred Stock
into which any shares of Series F-2 Preferred Stock constituting Preferred
Shares are converted) and (ii) any other shares of Common Stock acquired after
the date of this Agreement, or shares of Common Stock issued or issuable upon
conversion of securities acquired after the date of this Agreement, in each case
pursuant to Section 2.3 or 2.5 of the Stockholders' Agreement and held by the
Stockholders or their Permitted Transferees (as defined in the Stockholders'
Agreement) from time to time (but only to the extent such shares or securities
are acquired by virtue of owning the shares referred to in clause (i) or (ii) of
this Section 1.19); PROVIDED, HOWEVER, that any such Registrable Securities
shall cease to be included within the definition of Registrable Securities when
(a) a registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (b) they shall
have been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act, (c) they shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent public distribution of them shall not
require registration of them under the Securities Act or (d) they shall have
ceased to be outstanding.
1.20 "Series F/J Registrable Securities" shall mean the Series F
Registrable Securities and the Series J Registrable Securities.
1.21 "Series G/H Preferred Shares" shall mean the shares of
Series G and Series H Preferred Stock of the Company issuable upon exchange of
the Notes or upon the conversion of any other Series G or Series H Preferred
Stock.
1.22 "Series G/H Registrable Securities" shall mean (i) the
shares of Common Stock issued or issuable upon conversion of the Series G/H
Preferred Shares, (ii) any other shares of Common Stock acquired after the date
of this Agreement, or shares of Common Stock issued or issuable upon conversion
of securities acquired after the date of this Agreement, in each case pursuant
to Section 2.3 or 2.5 of the Stockholders' Agreement and held by the
Stockholders or their Permitted Transferees from time to time (but only to the
extent such shares or securities are acquired by virtue of owning the shares
referred to in clause (i), (ii) or (iii) of this Section 1.22) and (iii) shares
of Common Stock issued or issuable upon the exercise of the Pakistan Warrants;
PROVIDED, HOWEVER, that any such Registrable Securities shall cease to be
included within the definition of Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall have been sold
as permitted by Rule 144 (or any successor provision) under the Securities Act,
(c) they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company and
5
<PAGE>
subsequent public distribution of them shall not require registration of them
under the Securities Act or (d) they shall have ceased to be outstanding.
1.23 "Series J Preferred Shares" shall mean the shares of
Series J Preferred Stock issued or issuable by the Company pursuant to the
Series J Agreement.
1.24 "Series J Registrable Securities" shall mean (i) the shares
of Common Stock issued or issuable upon conversion of the Series J Preferred
Shares and exercise of the Series J Warrants, (ii) any other shares of Common
Stock acquired after the date of this Agreement, or shares of Common Stock
issued or issuable upon conversion of securities acquired after the date of this
Agreement, in each case pursuant to Section 2.3 or Section 2.5 of the
Stockholders' Agreement and held by the Stockholders or their Permitted
Transferees from time to time (but only to the extent such shares or securities
are acquired by virtue of owning the shares referred to in clause (i), (ii) or
(iii) of this Section 1.24) and (iii) shares of Common Stock issued or issuable
upon exercise of the Series J Warrants; PROVIDED, HOWEVER, that any such
Registrable Securities shall cease to be included within the definition of
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration under the
Securities Act or (d) they shall have ceased to be outstanding.
1.25 "Stockholders' Agreement" shall mean that certain Eighth
Amended and Restated Investor Rights Agreement, dated as of the date hereof,
among the Company and certain stockholders of the Company.
2. REQUESTED REGISTRATION.
2.1 REQUEST FOR REGISTRATION. The Initiating Holders, by
written request to the Company, may require the Company to effect a registration
(a "Demand Registration") with respect to Registrable Securities at any time
after September 1, 1998. If the Initiating Holders elect to exercise such
rights prior to an IPO, then in connection therewith the Company shall take (or
prior thereto the Company shall have taken) all such actions as shall be
necessary to effect a stock-split with respect to its shares of Common Stock
such that, after giving effect to such stock-split and after giving effect to
the distribution of the Registrable Securities contemplated by the IPO, the
public float criteria with respect to a company listed on the Nasdaq National
Market shall be satisfied. Upon any registration request hereunder, the Company
shall:
(i) promptly give written notice of the proposed
registration to all other Holders (the "Demand Registration Notice"); and
(ii) as soon as practicable, but not later than sixty
(60) days after receipt of the request from the Initiating Holders, use its best
efforts and take all
6
<PAGE>
appropriate action to file a registration statement with the Commission, and
shall use its best efforts and take all appropriate action to effect such
registration as soon as possible following such filing (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualifications under the blue sky or other state securities laws
reasonably requested by Initiating Holders and appropriate compliance with
applicable regulations issued under the Securities Act) as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of the Demand Registration Notice.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 2 after the third of such
registrations pursuant to this Section 2 have been declared or ordered
effective; PROVIDED that, if none of the first three registrations pursuant to
this Section 2 to be declared or ordered effective is (i) a Series F-Initiated
No-Cutback Registration (as defined below), then thereafter Holders of
Registrable Securities representing at least twenty percent (20%) of the
Series F Registrable Securities then outstanding (as the Initiating Holders)
will have the right to request additional registrations pursuant to this
Section 2 until one such additional registration is a Series F-Initiated
No-Cutback Registration and (ii) a Series J-Initiated No-Cutback Registration
(as defined below), then thereafter Holders of Registrable Securities
representing at least twenty percent (20%) of the Series J Registrable
Securities then outstanding (as the Initiating Holders) will have the right to
request additional registrations pursuant to this Section 2 until one such
additional registration is a Series J-Initiated No-Cutback Registration. A
"SERIES F-INITIATED NO-CUTBACK REGISTRATION" is a registration pursuant to this
Section 2 which is declared or ordered effective, is requested by Holders of
Series F Registrable Securities as the Initiating Holders and in which no
Series F Registrable Securities requested to be included are excluded pursuant
to Section 2.5 below. A "SERIES J-INITIATED NO-CUTBACK REGISTRATION" is a
registration pursuant to this Section 2 which is declared or ordered effective,
is requested by Holders of Series J Registrable Securities as the Initiating
Holders and in which no Series J Registrable Securities requested to be included
are excluded pursuant to Section 2.5 below.
Notwithstanding the foregoing, if the Company shall furnish to Holders
requesting registration pursuant to this Section 2 a certificate signed by the
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company it would be seriously detrimental to
the Company and its stockholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer taking action with respect to such
filing for a period of not more than 120 days after receipt of the request of
the Initiating Holders; PROVIDED, that the Company may not utilize this right
more than once in any twelve-month period.
2.2 ADDITIONAL SHARES TO BE INCLUDED. The registration
statement filed pursuant to the request of the Initiating Holders may, subject
to the provisions of Section 2.5 below, include in addition to Registrable
Securities of Holders (a) other securities of the
7
<PAGE>
Company (the "Additional Shares") which are held by Persons who by virtue of
agreements with the Company (other than this Agreement) are entitled to include
their securities with the Holders referred to in Section 2.1 above
(collectively, the "Other Stockholders"), and (b) securities of the Company
being sold for the account of the Company (the "Company Shares").
2.3 WITHDRAWAL OF REGISTRATION. If the Initiating Holders
inform the Company by written notice that they are withdrawing their
registration request made pursuant to Section 2.1 above and the Initiating
Holders pay all of the Company's third party Registration Expenses with respect
to such registration incurred by the Company to the date of such notice, then
the registration statement need not be filed and all efforts pursuant to this
Agreement will not count as a registration (or an exercise of rights) under this
Section 2; PROVIDED, HOWEVER, that (a) if at the time of such withdrawal, the
Initiating Holders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to the Initiating Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Initiating Holders shall not be required to pay any of such expenses
and all efforts pursuant to this Agreement will not count as a registration (or
an exercise of rights) under this Section 2, and (b) if the Company decides to
proceed with the registration on its own behalf, or on behalf of Other
Stockholders, then the Initiating Holders shall not be required to pay any of
the Company's third party Registration Expenses and such registration will not
count as a registration (or an exercise of rights) under this Section 2.
2.4 UNDERWRITING.
(a) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2 and the Company shall include such information in the Demand
Registration Notice, and such Demand Registration Notice shall also state that
any registration pursuant to this Section 2 shall be conditioned upon a Holder's
participation in such underwriting and the inclusion of a Holder's Registrable
Securities in the underwriting to the extent provided herein and subject to the
limitations provided herein. Subject to Section 2.5 below, a Holder may elect
to include in such underwriting all or a part of the Registrable Securities he
holds.
(b) The Company shall (together with all Holders and Other
Stockholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company, provided that a
majority in interest of the Initiating Holders shall approve such selection in
their sole discretion.
2.5 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Company or the Initiating Holders in writing that marketing factors
require a limitation on the number of shares to be underwritten or that the
inclusion of Additional Shares or Company Shares may adversely affect the sale
price (of the shares to be registered) that may be obtained, then, FIRST, the
Company
8
<PAGE>
Shares shall be excluded from such registration to the extent so required by
such limitation, SECOND, the Series F Registrable Securities requested to be
included in such registration held by the Class A Holders and the Additional
Shares requested to be included in such registration statement held by Other
Stockholders, if any, shall be excluded from such registration to the extent so
required by such limitation, pro rata based upon the number of Series F
Registrable Securities or Additional Shares, as the case may be, which they have
requested to be included in such registration at the time of filing such
registration statement, THIRD, the Series F Registrable Securities requested to
be included in such registration statement held by Holders (other than Class A
Holders), if any, shall be excluded from such registration to the extent so
required by such limitation, pro rata based on the number of Series F
Registrable Securities which they have requested to be included in such
registration at the time of filing such registration statement, FOURTH, Series J
Registrable Securities requested to be included in such registration statement
by Holders, if any, shall be excluded from such registration to the extent so
required by such limitation, pro-rata based on the number of Series J
Registrable Securities which they have requested to be included in such
registration at the time of filing such registration statement, and FIFTH, the
Series G/H Registrable Securities requested to be included in such registration
statement held by Holders, if any, shall be excluded from such registration to
the extent so required by such limitation, pro rata based on the number of
Series G/H Registrable Securities which they have requested to be included in
such registration at the time of filing such registration statement, PROVIDED,
HOWEVER, that if at the time of such registration request the Common Stock of
the Company shall be publicly traded, and on each day on which the Common Stock
is traded during the three-month period immediately preceding the date on which
the Initiating Holders shall have requested such registration the Common Stock
shall have a Daily Closing Price (as defined in Section 11 below) which is equal
to or greater than $18.75 (as such number may be adjusted appropriately for
stock splits, subdivisions, combinations, reclassifications or other
recapitalizations), then FIRST, the Company Shares shall be excluded from such
registration to the extent so required by such limitation, SECOND, the Series F
Registrable Securities requested to be included in such registration held by all
Holders and the Additional Shares requested to be included in such registration
held by Other Stockholders, if any, shall be excluded from such registration to
the extent so required by such limitation, pro rata based on the number of
Series F Registrable Securities and Additional Shares, as the case may be, which
they have requested be included in such registration at the time of filing such
registration statement, THIRD, the Series J Registrable Securities requested to
be included in such registration held by Holders, if any, shall be excluded from
such registration to the extent so required by such limitation, pro rata based
on the number of Series J Registrable Securities which they have requested to be
included in such registration at the time of filing such registration statement,
and FOURTH, the Series G/H Registrable Securities requested to be included in
such registration held by Holders, if any, shall be excluded from such
registration to the extent so required by such limitation, pro rata based on the
number of Series G/H Registrable Securities which they have requested to be
included in such registration at the time of filing such registration statement.
Notwithstanding anything herein to the contrary, the Holders who have requested
to have Registrable Securities included in such registration shall be entitled
to include not less than 25% of the shares being registered in such offering.
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If the Company or any Holder or Other Stockholder who has requested
inclusion in such registration as provided above disapproves of the terms of any
such underwriting, such Person may elect to withdraw such Person's Registrable
Securities, Additional Shares or Company Shares, as the case may be, therefrom
by written notice to the Company, the underwriter and the Initiating Holders;
PROVIDED, HOWEVER, that if the Holders holding a majority of the Registrable
Securities requested to be included in such registration, in consultation with
their financial and legal advisors, determine that such election to withdraw
would materially delay the registration or otherwise require a recirculation of
the prospectus contained in the registration statement, then such Person shall
have no such right to elect to withdraw its request. If the withdrawal of any
Registrable Securities, Additional Shares or Company Shares, as the case may be,
would allow, within the marketing limitations set forth above, the inclusion in
the underwriting of a greater number of shares of Registrable Securities,
Company Shares or Additional Shares, then, to the extent practicable and without
delaying the underwriting, the Company, the Holders and the Other Stockholders
shall have an opportunity to include additional shares of Registrable
Securities, Company Shares or Additional Shares, as the case may be, in the
proportions and priorities discussed above.
3. COMPANY REGISTRATION.
3.1 If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising any demand registration rights, other than pursuant to
Section 2 above and other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Rule 145 (under the
Securities Act) transaction, the Company will:
(a) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(b) the Company shall include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein (the "Piggyback Registration"), all the
Registrable Securities specified in a written request or requests made by any
Holder within thirty (30) days after receipt of the written notice from the
Company described in clause (a) above, except as set forth in Section 3.3 below.
Such written request may specify all or a part of a Holder's Registrable
Securities.
3.2 UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1(a). The right of any Holder to require registration
pursuant to this Section 3 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any Other Stockholders distributing their securities through such
underwriting) enter into an underwriting
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agreement in customary form with the representative of the underwriter or
underwriters selected by the Company.
3.3 LIMITATIONS ON SHARES TO BE INCLUDED. With respect to
Company registrations or registrations effected by the Company for the account
of a security holder or holders exercising any demand registration rights (other
than pursuant to Section 2 above), notwithstanding any other provision of this
Section 3, if the representative of the underwriters advises the Company in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the representative may (subject to the allocation priority set
forth below) limit the number of Registrable Securities to be included in the
registration and underwriting. The Company shall so advise all Holders of
securities requesting registration.
(a) The number of shares of securities that are entitled to
be included in the registration and underwriting shall be allocated FIRST, to
Company Shares being sold for the Company's own account, SECOND, to Series G/H
Registrable Securities requested to be included in such registration at the time
of filing of such registration statement by Holders, if any, pro rata based on
the number of such Series G/H Registrable Securities requested to be included by
each Holder thereof, THIRD, to Series J Registrable Securities requested to be
included in such registration at the time of filing such registration statement
by Holders, if any, pro rata based on the number of such Series J Registrable
Securities requested to be included by each Holder thereof, FOURTH, to Series F
Registrable Securities requested to be included in such registration at the time
of filing such registration statement by Holders (other than Class A Holders),
if any, pro rata based on the number of such Series F Registrable Securities
requested to be included by each Holder thereof and FIFTH, to Series F
Registrable Securities requested to be included in such registration at the time
of filing such registration statement by Class A Holders and Additional Shares
requested to be included in such registration by Other Stockholders (including
those Other Stockholders exercising demand registration rights and on whose
account the Company determined to register securities pursuant to the exercise
of such demand registration right, or otherwise), pro rata based on the number
of such Series F Registrable Securities and Additional Shares, as the case may
be, requested to be included by each Holder or holder thereof; PROVIDED,
HOWEVER, that if at the time of such registration the Common Stock of the
Company shall be publicly traded, and on each day on which the Common Stock is
traded during the three-month period immediately preceding the date on which the
Company shall have given notice of such registration pursuant to Section 3.1(a),
the Common Stock shall have a Daily Closing Price which is equal to or greater
than $18.75 (as such number may be adjusted appropriately for stock splits,
subdivisions, combinations, reclassifications or other recapitalizations), then
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated FIRST, to Company Shares for
securities being sold for the Company's own account, SECOND, to Series G/H
Registrable Securities requested by Holders to be included in such registration
at the time of filing such registration statement, pro rata based on the number
of such Series G/H Registrable Securities requested to be included by each
Holder thereof, THIRD, to Series J Registrable Securities requested by Holders
to be included in such registration at the time of filing such registration
statement, pro rata based on the number of such Series J Registrable Securities
requested to be included by each Holder thereof, and FOURTH, to Series F
Registrable Securities requested by Holders to be included in such registration
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at the time of filing such registration statement and to Additional Shares
requested to be included in such registration by Other Stockholders at the time
of filing such registration statement (including those Other Stockholders
exercising demand registration rights and on whose account the Company
determined to register its securities pursuant to the exercise of such demand
registration right, or otherwise), pro rata based on the number of such Series F
Registrable Securities and such Additional Shares requested to be included by
each Holder or holder thereof. Notwithstanding anything herein to the contrary,
the Holders who have requested to have Registrable Securities included in such
registration shall be entitled to include not less than 25% of the shares (other
than Company Shares) being registered in such offering.
(b) If any Holder or Other Stockholder disapproves of the
terms of any such underwriting, such Person may elect to withdraw therefrom by
written notice to the Company and the underwriter.
3.4 WITHDRAWAL FROM REGISTRATION. Any Holder requesting
inclusion of Registrable Securities pursuant to this Section 3 may, at any time
prior to the effective date of the registration statement relating to such
registration, revoke such request by delivering written notice of such
revocation to the Company. If the withdrawal of any Registrable Securities or
Additional Shares would allow, within the marketing limitations set forth above,
the inclusion in the underwriting of a greater number of shares of Registrable
Securities or Additional Shares, then, to the extent practicable and without
delaying the underwriting, the Company shall offer to the Holders and to the
Other Stockholders an opportunity to include additional shares of Registrable
Securities or Additional Shares, as the case may be, in the proportions and
priorities discussed in Section 3.3 above.
3.5 TERMINATION OR WITHDRAWAL BY COMPANY. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. Upon such
termination or withdrawal, the Company shall give to each Holder which had
elected to include securities in such registration, written notice of such
termination or withdrawal.
4. REGISTRATION ON FORM S-3. In addition to the rights set forth in
Sections 2 and 3 above, if at any time (i) Initiating Holders request that the
Company file a registration statement on Form S-3 for a public offering of all
or any portion of the Registrable Securities held by such requesting Holder or
Holders, and (ii) the Company is a registrant entitled to use Form S-3 to
register such securities, then the Company shall use its best efforts to
register (including by means of a shelf registration pursuant to Rule 415 under
the Securities Act if so requested in such request) under the Securities Act on
Form S-3, for public sale in accordance with the method of disposition specified
in such request, the number of shares of Registrable Securities specified in
such request. Registrations effected pursuant to this Section 4 shall not be
counted as demands for registration or registrations effected pursuant to
Section 2 or 3, respectively.
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5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with the registration or qualification of, or compliance with, any
registration statement under Sections 2, 3 or 4 of this Agreement, shall be
borne by the Company. Each seller shall bear his or its own Selling Expenses
with respect to the securities sold by him or it.
6. REGISTRATION PROCEDURES.
6.1 In the case of each registration to be effected by the
Company pursuant to this Agreement, the Company will keep each Holder advised in
writing as to the initiation of each registration and all amendments thereto and
as to the completion thereof, advise any such Holder, upon request, of the
progress of such proceedings, use its best efforts to effect the registration of
all Registrable Securities to be registered in accordance with the terms hereof
under the Securities Act, and will, at its expense:
(a) Prepare and file with the Commission a registration
statement covering such Registrable Securities and use its best efforts to cause
such registration statement to be declared effective by the Commission and to
keep such registration effective for a period of one hundred twenty (120) days
or until the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; PROVIDED,
HOWEVER, that (i) such one hundred twenty (120) day period shall be extended for
a period of time equal to the period the Holders refrain from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; (ii) the Company shall keep
such registration effective for longer than one hundred and twenty (120) days
(or such longer period if extended in accordance with the previous proviso), up
to an additional period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs, if the direct third party costs and
expenses associated with such extended registration are borne by the selling
Holders; and (iii) in the case of any registration of Registrable Securities on
Form S-3 which are intended to be offered on a continuous or delayed basis, such
120-day period (or such longer period as provided above) shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, and the costs and expenses associated with such
extended registration shall be borne by the Company; PROVIDED that in the case
of clause (iii), (1) Rule 415 under the Securities Act, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and (2) applicable rules and regulations under the Securities Act governing the
obligation to file a post-effective amendment permit the incorporation by
reference into the registration statement of information contained in periodic
reports filed pursuant to Section 13 or l5(d) of the Exchange Act, in lieu of
filing a post-effective amendment which (y) includes any prospectus required by
Section 10(a)(3) of the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement;
(b) Subject to the provisos set forth in Section 6.1(a)
above, prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with
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respect to the disposition of all Registrable Securities covered by such
registration statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;
(c) Furnish to each seller of Registrable Securities
covered by such registration statement and each Holder two conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as such seller or Holder, as the case may be, may
reasonably request;
(d) Promptly notify each seller of Registrable Securities
covered by such registration statement and each Holder at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing, and prepare and furnish to such
seller and/or Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Use its best efforts (i) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such states of the
United States of America where an exemption is not available and as the sellers
of Registrable Securities covered by such registration statement shall
reasonably request, (ii) to keep such registration or qualification in effect
for so long as such registration statement remains in effect and (iii) to take
any other action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the securities to
be sold by such sellers, except that the Company shall not for any such purpose
be required to (x) qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this clause
(e) be obligated to be so qualified, (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction;
(f) Use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or authorities as
may be necessary in the opinion of counsel to the Company and counsel to the
seller or sellers of Registrable Securities to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
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(g) Use its best efforts to list all such Registrable
Securities registered in such registration on each securities exchange or
automated quotation system on which the Common Stock of the Company is then
listed, or, if the Common Stock of the Company is not then listed, to list all
such Registrable Securities registered in such registration on the Nasdaq
National Market, and, if the Company's Common Stock does not qualify for such
listing, then such other securities exchange or automated quotation system on
which the Company's Common Stock then qualifies for listing as the Company's
board of directors shall select;
(h) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(i) Enter into such customary agreements (including
underwriting agreements in customary form and reasonably acceptable to the
Company) and take all such other actions as the holders of a majority of the
Registration Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(j) Make available for inspection by any seller of
Registrable Securities, each Holder, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney or
accountant retained by any such seller, Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent accountants
to supply all information reasonably requested by any such seller, Holder,
underwriter, attorney or accountant in connection with such registration
statement, which information shall be subject to reasonable restrictions
concerning confidentiality and non-disclosure;
(k) Furnish to each selling Holder upon request a signed
counterpart, addressed to the selling Holder, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement and in form reasonably acceptable
to the Company and such Holder, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants,
in the case of (i) and (ii) covering substantially the same matters with respect
to the registration statement (and the prospectus included therein) and (in the
case of the accountants' "comfort" letters) with respect to events subsequent to
the date of the financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' "comfort" letters delivered to the
underwriters in underwritten public offerings of securities;
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(l) Furnish to each selling Holder upon request a copy of
all correspondence from or to the Commission in connection with any such
offering;
(m) In the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable best
efforts promptly to obtain the withdrawal of such order; and
(n) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and, if required, make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first month after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
6.2 In connection with the preparation and filing of each
registration statement under this Agreement, the Company will give the Holders
on whose behalf such Registrable Securities are to be registered and their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each such Holder such
access to the Company's books and records and such opportunities to discuss the
business of the Company with its officers, its counsel and the independent
public accountants who have certified the Company's financial statements, as
shall be necessary, in the opinion of such Holders or such underwriters or their
respective counsel, in order to conduct a reasonable and diligent investigation
within the meaning of the Securities Act, subject in all cases to the limitation
on reimbursement of fees and expenses of such Holders' counsel provided in
Section 1.14 hereof. Without limiting the foregoing, each registration
statement, prospectus, amendment, supplement or any other document filed with
respect to a registration under this Agreement shall be subject to review and
reasonable approval by the Holders registering Registrable Securities in such
registration and by their counsel, subject in all cases to the limitation on
reimbursement of fees and expenses of such Holders' counsel provided in
Section 1.14 hereof.
7. INDEMNIFICATION.
7.1 INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, to the
extent permitted by law, the Company will indemnify and hold harmless each
Holder, each of its officers, directors, partners, employees, agents, attorneys
and consultants and each Person controlling such Holder within the meaning of
the Securities Act or Exchange Act, and each underwriter, if any, and each
Person who controls any underwriter, against all claims, losses, damages and
liabilities, joint and/or several, (or actions, proceedings or settlements in
respect thereof) arising out of or based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or
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the like) incident to any such registration, qualification or compliance, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners, employees, agents, attorneys and consultants and each
Person controlling such Holder, each such underwriter and each Person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, defending or settling any such claim,
loss, damage, liability or action; PROVIDED, HOWEVER, that the Company will not
be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission made in reliance upon and based upon written information furnished to
the Company by such Holder or underwriter and expressly stated to be
specifically for use therein.
7.2 INDEMNIFICATION BY THE HOLDERS. To the extent permitted by
law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, (i) indemnify the Company, each of its officers,
directors, partners, employees, agents, attorneys and consultants, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company (other than such Holder) or such
underwriter within the meaning of the Securities Act or the Exchange Act, each
other Holder and each of its officers, directors, partners, employees, agents,
attorneys and consultants, and each Person controlling such Holder within the
meaning of the Securities Act or the Exchange Act, against all claims, losses,
damages, expenses and liabilities, joint and/or several, (or actions in respect
thereof) arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) reimburse the
Company, each of its officers, directors, partners, employees, agents, attorneys
and consultants, each underwriter, each such Person who controls the Company
(other than such Holder) or such underwriter, each other Holder and each of its
officers, directors, partners, employees, agents, attorneys and consultants and
each such Person controlling such Holder for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case under clause (i) or
(ii) above, to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in or
omitted from such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder with respect to such Holder and expressly stated
to be specifically for use therein; PROVIDED, HOWEVER, that the liability of any
such Holder under this Section 7.2, shall be limited to the amount of proceeds
received by such Holder in the offering giving rise to such liability.
7.3 NOTICES OF CLAIMS, PROCEDURES, ETC. Each party entitled to
indemnification under this Section (the "Indemnified Party") shall give notice
to the party
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required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; PROVIDED, that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at the Indemnified Party's sole expense;
PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless such failure is materially prejudicial to the
ability of the Indemnifying Party to defend such claim or action.
Notwithstanding the foregoing, such Indemnified Party shall have the right to
employ its own counsel in any such litigation, proceeding or other action if
(i) the employment of such counsel has been authorized by the Indemnifying
Party, in its sole and absolute discretion, or (ii) the named parties in any
such claims (including any impleaded parties) include any such Indemnified Party
and the Indemnifying Party and the Indemnifying Party shall have been advised in
writing (in suitable detail) by counsel to the Indemnified Party either (A) that
there may be one or more legal defenses available to such Indemnified Party
which are different from or additional to those available to the Indemnifying
Party, or (B) that there is a conflict of interest by virtue of the Indemnified
Party and the Indemnifying Party having common counsel, in any of which events,
the legal fees and expenses of a single counsel for all Indemnified Parties with
respect to each such claim, defense thereof, or counterclaims thereto, shall be
borne by Indemnifying Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement (x) which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation, or (y) which requires action other than the payment of
money by the Indemnifying Party. Each Indemnified Party shall cooperate to the
extent reasonably required and furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing and
as shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
7.4 CONTRIBUTION. If the indemnification provided for in this
Section 7 shall for any reason be held by a court to be unavailable to an
Indemnified Party under Section 7.1 or 7.2 hereof in respect of any loss, claim,
damage or liability, or any action in respect thereof, then, in lieu of the
amount paid or payable under Section 7.1 or 7.2, the Indemnified Party and the
Indemnifying Party under Section 7.1 or 7.2 shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same), (i) in such
proportion as is appropriate to reflect the relative fault of the Indemnified
Party and the Indemnifying Party, with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action or proceeding
in respect thereof, as well as any other relevant equitable considerations or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by the Indemnified Party and the Indemnifying Party
from the offering of the securities covered by such registration statement;
PROVIDED, that for purposes of this clause (ii), the relative benefits received
by a selling Holder
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shall be deemed not to exceed the amount of proceeds received by such seller.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. In addition, no
Person shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
8. INFORMATION BY HOLDER. Each Holder shall furnish to the Company
such information regarding such Holder and the distribution of Registrable
Securities proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
9. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights with
respect to any Registrable Securities to cause the Company to register such
securities granted to a Holder by the Company under this Agreement may be
transferred or assigned by a Holder, in whole or in part, to a transferee or
assignee of at least 20,000 shares of such Registrable Securities (as such
number may be adjusted appropriately for stock splits and divisions,
combinations, reclassifications or other recapitalizations), and, in such case,
the Company shall be given written notice stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned. Any such transferee or
assignee shall execute an agreement whereby such transferee or assignee agrees
to be bound by all of the terms and conditions of this Agreement.
10. RECORDS UNDER EXCHANGE ACT. With a view to making available to
the Holders the benefits of Rule 144 under the Securities Act and any other rule
or regulation of the Commission that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after ninety (90) days (or such shorter period as may then be permitted by the
rules and regulations of the Commission in effect at such times) after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 under the
19
<PAGE>
Securities Act (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company, or such shorter period as
may be then permitted by the rules and regulations of the Commission in effect
at such time), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual and quarterly
reports of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.
11. DAILY CLOSING PRICE. For purposes of this Agreement, the "Daily
Closing Price" for each day shall be (i) as reported in THE WALL STREET JOURNAL
or, if not reported therein, as reported in another newspaper of national
circulation chosen by the Board of Directors of the Company, the closing sales
price or, in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, on the New York Stock Exchange
Composite Tape, or if the Common Stock is not then listed or admitted to trading
on the New York Stock Exchange, on the largest principal national securities
exchange on which such stock is then listed or admitted to trading, or (ii) if
not listed or admitted to trading on any national securities exchange, then the
last reported sale price for such shares in the over-the-counter market, as
reported on the National Association of Securities Dealers Automated Quotation
System, or, if such sale price shall not be reported thereon, the average of the
closing bid and asked prices so reported, or, if such bid and asked prices shall
not be reported thereon, as the same shall be reported by the National Quotation
Bureau Incorporated, or, if such firm at the time is not engaged in the business
of reporting such prices, as furnished by any similar firm then engaged in such
business and selected by the Company or, if there is no such firm, as furnished
by any member of the National Association of Securities Dealers, Inc., selected
by the Company.
12. NO INCONSISTENT AGREEMENTS; AGREEMENTS BY STOCKHOLDERS. The
Company will not hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders in this
Agreement. Without limiting the generality of the foregoing, the Company will
not hereafter enter into any agreement with respect to its securities which
grants or modifies any existing agreement with respect to its securities to
grant to the holder of its securities (a) in connection with an incidental
registration of such securities registration rights with equal or higher
priority to the rights granted to the Holders under Section 2 or 3 of this
Agreement or (b) in connection with a demand registration the right to require
registration of any of such holder's securities before the earlier of (i) the
date on which the Holders shall have exercised any demand registration rights
under Section 2 hereof or (ii) the date on which the Company shall have
consummated an IPO and a period ending 6 months after any lock-up period
applicable to the Holders of the Registrable Securities shall have terminated.
In addition, the Company hereby covenants and agrees to cause all of
its stockholders to which it grants (or has previously granted) registration
rights to (i) acknowledge the priorities and limitations of inclusion of
securities set forth in this Agreement and (ii) agree that in connection with
any sale of securities registered on Form S-3 which includes Registrable
Securities on behalf of any Holders, such other stockholder shall provide at
least three (3)
20
<PAGE>
business days notice to the Holders of any intended sale of securities
registered on such Form and shall afford the Holders an opportunity to
participate in such sale, and further agree that no such sale by such other
stockholder shall be effected unless the priorities and limitations set forth in
Section 3.3(a) of this Agreement (without reference to the first paragraph of
Section 3.3), as between the Holders and such other stockholder, are respected.
13. BENEFITS OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, legal representatives and heirs.
This Agreement does not create, and shall not be construed as creating any
rights enforceable by any other Person.
14. COMPLETE AGREEMENT. This Agreement constitutes the complete
understanding among the parties with respect to its subject matter and
supersedes all existing agreements and understandings, whether oral or written,
among them. No alteration or modification of any provisions of this Agreement
shall be valid unless made in writing and signed by (a) holders of at least
seventy-five percent (75%) of the Series F Registrable Securities then
outstanding, (b) holders of at least a majority of the Series G/H Registrable
Securities then outstanding, (c) holders of at least a majority of the Series J
Registrable Securities and (d) the Company. By entering into this Agreement,
each party hereby agrees that the Second Agreement shall automatically terminate
upon the effectiveness of this Agreement.
15. SECTION HEADINGS. The Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
16. NOTICES. All notices, offers, acceptances and other
communications required or permitted to be given or to otherwise be made to any
party to this Agreement shall be deemed to be sufficient if contained in a
written instrument delivered by hand, first class mail (registered or certified,
return receipt requested), telex or telecopier (with confirmation of receipt) or
overnight air courier guaranteeing next day delivery, if to the Company, to it
at 400 South E1 Camino Real, Ste. 1275, San Mateo, California 94402 (facsimile:
(650) 548-1842) Attention: Chief Executive Officer, with a copy to Steven D.
Overly, Senior Vice President and General Counsel, and if to any Holder, to the
address of such Holder as set forth in the stock transfer books of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any party may change the address to
which each such notice or communication shall be sent by giving written notice
to the other parties of such new address in the manner provided herein for
giving notice.
17. GOVERNING LAW; CHOICE OF FORUM. THIS AGREEMENT SHALL BE DEEMED
TO HAVE BEEN EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
NEW YORK, NEW YORK. THIS AGREEMENT,
21
<PAGE>
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW RULES OR PRINCIPLES). ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT HERETO SHALL ONLY BE BROUGHT IN THE COURTS OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS AND IRREVOCABLY WAIVES ANY DEFENSE OR CLAIM TO SUCH
JURISDICTION WHICH EITHER OR BOTH MAY HAVE BASED, DIRECTLY OR INDIRECTLY, ON THE
GROUNDS OF FORUM NON CONVENIENS. IF ANY ACTION IS COMMENCED IN ANY OTHER
JURISDICTION, THE PARTIES HERETO HEREBY CONSENT TO THE REMOVAL OF SUCH ACTION TO
THE SOUTHERN DISTRICT OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION SYSTEM, AS THE DESIGNEE, APPOINTEE AND AGENT, OF THE COMPANY TO
RECEIVE, FOR AND ON BEHALF OF THE COMPANY, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR THE RIGHTS AND OBLIGATIONS HEREUNDER AND SUCH SERVICE SHALL BE DEEMED
COMPLETED UPON DELIVERY THEREOF TO SUCH AGENT. IT IS UNDERSTOOD THAT A COPY OF
SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY MAIL TO THE
COMPANY AT ITS ADDRESS SET FORTH IN SECTION 16, BUT THE FAILURE OF THE COMPANY
TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS.
THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY
AT ITS ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF ANY OF THE SECURITIES TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
19. SEVERABILITY. Any provision of this Agreement which is
determined to be illegal, prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such illegality,
prohibition or unenforceability without invalidating the remaining provisions
hereof which shall be severable and enforceable according to their terms and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
22
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS INC.
By:
-------------------------------
Name:
Title:
STOCKHOLDER
------------------------------------
(Print Name of Stockholder)
------------------------------------
(Signature of Stockholder or Authorized
Signatory)
------------------------------------
(Print Name and Title of Authorized
Signatory, if applicable)
<PAGE>
SCHEDULE I
Stockholder
- -----------
THE EMERGING MARKETS INFRASTRUCTURE FUND, INC.
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
LATIN AMERICA INVESTMENT FUND, INC.
LATIN AMERICA EQUITY FUND, INC.
LATIN AMERICA CAPITAL PARTNERS
ARGENTINA EQUITY INVESTMENTS PARTNERSHIP
CENTRAL INVESTMENT HOLDING (BVI) CO., LTD
C.I. EMERGING MARKETS FUND
C.I. GLOBAL FUND
C.I. LATIN AMERICAN FUND
JAPAN ASSOCIATED FINANCE CO.
JAFCO G-5 INVESTMENT ENTERPRISE
JAFCO R-1(A) INVESTMENT ENTERPRISE
JAFCO R-1(B) INVESTMENT ENTERPRISE
JAFCO R-2 INVESTMENT ENTERPRISE
U.S. INFORMATION TECHNOLOGY INVESTMENT ENTERPRISE PARTNERSHIP
NORTHWOOD VENTURES
NORTHWOOD CAPITAL PARTNERS LLC
GATEWAY VENTURE PARTNERS III, L.P.
BAYVIEW INVESTORS, LTD.
RS & CO. IV, L.P.
DRYSDALE PARTNERS
DIXON R. DOLL
GARY J. MORGENTHALER
THE PAVEY FAMILY PARTNERSHIP
BROOKS STOUGH
VANGUARD CELLULAR OPERATING CORP.
HIGH POINT KELLER LIMITED PARTNERSHIP
RICHARD B. KELLER II
RICHARD B. KELLER II, IRA
HARRIS CORPORATION
ELECTRA INVESTMENT TRUST, P.L.C.
ELECTRA ASSOCIATES, INC.
CENTRAL INVESTMENT HOLDING (BVI) CO., LTD.
TORONTO DOMINION CAPITAL (U.S.A.), INC.
MITSUI & CO., LTD.
MITSUBISHI CORPORATION
IW FUND
DR. JASON WU
GERLACH & CO. F/B/O MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
MASSACHUSETTS MUTUAL LIFE INSURANCE CO., IFM TRADITION
MASSACHUSETTS MUTUAL LIFE INSURANCE CO., PENSION
MANAGEMENT
S-1
<PAGE>
SCHEDULE I (CONTINUED)
LENDERS UNDER LOAN AGREEMENT
Stockholder
- -----------
SANFORD ANTIGNAS
MICHAEL BENNETT
BPPA IWC LLC
JIM DIXON
GEORGE DRYSDALE
JOHN RUSSELL DUNN
AARTI C. GURNANI
VICTOR LEVASHOFF
JOHN D. LOCKTON
DAVID MORGAN
MELISSA MORGAN
NORTHWOOD CAPITAL PARTNERS
NORTHWOOD VENTURES
ROGER QUAYLE
LARRY SALZER
DOUGLAS S. SINCLAR
VAN SNOWDON
TIAWAN ASIA PACIFIC VENTURE FUND
KEITH TAYLOR
HENRY T. WILSON
VANGUARD CELLULAR FINANCIAL CORP.
A.O.L. WOODFIELD
2
<PAGE>
SUPPORT SERVICES AGREEMENT
This Support Services Agreement (this "Agreement") is entered into as
of this 10th day of March, 1998, by and between International Wireless
Communications Holdings, Inc., a Delaware corporation (the "Company"), and
Vanguard China, Inc., a Delaware corporation ("Vanguard").
WHEREAS, the Company desires to retain Vanguard to provide the
services specified in Section 1 below; and
WHEREAS, the Company is prepared to grant Vanguard certain warrants to
acquire Common Stock of the Company in exchange for providing such services;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. SERVICES.
(a) Subject to the terms and conditions of this Section 1,
Vanguard in its sole discretion will perform the following services: (i) assist
Star Digitel Limited, a Company organized under the laws of Hong Kong ("SDL"),
in raising at least $50 million in its proposed unit offering consisting of
notes and warrants, or an alternative financing acceptable to SDL's board of
directors (the "SDL Financing"); and (ii) assist SDL in entering into an
equipment supply agreement with Northern Telecom (Asia) Ltd., any of its
affiliates or an alternative equipment vendor acceptable to SDL's board of
directors to supply and finance up to $150 million (or such lesser amount as
SDL's board of directors may approve) of equipment for cellular projects
affiliated with SDL (collectively, "Services").
(b) The Company shall pay or reimburse Vanguard upon demand for
all reasonable out-of-pocket expenses, including fees and expenses of counsel
for Vanguard, arising in connection with Vanguard's performance of Services.
2. WARRANT. Concurrently with the execution of this Agreement, the
Company shall issue to Vanguard a warrant to purchase shares of the Common Stock
on the terms and subject to the conditions set forth in the form of Warrant
attached hereto as EXHIBIT A.
3. LIABILITY AND INDEMNIFICATION.
(a) None of Vanguard, any of its affiliates or investees or any
of its or their respective officers, directors, employees, agents, attorneys or
control persons (within the meaning of Section 15 of the Securities Act of 1933,
as amended ("Control Persons")) (collectively, the "Vanguard Group") shall be
liable to the Company, any of its affiliates or investees or any of its or their
respective officers, directors, employees, agents, attorneys or Control Persons
for any losses, costs, damages or other liabilities resulting from the
performance
<PAGE>
of Services hereunder, unless such losses, costs, damages or other liabilities
result directly from gross negligence or willful malfeasance by a member of the
Vanguard Group in the performance of such Services.
(b) The Company shall indemnify and hold harmless each member of
the Vanguard Group against all losses, costs, damages or other liabilities,
including settlements of claims, actions, or threatened actions, finally
adjudicated judgments and reasonable attorneys' fees incurred or arising in
relation to the performance of Services; PROVIDED however that no such
indemnification shall be paid in connection with any matter to the extent such
losses, costs, damages or other liabilities result directly from gross
negligence or willful malfeasance by a member of the Vanguard Group in the
performance of Services.
(c) Neither party shall be liable to the other party for any
special, consequential, exemplary or punitive damages arising from or connected
with its performance of its obligations hereunder or any breach of such
obligations.
4. TERM AND TERMINATION.
(a) This Agreement shall continue in full force and effect until
the earlier of (i) March 1, 1999 and (ii) completion of the Services in
Section (1)(a) above, unless terminated earlier pursuant to the provisions of
this Section 4.
(b) This Agreement may be terminated at any time upon the
written consent of both parties, upon such terms as the parties may agree. This
Agreement may also be terminated by the Company or Vanguard, respectively,
should the other party sell all or substantially all its assets to a third party
or be subject to a change in control of fifty percent or more of its voting
stock by merger or otherwise.
(c) The termination of this Agreement shall not relieve either
party of obligations incurred prior to such termination.
5. MISCELLANEOUS.
(a) Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(b) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2
<PAGE>
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, as applied to agreements
among New York residents, made and to be performed entirely within the State of
New York.
(d) The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(e) Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery or facsimile (upon confirmation of receipt) to the
party to be notified or upon deposit with any United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by at least ten (10) days'
advance written notice to the other parties.
(f) If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
(g) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(h) This Agreement and the documents referred to herein
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of each of the parties hereto.
(i) For all purposes of this Agreement, Vanguard shall at all
times act as and be deemed to be an independent contractor, and shall not act as
nor be deemed to be a partner, joint venturer, employee or agent of the Company.
(j) The Company acknowledges, after a review of its independent
directors, that the services contemplated hereunder will not create any conflict
of interest between Vanguard and the Company.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date and year first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
---------------------------------
Title:
------------------------------
Address:
400 South El Camino Real, Suite 1275
San Mateo, CA 94402
Fax: 650-685-2170
Attn: Chief Executive Officer
with a copy to: Senior Vice President
and General Counsel
VANGUARD CHINA, INC.
------------------------------------
By:
---------------------------------
Title:
------------------------------
Address:
2002 Pisgah Church Road
Greensboro, NC 27455
Fax: 336-545-2500
Attn: Chief Executive Officer
with a copy to: General Counsel
<PAGE>
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE ACT OR PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
No. IWCH (SSA) - 1 Void after March 10, 2008
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant, dated March 10, 1998, is issued to Vanguard China, Inc.,
a Delaware corporation (the "Holder"), by International Wireless Communications
Holdings, Inc., a Delaware corporation (the "Company"), pursuant to the Support
Services Agreement, dated as of March 10, 1998, by and among the Company and
Vanguard China, Inc., a Delaware corporation ("Agreement").
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth, the Holder is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the Holder hereof in writing), to purchase 323,408 shares of the
Company's Class 1 Common Stock, par value $0.01 per share (the "Equity
Securities"), at a per share purchase price of No Dollars and One Cent ($0.01)
per share. The shares of Equity Securities issuable at any time pursuant to
this Section 1 are referred to as the "Warrant Shares." The purchase price of
the Warrant Shares as provided in this Section 1 (the "Exercise Price") shall be
subject to adjustment pursuant to Section 8 hereof.
2. VESTING. This Warrant shall be exercisable as follows:
(a) 161,704 Warrant Shares, subject to adjustment pursuant to
Section 8 hereof, upon Star Digitel Limited, a company organized under the laws
of Hong Kong ("SDL"), executing definitive financing documents relating to at
least $50 million in (i) its proposed unit offering consisting of notes of SDL
International Finance Limited and warrants of SDL or (ii) an alternative
financing acceptable to SDL's board of directors; and
(b) 161,704 Warrant Shares, subject to adjustment pursuant to
Section 8 hereof, when SDL enters into an agreement with Northern Telecom (Asia)
Ltd., any of its affiliates or an alternative vendor acceptable to SDL's board
of directors whereby such vendor
<PAGE>
agrees to supply and finance up to $150 million (or such lesser amount as SDL's
board of directors may approve) of equipment for cellular projects with which
SDL is affiliated.
3. EXERCISE PERIOD. This Warrant is exercisable at any time on any
business day but only until and including the close of business on March 10,
2008.
4. METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Sections 2 and 3 above, the Holder may exercise,
from time to time, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of this Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Warrant Shares being purchased.
5. NET ISSUE EXERCISE.
(a) Subject to the terms and conditions herein set forth, the
Holder may elect to exchange the right to purchase all or a portion of the
Warrant Shares subject to this Warrant for Equity Securities on a net issue
basis by surrendering this Warrant at the principal office of the Company
together with the subscription notice of such election. Upon such surrender,
the Company shall issue to the Holder a number of shares of Equity Securities
computed using the following formula:
X = (Y)(A-B)
--------
A
Where X - The number of shares of Equity Securities to be issued to
Holder.
Y - The number of shares of Warrant Shares as to which such
cancellation is to be effected.
A - The fair market value of one share of the Equity Securities
to be issued upon such cancellation.
B - Exercise Price (as adjusted to the date of such
calculations).
(b) For purposes of this Section, the Board of Directors of the
Company shall determine the fair market value in its good faith. Upon such
exchange, this Warrant shall be cancelled as to the number of Warrant Shares
represented by Y in the formula set forth in Section 5(a).
6. RETURN OF WARRANT AND CERTIFICATES FOR WARRANT SHARES. Upon the
exercise or cancellation of the purchase rights evidenced by this Warrant, one
or more certificates for the
2
<PAGE>
number of Warrant Shares to be issued shall be issued as soon as practicable
thereafter, and in any event within thirty (30) days of the delivery of the
subscription notice. Together with such share certificate(s), the Company will
return to the Holder (or to such other Person as the Holder may designate, so
long as the Holder has complied with the applicable provisions of Section 11 as
to the transfer of this Warrant to such other Person) this Warrant, after
recording on the attached Exercise/Cancellation Schedule the date of such
exercise or cancellation and the number of Warrant Shares as to which this
Warrant is being exercised or canceled.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it
will at all times keep available such number of authorized shares of its Equity
Securities issuable upon exercise of this Warrant, free from all preemptive
rights with respect thereto, which will be sufficient to permit the exercise or
cancellation of the rights under this Warrant for the full number of Warrant
Shares specified herein. The Company further covenants that such Warrant
Shares, when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number of Warrant Shares, the kind of securities purchasable upon exercise or
cancellation of rights under this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Equity Securities by split-up or otherwise, or combine its capital stock, or
issue additional securities as a dividend with respect to any shares of its
Equity Securities, the number of Warrant Shares shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination. Inversely proportional
adjustments shall also be made to the Exercise Price payable per share, but the
aggregate purchase price payable for the total number of Warrant Shares
purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION, AND CONSOLIDATION. In
case of any reclassification, capital reorganization, or change in the capital
stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of capital stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be
3
<PAGE>
made with respect to the rights and interest of the Holder so that the
provisions hereof shall thereafter be applicable with respect to any shares of
stock or other securities and property deliverable upon exercise hereof, and
appropriate adjustments shall be made to the Exercise Price per share payable
hereunder, provided the aggregate purchase price shall remain the same.
(c) NOTICE OF ADJUSTMENT. When any adjustment is required to be
made in the Warrant Shares, in the number or kind of shares purchasable upon
exercise of this Warrant, or in the Exercise Price, the Company shall promptly
notify the Holder of such event and the adjusted number of Warrant Shares, the
adjusted Exercise Price and the number of shares and the type of securities or
property thereafter purchasable upon exercise of or cancellation of rights under
this Warrant.
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or cancellation
of rights under this Warrant, but in lieu of such fractional shares the Company
shall make a cash payment therefor on the basis of the fair market value (as
determined in good faith by the Company's Board of Directors) of one Warrant
Share of the type in question.
10. NO STOCKHOLDER RIGHTS. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Warrant Shares, including (without limitation) the right to vote such Warrant
Shares, receive dividends or other distributions thereon, exercise preemptive
rights or be notified of stockholder meetings, and such Holder shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company. Notwithstanding the foregoing, the Company will give written
notice to the Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (i) with respect to any Distribution
(as defined in the Loan Agreement referred to in the last sentence of this
paragraph) upon the Equity Securities, (ii) with respect to any pro rata
subscription offer to holders of the Equity Securities or (iii) for determining
rights to vote with respect to any Liquidity Event (as defined below), Change of
Control (as defined below), dissolution or liquidation. The terms "Liquidity
Event" and "Change of Control" shall have the respective meanings given to them
in the Loan Agreement dated August 18, 1997 among the Company and the lenders
named on EXHIBIT A thereto.
11. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and the Holder
and their respective successors and assigns.
The Holder may transfer in whole or in part the purchase rights
evidenced hereby to any third party to whom such rights may be transferred
without registration or qualification under federal or state securities laws,
provided: (a) the transferee or assignee receives a Warrant to purchase at least
five percent (5%) of the Warrant Shares; (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of the
name and address of such transferee or assignee; (c) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Warrant; and (d) the transferor shall have delivered to the Company, if
reasonably requested by counsel to the Company, an opinion
4
<PAGE>
of counsel substantially to the effect that the transfer or assignment can be
effected without registration or qualification under applicable federal or state
securities laws (or, at the Holder's option, a certification by the Holder to
that effect in which the Holder agrees to indemnify and hold harmless the
Company in respect of any violation of such securities laws in connection with
such transfer). Upon surrender of this Warrant to the Secretary of the Company
at its principal offices after any such transfer, the Company will issue one or
more new Warrants of like tenor (in the name(s) of the Holder and/or the
transferee(s), as appropriate) representing in the aggregate the purchase rights
represented by this Warrant.
12. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of the Warrants representing a
majority of the securities as to which all outstanding Warrants are then
exercisable. Any waiver or amendment effected in accordance with this Section
shall be binding upon each holder of the Warrants, any Warrant Shares thereafter
purchased under this Warrant, each future holder of all such Warrant Shares, and
the Company.
12. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges that by
the operation of Section 12, the holders of the Warrants representing a majority
of the securities as to which all outstanding Warrants are then exercisable will
have the right and power to diminish or eliminate all rights of the Holder under
this Warrant.
14. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Delaware as applied to agreements among Delaware residents made and to
be performed entirely within the State of Delaware.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
5
<PAGE>
SUBSCRIPTION
International Wireless Communications Holdings, Inc.
Attention: Corporate Secretary
1. The undersigned hereby elects to purchase, pursuant to the
provisions of the Warrant to Purchase _______________ shares of
_________________ stock of International Wireless Communications Holdings, Inc.
and held by the undersigned, ____________ shares of ________ stock of
International Wireless Communications Holdings, Inc. Payment of the exercise
price per share required under such Warrant accompanies this Subscription.
1. The undersigned hereby elects to receive shares equal to the
value of this Warrant as to _________ Warrant Shares in the manner specified in
Section 5 of the Warrant.
[Strike paragraph above that does not apply.]
Date:
--------------------------
Signature:
--------------------------
Address:
--------------------------
--------------------------
Name in which shares should be registered:
<PAGE>
EXERCISE/CANCELLATION SCHEDULE
Date Number of Warrant Shares as to which
Warrant Exercised or Canceled
<PAGE>
VAN SNOWDON - COMPENSATION PROPOSAL
SALARY: $250,000 per year
SALE FEE/OPTIONS: In the event of a sale of or a binding commitment to sell
the company within 12 months, employee is to receive a cash fee as follows:
<TABLE>
<CAPTION>
Sale Price ($ millions) UP TO 300 400 500 600 700
--------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Bonus ($000's) 750 1,000 1,500 2,500 5,000
</TABLE>
For sale prices between the above threshold amounts, the bonus shall be
adjusted straight line pro-rata (i.e., $450M = $1,250K). In the event of a sale
after first six months, amount of incentive above $750K minimum shall be reduced
by 10% (i.e., $500M = $1,350K).
In the event there is no sale of the company as described above within the
12 month period and the employee is still employed by the company, employee
would receive options to purchase 200,000 shares at an exercise price of $8.00.
