<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1998
Registration No. 333-33593
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SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
-----------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WORLDWIDE WIRELESS SYSTEMS, INC.
(Exact name of Small Business Issuer as specified in its Charter)
Delaware 4841 13-3831117
(State of Incorporation) (Primary standard industrial (IRS Employer
classification code) Identification No.)
P.O. Box 470
Ascutney, Vermont 05030
(802) 674-2206
(Address and telephone number of Principal Offices)
David E. Padilla, President
P.O. Box 470
Ascutney, Vermont 05030
(802) 674-2206
(Name, address and telephone number of agent for service)
Copies To:
Roger A. Tolins, Esq. Peter S. Erly, Esq.
Tolins & Lowenfels, Gravel and Shea
A Professional Corporation 76 St. Paul Street, 7th Floor
12 East 49th Street P.O. Box 369
New York, New York 10017 Burlington, Vermont 05402-0369
Telephone: (212) 421-1965 Telephone: (802) 658-0220
Facsimile: (212) 888-7706 Facsimile: (802) 658-1456
and
Steven Morse, Esq.
Lester Morse, P.C.
111 Great Neck Road
Great Neck, NY 11021
Telephone: (516) 487-1446
Facsimile: (516) 487-1452
<PAGE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: /x/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462
under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If delivery of a Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
- --------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
================================================================================
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of each class of Amount to be Maximum Aggregate Amount of
securities to be Registered Offering Offering Registration
Registered (1) Price(2) Price(2) Fee(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares of Common Stock, $.01 par 1,725,000 shs $ 8.00 $13,800,000 $ 4,071.00
value included in the Units
("Common Stock")
- -------------------------------------------------------------------------------------------------------------
Redeemable Unit Warrants 1,725,000 wts -- -- --
included in the Units(3)
("Unit Warrants")
- -------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 1,725,000 shs $10.00 $17,250,000 $ 5,088.75
exercise of Unit Warrants
- -------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 150,000 shs $12.00 $ 1,800,000 $ 531.00
exercise of the Underwriters' Warrants
- -------------------------------------------------------------------------------------------------------------
Redeemable Unit Warrants issuable 150,000 wts -- -- --
upon exercise of Underwriters' Warrants(3)
- -------------------------------------------------------------------------------------------------------------
Common Stock underlying Unit 150,000 shs $15.00 $ 2,250,000 $ 663.75
Warrants issuable upon exercise
of Underwriters' Warrants
- -------------------------------------------------------------------------------------------------------------
Total..............................................................................$35,100,000 $10,354.50
Less Registration Fees previously paid.................................... 7,044.75
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Balance................................................................... $ 3,309.75(4)
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</TABLE>
(1) Total estimated solely for the purpose of determining the registration fee.
Includes the Common Stock portion of 225,000 Units included in the
Representative's over-allotment option.
(2) Calculated pursuant to Rule 457(a) based on a bona fide estimate of the
maximum offering price.
(3) Issuable upon exercise of the Warrants, together with such indeterminate
number of securities as may be issuable by reason of the anti-dilution
provisions contained therein.
(4) Pre-effective Amendment No. 1 increased the number of shares to be issued
from 1,250,000 to 1,725,000. A filing fee in the amount of $5,871.21 was
submitted by wire transfer with the original filing. An additional filing fee in
the amount of $1,173.54 was submitted by wire transfer with Pre-effective
Amendment No. 1 for a total prior filing fee of $7,044.75. An additional filing
fee of $3,309.75 is submitted herewith for a total filing fee of $10,354.50.
<PAGE>
----------------------------
Pursuant to Rule 416, there also are being registered hereby such
additional indeterminate number of shares of Common Stock as may become issuable
by reason of stock splits, stock dividends, and similar adjustments as set forth
in the provisions of the Redeemable Warrants and the Underwriters' Warrants.
----------------------------
<PAGE>
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
Item in Form SB-2 Prospectus Caption
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<S> <C>
1. Front of Registration Statement and Outside Cover Page and Cover Page of
Front Cover Page of Prospectus Registration Statement
2. Inside Front and Outside Back Cover Pages Continued Cover Page, Table of
of Prospectus Contents
3. Summary Information and Prospectus Summary Prospectus Summary, Risk Factors,
Financial Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Underwriting, Risk
Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page, Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters, and Management
Certain Control Persons
11. Security Ownership of Certain Beneficial Principal Stockholders and
Beneficial Owners and Management Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters, Experts
14. Disclosure of Commission Position on Management - Indemnification
Securities Act Liabilities
15. Organization Within Five Years Prospectus Summary, Business,
Principal Stockholders, Certain
Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation of Financial Condition and
Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Not Applicable
Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants and Financial Disclosure
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ________________, 1998
WORLDWIDE WIRELESS SYSTEMS, INC.
1,500,000 Units consisting of 1,500,000 Shares of Common Stock and
1,500,000 Redeemable Common Stock Purchase Warrants
Worldwide Wireless Systems, Inc. (the "Company") hereby offers
1,500,000 units (the "Units") each consisting of one share of Common Stock, $.01
par value ("Common Stock"), and one Redeemable Common Stock Purchase Warrant
(the "Warrant"). The Common Stock and the Warrants are being sold in Units and
will be separately tradeable immediately upon issuance. Each Warrant entitles
the holder to purchase one share of Common Stock at a price of $10.00 per share
during the five year period commencing on the date of this Prospectus. The
Warrants are subject to redemption by the Company at any time commencing twelve
months after the date of this Prospectus at a price of $.10 per warrant if the
market price per share of Common Stock equals or exceeds $12.00 for a prescribed
period. See "Description of Securities."
Prior to this offering, there has been no public market for the Units,
the Common Stock or the Warrants. The offering price of the Units has been
arbitrarily determined by negotiation between the Company and Tasin & Company,
Inc., the representative of the several underwriters (the "Representative") and
is not related to the Company's asset value, net worth, or other established
criteria of value. See "Risk Factors" and "Underwriting." It is anticipated that
following this offering, the shares of Common Stock and the Warrants will be
quoted on the NASDAQ SmallCapTM Market under the symbols "WWYD" and "WWYDW,"
respectively.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 13 AND "DILUTION" AT PAGE
29.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Underwriting Discounts
Price to Public and Commissions(1) Proceeds to Company(2)
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<S> <C> <C> <C>
Per Unit ........ $ 8.00 $ .80 $ 7.20
Total(3) .......... $12,000,000 $1,200,000 $10,800,000
==================================================================================================
</TABLE>
(1) The Company has also agreed to pay the Representative a non-accountable
expense allowance equal to 3% of the aggregate purchase price of the securities
offered hereby and to issue Warrants to the Representative exercisable to
purchase up to 150,000 Units at an exercise price equal to $12.00 per Unit (the
"Underwriters' Warrants"). For additional information, including information
regarding indemnification of the Representative and other related matters, see
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $1,050,000 including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative an option, exercisable within
forty-five (45) days of the date of this Prospectus, to purchase up to 225,000
Units consisting of 225,000 additional shares of Common Stock and 225,000
additional Warrants on the same terms and conditions as set forth above to cover
over-allotments, if any. If the over-allotment option is exercised in full, the
Price to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be increased to $13,800,000, $1,380,000 and $12,420,000 respectively. See
"Underwriting."
-----------------
The Units offered hereby by the Company are being offered on a "firm
commitment" basis by the several underwriters when, as and if delivered to and
accepted by them, and subject to prior sale, withdrawal or cancellation of the
offer without notice. It is expected that delivery of the certificates
representing the Units will be made available at the offices of Tasin & Company,
Inc., 1377 Motor Parkway, Suite 208, Hauppauge, New York 11788 on
or about ____________, 1998.
Tasin & Company, Inc.
The date of this Prospectus is ______________, 1998
2
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Prior to this offering, the Company has not been subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company will become subject to the Exchange Act reporting
requirements upon effectiveness of the Registration Statement of which this
Prospectus is a part. The Company intends to register the securities offered
hereby under the Exchange Act simultaneously with the effectiveness of the
Registration Statement. In accordance with the Exchange Act, the Company will
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and copies of
such material can be obtained from the Public Reference Section at prescribed
rates. The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
The Company will furnish its shareholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate. The Company's fiscal year ends on June 30.