TERMINATION: In the event of involuntary termination, employee shall have the
choice between the following:
(A) $750K termination payment plus, in the event of a sale of the company,
any excess incentive over the $750K minimum which would be payable
according to the above fee schedule. If the employee is terminated
within 12 month period, the incremental incentive fee would still be
payable; or
(A) Options to purchase 200,000 shares at an exercise price of $8 per
share.
FORGIVENESS OF DEBT: In the event of a change of control or an IPO, the company
shall forgive the principal and interest on employee's currently outstanding
stock purchase loan.
REPLACE VANGUARD'S LONGEVITY BONUS: A bonus of $71K shall be payable 1/15/99 so
long as employee is employed on those dates.
SIGNING BONUS: $71K upon closing of purchase of the first J Series shares after
the last closing.
<PAGE>
Exhibit 10.25
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
EMPLOYEE RETENTION BONUS PLAN
(Effective March 27, 1998)
INTRODUCTION
The International Wireless Communications Holdings, Inc. Employee Retention
Bonus Plan (the "Plan") was established by International Wireless Communications
Holdings, Inc., a Delaware corporation ("IWCH"), effective March 27, 1998. The
Plan provides a Retention Bonus to specified employees of IWCH and its
subsidiaries.
This document is intended to constitute the official Plan text and the summary
plan description required by the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
WHO IS ELIGIBLE TO RECEIVE PLAN BENEFITS?
You qualify for participation in the Plan if you meet all of the following
requirements:
- - On May 1, 1998, you are an active, full-time employee of IWCH or a
subsidiary of IWCH.
- - You have not been notified in writing before May 1, 1998, that your
employment will be terminated.
- - You either:
- Remain continuously employed with IWCH or a subsidiary of
IWCH through the date any payment is owed hereunder, or
- Leave IWCH before the date any payment is owed hereunder,
because your employment is terminated, in the discretion of
IWCH, for lack of work (or you are otherwise terminated
involuntarily and without cause). In this case, you will be
required to sign a General Release and Waiver Form releasing
IWCH from any claims you may have.
- - You continue as a satisfactory employee, as determined by IWCH, until you
are released by IWCH in accordance with its business needs.
WHO IS NOT ELIGIBLE TO RECEIVE BENEFITS?
You are NOT eligible to receive benefits under the Plan if:
<PAGE>
- - You are discharged for cause as determined by IWCH. "Cause" means that you
have committed a crime, have engaged in willful misconduct, have committed
gross negligence, have violated IWCH policies, have breached IWCH's
confidentiality requirements or have engaged in insubordination. A
discharge will not be treated as a discharge for cause unless you have been
notified in writing of the cause and have been given a reasonable
opportunity to cure the problem.
- - You resign from IWCH, in which case you will not be entitled to any
payments under the Plan which have not accrued as of the date of your
resignation. "Resign" means that you terminate your employment at your own
request, you fail to return promptly from a Leave of Absence, or you are
absent for more than three days without written notice or permission.
- - You are a temporary, part-time or inactive employee.
- - You are an independent contractor with respect to IWCH and/or a subsidiary
of IWCH.
- - You do not satisfy one or more of the eligibility requirements described in
the Plan.
RETENTION BONUS
AMOUNT OF RETENTION BONUS
The amount of your Retention Bonus will be equal to a percentage of your base
salary (at the rate in effect on May 1, 1998). IWCH will advise you in writing
of the percentage that applies to you.
AMOUNT OF CHANGE OF CONTROL BONUS
In addition to the above Retention Bonus, if more than 50% of the outstanding
common stock of IWCH is sold or if any of IWCH's core assets (core assets being
defined for purposes of this Plan as all of IWCH's business interests in China
(Star Digitel Limited), Indonesia (Mobisel), Pakistan and/or Brazil) are sold
before January 1, 2000, then you will be paid a Change of Control Bonus
calculated as a percentage of your Retention Bonus described above. The
percentage depends on the total consideration paid for such stock (including
amounts paid to holders of options, warrants and convertible securities) or core
assets less the principal amount of indebtedness directly related to such stock
or core assets which is not assumed by the purchaser (Net Sale Price), as set
forth in this table:
2
<PAGE>
<TABLE>
<CAPTION>
NET SALE PRICE CHANGE OF CONTROL BONUS AS A
PERCENTAGE OF RETENTION BONUS
- --------------------------------------------------------------------------------
<S> <C>
Between $100 and $300 million 50%
$301 million or more 100%
</TABLE>
For example, assume that your base salary is $50,000 per year and your Retention
Bonus is 25% of your base salary (or $12,500). Assume further that IWCH is sold
for $275 million. Your Change of Control Bonus would be $6,250.
TIME AND AMOUNT OF PAYMENT
Your Retention Bonus will be paid to you in two payments - 50% on July 1, 1999,
and 50% on January 1, 2000, provided that you have remained eligible to
participate in the Plan. If you have been terminated without cause, or this
Plan shall have been terminated, repudiated, or rejected, you shall be deemed to
have earned in full and shall be entitled to receive a lump sum payment equal to
your maximum possible, unpaid Retention Bonus. Such payment will be made within
ten business days following your execution of a General Release and Waiver Form
and any applicable rescission period for such release shall have lapsed. If you
are paid the first payment (on July 1, 1999) but subsequently resign or
otherwise cease to be eligible to participate in the Plan, you will be entitled
to retain the first payment but will forfeit any right to receive the second
payment.
Your Change of Control Bonus will be paid to you immediately upon the sale of
more than 50% of the outstanding common stock of IWCH, provided that you have
remained eligible to participate in the Plan as of the date such sale is
consummated. In the event of a sale of one or more of the core assets of IWCH,
your Change of Control Bonus will be paid to you immediately upon such sale,
provided that you have remained eligible to participate in the Plan as of the
date such sale is consummated. If the sale of one or more core assets does not
exceed $100 and $300 million respectively, but subsequently a sale of more than
50% of the outstanding common stock of IWCH or the sale of other core assets,
when added to the value of any prior sales, would cumulatively exceed the $100
and $300 million amounts, the applicable Change of Control Bonus for sales
exceeding a Net Sale Price of $100 and $300 million will be paid immediately,
provided that you have remained eligible to participate in the Plan as of the
date the necessary subsequent sales are consummated.
The amount of any cash payment to be received by you pursuant to the Plan shall
be reduced (but not below zero) by the amount, if any, necessary to prevent any
part of any payment or benefit received or to be received by you in connection
with a change in ownership or effective control of IWCH or a change in the
ownership of a substantial portion of its assets or the termination of your
employment with IWCH or any of its subsidiaries or their successors from being
treated as an excess parachute payment within the meaning of Section 280G(b)(1)
of the Internal Revenue Code of 1986, as amended.
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<PAGE>
IWCH will withhold the appropriate federal, state, local and foreign income and
employment taxes from any cash payments made under the Plan. The Retention
Bonus will not count as compensation under any other plan of IWCH, such as life
insurance or 401(k). If you are terminated without cause and receive a
Retention Bonus, your Retention Bonus will replace any other severance benefit
that might have been payable (unless IWCH has expressly agreed in writing that
your Retention Bonus will supplement the other benefit). Your Retention Bonus
will not affect any annual incentive bonus or other compensation benefits to
which you are entitled.
DEATH
If you die before January 1, 1999, no Retention Bonus will be paid under the
Plan unless your employment was previously terminated by IWCH without cause. If
you die after you became entitled to receive the Retention Bonus but before you
actually receive it, then your Retention Bonus will be paid to your surviving
spouse or, if there is no surviving spouse, to your estate.
NON-ALIENATION OF BENEFITS
To the full extent permitted by law, no Plan benefit may be made subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to do so will be void.
APPLICABLE LAW
The Plan will be construed in accordance with ERISA and, to the extent they are
not preempted by ERISA, with the laws of the State of California.
4
<PAGE>
ADMINISTRATION AND OPERATION OF THE PLAN
PLAN SPONSOR AND PLAN ADMINISTRATOR
IWCH is the "plan sponsor" and the "plan administrator" of the Plan, as these
terms are used in ERISA.
ADMINISTRATIVE POWER AND RESPONSIBILITY
IWCH, as plan administrator, is the named fiduciary that has the authority to
control and manage the operation and administration of the Plan. IWCH has the
sole discretion to adopt rules, regulations, interpretations and computations
under the Plan. It may take such other action to administer the Plan as it may
deem appropriate in its sole discretion. Such rules, regulations,
interpretations, computations and other actions are conclusive and binding upon
all persons. IWCH may engage other persons or organizations to provide advice
or perform services with respect to its responsibilities under the Plan.
SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan.
PERFORMANCE OF RESPONSIBILITIES
The responsibilities of IWCH under the Plan will be carried out on its behalf by
its directors, officers, employees and agents, acting on behalf of IWCH in their
capacity as directors, officers, employees and agents and not as individual
fiduciaries. IWCH may delegate any of its fiduciary responsibilities under the
Plan to another person pursuant to a written instrument that specifies the
fiduciary responsibilities that are delegated to that person.
CLAIMS, INQUIRIES AND APPEALS
APPLICATIONS FOR BENEFITS AND INQUIRIES
All applications for benefits and all inquiries concerning the Plan, or present
or future rights to benefits under the Plan, must be submitted to IWCH in
writing and addressed as follows: "International Wireless Communications
Holdings, Inc., Plan Administrator Under the International Wireless
Communications Holdings, Inc. Employee Retention Bonus Plan, Attention:
Steven D. Overly, Esq., 400 South El Camino Real, Suite 1275, San Mateo,
CA 94402." An application for benefits must be signed by the applicant.
DENIAL OF CLAIMS
If an application for benefits is denied, in whole or in part, IWCH will notify
the applicant in writing of the denial and of the right to a review of the
claim. The written notice will explain, in a way that the applicant can
understand, the specific reasons for the denial, specific references to
5
<PAGE>
the Plan provision on which the denial is based, a description of any
information or material necessary to perfect the application, an explanation
of why the material is necessary and an explanation of the Plan's review
procedure. The written notice will be given to the applicant within 90 days
after IWCH receives the application, unless special circumstances require an
extension of time of up to an additional 90 days for processing the
application. If an extension of time for processing is required, written
notice of the extension will be furnished to the applicant before the
termination of the initial 90-day period. This notice of extension will
indicate the special circumstances requiring the extension of time and the
date by which IWCH expects to make its decision on the application for
benefits. If written notice of denial of the application for benefits is not
provided within the time specified in this section, the application will be
deemed denied. The applicant will be permitted to appeal the denial in
accordance with the Review Procedure set forth below.
REVIEW PANEL
IWCH will appoint a "Review Panel." The Review Panel will be the named
fiduciary that has the authority to act with respect to any appeal from a denial
of benefits.
REQUESTS FOR A REVIEW
Any person whose application for benefits is denied (or is deemed denied) in
whole or in part, or such person's duly authorized representative, may appeal
from the denial by submitting a request for a review of the application to the
Review Panel within 60 days after receiving written notice of the denial from
IWCH (or, in the case of a deemed denial, within 60 days after the application
is deemed denied). IWCH will give the applicant or the representative an
opportunity to review pertinent documents that are not privileged in preparing a
request for a review. A request for review must be in writing and must be
addressed as follows: "Review Panel Under the International Wireless
Communications Holdings, Inc. Employee Retention Bonus Plan, Attention: Steven
D. Overly, Esq., 400 South El Camino Real, Suite 1275, San Mateo, CA 94402." A
request for review must provide all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant deems
pertinent. The Review Panel may require the applicant to submit such additional
facts, documents or other material as it may deem necessary or appropriate in
making its review.
DECISION ON REVIEW
The Review Panel will act on each request for review and notify the applicant
within 60 days after receiving the review request, unless special circumstances
require an extension of time, up to an additional 60 days, for processing the
request. If an extension for review is required, written notice of the
extension will be furnished to the applicant within the initial 60-day period.
The Review Panel will give prompt, written notice of its decision to the
applicant and to IWCH. In the event that the Review Panel confirms the denial
of the application for benefits in whole or in part, the notice will explain, in
a way that the applicant can understand, the specific reasons for the denial and
specific references to the Plan provisions on which the decision is based. If
written notice of the Review Panel's decision is not given to the applicant
within the time prescribed in this section, the application will be deemed
denied on review.
6
<PAGE>
RULES AND PROCEDURES
The Review Panel will adopt such rules and procedures, consistent with the Plan
and with ERISA, as it may deem necessary or appropriate in carrying out its
responsibilities under the Plan. The Review Panel may require an applicant who
wishes to submit additional information in connection with an appeal from the
denial (or deemed denial) of benefits to do so at the applicant's own expense.
EXHAUSTION OF REMEDIES
No legal action for benefits under the Plan may be brought unless and until the
claimant (1) has submitted a written application for benefits, (2) has been
notified by IWCH that the application is denied or is deemed denied, (3) has
filed a written request for a review of the application and (4) has been
notified in writing that the Review Panel has affirmed the denial of the
application, or the application is deemed denied.
BASIS OF PAYMENTS TO AND FROM THE PLAN
All benefits under the Plan will be paid by IWCH. The Plan is unfunded, and
benefits will be paid only from the general assets of IWCH.
YOUR RIGHTS UNDER ERISA
This is a welfare plan sponsored by IWCH. IWCH is not required by law to
provide welfare benefits. However, certain legal requirements under ERISA must
be met for any benefits IWCH wishes to offer. ERISA requires that you be given
an opportunity to learn what these benefits are and your rights to them under
the law. This combined Plan and summary plan description booklet is one way to
help keep you informed.
As a participant in the Plan, you are entitled to certain rights and protections
under ERISA, which provides that all Plan participants are entitled to:
- - Examine, without charge, at the plan administrator's office and at other
specified locations such as work sites, all Plan documents and copies of
all documents filed by the Plan with the U.S. Department of Labor.
- - Obtain copies of all Plan documents and other Plan information upon written
request to the plan administrator. The plan administrator may make a
reasonable charge for the copies.
In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the Plan. The people who
operate your Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in the interest of you and other Plan participants and
beneficiaries.
7
<PAGE>
No one, including your employer, or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit
under this Plan or exercising your rights under ERISA.
IF YOUR CLAIM FOR A BENEFIT UNDER THIS PLAN IS DENIED IN WHOLE OR IN PART--you
must receive a written explanation of the reason for the denial. You have the
right to have the Plan review and reconsider your claim. Under ERISA, there are
steps you can take to enforce the above rights. For instance, if you request
materials from the Plan and do not receive them within 30 days, you may file
suit in a federal court. In such a case, the court may require the plan
administrator to provide the materials and pay you up to $110 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the administrator.
IF YOU HAVE A CLAIM FOR BENEFITS THAT IS DENIED OR IGNORED, IN WHOLE OR IN
PART--you may file suit in a state or federal court.
IF IT SHOULD HAPPEN THAT PLAN FIDUCIARIES MISUSE THE PLAN'S MONEY, OR IF YOU ARE
DISCRIMINATED AGAINST FOR ASSERTING YOUR RIGHTS--you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose, the court may order you to pay these costs and fees (e.g.,
if the court finds your claim frivolous).
IF YOU HAVE ANY QUESTIONS ABOUT YOUR PLAN--you should contact Steven D. Overly
at IWCH headquarters.
IF YOU HAVE ANY QUESTIONS ABOUT THIS STATEMENT OF YOUR RIGHTS, OR ABOUT YOUR
RIGHTS UNDER ERISA--you should contact the nearest Area Office of the Pension
and Welfare Benefits Administration, U.S. Department of Labor, listed in your
telephone directory or the Division of Technical Assistance and Inquiries,
Pension and Welfare Benefits Administration, U.S. Department of Labor,
200 Constitution Avenue, N.W., Washington, D.C. 20210.
IMPORTANT PLAN FACTS
PLAN ADMINISTRATOR AND PLAN SPONSOR
International Wireless Communications Holdings, Inc., 400 South El Camino Real,
Suite 1275, San Mateo, CA 94402, is the plan administrator and plan sponsor for
the Plan and attends to all details of Plan administration. The telephone
number is (650) 548-0808. The plan administrator and the designated fiduciaries
have complete discretionary authority to determine eligibility for benefits and
to interpret the terms of the Plan.
EMPLOYER ID NUMBER
The Employer Identification Number assigned to IWCH by the IRS is 94-3248701.
PLAN ID NUMBER
8
<PAGE>
The Plan Number assigned to the Plan by IWCH is 525.
PLAN TYPE
Welfare plan - severance.
PLAN YEAR
The plan year is the calendar year.
PLAN CONTINUANCE
IWCH reserves the right to amend or terminate the Plan at any time and for any
reason by action of its Board of Directors or the authorized delegate of its
Board of Directors. If the Plan should be terminated or changed, it will not
affect your right to any benefits to which you have already become entitled.
LEGAL SERVICE
Process can be served on the Plan by directing such service to Steven D. Overly,
Esq., International Wireless Communications Holdings, Inc., 400 South El Camino
Real, Suite 1275, San Mateo, CA 94402.
9
<PAGE>
Prismanet Page 1
EXHIBIT 10.101C
SHARE PURCHASE AND SALE AGREEMENT
AN AGREEMENT made this 6th day of April 1998
Between
(1) INTERNATIONAL WIRELESS COMMUNICATIONS INC. ("IWC") of 400 South El Camino
Real, Suite 1275, San Mateo, CA 94402, United States of America;
And
(2) SHUBILA HOLDINGS SDN. BHD. (Company No. 194957-U) ("Shubila") of 2nd Floor,
Wisma Segar, Jalan Tun Sambanthan, 50470 Kuala Lumpur.
RECITALS
(A) PRISMANET (M) SDN. BHD. (Company No. 257906-T) ("Company") (formerly known
as Syarikat Telefon Wireless (M) Sdn. Bhd.) is a private limited company
incorporated in Malaysia having an authorised capital of RM150,000,000.00
only divided into 150,000,000 ordinary shares of RM1.00 only of which
80,000,000 ordinary shares of RM1.00 each are issued and fully paid-up or
credited as fully paid-up.
(B) IWC is the beneficial owner of 18,000,000 ordinary shares in the Company
("Sale Shares").
(C) By a Loan Agreement dated 18th August 1995 ("Loan Agreement") entered into
between the Company as borrower ("Borrower"), Permata Merchant Bank Berhad
as arranger and agent ("Agent") and a Syndicate of Financial Institutions
comprising Permata Merchant Bank Berhad ("Permata Bank") and Perwira Affin
Bank Berhad ("Affin Bank") (collectively "Lenders") as lenders, the Lenders
agreed to make available to the Borrower a term loan facility of
RM91,000,000.00 upon the terms and conditions therein contained.
(D) Pursuant to the Loan Agreement:-
D.1 IWC entered into a Collateral Agreement dated 2nd October 1995
("Collateral Agreement") with Shubila, Laranda Sdn. Bhd. ("Laranda"),
the Borrower and Permata Bank as agent for the Beneficiaries wherein
IWC, Shubila and Laranda as shareholders of and lenders to the
Borrower made certain covenants upon the terms and conditions therein
contained. The expression "Beneficiaries" means Permata Bank as agent
and arranger and the Lenders from time to time under the Loan
Agreement.
D.2 IWC entered into an Option Agreement dated 2nd October 1995 ("Option
Agreement") with Permata Bank wherein IWC granted a call option to
Permata Bank to purchase from IWC all or part of the Option Shares (as
defined therein)
<PAGE>
Prismanet Page 2
at the price and upon the terms and conditions therein contained.
D.3 and the Collateral Agreement, the Agent accepted a deposit by IWC of
three (3) original share certificates numbers 044, 052 and 054 for an
aggregate of 15,000,000 ordinary shares in the Borrower with a share
transfer form duly executed by IWC but with the transferee's portion
left blank (collectively "Share Documents") as security for the
Borrower's indebtedness and the performance of the Borrower of its
obligations under the Loan Documents (as that term is defined in the
Loan Agreement) ("Share Charge"). The Agent did not request for nor
did IWC execute a Memorandum of Deposit of Stock and Non-Marketable
Securities in favour of the Agent.
(E) By a letter of offer dated 2 April 1998 from Shubila to IWC, Shubila has
offered to purchase all of IWC's shares in the Company and IWC has accepted
Shubila's offer at the price and upon the terms and conditions therein
contained.
(F) It is inter alia a condition precedent to IWC's agreeing to sell all of its
shares in the Company to Shubila for the Beneficiaries to release and
discharge all of IWC's obligations arising out of the transactions
contemplated by the Loan Agreement including without limitation any
obligations arising under the Collateral Agreement, Option Agreement and
Share Charge.
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
1.1 In this Agreement unless the context otherwise requires, the following
words and expressions shall have the following meanings:-
"Business Day" means a day (other than a Saturday and Sunday) on which
commercial banks in Kuala Lumpur are open for business;
"Closing" means on or prior to 30 April 1998;
"Conditions
Precedent" means receipt by IWC (in form and substance
satisfactory to IWC) of:-
(a) a duly executed and stamped Deed of Release; and
(b) the Share Documents;
"Deed of Release" means the Deed of Revocation and Mutual Release to be
executed by the Agent in the form set out in Schedule A
annexed hereto;
"Directors'
Discharge" means the Deed of Discharge to be executed by the
Company in the form set out in Schedule B annexed
hereto;
<PAGE>
Prismanet Page 3
"Documents" means collectively:-
(a) original share certificates to the Sale Shares;
(b) valid and registrable transfer forms duly executed by
IWC in respect of the Sale Shares with the transferee's
portion left blank ("Transfers"). For the avoidance of
doubt, Shubila reserves the right to nominate any third
party/s to be the transferee/s for the Sale Shares or
any part thereof; and
(c) letters of resignation of Clarence E. Endy and Robin
Maule as directors of the Company in which each of the
directors confirm that they have no claim whatsoever
against the Company arising from their duties and
office as directors of the Company for whatever
reasons;
"Payment Date" means 1st October 1999;
"Purchase Price" means the sum of US Dollars Four Million
(US$4,000,000.00) only subject to such reductions in
price if Shubila pays on the dates of payment set out
in Schedule C annexed hereto;
"US Dollar" or
"US$" means the lawful currency of the United States of
America.
1.2 In this Agreement, unless there is something in the subject or context
inconsistent with such construction or unless it is otherwise expressly
provided:-
(a) words denoting one gender include all other genders and words denoting
the singular include the plural and vice versa;
(b) words denoting persons include corporations, and vice versa and also
include their respective estate, personal representatives, successors
in title or permitted assigns, as the case may be;
(c) any reference to a recital, clause, schedule or party is to the
relevant recital, clause, schedule or party of or to this Agreement
and any reference to this Agreement or any of the provisions hereof
includes all amendments and modifications made to this Agreement from
time to time in force;
(d) any reference to a statutory provision includes any modification,
consolidation or reenactment thereof for the time being in force, and
all statutory instruments or orders made pursuant thereto;
(e) any reference to "writing" or cognate expressions, includes any
communications effected by telex, cable, facsimile transmission or
other comparable means;
(f) if any period of time is specified from a given day, or the day of a
given act or
<PAGE>
Prismanet Page 4
event, it is to be calculated exclusive of that day and
if any period of time falls on a day which is not a Business Day, then
that period is to be deemed to only expire on the next Business Day.
1.3 The Recitals and Schedules of and to this Agreement shall have effect and
be construed as an integral part of this Agreement but in the event of any
conflict or discrepancy between any of the provisions of this Agreement
such conflict or discrepancy shall, for the purposes of the interpretation
and enforcement of this Agreement, be resolved by:-
(a) giving the provisions contained in the clauses of this Agreement
priority and precedence over the provisions contained in the Recitals
and Schedules of and to this Agreement; and
(b) giving the provisions in the Schedules of this Agreement priority and
precedence over the provisions contained in the Recitals to this
Agreement.
1.4 The headings in this Agreement are inserted merely for convenience of
reference and shall be ignored in the interpretation and construction of
any of the provisions herein contained.
1.5 Time wherever mentioned shall be deemed to be of the essence of this
Agreement.
2. CONDITIONS PRECEDENT
2.1 Subject to the terms and conditions in this Agreement, IWC shall sell and
Shubila shall purchase the Sale Shares free from all liens, claims,
charges, mortgages, equities and other encumbrances whatsoever but with all
rights and advantages attaching thereto or accruing thereon together with
all dividends (including dividends declared and but not paid) as at the
date of this Agreement.
2.2 This Agreement shall be conditional upon the Conditions Precedent being
satisfied on or before the Closing, failing which this Agreement shall
become null and void and the parties hereto shall have no claims whatsoever
against the other in respect of the subject matter of this Agreement.
3. PURCHASE PRICE AND PAYMENT
3.1 Subject to the Conditions Precedent being satisfied on or before Closing,
the Purchase Price shall be paid in one lump sum by Shubila to IWC on or
before Payment Date Provided Always that interest at the rate of twelve
percent (12%) per annum calculated (before as well as after judgment) on a
daily basis shall be charged on the outstanding Purchase Price after
Payment Date until payment in full.
4. DOCUMENTS AND COMPLETION OF SALE AND PURCHASE
4.1 Completion of the sale and purchase of the Sale Shares shall take place on
the Closing
<PAGE>
Prismanet Page 5
whereupon the following shall ensue:-
(a) first, Shubila shall deliver to IWC:-
(i) the duly executed and stamped Deed of Release;
(ii) the Share Documents; and
(iii) the duly executed and stamped Directors' Discharge;
(b) secondly, IWC shall deliver to Shubila the Documents.
4.2 Upon the parties' compliance with their respective obligations under Clause
4.1, beneficial ownership in the Sale Shares shall be transferred from IWC
to Shubila Subject Always that Shubila shall indemnify and keep IWC and its
parent, affiliated associated and subsidiary corporations and their
respective directors, officers, employees, servants and agents
(collectively the "IWC Parties") fully indemnified against all claims
demands actions proceedings fines penalties taxes loss liabilities damage
and costs and expenses (including all solicitors client costs) which the
IWC Parties may suffer or sustain whether directly or indirectly arising
out of IWC's ownership of the Sale Shares, its exercise of any rights in
respect of the Sale Shares, including without limitation the appointment or
release of any officers, directors or employees of the Company or the
actions or inaction of any such persons, participation in any agreements
amongst the shareholders of the Company, and without limiting the
generality of the foregoing, participation in the Agreement to Allocate
Responsibility among Shubila, Laranda and IWC dated 15 November 1995
("Agreement to Allocate Responsibility"), participation in the
Shareholders' Agreement among Shubila, Laranda and IWC dated 26 March 1996
("Shareholders Agreement"), participation in the Loan Agreement and the
Loan Documents (as that term is defined in the Loan Agreement) or
participation in any transactions contemplated by such agreements including
any claims which the Company or any shareholder of the Company (past
present or future) or any director of the Company (past present or future)
may make against the IWC Parties.
4.3 Shubila hereby releases IWC and its parent, affiliated associated and
subsidiary corporations and their respective directors, officers,
employees, servants and agents (collectively the "IWC Releasees") from all
sums of money liabilities obligations accounts actions proceedings claims
and demands whatsoever which Shubila at any time had or has down to the
date of this Agreement against the IWC Releasees for or by reason or in
respect of the exercise of any rights in regard to the Sale Shares,
including without limitation the appointment or release of any officers,
directors or employees of the Company or the actions or inaction of any
such persons, participation in any agreements amongst the shareholders of
the Company, and without limiting the generality of the foregoing, any act
cause matter or thing relating to the obligations, observance and
performance of the Loan Agreement including any liabilities and obligations
arising under the Collateral Agreement, the Agreement to Allocate
Responsibility, Option Agreement and Share Charge on the part of the IWC
Releasees and/or pursuant to any agreements which IWC has entered into
(a) with Shubila and/or (b) with Shubila and any other party(s) including
without limiting the generality of the foregoing, the Shareholders
Agreement.
<PAGE>
Prismanet Page 6
5. PARTIES' REPRESENTATIONS AND WARRANTIES
5.1 IWC warrants and represents to Shubila as follows:-
(a) that except as disclosed in this Agreement, IWC is the legal and
absolute beneficial owner of the Sale Shares and that the Sale Shares
are fully paid-up and are free from all claims, charges, mortgages,
liens, equities and other encumbrances whatsoever;
(b) that IWC has waived all pre-emptive rights over the shares of the
Company owned by Laranda under the provisions of the Shareholders
Agreement.
5.2 Shubila warrants and represents to IWC as follows:-
(a) that Shubila has made an offer on identical terms to Laranda for the
purchase of Laranda's shares in the Company;
(b) that all authorisation have been obtained and Shubila is empowered to
enter into and perform its obligations under this Agreement upon the
terms and conditions herein contained;
<PAGE>
Prismanet Page 7
(c) that Shubila is not insolvent and has not committed any acts of
bankrupcty nor has any winding-up notice or proceedings been served on
it.
5.3 Without prejudice to any other rights and remedies which IWC may have in
law, Shubila undertakes and agrees with IWC that it will at all times
hereinafter indemnify and keep IWC indemnified fully and effectively
against claims, proceedings, actions, fines, taxes, penalties, loss or
damage, costs, expenses (including all solicitors-client costs) and other
liabilities which IWC may directly or indirectly suffer or sustain as a
result of or in connection with any misrepresentations contained in or any
breach of any of the representations, warranties and undertakings of
Shubila set out in this Agreement. The indemnity shall remain in full force
and effect and shall continue to subsist hereafter notwithstanding the
completion of the sale and purchase of the Sale Shares.
6. COMMUNICATION
6.1 NOTICES
Any notice or other communication to be given under or in respect of this
Agreement shall be in writing and may be delivered, given or sent by -
(a) hand;
(b) registered post, first class post or express or air mail or other fast
postal service; or
(c) telex, facsimile transmission or other instantaneous electronic media.
6.2 ADDRESS
Any notice or other communication to be given under or in respect of this
Agreement shall be delivered, given or sent to the party or his solicitors
("addressee") at the address or telex or facsimile transmission number set
out in this Agreement, or at such other address or telex or facsimile
transmission number as the addressee may give notice of to the other party
from time to time.
6.3 LANGUAGE
Any notices and communications to be given under or in respect of this
Agreement shall be in the English language or, if in other language,
accompanied by a translation thereof in the English language, certified to
be a true and correct translation of the original.
6.4 TIME OF SERVICE
Any notice and communications to be given under or in respect of this
Agreement shall be deemed to have been duly served upon and received by the
addressee -
(a) if delivered by hand prior to 5.00 p.m. on a Business Day, at the time
of delivery or, if delivered by hand at any other time, at 10.00 a.m.
on the next Business Day
<PAGE>
Prismanet Page 8
following the date of such delivery;
<PAGE>
Prismanet Page 9
(b) if sent by registered post, first class post or express or air mail or
other fast postal service, on the 3rd Business Day falling after the
date of despatch; and
(c) if transmitted by way of telex or facsimile transmission or other
instantaneous electronic media prior to 5.00 p.m. on a Business Day,
at the time of transmission, or if transmitted by way of telex or
facsimile transmission or other instantaneous electronic media at any
other time, at 10.00 a.m. on the next Business Day following the date
of such transmission.
6.5 PROOF OF SERVICE
In proving the giving of a notice or any other document under or in respect
of this Agreement it shall be sufficient to show -
(a) in the case of registered post, first class post or express or air
mail or other fast postal service, that the notice or other document
was duly addressed and posted; or
(b) in the case of facsimile transmission or telex or other instantaneous
electronic media, that the notice or other document was duly
transmitted from the despatching terminal as evidenced by a
transmission report generated by the despatching terminal.
7. GENERAL
7.1 APPLICABLE LAW
This Agreement shall be governed by the laws of Malaysia.
7.2 NON-WAIVER
No failure or delay on the part of any party hereto in exercising any power
or right hereinunder shall operate as a waiver thereof, nor shall any
single or partial exercise of such right or power preclude any other or
further exercise thereof or the exercise of any other right or power
thereof.
7.3 COSTS
(a) Each party shall bear their own solicitors costs.
(b) The stamp fees payable on this Agreement and the transfer forms
executed in accordance with the provisions of this Agreement including
the registration fees of the transfer of the Sale Shares shall be
borne and paid by Shubila.
(c) Shubila shall bear all costs and expenses in obtaining the approvals
or waivers of the Agent, the Beneficiaries and Laranda, where
applicable.
<PAGE>
Prismanet Page 10
<PAGE>
Prismanet Page 11
7.4 SEVERABILITY
Each Clause hereof shall be deemed to be independent and the invalidity or
unenforceability of any such Clause shall not affect the validity or
enforceability of any other Clause of this Agreement.
7.5 SUCCESSORS IN TITLE AND ASSIGNS
This Agreement shall be binding upon the parties hereto their successors in
title and permitted assigns respectively. Notwithstanding anything to the
contrary contained in this Agreement, Shubila shall be entitled, by written
notice served on IWC, to assign all its rights title and interest in to and
under this Agreement provided always such assignment shall not in any way
affect or discharge the obligations and liabilities of Shubila hereunder
including but not limited to the obligations to settle the Purchase Price.
7.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together and when delivered to IWC shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Prismanet Page 12
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals the day and year first above written.
SIGNED SEALED AND DELIVERED )
by )
for and on behalf of ) /s/ Clarence E. Endy
INTERNATIONAL WIRELESS )
COMMUNICATIONS INC. )
in the presence of:- )
SIGNED SEALED AND DELIVERED )
by SHUBILA HOLDINGS SDN. BHD. )
(Company No.194957-U) )
duly affixing its Common Seal ) /s/ Rosli Bin Man
in accordance with its Memorandum )
& Articles of Association )
in the presence of:- )
/s/_________________________ /s/________________________________
Director Director/Secretary
This is the execution page of the Share Sale Agreement between the abovenamed
parties for 18,000,000 shares in Prismanet (M) Sdn. Bhd.
<PAGE>
Prismanet Page 13
SCHEDULE A
DEED OF REVOCATION AND MUTUAL RELEASE
THIS DEED OF REVOCATION AND MUTUAL RELEASE is made on
Between
(1) INTERNATIONAL WIRELESS COMMUNICATIONS INC. ("IWC");
And
(2) PERMATA MERCHANT BANK BERHAD (Company No. 9999-V) ("Agent") as agent for
the Beneficiaries (as hereinafter defined).
WHEREAS
(A) By a Loan Agreement dated 18th August 1995 ("Loan Agreement") entered into
between Syarikat Telefon Wireless (M) Sdn. Bhd. (now known as Prismanet (M)
Sdn. Bhd.) as borrower ("Borrower"), the Agent as arranger and agent and a
Syndicate of Financial Institutions comprising Permata Merchant Bank Berhad
("Permata Bank") and Perwira Affin Bank Berhad ("Affin Bank") (collectively
"Lenders") as lenders, the Lenders agreed to make available to the Borrower
a term loan facility of RM91,000,000.00 upon the terms and conditions
therein contained, and pursuant to which the Lenders authorised the Agent
to execute the Loan Documents (as that term is defined in the Loan
Agreement), hold the Security thereby created, and to take such action on
behalf of the Lenders and exercise and carry out such powers, discretions
and authorities as described therein and as reasonably incidental thereto
which authorises the Agent to execute and deliver this Deed on behalf of
the Lenders.
(B) Pursuant to the Loan Agreement:-
B.1 IWC entered into a Collateral Agreement dated 2nd October 1995
("Collateral Agreement") with Shubila Holdings Sdn. Bhd. ("Shubila"),
Laranda Sdn. Bhd. ("Laranda"), the Borrower and Permata Bank as agent
for the Beneficiaries wherein IWC, Shubila and Laranda as shareholders
of and lenders to the Borrower made certain covenants upon the terms
and conditions therein contained. The expression "Beneficiaries" means
Permata Bank as agent and arranger and the Lenders from time to time
under the Loan Agreement.
B.2 IWC entered into an Option Agreement dated 2nd October 1995 ("Option
Agreement") with Permata Bank wherein IWC granted a call option to
Permata Bank to purchase from IWC all or part of the Option Shares (as
defined therein) at the price and upon the terms and conditions
therein contained.
B.3 and the Collateral Agreement, the Agent accepted a deposit by IWC of
three (3) original share certificates numbers 044, 052 and 054 for an
aggregate of 15,000,000 ordinary shares in the Borrower with a share
transfer form duly
<PAGE>
Prismanet Page 14
executed by IWC but with the transferee's portion left blank
(collectively "Share Documents") as security for the Borrower's
indebtedness and the performance of the Borrower of its obligations
under the Loan Documents (as that term is defined in the Loan
Agreement) ("Share Charge"). The Agent did not request for nor did
IWC execute a Memorandum of Deposit of Stock and Non-Marketable
Securities in favour of the Agent.
<PAGE>
Prismanet Page 15
C. By a letter of offer dated 2 April 1998 from Shubila to IWC, Shubila has
offered to purchase all of IWC's shares in the Borrower and IWC has
accepted Shubila's offer at the price and upon the terms and conditions
therein contained.
D. It is inter alia a condition precedent to IWC's agreeing to sell all of its
shares in the Borrower to Shubila for the Beneficiaries to release and
discharge all of IWC's obligations arising out of the transactions
contemplated by the Loan Agreement including without limitation any
obligations arising under the Collateral Agreement, Option Agreement and
Share Charge.
NOW THIS DEED WITNESSETH as follows:-
1. The Agent for itself and as agent for the Beneficiaries hereby releases IWC
and its parent, affiliated associated and subsidiary corporations and their
respective directors, officers, employees, servants and agents
(collectively the "IWC Releasees") from all sums of money liabilities
obligations accounts actions proceedings claims and demands whatsoever
which the Agent and/or the Beneficiaries at any time had or has down to the
date of this Deed against the IWC Releasees for or by reason or in respect
of any act cause matter or thing relating to the obligations, observance
and performance of the Loan Agreement including without limitation any
liabilities and obligations arising under the Collateral Agreement, Option
Agreement and Share Charge on the part of the IWC Releasees.
2. IWC hereby releases the Agent and Beneficiaries and their parent,
affiliated associated and subsidiary corporations and their respective
directors, officers, employees, servants and agents (collectively the "Bank
Releasees") from all sums of money liabilities obligations accounts actions
proceedings claims and demands whatsoever which IWC at any time had or has
down to the date of this Deed against the Bank Releasees for or by reason
or in respect of any act cause matter or thing relating to the obligations,
observance and performance of the Loan Agreement including any liabilities
and obligations arising under the Collateral Agreement, Option Agreement,
Share Charge and the Loan Documents (as those terms are defined in the Loan
Agreement) on the part of the Bank Releasees.
3. The parties hereby agree that the Option Agreement and Share Charge shall
be revoked and become null and void on the date of this Deed.
Simultaneously with the execution of this Agreement, the Agent shall return
the Share Documents to IWC or at IWC's instructions, to Shubila.
4. The stamp duty on this Deed shall be borne by Shubila Holdings Sdn. Bhd..
Each party shall bear its own solicitors' costs.
5. This Deed shall be governed by and construed in accordance with the laws of
Malaysia.
6. This Deed shall be binding upon IWC, the Agent and each of the
Beneficiaries and their respective successors in title and lawful assigns.
<PAGE>
Prismanet Page 16
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
Prismanet Page 17
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals the day and year first above written.
SIGNED SEALED AND DELIVERED )
by )
for and on behalf of )
INTERNATIONAL WIRELESS )
COMMUNICATIONS INC. )
in the presence of:- )
_______________________________
SIGNED SEALED AND DELIVERED )
by )
for and on behalf of PERMATA )
MERCHANT BANKER BERHAD )
in the presence of:- )
_______________________________
This is the execution page of the deed of revocation and mutual release between
the abovenamed parties regarding
<PAGE>
Prismanet Page 18
a term loan facility of RM91,000,000.00 granted to Prismanet (M) Sdn. Bhd..
<PAGE>
Prismanet Page 19
SCHEDULE B
To be Adopted on LetterHead of Prismanet (M) Sdn. Bhd.
To: (1) Mr. Clarence E. Endy
(2) Mr. Robin Maule
Dear Sirs,
RELEASE FROM DIRECTORS' DUTIES
In consideration of you agreeing to resign as directors of Prismanet (M) Sdn.
Bhd. ("Company") and confirming that each of you have no claim whatsoever
against the Company arising from your duties and office as directors of the
Company for whatever reasons, we hereby declare and confirm that we have no
claims of whatsoever nature against you arising from your duties and office as
directors of the Company for whatever reasons and hereby release each of you
from all sums of money liabilities obligations accounts actions proceedings
claims and demands whatsoever which we at any time had or has down to and
including the respective dates of your resignation as directors of the Company.
Dated this day of 1998.
Yours faithfully
for PRISMANET (M) SDN. BHD.
Duly authorised signatory
<PAGE>
Prismanet Page 20
SCHEDULE C
<TABLE>
<CAPTION>
DATE OF PAYMENT ADJUSTMENT PURCHASE PRICE US$
<S> <C> <C>
1 May 1998 -22% 3,120,000
1 June 1998 -20% 3,200,000
1 July 1998 -18% 3,280,000
1 August 1998 -16% 3,360,000
1 September 1998 -14% 3,440,000
1 October 1998 -12% 3,520,000
1 November 1998 -11% 3,560,000
1 December 1998 -10% 3,600,000
1 January 1999 - 9% 3,640,000
1 February 1999 - 8% 3,680,000
1 March 1999 - 7% 3,720,000
1 April 1999 - 6% 3,760,000
1 May 1999 - 5% 3,800,000
1 June 1999 - 4% 3,840,000
1 July 1999 - 3% 3,880,000
1 August 1999 - 2% 3,920,000
1 September 1999 - 1% 3,960,000
1 October 1999 0% 4,000,000
</TABLE>
<PAGE>
Exhibit 10.104K
BRIDGE LOAN AGREEMENT SUPPLEMENT NO. 2
November 17, 1997
Reference is made to (i) the Bridge Loan Agreement, dated as of May
16, 1997, between Star Digitel Limited, a company organized under the laws of
Hong Kong (the "BORROWER"), and The Toronto-Dominion Bank (the "LENDER"), as
amended by the Waiver Agreement (the "FIRST WAIVER AGREEMENT"), dated as of
July 10, 1997, among the Borrower, the Lender and PT. Bank Indonesia Raya
("BANK BIRA") and as further amended and supplemented by the Bridge Loan
Agreement Supplement No. 1, dated as of September 18, 1997 between the
Borrower and the Lender (the "BRIDGE AGREEMENT SUPPLEMENT NO. 1") (as so
amended and supplemented, the "BRIDGE AGREEMENT"), and (ii) the Bridge Loan
Agreement, dated as of July 10, 1997, between the Borrower and Bank BIRA, as
amended by the Waiver Agreement and Consent, dated as of September 18, 1997,
among Bank BIRA, the Borrower, the Lender, VCFC, STHL and IWC China Limited
(the "SECOND WAIVER AGREEMENT") (as so amended, the "BANK BIRA AGREEMENT").
Capitalized terms not otherwise defined in this Bridge Agreement Supplement
No. 2 have the same meanings as specified in the Bridge Agreement.
WHEREAS, the Borrower desires to enter into this Bridge Agreement
Supplement No. 2 pursuant to which the Borrower is requesting that the Lender
provide up to an additional $4,700,000 under the Bridge Agreement as set
forth herein;
WHEREAS, Bank BIRA, the Borrower and the Lender are willing
pursuant to a Third Waiver Agreement and Consent to be entered into
simultaneously herewith (the "THIRD WAIVER AGREEMENT"), on the terms and
conditions stated therein, to provide certain waivers under the Bank BIRA
Agreement and to enter into certain other arrangements with the Lender in
connection with the transactions contemplated by this Bridge Agreement
Supplement No. 2; and
WHEREAS, the Lender, on the terms and conditions stated below and
in the Third Waiver Agreement, has agreed to amend the Bridge Agreement as
hereinafter and thereinafter set forth.
Accordingly, the Lender and the Borrower, intending to be legally
bound, hereby agree that the Bridge Agreement be, and hereby is, amended and
supplemented as follows:
1. AMENDMENTS TO BRIDGE AGREEMENT.
(a) Section 1.01 of the Bridge Agreement is hereby amended as
follows:
(i) The definition of "ADVANCE" is amended in full to be and
read as follows: "'ADVANCES' has the meaning specified in Section
2.01(a) and, for the
<PAGE>
2
purpose of this Agreement, shall be deemed to include each First
Supplemental Advance and Second Supplemental Advance, as
applicable."
(ii) The definition of "APPLICABLE MARGIN" is amended by
deleting the last sentence therein and substituting with the
following: "References to 'APPLICABLE MARGIN' under this Agreement
shall be deemed to include references to the First Supplemental
Applicable Margin and the Second Supplemental Applicable Margin, as
applicable."
(iii) The definition of "COMMITMENT" is amended in full to
be and read as follows: "'COMMITMENT' has the meaning specified in
Section 2.01(a) and, for the purpose of this Agreement, shall be
deemed to include the First Supplemental Commitment and the Second
Supplemental Commitment, as applicable."
(iv) The definition of "EFFECTIVE DATE" is amended in full to
be and read as follows: "'EFFECTIVE DATE' has the meaning
specified in Section 3.01 and, for purpose of this Agreement, shall
be deemed to include the First Supplemental Effective Date and the
Second Supplemental Effective Date, as applicable."
(v) The definition of "FACILITY" is amended in full to be and
read as follows: "'FACILITY' has the meaning specified in Section
2.01(a) and, for purpose of this Agreement, shall be deemed to
include the First Supplemental Facility and the Second Supplemental
Facility, as applicable."
(vi) The definition of "NOTE" is amended by deleting the last
sentence therein and substituting with the following: "References
to 'NOTE' under this Agreement shall be deemed to include
references to the First Supplemental Note and the Second
Supplemental Note, as applicable."
(vii) The definition of "PERMITTED DEBT" is amended by
adding a new clause (c) to the end thereof to be and read as
follows: "Debt of a Subsidiary of the Borrower in the form of
intercompany loans made to such Subsidiary by the Borrower."
(viii) The definition of "PERMITTED INVESTMENT" is amended
by amending clause (j) at the end thereof to be and read as
follows: "(j) loans or capital contributions made in cash or other
assets in respect of the Borrower's total amount of investment in,
any Subsidiary."
(ix) The definition of "TERMINATION DATE" is amended by
deleting the last sentence therein and substituting with the
following: "References to
<PAGE>
3
'TERMINATION DATE' under this Agreement shall be deemed to include
references to the First Supplemental Termination Date and the
Second Supplemental Termination Date, as applicable."
(x) Section 1.01 of the Bridge Agreement is amended to
include the following new terms set forth therein in alphabetical
order:
(A) "'SECOND SUPPLEMENTAL ADVANCES' has the meaning
specified in Section 2.01(c)."
(B) "'SECOND SUPPLEMENTAL APPLICABLE MARGIN' means, as
of any date of determination during the period from the Second
Supplemental Effective Date to the Final Maturity Date, 2.50%."
(C) "'SECOND SUPPLEMENTAL COMMITMENT' has the meaning
specified in Section 2.01(c)."
(D) "'SECOND SUPPLEMENTAL EFFECTIVE DATE' means, with
respect to the Second Supplemental Facility, the first date on
which the conditions precedent set forth in Section 3.01 have
been satisfied."
(E) "'SECOND SUPPLEMENTAL FACILITY' has the meaning
specified in Section 2.01(c)."
(F) "'SECOND SUPPLEMENTAL NOTE' means a promissory note
of the Borrower payable to the order of the Lender, in
substantially the form of Exhibit A-2 hereto, evidencing the
aggregate indebtedness of the Borrower to the Lender resulting
from the Second Supplemental Advances made by the Lender."
(G) "'SECOND SUPPLEMENTAL TERMINATION DATE' means the
earlier of (i) the 30th day immediately following the Second
Supplemental Effective Date and (ii) the date of termination
of whole of the Second Supplemental Commitments pursuant to
Section 6.01."
(b) Section 2.01 of the Bridge Agreement is hereby amended in full
to be and read as follows:
"SECTION 2.01. THE ADVANCES. (a) The Lender agrees, on the
terms and conditions hereinafter set forth, to make advances (the
"ADVANCES") to the Borrower from time to time on any Business Day during
the period from the Effective Date until the Termination Date in an
aggregate amount not to exceed at any time outstanding $8,000,000 (the
"FACILITY" or, as of the date hereof, the "COMMITMENT").
<PAGE>
4
Each Borrowing shall be in an aggregate amount of $2,000,000 or an
integral multiple of $1,000,000 in excess thereof. Each Borrowing shall
consist of Advances made on the same day by the Lender. The Borrower
acknowledges and agrees that the Lender shall not provide more than
three Borrowings under the Facility.
(b) The Lender agrees, on the terms and conditions
hereinafter set forth, to make advances (the "FIRST SUPPLEMENTAL
ADVANCES") to the Borrower from time to time on any Business Day during
the period from the First Supplemental Effective Date until the First
Supplemental Termination Date in an aggregate amount not to exceed at
any time outstanding $10,000,000 (the "FIRST SUPPLEMENTAL FACILITY" or,
as of the date hereof, the "FIRST SUPPLEMENTAL COMMITMENT"). Each
Borrowing shall be in an aggregate amount of $2,000,000 or an integral
multiple of $1,000,000 in excess thereof. Each Borrowing shall consist
of First Supplemental Advances made on the same day by the Lender. The
Borrower acknowledges and agrees that the Lender shall not provide more
than three Borrowings under the First Supplemental Facility.
(c) The Lender agrees, on the terms and conditions
hereinafter set forth, to make advances (the "SECOND SUPPLEMENTAL
ADVANCES") to the Borrower from time to time on any Business Day during
the period from the Second Supplemental Effective Date until the Second
Supplemental Termination Date in an aggregate amount not to exceed at
any time outstanding $4,700,000 (the "SECOND SUPPLEMENTAL FACILITY" or,
as of the date hereof, the "SECOND SUPPLEMENTAL COMMITMENT"). Each
Borrowing shall be in an aggregate amount of $2,000,000 or more. Each
Borrowing shall consist of Second Supplemental Advances made on the same
day by the Lender. The Borrower acknowledges and agrees that the Lender
shall not provide more than three Borrowings under the Second
Supplemental Facility."
(c) Section 2.03 of the Bridge Agreement is hereby amended in full
to be and read as follows:
"SECTION 2.03. FEES.
(a) COMMITMENT FEES. The Borrower agrees to pay the Lender
for its account (i) a commitment fee on the unused portion of the
Facility from May 16, 1997 until the Termination Date at a rate per
annum equal to 0.5% per annum, payable in arrears, on the Termination
Date; (ii) a commitment fee on the unused portion of the First
Supplemental Facility from September 18, 1997 until the First
Supplemental Termination Date at a rate per annum equal to 0.5% per
annum, payable in arrears, on the First Supplemental Termination Date
and (iii) a commitment fee on the unused portion of the Second
Supplemental Facility from November 17, 1997 until the Second
Supplemental Termination Date at a rate per annum equal to 0.5% per
annum, payable in arrears, on the Second Supplemental Termination Date.
<PAGE>
5
(b) EXTENSION FEE. Subject to Section 2.04(b), the Borrower
agrees to pay the Lender for its account an extension fee equal to
$225,000 (the "EXTENSION FEE") at the Extension Date.
(c) UPFRONT FIRST SUPPLEMENTAL FEE. The Borrower agrees to
pay the Lender for its account an upfront fee equal to $125,000 on
September 18, 1997.
(d) UPFRONT SECOND SUPPLEMENTAL FEE. The Borrower agrees to
pay the Lender for its account an upfront fee equal to $117,500 on
November 17, 1997."
(d) Section 5.02 of the Bridge Agreement is hereby amended as
follows:
(i) Section 5.02(a)(ii) of the Bridge Agreement is hereby amended
by amending the proviso at the end thereof to be and read as follows:
"PROVIDED FURTHER that the aggregate principal amount of the
indebtedness secured by the Liens referred to in this clause (ii) shall
not exceed $166,800,000 (or the equivalent in any other currency) at any
time outstanding;"
(ii) Section 5.02(b)(ii) of the Bridge Agreement is hereby amended
to be and read as follows: "(ii) Debt Secured by Liens permitted by
Section 5.02(a)(ii) not to exceed $166,800,000 (or the equivalent in any
other currency) at anytime outstanding;"
(iii) Section 5.02(g) of the Bridge Agreement is hereby amended
by amending the proviso at the end thereof to be and read as follows:
"PROVIDED that nothing in this Section 5.02(g) shall be deemed to
prohibit dividends or distributions paid to the Borrower by its
Subsidiaries the proceeds of which are used to repay the aggregate
principal amount of Advances then outstanding."
(iv) Section 5.02(m) of the Bridge Agreement is hereby amended by
adding a proviso at the end thereof to be and read as follows:
"PROVIDED that nothing in this Section 5.02(m) shall be deemed to
require that intercompany loans made or issued by the Borrower as credit
support in connection with transactions permitted by Section 5.02(a)(ii)
and Section 5.02(b)(ii) of the Agreement be upon fair and reasonable
terms not less favorable to the Borrower or its Subsidiaries than
transactions on an arm's-length basis with a Person not an Affiliate."
2. This Bridge Agreement Supplement shall not become effective
unless and until:
(i) all of the conditions set forth in Section 3.01 of the Bridge
Agreement shall have been satisfied with respect to the Second
Supplemental Facility,
(ii) the Lender shall have received (A) counterparts of this Bridge
Agreement
<PAGE>
6
Supplement No. 2 executed by all of the parties hereto, (B) counterparts
of the Guaranty Amendment and Consent No. 2 executed by STHL (the "STHL
GUARANTY AMENDMENT NO. 2"), and the Guaranty Amendment and Consent No. 2
executed by VCFC (the "VCFC GUARANTY AMENDMENT NO. 2"), each in the form
attached hereto as Exhibits B and C, respectively, (C) counterparts of
the Third Waiver Agreement executed by all of the parties thereto and
(D) evidence that all necessary corporate action and all necessary
governmental and third party approvals, consents and registrations
relating to the execution, delivery and performance of this Bridge
Agreement Supplement No. 2, the Third Waiver Agreement and the
obligations hereunder and thereunder have been duly taken, made or
obtained and remain in full force and effect, and
(iii) provided that, (A) the representations and warranties
contained in Article IV of the Bridge Agreement and Section 6 of each of
the Guaranties are correct on and as of the date hereof as though made
on and as of such date (other than such representations or warranties
that, by their terms, refer to a date other than the date hereof), and
(B) no event has occurred or is continuing, or would result from the
execution, delivery or performance of this Bridge Agreement Supplement
No. 2, that constitutes an Event of Default under the Bridge Agreement.
3. The effectiveness of this Bridge Agreement Supplement No. 2 is
conditioned upon the accuracy of the factual matters described herein.
4. [INTENTIONALLY OMITTED]
5. On and after the effectiveness of this Bridge Agreement
Supplement No. 2, (i) each reference in the Bridge Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Bridge Agreement, and (ii) each reference in each of the Guaranties to the
"Credit Agreement", "thereunder", "thereof" or words of like import referring
to the Bridge Agreement, shall mean and be a reference to the Bridge
Agreement, as amended by the First Waiver Agreement, the Bridge Agreement
Supplement No. 1, this Bridge Agreement Supplement No. 2, the Second Waiver
Agreement and the Third Waiver Agreement.
6. The Bridge Agreement, as specifically amended and supplemented
by this Bridge Agreement Supplement No. 2, is and shall continue to be in
full force and effect and is hereby in all respects ratified and confirmed.
The execution, delivery and effectiveness of this Bridge Agreement Supplement
No. 2 shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Lender under the Bridge Agreement or either
of the VCFC Guaranty or the STHL Guaranty, nor constitute a waiver of any
provision of the Bridge Agreement or either of the VCFC Guaranty or the STHL
Guaranty.
7. This Bridge Agreement Supplement No. 2 may be executed in any
<PAGE>
7
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of
an executed counterpart of a signature page to this Bridge Agreement Supplement
No. 2 by telecopier shall be effective as delivery of a manually executed
counterpart of this Bridge Agreement Supplement No. 2.
<PAGE>
8
8. This Bridge Agreement Supplement No. 2 shall be governed by,
and shall be construed in accordance with, New York law.
IN WITNESS WHEREOF, the parties hereto have caused this Bridge
Agreement Supplement No. 2 to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
STAR DIGITEL LIMITED, as the
Borrower
By: ________________________________
Name:
Title:
THE TORONTO-DOMINION BANK, as
the Lender
By: ________________________________
Name:
Title:
<PAGE>
==============================================================================
REIMBURSEMENT AGREEMENT
by and between
IWC CHINA LIMITED
and
VANGUARD CELLULAR FINANCIAL CORP.
September 18, 1997
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS...............................................................................1
ARTICLE II ISSUANCES OF IWC GUARANTY AND RELATED MATTERS............................................8
2.1 IWC Guaranty.......................................................................8
2.2 Guaranty Fee.......................................................................9
2.3 Additional Guaranty Fee...........................................................11
2.4 Reimbursement of Payments by Vanguard.............................................13
2.5 Payments..........................................................................15
2.6 Vanguard's Representations and Warranties.........................................15
ARTICLE III REPRESENTATIONS AND WARRANTIES.........................................................16
3.1 Organization and Qualification....................................................16
3.2 Corporate Power, Etc..............................................................16
3.3 Certain Other Representations.....................................................17
3.4 No Conflict.......................................................................17
3.5 Approvals, Etc....................................................................17
3.6 No Material Adverse Effect........................................................17
3.7 Litigation, Etc...................................................................17
3.8 No Violation, Etc.................................................................17
3.9 Margin Stock......................................................................18
3.10 Investment Company Act and Public Utility Holding Company Act.....................18
3.11 Taxes.............................................................................18
3.12 Environmental Laws................................................................18
3.13 Conditions Precedent..............................................................18
3.14 Credit Analysis; Other Information................................................18
3.15 Security Interest; Pledged Shares, Etc............................................18
3.16 Designated Securities, Etc........................................................19
3.17 Ownership of IWCH.................................................................19
ARTICLE IV COVENANTS...............................................................................19
4.1 Affirmative Covenants.............................................................19
4.2 Negative Covenants................................................................22
MISCELLANEOUS......................................................................................23
5.1 Modifications, Amendments or Waivers..............................................23
5.2 Successors and Assigns in General.................................................23
5.3 No Implied Waivers; Cumulative Remedies; Writing Required.........................23
5.4 Reimbursement of Expenses; Taxes..................................................24
5.5 Holidays..........................................................................24
i
<PAGE>
<S> <C> <C>
5.6 Notices...........................................................................24
5.7 Survival..........................................................................25
5.8 Governing Law; Waivers and Jurisdiction...........................................26
5.9 Herein, etc.......................................................................26
5.10 Severability......................................................................27
5.11 Headings..........................................................................27
5.12 Counterparts......................................................................27
5.13 Indemnification...................................................................27
5.14 Payment Set Aside.................................................................28
5.15 Complete Agreement................................................................28
5.16 No Strict Construction............................................................29
5.17 Termination.......................................................................29
</TABLE>
ii
<PAGE>
LIST OF EXHIBITS
Exhibit A -- Form of Pledge Agreement
Exhibit B -- Form of Vanguard Warrant
Exhibit C -- Form of Assignment and Assumption Agreement
iii
<PAGE>
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT, dated as of September 18,
1997 (as amended or modified from time to time, the "Agreement"), is made by
and between IWC CHINA LIMITED a company organized under the laws of Mauritius
("IWC China"), and VANGUARD CELLULAR FINANCIAL CORP., a North Carolina
corporation ("Vanguard").
Star Digitel Limited, a company organized under the laws of
Hong Kong ("SDL"), and Toronto-Dominion Bank ("Toronto-Dominion") entered
into that certain Bridge Loan Agreement, dated as of May 16, 1997 (as amended
or modified from time to time, the "Bridge Loan Agreement"), providing for
Advances (as defined below) by Toronto-Dominion to SDL in an aggregate
principal amount not to exceed $8,000,000 (the "Original Loan"). SDL and
Toronto-Dominion are proposing to amend the Bridge Loan Agreement to increase
the amount of Advances available thereunder by an additional $10,000,000 and
soon thereafter by another $10,000,000 (such amendments to the Bridge Loan
Agreement, the "Bridge Loan Agreement Amendment" and such additional Advances
of up to $20,000,000, the "Additional Loans"), and in connection therewith,
Toronto-Dominion has requested guaranties of such Additional Loans under the
Bridge Loan Agreement from each of SDL's shareholders (or certain of their
parent entities) in proportion to its equity ownership in SDL. IWC China
currently owns forty percent (40%) of the issued and outstanding ordinary
shares of SDL ("SDL Shares"), and has been requested by SDL to guarantee (a)
the repayment of the Additional Loans by Toronto-Dominion under the Bridge
Loan Agreement in an aggregate principal amount not to exceed forty percent
(40%) of the aggregate principal amount of such Additional Loans and (b)
forty percent (40%) of all Obligations (as defined below) of SDL (other than
Advances under the Bridge Loan Agreement) relating to the Additional Loans
now or hereafter existing under the Bridge Loan Documents (as defined below),
whether for interest, fees, expenses or otherwise (such guaranty, the "IWC
Guaranty" and the sum of clauses (a) and (b), the "IWC Guaranteed Amount").
IWC China has requested that Vanguard issue to Toronto-Dominion on IWC
China's behalf the IWC Guaranty as described in greater detail in this
Agreement.
NOW, THEREFORE, the parties hereto, in consideration of
their mutual covenants and agreements set forth herein and intending to be
legally bound hereby, covenant and agree as follows:
ARTICLE I
DEFINITIONS
In addition to any other terms defined elsewhere in this
Agreement, the following terms will have the respective meanings set forth
below:
"ADDITIONAL LOANS" has the meaning set form in the second
paragraph of this Agreement.
<PAGE>
"ADVANCES" has the meaning set forth in the Bridge Loan
Agreement.
"AFFILIATE" of any Person means any other Person directly
or indirectly controlling, controlled by or under common control with such
first Person. For purposes of this definition, "control" will include the
direct or indirect ownership of, and/or right to vote or control the vote
with respect to, Equity Securities representing 20% or more of the aggregate
voting power of such first Person's voting Equity Securities (either based on
the quantity of such first Person's voting Equity Securities which are
actually outstanding or on a fully diluted basis).
"Agreement" has the meaning set forth in the first
paragraph of this Agreement
"AGGREGATE OUTSTANDING AMOUNT" at any time, means the
amount calculated in accordance with the following formula:
A = B - C, where
A = Aggregate Outstanding Amount;
B = the unpaid aggregate principal amount of all loans and
Advances outstanding under the Bridge Loan Agreement at such time;
C = $8,000,000, less the aggregate amount of all repayments
made by SDL as of such time to Toronto-Dominion up to $8,000,000 in principal
amount of loans or Advances under the Bridge Loan Agreement.
"APPLICABLE RATE" at any time means a rate equal to the
following:
<TABLE>
<CAPTION>
RATE
----
<S> <C>
On and after the date of this Agreement and prior to March 18, 1998 6.75%
On and after March 18, 1998 and prior to 7.75%
June 18, 1998
On and after June 18, 1998 and prior to 9.75%
September 18, 1998
On and after September 18, 1998 and prior to 11.75%
October 18, 1998
On and after October 18, 1998 and prior to 13.75%
November 18, 1998
On and after November 18, 1998 and prior to 15.75%
December 18, 1998
On and after December 18, 1998 17.75%
</TABLE>
"AVERAGE AGGREGATE OUTSTANDING AMOUNT." for any period,
means a quotient, (a) the numerator of which is the sum of the Aggregate
Outstanding Amount on each day during such period, (b) the denominator of
which is the total number of days in such period.
2
<PAGE>
"BRIDGE LOAN AGREEMENT" has the meaning set forth in
the second paragraph of this Agreement.
"BRIDGE LOAN AGREEMENT AMENDMENT" has the meaning set forth
in he second paragraph of this Agreement.
"BRIDGE LOAN DOCUMENTS" means the IWC Guaranty and the Loan
Documents, all as amended or modified from time to time.
"BUSINESS DAY" means any day other than a Saturday, a
Sunday, a public holiday under the laws of the State of North Carolina or the
State of California or a day on which banking institutions are authorized or
obligated to close in North Carolina or San Francisco, California.
"DEBT" has the meaning set forth in the Bridge Loan
Agreement.
"DESIGNATED AFFILIATE" has the meaning set forth in Section
2.1.
"DESIGNATED COMPANY" means (a) International Wireless
Communications, Inc., a Delaware corporation, PT Rajasa Hazanah Perkasa, an
Indonesia company, PT Mobile Selular Indonesia, an Indonesia company,
Pakistan Wireless Holdings Limited, International Wireless Communications
Pakistan Limited, a Mauritius company, Pakistan Mobile Communications (Pvt)
Limited, a Pakistan company, International Wireless Communications Asia
Holdings N.V., a Netherlands Antilles company, International Wireless
Communications Limited, a Mauritius company, IWC China Limited, a Mauritius
company, Star Digitel Limited, a Hong Kong company, Syarkat Telefon Wireless
(M) Sdn Bhd, a Malaysia company, International Wireless Communications Latin
America Holdings Ltd., a Bermuda company, Via Movel 1 Comunicacoes S.A., a
Brazil company, and Servicos de Radio Comunicacoes Ltda., a Brazil company,
(b) any of IWCH's Subsidiaries or any Investee which is not named in clause
(a) above if (i) as of the date on which the term "Designated Company" is
applied, IWCH and its Subsidiaries have made aggregate Investments of not
less than $15,000,000 in such Subsidiary or Investee, or (ii) such Subsidiary
or Investee has a direct or indirect ownership interest in any Subsidiary or
Investee described in clause (b)(i) above, or (c) any other of IWCH's
Subsidiaries or any other Investee which IWCH has designated a Designated
Company by written notice to Vanguard to that effect.
"DESIGNATED IWC ENTITIES" means SDL, IWC China and each
IWCH Entity of which IWC China is a direct or indirect Subsidiary.
"DESIGNATED SECURITIES" has the meaning set forth in
Section 2.6.
"DISTRIBUTION" means any dividend or other distribution or
payment by a Person (other than a natural person) with respect to its Equity
Securities, or any redemption, acquisition, purchase or other retirement of
any Equity Security of such Person, any of its Subsidiaries, or any Person of
which such Person is a Subsidiary or an Investee, in each case whether in
cash, securities or other property.
3
<PAGE>
"ENVIRONMENTAL ACTION" means any action, suit, demand,
demand letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law, Environmental
Permit or Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment, including, without limitation,
(a) by any governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"ENVIRONMENTAL LAWS" means any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge
of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval,
identification number, license or other authorization required under any
Environmental Law.
"EQUITY SECURITY" of any Person means any capital stock,
partnership interest, membership interest or other ownership or equity
interest or security of or in such Person, any phantom equity, profit
participation, appreciation or similar right with respect to such Person, or
any security or other right which directly or indirectly is convertible into
or exercisable or exchangeable for any other Equity Security of such Person.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations of any governmental agency
or authority promulgated thereunder.
"EXCESS PROCEEDS" means the net proceeds received by the
issuer of Equity Securities or the seller of assets, as the case may be, in
connection with a Triggering Event in excess of the Requisite Amount up to
the IWC Guaranteed Amount.
"FINAL PAYMENT DATE" has the meaning set forth in Section
2.3.
"FIRST PAYMENT DATE" has the meaning set forth in Section
2.3.
"GAAP" means generally accepted accounting principles as
promulgated by the Financial Accounting Standards Board, as in effect from
time to time.
"GUARANTEED OBLIGATIONS" has the meaning set forth in the
Bridge Loan Agreement.
"HAZARDOUS MATERIALS" means all or any of the following:
(i) substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Environmental Laws as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances" or any
formulation intended to define, list or classify substances by reason of
deleterious properties such
4
<PAGE>
as ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, "TLCP" toxicity or "EP" toxicity; (ii) oil, petroleum or petroleum
derived substances, natural gas, natural gas liquids or synthetic gas and
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or
geothermal resources; (iii) any flammable substances or explosives or any
radioactive materials; and (iv) asbestos in any friable form or electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.
"INDEMNIFIED LIABILITIES" has the meaning set forth in
Section 5.13
"INDEMNITEES" has the meaning set forth in Section 5.13
"INDENTURE" means the Indenture dated as of August 15, 1996
between IWCH and Marine Midland Bank, as the initial trustee, as in effect on
the date of this Agreement.
"INVESTEE" means any Person (other than a Subsidiary of
IWCH) in which IWCH, any of its Subsidiaries or any other Investee has any
direct or indirect Investment (either itself or through one or more of its
direct or indirect Subsidiaries or Investees), including any Subsidiary of
any other Investee.
"INVESTMENT" means any amount paid for liabilities or
assets of, or loaned, advanced or contributed to, or acquisition for
consideration of any Equity Security or Debt of, any other Person, or any
other item that is or would be classified as an investment on a balance sheet
prepared in accordance with GAAP. The term "Investment" will include the
acquisition of a company, business or product line.
"IPO EVENT" means the consummation by IWCH or any other
Designated IWC Entity of an initial public offering of its Equity Securities
(including a firm commitment underwritten public offering pursuant to an
effective registration statement filed under the 1933 Act and/or a listing on
a major stock exchange).
"IWC CHINA" has the meaning set forth in the first
paragraph of this Agreement.
"IWC GUARANTEED AMOUNT" has the meaning set forth in the
second paragraph of this Agreement.
"IWC GUARANTY" has the meaning set forth in the second
paragraph of this Agreement.
"IWCH" means International Wireless Communications
Holdings, Inc., a Delaware corporation.
"IWCH ENTITIES" means IWCH, IWC China and all other
Designated Companies.
"IWCH SHARES" means shares of IWCH Class 1 Common Stock,
$0.01 par value.
5
<PAGE>
"LAW" will be construed broadly to include any foreign,
national, federal, state, provincial, local or other law, rule, regulation,
statute, ordinance, judgment, decree, order, policy, guideline, directive,
common law, pronouncement, treaty, accord or similar item of any legislative,
executive, judicial or other governmental entity or authority.
"LIEN" means any security interest, pledge, bailment (in
the nature of a pledge or for purposes of security), mortgage, deed of trust,
the grant of a power to confess judgment, conditional sales and title
retention agreement (including any lease in the nature thereof), charge,
encumbrance, restrictions or other similar arrangement or interest in real or
personal property.
"LOAN DOCUMENTS" has the meaning set forth in the Bridge
Loan Agreement.
"LOAN PARTIES" has the meaning set forth in the Bridge Loan
Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect
on (a) the business, properties, assets, liabilities, conditions (financial
or otherwise) or prospects of IWCH (taking into account IWCH's direct and
indirect ownership interests in its Subsidiaries and the Investees) or IWC
China (b) the ability of IWC China to perform any of its obligations under
the Transaction Documents, (c) the ability of Vanguard to exercise any right
and remedy with respect to, or otherwise to realize upon, any of the security
for the obligations secured by the Pledge Agreement or (d) any other right or
remedy of Vanguard under any Transaction Document, if, in each case, the same
would, either individually or in the aggregate, materially impair the
benefits to Vanguard of this Agreement or any other Transaction Document and
the transactions contemplated thereby.
"1933 ACT" means the Securities Act of 1933, as amended.
"OBLIGATIONS" has the meaning set forth in the Bridge Loan
Agreement.
"ORGANIZATIONAL DOCUMENTS" with respect to any Person,
means the articles or certificate of incorporation, bylaws and similar
organizational or constitutional documents of such Person, including any such
items which may come into existence after the date of this Agreement, and in
each case as in effect from time to time.
"ORIGINAL LOAN" has the meaning set forth in the second
paragraph of this Agreement.
"PAYMENT DATE" has the meaning set forth in Section 2.3.
"PERSON" means any individual, corporation, partnership,
limited liability company, trust or other entity, including any governmental
entity or agency.
"PLEDGE AGREEMENT" means the Pledge Agreement, a form of
which is attached hereto as Exhibit A.
"PLEDGED SHARES" means all of the SDL Shares pledged by IWC
China pursuant to the Pledge Agreement.
6
<PAGE>
"QUARTERLY PAYMENT DATE" means the 18th day of each
December, March, June and September, beginning with December 18, 1997.
"REIMBURSEMENT OBLIGATION" means any and all Obligations of
IWC China under this Agreement and the other Transaction Documents.
"REQUISITE AMOUNT" means sum of (l) the aggregate amount,
if any, required to be paid by Pakistan Wireless Holdings Limited and/or
IWCH, as the case may be, under the Loan Agreement, dated as of August 18,
1997, between Pakistan Wireless Holdings Limited and the lenders who are
parties thereto and the Loan Agreement, dated as of August 18, 1997, between
IWCH and the lenders who are parties thereto, in each case, directly as a
result of any Triggering Event and (2) $10,000,000.
"RETAINED SDL SHARES" means 100 SDL Shares which, in
addition to all other Pledged Shares, shall be pledged to Vanguard pursuant
to the Pledge Agreement but the beneficial ownership of which shall be
retained by IWC China.
"SDL" has the meaning set forth in the second paragraph of
this Agreement.
"SDL SUBSCRIPTION AGREEMENT" means the Subscription
Agreement, dated as of September 23, 1996, among SDL, Star Telecom Holding
Limited, International Wireless Communications, Inc., as amended or modified
from time to time.
"SDL SHAREHOLDERS' AGREEMENT" means the Amended and
Restated Shareholders Agreement, dated as of April 4, 1997, among SDL, Star
Telecom Holding Limited, International Wireless Communications, Inc. and
Vanguard China, Inc., as amended or modified from time to time.
"SDL SHARES" has the meaning set forth in the second
paragraph of this Agreement.
"SECOND IWC SHARES" has the meaning set forth in the SDL
Subscription Agreement.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, limited liability company, trust, association or
other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more direct or indirect Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, limited liability company,
association or other business entity, a majority of the partnership or other
voting or economic ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more direct or
indirect Subsidiaries of that Person or a combination thereof, in each case
including control by agreement. A Person or Persons will be deemed to have a
majority ownership interest in a partnership, limited liability company,
association or other business entity if such Person or Persons is allocated a
majority of partnership, limited liability
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company, association or other business entity gains or losses or is or
controls a managing director, managing member, manager, trustee, general
partner or similar official or Person with respect to such partnership,
limited liability company, association or other business entity.
"TORONTO-DOMINION" has the meaning set forth in the second
paragraph of this Agreement.
"TRANSACTION DOCUMENTS" means this Agreement, the Pledge
Agreement and the Vanguard Warrant.
"TRANSFER" has the meaning set forth in the SDL
Shareholders' Agreement.
"TRANSFER DATE" has the meaning in Section 2.3.
"TRIGGERING EVENT" means the occurrence of either of the
following: (a) any direct or indirect private issuance or sale or series of
related issuances or sales of Equity Securities of IWCH or any other
Designated IWC Entity (other than SDL), which results in net cash proceeds to
the issuer of not less than the Requisite Amount, or (b) any direct or
indirect sale or other disposition of any assets of IWCH or any other
Designated IWC Entity (other than SDL) which results in net cash proceeds to
such seller of not less than the Requisite Amount.
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
"VANGUARD" has the meaning set forth in the first paragraph
of this Agreement.
"VANGUARD WARRANT" means a warrant (whether or not
represented by a certificate issued or reissued on a later date), in the form
of the attached EXHIBIT B, issued pursuant to this Agreement, and any warrant
in such form issued in whole or in part in replacement thereof or
substitution therefor.
"WARRANT SHARES" means shares of common stock of IWCH
issuable upon exercise of the Vanguard Warrant.
ARTICLE II
ISSUANCE OF IWC GUARANTY AND RELATED MATTERS
2.1 IWC GUARANTY.
(a) ISSUANCE OF IWC GUARANTY. In connection with the
Bridge Loan Agreement Amendment, Vanguard shall issue to Toronto-Dominion on
behalf of IWC China the IWC Guaranty. The IWC Guaranty issued by Vanguard may
be a part of one guaranty instrument which incorporates the guaranty by
Vanguard on its own behalf of the repayment of (x) the Additional Loans made
by Toronto-Dominion under the Bridge Loan Agreement in an aggregate principal
amount not to exceed seven percent (7%) of the aggregate principal amount
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of all Additional Loans and seven percent (7%) of all Obligations of SDL
(other than Advances under the Bridge Loan Agreement) relating to the
Additional Loans now or hereafter existing under the Bridge Loan Documents,
whether for interest, fees, expenses or otherwise and (y) the Original Loan
made by Toronto-Dominion under the Bridge Loan Agreement in an aggregate
principal amount not to exceed $3,760,000 and forty-seven percent (47%) of
all Obligations of SDL (other than Advances under the Bridge Loan Agreement)
relating to the Original Loans now or hereafter existing under the Bridge
Loan Documents, whether for interest, fees, expenses or otherwise. For
purposes of this Agreement, each repayment by SDL to Toronto-Dominion of
principal amount of any loan or Advances under the Bridge Loan Agreement
shall be deemed to be a repayment of (1) first, principal amounts outstanding
under the Original Loan until the Original Loan shall be deemed to have been
paid in full and (2) thereafter, principal amounts outstanding under the
Additional Loans.
(b) INITIAL FEE. In consideration of entering into
this Agreement, IWC China shall pay Vanguard an initial fee of $240,000 cash
simultaneously with the execution of this Agreement.
(c) WARRANTS. In further consideration of entering
into this Agreement and issuing the IWC Guaranty, IWC China shall issue to
Vanguard or any of its Affiliates designated by Vanguard ("Designated
Affiliate") the Vanguard Warrant in the form attached hereto as EXHIBIT A
simultaneously with the execution of this Agreement.
(d) PLEDGE AGREEMENT. All of IWC China's Obligations
under this Agreement shall be secured by a pledge by IWC China of the Pledged
Shares pursuant to the Pledge Agreement. Simultaneously with the execution of
this Agreement, IWC China shall execute and deliver the Pledge Agreement and
all other documents required to be delivered thereunder.
(e) CLOSING DOCUMENTS. Simultaneously with the
execution of this Agreement, IWC China shall deliver or cause to be delivered
the following documents:
(i) Opinions of counsel reasonably requested by
Vanguard in form and substance reasonably satisfactory to it; and
(ii) Signed copies of officers' certificates
reasonably requested by Vanguard in form and substance reasonably
satisfactory to it, together with copies of all documents evidencing
corporate action taken with respect to the Transaction Documents and its
Organizational Documents.
2.2 GUARANTY FEE. So long as this Agreement remains in
effect, as compensation for Vanguard's issuance of the IWC Guaranty, IWC
China shall cause to be paid to Vanguard (or its Designated Affiliate) a
guaranty fee consisting of IWCH Shares in accordance with the following
provisions:
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(a) On each Quarterly Payment Date (other than
December 18, 1998), Vanguard (or its Designated Affiliate) shall be paid a
guaranty fee consisting of the number of IWCH Shares determined in accordance
with the following formula:
M = (N x O x P)/$12.48
M = the number of IWCH Shares to be transferred to Vanguard
(or its Designated Affiliate) as guaranty fee under this Section 2.2(a).
N = the Average Aggregate Outstanding Amount during the
period between the date on which the last guaranty fee payment became due and
payable pursuant to this Section 2.2 (or the date of this Agreement in the
case of the first guaranty fee under this Section 2.2) and such Quarterly
Payment Date.
O = the Applicable Rate for the period immediately
preceding such Quarterly Payment Date.
P = a quotient, the numerator of which is the actual number
of days elapsed during the period between the date on which the last guaranty
fee payment became due and payable pursuant to this Section 2.2 (or the date
of this Agreement in the case of the first guaranty fee under this Section
2.2) and such Quarterly Payment Date and the denominator of which is 365 or
366 (depending on the number of days during the year in question).
(b) On December 18, 1998, Vanguard (or its Designated
Affiliate) shall be paid a guaranty fee consisting of the number of IWCH
Shares determined in accordance with the following formula:
Q = (R x S x T)/$12.48 + (R x S x T)/$12.48 +(R x S
(1) (1) (1) (2) (2) (2) (3) (3)
x T)/$12.48
(1)
Q = the number of IWCH Shares to be transferred to Vanguard
(or its Designated Affiliate) as guaranty fee under this Section 2.2(b).
R = the Average Aggregate Outstanding Amount during the
(1)
period between September 18, 1998 (inclusive of such date) and October 17,
1998 (inclusive of such date).
S = the Applicable Rate on and after September 18, 1998
(1)
and prior to October 18, 1998.
T = 30/365.
(1)
R = the Average Aggregate Outstanding Amount during the
(2)
period between October 18, 1998 (inclusive of such date) and November 17,
1998 (inclusive of such date).
S = the Applicable Rate on and after October 18, 1998 and
(2)
prior to November 18, 1998.
T = 31/365.
(2)
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R = the Average Aggregate Outstanding Amount during the
(3)
period between November 18, 1998 (inclusive of such date) and December 17,
1998 (inclusive of such date).
S = the Applicable Rate on and after November 18, 1998 and
(3)
prior to December 18, 1998.
(c) On the date on which this Agreement terminates (if
such date does not coincide with a Quarterly Payment Date), Vanguard (or its
Designated Affiliate) shall be paid a guaranty fee consisting of the number
of IWCH Shares determined in accordance with Section 2.2(a) or (b) above, as
the case may be, based upon the number of days elapsed between the date on
which the last guaranty fee payment became due and payable (or the date of
this Agreement, if no guaranty fee shall have become due and payable)
pursuant to this Section 2.2 and the date on which this Agreement is
terminated.
(d) IWC China shall take all steps to cause all right,
title and interest in and to all IWCH Shares required to be transferred to
Vanguard (or its Designated Affiliate) under this Section 2.2 to be vested in
Vanguard (or its Designated Affiliate), free and clear of any and all Liens,
and pay all costs and expenses incurred in connection with such transfer,
including fees and expenses of counsel, if any, relating to such transfer.
2.3 ADDITIONAL GUARANTY FEE.
(a) Upon any payment by Vanguard under the IWC
Guaranty, IWC China shall pay to Vanguard (or its Designated Affiliate) as
compensation for such payment by Vanguard an additional guarantee fee
consisting of SDL Shares in accordance with the following provisions:
(i) in the case of the first payment by Vanguard
under the IWC Guaranty, as soon as practicable but no later than ten (10)
Business Days after the date of first such payment (the "First Payment Date")
by Vanguard under the IWC Guaranty, IWC China shall pay Vanguard (or its
Designated Affiliate) an additional guarantee fee consisting of the following
number of SDL Shares:
D = 0.00205 x E x F, where
D = the number of SDL Shares to be transferred to Vanguard
(or its Designated Affiliate) as additional guaranty fee under this Section
2.3(a)(i).
E = the aggregate number of issued and outstanding SDL
Shares detennined as of the First Payment Date.
F = the total number of days between the date of this
Agreement and the First Payment Date, divided by 365, multiplied by 12.
(ii) in the case of any subsequent payment by
Vanguard under the IWC Guaranty after the First Payment Date, as soon as
practicable but no later than ten (10)
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Business Days after the date of such payment (each such date, a "Payment
Date") by Vanguard under the IWC Guaranty, IWC China shall pay Vanguard (or
its Designated Affiliate) an additional guarantee fee consisting of the
following number of SDL Shares:
G = 0.0041 x H x I, where
G = the number of SDL Shares to be transferred to Vanguard
(or its Designated Affiliate) as additional guaranty fee under this Section
2.3(a)(ii).
H = the aggregate number of issued and outstanding SDL
Shares determined as of such Payment Date on which Vanguard makes such
payment under the IWC Guaranty.
F = the total number of days between the most recent
Payment Date (or the First Payment Date, if applicable) and such Payment
Date, divided by 365, multiplied by 12.
(iii) simultaneously with the payment or
satisfaction in full of IWC China's Reimbursement Obligations hereunder (the
date on which such payment or satisfaction occurs, the "Final Payment Date"),
IWC China shall pay Vanguard (or its Designated Affiliate) an additional
guarantee fee consisting of the following number of SDL Shares:
J = 0.0041 x K x L, where
J = the number of SDL Shares to be transferred to Vanguard (or
its Designated Affiliate) as additional guaranty fee under this Section
2.3(a)(iii).
K = the aggregate number of issued and outstanding SDL
Shares determined as of the Final Payment Date.
L = the total number of days between the most recent
Payment Date (or the First Payment Date, if applicable) and the Final Payment
Date, divided by 365, multiplied by 12.
(b) If within thirty (30) days after the occurrence of
(x) an IPO Event, the IWC Guaranty is not fully and forever terminated and
Vanguard is not permanently and indefeasibly released and discharged from its
Obligations under the IWC Guaranty or (y) a Triggering Event, the IWC
Guaranteed Amount is not permanently reduced by the amount of the Excess
Proceeds from such Triggering Event and Vanguard's Obligations under the IWC
Guaranty is not permanently and indefeasibly released and discharged by the
amount of such Excess Proceeds, then IWC China shall pay to Vanguard (or its
Designated Affiliate) on the 31 st day after the occurrence of such IPO Event
or Triggering Event (the "Transfer Date") as compensation an additional
guarantee fee consisting of four percent (4%) of the aggregate number of
issued and outstanding SDL Shares as of such Transfer Date.
(c) IWC China shall take all steps to cause all right,
title and interest in and to all SDL Shares required to be transferred to
Vanguard (or its Designated Affiliate) under this Section 2.3 to be vested in
Vanguard (or its Designated Affiliate), free and clear of any and all Liens,
including the execution and delivery of all necessary duly stamped bought and
sold
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notes and instruments of transfer and all other documents and instruments
required in connection with such transfer. IWC China shall pay all costs and
expenses incurred in connection with such transfer, including all applicable
stamp duties and fees and expenses of counsel relating to such transfer.
(d) IWC China and Vanguard hereby agree and
acknowledge that all of the fees contemplated by this Article II are fair and
reasonable in light of the transactions contemplated by this Agreement and
the Bridge Loan Documents and are commensurate with the rinks taken by
Vanguard and the benefits received by IWC China in connection with such
transactions.
2.4 REIMBURSEMENT OF PAYMENTS BY VANGUARD.
(a) IWC China hereby unconditionally and irrevocably
agrees to reimburse Vanguard immediately for any and all payments made by
Vanguard under the IWC Guaranty, and in addition agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by
Vanguard in enforcing any rights under this Agreement.
(b) The Obligations of IWC China under this Agreement
are independent of any Obligations of any other Loan Party under the Bridge
Loan Documents, and a separate action or actions may be brought and
prosecuted against IWC China to enforce this Agreement, irrespective of
whether any action is brought against SDL or any other Loan Party or whether
SDL or any other Loan Party is joined in any such action or actions. The
liability of IWC China under this Agreement shall be irrevocable, absolute
and unconditional irrespective of, and IWC China hereby irrevocable waives
any defenses it may now or hereafter have in any way relating to, any or all
of the following: (1) any lack of validity or enforceability of any Bridge
Loan Document or Transaction Document or any agreement or instrument relating
thereto; (2) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Bridge Loan Documents, or any
other amendment or waiver of or any consent to departure from any Bridge Loan
Document; (3) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations or Reimbursement Obligations; (4) any change, restructuring or
termination of the corporate structure or existence of SDL or any of its
Subsidiaries; (5) any failure of Toronto-Dominion or Vanguard to disclose to
any Loan Party or IWC China any information relating to the financial
condition, operations, properties or prospects of any other Loan Party now or
in the future known to Toronto-Dominion or Vanguard; (6) any existence of or
reliance on any representation by any party or any other circumstance
(including, without limitation, any statute of limitations) that might
otherwise constitute a defense available to, or a discharge of, any Loan
Party, IWC China or any other guarantor or surety; (7) any default by any
party under the Bridge Loan Agreement or insolvency of any party to the
Bridge Loan Documents or IWC China; or (8) any act or omission on the part of
Vanguard or its Designated Affiliates. IWC China expressly (x) agrees that it
shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of any law wherever enacted, now or
hereafter in force, that may affect the agreements or the
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<PAGE>
performance of this Agreement or any other Transaction Documents, (y) waives
all benefits or advantage of any such law and (z) agrees that it shall not
resort to any such law, hinder, delay or impede the execution of any power
herein granted to Vanguard but shall suffer and permit the execution of every
such power as though no such law has been enacted. This Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment by IWC China is rescinded or must otherwise be returned by
Vanguard or any other Person upon the insolvency, bankruptcy or
reorganization of any party or otherwise, all as though such payment had not
been made.
(c) IWC China hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the
Reimbursement Obligations, this Agreement or any other Transaction Documents
and any requirement that Vanguard protect, secure, perfect or insure any Lien
or any property subject thereto or exhaust any right or take any action
against any Loan Party or any other Person or any collateral. IWC China
hereby waives any right to revoke this Agreement or any other Transaction
Documents or its obligations hereunder or thereunder, and acknowledges that
this Agreement is continuing in nature and applies to all Reimbursement
Obligations, whether existing now or in the future. IWC China acknowledges
that it will receive substantial direct and indirect benefits from the
financing arrangements contemplated by the Bridge Loan Documents and the
Transaction Documents and that the waivers set forth in this Section 2.4(c)
are knowingly made in contemplation of such benefits.
(d) IWC China will not exercise any rights that it may
now or hereafter acquire against SDL or any other insider guarantor that
arise from the existence, payment, performance or enforcement of the
Reimbursement Obligations under this Agreement or any other Bridge Loan
Document or Transaction Document, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and
any right to participate in any claim or remedy of Vanguard or any other Loan
Party against SDL or any other insider guarantor or any collateral, whether
or not such claim, remedy or right arises in equity or under contract,
statute or common law, including, without limitation, the right to take or
receive from SDL or any other insider guarantor, directly or indirectly, in
cash or other property or by set-off or in any other manner, payment or
security on account of such claim, remedy or right, unless and until all of
the Reimbursement Obligations and all other amounts payable under this
Agreement shall have been paid in full in cash. If any amount shall be paid
to IWC China in violation of the preceding sentence at any time prior to the
payment in full in cash of the Reimbursement Obligations and all other
amounts payable under this Agreement, such amount shall be held in trust for
the benefit of Vanguard and shall forthwith be paid to Vanguard to be
credited and applied to the Reimbursement Obligations and all other amounts
payable under this Agreement, whether matured or unmatured, in accordance
with the terms of this Agreement, or to be held as collateral for any
Reimbursement Obligations or other amounts payable under this Agreement
thereafter arising. If (1) IWC China shall make payment to Vanguard of all or
any part of the Reimbursement Obligations and (2) all of the Reimbursement
Obligations and all other amounts payable under this Agreement shall be paid
in full in cash, Vanguard will, at IWC China's request and expense, execute
and deliver to IWC China appropriate documents, with recourse and without
representation or warranty, necessary to
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evidence the transfer by subrogation to IWC China of an interest in the
Guaranteed Obligations resulting from such payment by IWC China.
(e) IWC China hereby agrees that if any Pledged Shares
are transferred to Vanguard pursuant to the Pledge Agreement, then, subject
to Star Telecom Holding Limited's consent pursuant to the SDL Subscription
Agreement, Vanguard shall have the right (but not the obligation), at any
time, to cause Vanguard China, Inc. or any other Designated Affiliate to
assume IWC China's right to subscribe for the Second IWC Shares pursuant to
Section 1 of the SDL Subscription Agreement by notifying IWC China of
Vanguard's request to assume such right. Upon such notification, IWC China
shall use its best efforts to obtain Star Telecom Holding Limited's consent
to assign IWC China's right to subscribe for the Second IWC Shares to
Vanguard China, Inc. or any other Designated Affiliate, and upon receipt of
such consent, shall execute and deliver an assignment and assumption
agreement in the form attached hereto as EXHIBIT C.
2.5 PAYMENTS. All payments by IWC China hereunder to
Vanguard (including payments under Sections 2.1(b), 2.4 and 5.4) will be made
in lawful money of the United States of America, by wire transfer of
immediately available funds for the account of Vanguard to an account
specified by Vanguard without setoff, offset, deduction or counterclaim, free
and clear of all taxes, levies, imports, duties, fees and charges, and
without any withholding, restriction or conditions imposed by any
governmental authority. If IWC China is required by any law to deduct, setoff
or withhold any amount from or in respect of any payment to Vanguard under
this Agreement, then (a) the amount so payable to Vanguard will be increased
as may be necessary so that, after making all required deductions, setoffs
and withholdings, Vanguard will receive an amount equal to the sum it would
have received had no such deductions, setoffs or withholding been made, (b)
IWC China shall make such deductions and (c) IWC China shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
2.6 VANGUARD'S REPRESENTATIONS AND WARRANTIES. Vanguard
makes the following representations and warranties (which representations and
warranties IWC China is relying upon in entering into this Agreement), with
respect to itself:
(a) The Vanguard Warrant, SDL Shares and shares of
IWCH's common stock (collectively, the "Designated Securities") which
Vanguard or its Designated Affiliate acquires pursuant to this Agreement will
be acquired for its own account, not as nominee or agent, and not with a view
to the resale or distribution of any part thereof in violation of any
applicable federal or state securities laws, and Vanguard (or its Designated
Affiliate, as the case may be) has no present intention of selling, granting
a participation in or otherwise distributing any of the Designated
Securities. Vanguard (or its Designated Affiliate, as the case may be) has no
contract, undertaking, agreement or arrangement with any Person to sell,
transfer or grant participations to any other Person with respect to any of
the Designated Securities.
(b) Vanguard (or its Designated Affiliate, as the case
may be) believes that it has received all of the information which it
considers necessary or appropriate for deciding
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to acquire the Designated Securities pursuant to this Agreement. Vanguard (or
its Designated Affiliate, as the case may be) has had an opportunity to ask
questions and receive answers from IWC China regarding the business,
properties, prospects and financial conditions of IWCH and SDL. The foregoing
representation will not limit or modify any representation or warranty of IWC
China or any other Person made in any Transaction Document.
(c) Vanguard (or its Designated Affiliate, as the case
may be) acknowledges that it is able to fend for itself, can bear the
economic risk of its investment in the Designated Securities and has such
knowledge and experience in financial or business matters that it is capable
of evaluating the merits and risks of the investment in the Designated
Securities. Vanguard was not organized for the purpose of acquiring the
Designated Securities.
(d) Vanguard (or its Designated Affiliate, as the case
may be) understands that the Designated Securities is characterized as a
"restricted security" under the federal securities laws, inasmuch as they are
being acquired in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be resold
under the 1993 Act only under certain circumstances. In this connection,
Vanguard represents that it (or its Designated Affiliate, as the case may be)
is familiar with Rule 144 promulgated under the 1933 Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
1933 Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
As a material inducement to Vanguard to enter into this
Agreement and the transactions contemplated by the Transaction Documents, IWC
China hereby makes the following representations and warranties (which
representations and warranties will survive the execution and delivery of
this Agreement) that:
3.1 ORGANIZATION AND QUALIFICATION. Each of the Designated
IWC Entities (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) is duly
authorized to do business in each jurisdiction in which such authorization is
required by law or in which the failure to be so authorized would not have
Material Adverse Effect, and (c) has all requisite power and authority (1) to
own or hold under lease and to operate all its property and assets and (2) to
execute, deliver and perform all its obligations under each Transaction
Document to which it is a party.
3.2 CORPORATE POWER, ETC. Each of IWCH and IWC China has
full corporate power and authority to enter into, deliver and perfonn its
obligations under each Transaction Document to which it is a party and to
consummate each of the transactions contemplated hereby and thereby, and has
taken all necessary corporate action to authorize the execution, delivery and
performance by it of each Transaction Document to which it is a party. Each
Transaction Document to which IWC China is a party constitutes the legal,
valid and binding obligation of IWC China, enforceable against it in
accordance with its terms. The Vanguard Warrant
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constitutes the legal, valid and binding obligation of IWCH, enforceable
against it in accordance with its terms.
3.3 CERTAIN OTHER REPRESENTATIONS. The representations and
warranties in each Transaction Document made by all of the parties thereto
(other than Vanguard) are true and correct and are incorporated herein by
reference.
3.4 NO CONFLICT. Neither the execution and delivery of
each Transaction Document by all of the parties thereto (other than Vanguard)
nor the performance by each such party of its obligations thereunder, nor the
consummation of the transactions contemplated thereby, will (a) conflict with
the Organizational Documents of such party, or (b) conflict with or result in
a breach of, or constitute a default under, or result in the creation or
imposition of any Lien (other than pursuant to the Pledge Agreement) upon any
of the property or assets of any IWCH Entity under, any applicable laws
(including, without limitation, Regulation X issued by the Board of Governors
of the Federal Reserve System) or any indenture, mortgage, deed of trust or
other instrument or agreement to which any IWCH Entity may be or become a
party or by which it may be or become bound or to which any of the property
or assets of such IWCH Entity may be subject. Without limiting the foregoing,
the transactions contemplated by the Transaction Documents are permitted
under the Indenture, and IWC China is an "Unrestricted Subsidiary" as such
terms is defined and used in the Indenture.
3.5 APPROVALS, ETC. No order, license, consent,
authorization or approval of, or exemption by, or notice to or registration
with, any government authority or regulatory body, and no filing, recording,
publication or registration in any public office or any other place is
required in connection with the execution, delivery and performance by any
party (other than Vanguard) to any Transaction Document, or for the legality,
validity, binding effect or enforceability thereof.
3.6 NO MATERIAL ADVERSE EFFECT. Since June 30, 1997, there
has been no, nor to the best of IWC China's knowledge, has there been any
event that could reasonably be expected to have a Material Adverse Effect
(other than any Material Adverse Effect resulting solely from SDL's business
or financial condition).
3.7 LITIGATION, ETC. There is no pending or, to the best
of IWC China's knowledge, threatened, litigation, investigation, action or
proceeding of or before any court, arbitrator or governmental agency
(including any Environmental Action) binding upon or affecting any of the
Designated IWC Entities or their respective properties and assets that (a)
could reasonably be expected to cause a Material Adverse Effect to occur or
(b) purports to affect the legality, validity or enforceability of any
Transaction Document.
3.8 NO VIOLATION, ETC. None of the Designated IWC Entities
is in violation of (a) any term of its Organizational Documents, or (b) any
term of any other agreement or instrument to which it is a party or by which
it is bound in any respect, which, in each case, has or could be reasonably
expected to have a Material Adverse Effect.
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3.9 MARGIN STOCK. IWC China is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
within the meaning of Regulations G, T and X issued by the Board of Governors
of the Federal Reserve System.
3.10 INVESTMENT COMPANY ACT AND PUBLIC UTILITY HOLDING
COMPANY ACT. None of the IWCH Entities is, and is not directly or indirectly
controlled by any Person which is, required to register as an "investment
company" within the meaning of the U.S. Investment Company Act of 1940, as
amended. None of the IWCH Entities is a "holding company" or a "subsidiary"
or an "affiliate" of a "holding company" or a "public utility" within the
cleaning of the U.S. Public Utility Holding Company Act of 1935, as amended.
3.11 TAXES. Each of the Designated IWC Entities has filed
all tax returns required to be filed by it and has paid all taxes,
assessments, fees and other charges (including interest and penalties) due
with respect to the years covered by such returns, except for any such
failures to file or to pay such amounts which, in the aggregate, would not
have a Material Adverse Effect or which are being contested in good faith by
appropriate proceedings.
3.12 ENVIRONMENTAL LAWS. The operations and properties of
the Designated IWC Entities comply in all material respects with all
applicable Environmental Laws, except where the failure to so comply could
not be reasonably expected to have a Material Adverse Effect, and all
necessary Environmental Permits have been obtained and are in effect for the
operations and properties of the Designated IWC Entities, except for such
Environmental Permits where the failure to obtain the same could not be
reasonably expected to have a Material Adverse Effect.
3.13 CONDITIONS PRECEDENT. Upon execution hereof and the
other Transaction Documents by all of the parties thereto, there are no
conditions precedent to the effectiveness of this Agreement and the
Transaction Documents that have not been satisfied or waived.
3.14 CREDIT ANALYSIS; OTHER INFORMATION. IWC China has,
independently and without reliance upon Vanguard and based on such documents
and information as it has deemed appropriate, made its own credit analysis
and decision to enter into this Agreement and the other Transaction
Documents, and have established adequate means of obtaining from SDL on a
continuing basis information pertaining to, and is now and on a continuing
basis will be completely familiar with, the financial condition, operations,
properties and prospects of SDL.
3.15 SECURITY INTEREST; PLEDGED SHARES, ETC.
(a) IWC China is the lawful owner, of record and
beneficially, of the entire right, title and interest in and to the Pledged
Shares, free and clear of all Liens or adverse claims. The security interest
granted by IWC China under the Pledge Agreement and the delivery of the
Pledged Shares to Vanguard pursuant to the Pledge Agreement comply with all
applicable laws and create a valid and perfected first priority security
interest in the Pledged Shares, free of any adverse claim and subject to no
equal or prior security interest of any other Person, securing the payment
and performance of the Reimbursement Obligations of IWC China under this
Agreement. No registration, recording or filing with any governmental body or
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agency is required for the perfection of such security interest. There is no
currently effective financing statement or other instrument similar in effect
that is on file in any recording office covering any part of IWC China's
interest in the Pledged Shares. Upon transfer of any of the Pledged Shares by
IWC China to Vanguard pursuant to Section 2.3 of this Agreement, good and
marketable title to such Pledged Shares and all right, title and interest
therein and thereto will be vested in Vanguard, free and clear of all Liens
or adverse claims.
(b) The Pledged Shares have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in
the SDL Shareholders' Agreement, there are no outstanding warrants, options,
subscriptions or other contractual arrangements for the purchase of the
Pledged Shares, and there are no outstanding agreements relating to the
issuance, purchase, repurchase, redemption, transfer, voting or preemptive
rights with respect to the Pledged Shares.
(c) IWC China has the right to subscribe for the
Second IWC Shares pursuant to the SDL Subscription Agreement according to the
terms set forth therein. The SDL Subscription Agreement has not been amended
or modified since June 18, 1997.
3.16 DESIGNATED SECURITIES, ETC. Each of the Designated
Securities has been duly authorized, issued and delivered (if applicable) by
the issuer thereof The Warrant Shares have been duly authorized by the issuer
thereof, and, when issued and delivered upon exercise of the Vanguard
Warrant, will be validly issued, fully paid, nonassessable and free of
preemptive rights. The Vanguard Warrant is exercisable into the Warrant
Shares in accordance with its terms. There will at all times be available,
(1) such number of Warrant Shares issuable upon exercise of the Vanguard
Warrant, free from all preemptive rights with respect thereto, which will be
sufficient to permit the exercise of the Vanguard Warrant for the full number
of Warrant Shares specified in the Vanguard Warrant and (2) such number of
IWCH Shares that may be issued pursuant to Section 2.2, free from all
preemptive rights with respect thereto.
3.17 OWNERSHIP OF IWCH. Schedule 3.17 sets form the record
and beneficial ownership of the outstanding Equity Securities of IWCH and the
authorized Equity Securities of IWCH. Other than as set forth in IWCH's
Organizational Documents, IWCH is not under any obligation (contingent or
otherwise) to redeem or otherwise acquire any Equity Securities of IWCH or
any other Person or to effect any Distribution.
ARTICLE IV
COVENANTS
4.1 AFFIRMATIVE COVENANTS. IWC China covenants that, until
the termination of this Agreement and each of the other Transaction
Documents, it will, and will cause each of its Subsidiaries to:
(a) CORPORATE EXISTENCE, ETC. Preserve and maintain in
full force and effect its corporate existence, rights (charter and
statutory), franchises, and privileges and qualify
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and remain qualified, as a corporation in good standing in each jurisdiction
in which such qualification is from time to time necessary, except for such
jurisdictions where the failure to so qualify would not have a Material
Adverse Effect; PROVIDED, HOWEVER, that IWC China shall not be required to
preserve any right, privilege or franchise if the board of directors thereof
shall determine in good faith that such right, privilege or franchise is no
longer useful in the conduct of its business, and the loss thereof could not
reasonably be expected to have a Material Adverse Effect.
(b) COMPLIANCE WITH LAWS. Comply in all material
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, compliance with ERISA, except
where the failure to so comply would not have a Material Adverse Effect.
(c) INSURANCE. Maintain insurance with financially
sound and reputable insurers in such amounts and against such risks, as are
usually and customarily insured by companies engaged in a similar business
with respect to properties of a similar character.
(d) KEEPING OF BOOKS. Keep proper books of record and
accounts, in which full and correct entries shall be made of all financial
transactions and the assets and business of IWC China in accordance with
generally accepted accounting principles in effect from time to time or as
otherwise required by applicable rules and regulations of any governmental
agency or regulatory authority having jurisdiction over IWC China.
(e) ACCESS TO RECORDS. Provide Vanguard and its
authorized advisors and representatives reasonable access to all books,
records, offices and other facilities and properties of IWC China upon
reasonable notice, and allow Vanguard or its authorized advisors or
representatives (as the case may be) to make such examinations thereof and
copies of and abstracts from such books and records as Vanguard or its
authorized advisors or representatives (as the case may be) may reasonably
request.
(f) PAYMENT OF TAXES, ETC. Pay and discharge before
the same shall become delinquent (a) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (b) all lawful
claims that, if unpaid, might become a Lien upon its property; PROVIDED,
HOWEVER, that IWC China shall not be required to pay or discharge any such
tax, assessment, charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being maintained,
unless and until any Lien resulting therefrom attaches to its property and
becomes enforceable against its other creditors.
(g) REPORTING. Furnish to Vanguard, upon request,
without cost to Vanguard, copies of all documents and certificates delivered
by any of the Designated IWC Entities to its lenders or holders of debt
promptly after delivery thereof to such lender or holders of debt.
(h) CERTAIN NOTICES. Promptly upon any officer of IWC
China obtaining knowledge thereof, give notice to Vanguard of any
development, including, without limitation, any litigation, investigation or
proceeding affecting IWC China, which has a Material
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Adverse Effect, could reasonably be expected to have a Material Adverse
Effect or, in the case of any litigation, investigation or other proceedings,
which could, if adversely decided, reasonably be expected to have a Material
Adverse Effect.