-----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
COMPANY'S SECURITIES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT THE
OFFERING, CREATING A SYNDICATE SHORT POSITION. UNDERWRITERS MAY BID FOR AND
PURCHASE UNITS, SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET TO
STABILIZE THE PRICES OF SUCH SECURITIES. THESE TRANSACTIONS MAY STABILIZE OR
MAINTAIN THE MARKET PRICE OF SECURITIES OF THE COMPANY AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933. Such statements regarding
future events and the future financial performance of the Company are subject to
certain risks and uncertainties including those discussed in "Risk Factors"
herein, which could cause actual events or the actual future results of the
Company's operations to differ materially from any such forward looking
statement. Among the factors that could cause actual events or results to differ
materially are the following: a lack of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company; pricing pressures
which could affect demand for the Company's services; changes in labor,
equipment and capital costs; the Company's inability to incorporate digital
compression technology and other new technology in its television system in a
cost efficient manner; unavailability of digital compression equipment at
reasonable prices; unavailability of Internet access technology and equipment at
reasonable prices; the Company's inability to implement and provide new services
such as high-speed Internet access and Internet telephony; the Company's
inability to obtain the necessary authorizations from the Federal Communications
Commission ("FCC") or state regulatory authorities for certain of its services;
competitive factors, such as the introduction of new technologies and
competitors into the wireless communications and Internet access business; a
failure by the Company to attract strategic partners in the Internet access
business; and general business and economic conditions. The Company wishes to
caution readers not to place undue reliance on any such forward looking
statements.
The following summary information is qualified in its entirety by the
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus does not give effect to the exercise of (i) the
Representative's over-allotment option; or (ii) the Underwriters' Warrants.
THE COMPANY
Worldwide Wireless Systems, Inc. (the "Company") is a Delaware
corporation organized in 1994 to act as a holding and strategic resource company
for wireless cable systems and advanced telecommunications systems. In March
1995, a wholly owned subsidiary of the Company, N.E.W. Acquisition Co., Inc.,
merged with New England Wireless, Inc. ("NEW"), a Vermont corporation engaged in
wireless cable television activities.
The Company's current wireless cable television system utilizes a
delivery system located on Mount Mansfield (the "Mount Mansfield System"), the
highest point in the state of Vermont. Currently, the Company provides wireless
cable television services for single family residences, multiple dwelling units
and commercial locations in northern Vermont and northeastern New York State.
The Company continues to maintain tower rights which it may elect to utilize in
other secondary Vermont markets.
4
<PAGE>
With a portion of the proceeds of this offering, the Company plans to
transfer its technology to a digital, multi-platform capability. This is
intended to allow it to provide additional services, including additional
television channel availability, Internet telephony and Internet access.
The Mount Mansfield System commenced operations in August 1994. The
system currently offers 23 channels, consisting of 18 satellite channels and
five local broadcast channels. The wireless cable channels include two
pay/premium cable channels. By employing digital compression technology, the
Company expects to be able to offer 40 or more channels and has reserved
remaining frequencies for use by Internet, voice and data services. As of
December 31, 1997, the system's initial signal pattern served an area with
approximately 160,000 households. Based on information reported by third parties
to the Vermont Department of Public Service, approximately 90,000 (56%) of these
households do not currently subscribe to hard-wire cable television. There is no
available data as to the number of these households that subscribe to satellite
or other wireless cable systems.
Wireless cable systems use microwave frequencies licensed by the FCC to
transmit signals over the air from a transmission tower to a microwave receiver
installed at the customer's home or business. Wireless cable systems transmit
signals over coverage areas of approximately 20 to 40 miles from their central
transmission point, although increases in transmission power and other factors
may expand the coverage area of a system to approximately 50 miles from the
central transmission point. Because microwave signals are transmitted over the
air, wireless cable technology does not require the costly infrastructure of
cable and amplifiers utilized by hard-wire cable system operators to deliver
services. As a result, wireless cable technology has been demonstrated to be a
reliable, yet relatively low cost medium for providing cable services to
customers.
Wireless cable systems compete directly with hard-wire cable and
satellite pay television program providers. Traditional hard-wire cable systems
deliver the television signal to a subscriber's location through a network of
coaxial cable and amplifiers. While traditional hard-wire systems do not require
a direct line-of-sight or an antenna at the subscriber location, they do require
an infrastructure which is often not found in rural or underdeveloped areas.
Unlike wireless cable television and hard-wire cable television providers, due
to technical considerations, satellite systems are unable to provide local
off-air VHF/UHF broadcast channels which offer local community access
programming. In addition, the fees and installation costs associated with
satellite systems are considerably more expensive than those fees charged by the
Company for its wireless cable services.
Substantial portions of the areas served by the initial signal pattern
of the Mount Mansfield System are not served by hard-wire cable systems. Because
wireless cable television programming depends on line-of-sight transmission of
its signal, certain areas within the initial signal area are not able to receive
the Company's broadcast signals. In communities with heavily forested areas,
hilly terrain, tall buildings or other obstructions in the transmission path,
transmission may be blocked at certain locations. The Company estimates that
5
<PAGE>
approximately 33% of the potential viewers in its signal areas are not able to
receive its signals. Signal repeaters known as "beam-benders" may be used to
transmit to locations outside the line-of-sight. In order to bring its signal
area coverage to 90%, the Company believes that approximately 22 beam-benders
are required. To date, the Company has purchased and installed three
beam-benders at an approximate cost of $6,000 apiece.
Because of continuing technological and regulatory developments within
the telecommunications industry, the Company believes that it can best
accomplish its business objectives by providing a variety of digital wireless
services instead of services based upon traditional analog-based technology
utilized by the Company to date. Such digital wireless services include: (i)
digital video (i.e. subscription television), (ii) high-speed Internet access,
and (iii) telephony services. A successful deployment of such service might
include the full bundle of broad band (i.e., video and high speed Internet) and
narrow band (i.e., telephony) services.
In the near future, the Company intends to begin offering high speed
Internet access services to customers in the Northeastern United States. In that
regard, it has entered into network services agreements with Icon CMT Corp.
("Icon CMT"), a New Jersey based Tier-One Internet service provider, and OEM
Networks, Inc. ("OEM Networks"), a Massachusetts based Internet service
provider, pursuant to which Icon CMT and OEM will supply the Company with
various network services. In August 1998, the Company executed a letter of
intent to enter into an agreement with Free-LinQ Communications Corporation
("Free-LinQ"), a New York City based television program provider to residents of
multi-family dwellings. Pursuant to the terms of the proposed agreement the
Company will provide high speed Internet access services to such residents in
conjunction with the services provided by Free-LinQ. The arrangement will be
subject to performance requirements that will be defined in the definitive
agreement. Although no assurances can be given that such agreement will be
finalized and executed, based upon the current state of the negotiations, the
Company anticipates that it will be entered into in the fourth quarter of
calendar 1998. In conjunction with high speed Internet access, the Company also
intends to pursue strategic relationships with companies that supply additional
value-added services such as hosting services, e-mail, web site design services,
Internet telephony, and video conferencing services. The Company is currently in
the process of evaluating the possible use of its wireless television spectrum
to provide Internet telephony services. Although the development of such
telephony services is in its early stages, management believes its wireless
spectrum is capable of delivering wireless local loop ("WLL") service in the
future through means and technologies it is currently evaluating. On September
12, 1997, the Company executed an agreement with VocalTec, Inc. ("VocalTec")
pursuant to which it purchased software designed to permit telephone
conferencing and fax services over the Internet. The VocalTec technology
proposed to be used by the Company is intended to take advantage of the wireless
broadcast capabilities of the Company. See "Business -- Other Technologies --
VocalTec, Inc." below. The Company has also executed a beta-site agreement with
InterDigital Communications Corporation ("IDC"), a provider of wireless local
loop products. The Company has not determined the level of resources it will
devote to the development of services using IDC's
6
<PAGE>
products. See "Business -- Other Technologies -- Local Wireless Loop Telephone
Service"; see definitions of telephony, local loop, and beta-site in Glossary of
Terms, "Business --Business Strategy -- Internet Access Services."
The Company's executive offices are located at Route 5 South, Ascutney,
Vermont 05030 and its telephone number is (802) 674-2206.
GLOSSARY
The following Glossary of Internet Terms defines terms used in the
discussion of the Company's Internet access services strategy.
Glossary of Internet Terms
B-CDMA(TM) IDC's name for a method of digital wireless transmission
allowing a large number of users to simultaneously access a
single radio frequency channel by allocating unique code
sequences to each user across each channel.