(i) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply with
all Environmental Laws and Environmental Permits applicable to its operations
and properties, noncompliance with which could have a Material Adverse
Effect; obtain and renew all Environmental Permits necessary for its
operations and properties; and conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up Hazardous Materials from any of its
properties, in accordance with the requirements of all applicable
Environmental Laws; PROVIDED, HOWEVER, that IWC China shall not be required
to undertake any such cleanup, removal, remedial or other action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect
to such circumstances.
(j) PARI PASSU. Ensure that all payment obligations
under this Agreement shall rank pari passu with all present and future senior
unsecured obligations of IWC China.
(k) PERFORMANCE OF OBLIGATIONS; PLEDGES.
(i) Cause all of the parties (other than
Vanguard) to each Transaction Document to keep, observe, comply and perform
in full each of their obligations under each such Transaction Document.
(ii) At their own expense, take all actions
(including filing, registering and recording all necessary documents and
paying all fees taxes, levies, imposts and expenses in connection therewith)
reasonably requested by Vanguard or are reasonably necessary to establish,
create, maintain, protect, perfect and continue the perfection of a valid and
perfected first priority security interest in the Pledged Shares, and prior
to taking any such action, furnish to Vanguard timely notices of the
necessity of such action, together with such instruments, in execution form,
and such other information as may be required or requested by Vanguard to
enable Vanguard to effect such action and cause to be delivered to Vanguard
such opinions of counsel and other related documents as may reasonably be
requested by Vanguard to assure compliance with this clause (ii).
(l) RETAINED SHARES. In the case of IWC China, upon
any transfer of any SDL Shares pursuant to this Agreement or any other
Transaction Documents, hold at all times, and not Transfer, the Retained
Shares and exercise its rights under the SDL Shareholders' Agreement to
nominate to SDL's board five individuals designated by Vanguard (it being
understood and agreed that Vanguard will indemnify and hold harmless IWC
China from and against all losses, liabilities, damages, costs, expenses and
charges suffered or incurred by IWC China directly as a result of holding the
Retained Shares and exercising its rights under the SDL Shareholders'
Agreement, except for such losses, liabilities, damages, costs, expenses and
charges arising from IWC China's gross negligence or willful misconduct or
violation of any law by any IWCH Entities).
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(m) RELEASE OF IWC GUARANTY. Use its best commercially
reasonable efforts to cause as soon as practicable (1) the IWC Guaranty to be
permanently reduced and terminated and (2) Vanguard's Obligations under the
IWC Guaranty to be permanently and indefeasibly released and discharged.
4.2 NEGATIVE COVENANTS. IWC China covenants, that, until
the termination of this Agreement and each of the other Transaction
Documents, it will not, and will cause each of its Subsidiary not to:
(a) DEBT. In the case of IWC China and its
Subsidiaries (other than SDL), create, incur, assume, guarantee or be or
remain liable for, contingently or otherwise, or suffer to exist, or any
Debt, except for (1) Debt under this Agreement or any other Transaction
Documents, (2) IWC China's Guaranty, dated July 10, 1997, in favor of PT.
Bank Indonesia Raya, as amended or modified from time to time and (3) that
certain Letter of Guarantee, dated July 24, 1997, issued by IWC China in
favor of Mitsui & Co. Ltd. in connection with that certain Microwave
Equipment Supply Contract, dated July 24, 1997, among SDL, Mitsui & Co. Ltd.
and Harris Corporation.
(b) MERGERS, ETC. Merge or consolidate with, or sell,
assign, lease; transfer or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to, any Person or Persons.
(c) DIVIDENDS AND STOCK PURCHASES. Directly or
indirectly, or through any Subsidiary or Investee, declare, make or pay, or
incur any liability to declare, make or pay, any Distribution, other than, in
the case of its Subsidiaries or any Investee, pro rata Distributions made in
accordance with its Organizational Documents.
(d) INVESTMENTS. In the case of IWC China and its
Subsidiaries (other than SDL), make any Investment.
(e) RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. In the
case of IWC China and its Subsidiaries (other than SDL), create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction
of any kind on the ability of any of its Subsidiaries or any Investee to (i)
pay any Distribution in respect of any of such Subsidiary's or Investee's
capital stock or other Equity Securities owned by IWC China or any of its
Subsidiaries or any Investee, (ii) pay any Debt owed to IWC China or any of
its Subsidiaries or any Investee, (iii) make loans or advances to IWC China
or any of its Subsidiaries or any Investee or (iv) transfer any of its
property or assets to IWC China or any of its Subsidiaries or any Investee.
(f) CHANGE OF BUSINESS. In the case of IWC China,
conduct or enter into any business other than the ownership and management of
its Investment in SDL.
(g) LIMITATION ON CREATION OF SUBSIDIARIES. In the
case of IWC China, establish, create or acquire any Subsidiary (other than
SDL).
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(h) OPERATE OTHER THAN IN ORDINARY COURSE. Operate its
business, other than in the usual and ordinary course and other than that
which is consistent with the past practice established by IWC China.
(i) NEGATIVE PLEDGE; LIENS. Except pursuant to the
Pledge Agreement: (i) create, assume, incur or suffer to be created, assumed,
incurred or to exist any Lien upon any of its properties or assets
(including, without limitation, the Pledged Shares, or the income or profits
therefrom) other than in favor of Vanguard; (ii) covenant in favor of any
party (other than Vanguard) that it will not create, assume, incur or suffer
to be created, assumed, incurred or to exist any Lien upon any of the Pledged
Shares, or the income or profits herefrom; (iii) permit or acquiesce in the
perfection of any security interest held by any party (other than Vanguard)
against any of its properties or assets (including, without limitation, the
Pledged Shares, or the income or profits therefrom); (iv) Transfer any of its
properties or assets (including, without limitation, the Pledged Shares or
the income or profits therefrom) for any reason, including, without
limitation, for the purpose of subjecting the same to the payment of Debt or
performance of any other obligation; or (v) execute or authorize to file in
any public office any financing statement (or similar statement or instrument
or registration under any law) or statements relating to its properties or
assets (including, without limitation, the Pledged Shares), other than for
the benefit of Vanguard.
(j) SECOND IWC SHARES. In the case of IWC China,
assign or grant any right or interest to any Person to subscribe for the
Second IWC Shares pursuant to the SDL Subscription Agreement, without the
prior written consent of Vanguard.
(k) AMENDMENTS OR WAIVERS. Amend, modify or change in
any manner, or waive any of its rights pursuant to, its Organizational
Documents, which, in the reasonable judgment of Vanguard, would adversely
affect Vanguard's rights and benefits under the Transaction Documents and the
documents delivered pursuant thereto.
ARTICLE IV
MISCELLANEOUS
5.1 MODIFICATIONS, AMENDMENTS OR WAIVERS. The provisions
of this Agreement and the other Transaction Documents may be modified,
amended or waived, but only by a written instrument signed by IWC China and
Vanguard.
5.2 SUCCESSORS AND ASSIGNS IN GENERAL. This Agreement will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that IWC China may not assign or
transfer its rights under this Agreement or any interest under this Agreement
or delegate its liabilities, obligations or duties, without the prior written
consent Vanguard.
5.3 NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING
REQUIRED. No delay or failure of Vanguard in exercising any right, power or
remedy under this Agreement or any
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other Transaction Document will affect or operate as a waiver thereof, nor
will any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or remedy preclude any
further exercise thereof, or of any other right, power or remedy. The rights
and remedies of Vanguard under this Agreement and each other Transaction
Document are cumulative and not exclusive of any rights or remedies which it
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of Vanguard of any breach or default or any such waiver
of any provision or condition of this Agreement or; any other Transaction
Document must be in writing and will be effective only to the extent in such
writing specifically set forth.
5.4 REIMBURSEMENT OF EXPENSES; TAXES. IWC China will upon
demand pay or reimburse Vanguard for all reasonable out-of-pocket expenses,
including fees and expenses of its counsel, from time to time (i) arising in
connection with the preparation and execution of this Agreement and the other
Transaction Documents (ii) relating to any amendments, waivers or consents
pursuant to the provisions hereof or thereof, or (iii) arising in connection
with the enforcement of the provisions of this Agreement or any other
Transaction Document. IWC China will pay and save Vanguard harmless from all
liability for any stamp or other similar taxes which may be payable in
connection with this Agreement and the other Transaction Documents or the
performance of any transactions contemplated hereby or thereby (but excluding
any franchise tax, income tax, gross receipts tax or other similar tax).
5.5 HOLIDAYS. Whenever any payment or action to be made or
taken under this Agreement or any other Transaction Document is stated to be
due or required to be taken on a day which is not a Business Day, such
payment or action will be made or taken on the next following Business Day,
and such extension of time will be included in computing interest or fees, if
any, in connection with such payment or action (it being understood that to
the extent applicable, the Applicable Rate in effect during such extension of
time will be used in computing such fees).
5.6 NOTICES. All notices and other communications given to
or made upon any party hereto in connection with this Agreement or any other
Transaction Document will, except as otherwise expressly provided herein or
therein, be in writing and mailed, telecopied or delivered by hand or by
reputable overnight courier service to the respective parties, as follows:
To IWC China:
c/o International Wireless Communications, Inc.
400 S. E1 Camino Real
Suite 1275
San Mateo, CA 94402
Attention: Douglas S. Sinclair
Aarti C. Gurnani
Telecopy: (650) 548-1842
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with a copy (which will not constitute notice) to:
Brooks Stough, Esq.
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigan, LLP
155 Constitution Drive
Menlo Park, CA 94025
Telecopy: (650) 321-2800
To Vanguard:
Vanguard Cellular Financial Corp.
2002 Pisgah Church Road
Suite 300
Greensboro, NC 27455
Attention: Haynes Griffin
Telecopy: (910) 545-2233
Attention: Rich Rowlenson
Telecopy: (910) 545-2219
with a copy to (which will not constitute notice) to:
Hyun Park, Esq.
Latham & Watkins
885 Third Avenue
New York, NY 10022
Telecopy: (212) 751-4864
or in accordance with any subsequent written direction from the recipient
party to the sending party made in accordance with this Section 5.6. All such
notices and other communications will, except as otherwise expressly provided
in this Agreement or any other Transaction Document, be effective upon (a)
delivery if delivered by hand; (b) on the Business Day after deposited with a
reputable overnight courier service, delivery charges prepaid; (c) on the
third Business Day after deposited in the mail, postage prepaid; or (d) in
the case of telecopy, when received.
5.7 SURVIVAL. All representations, warranties, covenants
and agreements of the IWCH Entities contained in this Agreement or any other
Transaction Document or made in writing in connection herewith or therewith
will survive the execution and delivery of this Agreement and the issuance of
the Vanguard Warrant. The provisions of this Article V will survive thy
fulfillment of all payment and securities transfer obligations under this
Agreement and the other Transaction Documents and the termination of this
Agreement and the other Transaction Documents.
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5.8 GOVERNING LAW; WAIVERS AND JURISDICTION.
(a) GOVERNING LAW. This Agreement will in all respects
be governed by, and construed and enforced in accordance with, the laws of
the State of New York, without giving effect to any choice of law or conflict
of law rules or provisions (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York, except that the filing,
perfection, effect of perfection and enforcement of security interests and
Liens under the Pledge Agreement in other jurisdictions will be governed by
the laws of the applicable jurisdictions in accordance with the UCC as in
effect in the State of California.
(b) WAIVERS. To the extent permitted by law, each
party hereto hereby waives personal service of any and all process upon it in
connection with this Agreement or any other Transaction Document and agrees
that all such service of process may be made as provided in Section 5.6, and
service so made will be deemed to be completed as provided in Section 5.6. In
addition, IWC China and Vanguard each hereby waives trial by jury.
(c) EXCLUSIVE JURISDICTION. Except as provided in
Section 5.8(d), all disputes among or between Vanguard and IWC China arising
out of, connected with, related to or incidental to the transactions
contemplated by or the relationship established between them in connection
with this Agreement or the other Transaction Documents, and whether arising
in contract, tort, equity or otherwise, will be resolved only by state or
federal courts located in New York County, New York, and Vanguard and IWC
China hereby consent and submit to the jurisdiction of any state or federal
court located within such county and state. Vanguard and IWC China
acknowledge, however, that any appeals from those courts may be required to
be heard by a court located outside of New York County, New York. Vanguard
and IWC China waive in all disputes any objection that it may have to the
location of the court considering the dispute. Nothing in this Section 5.8
will affect the right of Vanguard and IWC China to serve legal process in any
manner permitted by law or affect the right of Vanguard to bring any action
or proceeding against IWC China or its property in the courts of any other
jurisdiction.
(d) OTHER JURISDICTIONS. Vanguard and IWC China agree
that either party will have the right to proceed against the other party in a
court in any location to enable such party to enforce a judgment or other
court order obtained in any proceeding brought in accordance with Section
5.8(c) and entered in favor of such party. Each party waives any objection
that it may have to the location of the court in which any party has
commenced a proceeding described in this Section 5.8(d).
5.9 HEREIN, ETC. Words such as "herein," "hereunder,"
"hereof" and the like will be deemed to refer to this Agreement as a whole
and not to any particular document or Article, Section or other portion of a
document. Section, clause, Exhibit and Schedule references contained in this
Agreement are references to Sections, clauses, Exhibits and Schedules in or
attached to this Agreement, unless otherwise specified. Each defined term
used in this Agreement has a comparable meaning when used in its plural or
singular form. Each gender-specific term used in this Agreement has a
comparable meaning whether used in a
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masculine, feminine or gender-neutral form. As used in this Agreement, the
terms "knowledge" or "aware" will include the actual knowledge and awareness
of the Person in question, and the knowledge and awareness that such Person
would have obtained after making reasonable inquiry and exercising reasonable
diligence with respect to the matter in question. Whenever the term
"including" is used in this Agreement (whether or not that term is followed
by the phrase "but not limited to" or "without limitation" or words of
similar effect) in connection with a listing of items within a particular
classification, that listing will be interpreted to be illustrative only and
will not be interpreted as a limitation on, or an exclusive listing of, the
items within that classification. Each reference in this Agreement to any law
will be deemed to include such law as it hereafter may be amended,
supplemented or modified from time to time and any successor thereto. Each
reference to "dollars" or "$" shall mean the lawful currency of the United
States.
5.10 SEVERABILITY. Whenever possible, each provision of
this Agreement and each other Transaction Document will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement or any other Transaction Document is held to be
prohibited by or invalid under applicable law in any jurisdiction, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating any other provision of this Agreement or any
other Transaction Document.
5.11 HEADINGS. Section and subsection headings in this
Agreement and each other Transaction Document are included for convenience of
reference only and will not constitute a part of this Agreement or any other
Transaction Document for any other purpose.
5.12 COUNTERPARTS. This Agreement and each other
Transaction Document may be executed in multiple counterparts and by any
party hereto or thereto on separate counterparts, each of which, when so
executed and delivered, will be an original, but all such counterparts will
together constitute one and the same instrument.
5.13 INDEMNIFICATION.
(a) GENERALLY. In consideration of Vanguard's
execution and delivery of this Agreement and the issuance of the IWC Guaranty
hereunder, and in addition to all other obligations of IWC China under this
Agreement and the other Transaction Documents, IWC China will defend,
protect, indemnify and hold harmless Vanguard, and all of its respective
officers, directors, employees and agents (including those retained in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents) (collectively, the "Indemnitees") from and against any
and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements, but excluding claims and losses arising
from such Indemnitee's breach hereof or thereof or such Indemnitee's gross
negligence or willful misconduct (the "Indemnified Liabilities"), incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating
to the execution, delivery, performance or enforcement of this Agreement, the
other Transaction Documents or any of the Bridge Loan Documents and any
instrument, document or
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agreement executed pursuant hereto or thereto by any of the Indemnitees. To
the extent that the foregoing undertaking by IWC China may be unenforceable
for any reason, IWC China will make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
(b) ENVIRONMENTAL LIABILITIES. Without limiting the
generality of the indemnity set out in Section 5.13(a), IWC China hereby
further agrees to defend, protect, indemnify and hold harmless each
Indemnitee from and against any and all actions, causes of action, suits,
losses, liabilities, damages, injuries, penalties, fees, costs, expenses and
claims of any and every kind whatsoever paid, incurred or suffered by, or
asserted against, any Indemnitee for, with respect to, or as a direct or
indirect result of, the past, present or future environmental condition of
any property owned, operated or used by the IWCH Entities or their respective
predecessors or successors or of any offsite treatment, storage or disposal
location associated therewith, including the presence on or under, or the
escape, seepage, leakage, spillage, discharge, emission, release, or
threatened release into, onto or from, any such property or location of any
Hazardous Material (including any losses, liabilities, damages, injuries,
penalties, fees, costs, expenses or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Environmental Law or
other), regardless of whether caused by, or within the control of, the IWCH
Entities but excluding any such actions, causes of action, suits, losses,
liabilities, damages, injuries, penalties, fees, costs, expenses and claims
arising as a direct result of the willful misconduct or gross negligence of
such Indemnitee.
(c) CONTRIBUTION. To the extent that the undertaking
to indemnify, pay and hold harmless by IWC China under this Section 5.13 may
be unenforceable because it violates any law or public policy, IWC China will
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law or public policy to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them.
5.14 PAYMENT SET ASIDE. To the extent that IWC China makes
a payment or payments to Vanguard hereunder or any other Transaction Document
or Vanguard enforces its security interests or rights or exercises its right
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to IWC China, a
trustee, receiver or any other Person under any law (including any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied and all Liens created under the Transaction
Documents will be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
5.15 COMPLETE AGREEMENT. Except as otherwise expressly set
forth herein, this Agreement and the other Transaction Documents embody the
complete agreement and understanding of the parties hereto and thereto and
supersede and preempt any prior understandings, agreements or representations
by or among the parties, whether written or oral,
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which may have related to the subject matter hereof in any way, and such
agreements may not be contradicted or varied by evidence of prior,
contemporaneous or subsequent oral discussions or understandings of the
parties. The parties hereto acknowledge and agree there are no oral
understandings or agreements between them with respect to the subject matter
hereof or thereof.
5.16 NO STRICT CONSTRUCTION. The language used in this
Agreement and the other Transaction Documents will be deemed to be the
language chosen by the parties to express or their mutual intent. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement and the other Transaction Documents will be construed as if drafted
jointly by the parties, and no presumption or burden of proof will arise
favoring or disfavoring any Person by virtue of the authorship of any of the
provisions of this Agreement or any other Transaction Document.
5.17 TERMINATION. This Agreement shall remain in full force
and effect until the earlier of (a) the payment in full of all Reimbursement
Obligations under this Agreement and the complete satisfaction and discharge
of all Obligations of all Loan Parties under the Bridge Loan Agreement and
all other Bridge Loan Documents and (b) the complete satisfaction and
discharge of all Obligations of SDL under the Bridge Loan Agreement and all
other Bridge Loan Documents by SDL without any payment by any Loan Party
(other than SDL) under the Bridge Loan Documents and the termination of the
Bridge Loan Agreement, the IWC Guaranty and all other Bridge Loan Documents.
* * * * *
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IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and
year first above written.
IWC CHINA LIMITED
By:
-------------------------------------
Its:
-------------------------------------
VANGUARD CELLULAR FINANCIAL CORP.
By:
-------------------------------------
Its:
-------------------------------------
<PAGE>
EXHIBIT A
[FORM OF PLEDGE AGREEMENT]
E-1
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of September 18, 1997 between IWC
CHINA LIMITED., a corporation organized under the laws of Mauritius (the
"Pledgor"), and VANGUARD CELLULAR FINANCIAL CORP., a North Carolina
corporation (the "Secured Party").
RECITALS
WHEREAS, Star Digitel Limited, a company organized under
the laws of Hong Kong ("SDL"), and Toronto-Dominion Bank (the "Bank") entered
into that certain Bridge Loan Agreement, dated as of May 16, 1997 (as amended
and modified from time to time, the "Bridge Loan Agreement"), providing for
Advances, as deemed in the Bridge Loan Agreement, by the Bank to SDL in an
aggregate principal amount not to exceed $8,000,000. SDL and the Bank are
proposing to amend the Bridge Loan Agreement to increase the amount of
Advances available thereunder by an additional $10,000,000 and soon
thereafter by another $10,000,000 (such additional Advances of up to
$20,000,000, the "Additional Loans");
WHEREAS, the Bank is willing to extend the Additional
Loans, provided that, among other things, certain parent entities of SDL's
shareholders, guaranty SDL's obligations with respect to the Additional Loans;
WHEREAS, the Pledgor has requested that the Secured Party,
in its stead, guaranty forty percent (40%) of the Additional Loans pursuant
to the Guaranty, dated as of the date hereof, by the Secured Party in favor
of the Bank (the "IWC Guaranty");
WHEREAS, the Secured Party is willing to enter into the IWC
Guaranty, on the condition that, among other things, (i) the Pledgor enters
into the Reimbursement Agreement, dated as of the date hereof, between the
Secured Party and the Pledgor (the "Reimbursement Agreement"), and that the
Pledgor agrees thereunder, among other things, to reimburse the Secured Party
for payments made under the IWC Guaranty, and that the Pledgor secures its
payment and all other obligations under the Reimbursement Agreement by
pledging the Pledgor's right, title and interest in the equity securities of
SDL that it now owns and hereafter acquires (the "SDL Securities") and (ii)
the Pledgor agrees to compensate the Secured Party for entering into the IWC
Guaranty by, among other things, transferring a portion of the SDL Securities
to the Secured Party in accordance with the terms of the Reimbursement
Agreement and securing such transfer obligation with a pledge of the
Pledgor's right, title and interest in the SDL Securities; and
WHEREAS, the Pledgor is willing to enter into the
Reimbursement Agreement and to secure its obligations thereunder with the
pledge of the SDL Securities.
Accordingly, the Pledgor and the Secured Party hereby agree
as follows:
<PAGE>
Section 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"EVENT OF DEFAULT": the Pledgor's failure to make any
payment due to the Secured Party under the Reimbursement Agreement or this
Agreement within thirty (30) days of the date that the Pledgor receives
written demand therefor from the Secured Party.
"LOAN AGREEMENTS": the Bridge Loan Agreement, as amended,
supplemented or modified from time to time, and the Bridge Loan Agreement,
dated July 10, 1997, between SDL and PT. Bank Indonesia Raya, as amended,
supplemental or modified from time to time.
"SDL SHAREHOLDERS AGREEMENT": the Amended and Restated
Shareholders' Agreement, dated as of April 4, 1997, by and among SDL, Star
Telecom Holding Limited, International Wireless Communications, Inc. and
Vanguard China, Inc.
"TRANSFER": has the meaning set forth in the SDL
Shareholders Agreement.
Capitalized terms used herein within definition shall have the meanings given
to such terms in the Reimbursement Agreement.
Section 2. PLEDGE. As security for the timely payment and
performance in full of the Reimbursement Obligations of the Pledgor under
this Agreement and the Reimbursement Agreement (the "Obligations"), the
Pledgor hereby transfers, hypothecates, pledges, sets over and delivers unto
the Secured Party, and grants to the Secured Party a security interest in,
all right, title and interest the Pledgor now has or hereafter acquires in
(a) the SDL Securities described on the attached Schedule 1 and all the SDL
Securities obtained in the future by the Pledgor and the certificates
representing or evidencing all such securities (the "Pledged Stock"); (b) all
other property which may be delivered to and held by the Secured Party
pursuant to the terms hereof; (c) all payments of principal or interest,
dividends, cash, instruments and other property or any Distribution from time
to time received, receivable or otherwise distributed in respect of, in
exchange for or upon the conversion of the securities and other property
referred to in clause (a) or clause (b) above; (c) except as provided in
Section 6, all rights and privileges of the Pledgor with respect to the
securities and other property referred to in clauses (a), (b) and (c) above;
and (e) all proceeds of any of the foregoing (the items referred to in
clauses (a) through (e) being collectively called the "Collateral"). Upon
delivery to the Secured Party, (i) any share certificates, notes or other
securities or instruments now or hereafter included in the Collateral (the
"Pledged Securities") will be duly endorsed to the Secured Party or
accompanied by stock powers duly executed in blank or other instruments of
transfer (including bought and sold notes and instruments of transfer duly
executed in blank and resignations of the Pledgor's nominee directors on the
board of directors of SDL duly signed in blank) satisfactory to the Secured
Party and by such other instruments and documents as the Secured Party may
reasonably request, and (ii) all other property comprising part of the
Collateral will be accompanied by proper instruments of assignment duly
executed by the Pledgor and such other instruments or documents as the
Secured Party may reasonably request. Each delivery of Pledged Securities
will be accompanied by a schedule describing the securities theretofore and
then being pledged
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hereunder, which schedule will be attached to this Agreement and made a part
hereof. Each schedule no delivered will supersede any prior schedules so
delivered.
Section 3. DELIVERY OF THE COLLATERAL. The Pledgor agrees
to promptly deliver or cause to be delivered to the Secured Party any and all
Pledged Securities, and any and all certificates or other instruments or
documents representing the Collateral.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Pledgor hereby represents, warrants and covenants to and with the Secured
Party that:
(a) the Pledgor (i) is and will at all times
continue to be the direct owner, beneficially and of record, of the Pledged
Stock, subject only to the security interest granted hereunder, (ii) holds
the same free and clear of all Liens, subject only to the security interest
granted hereunder and any Lien created by the SDL Shareholders Agreement,
(iii) will make no assignment, pledge, hypothecation or transfer of, or
create or permit to exist any security interest or other Lien (other than any
Lien created by the SDL Shareholders Agreement) with respect to, the
Collateral, (iv) will cause all securities included within the Collateral to
be certificated securities, and (v) will cause any and all certificates,
instruments or other documents representing or evidencing Collateral to be
forthwith deposited with the Secured Party and pledged or assigned hereunder;
(b) by virtue of the execution and delivery by
Pledgor of this Agreement, when the Pledged Securities are delivered to the
Secured Party in accordance with this Agreement, the Secured Party will
obtain a valid, legal and perfected first priority Lien upon and security
interest in such Pledged Securities as security for the repayment of the
Obligations, free and clear of all Liens (other than any Lien created by the
SDL Shareholders Agreement);
(c) the pledge effected hereby is effective to
vest in the Secured Party the rights of the Secured Party in the Collateral
as set forth herein; and
(d) the Pledgor will cause SDL not to issue to
the Pledgor or any of its Affiliates any equity securities unless such
securities are concurrently pledged and delivered to the Secured Party
hereunder.
Section 5. REGION IN NOMINEE NAME: DENOMINATIONS. The
Secured Party will have the right (in its sole and absolute discretion), to
the extent permitted under the SDL Shareholders Agreement, to hold the
Pledged Securities in its own name, the name of its nominee or the name of
the Pledgor, endorsed or assigned in blank or in favor of the Secured Party.
The Pledgor will promptly give to the Secured Party copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of the Pledgor. The Pledgor will take all actions as
may be necessary so that the Secured Party will at all times have the right
to exchange the certificates representing Pledged Securities for certificates
of smaller or larger denominations for any purposes consistent with this
Pledge Agreement. If, and to the extent that, the Pledged Securities of SDL
are held in the name of the Secured Party or its nominee, the Secured Party
agrees that, notwithstanding such registration arrangement, so long as no
Event of Default is continuing, Pledgor will be entitled to exercise all
3
<PAGE>
rights granted to Pledgor under the SDL Shareholders Agreement, including
purchasing SDL shares owned by other SDL shareholders in accordance with the
terms of the SDL Shareholders Agreement.
Section 6. VOTING RIGHTS; DIVIDENDS AND INTEREST: ETC.
(a) Except as provided in paragraphs (b) and
(c) of this section:
(i) The Pledgor will be entitled to
exercise any and all voting rights accruing to it as the owner of Pledged
Securities for any purpose consistent with the terms of this Agreement and
the Reimbursement Agreement, so long as such exercise of rights could not
reasonably be expected to adversely affect the rights and remedies of the
Secured Party under this Agreement or the Reimbursement Agreement or the
ability of the Secured Party to exercise the same.
(ii) The Secured Party will execute and
deliver to the Pledgor, or cause to be executed and delivered to the Pledgor,
all such proxies, powers of attorney, and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise
the voting rights which it is entitled to exercise pursuant to subparagraph
(i) above.
(iii) The Pledgor will be entitled to
receive and retain any and all cash Distributions paid in respect of the
Pledged Securities to the extent and only to the extent that the proceeds of
such cash Distributions are paid and applied in accordance with the terms and
conditions of the Loan Agreements and applicable laws. All other payments,
dividends and Distributions made on or in respect of Pledged Securities,
whether paid or payable in cash, securities or other property, and whether
resulting from a subdivision, combination or reclassification of the
outstanding securities of SDL or received in exchange for or in redemption of
Pledged Securities or any part thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which SDL may be a
party or otherwise, will be and become part of the Collateral and, if
received by the Pledgor, will not be commingled by the Pledgor with any of
its other funds or property but will be held separate and apart therefrom in
trust for the benefit of the Secured Party and will be delivered to the
Secured Party in the same form as so received (with any necessary endorsement
and/or instruments of transfer, as the Secured Party may request).
(b) Upon the occurrence and during the
continuance of an Event of Default or upon any payment by Vanguard under the
IWC Guaranty, all rights of the Pledgor to Distributions which the Pledgor is
authorized to receive pursuant to subparagraph (a)(iii) of this section will
cease, and all such rights will thereupon become vested in the Secured Party,
which will have the sole and exclusive right and authority to receive and
retain such Distributions, which the Secured Party will apply to the
Obligations as provided in Section 9. All Distributions which are received by
the Pledgor contrary to the provisions of this paragraph (b) will be received
in trust for the benefit of the Secured Party, will be segregated from other
property or funds of the Pledgor and will be immediately delivered to the
Secured Party in the same form as so received (with any necessary endorsement
and/or instruments of transfer, as the Secured Party may request). Any and
all money and other property paid over to or received by the Secured
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Party pursuant to the provisions of this paragraph (b) will be deposited by
the Secured Party in an account to be established by the Secured Party for
the benefit of the Secured Party upon receipt of such money or other property
and will be applied in accordance with the provisions of Section 9.
Upon written notice to that effect by the Secured Party to
the Pledgor after the occurrence and during the continuance of an Event of
Default or any payment by Vanguard under the IWC Guaranty, all rights of the
Pledgor to exercise the voting rights which it is entitled to exercise
pursuant to subparagraph (a)(i) of this section will cease, and all such
rights will thereupon become vested in the Secured Party, which will have the
sole and exclusive right (but not the obligation) and authority to exercise
such voting rights. The Pledgor will execute and deliver to the Secured
Party, all such proxies, powers of attorney, and other instruments as the
Secured Party will request for the purpose of enabling the Secured Party to
exercise the voting rights which it is entitled to exercise pursuant to this
paragraph (c) during the continuance of any Event of Default or after any
payment by Vanguard under the IWC Guaranty.
Section 7. RIGHT OF FIRST OFFER. The Secured Party
acknowledges that if Pledgor fails to exercise its right of first offer under
the SDL Shareholders Agreement to acquire additional securities of SDL, and
other SDL shareholders or parties acquire such declined securities of SDL,
such securities shall not be deemed for any purpose hereof or the
Reimbursement Agreement to be Pledged Securities or Collateral.
Section 8. REMEDIES UPON DEFAULT. Upon the occurrence and
during the continuance of an Event of Default in addition to its rights under
the Reimbursement Agreement:
(a) The Secured Party will have the right to
declare all of the Obligations due and payable;
(b) The Secured Party will have all of the
rights and remedies with respect to the Collateral of a secured party under
the UCC (whether or not the UCC is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and remedies to
which a secured party is entitled under any applicable law in effect in any
jurisdiction where any rights and remedies hereunder may be asserted,
including the right, to the maximum extent permitted by applicable law, to
exercise all voting, consensual and other powers of ownership pertaining to
the Collateral as if the Secured Party were the sole and absolute owner
thereof (and the Pledgor agrees to take all such action as may be appropriate
to give effect to such right);
(c) The Secured Party in its discretion may, in
its name or in the name of the Pledgor or otherwise, demand, sue for, collect
or receive any money or property at any time payable or receivable on account
of or in exchange for any of the Collateral, but will be under no obligation
to do so; and
(d) The Secured Party may, upon not fewer than
ten (10) days' prior written notice to the Pledgor and subject to the terms
of the final paragraph of this paragraph (d), with respect to the Collateral
or any part thereof which is then or may thereafter come into the
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possession, custody or control of the Secured Party or any of its agents,
sell, lease, assign or otherwise dispose of all or part of such Collateral,
at such place or places as the Secured Party deems appropriate, and for cash
or for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place thereof
(except such notice as is required above or by applicable statute and cannot
be waived), and the Secured Party or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Collateral so disposed of
at any public sale (or, to the extent permitted by law, at any private sale)
and thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any right or equity of redemption (statutory or
otherwise) of the Pledgor, any such demand, notice and right or equity being
hereby expressly waived and released. The Secured Party may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the sale
may be so adjourned.
The Pledgor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and
applicable state or other securities laws, the Secured Party may be compelled
or deem it advisable, with respect to any sale of all or any part of the
Collateral, to limit purchasers to those who will agree, among other things,
to acquire the Collateral for their own account, for investment and not with
a view to the distribution or resale thereof, or who will agree to other
restrictions which the Secured Party may deem to be appropriate. The Pledgor
acknowledges that any such private sales may be at prices and on terms less
favorable to the Secured Party than those obtainable through a public sale
without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale will be deemed to have been made in a commercially
reasonable manner and that the Secured Party will have no obligation to
engage in public sales and no obligation to delay the sale of any Collateral
for the period of time necessary to permit registration such Collateral for
public sale.
The Secured Party acknowledges that the Pledged Securities
are subject to the SDL Shareholders Agreement and that any exercise of the
Secured Party's rights and remedies with respect to the Pledged Securities
must be in accordance with the terms and conditions set forth in the SDL
Shareholders Agreement regarding disposition of the Pledged Securities,
including, but not limited to, (i) the right of first refusal to acquire the
Pledged Securities in the event of a proposed Transfer, including a Transfer
pursuant to the Secured Party's exercise of its rights and remedies as a
secured creditor with respect to the Pledged Securities, (ii) the right of
co-sale granted to the other SDL shareholders with respect to any Transfer of
the Pledged Securities, including a Transfer pursuant to the Secured Party's
exercise of its rights and remedies as a secured creditor with respect to the
Pledged Securities, (iii) the right of other SDL shareholders holding a
specified percentage of the SDL equity securities to bar a Transfer of
Pledged Securities to a Person who is engaged in a business directly
competing with that of SDL, including a Transfer pursuant to the Secured
Party's exercise of its rights and remedies as a secured creditor with
respect to the Pledged Securities, and (iv) the obligation of any transferee
of the Pledged Securities through the exercise of the Secured Party's rights
and remedies to become a party to the SDL Shareholders Agreement by executing
and delivering a Deed of Adherence, as defined in the SDL Shareholders
Agreement, in accordance with the terms of the
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SDL Shareholders Agreement. The Secured Party further agrees that any
purchaser of the Pledged Securities through the exercise of the Secured
Party's rights and remedies hereunder (including the Secured Party) shall
take the Pledged Securities subject to the terms and conditions of the SDL
Shareholdas Agreement. The Pledgor acknowledges that the Secured Party's
disposition of the Pledged Securities of SDL in accordance with the terms of
the SDL Shareholders Agreement and this paragraph may be at prices and on
terms less favorable than those that would be obtained in connection with
dispositions not made in accordance with the SDL Shareholders Agreement, and
this paragraph and, notwithstanding the foregoing, agrees that such
dispositions so limited by the terms of the SDL Shareholders Agreement, and
this paragraph will be deemed to have been made in a commercially reasonable
manner.
Section 9. APPLICATION OF PROCEEDS OF SALE. The proceeds
of any sale of Collateral pursuant to Section 8, as well as any Collateral
consisting of cash, will be applied by the Secured Party as follows:
FIRST, to the payment of all costs and expenses incurred by
the Secured Party in connection with such sale or otherwise in connection
with this Agreement or any of the Obligations, including all court costs and
the reasonable fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Secured Party hereunder on behalf of
the Pledgor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder;
SECOND, to the payment in full of all Obligations of the
Pledgor under Article II and Section 5.4 of the Reimbursement Agreement;
THIRD, to the payment in full of the Obligations (other
than those referred to above); and
FOURTH, to the Pledgor, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
Section 10. SECURED PARK APPOINTED ATTORNEY-IN-FACT. Except
as otherwise provided herein, the Pledgor hereby appoints the Secured Party
the attorney-in-fact of the Pledgor for the purposes of carrying out the
provisions of this Agreement or taking any action or executing any instrument
which the Secured Party may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, the Secured Party
will have the right, upon the occurrence and during the continuance of an
Event of Default, with full power of substitution either in the Secured
Party's name or in the name of the Pledgor, to ask for, demand, sue for,
collect, receive and give acquittance for any and all monies due or to become
due under or by virtue of any Collateral, to endorse checks, drafts, orders
and other instruments for the payment of money payable to the Pledgor
constituting Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or defend any
action, claim or proceeding with respect thereto, and to sell, assign,
endorse, pledge, transfer and make any agreement respecting, or otherwise
deal with, the same; PROVIDED, HOWEVER, that nothing herein contained will be
construed as requiring or obligating the Secured Party to make any
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commitment or to make any inquiry as to the nature or sufficiency of any
payment received by the Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part
thereof or the monies due or to become due in respect thereof or any property
covered thereby, and no action taken by the Secured Party or omitted to be
taken with respect to the Collateral or any part thereof will give rise to
any defense, counterclaim or offset in favor of any Pledgor or to any claim
or action against the Secured Party. The Secured Party acknowledges that the
power of attorney granted to it under this section will not give it the
right, except during the continuance of an Event of Default, to exercise any
of the rights granted to the Pledgor under the SDL Shareholders Agreement.
Section 11. NO WAIVER. No failure on the part of the
Secured Party to exercise, and no delay in exercising, any right, power or
remedy hereunder will operate as a waiver thereof, nor will any single or
partial exercise of any such right, power or remedy by the Secured Party
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law or agreement (it being
understood and agreed that this Agreement shall not in any manner affect or
limit, or be affected or limited by, the Secured Party's right to seek
reimbursement from SDL pursuant to any reimbursement agreement or otherwise).
The Secured Party will not be deemed to have waived any rights hereunder or
under any other agreement or instrument unless such waiver is in writing and
signed by the Secured Party.
Section 12. SECURITY INTEREST ABSOLUTE. All rights of the
Secured Party hereunder, the grant of a security interest in the Collateral
and all obligations of the Pledgor hereunder will be absolute and
unconditional irrespective of (a) any lack of validity or enforceability of
the Reimbursement Agreement, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Reimbursement Agreement,
the Bridge Loan Documents, the Loan Agreements, the IWC Guaranty or any other
agreement or instrument, (c) any exchange, release, amendment or waiver of,
or consent to or departure from, any guaranty for all or any of the
Obligations or any of the obligations guaranteed under the Bridge Loan
Documents or the IWC Guaranty or (d) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, the Pledgor
in respect of the Obligations or in respect of this Agreement or the
Reimbursement Agreement.
Section 13. FURTHER ASSURANCES. The Pledgor agrees to do
such further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Secured Party
may at any time request to create, perfect, ensure the priority of, protect
or enforce the Secured Party's security interest in the Collateral or in
connection with the administration and enforcement of this Agreement, with
respect to the Collateral or any part thereof or in order better to assure
and confirm unto the Secured Party its rights and remedies hereunder.
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Section 14. FEES AND EXPENSES. The Pledgor agrees to pay
upon demand to the Secured Party the amount of any and all expenses,
including the fees and expenses of its counsel and of any experts or agents,
and any other amount in respect of the Pledged Stock or other Collateral,
which the Secured Party may incur or pay in connection with the
administration of this Agreement, the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Collateral, the
exercise or enforcement of any of the rights of the Secured Party hereunder,
the failure by the Pledgor to perform or observe any of the provisions
hereof, or in protecting or enforcing the Secured Party's claims and security
interest in the Collateral in any bankruptcy or insolvency proceedings, or
otherwise, including any contribution of capital to any other Person which in
the Secured Party's sole discretion may be required or reasonably necessary
to preserve any right with respect to, or the value of, any Collateral
(including any contribution to the capital of SDL or any loan to SDL which in
the Secured Party's sole discretion may be required of the Pledgor or
reasonably necessary pursuant to the SDL Shareholders Agreement, the SDL
Subscription Agreement or otherwise), any which contribution the Secured
Party is authorized, but will not be required, to make on the Pledgor's
behalf. Any such amounts payable as provided hereunder or thereunder will be
additional Obligations secured by this Agreement and shall be due and payable
upon demand therefore by the Secured Party.
Section 15. BINDING AGREEMENT; ASSIGNMENTS. This Agreement,
and the terms, covenants and conditions hereof, will be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns, except that the Pledgor will not be permitted to
assign this Agreement or any interest herein or in the Collateral or any part
thereof, or otherwise pledge, encumber or grant any option with respect to
the Collateral or any part thereof, or any cash or property held by or
required to be delivered to the Secured Party as Collateral under this
Agreement, except with the prior written consent of the Secured Party.
Section 16. HOLIDAYS. Whenever any payment or action to be
made or taken under this Agreement is stated to be due or required to be
taken on a day which is not a Business Day, such payment or action will be
made or taken on the next following Business Day, and such extension of time
will be included in computing interest or fees, if any, in connection with
such payment or action.
Section 17. NOTICES. All notices and other communications
given to or made upon any party hereto in connection with this Agreement
will, except as otherwise expressly provided herein, be in writing and
mailed, telecopied or delivered by hand or by reputable overnight courier
service to the respective parties, as follows:
9
<PAGE>
Pledgor:
c/o International Wireless Communications, Inc.
400 S. E1 Camino Real
Suite 1275
San Mateo, CA 94402
Attention: John D. Lockton
Telecopy: (415) 548-1842
with a copy (which will not constitute notice) to:
Brooks Stough, Esq.
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigan, LLP
155 Constitution Drive
Menlo Park, CA 94025
Telecopy: (415) 343-7502
Secured Party:
Vanguard Cellular Financial Corp.
2002 Pisgah Church Road, Suite 300
Greensboro, NC 27455
Attention: Haynes Griffin
Telecopy: (910) 545-2233
Attention: General Counsel
Telecopy: (910) 545-2219
WITH A COPY (WHICH WILL NOT CONSTITUTE NOTICE) TO:
Hyun Park, Esq.
Latham & Watkins
885 Third Avenue
New York, NY 10022
Telecopy: (212) 751-4864
or in accordance with any subsequent written direction from the recipient
party to the sending party made in accordance with this section. All such
notices and other communications will, except as otherwise expressly provided
in this Agreement, be effective upon (a) delivery if delivered by hand; (b)
on the Business Day after deposited with a reputable overnight courier
service, delivery charges prepaid; (c) on the third Business Day after
deposited in the mail, postage prepaid; or (d) in the case of telecopy, when
received.
Section 18. SURVIVAL. All representations, warranties,
covenants and agreements of the Pledgor contained in this Agreement or made
in writing in connection herewith will
10
<PAGE>
survive the execution and delivery of this Agreement, the IWC Guaranty and
the Reimbursement Agreement. The provisions of Sections 11 through 28 will
survive repayment of the Obligations and the other amounts payable to the
Secured Party under this Agreement and the Reimbursement Agreement and the
termination of this Agreement and the Reimbursement Agreement.
Section 19. GOVERNING LAW; WAIVERS AND JURISDICTION.
(a) GOVERNING LAW. This Agreement will in all
respects be governed by, and construed and enforced in accordance with, the
laws of the State of California, without giving effect to any choice of law
or conflict of law rules or provisions (whether of the State of California or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California, except that the filing,
perfection, effect of perfection and enforcement of security interests and
Liens under this Agreement in other jurisdictions will be governed by the
laws of the applicable jurisdictions in accordance with the UCC as in effect
in the State of California.
(b) WAIVERS. To the extent permitted by law,
each party hereto hereby waives personal service of any and all process upon
it in connection with this Agreement and agrees that all such service of
process may be made as provided in Section 17, and service so made will be
deemed to be completed as provided in Section 17. In addition, the Pledgor
and the Secured Party each hereby waives trial by jury, any objections based
on FORUM NON CONVENIENS and any objections to venue of any action arising out
of, connected with, related to or incidental to the transactions contemplated
by or the relationships established in connection with this Agreement.
(c) EXCLUSIVE JURISDICTION. Except as provided
in Section l9(d), all disputes between the Pledgor and the Secured Party
arising out of, connected with, related to or incidental to the transactions
contemplated by or the relationship established between them in connection
with this Agreement, and whether arising in contract, tort, equity or
otherwise, will be resolved only by state or federal courts located in New
York County, New York, and the Pledgor and the Secured Party hereby consent
and submit to the jurisdiction of any state or federal court located within
such county and state. The Pledgor and the Secured Party acknowledge,
however, that any appeals from those courts may be required to be heard by a
court located outside of New York County, New York. The Pledgor and the
Secured Party waive in all disputes any objection that they may have to the
location of the court considering the dispute. Nothing in this section will
affect the right of the Pledgor or the Secured Party to serve legal process
in any other manner permitted by law or affect the right of the Secured Party
to bring any action or proceeding against the Pledgor or its property in the
courts of any other jurisdiction.
(d) OTHER JURISDICTIONS. The Pledgor and the
Secured Party agree that the other of them will have the right to proceed
against it in a court in any location to enable the proceeding Person to
enforce a judgment or other court order obtained in any proceeding brought in
accordance with Section 19(c) and entered in favor of the proceeding Person.
The Pledgor and
11
<PAGE>
the Secured Party waive any objection that they may have to the location of
the court in which the other of them has commenced a proceeding described in
this paragraph (d).
Section 20. HEREIN, ETC. Words such as "herein,"
"hereunder," "hereof" and the like will be deemed to refer to this Agreement
as a whole and not to any particular document or Article, Section or other
portion of a document. Section, clause, Exhibit and Schedule references
contained in this Agreement are references to Sections, clauses, Exhibits and
Schedules in or attached to this Agreement, unless otherwise specified. Each
defined term used in this Agreement has a comparable meaning when used in its
plural or singular form. Each gender-specific term used in this Agreement has
a comparable meaning whether used in a masculine, feminine or gender-neutral
form. As used in this Agreement, the terms "knowledge" or "aware" will
include the actual knowledge and awareness of the Person in question, and the
knowledge and awareness that such Person would have obtained after making
reasonable inquiry and exercising reasonable diligence with respect to the
matter in question. Whenever the term "including" is used in this Agreement
(whether or not that term is followed by the phrase "but not limited to" or
"without limitation" or words of similar effect) in connection with a listing
of items within a particular classification, that listing will be interpreted
to be illustrative only and will not be interpreted as a limitation on, or an
exclusive listing of, the items within that classification. Each reference in
this Agreement to any law will be deemed to include such law as it hereafter
may be amended, supplemented or modified from time to time and any successor
thereto.
Section 21. SEVERABILITY. Whenever possible, each provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to
be prohibited by or invalid under applicable law in any jurisdiction, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating any other provision of this Agreement or the
Reimbursement Agreement.
Section 22. HEADINGS. Section and subsection headings in
this Agreement are included for convenience of reference only and will not
constitute a part of this Agreement for any other purpose.
Section 23. COUNTERPARTS. This Agreement may be executed in
multiple counterparts and by any party hereto or thereto on separate
counterparts, each of which, when so executed and delivered, will be an
original, but all such counterparts will together constitute one and the same
instrument.
Section 24. INDEMNIFICATION. In consideration of the
Secured Party's execution and delivery of this Agreement, the Reimbursement
Agreement and the IWC Guaranty, and in addition to all other obligations of
the Pledgor under this Agreement and the Reimbursement Agreement, the Pledgor
will defend, protect, indemnify and hold harmless the Secured Party and all
of its officers, directors, employees and agents (including those retained in
connection with the transactions contemplated by this Agreement and the
Reimbursement Agreement) (collectively, the "Indemnitees") from and against
any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages and expenses in connection
12
<PAGE>
therewith (irrespective of whether any such Indemnitee is a party to the
action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements, but excluding claims and losses
arising from such Indemnitee's breach hereof or thereof or such Indemnitee's
gross negligence or willful misconduct (the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of,
or relating to (i) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any advances under the
Bridge Loan Documents, (ii) the execution, delivery, performance or
enforcement of this Agreement, the Bridge Loan Documents, the IWC Guaranty or
the Reimbursement Agreement and any instrument, document or agreement
executed pursuant hereto by any of the Indemnitees or (iii) the Secured
Party's status as a creditor hereunder or the Reimbursement Agreement. To the
extent that the foregoing undertaking by the Pledgor may be unenforceable for
any reason, the Pledgor will make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. To the extent that the undertaking to indemnify, pay
and hold harmless by the Pledgor under this section may be unenforceable
because it violates any law or public policy, the Pledgor will contribute the
maximum portion that it is permitted to pay and satisfy under applicable law
or public policy to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
Section 25. PAYMENT SET ASIDE. To the extent the Pledgor
makes a payment or payments to the Secured Party hereunder or under the
Reimbursement Agreement or the Secured Party enforces its security interests
or rights or exercises its right or setoff hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Pledgor, a trustee, receiver or
any other Person under any law (including any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied and all Liens created under this Agreement will be revived and
continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
Section 26. COMPLEX AGREEMENT. Except as otherwise
expressly set forth herein or in the Reimbursement Agreement, this Agreement
and the Reimbursement Agreement embody the complete agreement and
understanding of the parties hereto and thereto and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
whether written or oral, which may have related to the subject matter hereof
in any way, and such agreements may not be contradicted or varied by evidence
of prior, contemporaneous or subsequent oral discussions or understandings of
the parties. The parties hereto acknowledge and agree there are no oral
understandings or agreements between them with respect to the subject matter
hereof or thereof.
Section 27. NO STRICT CONSTRUCTION. The language used in
this Agreement and the Reimbursement Agreement will be deemed to be the
language chosen by the parties to express their mutual intent. In the event
an ambiguity or question of intent or interpretation arises, this Agreement
and the Reimbursement Agreement will be construed as if drafted jointly
13
<PAGE>
by the parties, and no presumption or burden of proof will arise favoring or
disfavoring any Person by virtue of the authorship of any of the provisions
of this Agreement or the Reimbursement Agreement.
Section 28. TERMINATION.
(a) This Agreement and the pledges and security
interests granted hereby will terminate when all the Obligations have been
indefeasibly paid in full and the Reimbursement Agreement and the IWC
Guaranty have terminated, at which time the Secured Party will execute and
deliver to the Pledgor all Uniform Commercial Code termination statements and
similar documents prepared by the Pledgor which the Pledgor may reasonably
request to evidence such termination.
(b) Notwithstanding anything to the contrary
contained in this Agreement, this Agreement will remain in full force and
effect and continue to be effective should any petition be filed by or
against the Pledgor for liquidation or reorganization, should the Pledgor
become insolvent or make an assignment for any benefit of creditors or should
a receiver or trustee be appointed for all or any significant part of the
Pledgor's assets, and will continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance" or
otherwise, all as though such payment, or any part thereof, is rescinded,
reduced, restored or returned.
* * * * *
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement, or caused this Agreement to be duly executed, as of the day
and year first above written.
IWC CHINA LIMITED
By:
------------------------------------
Its:
-----------------------------------
VANGUARD CELLULAR FINANCIAL CORP.
By:
------------------------------------
Its:
-----------------------------------
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
ISSUER CERTIFICATE NO. QUANTITY
- ------ --------------- --------
<S> <C> <C>
Star Digitel Limited -- 231,900,000
</TABLE>
S-1
<PAGE>
EXHIBIT B
FORM OF VANGUARD WARRANT
2
<PAGE>
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, PURSUANT TO RULE 144 UNDER THE
ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT.
No. IWC-SDL Void after September 18, 2007.
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant, dated September 18, 1997, is issued to Vanguard
Cellular Financial Corp., a North Carolina corporation (the "Holder"), by
International Wireless Communications Holdings, Inc., a Delaware corporation
(the "Company"), pursuant to the Reimbursement Agreement dated as of
September 18, 1997 by and between IWC China Limited and the Holder (the
"Reimbursement Agreement").
3
<PAGE>
1. PURCHASE OF SHARES. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant at the principal
office of the Company (or at such other place as the Company shall notify the
Holder hereof in writing), to purchase a number of shares of the Company's Class
1 Common Stock, par value $0.01 per share (the "Equity Securities"), at a per
share purchase price of No Dollars and One Cent ($0.01) per share, which is
equal to (a) the Total Number of Issuable Warrant Shares (as defined below) at
such time, REDUCED BY (b) the number of Warrant Shares as to which this Warrant
has theretofore been exercised or canceled (as adjusted pursuant to Section 8,
the "PREVIOUSLY ISSUED WARRANT SHARES"). The shares of Equity Securities
issuable at any time as described in clauses (a) and (b) above are referred to
as the "WARRANT SHARES". The purchase price of the Warrant Shares as provided in
this Section 1 (the "Exercise Price") shall be subject to adjustment pursuant to
Section 8 hereof.