Backbone A centralized high-speed network that connects smaller,
independent networks.
Bandwidth The number of bits of information which can move over a
communications medium in a given amount of time.
Beta-site The initial application of a product in a commercial setting
for the purpose of field testing.
CLEC Competitive LEC. See definition of LEC, below.
Extranet A network that enables two or more institutions to privately
share resources and communicate over the Internet in their
own virtual space. This technology is typically used to
enhance business-to-business communications.
Firewall A gateway between two networks that buffers and screens all
information that passes between such networks.
Hosting Housing and managing a user's website application.
ILEC Incumbent LEC. See definition of LEC, below.
7
<PAGE>
Internet An open global network of interconnected commercial,
educational and governmental computer networks which utilize
a common communications protocol, TCP/IP.
Intranet A private network within an institution that uses Internet
software only for internal use. For example, many companies
have web servers that are available only to employees. An
intranet may simply be a network.
ISP Internet Service Provider. An institution that provides
access to the Internet.
Kbps Kilobits per second. A measure of digital information
transmission rates. One kilobit equals 1,000 bits of digital
information.
LAN Local Area Network. A data communications network designed
to interconnect personal computers, workstations,
minicomputers, file servers and other communications and
computing devices within a localized environment.
Leased Line A dedicated telecommunications line rented for use along a
predetermined route.
LEC Local Exchange Carrier. A telephone company for a given
geographic area. In return for being a given monopoly over
residential connections to the telephone network, the LEC is
subject to strict regulation of the services it offers and
rates it may charge for those services. The 1996
Telecommunications Act formed two types of LECs: Incumbent
Local Exchange Carriers (ILEC), including RBOC's, and
Competitive Local Exchange Carriers (CLEC).
Local Loop The last mile or last several miles from an Internet access
provider's backbone to a customer's phone or modem.
Operation of the local loop is the responsibility of the
LEC.
Mbps Megabits per second. A measure of digital information
transmission rates. One megabit equals 1,000 kilobits.
On-line services Commercial information services that offer a computer user
access through a modem to a specified information,
entertainment and communications.
8
<PAGE>
Outsourcing Utilization by an enterprise of third party vendors and
suppliers to provide services and support to customers of
the enterprise.
Protocol A formal description of message formats and the rules two or
more machines must follow in order to exchange such
messages.
RBOC Regional Bell Operating Company. The 1984 divestiture of
AT&T left local telephone service under the control of seven
RBOCs. An RBOC is an ILEC, which is a type of LEC.
Server A computer that offers a service to another computer. In
addition, such term means the software which resides on the
computer.
TCP/IP Transmission Control Protocol/Internet Protocol. A
compilation of network- and transport-level protocols that
allow computers with different architectures and operating
system software to communicate with other computers on the
Internet.
Telephony The science of transmitting speech over distances by
converting sound into electric impulses sent through a wire.
Tier 1 ISP Tier 1 Internet Services Provider. An ISP that controls its
own backbone, is directly connected to the Internet and
directly exchanges Internet traffic with other Tier 1 ISPs.
Other non-Tier 1 ISPs typically lease their connections and
possibly services from Tier 1 providers.
Voice Over IP The provisioning of telephony over an Internet Protocol
network.
Web World Wide Web. A network of computer servers that uses a
special communications protocol to link different servers
throughout the Internet and permits communication of
graphics, video and audio.
WLL Wireless local loop -- see local loop. Refers to providing
local loop via a wireless transmission facility.
9
<PAGE>
THE OFFERING
Securities Offered
by the Company 1,500,000 Units consisting of 1,500,000 shares
of Common Stock and 1,500,000 Redeemable Common
Stock Purchase Warrants. See "Description of
Securities."
Offering Price $8.00 per Unit
Common Stock Out-
standing before Offering(1) 3,244,948 shares
Common Stock Out-
standing after Offering(1)(2) 4,744,948 shares
Use of Proceeds To expand the Mount Mansfield System through the
purchase of digital compression equipment and
through increased marketing and staffing; to
initiate Internet access services through the
acquisition of Internet backbone connections,
the purchase of telecommunications equipment,
and outsource services, the hiring of technical
support persons and for marketing; to repay
outstanding indebtedness including $1,684,000 of
indebtedness owed to the Company's Principal
Stockholder, and for working capital and other
general corporate purposes. The Company may use
broad discretion in the use of proceeds.
Management has the right to reallocate use of
such proceeds. See "Use of Proceeds."
Risk Factors The securities offered hereby involve a high
degree of risk including but not limited to the
following: (i) the Company's independent
auditors indicate there is substantial doubt
about the Company's ability to continue as a
going concern; (ii) the Company is currently in
default under a number of agreements to which it
is a party, and such defaults could cause
substantial and irreparable injury through
termination of such agreements, damages or
otherwise; (iii) purchasers of the Units will
incur immediate and substantial dilution; and
(iv) other risks such as risks associated with
the technologies to be implemented by the
Company.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" AND "DILUTION."
10
<PAGE>
Proposed NASDAQ
SmallCap Market
Symbols(3) Common Stock - WWYD; Warrants - WWYDW.
- ------------
(1) Does not include (i) 1,484,939 shares of Common Stock issuable upon exercise
of outstanding options and warrants; (ii) 51,500 shares reserved for issuance
upon exercise of options which may be granted in the future pursuant to the
Company's 1998 Stock Option Plan; (iii) an additional approximately 59,700
shares issuable upon conversion of $179,084 in principal amount of outstanding
convertible promissory notes; (iv) up to an additional approximately 52,900
shares issuable upon exercise of warrants which the Company has agreed to issue
within 90 days after the completion of this offering; and (v) an aggregate
30,000 shares issuable upon exercise of options expected to be granted to
members of the Company's Advisory Board. See "Capitalization," "Management --
Stock Options" and "Description of Securities." (2) Includes the 1,500,000
shares of Common Stock comprising a portion of the Units offered hereby. Does
not include (i) an additional 1,500,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) up to
225,000 shares of Common Stock included in the Units issuable upon exercise of
the Representative's over-allotment option; (iii) up to an additional 225,000
shares of Common Stock issuable upon exercise of the Warrants included in the
Units issuable upon exercise of the Representative's over-allotment option; and
(iv) 300,000 shares of Common Stock (including 150,000 underlying shares of
Common Stock issuable upon exercise of Warrants) included in the 150,000 Units
issuable upon exercise of the Underwriters' Warrants. See "Description of
Securities" and "Underwriting." (3) There is no assurance that a trading market
will develop for the Company's Common Stock or the Warrants or that, if
developed, it will be sustained.
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SUMMARY FINANCIAL INFORMATION
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Revenue ............................................................... $ 354,000 $355,000
-----------------------------
Service cost .......................................................... 1,000 101,000
Programming and license fees .......................................... 869,000 851,000
Selling, general and administrative
expenses ........................................................... 2,204,000 642,000
-----------------------------
(Loss) from operations ................................................ (2,820,000)(1) (1,239,000)
Interest expense ...................................................... (1,585,000)(1) (402,000)
Miscellaneous (expense)
income ............................................................. (5,000) (44,000)
-----------------------------
Net (loss) ............................................................ $(4,410,000)(1) $(1,685,000)
Net (loss) per share of
common stock(2) .................................................... $ (1.49) $ (.60)
-----------------------------
Weighted average number of
shares of Common Stock
outstanding ........................................................ 2,963,000 2,792,000
Balance Sheet Data:
June 30, 1998
-----------------------------
Actual As Adjusted(3)
------ --------------
Working capital (deficit) ............................................. $(4,635,000) $ 6,053,000
Total assets .......................................................... 1,433,000 8,151,000
Total liabilities ..................................................... 4,734,000 1,050,000
Net tangible assets ................................................... (3,708,000) 6,980,000
Accumulated deficit ................................................... (7,629,000) (9,818,000)
(Capital deficiency)/stockholders'
equity ............................................................. (3,301,000) 7,101,000
</TABLE>
- ----------
(1) Included in the (Loss) from operations and the Net (loss) for the year ended
June 30, 1998 is a one-time charge recorded as compensation for an option
granted to the Company's Principal Stockholder valued at $1,468,000.
(2) Net loss per share is computed based upon the weighted average number of
shares of Common Stock outstanding during the periods.
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(3) As adjusted to give effect to (i) the sale of the 1,500,000 Units offered
hereby at a price of $8.00 per Unit; (ii) the conversion in August 1998 of
$766,648 of indebtedness (including accrued interest) into an aggregate 255,549
shares of Common Stock; (iii) additional borrowings by the Company during the
first quarter of fiscal 1999 of an aggregate $368,067 for working capital
purposes; and (iv) the application of approximately $3,400,000 of the net
proceeds of the offering to repay indebtedness (including the debt incurred in
the first quarter of fiscal 1999). See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING,
BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED BELOW. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN, AND AFFECTING, THE BUSINESS OF THE COMPANY AND THIS OFFERING BEFORE
MAKING AN INVESTMENT DECISION.
Financial
Limited Revenues; Accumulated Deficit; Ability to Continue as a Going Concern
The Company was organized in 1994 and its subsidiary, NEW, commenced
operations, on a limited basis, in August 1994. To date, the Company's
operations have been limited to the development of its Mount Mansfield System
through its subsidiary, NEW. The Company has no wireless cable operations in
other markets. The Company is currently seeking to expand its customer base
through the application of new technologies.
During the years ended June 30, 1998 and June 30, 1997, the Company had
revenues of $354,000 and $355,000 and operating losses of $2,820,000 and
$1,239,000, respectively. At June 30, 1998 the Company had a working capital
deficit of $4,635,000, an accumulated deficit of $7,629,000 and a capital
deficiency of $3,301,000. During the first quarter of the fiscal year ended June
30, 1998, the Company incurred a charge of $1,468,000 in connection with a stock
option granted to Alan R. Ackerman, the Company's principal stockholder (the
"Principal Stockholder"). See "Certain Transactions" below. The Company's
auditors have stated in their report on the Company's financial statements for
its fiscal year ended June 30, 1998 that the Company's recurring losses, its
working capital deficiency, its inability to pay debt on a current basis and its
delinquencies in making lease payments to wireless channel license holders and
sublessors raise substantial doubt as to the Company's ability to continue as a
going concern. The Company's losses are attributable to the lack of a sufficient
subscriber base to enable the Company to cover its ongoing programming,
licensing and other
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<PAGE>
costs. The Company expects to continue experiencing net losses while it develops
and expands its wireless cable systems and implements other technologies. No
assurance can be given that the Company will generate substantial revenues or
that the Company's business operations will prove to be profitable. The
Company's operations are subject to all of the risks inherent in the
establishment of a new business, particularly one in the highly competitive pay
television and Internet services industries. The likelihood of the success of
the Company must be considered in light of the problems, expense, difficulties,
complications, and delays frequently encountered in connection with establishing
a new business, including, without limitation, market acceptance of the
Company's services, regulatory problems, unanticipated expenses and competition.
There can be no assurances that the Company's proposed business operations will
be successful. See "Business" and "Financial Statements."
Application of a Substantial Portion of the Offering Proceeds to the Payment of
Unpaid Indebtedness
In connection with prior financings of the Company, a total of $738,000
in indebtedness outstanding as of June 30, 1998 was due and payable on demand
exclusive of the Company's indebtedness to the Principal Stockholder. The
Company lacked assets to pay such indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as to the August 1998
conversion of $655,763 of such indebtedness (plus $110,855 of accrued interest)
into an aggregate 255,549 shares of Common Stock. Although the Company intends
to pay such indebtedness on completion of the offering, attempts to compel
repayment prior to that time could negatively impact the Company's business
operations. A substantial portion of the net proceeds of this offering will be
used to repay such indebtedness as well as a portion of the Company's
indebtedness to the Principal Stockholder and the $200,000 of indebtedness
incurred by the Company for working capital purposes subsequent to June 30,
1998. See "Use of Proceeds."
Prior Dependence on Investors to Fund Operating Losses
To date, the Company has funded its operating losses through the sale
of equity and debt to various investors. There can be no assurance that such
sources of funding will remain available in the future, or if available, on
terms that will not have a negative or dilutive effect on the interests of
investors in this offering.
Need for Additional Financing For Growth
The growth of the Company's business will require substantial
investment on a continuing basis to finance capital expenditures and related
expenses for its cable television and Internet access service businesses. The
level of capital which will be required for this purpose has not been determined
and is, in any event, dependent upon the extent to which the Company utilizes
proceeds from the offering and revenues generated from its operations. Although
the Company believes that the proceeds from this offering, together with funds
expected to be generated from operations, will be sufficient to finance the
Company's working
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<PAGE>
capital requirements for at least twelve months following completion of this
offering, there can be no assurance that the Company will generate sufficient
revenues to fund its operations after that date. To the extent possible, the
Company will attempt to finance its acquisition of capital equipment through
lease financing, but there is no assurance that such financing will be available
on favorable terms. See "Business -- Business Strategy -- Internet Access
Services."
The Company believes that the net proceeds from this offering will be
sufficient to enable it to digitize its cable television system and to obtain
approximately 4,200 additional subscribers in the Mount Mansfield System over
the next three years as well as to provide Internet access services in the
Northeastern United States and other market areas. Further significant growth in
those services or expansion into new markets will require additional financing,
which may not be available on satisfactory terms, if at all. Failure to obtain
such additional financing could adversely affect the growth of the Company. The
proceeds from this offering will not be sufficient to develop other wireless
cable systems. Although the Company believes that operating revenues will enable
it to expand the subscriber base for its existing system, there can be no
assurance that the Company will generate adequate revenues to fund its growth.
The Company does not have a bank line of credit and there can be no assurance
that any required or desired financing will be available, through bank
borrowings, debt, or equity offerings, or otherwise, on acceptable terms. To the
extent that future financing requirements are satisfied through the issuance of
equity securities, investors may experience significant dilution in the net book
value per share of Common Stock. Additional debt could result in a substantial
portion of the Company's cash flow from operations being dedicated to the
payment of principal and interest on such indebtedness and may render the
Company more vulnerable to competitive pressures and economic downturns. The
Company's future capital requirements will depend upon a number of factors, many
of which are not within the Company's control, including programming costs,
capital costs, Internet access and service costs, marketing expenses, staffing
levels, subscriber growth and competitive conditions. See "Use of Proceeds,"
"Business," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CABLE TELEVISION
Defaults Under Agreements
NEW currently is in default on a number of its contractual agreements
because of payment arrearages. In addition, NEW is in default of its obligations
under various license agreements pursuant to which it obtains broadcasting
rights for frequencies covering its broadcast channels on its Mount Mansfield
location. Termination of certain of these agreements could have a material
negative impact on the Company and its business activities. The Company intends
to cure payment defaults under these agreements with the proceeds of the
offering. See "Use of Proceeds."
15
<PAGE>
Competition-Cable Television
The pay television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, satellite receivers, direct broadcast
satellites ("DBS") and other alternative methods of distributing and receiving
television transmissions. Further, premium movie services offered by cable
television systems have encountered significant competition from the home video
cassette recorder industry. In areas where several local off-air VHF/UHF
broadcast signals can be received without the benefit of cable television, cable
television systems have also experienced competition from the availability of
broadcast signals generally and have found market penetration more difficult.
Wireless cable programming is transmitted through the air via microwave
frequencies that generally require a direct "line-of-sight" from the transmitter
facility to the subscriber's receiving antenna. In communities that are heavily
forested, have hilly terrain, tall buildings or other obstructions in the
transmission path, transmission is blocked at certain locations. Traditional
hard-wire cable systems deliver the signal to a subscriber's location through a
network of coaxial cable and amplifiers and do not require a direct
line-of-sight for transmission. Therefore, those systems may have a competitive
advantage over the Company in those areas where the reception of wireless cable
transmissions is difficult or impossible. In addition, in limited circumstances,
extreme adverse weather could damage wireless cable transmission and receiving
antennas as well as transmission site equipment.
Wireless cable programming can only be transmitted on the frequencies
made available for wireless cable by the FCC. The Company plans to utilize the
proceeds of the offering to implement digital compression technology to allow it
to expand the number of channels it currently makes available to subscribers
from 23 to 40, and thereby compete more effectively with hard-wire cable
systems. See "Business -- Business Strategy -- Wireless Cable Television."
Although digitalization also will enable the Company to provide additional
channels for television programming, the Company expects to devote certain of
those channels to Internet and related services. Current hard-wire cable
companies in the Company's market area offer between approximately 20 and 60
channels to their subscribers. Satellite receivers and DBS have the capability
of delivering over 300 channels of programming compared to the current
non-compressed 23 channels the Company currently offers through its Mount
Mansfield System.