2. MATTERS RELATING TO WARRANTS.
2.1 DEFINITION. At any time, the "TOTAL NUMBER OF ISSUABLE
WARRANT SHARES" will equal "x", where
x = EW% (OS + x)
and EW% = the Earned Warrant Percentage at such time
determined as provided in Section 2(b), and
OS = the number of shares of IWCH Common Stock outstanding
on a fully-diluted basis on the date of this Agreement (as
such number may be proportionately adjusted to reflect any
stock dividend, stock split, reverse stock split or other
subdivision or combination of the Equity Securities
effected prior to such time but after the date of this
Warrant), without regard to the issuance of Series G-1, G-2,
H-1 or H-2 Preferred Stock, par value $0.01 per share, by
the Company upon the exchange of notes pursuant to the
Exchange Agreement dated August 18, 1997 among the Company
and the persons named on EXHIBIT A thereto (the "Exchange
Agreement"), or the exercise of this Warrant.
The Total Number of Issuable Warrant Shares shall be calculated after giving
effect to the issuance of all Equity Securities or warrants to purchase
Equity Securities, if any, that the Company may be required to issue as a
result of this Warrant pursuant to any applicable pre-emptive rights, rights
of first refusal or other similar rights.
2.2 INITIAL EARNED WARRANT PERCENTAGE. On the date of this
Warrant, the "Earned Warrant Percentage" is 0.276%. After the date of this
Warrant, the Earned Warrant Percentage shall be increased from time to time,
as provided in Section 2(c) and Section 11.
2.3 ADDITIONAL EARNED WARRANT PERCENTAGE. Subject to the
provisions set forth in Section 11, on each date set forth below, unless the
Guarantee Termination Date (as defined below) has heretofore occurred, the
Earned Warrant Percentage will increase by the corresponding percentage set
forth below, multiplied by the Commitment Percentage (as defined below) on
such date (it being understood that the increases described below are stated
in absolute terms, not in terms of the percentage increase from the Earned
Warrant Percentage previously in effect):
4
<PAGE>
<TABLE>
<CAPTION>
DATE PERCENTAGE
------------------------------- ----------------------
<S> <C>
December 18, 1997 0.207%
March 18, 1998 0.207%
June 18, 1998 0.207%
September 18, 1998 0.345%
December 18, 1998 0.553%
March 18, 1999 0.691%
The 18th of each June, 0.691%
September, December and March
thereafter
</TABLE>
The "Commitment Percentage" at any time means a fraction (A) the numerator of
which is forty percent (40%) of the aggregate principal amount of Additional
Loans (as defined in the Reimbursement Agreement) at such time less the
Discharged Amount (as defined below), if any, as of such time and (B) the
denominator of which is $8,000,000. The "Guarantee Termination Date" means
the date on which the IWC Guaranty is fully and forever terminated.
"Discharged Amount" means, as of any time, the aggregate amount of all
permanent reductions in the IWC Guaranteed Amount (as defined in the
Reimbursement Agreement) under the IWC Guaranty and with respect to which
aggregate amount and by which aggregate amount Vanguard's Obligations under
the IWC Guaranty has been permanently and indefeasibly released and
discharged as of such time.
3. EXERCISE PERIOD. This Warrant is exercisable at any time on any business
day but only until and including the close of business on September 18, 2007.
4. METHOD OF EXERCISE. While this Warrant remains outstanding and exercisable
in accordance with Section 3 above, the Holder may exercise, from time to
time, the purchase rights evidenced hereby. Such exercise shall be effected
by:
4.1 the surrender of this Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
4.2 the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Warrant Shares being purchased.
5. NET ISSUE EXERCISE.
5.1 In lieu of exercising this Warrant as to any number of Warrant
Shares, the Holder may elect to receive shares equal to the value of this
Warrant with respect to such Warrant Shares (whereupon the purchase rights
under this Warrant as to such Warrant Shares will be canceled) by surrender
of this Warrant at the principal office of the Company together with notice
of such election in which event the Company shall issue to the Holder a
number of shares of Equity Securities computed using the following formula:
X = (Y)(A-B)
------------
A
Where X - The number of shares of Equity Securities
to be issued to Holder.
5
<PAGE>
Y - The number of shares of Warrant Shares as
to which such cancellation is to be
effected.
A - The fair market value of one share of the
Equity Securities to be issued upon such
cancellation.
B - Exercise Price (as adjusted to the date of such
calculations).
5.2 For purposes of this Section, the Board of Directors of the
Company shall determine the fair market value in its good faith.
6. RETURN OF WARRANT AND CERTIFICATES FOR WARRANT SHARES. Upon the exercise
or cancellation of the purchase rights evidenced by this Warrant, one or more
certificates for the number of Warrant Shares to be issued shall be issued as
soon as practicable thereafter, and in any event within thirty (30) days of
the delivery of the subscription notice. Together with such share
certificate(s), the Company will return to the Holder (or to such other
Person as the Holder may designate, so long as the Holder has complied with
the applicable provisions of Section 10 as to the transfer of this Warrant to
such other Person) this Warrant, after recording on the attached
Exercise/Cancellation Schedule the date of such exercise or cancellation and
the number of Warrant Shares as to which this Warrant is being exercised or
canceled.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it will at all
times keep available such number of authorized shares of its Equity
Securities issuable upon exercise of this Warrant, free from all preemptive
rights with respect thereto, which will be sufficient to permit the exercise
or cancellation of the purchase rights under this Warrant for the full number
of Warrant Shares specified herein. The Company further covenants that such
Warrant Shares, when issued pursuant to the exercise of this Warrant, will be
duly and validly issued, fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF PREVIOUSLY ISSUED WARRANT
SHARES. The number of Previously Issued Warrant Shares, the kind of
securities purchasable upon exercise or cancellation of rights under this
Warrant and the Exercise Price shall be subject to adjustment from time to
time as follows:
8.1 SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time prior to the expiration of this Warrant subdivide
its Equity Securities by split-up or otherwise, or combine its capital stock,
or issue additional securities as a dividend with respect to any shares of
its Equity Securities, the number of Previously Issued Warrant Shares shall
forthwith be proportionately increased in the case of a subdivision or stock
dividend, or proportionately decreased in the case of a combination.
Inversely proportional adjustments shall also be made to the Exercise Price
payable per share, but the aggregate purchase price payable for the total
number of Warrant Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 7(a) shall become
effective at the close of business on the date the subdivision or combination
becomes effective, or as of the record date of such dividend, or in the event
that no record date is fixed, upon the making of such dividend.
8.2 RECLASSIFICATION, REORGANIZATION, AND CONSOLIDATION. In
case of any reclassification, capital reorganization, or change in the
capital stock of the Company (other than as a result of a subdivision,
combination, or stock dividend provided for in Section 8(a) above), then, as
a condition of such reclassification, reorganization, or change, lawful
provision shall be
6
<PAGE>
made, and duly executed documents evidencing the same from the Company or its
successor shall be delivered to the Holder, so that the Holder shall have the
right at any time prior to the expiration of this Warrant to purchase, at a
total price equal to that payable upon the exercise of this Warrant, the kind
and amount of shares of stock and other securities and property receivable in
connection with such reclassification, reorganization, or change by a holder
of the same number of shares of capital stock as were purchasable by the
Holder immediately prior to such reclassification, reorganization, or change.
In any such case appropriate provisions shall be made with respect to the
rights and interest of the Holder so that the provisions hereof shall
thereafter be applicable with respect to any shares of stock or other
securities and property deliverable upon exercise hereof, and appropriate
adjustments shall be made to the Exercise Price per share payable hereunder,
provided the aggregate purchase price shall remain the same.
8.3 NOTICE OF ADJUSTMENT. When any adjustment is required to be
made in the Previously Issued Warrant Shares, in the number or kind of shares
purchasable upon exercise of this Warrant, or in the Exercise Price, the
Company shall promptly notify the Holder of such event and the adjusted
number of Previously Issued Warrant Shares, the adjusted Exercise Price and
the number of shares and/or the type of securities or property thereafter
purchasable upon exercise of or cancellation of rights under this Warrant.
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise or cancellation of rights
under this Warrant, but in lieu of such fractional shares the Company shall
make a cash payment therefor on the basis of the fair market value (as
determined in good faith by the Company's Board of Directors) of one Warrant
Share of the type in question.
10. NO STOCKHOLDER RIGHTS. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a stockholder with respect to the
Warrant Shares, including (without limitation) the right to vote such Warrant
Shares, receive dividends or other distributions thereon, exercise preemptive
rights or be notified of stockholder meetings, and such Holder shall not be
entitled to any notice or other communication concerning the business or
affairs of the Company. Notwithstanding the foregoing, the Company will give
written notice to the Holders hereof at least 20 days prior to the date on
which the Company closes its books or takes a record (i) with respect to any
Distribution (as defined in the Reimbursement Agreement) upon the Equity
Securities, (ii) with respect to any pro rata subscription offer to holders
of the Equity Securities or (iii) for determining rights to vote with respect
to any Liquidity Event (as defined below), Change of Control (as defined
below), dissolution or liquidation. The Company will also give written notice
to the Holders hereof at least 20 days prior to the date on which any
Liquidity Event or Change of Control takes place. The terms "Liquidity Event"
and "Change of Control" shall have the respective meanings given to them in
the Loan Agreement dated August 18, 1997 among the Company and the lenders
named on EXHIBIT A thereto.
11. REGISTRATION RIGHTS; RELATED MATTERS. Within forty-five (45) days after
the date hereof, the Company shall cause the Sixth Amended and Restated
Investor Rights Agreement dated as of August 18, 1997 (the "IRA") to be
amended so that (i) the Warrant Shares are "Registrable Securities" within
the meaning of Section 1.1(f) of the IRA and (ii) the Holder shall have all
of the rights of a holder of Registrable Securities under the IRA (provided
that the Holder agrees to assume the obligations of a holder of Registrable
Securities under the IRA). If the Company fails to so amend the IRA within
such forty-five (45)-day period, the increase in the Earned Warrant
Percentage on the date of this Warrant and each subsequent date shall be
50.0% higher
7
<PAGE>
than the amount set forth in Section 2(b) above (with respect to the Earned
Warrant Percentage on the date of this Warrant) and 2(c) above (with respect
to the Earned Warrant Percentage on each subsequent date).
12. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and the Holders
hereof and their respective successors and assigns.
A Holder may transfer in whole or in part the purchase rights
evidenced hereby to any third party to whom such rights may be transferred
without registration or qualification under federal or state securities laws,
provided: (a) the transferee or assignee receives a Warrant to purchase at
least five percent (5%) of the Warrant Shares; (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of the name and address of such transferee or assignee; (c) such
transferee or assignee agrees in writing to be bound by and subject to the
terms and conditions of this Warrant; and (d) the transferor shall have
delivered to the Company, if reasonably requested by counsel to the Company,
an opinion of counsel substantially to the effect that the transfer or
assignment can be effected without registration or qualification under
applicable federal or state securities laws (or, at the Holders' option, a
certification by the Holder to that effect in which the Holder agrees to
indemnify and hold harmless the Company in respect of any violation of such
securities laws in connection with such transfer). Upon surrender of this
Warrant to the Secretary of the Company at its principal offices after any
such transfer, the Company will issue one or more new Warrants of like tenor
(in the name(s) of the Holder and/or the transferee(s), as appropriate)
representing in the aggregate the purchase rights represented by this Warrant.
13. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in
a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of the Warrants representing a
majority of the securities as to which all outstanding Warrants are then
exercisable. Any waiver or amendment effected in accordance with this section
shall be binding upon each holder of any Warrant Shares thereafter purchased
under this Warrant, each future holder of all such Warrant Shares, and the
Company.
14. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges that by the
operation of paragraph 13 hereof, the holders of the Warrants representing a
majority of the securities as to which all outstanding Warrants are then
exercisable will have the right and power to diminish or eliminate all rights
of the Holder under this Warrant.
15. GOVERNING LAW. This Warrant shall be governed by the laws of the State of
Delaware as applied to agreements among Delaware residents made and to be
performed entirely within the State of Delaware.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
8
<PAGE>
SUBSCRIPTION
International Wireless Communications Holdings, Inc.
Attention: Corporate Secretary
1. The undersigned hereby elects to purchase, pursuant to the
provisions of the Warrant to Purchase _______________ shares of _______________
_________________ stock of International Wireless Communications Holdings, Inc.
and held by the undersigned, ____________ shares of ________ stock of
International Wireless Communications Holdings, Inc. Payment of the exercise
price per share required under such Warrant accompanies this Subscription.
1. The undersigned hereby elects to receive shares equal to
the value of this Warrant as to _________ Warrant Shares in the manner specified
in Section 5 of the Warrant.
[Strike paragraph above that does not apply.]
Date:
----------------------------
Signature:
-----------------------
Address:
-------------------------
Name in which shares should be registered:
- ------------------------------------
<PAGE>
EXERCISE/CANCELLATION SCHEDULE
Date Number of Warrant Shares as to which
Warrant Exercised or Canceled
2
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of [_______]
(the "Agreement"), between IWC CHINA LIMITED, a Mauritius corporation (the
"Assignor"), and VANGUARD [CHINA, INC., a Delaware] corporation (the
"Assignee").
The Assignor wishes to assign its rights under Section
1.2(c) of the Subscription Agreement, dated as of September 23, 1996, among
Star Digitel Limited (the "Company"), Star Telecom Holding Limited ("STHL")
and International Wireless Communications, Inc. ("IWC"), as amended by the
Amendment to Subscription Agreement and Waiver, dated as of June 18, 1997,
among the Company, STHL, IWC and Assignor (as amended, the "Subscription
Agreement"), to the Assignee, and the Assignee wishes to assume all rights
and obligations of the Assignor relating to the subscription of the Second
IWC Shares (as defined in the Subscription Agreement).
NOW, THEREFORE, in consideration of the foregoing premises
and other good and valuable consideration, the Assignor and the Assignee
agree as follows:
1. ASSIGNMENT AND ASSUMPTION. The Assignor hereby assigns,
transfers and conveys to the Assignee, and the Assignee hereby accepts and
assumes, all rights and obligations of the Assignor under Section 1.2(c) of
the Subscription Agreement relating to the subscription of the Second IWC
Shares.
2. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of England and Wales.
3. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
ASSIGNOR: ASSIGNEE:
IWC CHINA LIMITED VANGUARD [CHINA, INC.]
By: By:
------------------------------------ --------------------------
Name: Name:
Title: Title:
Consented to pursuant to Section 1.1
of the Subscription Agreement by:
STAR TELECOM HOLDING LIMITED
By:
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 10.104O
FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT
THIS FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT is made and entered
into as of January 23, 1998 (the "First Amendment") by and between IWC CHINA
LIMITED, a company organized under the laws of Mauritius ("IWC China"), and
VANGUARD CELLULAR FINANCIAL CORP., a North Carolina corporation ("Vanguard").
RECITALS
A. In connection with certain amendments and supplements, dated as of
September 18, 1997, to that certain Bridge Loan Agreement, dated as of May 16,
1997 (as amended, supplemented or modified, the "Bridge Loan Agreement"),
between Star Digitel Limited, a company organized under the laws of Hong Kong
("SDL"), and Toronto-Dominion Bank ("Toronto-Dominion"), IWC China and Vanguard
entered into that certain Reimbursement Agreement, dated as of September 18,
1997 (the "Reimbursement Agreement"), and that certain Pledge Agreement, dated
as of September 18, 1997 (the "Pledge Agreement"), and International Wireless
Communications Holdings, Inc., a Delaware corporation ("IWCH"), issued to
Vanguard that certain Warrant to Purchase Common Stock, dated as of September
18, 1997 (the "Vanguard Warrant").
B. SDL and Toronto-Dominion entered into certain further amendments
and supplements, dated as of November 17, 1997 ("Bridge Loan Supplement No. 2"),
to the Bridge Loan Agreement to increase the amount of advances available
thereunder by another $4,700,000.
C. In order to reflect the availability of additional advances of up
to $4,700,000 pursuant to Bridge Loan Supplement No. 2 and to make certain other
changes as provided herein, the parties hereto desire to amend the Reimbursement
Agreement, the Pledge Agreement and the Vanguard Warrant.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements set forth herein and intending to be legally bound
hereby, covenant and agree that the Reimbursement Agreement be, and hereby is,
amended and supplemented as follows:
1. Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Reimbursement Agreement.
2. The second paragraph of the Reimbursement Agreement is hereby
amended by deleting it in its entirety and replacing it with the following
therefor:
"Star Digitel Limited, a company organized under the laws of Hong Kong
("SDL"), and Toronto-Dominion Bank ("TORONTO-DOMINION") entered into
that certain Bridge Loan Agreement, dated as of May 16, 1997 (as
amended or
<PAGE>
modified from time to time, the "BRIDGE LOAN AGREEMENT"), providing for
Advances (as defined below) by Toronto-Dominion to SDL in an aggregate
principal amount not to exceed $8,000,000 (the "ORIGINAL LOAN"). SDL
and Toronto-Dominion amended the Bridge Loan Agreement to increase the
amount of Advances available thereunder by an additional $10,000,000 by
executing that certain Bridge Loan Agreement Supplement No. 1, dated as
of September 18, 1997, and thereafter further amended the Bridge Loan
Agreement to increase the amount of Advances available thereunder by
another $4,700,000 by executing that certain Bridge Loan Agreement
Supplement No. 2, dated as of November 17, 1997 (such amendments to the
Bridge Loan Agreement, the "BRIDGE LOAN AGREEMENT AMENDMENT" and such
additional Advances of up to $14,700,000, the "ADDITIONAL LOANS"), and
in connection therewith, Toronto-Dominion requested certain guaranties
of such Additional Loans under the Bridge Loan Agreement from each of
SDL's shareholders (or certain of their parent entities). IWC China
currently owns forty percent (40%) of the issued and outstanding
ordinary shares of SDL ("SDL SHARES"), and in connection with the Bridge
Loan Agreement and the Bridge Loan Agreement Amendment was requested by
SDL to guarantee (a) the repayment of the Original Loan and the
Additional Loans by Toronto-Dominion under the Bridge Loan Agreement in
an aggregate principal amount not to exceed $11,200,000 and (b) forty
percent (40%) of all Obligations (as defined below) of SDL (other than
Advances under the Bridge Loan Agreement) relating to the Original Loan
and the Additional Loans now or hereafter existing under the Bridge Loan
Documents (as defined below), whether for interest, fees, expenses or
otherwise (such guaranty, the "IWC GUARANTY" and the sum of clauses (a)
and (b), the "IWC GUARANTEED AMOUNT"). IWC China has requested that
Vanguard issue to Toronto-Dominion on IWC China's behalf the IWC
Guaranty as described in greater detail in this Agreement."
3. Article I of the Reimbursement Agreement is hereby amended by
inserting the words ", as amended, modified or supplemented from time to time"
at the end of the definition of "Pledge Agreement" after the words "a form which
is attached hereto as Exhibit A."
4. Article I of the Reimbursement Agreement is hereby amended by
inserting the words ", in each case, as amended, modified or supplemented from
time to time" at the end of the definition of "Vanguard Warrant" after the words
"in replacement thereof or substitution therefor."
5. Article I of the Reimbursement Agreement is hereby amended by
inserting the words "and all amendments, supplements and modifications thereto"
at the end of the definition of "Transaction Documents" after the words "and the
Vanguard Warrant."
6. Section 2.01(a) of the Reimbursement Agreement is hereby amended
as follows:
2
<PAGE>
(a) by inserting the words "the Bridge Loan Agreement and" after
the words "In connection with" and before the words "the Bridge Loan
Agreement Amendment," in the first sentence of Section 2.01(a); and
(b) by deleting the second sentence and the third sentence of Section
2.01(a) and replacing them with the following therefor:
"The IWC Guaranty issued by Vanguard may be a part of one guaranty
instrument which incorporates the guaranty by Vanguard on its own
behalf of the repayment of the Original Loan and the Additional Loans
made by Toronto-Dominion under the Bridge Loan Agreement in an
aggregate principal amount not to exceed $1,960,000 and seven percent
(7%) of all Obligations of SDL (other than Advances under the Bridge
Loan Agreement) relating to the Original Loan and the Additional Loans
now or hereafter existing under the Bridge Loan Documents, whether for
interest, fees, expenses or otherwise."
7. Section 4.02(a) of the Reimbursement Agreement is hereby amended
by deleting the word "and" immediately before clause (3) and replacing it with a
comma and inserting the following words at the end of Section 4.02(a) after the
words "and Harris Corporation":
", (4) pursuant to that certain reimbursement agreement, dated as
November 28, 1997, by and between United Trading Company and IWC China,
(5) Debt, if any, of IWC China related to that certain short term loan
facility for up to $2,000,000 provided by ING Bank N.V., (6) that
certain Guarantee issued by IWC China in favor of Star Telecom
International Holding Limited in January 1998 in respect of the
obligations of Star Digitel Limited under Supply Contract No.
PRCS/MW-015/94 and (7) that certain Guarantee issued by IWC China in
favor of Star Telecom International Holding Limited in January 1998 in
respect of the obligations of Star Digitel Limited under Supply Contract
No. PRCS/MW-019/94."
8. Each of the representations and warranties contained in Article
III of the Reimbursement Agreement is true and correct as if made on and as of
the date hereof, except for those representations and warranties that refer to a
specific date, in which case, such representations and warranties are true and
correct on and as of such date.
9. Except as hereby amended by this First Amendment, all terms and
provisions of the Reimbursement Agreement are and shall continue to be in full
force and effect and are hereby ratified and confirmed in all respects.
10. Each reference in the Reimbursement Agreement to this
"Agreement," "hereunder," "hereof," "hereto" or words of like import referring
to the Reimbursement Agreement and each reference in the Pledge Agreement and
the Vanguard Warrant to the "Reimbursement Agreement," "thereunder," "thereof,"
"thereto" or words of like import referring to the
3
<PAGE>
Reimbursement Agreement shall mean and be a reference to the Reimbursement
Agreement as amended by this First Amendment.
11. This First Amendment may be executed in any number of
counterparts, and each such counterpart shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute but one and the
same First Amendment. Delivery of an executed counterpart of a signature page
to this First Amendment by telecopier shall be effective as delivery of a
manually executed counterpart of this First Amendment.
12. REGARDLESS OF THE PLACE OF EXECUTION, THIS FIRST AMENDMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this First Amendment as of the day and year
first above written.
IWC CHINA LIMITED
By:
------------------------------
Its:
------------------------------
VANGUARD CELLULAR FINANCIAL CORP.
By:
------------------------------
Its:
------------------------------
5
<PAGE>
Exhibit 10.104P
FIRST AMENDMENT TO PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT is made and entered into as
of January 23, 1998 (the "First Pledge Agreement Amendment") by and between IWC
CHINA LIMITED, a company organized under the laws of Mauritius (the "Pledgor"),
and VANGUARD CELLULAR FINANCIAL CORP., a North Carolina corporation (the
"Secured Party").
RECITALS
A. In connection with certain amendments and supplements, dated as of
September 18, 1997, to that certain Bridge Loan Agreement, dated as of May 16,
1997 (as amended, supplemented or modified, the "Bridge Loan Agreement"),
between Star Digitel Limited, a company organized under the laws of Hong Kong
("SDL"), and Toronto-Dominion Bank ("Toronto-Dominion"), the Pledgor and the
Secured Party entered into that certain Reimbursement Agreement, dated as of
September 18, 1997 (the "Reimbursement Agreement"), and that certain Pledge
Agreement, dated as of September 18, 1997 (the "Pledge Agreement"), and
International Wireless Communications Holdings, Inc., a Delaware corporation,
issued to the Secured Party that certain Warrant to Purchase Common Stock, dated
as of September 18, 1997.
B. SDL and Toronto-Dominion entered into certain further amendments
and supplements, dated as of November 17, 1997 ("Bridge Loan Supplement No. 2"),
to the Bridge Loan Agreement to increase the amount of advances available
thereunder by another $4,700,000.
C. In order to reflect the availability of additional advances of up
to $4,700,000 pursuant to Bridge Loan Supplement No. 2 and to make certain other
changes as provided herein, the parties hereto desire to amend the Pledge
Agreement.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements set forth herein and intending to be legally bound
hereby, covenant and agree that the Pledge Agreement be, and hereby is, amended
and supplemented as follows:
1. Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Pledge Agreement.
2. The first recital of the Pledge Agreement is hereby amended by
deleting it in its entirety and replacing it with the following therefor:
"WHEREAS, Star Digitel Limited, a company organized under the laws of
Hong Kong ("SDL"), and Toronto-Dominion Bank (the "BANK") entered into
that certain Bridge Loan Agreement, dated as of May 16, 1997 (as
amended or modified from time to time, the "BRIDGE LOAN AGREEMENT"),
providing for Advances (as defined in the Bridge Loan Agreement) by
the Bank to SDL in an
<PAGE>
aggregate principal amount not to exceed $8,000,000 (the "ORIGINAL
LOAN"). SDL and the Bank amended the Bridge Loan Agreement to increase
the amount of Advances available thereunder by an additional $10,000,000
by executing that certain Bridge Loan Agreement Supplement No. 1, dated
as of September 18, 1997, and thereafter further amended the Bridge Loan
Agreement to increase the amount of Advances available thereunder by
another $4,700,000 by executing that certain Bridge Loan Agreement
Supplement No. 2, dated as of November 17, 1997 (such additional
Advances of up to $14,700,000, the "ADDITIONAL LOANS");"
3. The third recital of the Pledge Agreement is hereby amended by
deleting it in its entirety and replacing it with the following therefor:
"WHEREAS, the Pledgor has requested that the Secured Party, on behalf
of the Pledgor, guaranty (a) the repayment of the Original Loan and
the Additional Loans by the Bank under the Bridge Loan Agreement in an
aggregate principal amount not to exceed $11,200,000 and (b) forty
percent (40%) of all Obligations (as defined in the Bridge Loan
Agreement) of SDL (other than Advances under the Bridge Loan
Agreement) relating to the Original Loan and the Additional Loans now
or hereafter existing under the Bridge Loan Documents (as defined in
the Reimbursement Agreement referred to below), whether for interest,
fees, expenses or otherwise (such guaranty, the "IWC GUARANTY").
4. The fourth recital of the Pledge Agreement is hereby amended by
inserting the words "as amended or modified from time to time," immediately
after the open parenthesis sign and before the words "the "REIMBURSEMENT
AGREEMENT")" in clause (i) thereof.
5. Each of the representations and warranties contained in Section 4
of the Pledge Agreement is true and correct as if made on and as of the date
hereof, except for those representations and warranties that refer to a specific
date, in which case, such representations and warranties are true and correct on
and as of such date.
6. Subsection heading "(c)" shall be inserted at the beginning of the
last paragraph of Section 6 immediately before the words "Upon written notice to
that effect."
7. Except as hereby amended by this First Pledge Agreement Amendment,
all terms and provisions of the Pledge Agreement are and shall continue to be in
full force and effect and are hereby ratified and confirmed in all respects.
The execution, delivery and effectiveness of this First Pledge Agreement
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Secured Party under the Pledge Agreement or
the Reimbursement Agreement, nor constitute a waiver of any provision of the
Pledge Agreement or the Reimbursement Agreement.
8. Each reference in the Pledge Agreement to this "Agreement,"
"hereunder," "hereof," "hereto" or words of like import referring to the Pledge
Agreement shall mean and be a
2
<PAGE>
reference to the Pledge Agreement as amended by this First Pledge Agreement
Amendment. Each reference in the Pledge Agreement to the "Reimbursement
Agreement," "thereunder," "thereof," "thereto" or words of like import
referring to the Reimbursement Agreement shall mean and be a reference to the
Reimbursement Agreement as amended by that certain First Amendment to
Reimbursement Agreement, dated as of the date hereof, by and between the
Pledgor and the Secured Party.
9. This First Pledge Agreement Amendment may be executed in any
number of counterparts, and each such counterpart shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same First Pledge Agreement Amendment. Delivery of an executed
counterpart of a signature page to this First Pledged Agreement Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this First Pledge Agreement Amendment.
10. REGARDLESS OF THE PLACE OF EXECUTION, THIS FIRST PLEDGE AGREEMENT
AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this First Pledge Agreement Amendment as of the day
and year first above written.
IWC CHINA LIMITED
By:
------------------------------
Its:
------------------------------
VANGUARD CELLULAR FINANCIAL CORP.
By:
------------------------------
Its:
------------------------------
4
<PAGE>
Exhibit 10.104Q
FIRST AMENDMENT TO WARRANT TO PURCHASE COMMON STOCK
THIS FIRST AMENDMENT TO WARRANT TO PURCHASE COMMON STOCK is made
and entered into as of January 23, 1998 (the "First Warrant Amendment") by
and between International Wireless Communications Holdings, Inc., a Delaware
corporation (the "Company"), and VANGUARD CELLULAR FINANCIAL CORP., a North
Carolina corporation (the "Holder").
RECITALS
A. In connection with certain amendments and supplements, dated as
of September 18, 1997, to that certain Bridge Loan Agreement, dated as of May
16, 1997 (as amended, supplemented or modified, the "Bridge Loan Agreement"),
between Star Digitel Limited, a company organized under the laws of Hong Kong
("SDL"), and Toronto-Dominion Bank ("Toronto-Dominion"), IWC China Limited, a
corporation organized under the laws of Mauritius ("IWC China"), and the
Holder entered into that certain Reimbursement Agreement, dated as of
September 18, 1997 (the "Reimbursement Agreement"), and that certain Pledge
Agreement, dated as of September 18, 1997, and the Company issued to the
Holder that certain Warrant to Purchase Common Stock, dated as of September
18, 1997 (the "Warrant").
B. SDL and Toronto-Dominion entered into certain further
amendments and supplements, dated as of November 17, 1997 ("Bridge Loan
Supplement No. 2"), to the Bridge Loan Agreement to increase the amount of
advances available thereunder by another $4,700,000.
C. In order to reflect the availability of additional advances of
up to $4,700,000 pursuant to Bridge Loan Supplement No. 2, the parties hereto
desire to amend the Warrant.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements set forth herein and intending to be legally
bound hereby, covenant and agree that the Warrant be, and hereby is, amended
and supplemented as follows:
1. Capitalized terms used but not defined herein shall have the
respective meanings assigned to them in the Warrant.
2. Section 2(c) of the Warrant is hereby amended by deleting
clause (A) in the definition of "Commitment Percentage" in its entirety and
replacing it with the following therefor:
"(A) the numerator of which is $8,000,000, less the Discharged Amount
(as defined below), if any, as of such time and".
3. Section 8(a) of the Warrant is hereby amended by deleting the
reference to "Section 7(a)" in the last sentence thereof and replacing it
with "Section 8(a)" therefor.
<PAGE>
4. Except as hereby amended by this First Warrant Amendment, all
terms and provisions of the Warrant are and shall continue to be in full
force and effect and are hereby ratified and confirmed in all respects.
5. Each reference in the Warrant to this "Warrant," "Agreement,"
"hereunder," "hereof," "hereto" or words of like import referring to the
Warrant shall mean and be a reference to the Warrant as amended by this First
Warrant Amendment; provided that each reference to the "date of this
Agreement" or "the date of this Warrant" or words of like import shall mean
and be a reference to September 18, 1997. Each reference in the Warrant to
the "Reimbursement Agreement," "thereunder," "thereof," "thereto" or words of
like import referring to the Reimbursement Agreement shall mean and be a
reference to the Reimbursement Agreement as amended by that certain First
Amendment to Reimbursement Agreement, dated as of the date hereof, by and
between IWC China and the Holder.
6. This First Warrant Amendment may be executed in any number of
counterparts, and each such counterpart shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one
and the same First Warrant Amendment. Delivery of an executed counterpart of
a signature page to this First Warrant Amendment by telecopier shall be
effective as delivery of a manually executed counterpart of this First
Warrant Amendment.
7. REGARDLESS OF THE PLACE OF EXECUTION, THIS FIRST WARRANT
AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this First Warrant Amendment as of the day
and year first above written.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
By: __________________________________
Its: _________________________________
VANGUARD CELLULAR FINANCIAL CORP.
By: __________________________________
Its: _________________________________
3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Exhibit 10.105Q
< Stamp indicating 50 Rupee stamp duty paid >
INTERCONNECTION AGREEMENT
(NO. PSP/TECH-023/CMT)
THIS AGREEMENT is made at Islamabad on this 5th day of December 1997.
BETWEEN
PAKISTAN TELECOMMUNICATIONS COMPANY LIMITED, a company incorporated under the
Companies Ordinance 1984, having its registered office at Sector G-8/4,
Islamabad (hereinafter referred to as "PTCL" which expression shall be deemed to
mean and include its successors-in-interests and assigns);
AND
PAKISTAN MOBILE COMMUNICATIONS (Pvt.) LIMITED, a company incorporated under the
Companies Ordinance 1984, having its registered office at 12th Floor UBL
Building, Jinnah Avenue, Blue Area, Islamabad (hereinafter referred to as "PMCL"
which expression shall be deemed to mean and include its successors-in-interests
and assigns);
(PTCL and PMCL shall hereinafter be collectively referred to as the "Parties"
and individually as a "Party").
WHEREAS PTCL is licensed to operate basic telephony and public switched
telephone network service ("PSTN Network") in Pakistan under license number
PTA/M(T)-014/A dated 15th April 1997 issued by the Pakistan Telecommunication
Authority ("PTA") (the "PTCL License");
AND WHEREAS PMCL is licensed to operate cellular mobile telephone service
("Cellular Network") in Pakistan under license issued by PTA vide their
Revalidation order number N11 dated 9th August 1997 (the "PMCL License");
AND WHEREAS in accordance with PTA number PTA/(T)006 dated 20 January 1997 in
respect of the restoration of cellular mobile services in Karchi and other
cities in the province of Sindh, the Parties entered into the Interim
Interconnection Agreement on 15 September 1997 (the "Interim Agreement");
AND WHEREAS the Parties agreed in the Interim Agreement to enter into this
Agreement on or before, 30 September 1997, and replace the provisions of the
Interim Agreement with the provisions of this Agreement;
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
AND WHEREAS the Parties have agreed on the terms and conditions relating to the
Interconnection arrangements for exchange and transportation of mutual two-way
traffic between their respective PSTN Network and Cellular Network;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
Parties hereby agree as follows:
1. HANDOVER AND CALL ROUTING
1.1. [*]
1.2. [*]
1.3. [*]
1.4. [*]
2. POINTS OF INTERCONNECTION
2.1. PMCL may choose the points of interconnection at different hierarchial
levels on the grounds of economy, performance and other benefits.
PMCL shall provide to PTCL the following information in respect of
each point of interconnection:
1. The name of the exchange;
2. The type of the exchange;
3. The physical nature of the link;
4. The type of transmission used on the link;
5. The maximum capacity of the link;
6. The amount of capacity currently in use on the link; and
7. The type of signaling used.
The format in which the aforesaid information is to be provided to
PTCL by PMCL and the frequency update shall be agreed separately by
the Parties.
3. INTERCONNECTION STRUCTURE
3.1. DIUs, signaling links, code creation and other software changes, local
leads and allied equipment required for interconnection shall be
provided by each of the Parties at their end of the interconnection
points at the sole cost and expense of each Party.
3.2. Power and space, including tower space for dishes, required at each
end of the interconnection points shall be provided by PTCL. In case
of facilities owned by the National Telecommunication Corporation
("NTC"), PTCL shall facilitate the process the provisions of the
required facilities. PMCL shall pay for
the utilization of the said facilities, owned either by PTCL or NTC, at
such rates as approved by the PTA.
4. CHARGES FOR PSTN NETWORK AND LEASED CIRCUITS
4.1. PTCL shall give a volume discount to PMCL on its normal PSTN charges
during the term of this Agreement as set out hereunder.
TOTAL GROSS MONTHLY BILLING OF PMCL DISCOUNT (IN%)
2
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(a) [*] [*]
(b) [*] [*]
(c) [*] [*]
(d) [*] [*]
(e) [*] [*]
(f) [*] [*]
(g) [*] [*]
The discount shall not be applicable to any duties or taxes payable
in connection with the PTCL service charges.
4.2. PTCL shall provide a monthly detailed consolidated bill to PMCL
setting out the total applicable discount for each month and the
amount due for a particular month after such discount. PMCL shall pay
the amount expressed to be due under such bill by the due date
stipulated in the relevant bill. In the event PTCL has not provided
such consolidated bill, PMCL shall have the right to itself produce a
statement of the billing received by PMCL, calculate the applicable
discount and deduct the discount from the payment to be made to PTCL
for such billing. All details of bills, including IDD tapes, shall be
provided to PMCL by PTCL at no extra cost in order to facilitate
reconciliation of PTCL charges.
4.3. PTCL shall give a discount to PMCL on the leased circuit charges as
set out hereunder. These rates are based on the per kilometer road
distance charges as stated in Survey of Pakistan maps. These rates
shall not be increased during the term of this Agreement.
(a) [*] [*]
(b) [*] [*]
(c) [*] [*]
4.4. The quarterly payments for the circuits already leased by PMCL and
payments for any new circuits shall be made by PMCL to PTCL after the
deduction of [*]. In case of charges for the leased circuits being
higher than [*] in a year. PMCL shall submit a statement of total
billing for that year deducting a discount calculated in accordance
with the above mentioned rates. The Parties shall enter into a
separate lease agreement for the leased circuits. However such
agreement shall not contravene any provisions of this Agreement or
cause any new requirements.
5. FORCE MAJEURE
5.1. Neither party shall have any claim against the other for damages for
delay caused by Force Majure. The term "Force Majure" as used herein
shall mean Acts of God, strikes, lockouts, or other industrial
disturbance, act of public enemy, war, blockages, insurrections,
riots, epidemics, landslides, earthquakes, fires, storms, lightening,
flood, washouts, civil disturbances, explosion, non-availability of
governmental export permits as well as other required decisions,
approvals, licenses etc from the relevant governmental authorities,
and any other cause similar to the control of herein enumerated or of
equivalent effect, not within the control of either party and which by
the exercise of due care and diligence either party is unable to
overcome or restriction imposed by Government of Pakistan action or
regulation in case of Emergency and Security.
5.2. The Party affected by any occurrence of force majeure shall however
make its best endeavours to resume or commence the performance of its
obligations prevented by force majeure as soon as possible and in any
case immediately upon its cessation, and force majeure shall not be an
excuse for the relief from
- --------------------------------------
(*) Confidential portion has been omitted and filed separately with the
Commission.
3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
performance altogether of its obligations hereunder except that the
delay caused by force majeure shall not be regarded as a breach of
such of its obligations for which a time is set for performance
hereunder.
5.3. The Parties shall meet in good faith to endeavor to agree upon some
viable alternative to the performance of any obligation prevented by
force majeure with the objective of maintaining this Agreement in
effect. If, however, the force majeure continues for more than a
period of two years continuously, the Party affected by the force
majeure shall have the right to terminate this Agreement upon giving a
prior written notice of at least ninety days to the other Party.
6. PLANNED OUTAGES BY PTCL
6.1. PTCL shall give prior written notice of at least fifteen days to PMCL
of any planned outages and shall provide possible alternatives to
PMCL. PTCL shall provide alternative streams in case of outages, for
any reason, of more than thirty minutes.
6.2. In case of outages which do not occur due to a force majeure or any
outages stated in Clause 6.1 above, PTCL shall compensate PMCL the
cost of any circuits leased by PMCL which are affected by such outage.
The cost of all outages will be refunded at the prevailent rates for
the leased stream. To re-establish any interruption of service for a
leased circuit, reasonable documentary evidence shall be provided by
PMCL to PTC. The refund/extention will be authorized by CE(PSP), PTCL
HQ's, Islamabad.
7. CONFIDENTIALITY
7.1. Unless otherwise agreed, the Parties shall ensure that they, their
respective associated or affiliated companies, officers, employees,
servants, agents and/or consultants keep confidential all terms and
conditions hereof and all actions taken pursuant to this Agreement.
8. APPROVAL BY PTA
8.1. The provisions of this Agreement shall be subject to the approval of
the PTA.
9. EFFECTIVE DATE, TERM OF THE AGREEMENT AND EXTENSION
9.1. The provisions of this Agreement, subject to Clause 9.1, shall come
into effect on [1 October 1997] and shall be valid for a period of [*]
until [*].
9.2. The Parties may by mutual consent extend the term of this Agreement
for a further period of [*].
10. GOVERNING LAW AND ARBITRATION
10.1. This agreement shall be governed by and constructed in accordance
with the laws of Pakistan.
10.2. All disputes arising between the Parties as to any matter or
thing arising from or in any matter connected with this Agreement
shall be referred to arbitration. The arbitration proceedings
shall be conducted in accordance with the Arbitration Act 1940 or
any amendment or re-enactment thereof and the rules made
thereunder by two arbitrators, one to be appointed by each of the
Parties and an umpire to be appointed by the two arbitrators so
appointed. The umpire shall be a retired judge of the
4
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Supreme Court, acting as the umpire. The decision of the umpire
shall be final and binding. The venue of arbitration shall be
Islamabad. Arbitration as aforesaid shall be a condition
precedent to any other action under law.
10.3. The provisions contained in this Article shall survive the
termination and/or expiration of this Agreement.
11. NOTICES
11.1. All notices under this Agreement or pursuant to any arbitration
or legal proceedings shall be given at the respective registered
offices of the Parties. All other communications required or
permitted by this Agreement shall be given in writing by
registered mail, acknowledgement due, or by fax or telex or
telegram confirmed simultaneously with registered mail,
acknowledgement due, or by fax or telex or telegram, and shall be
addressed:
If to PTCL:
Attention: Noor ud Din Baqai
Address: Chief Engineer (PSP), PTCL H/Q's G-8/4, Islamabad
Tel. No: 92-51-282987
Fax No: 92-51-282936
If to PMCL:
Attention: Tariq Hanif Khan
Address: Executive Director (GR), PMCL Head office, 12th
Floor, UBL Building, Jinnah Avenue, Blue Area,
Islamabad.
Tel. No: 92-51-273984
Fax No: 92-51-273982
or to such other addresses and numbers as the Parties may, from
time to time, designate.
12. ENTIRE AGREEMENT
12.1. This Agreement constitutes the entire agreement with respect to
the subject matter hereof and hereby cancels and supersedes any
and all prior oral or written agreements, including the Interim
Agreement, or understandings between the Parties. This Agreement
may be varied or amended only by prior mutual consent of the
Parties in writing. However, in case any more favorable terms
are offered by PTCL to any other cellular mobile operator in
Pakistan, the same terms shall be extended to PMCL by PTCL and
this Agreement shall be amended accordingly.
12.2. The preamble, recitals, headings and the annexures of this
Agreement shall have the same force and effect as if expressly
set out in the body of this Agreement. In this Agreement where
the context so requires the singular shall include the plural and
vice versa.
13. ASSIGNMENT
13.1. This agreement shall not be assigned by either of the Parties to
any third party without the prior written consent of other Party.
5
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
14. SEVERABILITY
14.1. If for any reason any provision hereof become inoperative the
validity and effect of all other provisions of this Agreement
shall not be affected thereby. In case it is not possible under
law to implement any of the provisions of this Agreement, the
Parties undertake to abide by the spirit of this Agreement and to
endeavor to agree to perform obligations as closely resembling
those created by this Agreement as shall be permissible by law.
15. COUNTERPARTS
15.1. This Agreement shall be executed in three counterparts. One copy
shall be kept with the PTA and one copy shall be kept by each of
the Parties.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement on the day,
month and year first mentioned above.
/s/ Nasim S. Mirza /s/ Javed Saifullah Khan
- ------------------------------ ----------------------------------------
Nasim S. Mirza Javed Saifullah Khan
Chairman, PTCL Chairman, PMCL
Witnesses:
Name: Name:
------------------------- -----------------------------------
Address: Address:
---------------------- --------------------------------
- ------------------------------ ----------------------------------------
- ------------------------------ ----------------------------------------
/s/ /s/
/s/ /s/
6
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ANNEX-1
LOCAL CALL HANDOVER
< Full-page diagram illustrating routing of call originating on Mobile Network
in City A and terminating on PTCL network in City A >
7
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ANNEX-2
FAR END CALL HANDOVER - LOCAL TERMINATION
< Full page diagram illustrating routing of call originating on Mobile network
in City A and carried through Mobile network in City D terminating on PTCL
network in City D >
INTERCONNECT AGREEMENT ITEM 1.1 & 1.2
[*]
8
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ANNEX-2
FAR END CALL HANDOVER - NWD TERMINATION
< Full page diagram illustrating routing of call originating on Mobile network
in City A and terminating on PTC Network in City E >
INTERCONNECT AGREEMENT ITEM 1.1 & 1.2
[*]
9
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ANNEX-3
INTERNATIONAL CALLS
< Full page diagram illustrating routing of international call originating on
Mobile network in City A >
10
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
ANNEX-4
FAR END CALL HANDOVER
< Full page diagram illustrating routing of call originating on PTC network in
City D and terminating on Mobile Network in City A >
11
<PAGE>
Exhibit 10.105R
February 12, 1998
Vanguard Pakistan, Inc.
c/o Vanguard Cellular Operating Corp.
2002 Pisgah Church Road, Suite 300
Greensboro, North Carolina 27455
Re: Purchase of Shares in International Wireless Communications Pakistan
Limited ("IWCPL")
The purpose of this letter is to confirm our agreement as follows:
1. Pursuant to Section 8.1 of the Amended and Restated Shareholders'
Agreement dated as of August 13, 1997 (the "Shareholders' Agreement") among
IWCPL, Pakistan Wireless Holdings Limited ("PWH"), South Asia Wireless
Communications (Mauritius) Limited and Vanguard Pakistan, Inc. ("Vanguard"), as
amended by the Deed of Adherence dated August 29, 1997 among the parties
signatory thereto, PWH is required to make a cash capital contribution to IWCPL
by purchasing 1,240,275 Redeemable Preference Shares (as defined in the
Shareholders' Agreement) (the "Shares") for U.S. $1,240,275 on February 12,
1998.
2. Pursuant to Section 2.5 of the IWC Group Agreement dated August
18, 1997 between PWH and Vanguard (the "IWC Group Agreement"), Vanguard agrees
to purchase the Shares from IWCPL on February 13, 1998 for U.S. $1,240,275 in
cash.
3. PWH will have the option to purchase all or a portion of the
Shares from Vanguard at any time on or before the close of business on March 16,
1998 (the "Option Expiration Date"). The purchase price shall be $1.00 per
Share, payable in cash. PWH may exercise the foregoing purchase option by
notifying Vanguard in writing at least two business days before it exercises the
option. The notice shall state the number of Shares with respect to which the
option is being exercised, the date on which such Shares shall be purchased and
the aggregate purchase price for such Shares.
4. At any time after the Option Expiration Date but before the close
of business on the 30th day after the Option Expiration Date, Vanguard will have
the option to sell, and upon Vanguard's exercise of such option to sell, PWH
irrevocably agrees to
<PAGE>
Vanguard Pakistan, Inc.
February 12, 1998
Page 2
purchase, all or a portion of the Shares. The sale price shall be $1.00 per
Share, payable in cash. Vanguard may exercise the foregoing option to sell
by notifying PWH in writing at least two business days before it exercises
the option. The notice shall state the number of Shares with respect to
which the option is being exercised, the date on which such Shares shall be
purchased by PWH and the aggregate purchase price for such Shares.
5. The closing of the sale and purchase of any Shares pursuant to
paragraph 3 or 4 above shall take place at the offices of Vanguard or such other
place designated by Vanguard. All payments by PWH hereunder to Vanguard shall
be made in lawful money of the United States of America, by wire transfer of
immediately available funds for the account of Vanguard specified in Schedule A
attached hereto, net of all bank charges and without any deduction or
withholding whatsoever.
6. PWH unconditionally and irrevocably agrees to indemnify and hold
harmless Vanguard, its parent companies and each of their respective officers,
directors, employees, agents, attorneys and consultants (collectively, the
"Indemnitees") against, and to pay such Indemnitees immediately upon demand for,
all actions, proceedings, claims, demands, costs, damages, losses and expenses
(collectively, the "Losses") of any description whatsoever in connection with,
arising out of or relating to any of the transactions contemplated hereby (but
not any depreciation or economic decline in the value of the Shares), other than
for Losses directly resulting from Vanguard's material breach of this letter
agreement.
7. In the event neither PWH nor Vanguard exercise its rights under
paragraph 3 or 4, respectively, then in consideration for the transactions
contemplated hereby, PWH agrees to pay Vanguard $9,302 in cash immediately
following the Option Expiration Date, by wire transfer of immediately available
funds for the account of Vanguard specified in Schedule A attached hereto, net
of all bank charges and without any deduction or withholding whatsoever.
8. This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
<PAGE>
Vanguard Pakistan, Inc.
February 12, 1998
Page 3
Kindly acknowledge your agreement to the foregoing by executing this
letter in the space provided below.
PAKISTAN WIRELESS HOLDINGS LIMITED
By:
--------------------------------
Name:
------------------------------
Title
------------------------------
ACKNOWLEDGED AND AGREED TO:
VANGUARD PAKISTAN, INC.
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
Vanguard Pakistan, Inc.
February 12, 1998
Page 4
See wire instructions attached as Schedule A.
<PAGE>
March 12, 1998
Vanguard Pakistan, Inc.
c/o Vanguard Cellular Operating Corp.
2002 Pisgah Church Road, Suite 300
Greensboro, North Carolina 27455
Re: Amendment of Letter Agreement re Purchase of Shares in International
Wireless Communications Pakistan Limited ("IWCPL")
---------------------------------------------------------------------
The purpose of this letter is to amend our February 12, 1998 letter
agreement (the "Agreement"), a copy of which is attached hereto as Attachment
1. In order to extend the period during which the options described in
paragraphs 3 and 4 of the Agreement may be exercised, we hereby agree to
amend the Agreement as follows:
1. Paragraph 3 of the Agreement is hereby amended by deleting the words
"March 16, 1998" in the first sentence thereof and replacing them with the words
"May 16, 1998."
2. Paragraph 7 of the Agreement is hereby amended by deleting it in its
entirety and replacing it with the following:
"In consideration for the transactions contemplated hereby, in the event
that either PWH or Vanguard exercises its right under paragraph 3 or 4,
respectively, PWH agrees to pay Vanguard U.S. $18,604 in cash at the
closing described in, and in the manner set forth in, paragraph 5 above."
This amendment shall be governed by, and construed in accordance with, the
laws of the State of New York. The parties hereby covenant and agree that
except as hereby amended by this amendment, all terms and provisions of the
Agreement are and shall continue to be in full force and effect and are hereby
ratified and confirmed in all respects. Kindly acknowledge your agreement to
the foregoing by executing this letter in the space provided below.
PAKISTAN WIRELESS HOLDINGS LIMITED
By:
--------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED TO:
VANGUARD PAKISTAN, INC.
By:
----------------------------
Name:
Title:
<PAGE>
Exhibit 10.105S
[GRAPHIC]
US$32,000,000
FINANCING AND SECURITY AGREEMENT
BETWEEN
PAKISTAN MOBILE COMMUNICATIONS (PRIVATE) LIMITED
AND
MOTOROLA CREDIT CORPORATION
DATED MARCH 5, 1998
<PAGE>
FINANCING AND SECURITY AGREEMENT
This Financing and Security Agreement is dated as of 5 March, 1998 (the
"Financing Agreement"), and is entered into by and between PAKISTAN MOBILE
COMMUNICATIONS (PVT.) LTD., a company organized under the laws of Pakistan,
whose principal offices are located at 12th Floor, UBL Binding, Jinnah
Avenue, Blue Area, Islamabad, Pakistan (the "Company"), and MOTOROLA CREDIT
CORPORATION, a Delaware corporation, whose principal offices are located at
One Continental Tower, 1701 Golf Road, Rolling Meadows, Illinois, United
States ("MCC").
PRELIMINARY STATEMENT
WHEREAS, the Company has obtained a license (the "License," as hereinafter
defined) to operate a cellular mobile telephone system in Pakistan;
WHEREAS, Company desires to build and operate the cellular mobile telephone
system equipment necessary to provide the service contemplated by the License;
WHEREAS, MCC's affiliate, Motorola, Inc., a Delaware corporation
("Manufacturer"), has designed hardware and software products for use in
cellular mobile telephone systems;
WHEREAS, pursuant to the GSM Cellular System Equipment Purchase Agreement
dated August 17, 1993, as amended from time to time by amendment or by
purchase order issued pursuant thereto (the "Purchase Agreement"), between
Manufacturer and Company, Company has agreed to purchase certain cellular
infrastructure equipment from Manufacturer;
WHEREAS, in order to enable Company to make such purchases, MCC has agreed to
provide financing to Company, in accordance with the terms and conditions of
this Financing Agreement;
WHEREAS, as a condition precedent to MCC providing such financing, the
Company must enter into this Financing Agreement to set forth certain
representations, warranties and covenants of the Company to MCC;
NOW, THEREFORE, in order to induce MCC to provide the financing described
above and in consideration thereof, the Company hereby agrees and covenants
as follows:
1. DEFINITIONS AND ACCOUNTING TERMS.
(a) Defined Terms.
For the purposes of this Financing Agreement, the following terms shall
have the following meanings:
"$" means United States Dollars or such other lawful currency of the
United States of America as may be substituted as the legal tender of the
United States of America.