Unlike hard-wire operations, wireless cable operators like the Company
generally lease the wireless cable channels on which they transmit their
programming from channel license holders. Leases generally require the Company
to pay the lessor a fee based on a percentage of subscription revenues,
averaging approximately 5%, or, if greater, a minimum monthly fee. Although
hard-wire operators do not lease channels, they do generally pay franchise fees
on all gross revenues from cable system operations and leasing fees for cable
space on telephone poles, typically in the range of 3% to 5%, an expense that is
not incurred by wireless operators. Programming is generally available to
traditional hard-wire and wireless operators
16
<PAGE>
on comparable terms, although operators that have a smaller number of
subscribers often are required to pay higher per subscriber fees. Accordingly,
operators in the initial operating stage generally pay higher programming fees
on a per subscriber basis.
Legislative, regulatory, and technological developments may result in
additional and significant new competition, including competition from local
telephone companies. Many actual and potential competitors have greater
financial, marketing, and other resources than the Company. No assurance can be
given that the Company will compete successfully with hard-wire cable and other
pay television systems, or other companies engaged in providing the multi-media
services provided by the Company. See "Business -- Competition."
Necessary Revisions to License Agreements
Although the Company has obtained the consents of its licensing
companies necessary to permit provision of wireless digital video services over
40 channels, the Company's license agreements do not currently permit the
implementation of wireless Internet, telephone or other non-video services.
Consequently, the Company will need to negotiate amendments to those agreements
to accommodate those technologies. Because the terms and conditions of those
amendments have not been finalized, the Company is unable to predict the
additional costs which it will incur in connection with such licensing
agreements and the implementation of its contemplated new services technologies.
Geographic Cable Television Concentration in Vermont
The Company's business and customer base in wireless cable television
is almost entirely located in Vermont. As a result, the Company does not have
the benefit of diversification into various geographic areas which would
insulate it from economic downturns in a particular market area with respect to
that portion of its business. In the event of an economic reversal which
particularly affects Vermont, the Company's wireless cable television business
could be significantly and adversely affected.
Termination or Expiration of Channel Leases
The Company is dependent on lease agreements with third parties for its
wireless cable channels in the Mount Mansfield System (the "Lease Agreements").
As indicated above under "Risk Factors -- Defaults Under Agreements," the
Company is in default of several Lease Agreements which may cause their
termination. In addition, although the FCC does not have the authority to
terminate the lease of the channel licenses, the Company's ability to continue
to enjoy the benefits of the Lease Agreements will be dependent upon the channel
license holders' continuing compliance with applicable regulations. Under the
rules of the FCC, the term of a channel lease cannot exceed the term of the
license granted by the FCC to the license holder. FCC licenses for wireless
cable channels generally must be renewed every ten years and there is no
automatic renewal of such licenses. The Lease Agreements were commenced in 1991
and 1993 and have terms (with renewal options) of 20 years. The
17
<PAGE>
channel licenses leased to the Company pursuant to the Lease Agreements expire
beginning in 2001. Channel licenses are subject to non-renewal, revocation or
cancellation for violations of the Communications Act of 1934, as amended (the
"Communications Act") or the FCC's rules and policies. The termination of, or
failure to renew, a channel lease would result in the Company's inability to
deliver television programming on any such channel and would have a material
adverse effect on the Company.
Physical Limitations of Wireless Cable Transmission
Wireless cable programming is transmitted through the air via microwave
frequencies from a transmission facility to a small, Company-owned receiving
antenna at each subscriber's location and requires "line-of-sight" transmission.
Therefore, in communities with tall trees, hilly terrain, tall buildings, or
other obstructions in the transmission path, transmission can be difficult or
impossible to receive at certain locations without the use of signal repeaters
known as "beam-benders." Traditional hard-wire cable systems do not have a
line-of-sight concern with transmission and, therefore, may have a competitive
advantage over the Company in those areas equipped with hard-wire cable systems
where the reception of wireless cable transmission is difficult or impractical.
See "Business."
Dependence on Programming Agreements
In connection with its distribution of television programming, the
Company is dependent on fixed-term contracts with various program suppliers. If
such contracts are canceled or not renewed, the Company will have to seek
program material from other sources. There is no assurance that other program
material will be available to the Company's subscribers. The likelihood that
program material will be unavailable to the Company is significantly mitigated
by the Cable Act and various FCC regulations issued thereunder, which, among
other things, impose limits on exclusive programming contracts and generally
prohibit cable programmers in which a cable operator has an attributable
interest from discriminating against cable competitors with respect to price,
terms and conditions of sale of programming. See "Business -- The Mount
Mansfield System -- Programming."
INTERNET
New Internet Access Services
The Company has had no prior experience or background in the provision
of Internet access services (although two of the key executives who joined the
Company in August and September 1998 have such experience). The Company
initially intends to provide a portion of these services through outsourcing.
There can be no assurance that the Company's Internet access services including
its outsourcing relationships will be profitable. There also can be no assurance
that such outsourced services will remain available to the Company or, if so, on
favorable terms. The Company's provision of Internet access services constitutes
a new business operation for it, with all of the risks associated with any such
new operation,
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including the risks of unexpected operating difficulties, technological
problems, cost overruns, lack of customer demand and other factors. The
Company's management, other than said two individuals, have had no prior
background in marketing, distributing or selling Internet services. See
"Management."
Reliance upon Internet Backbone Providers
With respect to its proposed provision of Internet access and related
services, the Company initially expects to rely to a high degree on its Internet
backbone providers to furnish the Internet facilities and services which it
plans to offer. Therefore, for the foreseeable future, the Company will be
dependent upon the continued competitiveness and commercial attractiveness of
the various services made available to it by its Internet backbone providers. If
any such provider experiences difficulties developing and maintaining its
products and services, or experiences delays or setbacks in the provision of its
services, such events will have an immediate and detrimental effect on the
Company and its ability to expand Internet access and related services.
Competition in Internet Access Services
The markets proposed to be served by the Company, and other potential
Internet markets are extremely competitive. The Company expects competition to
persist, intensify and increase in the future. Because the only substantial
barriers to entry are the availability of bandwidth and the financial resources
required to build the necessary infrastructure, an influx of new market entrants
is expected to continue in response to the growing demand for information and
data communication technology services and products. Many of the Company's
competitors possess substantially greater technical, financial and marketing
resources than the Company. To the extent the Company offers certain other
related services, it also will encounter competition from data center providers
and other computer service companies.
The Company's current and prospective competitors in the Internet
communication services sector may be divided into the following groups: (i)
telecommunications companies; (ii) other Internet services providers that wish
to enter into the Company's prospective Internet access market; and (iii)
high-speed cable modem Internet providers. Many of these competitors have
substantially greater market presence, engineering and marketing capabilities
and financial, technical and personnel resources than those available to the
Company. As a result, they can be expected to be able to develop and expand
their communications infrastructures more quickly, adapt more swiftly to new or
emerging technologies and changes in customer requirements, take advantage of
acquisitions and other opportunities more readily, and devote greater resources
to the marketing and sale of their services than can the Company. In addition,
the Company believes that new competitors, including large computer hardware and
software, media and telecommunications companies, may enter or expand their
presence in the Internet access market, resulting in even greater competition
for the Company.
19
<PAGE>
Lack of In-House Distribution, Service and Support Network
With respect to Internet access services, the Company plans to
outsource certain of its services by utilization of the services of third-party
service and network firms in various market areas in which it may operate for
the distribution and support of its services. There can be no assurance that
such independent concerns will devote the time, attention and resources to the
Company's products and services necessary for the Company's profitability in
this area.
In addition, the Company's distribution and marketing agreements to
date and those in the future are and will be non-exclusive and many of the
companies with which the Company has such agreements will also have similar
agreements with the Company's competitors or potential competitors. There can be
no assurance that the Company's distributors will not develop and market
products in competition with the Company in the future, discontinue their
relationship with the Company or enter into other competing agreements with the
Company's competitors.
Security Risks
Despite the implementation of security measures, any communication
infrastructure is vulnerable to computer viruses and other disruptive problems.