2
<PAGE>
"ADDITIONAL PRINCIPAL PAYMENT" has the meaning set forth in Section
2.4.3 hereof.
"AFFILIATE" of the Company means any Person controlling, controlled by,
or under common control with the Company or any subsidiary (including any
cooperation of which more than 50% of the outstanding capital stock is
directly or indirectly owned or controlled by the Company), any Person
related by Affinity, and/or any Person related by Consanguinity. For
purposes of this definition, a Person shall be deemed to control another
Person if such first Person possesses, directly or indirectly, the power to
direct, or to cause the direction of, the management and policies of such
other Person, whether through ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, under no circumstances shall MCC
be deemed an Affiliate of the Company or any subsidiary of the Company for
purposes of this Financing Agreement.
"AFFINITY" means any relationship by marriage or adoption.
"ANNUAL AUDITED FINANCIAL STATEMENT" means, for each fiscal year, an
audited financial statement prepared in accordance with International
Accounting Standards, as applied in Pakistan in accordance with the Companies
Ordinance 1984 ("IAS").
"APPROVED LOANS" means interest-bearing loans and/or mark-up loans made
in favor of the Company, including Bank Debt, but not loans by stockholders
in favor of the Company.
"BANK DEBT" means the Company's present and future indebtedness to
Citibank International PLC, Citibank N.A. and Saudi Pak Industrial and
Agricultural Investment Company (Pvt.) Limited, or any other debt, each of
which has been or will be guaranteed by Manufacturer.
"BUSINESS DAY" means a day when the Federal Reserve Bank is open for
business in New York, New York, for payments in $__________, and/or when the
SBP and banks are generally open for business in Pakistan, as the locus of
the initiation of the relevant transaction requires.
"BUSINESS PLAN" means the authorized business plan of the Company,
approved by the Board of Directors of PMCL and prepared by the Company in
accordance with Section 4(d) hereof, dated 23 October 1997 and previously
delivered to MCC.
"CELLULAR SERVICE" means mobile telephone services utilizing the
Equipment and/or Services.
"CONSANGUINITY" means any relationship by blood.
"CONTRACT AMOUNT" means the price of the Equipment and the price of
Services purchased or engaged by the Company under the Purchase Agreement as
determined in accordance therewith, plus the costs of shipping the Equipment
to the Company, which includes the costs of design and installation of the
Equipment.
3
<PAGE>
"DEBT" means Company's indebtedness requiring repayment, other than
loans by stockholders in favor of Company and accounts payable incurred in
the ordinary course of business.
"DEBT SERVICE" means when determined at the end of the preceding twelve
(12) calendar months, the sum of (i) all accrued interest expense incurred by
the Company in such twelve (12) calendar months, plus (ii) all payments of
principal that were scheduled to become due from the Company for the
preceding (12) calendar months, plus (iii) any other financial charges of
whatever nomenclature.
"DEBT SERVICE COVERAGE RATIO" means when determined at the end of any
fiscal quarter, the result of (i)(a) the Company's Free Cash Flow plus (i)(b)
the Debt Service, divided by (ii) the Debt Service.
"DEVELOPMENTS LETTER" means the letter dated 3 March 1998 delivered by
Company to MCC.
"EQUIPMENT" refers to the equipment provided as set forth in the
Purchase Agreement.
"EQUITY" means paid-in capital plus stockholder loans.
"ESCROW ACCOUNT" means the account established and designated to receive
Gross Receipts, denominated in Pakistani Rupees, maintained at ABN AMRO Bank
in Pakistan and administered pursuant to the Escrow Agreement.
"ESCROW AGENT" means ABN AMRO Bank in Islamabad, Pakistan, or such other
agent as may be appointed pursuant to the terms of the Escrow Agreement, from
time to time.
"ESCROW AGREEMENT" means the escrow agreement entered into among MCC,
Company, and ABN AMRO, as escrow agent, as amended from time to time in
accordance with its terms, for the administration of the Escrow Account, the
terms and conditions of which are hereby incorporated by reference, and in
the event applicable law requires a modified format for the Escrow Agreement
to be legally enforceable and effective, the term "Escrow Agreement" shall
refer herein to such modified agreements collectively.
"EVENT OF DEFAULT" has the meaning set forth in Section 8 hereof.
"FREE CASH FLOW" means, when determined at the end of any fiscal
quarter, the amount obtained by adding (i) the Company's net income for such
preceding 12 calendar month period, plus (ii) the Company's depreciation and
amortization expense for such preceding 12 calendar month period, less (iii)
capital expenditures of the Company for such preceding 12 calendar month
period, not financed either by or through MCC or another lending institution,
less (iv) the Debt Service.
"GROSS RECEIPTS" means all moneys earned and collected by Company or its
assignees or designees in connection with the Cellular Service, excluding
central excise duties and payments to PTCL and withholding / advance taxes
with respect to subscribers to the Cellular Service.
4
<PAGE>
"INITIAL DRAWDOWN DATE" means thirty (30) days following the date of the
invoice raised following the initial shipment under the Purchase Agreement
after execution of this Financing Agreement.
"INTEREST PERIOD" means, for any calendar year, a period equal to six
(6) calendar months commencing on any Payment Date and ending on the next
succeeding Payment Date, throughout which period a particular LIBOR Rate
shall be applicable, as more fully set forth below in the definition of
"LIBOR Rate," except with respect to the initial Interest Period commencing
on the Initial Drawdown Date, with respect to which the applicable Interest
Period shall commence on such Initial Drawdown Date and conclude on the next
succeeding Payment Date that is at least sixty (60) calendar days following
such Initial Drawdown Date.
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any
capital contribution by such Person to any other Person, other than
investments made in the ordinary course of business which shall not exceed
thirty (30) days in duration and shall be in either government or bank issued
first class securities.
"IWCPL" means International Wireless Communications Pakistan Limited.
"LIBOR RATE" means the London Inter-Bank Offering Rate reported by
Telerate, page 3750, or, if such report is unavailable on the day upon which
such reference is required, by Reuters page "LIBO," at approximately 11:00
a.m., London time, two Business Days prior to the Initial Drawdown Date
(defined above), and thereafter, two Business Days prior to the first
Business Day of each successive Interest Period, which LIBOR Rate shall be
applicable until the day prior to the commencement of the next succeeding
Interest Period.
"LICENSE" means the license granted to the Company to construct and
operate a cellular telephone system in Pakistan, number 7(30)/89-PTC, issued
on 6 July 1992 by the government of Pakistan Ministry of Communications (and
revalidated by Pakistan Telecommunications Authority under a letter dated 9
August 1997).
"LIEN" means any lien, pledge, mortgage, security interest, deed of
trust, charge or other encumbrance on or with respect to, or any arrangement
which has the practical effect of constituting a preferential right of a
creditor to receive payment of any obligation with or from the proceeds of
any asset or revenues of any kind.
"MARKET VALUE" has the meaning set forth in Section 6(b) hereof.
"MATERIAL ASSETS" shall include, without limitation, all assets that are
used, directly or indirectly, to materially impact the provision of Cellular
Service.
"MATERIAL CONTRACTS" means contracts for which the amount in the
aggregate per annum per contract exceeds $100,000.00.
5
<PAGE>
"MAXIMUM ALLOWABLE DOWN PAYMENT" means, with respect to each purchase
order issued by the Company to Manufacture after execution of this Financing
Agreement, ten percent (10%) of the amount shown on each purchase order.
"MEMORANDUM AND ARTICLES OF ASSOCIATION" means an entity's corporate
charter and by-laws, as amended as of the date hereof, as certified and
registered and attached hereto as Exhibit A, as amended from time to time
with MCC's consent.
"OFFICER'S CERTIFICATE" means a certificate executed by Chief Executive
or other authorized officer of the Person by which such certificate is
required to be provided hereunder.
"OPERATING INCOME" for any period, means income before interest, other
financial charges, depreciation, amortization, taxes or extraordinary items
for such period.
"PAID SUBSCRIBER" means a customer on the Cellular Service which is
current in its payments to the Company and which is charged at current market
rates and terms for such service.
"PAYMENT DATE" means each May 15 and November 15 of each calendar year,
upon which date a payment of interest and/or principal under the Promissory
Note is due.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"PRINCIPAL GRACE PERIOD" means twelve (12) months following the Initial
Drawdown Date.
"PRINCIPAL REPAYMENT DATE" means the first Payment Date that occurs at
least 120 days following the conclusion of the Principal Grace Period.
"PROMISSORY NOTE" has the meaning set forth in Paragraph 2.1.2 within.
"PTCL" means Pakistan Telecommunications Company Limited.
"PURCHASE AGREEMENT" has the meaning as set forth in the Preliminary
Statement hereto.
"SAIF" means Saif Telecom (Pvt.) Limited.
"SBP" means the State Bank of Pakistan.
"SEMI-ANNUAL REVIEW" means, on June 1 and December 1 of each calendar
year, the joint review and concurrence of the Company's operating expense
budget by MCC and Company with respect to the allocation of funds to the
Escrow Account for the subsequent semi-annual period.
"SERVICES" refers to the services provided as set forth in the Purchase
Agreement.
6
<PAGE>
"TARGET FIGURES" has the meaning set forth in Section 4(d) hereof.
"UNMATURED EVENT OF DEFAULT" shall mean any event which with the giving
of notice, passage of time or both would constitute an Event of Default
hereunder.
2. THE CREDIT FACILITY.
2.1 Facility; Promissory Note.
2.1.1 MCC agrees, subject to the conditions set forth herein, to make
available for lending to Company from time to time, on a non-revolving basis
(the "Line of Credit"), up to a maximum aggregate of $32,000,000.00, which
sum shall be available for financing of (i) new purchases of Equipment and
Services, less required down payments, and (ii) up to $7,500,000.00 of
purchases of Equipment and Services made prior to the date of this Financing
Agreement. Funds shall remain available for drawdowns under the Line of
Credit until the last Business Day of the 18th month following the date of
this Financing Agreement, unless earlier terminated pursuant to Section 8.
MCC reserves the right to terminate this Line of Credit in the event the
Purchase Agreement is terminated for any reason. In addition, if at any time
the making or continuance of financing hereunder has been made unlawful under
applicable law, MCC shall have the option to accelerate the loan, demand any
payment or convert such financing into an alternative loan, at MCC's
discretion reasonably exercised, and subject to government approvals, if
required.
2.1.2 Drawdowns under the Line of Credit will be evidenced by a
promissory note (the "Promissory Note"), and other documents as may be
reasonably requested by MCC. The Company hereby irrevocably authorizes MCC
at any time to endorse on a grid appended to the Promissory Note or record on
MCC's books and records the amount of any drawdowns disbursed by MCC to or on
behalf of the Company, the outstanding balance of all advances at any time,
the calculation of any interest amount thereon, and the repayment of any
principal or interest amount thereof, in accordance with the terms hereof.
Absent manifest error, such endorsement or record shall be prima facie
evidence of the principal and interest amount owing on the Promissory Note in
any proceeding to enforce the payment thereof. Immediately upon any entry or
amendment to the Promissory Note, a facsimile of such grid will be forwarded
to Company for its records, as certified true and correct.
2.2 Payment Terms. For any purchases of Equipment or Services under
the Purchase Agreement, Company may finance with proceeds of the Line of
Credit up to 90% of the Contract Amount, provided that Company has made the
Maximum Allowable Downpayment. To the extent the Company has not paid any
amounts to Manufacturer when due pursuant to the terms of the Purchase
Agreement, MCC may make a disbursement hereunder, evidenced by the Promissory
Note, and shall notify the Company thereof. Any such disbursement will be
treated in all respects as a drawdown of such amount on the date of such
disbursement.
2.3 Drawdowns. Company may request a drawdown under the Line of Credit
by giving MCC a draw down request certification substantially in the form of
Exhibit B attached hereto, referencing the Equipment or Services purchase
order for which funds are being requested. The drawdown must be in
accordance with the Business Plan and is subject to all other conditions set
7
<PAGE>
forth under this Financing Agreement, including without limitation the
conditions precedent set forth in Section 7.
2.4 Interest and Repayment of Principal. Company shall pay interest and
repay principal on the Promissory Note, as follows:
2.4.1 Interest on the amounts outstanding from time to time under the
Promissory Note shall accrue commencing on the Initial Drawdown Date, until
all amounts outstanding under the Promissory Note have been repaid in full.
2.4.2 Interest shall be calculated on the outstanding principal balance
of the Promissory Note at a floating rate equal to the six-month LIBOR Rate
in effect from time to time plus one and one-half percent (1.5%) per annum.
Interest shall be calculated on a 360-day year basis for actual days elapsed
and shall be payable in arrears on each succeeding Payment Date. The
interest rate shall be determined two (2) Business Days prior to the Initial
Drawdown Date and two (2) Business Days prior to the first Business Day of
each successive Interest Period thereafter.
2.4.3 Subject to the provisions of Section 2.6.2, and unless and until an
Event of Default has occurred causing acceleration of payment, the principal
balance of the Promissory Note outstanding from time to time shall be due and
payable in eight (8) consecutive and substantially equal semi-annual
installments, each installment being due and payable on successive Payment
Dates with the first such installment being due and payable on the Principal
Repayment Date. The initial principal repayment shall, when paid, reduce the
outstanding principal amount under the Promissory Note by an equivalent
amount, and be made together with (i) a cash payment equal to the greater of
one-half (1/2) of the Maximum Allowable Down Payment and five percent (5%) of
the amount shown on each purchase order issued by the Company to Manufacturer
after execution of this Financing Agreement (the "Additional Principal
Payment"), which when paid shall reduce the outstanding principal under this
Promissory Note by an equivalent amount, plus (ii) accrued and unpaid
interest, and thereafter, accrued and unpaid interest shall be payable
together with each repayment of principal hereunder. If not paid earlier,
all principal and interest shall be due and payable on the first Business Day
following the conclusion of the 48th month after the Principal Grace Period.
Thirty (30) days prior to any Payment Date, MCC shall give notice in writing
to Company, with a copy to Escrow Agent, of such amounts due and payable on
such Payment Date.
2.4.4 If any payment on the Promissory Note is not received by MCC on or
before the due date thereof, the Company shall pay a delinquency charge
calculated on such unpaid amount at the lesser of one percent (1%) per
calendar month, or partial calendar month, or the maximum rate permitted by
applicable law, for the term of the delinquency from the date on which such
amount was due until paid in full.
2.4.5 Each payment of principal, interest and/or delinquency charges
required or permitted to be made hereunder or under the Promissory Note shall
be free from and net of all taxes, charges, fees, costs, expenses or duties
imposed by any governmental authority in Pakistan, and if any such
governmental authority requires the withholding of any of the foregoing by
Payor, Payor shall pay to Payee an additional amount with respect to each
payment hereunder such that the
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amount actually received by Payee shall be the amount which Payee would have
received in the absence of such withholding obligation.
2.5 Escrow Agreement. All Gross Receipts shall be paid into the Escrow
Account in accordance with the Escrow Agreement.
2.5.1 INTENTIONALLY DELETED
2.5.2 INTENTIONALLY DELETED
2.5.3 INTENTIONALLY DELETED
2.5.4 INTENTIONALLY DELETED
2.5.5 INTENTIONALLY DELETED
2.6 Prepayments.
2.6.1 Optional Prepayment. Company may, at its option, on any Business
Day, prepay any amount under the Promissory Note, in whole or in part, upon
at least five (5) Business Days' written notice to MCC specifying the amount
of prepayment. Such notice shall be irrevocable and the payment amount
specified in such notice shall be due and payable together with accrued
interest to such date on the amount prepaid. The principal amount prepaid
shall be a minimum of $1,000,000 or an integral multiple thereof.
2.6.2 Mandatory Prepayments. The Company shall make mandatory
prepayments to MCC upon the following occurrences and in amounts and upon
terms as set forth below. All prepayments of principal shall be accompanied
by payment of interest accrued thereon.
2.6.2.1 Provided that Company has received approval from SBP, which Company
shall seek in good faith, on or before the fifth (5th) Business Day following
the date Annual Audited Financial Statements are required to be delivered for
each fiscal year pursuant to this Financing Agreement, Company shall make
mandatory annual prepayments to MCC of amounts financed hereunder in an
amount equal to fifty percent (50%) of Company's Free Cash Flow for such
immediately preceding fiscal year, as set forth in the Annual Audited
Financial Statements.
[2.6.2.2 THROUGH 2.6.2.4 - INTENTIONALLY OMITTED.]
2.6.3 Effect of Prepayment. Any prepayment shall be applied (i) if such
prepayment is made pursuant to Section 2.6.2.1, to the next payments due
hereunder, or (ii) for any other prepayments, to the installments of
principal in inverse order of maturity thereof. Any prepayments described
under cause (ii) of the preceding sentence shall not relieve Company from the
obligation of paying the current or any succeeding installment or
installments of principal under the Promissory Note until the total
obligation under such Promissory Note is paid.
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
3.1 As a material inducement to MCC to enter into this Financing
Agreement and to fund the drawdowns referred to in Section 2.3, the Company
represents and warrants to MCC as follows as of the date hereof:
(a) Organization and Corporate Power. The Company is duly organized
and validly existing under the laws of the government of Pakistan and is duly
licensed to render Cellular Service. The Company has all requisite power and
authority and all material licenses, permits and authorizations necessary to
own and operate its properties, to carry on its businesses as now conducted
and presently proposed to be conducted and to carry out the transactions
contemplated by this Financing Agreement. The copies of the Memorandum and
Articles of Association of the Company delivered by the Company to MCC
reflect all amendments made thereto at any time prior to the date of this
Financing Agreement and are correct and complete.
(b) Authorization. The execution, delivery and performance by the
Company of this Financing Agreement are within its powers, have been duly
authorized by all necessary action, and do not contravene (i) the Memorandum
and Articles of Association, (ii) any contractual restriction binding on or
affecting the Company, including without limitation, any restriction under
the terms of any indenture, agreement or other instrument to which the
Company is a party or by which it is bound, or (iii) any regulation, law
(including, but not limited to, securities, banking, lending and other
commercial laws and regulations), order or similar item biding on or
affecting the Company or an order of any court or other agency of government.
(c) Governmental Approvals. Other than the registration of this
Financing Agreement with SBP, and exemption from taxes to be obtained from
the Ministry of Finance, Government of Pakistan, no authorization or approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance by the Company of this Financing Agreement.
(d) Legal, Valid and Binding Obligation. This Financing Agreement
constitutes the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency or other
law affecting creditors' rights generally and by general equitable principles.
(e) Litigation. Other than as set forth in the Developments Letter,
there is no pending or, to the best knowledge of the Company, threatened
action or proceeding or arbitration, which could materially adversely affect
the financial condition or operations of the Company or that could materially
affect the License.
(f) Ethics. To the best knowledge of the Company, neither the Company
nor any of the current or previous stockholders of the Company has engaged in
any improper, illegal or unethical act, practice or omission in connection
with the formation, capitalization or operation of the Company, the obtaining
of the License, or in connection with any other activities of the Company,
including, without limitation, the making of any payments, loans or gifts or
promises or offers of payments, loans or gifts of any money or anything of
value, directly or indirectly,
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(i) to or for the use or benefit of any official employee of any government,
(ii) to any political party or official or candidate thereof, (iii) to any
other person if any part of such payment, loan or gift has been or will be
directly or indirectly given or paid to any such governmental official or
political party or a candidate or official thereof, or (iv) to any other
Person, which action would result in any rescission, revocation, or
non-renewal of the License or has violated or would violate the laws or
policies of Pakistan.
(g) Defaults. The Company is not in default with regard to any
material indebtedness or agreement to which it is a party or by which it or
its properties may be bound.
(h) Subsidiaries. The Company has no Subsidiaries, and does not own or
hold any rights to acquire any shares of stock or other security or interest
in any other Person.
(i) Financial Statements. All financial statements or related
financial information previously delivered to MCC by the Company in
connection with this Financing Agreement are accurate in all material
respects, and are consistent with the books and records of the Company.
(j) Absence of Undisclosed Liabilities. The Company has no material
obligation or liability (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company, whether due or to become
due and regardless of when asserted) arising out of transactions entered into
on or prior to the date hereof, or any action or inaction on or prior to the
date hereof, or any state of facts existing on or prior to the date hereof
other than: (i) any liabilities shown in the Developments Letter, and (ii)
liabilities and obligations which have arisen in the ordinary course of
business (none of which is a liability resulting from breach of contract,
breach of warranty, tort, infringement, claim or lawsuit).
(k) Absence of Certain Developments. Except as expressly contemplated
by this Financing Agreement, the Purchase Agreement, or as set forth in the
Developments Letter, since its organization, the Company has not:
(i) Issued any notes, bonds or other debt securities or (b) any
equity securities, or any securities convertible, exchangeable or exercisable
into any equity securities, out of the ordinary course of business;
(ii) Borrowed any amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(iii) Discharged or satisfied any material Lien or encumbrance or
paid any material obligation or liability, other than current liabilities
paid in the ordinary course of business;
(iv) Declared or made any payment or distribution of cash or other
property to its stockholders with respect to its stock or purchased or
redeemed any shares of its stock or any warrants, options or other rights to
acquire its stock;
(v) Mortgaged or pledged any of its properties or assets or
subjected them to any material Lien, except Liens for current property taxes
not yet due and payable;
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<PAGE>
(vi) Sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any material debts or
claims;
(vii) Sold, assigned or transferred, any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets, or disclosed any material proprietary confidential information to any
Person;
(viii) INTENTIONALLY OMITTED.
(ix) Entered into any other transaction not otherwise listed on the
schedules hereto or in the Developments Letter other than in the ordinary
course of business or entered into any other material transaction not
otherwise listed on the schedules hereto or in the Developments Letter,
whether or not in the ordinary course of business;
(x) Made any loans or advances to, guarantees for the benefit of,
or any Investments in, any Persons, other than advances to employees for
business expenses, housing, automobiles, and emergency expenses in the
aggregate of $750,000.00 per calendar year, and no more than $75,000.00 per
employee per calendar year made in the ordinary course of business;
(xi) Made any charitable contributions or pledges exceeding in the
aggregate the sum of $30,000.00 per calendar year; or
(xii) Suffered any damage, destruction or casualty loss exceeding in
the aggregate $100,000, whether or not covered by insurance.
(l) Assets. The Company has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, located on its
premises or shown on its most current balance sheet or acquired thereafter,
free and clear of all Liens, security interests, charges and encumbrances,
except for properties and assets disposed of in the ordinary course of
business and except for liens for current property taxes not yet due and
payable. The Company's buildings, equipment and other Tangible Assets are in
good operating condition in all material respects, ordinary wear and tear
excepted, and are fit for use in the ordinary course of business. The
Company owns, or has a valid leasehold interest in, all assets necessary for
the conduct of its business as conducted and as proposed to be conducted.
(m) Tax Matters. Other than with respect to validly and diligently
disputed matters, the Company has filed all tax returns which it is required
to file; all such returns are true and correct in all material respects; the
Company has in all material respects paid all taxes owed by it and withheld
and paid over all taxes which it is obligated to withhold from amounts owing
to any employee, creditor or third party; the Company has not waived any
statute of limitations with respect to taxes or agreed to any extension of
time with respect to a tax assessment or deficiency; and, the assessment of
any additional taxes for periods for which returns have been filed is not
expected to exceed the recorded liability therefor on its most current
balance sheet.
(n) Contracts and Commitments.
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<PAGE>
(i) Except as expressly contemplated by this Financing Agreement or the
Purchase Agreement, or as shown in the Development Letter, as of the date
hereof the Company is not a party to any written or oral;
(A) Pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan or arrangement or any severance
agreements;
(B) Contract for the employment of any officer, individual employee or
other Person on a full-time, part-time, consulting or other basis, other than
in the ordinary course of business, or contract relating to loans to
officers, directors, employees or Affiliates;
(C) Contract under which the Company has advanced or loaned funds to
any Person, other than as provided under Paragraph 3.1(1)(x);
(D) Agreement or indenture relating to the borrowing of money or the
mortgaging, pledging or otherwise placing a Lien on any asset of the Company,
other than in the ordinary course of business and not exceeding in the
aggregate the sum of $250,000.00;
(E) Guarantee of any obligation;
(F) Lease or agreement under which the Company is lessee of or holds or
operates any property, real or personal, owned by any other party, except for
any lease of real or personal property under which the aggregate annual
rental payments do not exceed $1,000,000;
(G) Lease or agreement under which the Company is lessor of or permits
any third party to hold or operate any property, real or personal, owned or
controlled by the Company;
(H) Without the prior written approval of MCC, and except for equipment
purchased or contracted to be purchased in connection with the provision of
Cellular Service, contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves a
consideration in excess of $100,000;
(I) Assignment, license, indemnification or agreement with respect to
any intangible property (including, without limitation, any license, patent,
trademark, trade name, copyright, know-how, trade secret or confidential
information);
(J) INTENTIONALLY DELETED.
(K) INTENTIONALLY DELETED.
(ii) The Company has no Material Contracts for which consideration
exceeds $100,000.00 per contract per annum, other than the Purchase Agreement
and the contracts set forth on the Developments Letter, and has performed all
material obligations required to be performed by it under all contracts,
agreements and instruments applicable to it and is not in default under or in
breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument to which the Company is subject; no event
has occurred which with the
13
<PAGE>
passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance under any contract, agreement or instrument
to which the Company is subject; the Company does not have any present
expectation or intention of not fully performing all such obligations; the
Company has no knowledge of any breach or anticipated breach by the other
parties to any material contract or commitment to which it is a party; and
the Company is not a party to any materially adverse contract or commitment.
(iii) MCC has been supplied with a true and correct copy of each of
the Material Contracts and an accurate description of the oral contracts that
are material contracts, together with all amendments, waivers or other
changes thereto.
(o) Compliance with Laws. The Company has not violated any law or any
governmental regulation or requirement which violation would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and the Company has not received notice of any such violation. The Company
is not subject to any clean up liability, and has no reason to believe it may
become subject to any clean up liability, under any federal, state or local
environmental law, rule or regulation.
(p) Affiliated Transactions. No Affiliate, officer, director or
stockholder of the Company or any individual related by blood, marriage,
adoption or otherwise to any such Affiliate, officer, director or stockholder
or any Person in which any such officer, director, stockholder or individual
related thereto owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company, or an agreement that
was entered into on an arm's length basis upon reasonable commercial terms,
nor does any such party have any material interest (other than on an arm's
length basis upon reasonable commercial terms) in any material property used
by the Company.
(q) No Material Adverse Change. Since January 1, 1997, there has been
no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations or customer or
supplier relations of the Company.
3.2 The representations and warranties of the Company referred to in
Section 3.1 are deemed to be replaced by the Company on the date of each
drawdown referred to in Section 2.3.
4. AFFIRMATIVE COVENANTS.
(a) Compliance with Laws and the License. The Company shall fully
comply in all respects (except where the noncompliance could not result in
the License being terminated or being in default) with the terms of the
License and comply in all material respects with all applicable laws, rules,
regulations and orders, with such compliance to include, without limitations,
compliance with the Foreign Corrupt Practices Act of the United States of
America and the laws of the United States and Pakistan regarding business
ethics; pay when due all taxes, assessments and governmental charges imposed
upon it or upon its property, except to the extent not yet due or diligently
being contested in good faith and by proper legal proceedings, and
14
<PAGE>
maintain in effect all authorizations and approvals necessary for the
performance of the Company's obligations hereunder.
(b) Corporate Existence. The Company shall maintain and preserve its
corporate existence, its rights to transact business and all other rights,
licenses, concessions and privileges necessary for the conduct of its
business and operations, including all permits, licenses, concessions and
authorizations, if any, required of Company under or in connection with the
License or otherwise to provide Cellular Service in Pakistan.
(c) Financial Statements and Other Information.
(I) The Company shall furnish to MCC:
(i) As soon as available, but in any event within 60 days after the
end of each quarterly accounting period in each fiscal year, un-audited
financial statements of the Company, including profit and loss statement,
balance sheet, and cash flow statement, for such quarterly period and for the
period from the beginning of the fiscal year to the end of such quarter
setting forth comparisons to the Business Plan and to the corresponding
period in the preceding fiscal year with specific reference to subscriber
data;
(ii) As soon as available, but in any event within 120 days after
the end of each fiscal year, the Company's Annual Audited Financial Statement;
(iii) Accompanying the financial statements referred to in
subparagraph (i) and (ii), an Officer's Certificate stating that no Event of
Default or Unmatured Event of Default exists and that, to the best of its
knowledge, the Company is not in default under any of its other Material
Contracts or, if any Event of Default or Unmatured Event of Default, or any
such default exists, specifying the nature and period of existence thereof
and what actions the Company has taken and proposes to take with respect
thereto;
(iv) Within twenty-one (21) days after the Company knows of the
occurrence of an Unmatured Event of Default, a statement from the Company
stating the nature of such event and the actions the Company proposes to take
with respect thereto;
(v) Within fourteen (14) days after any written notice is served
upon Company with respect to any action, legislation, occurrence, event or
proceeding which is likely (viewed from a reasonable person's view at the
time of receiving such notice) to have a material adverse effect on the
business, operations, or future prospects for the Company, the property
thereof, a certificate of an officer of the Company stating the nature of
such action, legislation, occurrence, event or proceeding and the actions
proposed to be taken by the Company with respect thereto; and
(vi) With reasonable promptness, such other information and
financial data concerning the Company as MCC may reasonably request.
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<PAGE>
Each of the financial statements or reports referred to above shall be
prepared substantially in accordance with IAS, consistently applied, and
shall be true and correct in all material respects as of the dates and for
the periods stated therein.
(II) The Company also covenants to engage in the Semi-Annual Review reasonably
and promptly.
(d) The Business Plan.
(i) The Initial Business Plan. The initial Business Plan, including
the operating expenditures, has been approved by MCC. Such Business Plan
sets forth annual projections and quarterly projections for calendar year
1998 for revenues, operating expenses, capital expenditures, subscriber
projections, and balance sheets.
(ii) Performance Review. The officers of the Company shall make
themselves reasonably available by telephone during each 15 day period
following MCC's receipt of the financial information required to be delivered
by the Company pursuant to Section 4(c)(i) or (ii) hereof, in order to
discuss and review the Company's results shown on such financial statements
with representatives of MCC.
(e) Insurance. The Company shall obtain and maintain adequate
insurance in connection with the Equipment, covering such risks and in such
amounts as are consistent with sound management practices considering the
nature of the business being conducted by the Company, naming MCC as an
additional named insured and loss payee thereunder, as well as an assignee.
The Company shall deliver proof of the foregoing within 15 days after the
date hereof and no less often than annually thereafter.
(f) Access. At the request of MCC, the Company shall permit any
representative designated in writing by MCC to inspect the properties and/or
accounting records of the Company during working days and hours, with
reasonable notice.
(g) Records. The Company shall maintain books of account and other
records adequate to accurately reflect the financial position and the results
of the Company.
(h) Discharge Obligations. The Company shall pay, discharge or
otherwise satisfy when due in the ordinary course of business all debts,
where the failure to so pay, discharge or otherwise satisfy such items could
have a material adverse effect on the Company.
(i) Maintenance of Properties. The Company shall maintain in good
order and appropriate working condition all the properties and assets of the
Company, except for normal wear and tear.
(j) Minutes and Agendas from Board Meetings. The Company shall provide
MCC with the agenda of each meeting of its board of directors at the same
time that it delivers such agendas to its directors. In addition, the
Company shall deliver to MCC, at the same time that they are delivered to the
directors, any of the following which relate to or affect the Business Plan,
the Financing Agreement or the Purchase Agreement: the draft minutes of any
such
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meeting together with any written materials and other information distributed
to the directors in connection with such meeting and within 30 days of the
availability thereof, a copy of such minutes as certified by the secretary of
the Company.
(k) The Company shall maintain a minimum debt to Equity ratio of 1:1 at
all times, where Equity is fully paid, and in accordance with the Business
Plan.
(l) IWCPL shall, by September 30, 1998, reduce Manufacturer's guaranty
of the Bank Debt in accordance with the Amended and Restated Shareholders
Agreement dates as of August 13, 1997 (the "Shareholders Agreement"),
provided, however, that there shall have occurred no breach of this covenant
if IWCPL fulfills all obligations, rights and remedies to MIDC under the
Shareholders Agreement.
(m) The stockholders of the Company (other than Manufacturer) shall
covenant not to divest themselves in any material respect of their present
stockholdings of the Company, except for the sale or transfer of shares
between current stockholders of the Company, without the prior written
consent of MCC, which shall not be unreasonably withheld.
(n) The Company shall ensure that the financing provided hereunder
ranks senior to all other debt at any time, other the Bank Debt.
5. NEGATIVE COVENANTS.
(i) Change of Status. Without the prior written consent of MCC,
which consent shall not be unreasonably withheld, the Company shall not enter
into any merger or consolidation or amalgamation, reorganization,
re-capitalization, liquidation, winding up or dissolution (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of any of its Material Assets valued in the aggregate
greater than $500,000.
(ii) Liens. Without the prior written approval of MCC, which
approval shall not be unreasonably withheld, the Company shall not create or
suffer or permit to exist any Lien on any of the properties, assets, income
or profits of the Company, whether now or hereafter acquired, other the those
expressly contemplated by this Financing Agreement, in excess of $100,000 in
the aggregate, except that the Company may, at the time of the purchase of
personal property, grant a purchase money security interest on such personal
property to the extent that all such purchase money security interests, in
the aggregate, secure debt of not more than $100,000.
(iii) INTENTIONALLY DELETED
(iv) Violation of Other Agreements. The Company shall not violate or
permit the violation of any Material Contract by the Company or the
stockholders with or involving MCC (except to the extent any offset is
appropriately done) or any other material agreement to which any of them is a
party, which violation is not cured within 30 days of its occurrence.
(v) Charter and License. The Company shall not amend or waive in
any respect any term in the Memorandum and Articles of Association, or fail
to comply in all material respects
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with all terms of such documents or attempt to modify or amend any provision
of the License, which materially adversely impacts the rights of Company
hereunder.
(vi) Contracts not Terminable within 90 Days. The Company shall not
enter into any management, employment or consulting contract or agreement
which cannot be canceled by the Company, without penalty, upon 90 days'
notice to the other party or parties thereto in the event MCC exercises its
rights to take over control of the Company following a default hereunder.
(vii) Dividends. The Company shall not incur, make, or permit any
action by any director or stockholder involving, any payment of any dividend
or distribution or the distribution of earnings or capital, either directly
or indirectly, whether in cash, property or obligations or the repurchase,
reduction or redemption of any capital stock, except that a declaration by
the bond of directors of the Company of payment of a dividend shall be
permissible if and only if (a) there has been no Event of Default hereunder,
(b) a Debt Service Coverage Ratio of 1.5:1 is achieved, based on the Annual
Audited Financing Statement, (c) thirty-six (36) months has transpired since
the date of this Financing Agreement, and (d) such declared dividend is not
in excess of fifty percent (50%) of the Free Cash Flow.
(viii) Loans. Without the prior written approval of MCC, which shall
not be unreasonably withheld, the Company shall not enter into any loan
transactions, except for loans that are subordinate in all respects to the
Company's obligations to MCC, including without limitation the Bank Debt.
6. COLLATERAL/SECURITY INTEREST
MCC shall receive the following (the "Collateral"), as security for the
repayment of any and all amounts from time to time outstanding hereunder and
under the Promissory Note:
(a) A valid first priority lien (including warranties and assurances)
and, to the extent possible, perfected security interest in all Equipment and
Services and proceeds of the sale or transfer thereof in the form of Exhibit
G hereto;
(b) A valid and perfected pledge of capital stock of the Company held
by all of its stockholders, other than SAIF, on a pro rata basis, with a
Market Value satisfactory to MCC, as set forth in the Stock Pledge Agreement.
("Market Value" means, with respect to the stock pledge described herein,
the per share value determined by dividing a certain aggregate value by the
number of issued and outstanding shares of the Company.)
(c) A valid first priority collateral assignment of certain accounts in
favor of MCC or its assignee, as set forth in the Escrow Agreement;
(d) INTENTIONALLY DELETED
(e) A valid first priority collateral assignment of Company's political
risk insurance, satisfactory in form and substance to MCC; and
(f) INTENTIONALLY DELETED.
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7. CONDITIONS PRECEDENT
Notwithstanding any over provision hereof, MCC is not obligated to
disburse any drawdowns until each of the following conditions has been
satisfied:
(a) MCC has received:
(i) Written evidence of all necessary government approvals, permits,
licenses, and certificates required in connection with the transactions
contemplated hereunder;
(ii) Executed originals of the Promissory Note, and executed
counterparts of all documents and agreements referred to in Section 6 hereof;
(iii) Original copies of the resolutions duly adopted by the Company's
board of directors, certified by the President or Secretary of the Company,
authorizing the execution, delivery and performance of this Financing
Agreement, the Promissory Note, the Escrow Agreement in the form of Exhibit E
attached hereto, and each of the other documents and agreements contemplated
hereby or thereby by the Company, and the consummation of all other
transactions contemplated by this Financing Agreement, an incumbency
certificate showing offices and signatures of all signatures to this
Financing Agreement and all documents and agreements contemplated hereby;
(iv) A notarized copy of the Memorandum and Articles of Association
of the Company a notarized copy of the License as each is in effect on the
date hereof and registered, if necessary, under the laws of Pakistan;
(v) Certification by an authorized officer of the Company that the
License remains in effect, that the Company is in full compliance with all
terms of the License, and that all approvals required therefor have been
obtained;
(vi) Legal opinions of counsel to Company, satisfactory to MCC;
(vii) The original stock of the Company pledged to MCC pursuant to the
Stock Pledge Agreement attached hereto as Exhibit F, together with
certification by independent accountants acceptable to MCC that (a) all stock
is fully paid, and (b) there is a minimum paid-in capital as required by the
covenants set forth in Section 4 hereof;
(viii) A copy of a valid and effective interconnect agreement or
evidence of a temporary interconnect agreement entered into by Company, which
latter shows progress toward a permanent interconnect agreement;
(x) Confirmation that MCC is named as a loss payee with respect to
the insurance policies established by Company in relation to the Equipment;
(xi) Satisfactory evidence that CT Corporation System, New York NY
has agreed to act as the agent of the Company for service of process in
connection with Financing Agreement and the Escrow Agreement; and
19
<PAGE>
(xii) Any other documents, instruments, or agreements reasonably
deemed necessary by MCC in connection with the financing provided hereunder.
(b) Manufacturer has heretofore received from the Company in cash the
Maximum Allowable Down Payment for the Equipment and Services referenced in
the Drawdown Certificate.
8. EVENTS OF DEFAULT AND CONSEQUENCES.
(a) Each of the following events or occurrences shall constitute an
"Event of Default" hereunder:
(i) Any representation or warranty made or deemed made by the
Company under or in connection with this Financing Agreement, the Purchase
Agreement or any certification or document delivered hereunder or thereunder,
shall prove to have been incorrect in any material respect when made;
(ii) The Company (i) fails to make any payment when due hereunder,
which failure continues for thirty (30) days after notice thereof, or (ii)
fails to perform or observe any other material term, covenant or agreement
contained in the Purchase Agreement or this Financing Agreement, which
failure, in the case of (ii), continues for ten (10) days after notice, or
(iii) fails to pay under any loans (other than under this Financing
Agreement) in an amount in excess of $500,000 in the aggregate, such amount
remaining unpaid for a continuous period of thirty (30) days from the
respective due date thereof;
(iii) The Company admits in writing its inability to pay its debts as
they become due or makes a general assignment for the benefit of creditors;
or any proceeding is instituted by or against the Company seeking to
adjudicate it as bankrupt or insolvent or seeking reorganization,
arrangement, adjustment, or composition of it or its debt under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking appointment of a receiver, trustee or other similar official for it
or for any substantial part of its property, other than an action instituted
by a party other than the Company which is dismissed within 60 days of it
inception, or, based upon an opinion provided by Pakistani counsel,
acceptable to MCC, is shown in good faith to be a frivolous action, unlikely
to succeed, or the Company takes any corporate action to authorize any of the
actions set forth above in this subsection (iii);
(iv) Any governmental authority or any Person acting or proposing to
act under governmental authority takes any action to condemn, seize or
appropriate, or to assume custody or control of all or any substantial part
of the properties of the Company, takes any action against the Company or
otherwise to suspend, seize or assume control of the License, or takes any
action to displace the management of the Company or to curtail its authority
in the conduct of its business;
(v) The License is for any reason, (i) revoked or suspended for a
period of more than thirty (30) days or (ii) terminated;
20
<PAGE>
(vi) Upon notification, oral or written, from Pakistan
Telecommunication Authority to the Company or an officer or director thereof
of a violation, or significant dissatisfaction with the Company's
performance, of any condition of the License, (a) which violation is not
cured within the time specified in such notice, as evidenced by a writing
from a competent official of Pakistan Telecommunication Authority, or (b)
unless such violation cannot reasonably be rectified within the time
specified in such notice, and the Company shall have immediately and
diligently, upon receipt of such notice, commenced remediation of such
violation, as evidenced by a writing from a competent official of Pakistan
Telecommunication Authority;
(vii) The incurring of any debt, whether senior or subordinated to
the financing provided hereunder, without the prior written consent of MCC,
except such financing as is expressly permitted hereunder;
(viii) If Company shall, at any time, terminate any purchase order for
Equipment valued excess of $2,000,000.00 under the Purchase Agreement other
than due to Manufacturer's failure to substantially perform the terms thereof;
(ix) If, at any time, the Company shall have removed from its
Cellular Service (other than on a temporary basis) 25% or more of the
equipment purchased from Manufacturer (measured according the Contract Amount
of such equipment at the time of purchase by the Company) unless replaced
with other Manufacturer equipment; and
(x) If the Company at any time enters into any financing or
refinancing agreement involving the assets purchased with the proceeds hereof.
(b) Upon the occurrence of any Event of Default, (i) MCC may, upon
written notice to the Company, take any and all permitted actions hereunder
or in connection with this Financing Agreement, and documents and agreements
delivered in connection herewith, including without limitation, declaring all
amounts outstanding hereunder and under the Promissory Note due and payable,
and/or (ii) MCC may refuse to make further advances hereunder, and/or (iii)
MCC may direct Manufacturer to halt further shipments of Equipment to the
Company.
(c) At any time after an Event of Default has occurred, the Company
shall give MCC written notice of each meeting of its board of directors and
each committee thereof at least five business days in advance of such meeting
and the Company shall permit a representative of MCC to attend as an observer
all meetings of its board of directors and all committees thereof; provided
that in the case of telephonic meetings conducted in accordance with the
Company's Articles of Association and applicable law, MCC need receive only
actual notice thereof at least 48 hours prior to any such meeting, and such
representative shall be given the opportunity to listen to each such
telephonic meeting.
9. NOTICES REGARDING THE LICENSE.
The Company and the officers and directors thereof shall promptly, and
in any event within five days of the Company's knowledge or preparation
thereof, provide MCC with notice
21
<PAGE>
and an accurate summary of any of the following which is likely to have a
material adverse effect upon the Company, its operations or the License: (a)
any significant written communications to or from the Pakistan
Telecommunication Authority pertaining to the License, (b) copies of any plan
to correct problems in connection with the License in a reasonable period, or
of any report related thereto from any other governmental agency in Pakistan
or elsewhere, or (c) any developments which may directly and adversely affect
the License. In addition to the foregoing, in the event Company shall have
received any notice, written, from Pakistan Telecommunication Authority of a
material violation of any condition of the License, shall immediately and
diligently, upon receipt of such notice, commence remediation of such
violation, as evidenced by a writing from a competent official of Pakistan
Telecommunication Authority.
10. COOPERATION.
The Company shall fully cooperate with MCC and Manufacturer at all times
in connection with all contacts and communications related to the License
with any governmental agency (including, without limitation, Pakistan
Telecommunication Authority). MCC and Manufacturer shall act in good faith
in requesting the Company's cooperation hereunder and shall act reasonably in
response to any counsel or advice from the officers of the Company with
respect to the communications which MCC and Manufacturer intends to undertake
with the Pakistan Telecommunication Authority. The Company shall not be
required to provide such cooperation unless MCC and Manufacturer's request is
reasonable, based on then existing circumstances.
11. NOTICE.
All notices, replies, requests, reports, financial statements, demands
or other communications required or permitted under this Financing Agreement
shall be in writing, effective upon receipt, or upon confirmation of the
recipient's refusal of delivery, and shall be transmitted by (a) reputable
overnight courier, (b) telecopy, with telephone confirmation of receipt, or
(c) registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to MCC, at: 1 Continental Tower
1701 Golf Road
Rolling Meadows, IL 60008
Attention: Director, Global Finance,
Cellular Infrastructure Group
Telephone No.: (847) 435-7114
Telecopy No.: (847) 435-7209
If to the Company, at: 12th Floor, UBL Building
Blue Area, Jinnah Avenue
Islamabad, Pakistan
Attention: Executive Director Finance
Telephone No.: (+92)-51-273984
Telecopy No.: (+92)-51-273991
22
<PAGE>
If to Escrow Agent, at: ABN AMRO Bank
15, Markaz F/7, Islamabad
Post Box 275, Islamabad
Attention: The Manager
Telephone No.: (+92)-51-277051
Telecopy No.: (+92)-51-277050
12. MISCELLANEOUS.
(a) Governing Law and Jurisdiction. This Financing Agreement and all
collateral documents, including without limitation, the Promissory Note,
shall be governed by and interpreted in accordance with the internal laws
(without regard to the laws of conflicts) of the State of Illinois, USA. ANY
SUIT, ACTION OR PROCEEDING AGAINST ANY PARTY WITH RESPECT TO THIS FINANCING
AGREEMENT, ANY OTHER DOCUMENT BETWEEN THE PARTIES HERETO THAT COMPRISES PART
OF THIS FINANCING AGREEMENT OR ANY OTHER OBLIGATION OR ANY JUDGMENT ENTERED
BY ANY COURT IN RESPECT OF ANY THEREOF MAY BE BROUGHT IN THE APPROPRIATE
COURT OF THE STATE OF ILLINOIS, USA OR IN THE APPROPRIATE U.S. DISTRICT COURT
IN THE STATE OF ILLINOIS, USA AND EACH PARTY HERETO HEREBY IRREVOCABLY
SUBMITS GENERALLY AND UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF
EACH SUCH COURT FOR THE PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING. EACH
PARTY HERETO AGREES THAT SERVICE OF ALL WRITS, PROCESS AND SUMMONS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF ILLINOIS, USA MAY BE
MADE UPON EACH PARTY AT ITS RESPECTIVE ABOVE ADDRESS. EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY ACTION OR
PROCEEDING BROUGHT IN THE STATE OF ILLINOIS, USA MAY BE MADE UPON EACH PARTY
AT ITS RESPECTIVE ABOVE ADDRESS OR BY SERVICE UPON CT CORPORATION, AS PROCESS
AGENT FOR SUCH PARTY. EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS IN ANY ACTION OR PROCEEDING IN SAID COURTS BY THE MAILING
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT SUCH
ADDRESS. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS FINANCING AGREEMENT, OR ANY
OTHER DOCUMENT BETWEEN THE PARTIES HERETO TO THAT COMPRISES PART OF THIS
FINANCING AGREEMENT BROUGHT IN ANY SUCH
23
<PAGE>
COURT AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(b) Waivers and Amendments. No modification or waiver of any provision
of this Financing Agreement shall be effective unless the same shall be in a
writing signed by an officer of MCC and each other party or parties whose
rights or obligations are affected thereby. No other course of dealing
between MCC and the Company, nor failure or any delay on the part of MCC in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof, nor shall a single or partial exercise of any other right, power or
privilege preclude any further exercise thereof.
(c) Severability. If any term or provision contained in this Financing
Agreement is or is hereafter found to be inconsistent with, contrary to or
invalid or unenforceable under any law or official rule, regulation or order,
this Financing Agreement shall be deemed to be modified accordingly and the
remaining terms and provisions of this Financing Agreement shall not be
affected thereby and shall continue in full force and effect.
(d) Successors and Assigns. Subject to the restrictions on assignment
contained herein, this Financing Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. MCC shall have full right to assign its right and
obligations hereunder or any interest herein in full, or in part, together
with its rights under all documents executed in connection herewith in
accordance with the terms thereof, including without limitation, the
Promissory Note; provided, however, that any successor to MCC's rights and
obligations hereunder shall have no greater rights than MCC hereunder. No
other party to this Financing Agreement shall have the right to assign his or
its rights or obligations hereunder to any Person without the prior written
consent of an officer of MCC.
(e) Counterparts. This Financing Agreement may be executed in any
number of counterparts, each of which shall be an original, and such
counterparts together constitute one and the same instrument.
(f) Expenses. The Company agrees to pay within thirty (30) days
following the date invoiced to MCC up to a maximum of $20,000 in expenses
incurred by MCC in drafting, negotiating, executing and implementing the
financing described in this Financing Agreement. In addition, the Company
shall be liable to pay to MCC, on demand, all of MCC's reasonable costs and
expenses (including, but not limited to, counsel fees) incurred in enforce or
compromising its rights and obligations under this Financing Agreement, or
any of the other agreements contemplated hereby.
(g) Authorized Actions. If the Company fails or has failed to make any
payment hereunder, or the Company fails or has failed to perform any act
required under this Financing Agreement, MCC may, in its sole discretion,
make any such payment or perform any such act and execute any documents with
respect thereto, without affecting the status of any Event of Default
resulting from such failure. In such event, any amounts paid and any
expenses incurred by MCC shall be owed by the Company, and shall be payable
to MCC, within thirty (30) days,
24
<PAGE>
together with interest on such amounts at 8% per annum. MCC shall not be
liable to the Company for taking any such action or making any such payment.
(h) Captions. Captions used in this Financing Agreement are for
convenience only, and shall not affect the construction of this Financing
Agreement.
(i) Entire Agreement. This Financing Agreement, the Promissory Note
and the Purchase Agreement, together with all Exhibits attached to such
agreements, constitute the entire understanding between the parties
concerning the subject matter of this Financing Agreement and supersede all
prior discussions, agreements and representations, whether oral or written
and whether or not executed by MCC and the Company.
(j) Press Releases. Any publicity, press release or advertising with
respect to this Financing Agreement and/or the transactions contemplated
hereby, shall be mutually agreed upon in writing by the parties prior to its
release.
(k) Confidentiality. The parties agree to keep the contents of this
Financing Agreement confidential from third parties and MCC undertakes to
keep confidential all information provided to it by Company, or in relation
to Company, pursuant to or in relation to this Financing Agreement, and to
restrict disclosure thereof to those within their respective companies who
have a "need to know," except that each of MCC and Company shall be
authorized to make required disclosures to its respective financial advisors
and legal counsel so long as such advisors and legal counsel are themselves
bound by confidentiality agreements not to disclose such information to third
parties, and except that MCC may make such limited disclosures as are
necessary to assign its right and obligations hereunder or any interest
herein in full, or in part, together with its rights under all documents
executed in connection herewith in accordance with the terms thereof,
including without limitation, the Promissory Note.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be duly executed the day and year first written above.
MOTORAL PAKISTAN MOBILE
CREDIT CORPORATION COMMUNICATIONS (PVT.) LTD.
BY: BY:
ITS: Attorney-In-Fact ITS: President
BY:
ITS: Executive Director Finance
WITNESSED BY:
BY: BY:
NAME: FAISAL IJAZ KHAN NAME: ZOUHAIR A. KHALIR
EXHIBITS:
EXHIBIT A: - MEMORANDUM AND ARTICLES OF ASSOCIATES OF THE COMPANY
EXHIBIT B: - FORM OF DRAWDOWN CERTIFICATE
EXHIBIT C: - INITIAL BUSINESS PLAN
EXHIBIT D: - FORM OF PROMISSORY NOTE
EXHIBIT E: - FORM OF ESCROW AGREEMENT
EXHIBIT F: - FORM OF STOCK PLEDGE AGREEMENT
EXHIBIT G: - FORM OF HYPOTHECATION AGREEMENT
26
<PAGE>
EXHIBIT A
MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY
PREVIOUSLY DELIVERED
27
<PAGE>
EXHIBIT B
DRAWDOWN REQUEST
Dated: __________, ____
MOTOROLA CREDIT CORPORATION
1 Continental Tower
1701 Golf Road
Rolling Meadows, IL 60008
Attention: Director, Global Finance,
Cellular Infrastructure Group
Re: Pakistan Mobile Communications (Pvt.) Ltd.
------------------------------------------
Gentlemen:
Reference is made to the Financing and Security Agreement dated as of
______, 1998 (the "Financing Agreement") between Pakistan Mobile
Communications (Pvt.) Ltd. (the "Company"), and Motorola Credit Corporation
("MCC"). Capitalized terms used herein (and not otherwise defined) are
defined in the Financing Agreement. The Company hereby requests a Drawdown
under the Financing Agreement in the amount of $_______________ on
______________, 19__.
In connection with the proposed Drawdown by the Company hereunder and
pursuant to the terms and conditions hereof, we hereby certify that as of the
date hereof:
1. Such funds are to be used for the payment of Equipment and Services in
accordance with the terms of the Purchase Agreement and the invoices attached
hereto;
2. No event of Default or Unmatured Event of Default has occurred;
3. The Company is in compliance with all terms of the Financing Agreement;
4. The representations and warranties contained in Section 3.1 of the
Financing Agreement are hereby repeated; and
5. The Company has made the Maximum Allowable Downpayment to the
Manufacturer.
Certified this __ day of _______, ____.
PAKISTAN MOBILE COMMUNICATIONS (PVT.) LTD.
By: By:
Its: Its:
28
<PAGE>
EXHIBIT C
INITIAL BUSINESS PLAN
PREVIOUSLY DELIVERED
29
<PAGE>
EXHIBIT D
PROMISSORY NOTE
<PAGE>
PROMISSORY NOTE
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF IN
CONTRAVENTION OF THE PROVISIONS OF THAT ACT.
US$32,000,000.00 Dated: 5th March, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Pakistan Mobile Communications (Pvt.)
Ltd., a company duly organized and existing under the laws of Pakistan (the
"Payor"), hereby unconditionally promises to pay to MOTOROLA CREDIT
CORPORATION, a Delaware corporation or its assigns (the "Payee"), at its
offices in Schaumburg, Illinois, in lawful money of the United States of
America, in immediately available funds, the principal sum of Thirty-Two
Million Dollars ($32,000,000.00), or such lesser amount as is outstanding
hereunder from time to time, in semi-annual installments payable, together
with interest, as set forth hereinbelow. Interest on the amounts outstanding
from time to time under this Promissory Note shall accrue commencing on the
Initial Drawdown Date (as defined below), until the Promissory Note has been
repaid in full. The "Initial Drawdown Date" means thirty (30) days following
the date of the invoice issued following the initial shipment under the
Purchase Agreement after the execution of the Financing Agreement (as each
term is defined below). Interest shall be calculated on the outstanding
balance of the Promissory Note at a floating rate equal to the six-month
LIBOR Rate (as defined below) in effect from time to time plus one and
one-half percent (1.5%) per annum. Interest shall be calculated on a 360-day
year basis for actual days elapsed. The interest rate shall be adjusted two
(2) Business Days (as defined below) prior to the first Business Day of each
successive Interest Period with respect to all amounts then outstanding under
this Promissory Note, and shall be payable in arrears on each successive
Principal Payment Date (as defined below). "Business Day" means a day when
the Federal Reserve Bank is open for business in New York, New York, for
payments in US$, and/or when the State Bank of Pakistan and banks are
generally open for business in Pakistan, as the loans of the initiation of
the relevant transaction requires.
Payee shall record on the Grid attached hereto or on its books or records,
the amount of any drawdowns disbursed by Payee. The record thereof, whether
shown on such books or records or on the Grid, shall be prima facie evidence
as to all such amounts; provided, however, that the failure of Payee to
record any of the foregoing shall not limit or otherwise affect the
obligation of the Payor to repay all sums outstanding under the Financing
Agreement, together with accrued interest thereon. Payee shall provide Payor
a copy of the Grid after each entry thereon; provided, however, failure by
Payee to so provide a copy to Payor shall not limit or otherwise affect the
2
<PAGE>
obligation of the Payor to repay all advances under the Financing Agreement,
together with accrued interest thereon.
This Promissory Note is issued in connection with the Financing and Security
Agreement dated of even date herewith (the "Financing Agreement") between
Payor and Payee, and is subject to the terms of the Financing Agreement.
"Purchase Agreement" shall have the meaning ascribed thereto in the Financing
Agreement. Unless and until an event of default has occurred hereunder and /
or under the Financing Agreement causing acceleration of payment hereunder,
the principal balance of this Promissory Note outstanding from time to time
shall be due and payable commencing on the Principal Repayment Date (as
defined below), and each payment of principal shall reduce the balance of
this Promissory Note accordingly. "Principal Repayment Date" means the first
Payment Date that occurs at least 120 days following the conclusion of the
Principal Grace Period. "Payment Date" means each May 15 and November 15 of
each calendar year, upon which date a payment of interest and/or principal
under the Promissory Note is due. "Principal Grace Period" means twelve (12)
months following the Initial Drawdown Date. "LIBOR RATE" means the London
Inter-Bank Offering Rate reported by Telerate, page 3750, or, if such report
is unavailable on the day upon which such reference is required, by Reuters
page "LIBO," at approximately 11:00 a.m., London time, two Business Days
prior to the Initial Drawdown Date (defined above), and thereafter, two
Business Days prior to the first Business Day of each successive Interest
Period, which LIBOR Rate shall be applicable until the day prior to the
commencement of the next succeeding Interest Period.
Unless and until an Event of Default has occurred causing acceleration of
payment, the principal balance of the Promissory Note outstanding from time
to time shall be due and payable in eight (8) consecutive and substantially
equal semi-annual installments, each installment being due and payable on
successive Payment Dates with the first such installment being due and
payable on the Principal Repayment Date. The initial principal repayment
shall be made together with (i) a cash payment equal to the greater of
one-half (1/2) of the Maximum Allowable Down Payment (as such term is defined
in the Financing Agreement) and five percent (5%) of the amount shown on each
purchase order issued by Payor to Motorola, Inc., a Delaware Corporation,
after execution of the Financing Agreement (the "Additional Principal
Payment"), which when paid shall reduce the outstanding principal under this
Promissory Note by an equivalent amount, plus (ii) accrued and unpaid
interest, and thereafter, accrued and unpaid interest shall be payable
together with each repayment of principal hereunder. If not paid earlier,
all principal and interest shall be due and payable on the first Business Day
following the conclusion of the 48th month after the Principal Grace Period.
It shall constitute an event of default hereunder if Payor shall fail to make
payment of any installment hereunder when due (and such failure shall
continue for a period of thirty (30) business days after written notice from
Payee to Payor of such failure), or if any Event of Default shall occur (as
defined in the Financing Agreement). Upon the
3
<PAGE>
occurrence of any such event of default, the Payee by notice in writing to
Payor may declare this Promissory Note to be and all remaining payments shall
thereupon forthwith become due and payable without presentment, demand,
protest or other notice of any kind to Payor. Payor shall pay all reasonable
lawyers' fees and expenses incurred by Payee in collecting any defaulted
payments hereunder. Notwithstanding the foregoing, the Payee may waive any
such or other event of default. No such waiver shall affect the Payee's
rights upon a subsequent event of default.
Each payment of principal, interest and/or delinquency charges required or
permitted to be made under this Promissory Note shall be free from and net of
all taxes, charges, fees, costs, expenses or duties imposed by any
governmental authority of the United States of Pakistan, and if any such
governmental authority requires the withholding of any of the foregoing by
Payor, Payor shall pay to Payee an additional amount with respect to each
payment hereunder such that the amount actually received by Payee shall be
the amount which Payee would have received in the absence of such withholding
obligation.
Time is of the essence hereof. If any payment is not received when due,
Payor agrees to pay to the holder a delinquency charge calculated on the
outstanding balance of this Promissory Note at the lesser of one percent (1%)
per calendar month, or partial calendar month, or the maximum rate permitted
by applicable law, for the term of the delinquency.
The acceptance by Payee of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of
Payee's right to receive payment in full at such time or at any other time.
Payor is free to make advance payment or payments in any amount of the then
outstanding principal, plus interest thereon at any time during the term of
this Promissory Note without any penalty.
This Promissory Note is issued pursuant to the Financing Agreement, to which
reference is hereby made for a description of certain events of default and
the further rights of the holder to accelerate payment hereof, the conditions
upon which the maturity hereof may be accelerated by the Payee, and other
terms and conditions upon which this Promissory Note is issued.
This Promissory Note has not been registered under the Securities Act of
1933, as amended, or any similar securities law of any state ("Securities
Laws") and Payee and each subsequent holder, by acceptance of this Promissory
Note, agrees that no sale, pledge, assignment or other disposition of this
Promissory Note will be made or attempted until the Payor has been notified
of the manner and circumstances of the proposed transaction and the Payor
shall have received an opinion of counsel to Payee, or such subsequent
holder, in form and substance reasonably satisfactory to counsel for Payor,
to the effect that the proposed transaction may be consummated without having
to register this Promissory Note under any of the Securities Laws.
4
<PAGE>
Upon compliance with the above requirements and upon surrender of this
Promissory Note at the offices of the Payor, together with an assignment duly
executed by the holder hereof, the Payor will execute and deliver in exchange
thereof a new note or notes payable to such payee or payees as may be
requested, in aggregate principal amount equal to the unpaid principal amount
of the surrendered note and of like tenor (but dated the last date to which
interest has been paid on the surrendered Promissory Note and excluding any
installments for the payment of principal that were paid prior to the
issuance of the new note or notes).
All agreements between Payor and the holder hereof, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that in
no contingency, whether by reason of acceleration of the maturity hereof or
otherwise, shall the interest contracted for, charged, received, paid, or
agreed to be paid to the holder hereof, exceed the maximum amount permissible
under applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to the holder hereof in excess of the maximum lawful
amount, the interest payable to the holder hereof shall be reduced to the
maximum amount permitted under applicable law, and if from any circumstance
the holder hereof shall ever received anything of value deemed interest by
applicable law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall be applied to the reduction of the principal hereof
and not to the payment of interest, or if such excessive interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to Payor.
All interest paid or agreed to be paid to the holder hereof shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full period until payment in full of the principal so
that the interest hereon for such full period shall not exceed the maximum
amount permitted by applicable law. This paragraph shall control all
agreements between Payor and the holder hereof.
Until receipt of notice of any assignment and compliance with the provisions
for assignment set forth above, Payor may treat Payee as the owner of this
Promissory Note for all purposes, including payment of principal, interest
and any other amounts payable hereon.
This Promissory Note shall be subject to, governed and construed according to
the domestic laws of the State of Illinois, without regard to its provisions
on the conflict of laws.
5
<PAGE>
Payor hereby waives diligence, presentment, demand, protest and notice. The
non-exercise by Payee of any of its rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance.
PAKISTAN MOBILE COMMUNICATIONS (PVT.) LTD.
By: By:
Its: Its:
Witnessed By:
1.
2.
<PAGE>
GRID
TO PROMISSORY NOTE
<TABLE>
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DRAWN PAID BALANCE ACCRUED PAID RATE DATE
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<S> <C> <C> <C> <C> <C> <C>
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</TABLE>
<PAGE>
EXHIBIT E
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
BETWEEN
PAKISTAN MOBILE COMMUNICATIONS (PRIVATE) LIMITED
AND
MOTOROLA CREDIT CORPORATION
AND
ABN AMRO BANK N.V., ISLAMABAD BRANCH
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THIS ESCROW AGREEMENT ("this Agreement") made as of the 5th day of March,
1998, by and amongst:
PAKISTAN MOBILE COMMUNICATIONS (PVT) LTD., a company organized under the laws
of Pakistan and having its registered office at APTMA House, Tehkal Payan,
Jamrud Road, Peshawar, Pakistan ("the Company"); MOTOROLA CREDIT CORPORATION,
a Delaware Corporation Incorporated under the laws of the state of Delaware,
U.S.A. having its principal place of business at 1 Continental Tower, 1701
Golf Road, Rolling Meadows, IL 60008, U.S.A. ("MCC"), and ABN AMRO BANK N.V.,
a banking company incorporated under the laws of Netherlands acting through
its branch office at Islamabad located at 15 Markaz, F-7, Islamabad, Pakistan
("Escrow Agent").
RECITALS
A. Pursuant to that certain Financing and Security Agreement dated as of
March 5, 1998 (as the same may be amended from time to time, the "Financing
Agreement"), by and between the Company and MCC, MCC has agreed to finance
the purchase of certain cellular infrastructure equipment manufactured by
Motorola, Inc., a Delaware corporation, as more particularly described in the
Finance Agreement.
B. The Finance Agreement requires MCC and the Company to enter into an
escrow agreement as a condition to the closing of the transactions
contemplated by the Finance Agreement.
C. The Finance Agreement provides that certain payments due thereunder
shall be governed by an escrow agreement among the parties hereto.
D. Escrow Agent has agreed to serve as escrow agent pursuant to the terms
and conditions of this Agreement.
E. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Finance Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. DEFINITIONS
"Approved Loans" means the interest bearing loans and/or mark-up based
financing made in favour of the Company including bank debt but excluding
loans by shareholders to the Company as per details provided in Schedule (1)
hereto, entitled to be serviced from the Service Account in addition to the
service of financing by MCC under the Finance Agreement.
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"Escrow Account" means the account of the Company established and designated
to receive Gross Receipts, denominated in Pakistani Rupees maintained at
Escrow Agent's branch office at Islamabad, Pakistan, and administered
pursuant to this Escrow Agreement, with the following sub-accounts: (a)
Escrow Sub-account and the (b) Opex Account.
"Escrow Sub-Account" means the account established and designated to receive
funds from the Escrow Account and divided into various sub-accounts
("Sub-accounts"), as follows: Reserve Account and Service Account.
"Gross Receipts" means all moneys earned and collected by the Company or its
assignees or designees in connection with the Cellular Service and deposited
with Citibank N.A. Islamabad Branch or any other bank as designated by the
Company from time to time, excluding central exercise duties and payments to
Pakistan Telecommunications Company Limited ("PTCL") as well as
advance/withholding taxes with respect to subscribers, in terms of the
Finance Agreement.
"Open Account" means the operating expense account designated in Pakistani
Rupees established and maintained at Escrow Agent's branch office in
Islamabad funded from the Escrow Account on a quarterly basis, in the amount
determined by agreement of the Company and MCC following the Semi-Annual
Review for the applicable quarter-annual period for each year and as notified
in writing to the Escrow Agent at least 7 (seven) days prior to commencing of
each applicable quarter-annual period.
"Payment Date" means each May 15 and November 15 of each calendar year upon
which date a payment of interest and/or principal under the Promissory Note
is due.
"Promissory Note(s)" means certain promissory note(s) issued by the Company
in favour of MCC in connection with the Finance Agreement.
"Reserve Account" means the reserve Sub-Account comprising of two
sub-accounts, one denominated in US Dollars ("US$ Reserve Account") and one
denominated in Pakistani Rupees ("Rupee Reserve Account") established and
designated to receive funds remaining in the Escrow Sub-Account after the
Opex Account has been fully funded as required thereby, and to hold an amount
equal to six (6) months of interest payments due on outstanding amounts under
the Promissory Note (as determined by MCC in good faith, absent manifest
error and notified by MCC to the Escrow Agent in writing at least (7) (seven)
days prior to the commencement of each quarter-annual period).
"Service Account" means the debt service Sub-Account denominated in Pakistani
Rupees, established and designated to receive surplus funds remaining in the
Escrow Sub-Account after the Opex Account and the Reserve Account have been
fully funded as required thereby, up to a maximum amount equal to the next
immediately scheduled principal and interest payments due by the Company
under any Promissory Note to MCC as notified to the Escrow Agent in writing
from time to time by MCC (with a copy marked to the Company).
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2. ESCROW ACCOUNT, ESCROW SUB ACCOUNTS & OPEX ACCOUNT.
The Company shall establish hereby and there shall from time to time
exist the following accounts (collectively referred to as the "Accounts")
established at Escrow Agent's Islamabad Pakistan offices: (a) the Escrow
Account, (b) the Escrow Sub-Account and the Sub Accounts (incorporating the
Reserve Account and Service Account), and (c) the Opex Account. The
Accounts, which shall include any interest or other income earned thereon and
on any other amounts in the Accounts from time to time, shall be held,
distributed, invested and disposed of by the Escrow Agent for the benefit of
the parties pursuant to the terms and conditions hereof. It is understood
and agreed that all instruction regarding the Accounts shall be administered
by Escrow Agent's Islamabad Branch office, however the Escrow Agent's Chicago
Illinois Branch will provide cooperation for facilitating ease of
communication of instructions to and from the Escrow Agent's Branch office at
Islamabad, Pakistan. The Accounts are being established to provide a source
of funds from which the Company may draw to make payments due to MCC in
connection with the Finance Agreement and the Promissory Note. The title to
the Accounts shall be held by the Company, provided, however that the Reserve
Account and Service Account shall be pledged and assigned to MCC as
collateral security for the Finance Agreement, as set forth in this Agreement.
(i) The Company shall ensure that all Gross Receipts shall be
credited into the Escrow Account on a weekly basis (on each
Friday of the week) and that the Gross Receipts so deposited in
the Escrow Account are clear funds belonging to the Company,
free from encumbrance or charge (except to the extent provided
in the Finance Agreement and this Agreement). The Escrow Agent
shall not have any direct or indirect responsibility to ensure
collection of deposit of the Gross Receipts into the Escrow
Account and the obligation of the Escrow Agent shall apply to
the amount/funds deposited in the Escrow Account;
(ii) Following deposit of Gross Receipts into the Escrow Account,
Escrow Account funds shall be deposited first into the Opex
Account on a quarterly basis, in the amount determined by
agreement of the Company and MCC following the Semi-Annual
Review for the applicable quarter-annual period for each year
and as notified in writing jointly by MCC and the Company to the
Escrow Agent, at least 7 (seven) days prior to commencing of
each applicable quarter-annual period. The amount to be
deposited in the Opex Account shall be the Pakistani Rupees
equivalent of the US Dollar amount notified to the Escrow Agent,
calculated at the rate of exchange applicable on the
commencement of the relevant quarter -- annual period.
(iii) Funds in the Opex Account shall be free from any
pledge/assignment/security interest of MCC; the Funds shall be
promptly available to the Company to meet its current operating
expenses; and the Company shall be solely entitled to issue
instructions in this behalf.
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(iv) After the Opex Account has been fully funded as required above,
from the Escrow Account funds will be deposited to the Reserve
Account in an amount equal to six (6) months of interest
payments immediately due on outstanding amounts under any
Promissory Note, as determined by MCC in good faith, absent
manifest error and notified by MCC to the Escrow Agent in
writing at the time of execution of this Agreement and
thereafter, as per clause 2 (ii) above, from time to time with a
copy to the Company;
(v) After the Opex Account and the Reserve Account have been fully
funded as required above, all surplus funds remaining in the
Escrow Account shall be deposited in the Service Account up to a
maximum amount equal to the next immediately scheduled principal
and interest payments due by the Company under any Promissory
Note to MCC as notified in writing to the Escrow Agent by MCC as
per clause 2 (ii) above (with a copy marked to the Company).
The funds to be deposited in the Service Account will be
deposited in Pakistan Rupees. The Escrow Agent will on a weekly
basis, accrue sufficient Pakistan Rupees (if required) so that a
sufficient amount of US Dollars will be available (by purchase
form the State Bank of Pakistan at the then prevailing official
rate of exchange) against the Pakistani Rupee funds available in
the Service Account to effect the debt service payments to MCC
on the relevant Payment Date.
(vi) In the event that after the Opex Account, the Reserve Account
and the Service Account are all fully funded as required in
accordance with the terms of this Agreement, any surplus amount
available in the Escrow Account or any Escrow Sub-Account shall
be made available to the Company by credit to a corporate
account of the Company established and maintained with the
Escrow Agent, which account will be freely operated by the
Company and shall not be the subject of any escrow arrangement,
change or pledge of MCC.
(vii) The funds to be deposited in the Reserve Account will be first
deposited in the Rupee Reserve Account. The funds deposited in
the Rupee Reserve Account will, as soon as practical and in
coordination with the Company, and in any event no later than
seven business days from the date of deposit of the funds,
subject to availability and legal permissibility, be converted
into US Dollars at the prevailing market rate of exchange and
deposited into the U.S.$ Reserve Account. At the time of any
payments required to be made from the Reserve Account in terms
of the Agreement, the US Dollar funds will be converted back
into Pakistani Rupees at the then prevailing market rate of
exchange for purchase of Pakistani Rupees against US Dollars and
the Pakistani Rupee funds will be credited/deposited to the
Rupee Reserve Account prior to making payments as required. The
conversion of Rupee funds in the Rupee Reserve Account into US$
funds to be deposited in the US $ Reserve Account and the
re-conversion of the US$ funds into Pakistani Rupees
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will be arranged through third party brokers by purchase from
the open market at the best rates of exchange offered to the
Escrow Agent and in coordination with the Company. The Escrow
Agent will be solely authorized and empowered to negotiate and
agree to the rate(s) of exchange for such purpose as the agent
of the Company and neither the Company nor MCC shall have any
objection or claim in respect of such rates at which the
conversion is implemented and the Escrow Agent shall have no
liability or obligation in respect of the rate of exchange or
the performance or otherwise of the third party brokers employed
for purposes of this clause.
(viii) The Escrow Agent shall not be obliged to and shall not take any
action to implement any deposits or payments in respect of the
Accounts; (a) unless and until it has received proper advice and
notice as and when required to be given to the Escrow Agent, in
terms of this Agreement; or (b) unless such action is otherwise
expressly required to be taken in terms of this Agreement; or
(c) unless such action is considered necessary or advisable in
the reasonably opinion of the Escrow Agent to protect the
interest of the Escrow Agent.
(ix) Each of the Accounts will be established, maintained and
operated in terms of this Agreement, subject to and be governed
by the laws and practice applicable in Pakistan to such accounts
maintained by branches of foreign incorporated banks operating
in Pakistan and the Rules and Regulations (to the extent such
Rules and Regulations are not inconsistent with the terms of
this Agreement) as applicable to accounts maintained by
customers of the Escrow Agent in Pakistan (as modified from time
to time and subject to such modifications being notified to MCC
and the Company), which have been read and understood by each of
the Company and MCC. The performance of the obligations of the
Escrow Agent in relation to the Accounts shall be so construed
and governed.
3. INTEREST/PROFIT
Interest or profit (if any agreed to be paid by the Escrow Agent) earned
on the funds held in the Accounts (excluding the Opex Account) shall be
credited to the Escrow Agent, and thereafter to Escrow Sub-Account, and
Sub-accounts in the same order and to the same extent as Gross Receipts.
4. PAYMENT PROCEDURES
(i) At least 30 (thirty) days prior to a Payment Date, MCC will
submit an invoice (substantially in the form of invoice provided
in Schedule (2) hereto) to the Escrow Agent and the Company,
prepared in accordance with the Financing Agreement and
reflecting the amounts due on the immediately next scheduled
Payment Date and the Escrow Agent shall pay
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the invoice amount on the Payment Date, to MCC the required
payment by wire transfer to the address set forth on such
invoice, from the Service Account and in the event of shortfall,
to the extent required from the Reserve Account, subject to the
availability of such funds in the Reserve Account.
Notwithstanding the foregoing, the Company may, from time to
time, upon its request in writing to MCC at least ten (10) days
prior to a particular Payment Date, with MCC's prior written
consent, not be unreasonably withheld, elect to make payment of
amounts due under any Promissory Note, directly to MCC, and MCC,
in such event, agrees not to draw on the Accounts for such
payment. The Escrow Agent is authorized by the Company to
effect payment in accordance with the invoice of MCC, which
shall be deemed to be conclusive evidence of the amount payable
by the Company to MCC. The payments will be made to MCC by
conversion of the funds in the Service Account (and to the
extent of shortfall if any, from the Reserve Account) into US
Dollars, subject to SBP making US dollar funds available for
repatriation to MCC at the official rate of exchange. It will be
the sole responsibility of the Company to provide all the
necessary documents to the Escrow Agent, required for approvals
form the SBP, for the repatriation of said payments at least 28
calendar days before the Payment Date. The Company will also
copy a set of these documents to MCC simultaneously. The Escrow
Agent undertakes to ensure that the documents are submitted to
the SBP within a period of 10 calendar days of the receipt of
documents. In the event the Escrow Agent fails to do so, all
cost, losses or charges incurred by the Company or MCC as a
direct result of such failure shall be for the account of the
Escrow Agent.
(ii) At least 30 (thirty) days prior to any due date for payment of
interest/profit/mark-up or principal in respect of Approved
Loans, the Company shall notify the Escrow Agent and MCC in
writing, of amounts required to be paid along with details of
the Lender, break-up of principal and interest/profit/mark-up
and the due date for payment substantially in the form of
advance provided in Schedule (3) hereto ("the Approved Loan
Payment Advice"). Unless notice is received in writing from MCC
by the Escrow Agent, countermanding the Approved Loan Payment
Advice at least 10 (ten) days prior to the date of payment,
stating that as per determination of MCC, a breach under the
Finance Agreement will occur if such payment is made; the Escrow
Agent will make payment in accordance with the Approved Loan
Payment Advice from the Service Account. In case of any
shortfall in the Service Account, funds in the Reserve Account
will only be utilized if and to the extent that written waiver
is issued by MCC in favour of the Company for doing so and such
waiver is notified to the Escrow Agent prior to the due date of
payment in accordance with the Approved Loan Payment Advice.
The Escrow Agent is authorized to effect payment in accordance
with the Approved Loan
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Payment Advice, which shall be deemed to be conclusive evidence
of amounts payable in respect of the Approved Loans.
5. TERMINATION OF ESCROW AGREEMENT.
When the following occurs, this Escrow Agreement shall terminate: MCC
shall have notified the Escrow Agent in writing that all of the Company's
obligations to MCC under the Finance Agreement have been fully satisfied,
whereupon MCC shall, release its pledge, lien and security interest on the
Reserve Account and Service Account and the Escrow Agent shall pay any
remaining moneys held in the Escrow Accounts as per the order of the Company.
6. INVESTMENT OF ACCOUNTS.
The funds in the Reserve Account and the Service Account shall be
invested, and shall thereafter be reinvested from time to time, by the Escrow
Agent, acting without further instructions, in profit sharing/interest
bearing accounts of the Escrow Agent; unless specific instructions in writing
are received from the Company from time to time; subject to such investments
not exceeding 7 (seven) days in tenor on each investment; and subject further
that the investments would be in relation to any one or more accounts/deposit
schemes of the Escrow Agent. All incomes earned on investment of the Reserve
Account and the Service Account, shall be added to and become part of the
Accounts; credited to the Escrow Account and thereafter distributed in the
same manner as Gross Receipts, in terms of this Agreement. The Escrow Agent
shall furnish reports concerning the Accounts (including interest and other
income earned thereon) to the Company and MCC on a monthly basis.
7. LIABILITY OF ESCROW AGENT.
(i) Subject to clause 4(i) above, the Escrow Agent shall not be
responsible or liable for any act or failure to act on its part
or on the part of its agents or employees except in the case of
its or their gross negligence or willful misconduct or bad
faith, in which case the maximum liability of the Escrow Agent
will not under any circumstances exceed the lessor of (a) the
amount of actual direct loss suffered by MCC and/or the Company
or (b) the amount of shortfall of funds in the Escrow Account;
resulting from the gross negligence, willful misconduct or bad
faith. The Escrow Agent shall not be bound in any way by any
agreement between the Company and MCC (whether or not the Escrow
Agent has knowledge thereof), including without limitation the
Finance Agreement, and Escrow Agent's only duties and
responsibilities shall be to hold distribute, invest and dispose
of the Accounts in accordance with the terms of this Agreement.
Escrow Agent hereby expressly waives any right or interest in or
to the Accounts;
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(ii) The Escrow Agent shall not be responsible or liable for ensuring
the genuineness or accuracy of any instructions, notice or
communications received or delivered to the Escrow Agent,
including but not limited to instructions, notice or
communications received by telecopy/facsimile and shall be
entitled to assume such to be correct and genuine if purporting
to emanate from the Company and/or MCC, provided the Escrow
Agent has acted reasonably and in good faith;
(iii) The Escrow Agent shall not be responsible for failure to
implement any instructions which are ambiguous, vague or
incomplete in any respect and/or considered to be unauthorized
or non-genuine by the Escrow Agent and in such case the
responsibility of the Escrow Agent will be limited to notifying
the Company and MCC to this effect, within 5 (five) business
days of receiving such ambiguous, vague or incomplete
instructions.
(iv) The Escrow Agent shall not be responsible or liable for failure
or delay in implementing any terms of this Escrow Agreement or
any instructions pursuant hereto, on account of reasons beyond
the control of the Escrow Agent, including but not limited to a
strike, act of terrorism, natural calamity, war, break-down of
economic and financial machinery in Pakistan, change of law
relating to foreign exchange regulation; change of law relating
to foreign currency accounts; administrative or regulatory
action, breakdown in computer network systems and any other
force majeure event occurring or existing, provided the Escrow
Agent shall notify MCC and the Company of the reason for failure
or delay in implementing the terms of this Escrow Agreement as
soon as practical after occurrence of the relevant event;
(v) The Escrow Agent shall not be responsible or liable for any
losses resulting in relation to the Accounts, on account of
exchange rate fluctuations or the nonavailability of US Dollar
funds for implementing the terms of this Agreement.
8. GRANT OF SECURITY INTEREST; DEFAULT
The Company hereby grants to MCC a pledge, charge, lien of and security
interest in the Reserve Account and the Service Account. Upon receipt of a
written notice form MCC that an Event of Default (as such terms defined in
the Finance Agreement) has occurred, the Escrow Agent is hereby authorized,
empowered and directed, immediately to transmit by wire transfer, all funds
remaining in the Reserve Account or the Service Account to MCC as set forth
on such notice, stated to be the outstanding amount due and payable by the
Company to MCC in respect of any Promissory Note and/or under the Finance
Agreement and upon such payment the surplus funds remaining, if any, shall be
available to be utilized or withdrawn by the Company. The Company has
assured the Escrow Agent that all requisite permissions (if any) for granting
the security interest in favour of MCC will be obtained and will be
subsisting during the tenor of the Agreement.
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9. RELIANCE BY THE ESCROW AGENT.
(i) In performing its duties hereunder, the Escrow Agent may relay
on written statements furnished to it by any authorized
executive officer of MCC or the Company. The Escrow Agent may
act or refrain from acting hereunder with respect to any matter
referred to herein in reliance upon and with the advice of
counsel selected by the Escrow Agent (without being obliged to
take such advice) and shall be fully protected in so acting or
in refraining from acting upon the advice of such counsel. The
Escrow Agent shall further be authorized to file and institute
any legal proceedings before any competent court for seeking any
directions or declarations, should such action/proceedings be
required or advisable in the reasonable opinion of counsel, the
Company hereby undertakes to indemnify the Escrow Agent against
and in respect of all such costs of legal advice and/or legal
proceedings, and each of MCC and the Company authorize the
Escrow Agent to recover such costs to the debit of any of the
Accounts (other than the Reserve Account).
(ii) In performing its duties hereunder, the Escrow Agent has relied
upon and each of MCC and the Company, in respect of itself, has
represented and warranted to the Escrow Agent that the
establishment and maintenance of the Accounts and the execution
and performance of the terms of this Agreement have been duly
authorized by appropriate corporate actions of each of MCC and
the Company respectively and will not violate any law,
regulation, charter or terms of any contract or judgment
applicable to the Company or MCC and further that any consent or
approval, if required for such purpose have been obtained and
are subsisting including but not limited to the approval of the
State Bank of Pakistan for remittance of amounts in US Dollars
for payment of amounts due to MCC in respect of the Promissory
Note(s) and the Finance Agreement.
10. CHARGES OF THE ESCROW AGENT:
The charges of the Escrow Agent in connection with this Escrow Agreement
are set forth in Schedule (4) hereto. Such charges have been agreed to be
borne and paid by the Company, and the Escrow Agent is authorized to recover
the charges by debit, after raising an invoice to the Company at least 5
business days in advance, to the Escrow Account or any other Account (except
for the Reserve Account) without seeking prior permission of either MCC or
the Company. All payments of charges to the Escrow Agent shall be subject to
deductions, if any required by any applicable law in Pakistan.
11. NOTICES.
All notices, replies, requests, reports, or other communications
required or permitted under this Escrow Agreement shall be in writing,
effective upon receipt, or upon confirmation of the recipient's refusal of
delivery, and shall be transmitted by
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(a) reputable overnight courier, (b) telecopy with telephone confirmation of
receipt; or (c) registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to MCC, at: Motorola Credit Corporation
Attention:
1 Continental Tower
1701 Golf Road
Rolling Meadows, IL 60008
Attention: Director, Global Finance
Cellular Infrastructure Group
Telephone No: (847) 435-7114
Telecopy No: (847) 435-7209
If to the Company, at: Pakistan Mobile Communications (Pvt) Ltd.
with copy to: 12th Floor, UBL Building Blue Area,
Islamabad, Pakistan,
Attention: Executive Director (Finance)
Phone no. (9251) 273984
Fax No.: (9251) 273991
If to Escrow Agent, at: ABN AMRO Bank N.V., Islamabad Branch
15 Markaz F-7 Islamabad, Pakistan.
Attention: The Manager
Phone No.: (9251) 111-11-22-33/277051
Fax No.: (9251) 277050
12. SUCCESSION OF ESCROW AGENT.
(i) The authority of the Escrow Agent may be withdrawn and a
successor escrow agent appointed at any time by a notice of such
withdrawal and appointment, including notice of the effective
date thereof, signed by the Company and MCC.
(ii) The Escrow Agent may resign and be discharged from its duties
and obligations hereunder by giving notice of such resignation
to the Company and MCC, specifying the date upon which such
resignation shall take effect, provided that such date shall be
not less than 45 days from the date such notice is given or
received in accordance with Section 11 hereof. It is agreed
that prior to the resignation becoming effective, the Escrow
Agent shall procure consent in writing of a replacement escrow
agent, acceptable
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to MCC and the Company to act as a successor of the Escrow
Agent. It is agreed that MCC and the Company shall not refuse
acceptance of the replacement escrow agent unreasonably and
without assigning any reason for such non-acceptability so long
as the replacement escrow agent is a scheduled foreign banking
company operating in Pakistan.
(iii) Upon the removal or resignation of the Escrow Agent, the Escrow
Agent shall transfer the funds in the Accounts and deliver any
and all records and files relating to the Accounts (to the
extent permissible to be delivered under law) and a copy of the
Escrow Agreement to the successor escrow agent designated by MCC
and the Company, which has accepted the terms of this Escrow
Agreement. Upon such transfer and delivery, the Escrow Agent
shall stand fully discharged, release and absolved from all
obligations under this Agreement or any matter arising therefrom
(except as to matters arising prior to the date of such transfer
and notified by MCC or the Company to the Escrow Agent not later
than 60 (sixty) days from the effective date of such transfer).
13. ASSIGNMENT.
This Escrow Agreement shall be binding upon and inure to the benefit of
the parties hereto and their perspective successors and assigns; provided,
however, that the Company may not assign its interest in this Escrow
Agreement, in whole or in part, without the written consent of MCC and the
Escrow Agent.
14. COMPLETENESS OF AGREEMENT.
This Escrow Agreement and other documents referred to herein represent
the entire agreement among the parties with respect to the subject matter
hereof and the same shall not be considered as modified or affected by any
offer, proposal, statement or representation, oral or written, made by or for
any party in connection with the negotiation of the terms hereof.
15. AMENDMENT.
This Escrow Agreement shall not be amended or modified except by an
instrument in writing signed by each of the parties hereto, and reciting that
the parties thereby intend so to amend or modify this Escrow Agent.
16. CAPTIONS.
The captions in this Escrow Agreement are for convenience only and shall
not affect the construction or interpretation of any term or provision hereof.
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17. GOVERNING LAW.
This Escrow Agreement shall, subject to the provisions of clause 2(ix)
above, be governed by and construed in accordance with the laws of the State
of Illinois, U.S.A. and the courts in the State of Illinois, U.S.A. shall
have non-exclusive jurisdiction in respect of any matter or dispute
concerning or arising out of this Agreement. It is clarified that this
clause shall not prejudice the right of the Escrow Agent, MCC or the Company
to bring any proceedings in the Courts of Pakistan against the Company or
MCC. MCC hereby expressly submits to the jurisdiction of the courts at
Pakistan and appoints Motorola Emerging Markets, Cellular Infrastructure
Division, Pakistan Liaison Office, 7, Eden Center, 43, Jail Road, Lahore,
Pakistan as its agent for service of process in Pakistan. The Company
appoints CT Corporation System of 1633 Broadway, New York, NY 10019, U.S.A.
as its agent for service of processes in Illinois, U.S.A. The Escrow Agent
appoints its branch office in Chicago Illinois, located at 135, South LaSalle
Street, Chicago, IL 60603 acting through the Manager as its agent for
service of process in Illinois, U.S.A.
18. LITIGATION COSTS AND EXPENSES.
In any litigation between the Company and MCC arising out of or relating
to this Escrow Agreement or a breach hereof, each of MCC and the Company
shall bear its own costs and expenses incurred in connection with such
litigation, including actual attorney's fees and expenses. The parties agree
that the Escrow Agent shall not be a necessary party to such litigation, not
directly arising out of acts or omissions of the Escrow Agent. In case of
the Escrow Agent being made party to such litigation, or being required to
obtain legal advice for responding to any notice or claim by the Company or
MCC, the Escrow Agent shall be fully indemnified for any costs, charges or
consequences arising thereof and the Escrow Agent shall be authorized to
recover such amount and costs to the debit of any of the Accounts (except the
Reserve Account).
19. INDEMNITY FAVOURING ESCROW AGENT:
The Company agrees and undertakes to indemnify the Escrow Agent, its
employees, officers and agents against any loss, costs, penalties,
consequences or litigation arising out of any claim, objection or proceedings
related to the Accounts or this Escrow Agreement by any third party
(including any Government or quasi-Government body, department or authority)
which the Escrow Agent may suffer or incur as a consequence of entering in
this Agreement or by virtue of performing the terms of this Escrow Agreement.
The Company will indemnify the Escrow Agent against and in respect of any
expenses, costs, disbursements, or other out goings in respect of travelling,
faxes, telephone calls, courier services, expert advice, brokerage services,
and any other incidental costs pertaining to or arising out of the
performance of the obligations of the Escrow Agent under this Agreement or
relating to the Accounts. The Escrow Agent is authorized to debit the Escrow
Account or any other Account (except the Reserve Account) for recovery of
amounts in terms of this clause with only a prior notice of five working days
to the Company the documentary evidence of such deduction.
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IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be
duly executed as of the day and year first above written.
PAKISTAN MOBILE
COMMUNICATIONS (PVT.) LTD.
By:
Its: President
By:
Its: Executive Director Finance
MOTOROLA CREDIT CORPORATION
By:
M.E. Atkins
Attorney-in-Fact
Its:
ABN AMRO BANK N.V., ISLAMABAD
BRANCH
By:
EMAAD A. SIGGIQVI
Vice President & Corporate Bank
Head
ABN-AMRO BANK N.V.
Islamabad
WITNESSES
1.
2.
<PAGE>
SCHEDULE (1)
DETAILS OF APPROVED LOANS
1. Agreement with Citibank International plc., London for a Long Term loan
of US $15,000,000.00
2. Agreement with Citibank N.A. Islamabad for Running Finance Facility of up
to Rs. 84,000,000.00
3. Financing Agreement with Saudi Pak Industrial and Agricultural Investment
Company (Pvt.) Limited, Islamabad for Short/Medium Term Loan of Rs.
881,000,000.00
4. Agreement with SAIF Telecom (Pvt.) Ltd. for a long term shareholder loan
of Rs. 44,182,716.00
5. Agreement with Motorola International Development Corporation for a long
term shareholder loan of US $3,658,623.00
6. Agreement with International Wireless Communications (Pakistan) Limited
for a long term shareholder loan of US $7,157,487.00
7. Agreement with Motorola International Development Corporation for a long
term shareholder loan of US $3,382,568.00
8. Agreement with International Wireless Communications (Pakistan) Limited
for a long term shareholder loan of US $6,617,432.00
<PAGE>
SCHEDULE (2)
FORM OF PAYMENT ADVICE
FOR PAYMENTS TO MCC
UNDER CLAUSE 4(I)
Date: {__________}
To
(1) ABNAMRO Bank N.V.
Islamabad Branch
15 Markaz F-7
Islamabad
Pakistan
(2) Pakistan Mobile Communications (Pvt.) Ltd.
Dear Sirs,
INVOICE FOR PAYMENT UNDER CLAUSE 4(i) OF ESCROW AGREEMENT DATED {___________}.
Please effect payment as per following details:
(a) Invoice Number: {________}
(b) Payment Amount: {________}
(c) Payment Value Date: {________}
(d) Remittance by wire transfer to: {________}
We confirm that this invoice has been drawn in accordance with and the amounts
stated above are due and payable to us in terms of the Finance Agreement dated
{_______} between Pakistan Mobile Communications (Pvt) Limited and ourselves.
For and on behalf of
Motorola Credit Corporation
By:
Authorized Signatory
<PAGE>
SCHEDULE (3)
FORM OF APPROVED LOAN PAYMENT ADVICE
UNDER CLAUSE 4(ii)
Date: {__________}
To
ABN AMRO Bank N.V.
Islamabad Branch
15 Markaz F-7 Islamabad
Pakistan.
Copy to:
Motorola Credit Corporation
Dear Sirs,
APPROVED LOAN PAYMENT ADVICE FOR PAYMENT ON INTEREST/PROFIT/MARK/PRINCIPAL IN
RESPECT OF APPROVED LOANS IN TERMS OF CLAUSE 4(ii) OF THE ESCROW AGREEMENT
DATED {___________}.
Please effect payment as per following details:
(a) Payment Notice Number: {_______}
(b) Payment Amount: {_______}
Principal amount: {_______}
Mark-up/profit/interest: {_______}
(c) Name of Lender/Creditor: {_______}
(d) Payment value date: {_______}
We confirm that the above payment is due and payable in respect of an Approved
Loan as per details provided in Schedule (1) to the Escrow Agreement.
For and on behalf of
PAKISTAN MOBIL COMMUNICATIONS (PVT) LTD
By:
Authorized Signatory
<PAGE>
SCHEDULE 4
FEES AND CHARGES OF THE ESCROW AGENT
The Escrow Agent shall be paid by the Company, a fixed annual fee in advance
in the sum of USD 12,000.00 (United States Dollars Twelve thousand only)
equivalent Pakistan Rupees ("Annual Fee") payable on the date of signing of
the Escrow Agreement and thereafter on each anniversary thereof.
In the event that the Escrow Agent has not received the Annual Fee within 5
(Five) business days of the due date for payment of such Annual Fee, the
Escrow Agent will be authorized to deduct any Escrow Account (except the
Reserve Account) with the amount of such Annual Fee.
In addition to the Annual Fee, the Company will reimburse the Escrow Agent
for all disbursements and out-of-pocket expenses incurred in relation to the
provision of the services of the Escrow Agent in terms of the Escrow
Agreement, including charges for fax, telephone, courier, travel, legal and
other incidental expenses ("Disbursements"). The Disbursements will be
billed to the Company for reimbursements on a quarterly basis, providing
particular/break-up of the constituents of the bill. If payment is not made
to the Escrow Agent within 5 (Five) business days from the submission of the
bill, the Escrow Agent will have the authority to debit any Escrow Account
(except the Reserve Account) obligations of the Escrow Agent under this
Agreement or relating to the Accounts. The Escrow Agent is authorized to
debit the Escrow Account or any other Account (except the Reserve Account)
for recovery of amounts in terms of this clause with only a prior notice of
five working days to the Company the documentary evidence of such
<PAGE>
EXHIBIT F
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement") is made and entered into this 5th
day of March, 1998, by and between International Wireless Communications, a
Mauritius Company ("Pledgor"), and Motorola Credit Corporation ("MCC"), a
Delaware corporation:
A. Pledgor is a stockholder of Pakistan Mobile Communications (Pvt.)
Ltd., a company organized under the laws of the government of Pakistan (the
"Company");
B. Pledgor acknowledges and agrees that Pledgor will benefit from the
financing provided by MCC to the Company pursuant to the Financing and
Security Agreement of even date herewith (the "Financing Agreement");
C. Pursuant to the terms of, and as a condition precedent to funding
under, the Financing Agreement, Pledgor has agreed to pledge certain of the
capital stock of the Company held by Pledgor to MCC to be held as collateral
security for Company's performance of its obligations under the Financing
Agreement;
D. MCC and Pledgor desire to set forth the terms of such pledge; and
E. All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Financing Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and the receipt of which is hereby
acknowledged the Pledgor hereby makes the following assignments,
representations, and warranties to MCC in order to induce MCC to enter into
the Financing Agreement and make loans thereunder, the parties agree as
follows:
1. Obligations Secured. This Agreement is made in order to secure (i) the
prompt and complete payment and performance of Company's obligations and
indebtedness arising under or in connection with the Financing Agreement, the
Promissory Note and/or other agreements delivered in connection with the
Financing Agreement, including without limitation, principal, interest,
premium, charges, delinquency charges, fees, assessments, costs and future
advances, whether direct or indirect, contingent or absolute, or matured or
unmatured, and all other amounts owed at any time to MCC by Company; provided
that the maximum amount of such obligations and indebtedness secured hereby
shall be the amount that is sixty-six percent (66%) of the outstanding
principal amount under the Financing Agreement at any time and from time to
time, not to exceed an amount agreed by the parties (the "Secured Amounts"),
plus (ii) any costs
<PAGE>
and expenses, now or hereafter existing, that may be incurred by MCC in
connection with the enforcement of this Agreement, the protection of MCC's
rights hereunder or the realization on the security provided for by this
Agreement, all of the foregoing being referred to herein as the "Secured
Obligations."
2. Pledge of Collateral. In order to secure the due and punctual payment
of the Secured Obligations, Pledgor hereby pledges, assigns, transfers, sets
over and delivers to MCC and hereby grants to MCC a first priority security
interest in all of Pledgor's right, title and interest in and to the
following, whether now owned or hereafter acquired;
2.1 7,383,757 (seven million three hundred and eighty three thousand, seven
hundred and fifty seven) ordinary shares of Rs. 10 per share of the Company
owned by Pledgor, plus any additional shares of Company (if any) hereafter
pledged by Pledgor to MCC, which additional shares shall become subject
hereto upon execution of an amendment hereto by the parties referencing such
additional stock, having a Market Value (as defined below) of an amount
agreed by the parties in the aggregate or as proximate thereto as possible
(collectively, the "Shares"), ("Market Value" means, with respect to the
stock pledge described herein, the per share value determined by dividing an
amount agreed by the parties by the number of issued and outstanding shares
of the Company.);
2.2 all subscriptions, warrants and other rights or options issued to or
exercisable by Pledgor with respect to the Shares;
2.3 all other property which may be delivered and pledged to MCC pursuant to
the terms of this Pledge Agreement, including without limitation any
certificates or instruments representing or evidencing such property;
2.4 subject to the provisions of Section 5 hereof, all dividends, interest,
cash, instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the
Shares and other property referred to in Section 2.3;
2.5 subject to the provisions of Section 5, all rights and privileges of
Pledgor with respect to the Shares, and the other property referred to in
2.3, and all proceeds of any of the foregoing and any property of any
character whatsoever into which any of the foregoing may be converted or
which may be substituted for any of the foregoing; and
2.6 all proceeds of any of the foregoing, without prejudice to the Pledgor's
rights to retain dividends and other distributions in accordance with clause
5.1.2 below,
All items referred to in this Section 2 being hereinafter collectively called
the "Collateral" and all securities constituting a part of the Collateral,
including without limitation the Shares, being hereinafter collectively
called the "Pledged Securities." Notwithstanding anything to the contrary
set forth herein, MCC's rights against Pledgor hereunder shall be expressly
limited to the Collateral, and Pledgor shall not be required to pledge any
additional Collateral in excess of the Secured Obligations.
3. Delivery of Collateral: Certificates Representing Shares and Other
Common Stock. If any of the Pledged Securities at any time are evidenced by
certificates or instruments, all such
<PAGE>
instruments and certificates shall be promptly delivered to MCC (effective as
of and from the execution of this Agreement), in suitable form for transfer
by delivery or accompanied by duly executed instruments of transfer or
assignments in blank, all in form and substance satisfactory to MCC. All
other property comprising part of the Collateral shall be accompanied by
proper instruments of assignment duly executed by Pledgor in blank and such
other instruments or documents as MCC may reasonably request.
4. Record Ownership of Pledged Securities. Pledgor shall remain the record
owner of the Pledged Securities, and Pledgor will promptly give MCC copies of
any notices or other communications received by Pledgor with respect to
Pledged Securities registered in the name of Pledgor.
5. Voting Rights: Dividends, Etc.
5.1 So long as the Pledged Securities have not been sold to satisfy the
Secured Obligations:
5.1.1 Pledgor shall be entitled to exercise voting and/or other consensual
rights, including waivers, ratifications, and powers accruing to the owner of
the Pledged Securities or any part thereof for any purpose which is
consistent in all material respects with the terms of this Agreement and the
Financing Agreement and would not materially adversely affect the Collateral;
provided, however, that Pledgor shall not be permitted to exercise or refrain
from exercising any such right or power if such action or failure to take
such action would result in an Event of Default; and
5.1.2 To the extent expressly permitted by, and subject to the terms of, the
Financing Agreement, Company shall be permitted to pay, and Pledgor shall be
entitled to receive and retain, cash profits, if any, earned in Company, and
dividends or other distributions paid on the Pledged Securities in the
ordinary course of its business. Any and all property, return of capital,
capital surplus or paid-in surplus made on or in respect of any Pledged
Securities, whether paid or payable in cash or otherwise, whether resulting
from a subdivision, or received in exchange for any Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which Company may
be a party, or otherwise, shall be and become part of the Collateral, and if
received by Pledgor, shall not be commingled by Pledgor with any of Pledgor's
other funds or property but shall be held separate and apart therefrom, shall
be held in trust for the benefit of MCC and shall forthwith be delivered to
MCC in the same form as so received, with any necessary endorsements, to be
held or disbursed subject to the terms of this Agreement.
5.2 Upon notice from MCC to Pledgor that an Event of Default has occurred,
all distributions on the Pledged Securities shall be and become part of the
Collateral pledged hereunder and, if received by Pledgor, shall not be
commingled by Pledgor with any of Pledgor's other funds or property but shall
be held separate and apart therefrom, shall be held in trust by Pledgor for
the benefit of MCC for the uses set forth herein and shall forthwith be
delivered to MCC in the same form as received, with any necessary
endorsements, to be held or disbursed subject to the terms of this Agreement.
<PAGE>
5.3 Following notice from MCC to Pledgor that an Event of Default has
occurred, any and all money and other property paid over to or received by
MCC and retained by MCC pursuant to the provisions of this Section 5 shall be
additional Collateral hereunder and shall be applied in accordance with the
provisions hereof.
5.4 Following notice from MCC to Pledgor that an Event of Default has
occurred, Pledgor shall not receive or accept payments, distributions or
transfers of property from Company in respect of the Pledged Securities. Any
payments received by Pledgor in respect of the Pledged Securities shall not
be commingled by Pledgor with any of Pledgor's other funds or property but
shall be held separate and apart therefrom, shall be held in trust for the
benefit of MCC and shall forthwith be delivered to MCC in the same form as so
received, with any necessary endorsements, to be applied to the Secured
Obligations, in such order as MCC shall determine in its sole discretion,
reasonably exercised.
6. Representations, Warranties and Covenants. Pledgor represents, warrants
and covenants to MCC as follows:
6.1 Pledgor owns all the Pledged Securities free and clear of any liens,
encumbrances or security interests over them those in favor of MCC created
hereby and the restrictions created by the Amended and Restated Shareholders
Agreement dated as of August 13, 1997 (the "Shareholders Agreement"). The
security interest granted to MCC hereunder is a valid first lien upon and
security interest in the Collateral. Upon the delivery of the Pledged
Securities to MCC, MCC shall have a perfected, first-priority security
interest in all the Collateral, subject to no other liens, encumbrances, or
restrictions other than those contained in the Shareholders Agreement. No
security agreement, financing statement, equivalent security of lien instrument
or continuation statement covering all or any part of the Collateral is on
file or of record in any public office, except as may have been or will be
filed in favor of MCC pursuant to this Agreement, which financing statements
and the jurisdictions where the same have been filed are set forth on
Schedule I attached hereto.
6.2 Pledgor has all requisite power and authority to pledge and grant a
security interest in the Collateral in the manner and for the purposes
contemplated by this Agreement. With the written consent of the other
shareholders of the Company, which has heretofore been obtained by Pledgor,
the execution, delivery and performance of this Agreement by Pledgor will not
violate any contractual obligation of Pledgor. All Pledged Securities owned
by Pledgor have been duly authorized and validly issued, and are fully paid
and non-assessable, and are not now subject to, and shall not hereafter
become subject to, any options to purchase (except as otherwise required in
the Company's Articles of Association), voting trusts, stock restriction
agreements, or similar rights of the Company or any other Person, other than
those contained in the Shareholders Agreement. Pledgor is not and will not
become a party to or otherwise bound by any agreement which restricts in any
manner the transfer of the Pledged Securities or the rights of any present or
future holder of any of the Pledged Securities with respect thereto, other
than the Shareholders Agreement.
6.3 No contractual obligation of Pledgor at present materially adversely
affects, or, insofar as Pledgor may reasonably foresee may so affect, the
ability of Pledgor to perform Pledgor's
<PAGE>
obligations under this Agreement. Pledgor is not in default under or with
respect to any contractual obligation that could be materially adverse to the
assets (taken in the aggregate) or financial condition of Pledgor, or which
could materially and adversely affect the ability of Pledgor to perform
Pledgor's obligations under this Agreement. No litigation, investigation or
proceeding of or before any court, arbitrator or Governmental Authority is
pending or, to the knowledge of Pledgor, is threatened, against Pledgor or in
any of Pledgor's properties (a) with respect to this Agreement, or (b) which,
if determined adversely to Pledgor, could have a material adverse effect on
the assets (taken in the aggregate) or financial condition of Pledgor or the
ability of Pledgor to perform Pledgor's obligations under this Agreement.