Other Internet access providers have in the past experienced, and the Company
may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized use also could potentially jeopardize the
security of confidential information stored in the computer systems of the
Company and its customers which may result in liability of the Company to its
customers and also may deter potential subscribers. There can be no assurance
that any security measures implemented by the Company will not be circumvented
in the future. Eliminating computer viruses and eliminating other security
problems may require interruptions, delays or cessation of service to the
Company's customers, all of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Technological Change; Market Acceptance of Evolving Standards
The Internet access market proposed to be served by the Company is
subject to rapid technological change, changes in customer requirements,
frequent new product introductions and evolving industry standards that may
render existing services and products obsolete. As a result, any position the
Company may achieve in its initial markets may be eroded rapidly by product
advancements by competitors. The services and products proposed to be made
available by the Company must keep pace with technological developments, conform
to evolving industry standards, particularly client/server and Internet
communication and security protocols, and publishing formats, and address
increasingly sophisticated customer needs. There can be no assurance that the
Company will be able to obtain products with these characteristics or that it
will not experience difficulties that could delay or prevent the
20
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successful development, introduction and marketing of services and products made
available to it by third parties. If the Company is unable to avail itself of
services and products in a timely manner that are attractive in its market area
in response to changing market conditions or customer requirements, the
Company's business, financial condition and results of operations will be
materially and adversely affected. See "Business -- Business Strategy --Internet
Access Services."
Dependence Upon Growth of the Internet
With respect to its provision of Internet services, the Company will be
participating in a market in the early stage of development. Since this market
is relatively new and the level of competition is increasing, it is difficult to
anticipate the market growth rate and potential saturation. Sales of the
Company's services and products will depend in a large part on a robust industry
and infrastructure for providing commercial Internet access and carrying
Internet traffic and upon increased commercial use of the Internet. The Internet
may develop at a slower rate than would support the Company's continued growth
because of inadequate development of the necessary infrastructure, such as a
reliable network or timely development of complementary products. If necessary
infrastructure or complementary products are not made available to the Company
on reasonable terms, the Company's business, financial condition and results of
operations will be materially and adversely affected.
GENERAL
No Assurance of Continued NASDAQ Small Cap Listing
The Board of Governors of the National Association of Securities
Dealers, Inc. has established certain minimum standards for the initial
quotation and continued quotation of a security on NASDAQ. The standards for
initial quotation on NASDAQ of the Common Stock require, among other things,
that the Company have net tangible assets of $4,000,000; that the minimum bid
price for the Common Stock be $4.00 per share; that the minimum market value of
the public float (the shares held by non-insiders) be at least $5,000,000, and
that there be at least three market makers for the Common Stock. While the
Company expects to receive approval for initial listing of the Common Stock and
the Warrants on the NASDAQ (SmallCap) Market, the Company's securities may be
delisted for a variety of reasons. NASDAQ may delist the Company's securities if
it finds it is in the public interest or if the Company fails to meet certain
maintenance standards. An issuer's securities may continue to be listed on
NASDAQ if the market value of the public float is at least $1,000,000 and the
issuer has $2,000,000 in net tangible assets (or meets certain other
requirements), provided a minimum $1 bid price is maintained. There can be no
assurance that the Company will continue to satisfy the requirements for
maintaining a listing of its securities on NASDAQ. If the Company's Common Stock
and Warrants were to be excluded from NASDAQ, it would adversely affect the
prices of such securities and the ability of holders to sell them, and the
Company would be required to comply with the initial listing requirements to be
relisted on NASDAQ.
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Penny Stock Rules
If the Company is unable to satisfy NASDAQ's maintenance requirements
and the price per share of its Common Stock were to drop below $5.00, then
unless the Company satisfied certain net tangible asset or annual average
revenue tests, the Company's securities would become subject to certain penny
stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for securities that becomes subject to the
penny stock rules. If the Company's securities become subject to the penny stock
rules, investors in the offering may find it more difficult to sell their
securities.
Dependence on Key Individuals
The Company's development and success is significantly dependent upon
David E. Padilla, President and Chief Executive Officer, Scott A. Wendel,
Executive Vice President, Chief Operating and Chief Financial Officer and Craig
F. Sementilli, Vice President-Sales and Business Development. The Company's
wireless television operations will be substantially dependent upon Mr. Wendel
who has had extensive experience in the cable television field. Its Internet
service operations will be substantially dependent upon Messrs. Padilla and
Sementilli who have had significant prior experience in the Internet services
field. The Company currently has no keyman insurance in force on its officers.
The loss of the services of Mr. Padilla, Mr. Wendel or Mr. Sementilli could have
a material, adverse effect on the Company. The Company has entered into
employment agreements with each of these three individuals pursuant to which
each will devote his full time to the business of the Company.
See "Management."
Ongoing Influence of the Representative
Under the terms of its Underwriting Agreement with Tasin & Company,
Inc. (the "Representative"), the Representative has been granted a number of
rights with respect to the future operations of the Company, including the right
to designate a director or a non-voting advisor to the Board of Directors for a
period of three years from the closing of the offering, to approve the Company's
independent auditing firm for a period of five years after the closing of the
offering, to purchase 150,000 Units of the Company's securities for a period
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of five years after the closing of the offering, as well as other rights. Such
rights, especially when considered on a cumulative basis, may afford the
Representative a significant ongoing influence over the activities of the
Company. Such influence could be exercised in a manner which conflicts with the
best interests of the Company.
Lack of Prior Experience of the Representative
Tasin & Company, Inc. ("Tasin"), the Representative of the
Underwriters, was formed in July 1992 and commenced operations in November 1992
as a trading firm. Since 1994, Tasin has participated in one public offering as
a co-underwriter, and in both an initial public offering and a warrant exercise
as the managing underwriter. There can be no assurance that the Representative
will be able to assist the Company in a successful completion of the offering.
Tasin intends to act as a market maker in the Company's securities after the
offering but there can be no assurance that a public trading market will develop
therefor or, if developed, that such market will be sustained.
Impediments to Proposed Expansion
The Company has adopted a business strategy which includes, in part,
growth through the development of its wireless cable and other systems, the use
and acceptance of other wireless technologies and products, and the offer and
sale of Internet access services. The Company's proposed expansion will be
dependent on, among other things, the degree of competition it encounters in its
market area; its ability to acquire the rights to Internet access services and
other related services which are attractive in its market area; its successful
implementation of digital compression technology in its market area; its ability
to acquire the rights to offer Internet access services and other related
services in addition to those which it currently possesses; its ability to
incorporate technological changes into its product mix; the availability of
suitable management and other personnel; the Company's general ability to manage
growth; and the availability of adequate financing. The Company's management
will be responsible for the selection of expansion opportunities in its sole
discretion and shareholders will not be presented with advance information
regarding expansion opportunities or the ability to approve or disapprove
expansion opportunities. There can be no assurance that the Company will be
successful in its proposed business strategy. See "Business" and "Risk Factors
- -- Need for Additional Financing for Growth."
Additional Management
Upon completion of the offering, the Company intends to retain a new
Chief Financial Officer. See "Management." Consequently, investors will not have
the opportunity to evaluate the experience or qualifications of such person
prior to making an investment decision as to the Units. Furthermore, the Company
may experience delays in retaining a qualified individual, and may not succeed
in retaining such individual on favorable terms.
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<PAGE>
Broad Discretion in Use of Proceeds
A substantial portion of the proceeds of the offering will be allocated
to the Company's working capital and for general corporate purposes. The Company
will have broad discretion in allocating a significant portion of the net
proceeds from the offering without any action or approval of the Company's
stockholders. Accordingly, investors will not have the opportunity to evaluate
the economic, financial, and other relevant information that will be considered
by the Company in determining the application of such net proceeds. See "Use of
Proceeds."
Conflicts of Interest
To the extent that there are insufficient revenues from operations,
officers' salaries of up to approximately $350,000 will be paid from the net
proceeds of this offering within the first twelve months after the closing of
the offering to the Company's three principal officers, and $1,684,000 will be
repaid, from the net proceeds of the offering, to the Company's Principal
Stockholder who participated in a prior financing, in retirement of a portion of
certain indebtedness owed to him. Conflicts of interest could arise in the
negotiation of the terms of any transaction between the Company and its
shareholders, officers, directors, or affiliates. The Company has no plans or
arrangements, including the hiring of an independent third party, for the
resolution of disputes between the Company and such persons, if they arise. The
Company and its public shareholders could be adversely affected should such
individuals choose to place their own interests before those of the Company. No
assurance can be given that conflicts of interest will not cause the Company to
lose potential opportunities, profits, or management attention. The Company
could acquire wireless cable systems and other assets from management, principal
shareholders or their affiliates or from entities in which management, principal
shareholders or their affiliates may hold an interest. Such persons or entities
could derive monetary or other benefits from such transactions. Such benefits
could include, without limitation, the assumption of, or release from
liabilities incurred by such persons or result in increased control of the
Company by such persons.
Voting Power of Principal Stockholder
Upon completion of this offering (assuming non-exercise of the
Representative's over-allotment option), the Principal Stockholder will own
approximately 33% of the outstanding Common Stock of the Company. In addition,
he holds an option exercisable to purchase an additional 377,776 shares of
Common Stock. Consequently, the Principal Stockholder will be in a position to
influence a majority of the Company's Directors and generally to exercise
control over the Company's affairs. See "Management" and "Principal
Stockholders."
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<PAGE>
Dividends Unlikely
The Company has not paid any dividends on its Common Stock and does not
intend to declare or pay cash dividends in the foreseeable future. Earnings, if
any, are expected to be retained to provide funds for operation and expansion.
See "Dividend Policy."
Risk of Future Sales of Common Stock
Management and the other existing shareholders of the Company currently
own 3,244,948 shares of Common Stock of the Company, representing approximately
68% of the outstanding shares of Common Stock immediately following the offering
(assuming non-exercise of the Representative's over-allotment option). All of
these shares are deemed "restricted securities" as defined by Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") and were acquired or
were derived from securities purchased prior to the date hereof. In general,
under Rule 144, a person (or persons whose shares are aggregated) who has
satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period a number of restricted securities which does not
exceed the greater of one percent (1%) of the shares outstanding or the average
weekly trading volume during the four calendar weeks preceding the filing of the
notice of sale required by Rule 144. In addition, Rule 144 permits, under
certain circumstances, the sale of restricted securities by a person who is not
an affiliate of the Company and has satisfied a two-year holding period without
any quantity limitations. Any sales of shares by shareholders pursuant to Rule
144 may have a depressive effect on the price of the Common Stock.
At the date hereof, the Company has an additional approximately
1,597,500 shares reserved for issuance upon exercise of outstanding options and
warrants, warrants it is committed to issue within 90 days after completion of
this offering and upon conversion of outstanding convertible notes. Holders of
an aggregate _,___,___ of the outstanding "restricted shares" and holders of
outstanding options and warrants exercisable to purchase an aggregate _,___,___
shares of Common Stock have agreed with the Representative not to offer or sell
any such shares of Common Stock for a period of one year following the date of
this Prospectus without the Representative's prior written consent. See
"Principal Stockholders," "Underwriting," and "Description of Securities."
No Prior Market
There has been no prior market for the Units, Common Stock or Warrants
and there is no assurance that an active public market for the securities will
develop or be sustained after completion of this offering. The public offering
price of the Common Stock and the exercise price of the Warrants have been
determined by negotiations between the Company and the Representative and does
not necessarily bear any relationship to the Company's asset value, net worth or
other generally accepted criteria of value. It is anticipated that the Common
Stock will be listed on the NASDAQ Small Cap(TM) Market upon completion of this
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<PAGE>
offering. Even if such securities are so listed, there can be no assurance that
the Company will continue to meet such listing requirements.
Dilution
Purchasers who acquire Common Stock will incur immediate and
substantial dilution from the public offering price. Giving retroactive effect
to the consummation of the offering made hereby, the Company's pro forma net
tangible book value at June 30, 1998 would have been $1.47 per share
representing an immediate increase in net tangible book value of $2.71 per share
to the present shareholders and an immediate dilution of $6.53 per share of
Common Stock, or approximately 82%, to public investors from the public offering
price. See "Dilution."
Risk of Redemption of the Warrants
Under the terms of the Warrants, they can be redeemed by the Company at
a price of $.10 per Warrant any time commencing twelve months after the date of
this Prospectus if the price per share of the Common Stock of the Company
exceeds $12.00 per share for a period in excess of 20 consecutive trading days.
Such redemption right, if exercised, would significantly reduce the economic
value of Warrants not previously exercised to purchase Common Stock.
Volatility of Stock
The market prices for securities of newly public companies have
historically been highly volatile. Future announcements concerning the Company
or its competitors, including operating results, technological innovation, and
government regulations, could have a significant impact on the market price of
the Common Stock.
Risk of Market Confusion
An unaffiliated corporation has been formed with the name Worldwide
Wireless, Inc. in Delaware. The Company is not aware of any entity doing
business in the eastern United States using the name Worldwide Wireless or using
Worldwide Wireless in combination with other words in its name. However, the
Company has not taken steps to register its name as a service mark with the
United States Patent and Trademark Office. Therefore, the possibility exists
that Worldwide Wireless, Inc., a Delaware corporation or another competitor,
could enter markets in which the Company plans to operate or operates, and could
materially and adversely affect the Company due to resultant market confusion.
Risk of Authorization of Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
2,500,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be
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<PAGE>
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval (but subject to
applicable governmental regulatory restrictions), to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future.
See "Description of Securities."
Risk of Non-Registration of Securities in Certain Jurisdictions
The Company is required to have a current registration statement on
file with the Commission and to effect appropriate qualifications under the laws
and regulations of the states in which the holders of Warrants reside in order
to comply with applicable laws in connection with the exercise of Warrants and
the resale of the Common Stock issued upon such exercise. The Company,
therefore, will be required to file post-effective amendments to its
registration statement when subsequent events require such amendments in order
to continue the registration of the Common Stock underlying the Warrants and to
take appropriate action under state securities laws. There can be no assurance
that the Company will be able to keep its registration statement current or to
effect appropriate action under applicable state securities laws. Its failure to
do so may restrict the ability of the Warrant holders to exercise the Warrants
and resell or otherwise dispose of the underlying Common Stock.
GOVERNMENT REGULATION
Cable Television
The business of the Company is indirectly subject to regulation by the
Federal Communications Commission (the "FCC") and other regulatory agencies. The
right to transmit on wireless cable channels is regulated by the FCC and the
retransmission of local off-air VHF/UHF broadcasts is regulated by the United
States Copyright Office (the "U.S. Copyright Office") pursuant to the Copyright
Act of 1976, as amended (the "Copyright Act").
Pursuant to the Cable Television Consumer Protection and Competition
Act of 1992 (the "Cable Act"), the FCC adopted rate regulations exclusively for
traditional hard-wire cable systems which provide for, among other things,
reductions in the basic service and equipment rates charged by most hard-wire
cable operators and FCC oversight of rates for all other services and equipment.
The Cable Act also provides for rate deregulation of a traditional hard-wire
cable operator in a particular market once there is "effective competition" in
that market. Effective competition exists, among other circumstances, when
another multi-channel video provider exceeds a 15% penetration in that market.
FCC regulations continue to apply to traditional hard-wire cable operators as to
price and service absent effective competition. While current FCC regulations
are intended to promote the development of a competitive pay
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<PAGE>
television industry, the rules and regulations affecting the wireless cable
industry may change, and any future changes in FCC rules, regulations, policies
and procedures could have an adverse effect on the industry as a whole and on
the Company in particular.
Secondary transmission of a broadcast signal is permissible only if
approved by the copyright holder or if subject to compulsory licensing under the
Copyright Act. The U.S. Copyright office has taken the position that, effective
January 1, 1995, wireless cable operators, unlike traditional hard-wire cable
operators, will not be "cable systems" entitled to a compulsory license under
the Copyright Act. Pursuant to the Cable Act, local broadcasters may require
that cable operators obtain their consent before retransmitting local off-air
VHF/UHF broadcasts. The Company has obtained such consent for five broadcast
channels in the Mount Mansfield System that the Company is retransmitting on a
wireless cable channel. See "Business -- The Mount Mansfield System --
Programming."
Internet Services
With respect to its anticipated provision of Internet services, the
Company believes it is not currently subject to direct regulation by the FCC or
any other governmental agency, other than regulations applicable to businesses
generally. To date, the FCC has not actively sought to regulate the provision of
Internet access and related services. A determination by the FCC that providing
Internet transport or telephony services to customers over an IP-based network
is subject to regulation could adversely impact the Company's ability to provide
various existing and planned services, and could have a material adverse effect
on the Company's business, financial condition and results of operations.