6.4 Pledgor covenants to notify MCC within 10 days after Pledgor changes
Pledgor's address from that set forth below. Pledgor shall within such 10-day
period file such documents, at Pledgor's sole expense, and take all other
steps necessary to ensure that MCC shall at all times have a perfected,
first-priority security interest in the Collateral, subject to no other
liens, encumbrances, or restrictions. Pledgor shall promptly deliver to MCC
proof that all such steps have been taken.
6.5 The representations and warranties contained in this Section 6 are
deemed to be repeated by the Pledgor at the time of each delivery of Pledged
Securities to MCC.
7. Remedies upon Default. If an Event of Default should occur and is
continuing, MCC may exercise all rights of a secured party under the State of
Illinois, United States of America, Uniform Commercial Code and any other
applicable law and, in addition, MCC may, without being required to give any
notice, except as may be required by mandatory provisions of law, sell the
noncash collateral, or any part thereof, at public or private sale or at any
brokers board or on any securities exchange, for cash, upon credit or for
future delivery, as MCC may deem commercially reasonable and apply the
proceeds thereof towards payment of the Secured Obligations. MCC shall not be
obligated to make any sale of Collateral to a third party if it determines
nor to do so, regardless of the fact that notice of sale may have been given.
In the event the proceeds from a sale of the Collateral exceed the amounts
outstanding in respect of the Secured Obligations, any such excess shall be
promptly transmitted by MCC to Pledgor following MCC's sale of the
Collateral, whether the Collateral is sold to MCC or a third party.
8. Pledgor's Sale of Collateral. Pledgor shall not pledge, encumber, sell,
transfer or otherwise convey any of the Collateral or any interest therein
without the prior written consent of MCC, which shall not be unreasonably
withheld or delayed. If MCC should give its prior written consent to any
sale, transfer or conveyance, then, prior to such sale, transfer or
conveyance, Pledgor shall satisfy any conditions placed by MCC upon such
sale, transfer and conveyance and shall obtain from the transferee and
deliver to MCC (i) a Stock Pledge Agreement executed by the transferee in
form and substance the same as this Agreement, pledging the Collateral and/or
other collateral obtained by the transferee as security for the performance
of Pledgor's obligations under the Finance Agreement, (ii) all of such
Collateral evidenced by certificates or instruments plus duly executed
instruments of transfer or assignments in blank, all in form and substance
satisfactory to MCC, (iii) acknowledgment copies of financing statements
filed in all offices necessary or desirable to perfect MCC's security
interest and/or interests in any of the Collateral not evidenced by a
security or an instrument; (iv) an opinion of counsel to the
<PAGE>
transferee, in form and substance satisfactory to MCC regarding the validity,
enforceability and perfection of such Stock Pledge Agreement and the security
interests created thereby; and (v) such other documentation as MCC may deem
necessary or desirable in order to maintain its first priority perfected
security interest in the Collateral. Any sale, transfer or conveyance of any
of the Collateral or any interest therein made with or without MCC's consent
shall be subject to MCC's continuing perfected first-priority security
interest in such Collateral unless MCC has expressly released such security
interest in writing.
9. Appointment of Attorney-in-Fact. Pledgor hereby irrevocably appoints MCC
as Pledgor's attorney-in-fact with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, for the purpose of carrying
out the provisions of this Agreement to receive, endorse and collect all
checks and other orders for the payment of money made payable to Pledgor
representing any dividend, interest payment or other distribution payable in
respect of the Collateral. The powers conferred on MCC hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon
it to exercise any such powers.
10. Termination. This Agreement, and the assignments, pledges and security
interests created or granted hereby, shall terminate only when (a) all the
then outstanding Secured Obligations shall have been paid in full and (b)
the line of credit under the Financing Agreement has terminated. Upon
termination, MCC shall promptly reassign and deliver to Pledgor, at Pledgor's
expense, all Collateral and related documents then in MCC's custody or
possession.
11. Notices. All notices, replies, requests, reports, demands, or other
communications required or permitted under this Agreement shall be in writing
in the English language, effective upon receipt, or upon confirmation of the
recipient's refusal of delivery, and shall be transmitted by (a) reputable
overnight courier, (b) telecopy with telephone confirmation of receipt, or
(c) registered or certified mail, return receipt requested, postage prepaid.
12. Further Assurances. Pledgor agrees, at Pledgor's own cost and expense,
to do such further acts and things, and promptly to execute and deliver such
additional conveyances, assignments, agreements, documents and instruments as
MCC may at any time reasonably request in connection with the administration
and enforcement of this Agreement or in order to perfect the pledge of stock
hereafter acquired in the Company or with respect to the protection and
perfection of the Collateral and any part thereof in order better to assure
and confirm unto MCC its right and remedies hereunder.
13. Absolute Interest. Pledgor acknowledges and agrees that the security
interest and assignment herein provided for shall be absolute and
unconditional and shall not in any manner be affected or impaired by any acts
or omissions whatsoever, and, without limiting the generality of the
foregoing, shall not be impaired by any acceptance by MCC of any other
collateral for or guarantors upon any of the indebtedness secured hereby, or
any by failure or neglect or omission on the part of MCC to realize upon,
collect or protect any indebtedness secured hereby or any collateral security
therefor. The security interest and assignment herein provided for shall not
in any manner be affected or impaired by (and MCC, without notice to anyone
is hereby authorized to make from time to time without the consent of
Pledgor) any sale, pledge, surrender, compromise, settlement, release or
renewal, extension, indulgence, alteration, substitution,
<PAGE>
exchange, change in, modification or disposition of any or of the
indebtedness secured hereby or of any of the collateral security therefor, or
of any guaranty thereof. In order to sell, dispose of or otherwise realize
upon the security interest and assignment herein granted and provided for,
and exercise the rights granted MCC hereunder and under applicable law, there
shall be no obligation on the part of MCC at any time to first resort for
payment to the Pledgor or to my guaranty of the indebtedness secured hereby
or any part thereof or to resort to any other collateral security, property,
liens or other rights or remedies whatsoever, and MCC shall have the right to
enforce the security interest and assignment herein granted and provided for
irrespective of whether or not other proceedings or steps are pending seeking
resort to or realization upon or from any of the foregoing.
14. FCC/PUC Approves. The exercise of any rights hereunder by MCC that may
require Federal Communications Commission ("FCC") shall be subject to
obtaining such approval. Pending obtaining any such FCC approval, Pledgor
shall not do anything contrary to the interests of MCC.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to its
provisions on the conflicts of laws.
16. Severability. If any provision of this Agreement is found to be
unenforceable for any reason whatsoever, such provision shall be deemed null
and void to the extent of such unenforceability but shall be deemed separable
from and shall not invalidate any other provision of this Agreement.
17. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but when taken
together shall constitute but one Agreement, and any of the parties thereto
may execute this Agreement by signing any such counterpart.
18. Amendments. This Agreement may not be amended, modified or changed nor
shall any waiver of any provision hereof be effective, except by an
instrument in writing signed by the party against whom enforcement of any
waiver, amendment, change, modification or discharge is sought. This
Agreement shall constitute the entire obligations of the parties hereto with
respect to the subject matter hereof, and shall supersede any prior
expressions of intent or understandings with respect to the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
PLEDGOR:
By: /s/ R. Maule
<PAGE>
Address:
Apt 35A Block 3
Pacific View
38 Tai Tam Rd Hong Kong
MOTOROLA CREDIT CORPORATION
By: /s/
Title: Attorney-in-fact
Address:
<PAGE>
EXHIBIT G
MOTOROLA CREDIT CORPORATION
1 CONTINENTAL TOWER,
1701 GOLF ROAD,
ROLLING MEADOWS, IL 6008
Dear Sirs:
HYPOTHECATION AGREEMENT
1. In consideration of Motorola Credit Corporation of 1 Continental
Tower, 1701 Golf Road, Rolling Meadows, IL 6008 (hereinafter referred to as
"MCC") entering into the Agreement (the "Agreement") dated 5 March, 1998 with
us, pursuant to our request, we hereby agree to hypothecate to MCC all our
right, title and interest to and in that certain moveable properly more
particularly described in Schedule A attached hereto (such property, together
with any property which may hereafter be hypothecated to MCC by us being
hereafter referred to as the "Hypothecated Goods"), as security for the
payment of United States Dollars 32,000,000 (United States Dollars Thirty Two
Million Only) and any and all amounts which may now or hereafter may at any
time be due to MCC from us, including, but not limited to, a service charge
in an amount determined by MCC, all costs, charges, taxes, and other expenses
incurred by MCC in connection with or relating to the Hypothecated Goods, the
Agreement and this Hypothecation Agreement.
2. By this agreement we agree to creates a valid and perfected first
security interest in the Hypothecated Goods for payment of the amounts due to
MCC as noted above which shall rake effect when the first amount is advanced
to us under the Agreement by MCC.
3. So long as this agreement remains in effect or any amount is owed
to MCC by us under the Agreement, we shall not, except in the ordinary course
of business and with the prior approval of MCC, at any time, remove or cause
or permit to be removed any Hypothecated Goods or any part thereof, from the
location where such goods are stored or divert or otherwise deal with such
goods or do any other act which might adversely affect MCC's security
interest in the Hypothecated Goods.
4. MCC, its agents, and nominees shall be entitled at all times, with
reasonable prior notice, to enter upon any place where the Hypothecated Goods
may be stored and inspect the same or any part thereof. Without limiting the
generality of the foregoing, and without prejudice to the other rights of
MCC, it is specifically agreed between the parties hereto that MCC, its
agent, or nominees shall have such right in the event that we shall (i) fail
or neglect to pay MCC on demand amounts due under the Agreement; (ii) commit
breach of any of the terms contained herein or in the Agreement; (iii) commit
any act of insolvency or become or be adjudged bankrupt or insolvent; or (iv)
permit execution to be levied or enforced upon or against any of its property.
26
<PAGE>
5. We shall hold MCC, its nominees and agents harmless from, and
indemnify them against, all injury, damage, cost, loss, expense or
deterioration suffered by MCC or its nominees or agents with respect to or in
connection with the Hypothecated Goods from any cause whatever, including,
but not limited to, fire, storm, tempest, earthquake, rains, floods, riots,
civil commotion, rebellion, insurrection, acts of God or the enemies of the
State, strikes, lockouts, political or labor disturbances, theft,
misappropriation or embezzlement.
6. We shall at all times regularly and particularly pay all rents,
rates, taxes, salaries and other impositions and expenses and shall duly
discharge and comply with all orders and requirements of appropriate
authorities that may from time to time respectively become due and payable or
be made in connection with the storage, transportation, maintenance, or care
of the Hypothecated Goods.
7. We shall at all times insure and keep insured all the Hypothecated
Goods to the full extent of their value against fire, theft and all other
risks, as MCC may require, and shall duly and punctually pay the premia
payable in respect thereof at least one week before the same shall become due
or payable and shall hand over the policy or policies of insurance and
receipts for premia paid in respect thereof to MCC. If default be made in
payment of such premia or in keeping the Hypothecated Goods so insured, then
and in such case it shall be lawful but not obligatory upon MCC to pay such
premia and to keep the same so insured and expense incurred by MCC for the
purpose together with an addition of 1% thereto as liquidated damages shall
be charged to and paid by us, as if the same were part of the amount due to
MCC under the said Agreement. We agree not to raise at any time any dispute
as to the amount of MCC's insurable interest in any Hypothecated Goods.
8. MCC shall be entitled to adjust, settle, compromise or refer to
arbitration any dispute between any Insurance Company and the insured arising
under or in connection with any such policy or policies as aforesaid and such
adjustment, settlement, compromise and any award made on such arbitration
shall be valid and binding on us and MCC shall also be entitled to receive
all moneys payable under any such policy or under any claim made thereunder
and to give a valid receipt therefor and the amount so received shall be
credited towards the outstandings under the said Agreement and we shall not
raise any objection whatsoever in this regard.
9. In the event of any default by us in payment of any amounts hereby
secured or in the performance of any obligation under the Agreement, MCC
shall be entitled to take possession and sell the Hypothecated Goods or any
part thereof either by public auction or private agreement or may acquire
such Hypothecated Goods itself.
10. We confirm we have good and marketable title to the Hypothecated
Goods free from any lien, charge, pledge, or other encumbrance and that all
future goods and merchandise hypothecated to MCC hereafter shall be likewise
free from any lien, charge, pledge, or other encumbrance. We shall not
except pursuant to this Hypothecation Agreement, pledge, hypothecate,
mortgage, or otherwise charge or encumber or do any other act which might
adversely affect MCC's security interest in or title to the Hypothecated
goods.
27
<PAGE>
11. Any notice by way of request, demand or otherwise may be given to
us by leaving the same at or sending the same by post to the Registered
Office or Principal place of business in Pakistan or may be left at the last
known place of business or residence in Pakistan and any notice sent by post
shall be deemed to have been given at the time when it would be delivered in
the course of post and in proving such notice when given by post, it shall be
sufficient to prove that the envelope containing the notice was posted and a
Certificate signed by the Bank's officer that the envelope was so posted,
shall be conclusive.
12. This hypothecation agreement shall be governed and construed in
accordance with the laws of Pakistan.
SCHEDULE A
(Attached to and forming part of the Hypothecation Agreement dated
______________ 1998 entered into by
Pakistan Mobile Communications (Pvt) Limited)
DESCRIPTION OF HYPOTHECATED GOODS
All present and future Equipment (as such term is defined in the Agreement)
IN WITNESS WHEREOF, the undersigned have executed this document on this
______ day of ________________, 1998.
JUNAID I. KHAN HAMID FAROOQ
FOR AND ON BEHALF OF PAKISTAN MOBILE COMMUNICATIONS (PRIVATE) LIMITED
WITNESSED BY:
1.
2.
28
<PAGE>
SIDE LETTER TO THE SHARE PLEDGE AGREEMENT
BETWEEN
MOTOROLA CREDIT CORPORATION (MCC)
AND
INTERNATIONAL WIRELESS COMMUNICATION PAKISTAN LIMITED (IWCPL)
DATED MARCH 5, 1998
For the purposes of clause 2.1 of the Stock Pledge Agreement of March 5, 1998
entered into between MCC and IWCPL the value of issued shares of Pakistan
Mobile Communications (pvt) Limited (PMCL) shall be agreed as being US$
250,000,000 (US Dollars two hundred and fifty million). At this date the
total number of shares issued by Pakistan Mobile Communications (pvt) Limited
and fully paid up is 87,176,146 (eighty seven million one hundred and seventy
six thousand one hundred and forty six) shares which is equivalent to US$
2.8677 per share.
The amount to be loaned under the Financing and Security Agreement dated
March 5, 1998 between MCC and PMCL is US$ 32,000,000 (US Dollars thirty two
million). International Wireless Communications Pakistan Limited (IWCPL) as a
share holder of PMCL is responsible for providing a collateral in the form of
pledge of shares to the value of 66.17% or US$ 21,174,400 (US Dollars twenty
one million one hundred and seventy four thousand four hundred) of the total
amount of the credit. The number of shares to be pledged therefore to
Motorola Credit Corporation is 7,383,747 (seven million three hundred and
eighty three thousand seven hundred and fifty seven shares).
In agreement therefore of the above the parties above mentioned have duly
executed this document on the day and year first above written.
Motorola Credit Corporation
By:
----------------------------------
Attorney in Fact
International Wireless Corporation Pakistan Limited
By:
----------------------------------
and: ---------------------------------
Witnesses:
- --------------------------------------
- --------------------------------------
<PAGE>
EXHIBIT 10.105T
FIRST AMENDMENT TO LETTER AGREEMENT
AMONG
MOTOROLA INTERNATIONAL DEVELOPMENT CORPORATION
INTERNATIONAL WIRELESS COMMUNICATIONS PAKISTAN LIMITED
AND
SAIF TELECOM (PVT.) LIMITED
This Amendment, effective as of the 25th day of February, 1998, as made
by and among Motorola International Development Corporation, a company
organized under the laws of the State of Delaware, United States of America
("MIDC"), International Wireless Communications Pakistan Limited, a company
organized under the laws of Mauritius ("IWCPL") and Saif Telecom (Pvt.)
Limited, a company organized under the laws of Pakistan ("SAIF")
(collectively, the "Parties").
WHEREAS, on August 13, 1997, the Parties entered into a Letter Agreement
(hereinafter called the "Agreement"); and
WHEREAS, the Parties now desire to amend the Agreement by revising
subsection (a) (ii) of Paragraph 6, titled MOTOROLA GUARANTY, of the Agreement.
NOW THEREFORE, in consideration of the mutual obligations contained
herein, the Parties hereby agree as follows:
1. Paragraph 6(a) (ii) of the Agreement is hereby replaced in its
entirety as follows:
"a guaranty for the benefit of ABN Amro Bank, dated February 25, 1998
(the "ABN Guaranty") and together with the Citibank Guaranties, the
Motorola Guaranties") to guarantee the payment of the principal of,
and interest on, loans made by Citibank, N.A. and ABN Amro Bank,
respectively (together, the "Lenders"), to the Company and all other
amounts payable by the Company to the Lenders with respect thereto
(together, the "Obligations"). As of the date of this Amendment to
this letter agreement, the aggregate outstanding Obligations
guaranteed under the Motorola Guaranties is US$39,768,000 consisting
of Obligations of US $12,068,000 under the first Citibank Guaranty
and US $7,700,000 under the second Citibank Guaranty and outstanding
Obligations of US $20,000,000 under the ABN Guaranty."
- 1 -
<PAGE>
2. Together with the Amendment contained herein, the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
duly executed on the day and year first above written.
MOTOROLA INTERNATIONAL SAIF TELECOM (PVT.) LIMITED
NETWORK VENTURES, INC.
BY: /s/ J. Michael Norris BY: /s/ Javed Saifullah Khan
------------------------------- -------------------------------
J. Michael Norris Javed Saifullah Khan
Director Chief Executive
INTERNATIONAL WIRELESS COMMUNICATIONS
PAKISTAN LIMITED
BY:
-------------------------------
Antonia Yeung
Director
BY: /s/ Robin Maule
-------------------------------
Robin Maule
Director
- 2 -
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
Exhibit 10.107
March 16, 1998
International Wireless Communications Holding, Inc.
400 South El Camino Real, Suite 1275
San Mateo, CA 94402
Attn: Steven Overly, Esq.
Re: Acquisition of Stock of RMD Venezuela and Venetel Owned Beneficially
by IWCH
Gentlemen:
This binding letter of intent (this "Agreement") embodies the
principal terms of the acquisition (the "Acquisition") by [*] a Delaware limited
liability company [*], or an affiliate of [*] (collectively, the "Purchaser"),
of (a) [*] of the outstanding capital stock of Radio Movil Digital de Venezuela,
C.A., a Venezuela corporation ("RMD Venezuela"), (b) an option (the "RMD
Venezuela Option") to acquire the remaining [*] of the outstanding capital stock
of RMD Venezuela, (c) [*] of the outstanding capital stock of Venezolana De
Telecomunicaciones, C.A., a Venezuela corporation ("Venetel" and, together with
RMD Venezuela, the "Companies") and (d) an assignment of two options
exercisable, respectively, until [*] and [*] (the "Venetel Option" and together
with RMD Venezuela Option, the "Options"), to acquire, in the aggregate, the
remaining [*] of the outstanding capital stock of Venetel, together with an
assignment of any and all rights, and the assumption of any and all obligations,
of any Shareholder under any agreement between or among any Shareholder on the
one hand and Venetel or any other shareholder of Venetel on the other
(collectively, including the Options, the "Shares"). The Shares are held by
International Wireless Communications Holdings, Inc. ("IWCH") or by entities
controlled by IWCH (IWCH, together with such other entities, the
"Shareholders"). The transactions described in this Agreement shall be
consummated in one closing, (the "Closing"). At the Closing, Purchaser shall
acquire the Shares. The Shares will be transferred to the Purchaser free and
clear of all liens and encumbrances; provided, however, that Purchaser may elect
within 20 business days from the Effective Date (as hereinafter defined), to, in
cooperation with the Shareholders, permit the outstanding loan to RMD Venezuela
from OPIC (the "OPIC Loan") to remain outstanding following the Closing, in
which case the RMD Venezuela Shares may continue to be encumbered pursuant to
such loan.
The Purchaser and the Shareholders hereby agree that, subject to the
conditions stated in this Agreement, the terms of the Acquisition shall be as
follows:
- ----------------------------
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 2
1. SALE OF RMD VENEZUELA AND VENETEL. At the Closing, Purchaser
will acquire from the Shareholders shares of capital stock representing [*] of
the outstanding capital stock of each of RMD Venezuela and Venetel (the "Initial
Shares"), the RMD Venezuela Option and the Venetel Option. The exercise price
of the RMD Venezuela Option (the "RMD Venezuela Option Price") shall be [*].
IWCH represents that (a) the exercise price of the Venetel Option is a total of
approximately [*] of which [*] was advanced by the Shareholders as of [*] and is
not refundable, (b) the remaining [*] (the "Venetel Option Price") is to be paid
once the Venezuelan regulatory authorities approve the transfer of the
remaining [*] of the outstanding capital stock of Venetel to the Shareholders,
and (c) the Venetel Option is assignable by the Shareholders. In addition, at
the Closing, the Shareholders shall (i) cause each of the Companies to grant a
limited power of attorney, in form and substance customary for transactions of
the type contemplated by this Agreement (the "Power of Attorney"), to
representatives of the Purchaser to represent the Companies before Conatel and
other competent authorities to the extent (x) necessary to obtain all necessary
government approvals and make all necessary governmental filings to consummate
the Options and (y) permissible pursuant to the terms of the concession
agreements between each of the Companies and the Republic of Venezuela and
(ii) cause each of the Companies to enter into a marketing and management
services agreement, in form customary for transactions of the type contemplated
by this Agreement (each a "Marketing Agreement"), with Purchaser or an affiliate
thereof under which Purchaser or such affiliate shall have the exclusive rights
to market telecommunications products and services on behalf of the Companies
for the duration of the telecommunications licenses granted to the Companies;
the use of funds, if any, payable to the Companies by subscribers or by
Purchaser or such affiliate pursuant to the Marketing Agreement shall be subject
to the prior approval of Purchaser and shall exclusively be used to finance the
operations and infrastructure of the Companies.
2. CONSIDERATION. The Shareholders shall sell the Initial Shares
and the Options to the Purchaser for a total price (the "Purchase Price") of
[*], which shall be subject to adjustment as set forth herein. The Purchaser
Price shall be payable in cash at the Closing, except that the sum of (a) the
Venetel Option Price and (b) all outstanding principal and interest under the
OPIC Loan that is not repaid by the Companies as of the Closing shall be
deducted from the amount payable to the Shareholders on a dollar-for-dollar
basis. If, at the time of the earlier of the consummation of the Venetel Option
and the expiration of the Venetel Option, the amount actually paid by the
Purchaser with respect to the Venetel Option is less than the Venetel Option
Price, the Purchaser shall pay to the Shareholders the difference (up to [*]
between the Venetel Option Price and the amount actually paid (which amount
could be zero if the Venetel Option expires) by the Purchaser to the holders of
the remaining [*] of the outstanding capital stock of Venetel upon consummation
of the Venetel Option. If the Venetel Option expires unexercised and subsequent
to the payment contemplated by the immediately preceding sentence, the Purchaser
acquires and pays for additional shares of Venetel, the Shareholders shall
reimburse to the Purchaser the amount so paid up to [*].
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 3
The Purchase Price shall be subject to adjustment to the extent the
telecommunications frequencies (the "Channels") of the Companies do not, as of
the applicable date of determination, constitute "Qualified Channels" as defined
in this Agreement. In order for a channel to be considered a Qualified Channel
for purposes of this Agreement, Purchaser, in cooperation with IWCH and the
Companies, must have been able to obtain confirmation, to the reasonable
satisfaction of Purchaser (the "Required Comfort"), that such Channels meet any
of the following standards: (i) in order for Channels to be considered
"Confirmed Original Channels" held by one of the Companies, such Channels must
have been legally and validly assigned to one of the Companies by Conatel and
there must be no reasonable evidence nor any notice received from the Venezuelan
regulatory authorities that such assignment is no longer in effect or reasonably
likely to be revoked; (ii) in order for Channels to be considered "Confirmed
Reserved In Use Channels" held by one of the Companies, such Channels must have
been previously reserved by Conatel in accordance with its usual and customary
practices in favor of one of the Companies, there must be a showing that the
requirements to begin use of such reserved Channels were complied with, there
must be no reasonable evidence nor any notice received from the Venezuelan
regulatory authorities that such reservation is no longer in effect or
reasonably likely to be revoked, and there must have been at least an oral
communication from Conatel made jointly to representatives of the Companies and
the Purchaser confirming that the use of such Channels is valid; and (iii) in
order for Channels to be considered "Confirmed Reserved Channels" held by one of
the Companies, such Channels must have been reserved by Conatel in accordance
with its usual and customary practices in favor of one of the Companies, there
must be a showing that the requirements to continue to hold such reserved
Channels and to apply to use them in the future have been complied with, there
must be no reasonable evidence nor any notice received from the Venezuelan
regulatory authorities that such reservation is no longer in effect or
reasonably likely to be revoked, and there must have been at least an oral
communication from Conatel made jointly to representatives of the Companies and
the Purchaser confirming that the reservation of such Channels is valid.
It is understood and agreed that the Shareholders and the Companies
shall be entitled to take such actions as may be legally necessary in order to
cause Channels assigned to or reserved for the Companies as of the date hereof
to be confirmed by Conatel as Qualified Channels. However, in no event shall a
Channel that was neither assigned to, previously reserved for and currently used
by, nor reserved for, the Companies as of the date of this Agreement constitute
a Qualified Channel for purposes of this Agreement. Purchaser and the
Shareholders agree to cooperate with each other, and to use their respective
commercially reasonable best efforts, to promptly obtain the Required Comfort
both prior to and after the Closing; in connection therewith Purchaser agrees
not to discuss the Companies or the Channels with Conatel except following prior
consultation with IWCH and, at the request of IWCH, in the presence of an IWCH
representative.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 4
In the event that the aggregate number of (i) Confirmed Original
Channels for immediate use in Caracas, (ii) Confirmed Reserved In Use Channels
in Caracas and (iii) Confirmed Reserved Channels reserved for use in Caracas
(collectively, "Caracas Qualified Channels") is less than [*], then the Purchase
Price shall be reduced by the product of (x) the difference between [*] and the
actual number of Caracas Qualified Channels times (y) [*] (such product being
the "Caracas Shortfall"). In the event that the number of (i) Confirmed
Original Channels for immediate use outside Caracas, (ii) Confirmed Reserved In
Use Channels outside Caracas and (iii) Confirmed Reserved Channels reserved for
use outside Caracas (collectively, "Non-Caracas Qualified Channels") is less
than [*] then the Purchase Price shall be reduced by the product of (x) the
difference between [*] and the actual number of Non-Caracas Qualified Channels
times (y) [*] (such product being the "Non-Caracas Shortfall").
At the time of the execution of the Purchase Agreement (as defined
below), the Purchaser shall place in escrow with an independent escrow agent
(which may be any commercial banking institution or trust company with at least
$1 billion in assets within the United States (the "Escrow Agent")), pursuant to
an escrow agreement, in customary form and in substance consistent with the
provisions of this paragraph, an amount (the "Pre-Closing Escrow") equal to the
sum of (a) the number of Caracas Qualified Channels for which Purchaser shall
have by such date received the Required Comfort times [*] plus (b) the number of
Non-Caracas Qualified Channels for which Purchaser shall have by such date
received the Required Comfort times [*]. The Pre-Closing Escrow shall be,
together with the balance of the Purchase Price payable at the Closing pursuant
to this Agreement, paid to IWCH (on behalf of the Shareholders) in cash at the
Closing.
During the 24-month period following the Closing (the "Post-Closing
Security Period"), as and when additional Channels constitute Qualified
Channels, IWCH (on behalf of the Shareholders) shall be paid by Purchaser or the
Escrow Agent promptly, but in any event within five (5) business days of written
demand by IWCH, the following: (a) with respect to additional Caracas Qualified
Channels, the product of (x) the number of Channels that became Caracas
Qualified Channels times (y) [*] and (b) with respect to additional Non-Caracas
Qualified Channels, the product of (x) the number of Channels that became
Non-Caracas Qualified Channels times (y) [*] (any additional amounts that become
payable to IWCH pursuant to this sentence being referred to therein as the
"Additional Channel Payments"). If at the Closing in order to fulfill the
condition set forth in subsection (i) of the second paragraph of Section 5 of
this Agreement, Purchaser is prepared to pay and pays IWCH and amount in excess
of the amount that would be required to be paid at such time based on the number
of Channels then constituting Qualified Channels, the Purchaser shall be
entitled to a credit against Additional Channel Payments and the Shortfall (as
hereafter defined), which credit shall be applied to the first payments that
would be required to be paid as Additional Channel Payments.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 5
In no event shall the Shareholders be required to refund any amount of such
excess otherwise than by way of credit against Additional Channel Payments.
At the Closing, the amount of the Caracas Shortfall and the
Non-Caracas Shortfall (collectively, the "Shortfall") shall be secured for the
duration of the Post Closing Security Period pursuant to an escrow agreement
which is in customary form and in substance consistent with the provisions of
the immediately preceding paragraph, this paragraph and the immediately
succeeding paragraph (the "Post Closing Escrow Agreement") by the Purchaser
either: (a) placing the amount of the Shortfall in cash in escrow pursuant to
the Post-Closing Escrow Agreement (the "Post-Closing Escrow"); (b) depositing
with the Escrow Agent publicly-traded securities (which securities may be
replaced and substituted by Purchaser from time to time) (the "Stock Pledge")
having a minimum aggregate market value at all times during the Post-Closing
Security Period equal to at least twice the amount of the balance of the
Shortfall as of such time; or (c) delivering to the Escrow Agent an irrevocable
standby letter of credit issued in favor of the Escrow Agent by a commercial
banking institution reasonably acceptable to IWCH and in form reasonably
satisfactory to IWCH (the "L/C") having a minimum outstanding draw amount as of
any time during the Post-Closing Security Period equal to at least the amount of
the balance of the Shortfall as of such time, and having a term equal to at
least twenty-one (21) days subsequent to the end of the Post Closing Security
Period or if such term is for a shorter period, providing that the L/C can be
drawn against in full at any time during the last five business days of its term
if not replaced prior to such period by a form of Security Method (as
hereinafter defined) meeting the requirements of this Agreement. Any securities
to be included in the Stock Pledge shall be publicly traded U.S. government
securities, commercial paper or corporate debt securities rated in each case B2
or higher by Moody's Investor Service and B or higher by Standard and Poor's, or
securities listed on any national securities exchange or the NASDAQ National
Market; provided, however, such securities issued to Purchaser by any of its
affiliates shall be qualified to be pledged under the Stock Pledge only if such
securities are either (a) as to stock or corporate debt, registered for sale
under the Securities Act of 1933, as amended, or (b) as to stock, freely
tradable by a pledgee pursuant to Rule 144 under such Act. The Purchaser shall
have the right of elect which of the Post-Closing Escrow, the Stock Pledge and
the L/C (collectively, the "Security Methods") to provide to the Escrow Agent
and the Purchaser shall have the right, form time to time, to substitute one
type of Security Method for another type.
If the Security Method then in effect during the Post-Closing Security
Period is the Post-Closing Escrow or the L/C, the Escrow Agent shall have the
obligation to pay any Additional Channel Payments to IWCH (on behalf of the
Shareholders) directly from the Post-Closing Escrow or by the Post Closing
Escrow Agent making draws against the L/C, respectively, as and when such
Additional Channel Payments are payable pursuant to this Agreement. If the
Security Method then in effect during the Post-Closing Security Period is the
Stock Pledge, and IWCH has provided written notice to the Post Closing Escrow
Agent that any
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 6
Additional Channel Payments have not been paid to IWCH (on behalf of the
Shareholders) by Purchaser after such payments were payable pursuant to this
Agreement, the Escrow Agent shall have the obligation to liquidate the Stock
Pledge in accordance with the terms of the Post Closing Escrow Agreement, apply
the proceeds to any portion of the Shortfall then payable and retain the balance
of such proceeds as if they had been deposited by Purchaser into the
Post-Closing Escrow. At the end of the Post-Closing Security Period, any amount
remaining in the Post-Closing Escrow, any securities remaining under the Stock
Pledge or any undrawn portion of the L/C shall be released to Purchaser.
The Purchase Price assumes that, at the Closing, the Companies shall
each have zero cash and Non-Cash Working Capital balances. Accordingly, the
Purchase Price shall be adjusted upwards or downwards, respectively, on a dollar
for dollar basis by the amount that Non-Cash Working Capital exceeds or is below
zero and by the amount of cash balances. "Non-Cash Working Capital" shall mean
current assets (excluding cash) less current liabilities, excluding the current
portion of long term debt. The Purchase Price shall also be adjusted downward
by the amount of long-term debt (including the current portion thereof) of the
Companies outstanding as of the Closing. The Non-Cash Working Capital and the
amount of long-term debt shall be determined in accordance with U.S. generally
accepted accounting principles consistently applied. The payment by Purchaser
at the Closing shall be based on a good faith estimate by the parties of the
Non-Cash Working Capital and long-term debt outstanding. Purchaser shall
conduct, within 90 days after the Closing, a post-closing review as of the date
of the Closing upon which the final Purchase Price adjustments with respect to
Non-Cash Working Capital and outstanding long-term debt shall be used. Such
review shall be subject to review by IWCH for a subsequent 30-day period; any
disputes concerning the amount of the Non-Cash Working Capital and the
outstanding long-term debt remaining after such 30-day period shall be promptly
submitted by the parties to an independent accounting firm of national standing
within the United States whose good faith determination of the disputed matters
shall be binding upon all parties. The parties agree to make payments to each
other as required based on such review within five (5) business days after all
disputes are settled and to share equally any fees and disbursements payable to
such independent accounting firm.
The Purchaser shall have a period of ten (10) years from the date of
the Closing within which to exercise and consummate the RMD Venezuela Option
(such ten-year period or such shorter period ending on the date on which the RMD
Venezuela Option shall have been exercised and consummated in full being
referred to as the "RMD Venezuela Option Period"). Notwithstanding the
immediately preceding sentence, however, neither the RMD Venezuela Option nor
the Venetel Option shall be exercisable until, and the RMD Venezuela Option
shall be promptly exercised in accordance with its terms following, the receipt
of all necessary Venezuelan regulatory approvals required for the consummation
of such Options.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 7
3. DUE DILIGENCE. Purchaser shall use its best efforts to complete
all necessary due diligence with respect to the Companies within fifteen
business days of the effective date of this Agreement. Purchaser acknowledges
that in connection with this Agreement or its due diligence review of the
Companies, it has taken, and will take, no actions with Venezuelan regulatory
authorities that reasonably could be anticipated to negatively impact the
business or operations of the Companies and that no such actions are required
for Purchaser to complete its due diligence review; provided, however, that the
foregoing shall not restrict the ordinary and customary business and government
relations activities of the Purchaser or its affiliates, in each case to the
extent unrelated to this Agreement and the purchase of the Shares or exercise of
the Options.
4. ACCESS. From and after the effective date of this Agreement, the
Shareholders and the Companies shall (i) provide Purchaser and Purchaser's
attorneys, accountants, advisors, representatives, affiliates and prospective
lenders with full and complete access to all assets, contracts, books and
records and financial statements of the Companies during normal business hours;
and (ii) provide Purchaser with such other information as Purchaser may
reasonably request. IWCH shall provide Purchaser as soon as practicable but in
any event within seven (7) days of the Effective Date with a list, which is, to
the best of the Shareholders' belief, true, complete and correct, in all
material respect, of all of the Companies' channels setting forth each channel
number, licensed service area, loading requirement and compliance therewith, and
operational and regulatory status, a copy of all licenses issued to the
Companies by Conatel for their channels and a copy of all interconnection
agreements. The terms of the Confidentiality Agreement dated January 22, 1998
are incorporated by reference herein and shall survive the termination hereof.
5. CONDITIONS. Although the parties intend to enter into a
definitive purchase agreement for the purchase of the Shares consistent with the
provisions of this Agreement (the "Purchase Agreement"), the parties hereto
acknowledge and agree that this Agreement is intended to be a legally binding
agreement, enforceable in accordance with its terms, and is not intended to be
subject to the execution of such additional documentation. Such definitive
Purchase Agreement shall be negotiated in good faith and contain reasonable and
customary representations, warranties, conditions, indemnification agreements,
and covenants. The parties will use their best efforts to cause the definitive
agreement to be prepared in final form and executed not later than 30 days after
the execution of this Agreement.
The following are conditions to the respective obligations of the
Shareholders and the Purchaser, irrespective of whether a Purchaser Agreement is
executed: (i) the Shareholders' obligation to consummate the Closing shall be
subject to the condition that the amount which Purchaser is required to pay to
IWCH or is otherwise prepared to pay to IWCH in respect of the Purchase Price at
the Closing, is at least [*] and (ii) Purchaser's obligation to consummate the
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 8
Closing shall be subject to the following conditions: (a) all of the Shares
shall be owned by the Shareholders; (b) as of the Closing there shall be a
minimum of [*] Caracas Qualified Channels and [*] Non-Caracas Qualified
Channels; (c) the Companies with respect to all of such Channels are in
compliance in all material respects with all applicable rules and requirements
of Conatel; (d) the Shareholders, with respect to the Companies and the
Channels, and the Companies have complied in all material respects with or are
not in violation of all applicable requirements of Venezuelan and United States
law, including the United States Foreign Corrupt Practices Act; (e) all of the
representations and warranties made by the Shareholders in the Purchase
Agreement shall have been true and correct when made and as of the time of the
Closing; and (f) Purchaser shall have had the opportunity to perform such due
diligence and verifications as Purchaser shall deem reasonable with regard to
the Companies and their channels and licenses and Purchaser shall be reasonably
satisfied with the results of such verifications and due diligence.
The parties shall also use their best efforts to satisfy all
conditions to the obligations of the parties to consummate the Closing and to
cause the Closing to occur as soon as practicable. In any event the Closing
shall occur, regardless of whether the Purchase Agreement is executed, within
five business days following the determination by Purchaser that, based on the
Required Comfort received by Purchaser and the amount of then-Qualified
Channels, the amount of the Purchase Price payable at the Closing shall be a
minimum of [*] subject to the satisfaction of the conditions to the obligations
of the parties, any of which may be waived.
6. INTERIM OPERATIONS. From the date hereof through the Closing,
the Shareholders will cause the Companies to conduct their business so as to
maintain and preserve their respective properties, businesses, subscribers, and
other assets, including the goodwill of Venezuelan regulatory authorities. From
the Effective Date through the Closing, IWCH will, from time to time, advise and
consult with Purchaser concerning significant developments in the operations of
the Companies, including but not limited to, capital requirements, management
and operating developments and regulatory developments. IWCH and the Purchaser
will use their respective reasonable efforts in good faith to agree upon any
actions that may be necessary or advisable for the Companies to take in response
to any such developments, which actions may include Purchaser providing capital
for the Companies on an interim basis upon mutually acceptable terms.
Commencing upon the Closing, at the request of the Purchaser, the
Shareholders shall cooperate with Purchaser and use their respective
commercially reasonable best efforts to, and cause the Companies to, obtain all
necessary regulatory or other approvals required for the exercise of the
Options. From the Closing through the RMD Venezuela Option Closing, IWCH and
the Shareholders shall cause RMD Venezuela to not, unless expressly permitted
hereunder, unless compliance with this sentence would cause a breach of the
concession agreement between RMD Venezuela and the Republic of Venezuela, or
with the prior written consent of Purchaser:
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 9
amend any provision of their constituent documents; engage in any transaction
with any Shareholder or in any transaction other than in the ordinary course of
business; make any material or substantive change in their business or capital
structure; incur any indebtedness; issue any capital stock or any rights,
warrants or options to purchase its capital stock; make any dividend or
distribution; or sell, transfer, encumber or pledge any of its assets other than
in the ordinary course of business consistent with past practice. From and
after the Closing, the Purchaser shall indemnify and hold harmless the
Shareholders and their respective directors, officers, partners, agents,
employees and controlling persons from and against any and all claims,
liabilities, costs, damages, expenses and losses suffered or incurred by them as
a result of any actions or inactions by Purchaser or any of its affiliates with
respect to RMD Venezuela, including, without limitation, actions or inactions
pursuant to the Power of Attorney or the Marketing Agreement between RMD
Venezuela and the Purchaser (the "RMD Marketing Agreement") or any violation of
the concession agreement between the Republic of Venezuela and RMD Venezuela
caused by the Purchaser during the RMD Venezuela Option Period. From and after
the Closing, each of the Shareholders shall jointly and severally indemnify and
hold harmless the Purchaser and its directors, officers, partners, agents,
employees and controlling persons from and against any and all claims,
liabilities, costs, damages, expenses and losses suffered or incurred by
Purchaser as a result of any actions or inactions (following a reasonable
request by the Purchaser to make or execute a lawful filing with any Venezuelan
governmental authority) by any of the Shareholders with respect to RMD Venezuela
or any concession agreement between the Republic of Venezuela and RMD Venezuela
by any of the Shareholders during the RMD Venezuela Option Period which prevents
the exercise or consummation of the RMD Venezuela Option or the ability of RMD
Venezuela to operate the Qualified Channels or of the Purchaser to obtain the
benefits of the RMD Marketing Agreement.
7. NEGOTIATIONS. From the Effective Date through [*] neither the
Companies, the Shareholders nor the directors, officers, agents or advisors of
any of them shall negotiate, or directly or indirectly solicit, or propose to
enter into, or continue any negotiations, or enter into any agreements or
understandings with any party other than the Purchaser which provide for or
relate to the disposition of a substantial interest in the Companies, or the
sale, transfer or other distribution of a substantial portion of the assets or
shares of the Companies, including their licenses or the Channels, nor shall the
Companies, the Shareholders or any such other person disclose to any other
person the existence of this Agreement or the status thereof except as required
to give effect to the provisions of this Agreement or as required by law,
provided that if the Closing shall have taken place, the obligations under this
section shall thereafter continue to be binding through the end of the RMD
Venezuela Option Period.
8. NO BROKERS. Except for the fees due TD Securities (USA) Inc.
from the Shareholders, for which neither the Companies nor the Purchaser shall
be liable, the Companies and the Shareholders represent and warrant that neither
has agreed to pay nor has taken any
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 10
action that will result in any other person or entity becoming entitled to
receive any brokerage fee, finder's fee or other similar fee or commission with
respect to the Acquisition.
9. EXPENSES. The Shareholders, on the one hand, and the Purchaser
on the other hand, will each bear their own fees and expenses, including, but
not limited to, fees and disbursements of attorneys and financial or other
advisors incurred in connection with the execution of this Agreement or the
transactions contemplated hereby.
10. GOVERNING LAW: JURISDICTION. The parties agree that the law of
the State of New York shall govern in the interpretation of this Agreement and
the Purchase Agreement. Any judicial proceeding brought against Purchaser or
IWCH or any dispute arising out of this Agreement or any matter relating hereto
may be brought in the United States District Court for the Southern District of
New York (or in the courts of the State of New York if the party bringing the
action has determined in good faith that jurisdiction may not be available in
the federal courts), and by execution and delivery of this Agreement, each of
parties to this Agreement accepts the exclusive jurisdiction of such courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.
11. TERMINATION. Notwithstanding anything to the contrary herein,
upon the execution of the Purchase Agreement, this Agreement shall terminate and
be of no further effect as of such date. In addition, this Agreement may be
terminated after [*] by either party in the event the Closing shall not have
occurred on or before such date, provided that the terminating party is not in
breach hereof. Any termination of this Agreement shall not relieve any party
from liability for breach of this Agreement; provided, however, that upon any
termination of this Agreement except (i) as the direct result of a material
breach of this Agreement by Purchaser, or (ii) by virtue of the execution of the
Purchase Agreement, any and all amounts placed in escrow by Purchaser shall be
released to Purchaser.
12. EFFECTIVE DATE. This Agreement shall become effective upon the
signature of IWCH (the "Effective Date"). If this Agreement is not signed by
IWCH and returned to [*] within one (1) business day of its receipt by IWCH, it
shall be void and of no further effect.
13. COUNTERPARTS; FACSIMILE. This Agreement may be executed by
counterparts and by facsimile transmission.
14. CERTAIN REPRESENTATIONS. Each of Purchaser and the Shareholders
hereby represent and warrant to the other that: (a) such party has the legal
right, power and authority to enter into this Agreement and consummate the
transactions contemplated hereby; and (b) this Agreement represents the legal,
valid and binding agreement of such party, enforceable in accordance with its
terms.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 11
15. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successor and legal
representatives. This Agreement constitutes the entire agreement among the
parties regarding the subject matter hereof. All prior or contemporaneous
agreements, proposals, understandings and communications among the parties,
whether oral or written are suspended by and merged into this Agreement. This
Agreement may not be modified or amended except by a written instrument executed
by all the parties hereto.
(b) All notices, consents and other communications hereunder
will be provided in writing and will be delivered personally, by a nationally
recognized overnight delivery service, by United States registered or certified
mail (return receipt requested) or by facsimile or similar method of
communication, to the parties at the respective addresses set forth below (or
such other address as may have been furnished by or on behalf of any party like
notice).
If to Purchaser: [*]
Attention: President and General Counsel
If to the Shareholders:
International Wireless Communications Holdings, Inc.
400 South El Camino Real, Suite 1275
San Mateo, CA 94402
Fax: 650-685-2173
Attention: Senior Vice President and General Counsel
Communications sent by facsimile will be deemed effectively served upon
dispatch, transmission confirmed. Communications sent by United States
registered or certified mail, postage prepaid, will be deemed effectively served
five (5) calendar days after mailing. Communications sent by a nationally
recognized overnight delivery service will be deemed effectively served, with
confirmation of delivery, one (1) calendar day after delivery to such a service
with all delivery fees prepaid.
(c) The Shareholders acknowledge that (i) the Channels are
unique properties, (ii) each of the agreements and obligations of the
Shareholders hereunder are a material inducement to the Purchaser to enter into
this agreement and to consummate the transactions contemplated herein, and
(iii) remedies at law would be inadequate and insufficient to compensate the
Purchaser in the event of a breach of said obligations and agreements of the
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 12
Shareholders. Accordingly, the Shareholders agree that in the event of a breach
or threatened breach of said obligations or agreements, the Purchaser shall be
entitled to such injunctive and other equitable relief, including the relief of
specific performance, in addition to other relief as is proper in the
circumstances.
(d) The parties agree at all times to act in good faith in
performance of their respective obligations under this Agreement.
(e) In the event of the disposition by the Purchaser to a
nonaffiliated person of any of the Shares (including any shares received by the
Purchaser upon the consummation of either or both of the Options), the Purchaser
shall not be relieved of its obligations hereunder unless the new owner of such
Shares agrees to assume all of such obligations.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
International Wireless Communications Holdings, Inc.
March 16, 1998
Page 13
(f) Purchaser and the Shareholders affirm, that with respect to
the Companies, each of them and their respective affiliates shall comply in all
material respects with, and shall not knowingly take any action that violates,
applicable requirements of Venezuelan and United States law, including the
United States Foreign Corrupt Practices Act.
Very truly yours,
[*]
(on behalf of the Purchaser):
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AGREED TO AND ACCEPTED
THIS ____ DAY OF ______, 1998;
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
(on behalf of itself and each of the Shareholders)
By:
------------------------
Name:
----------------------
Title:
---------------------
<PAGE>
Exh Page 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(AS OF MARCH 31, 1998)
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Percentage
------------------ Incorporation Ownership
--------------- ----------
<S> <C> <C>
International Wireless
Communications, Inc. Delaware, USA 100%
IWC Delaware Holdings, Inc. Delaware, USA 100%
CTP, Inc. California, USA 100%
AirTel Holding Corporation, Inc. Delaware, USA 100%
AirTel USA, Inc. Delaware, USA 100%
Telecomunicaciones Globales S. A. Mexico 1.56%
Radio Movil Digital Americas, Inc. Delaware, USA 100%
Digitel Cayman Islands 100%
Radio Movil Digital International Cayman Islands 100%
RMDV-Cayman Islands Cayman Islands 100%
Digicom Cayman Islands 100%
Radio Movil Digital Venezuela C.A. Venezuela 100%
Venezuelan Trunking Services, C.A. Venezuela 100%
Venezolana de Telecomunicaciones Venezuela 49%
Venetel, C.A.
Team Telecomunicaciones, C.A. Venezuela 20%
Radio Movil Digital Argentina S.A. Argentina 100%
Radio Servicios S.A. Argentina 80%
Comovec S.A Ecuador 100%
Radio Movil Digital Chile S.A. Chile 100%
RMD Peru S.A. Peru 96.7%
International Dispatch Corp. Delaware, USA 100%
Worldwide Trunking Inc. Delaware, USA 100%
RMD do Brasil, Ltda. Brazil 100%
Telecor Trunking S.A. Brazil 100%
Telecor Ltda. Brasil Brazil 100%
Duravel Trunking S.A. Brazil 100%
Radio Movil Digital S.A. Brazil 100%
PCS Trunking S.A. Brazil 100%
PCS - Rede de Comunicacoes Ltda. Brazil 100%
PCN Trunking S.A. Brazil 100%
PCN - Comunicacoes Pessoais Ltda. Brazil 100%
Polinet Trunking S.A. Brazil 100%
Polinet Tecnologia de Brazil 100%
Telecomunicacoes Ltda.
Solhar Trunking S.A. Brazil 100%
Solhar Tecnologia de Brazil 100%
Telecomunicacoes Ltda.
</TABLE>
<PAGE>
Exh Page 2
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Percentage
------------------ Incorporation Ownership
--------------- ----------
<S> <C> <C>
International Wireless Bermuda 100%
Communications Latin America
Holdings, Ltd.
PeruTel S.A. Peru 98%
Uniworld S.A. Peru 66.0%
Servicos de Radio Comunicacoes Ltda. Brazil 100%
Pelot Telecomunicacoes Do Sul Ltda. Brazil 100%
Via Movel 1 Comunicacoes S.A. Brazil 42.7%
Telcom - Telecomunicacoes do Brasil Brazil 42.7%
Ltda.
Teleporto - Empresa de Brazil 42.7%
Telecomunicacoes Ltda.
Rede Sul de Telecomuniacoes Ltda. Brazil 42.7%
Sulitel - Servicos de Brazil 42.7%
Telecomunicacoes Ltda.
Sao Paulo Systema de Brazil 21.4%
Radiocomunicacoes Ltda.
IWC do Brasil Ltda. Brazil 100%
International Wireless Netherlands 100%
Communications Asia Holdings, B.V.
International Wireless Netherlands Antilles 100%
Communications Asia Holdings, N.V.
International Wireless Mauritius 100%
Communications, Ltd.
Pakistan Wireless Holdings Ltd. Mauritius 100%
International Wireless Mauritius 32.5%
Communications Pakistan Ltd.
Pakistan Mobile Communications (Pvt) Pakistan 19.1%
Ltd.
IWC China Ltd. Mauritius 100%
Star Digitel Limited Hong Kong 40%
New Zealand Wireless Limited Cook Islands 100%
PT Mobilkom Telekomindo Indonesia 15%
Star Telecom Overseas (Cayman Cayman Islands 56%
Islands) Limited
Star Paging India Limited Mauritius 56%
RPG Paging Service Limited India 13.3%
First International Telecom Taiwan 6.7%
Corporation
WorldPage Co. Ltd. Thailand 11.2%
TeamTalk Limited New Zealand 100%
Wireless Data Services Limited New Zealand 64%
PT Rajasa Hazanah Perkasa Indonesia 28.3%
PT Mobile Selular Indonesia Indonesia 19.8%
Prismanet (M) Sdn Bhd Malaysia 22.5%
Segar Kasturi Sdn. Bhd. Malaysia 24%
Universal Telecommunications Philippines 19.0%
Service, Inc.
Singapore Wireless Communications Singapore 100%
(Pte) Ltd.
IWC (Hong Kong) Limited Hong Kong 100%
</TABLE>
<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-K AS OF AND FOR THE YEAR ENDED 12/31/97
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,410
<SECURITIES> 0
<RECEIVABLES> 7,446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,816
<PP&E> 25,143
<DEPRECIATION> 2,737
<TOTAL-ASSETS> 123,369
<CURRENT-LIABILITIES> 16,012
<BONDS> 123,072
105,306
9
<COMMON> 13
<OTHER-SE> (129,718)
<TOTAL-LIABILITY-AND-EQUITY> 123,369
<SALES> 3,275
<TOTAL-REVENUES> 3,275
<CGS> 3,471
<TOTAL-COSTS> 3,471
<OTHER-EXPENSES> 31,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,524
<INCOME-PRETAX> (96,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (96,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,650)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