Changes in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or indirectly affect the
regulatory status of Internet services, affect telecommunications costs,
including the application of access charges to Internet services, or increase
the likelihood or scope of competition from regional telephone companies or
others, could also have a material adverse effect on the Company's business and
results of operations. Due to the increase in Internet use and publicity, it is
possible that laws and regulations may be adopted with respect to the Internet,
including with respect to privacy, pricing and characteristics of services or
products. Certain other legislative initiatives, including those involving
taxation of Internet services and transactions, Internet regulation and
universal service contribution requirements for Internet providers, have also
been proposed. The Company cannot predict the impact, if any, that those or
other future laws and regulations or legal or regulatory changes may have on its
business.
Federal and state laws and regulations relating to the liability of
online services companies and Internet access providers for information carried
on or disseminated through their networks is currently unsettled. Several
private lawsuits seeking to impose such liability upon online services companies
and Internet access providers are currently pending. In addition, legislation
has been enacted and new legislation has been proposed that imposes liability
for or prohibits the transmission on the Internet of certain types of
information. The
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<PAGE>
imposition upon the Company and other Internet access providers of potential
liability for information carried on or disseminated through their systems could
require the Company to implement measures to reduce its exposure to such
liability, which may require the expenditure of substantial resources, or to
discontinue certain service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
actions and proposals could impact the growth of Internet use. Even if the
Company carried professional liability insurance (which it does not currently
maintain), such coverage may not be adequate to compensate or may not cover the
Company in the event the Company becomes liable for information carried on or
disseminated through its networks. Any costs not covered by insurance incurred
as a result of such liability or asserted liability could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DILUTION
As of June 30, 1998, the Company had a net tangible book value
(deficit) of $(3,708,000) or approximately $(1.24) per share of Common Stock.
Net tangible book value (deficit) per share represents the amount of the
Company's total tangible assets, less liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of the
1,500,000 Units offered hereby at $8.00 per Unit and the receipt of the net
proceeds (after deducting underwriting commissions and estimated offering
expenses) therefrom, the adjusted pro forma net tangible book value per share of
Common Stock as of June 30, 1998 would increase to approximately $1.47.
Consequently, the purchasers of the Units offered hereby will sustain an
immediate dilution of $6.53 per share.
The following table illustrates the dilution per share of Common Stock
to be incurred by public investors from the public offering price:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price(1)................ $8.00
Net (negative) tangible book value per
share of Common Stock at June 30, 1998..... $(1.24)
Increase in net tangible book value per
share of Common Stock attributable
to public investors(2)..................................... 2.71
-- ----
Pro forma adjusted net tangible book
value per share of Common Stock
after offering............................................... 1.47
-----
Dilution of net tangible book value per
share to public investors.................................... $6.53
=====
</TABLE>
- ------------
(1) Allocating no value to the Warrants offered hereby.
(2) After deduction of underwriting commissions and the estimated expenses of
this offering.
The foregoing assumes non-exercise of the Warrants, the Underwriters'
Warrants and the Representative's over-allotment option.
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<PAGE>
The following table sets forth the difference between the present
shareholders and the public investors in this offering with respect to the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Weighted
---------------- ---------------------- Average
Number Percent Amount Percent Price Per Share
------ ------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,244,948 68% $ 3,815,514(1) 24% $1.18
Public investors 1,500,000 32% $12,000,000(2) 76% $8.00
--------- ---- ----------- ----
4,744,948 100% $15,815,514 100%
========= ==== =========== ====
</TABLE>
- ------------
(1) Includes $1,059,109 paid by shareholders of New England Wireless, Inc., the
Company's predecessor.
(2) Based on the currently anticipated public offering price and attributing no
portion of the initial public offering price to the Warrants.
The foregoing table assumes non-exercise of the Warrants, the
Representative's over-allotment option and the Underwriters' Warrants. In
addition, the table does not take into account an additional approximately
1,597,500 shares of Common Stock reserved for issuance upon exercise of
currently outstanding stock options and warrants; warrants the Company is
committed to issue within 90 days after the completion of this offering and upon
conversion of outstanding convertible notes. See "Management -- Stock
Options," "Description of Securities" and "Underwriting."
USE OF PROCEEDS
The net proceeds (after deducting underwriting discounts and other
expenses of the offering payable by the Company) from the sale of the Units
offered hereby by the Company, are estimated to be approximately $9,750,000. The
net proceeds have been calculated using an initial public offering price of the
Units of $8.00. The net proceeds are expected to be used over approximately
twelve months following the completion of this offering for the following
purposes:
<TABLE>
<CAPTION>
Percentage of
Amount Net Proceeds
------ ------------
<S> <C> <C>
Expansion of the Mount
Mansfield wireless cable
television system(1)......................... $3,000,000 31%
Initiation of Internet
access services(2)........................... 1,000,000 10%
Repayment of indebtedness(3).................. 3,400,000 35%
Working capital(4)............................ 2,350,000 24%
---------- ----
Total $9,750,000 100%
========== ====
</TABLE>
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<PAGE>
- ------------
(1) To expand the Mount Mansfield System through the purchase of digital
compression equipment in order to digitize the system and to add additional
subscribers through marketing and advertising and the upgrading of available
services. The amounts allocated to the expansion includes the hiring of
additional installers and repair personnel as well as anticipated installation
costs.
(2) To initiate Internet access services through the acquisition of Internet
backbone connections, the purchase of telecommunications equipment and outsource
services, for marketing, advertising and promotion and for the hiring of
technical support personnel.
(3) Consists of the repayment of (i) approximately $1,000,000 of principal and
interest on outstanding Company promissory notes issued in connection with
private placements (the "Notes") carrying interest rates between 7.5% and 15%
per annum, (ii) repayment of indebtedness to the Company's Principal Stockholder
of $1,684,000 (out of a total indebtedness of $2,121,496 owed to such Principal
Stockholder at June 30, 1998 including $380,615 of interest accrued at annual
rates varying from 7.5% to 15%), and (iii) repayment of trade indebtedness of
approximately $725,000. The Notes have matured and are currently payable. The
proceeds from the Notes were used primarily to pay costs associated with the
inception of the Company's broadcasting activities, including compensation
expenses, and to purchase transmission and other equipment. See
"Capitalization."
(4) Proceeds allocated to working capital will be used to fund general
operations of the Company.
The foregoing represents the Company's best estimate of the allocation
of the net proceeds of this offering based upon the current status of its
business operations, its current plans and current economic conditions. Future
events, including the problems, delays, expenses and complications frequently
encountered by early stage companies as well as changes in regulatory, political
and competitive conditions affecting the Company's business and the success or
lack thereof of the Company's marketing efforts, may make shifts in the
allocation of funds necessary or desirable.
Prior to expenditure, the net proceeds will be invested in short-term,
interest bearing investment grade securities or money market funds. Any proceeds
received upon exercise of the Representative's over-allotment option or upon
exercise of the Warrants and the Underwriters' Warrants as well as income from
investments, will be used for working capital.
DIVIDEND POLICY
The Company has never paid a cash dividend and does not anticipate the
payment of cash dividends on its Common Stock in the foreseeable future as
earnings are expected to be retained to finance the Company's growth.
Declaration of dividends in the future will be at the discretion of the
Company's Board of Directors, which will review its dividend policy from time to
time.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, and as adjusted to give effect to the issuance and sale of the
securities offered hereby and the initial application of the estimated net
proceeds therefrom after deducting underwriting discounts, commissions and
estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Notes Payable, net of unamortized debt
discount of $40,000(1)............................................ $ 2,869,000 $ 488,000
----------- -----------
Preferred Stock; $.01 par value; 2,500,000
shares authorized; none issued and outstanding.................... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 2,989,399 shares issued and outstanding
at June 30, 1998; 4,744,948 shares issued and
outstanding at June 30, 1998, as adjusted(2)...................... 30,000 48,000
Additional paid in capital......................................... 4,298,000 16,871,000
Accumulated deficit(3)............................................. (7,629,000) (9,818,000)
Total stockholders' equity (capital deficiency).................... (3,301,000) 7,101,000
----------- -----------
Total capitalization............................................... $ (432,000) $ 7,589,000
=========== ===========
</TABLE>
- ------------
(1) Includes $1,684,000 payable on the completion of the offering to the
Company's principal stockholder, repayment of promissory notes outstanding at
June 30, 1998 of $512,000 and promissory notes issued subsequent to June 30,
1998 of $368,000 and the conversion in August 1998 of $656,000 of indebtedness
(plus accrued interest) into an aggregate 255,549 shares of Common Stock. See
"Use of Proceeds."
(2) Excludes (i) 1,597,500 shares of Common Stock issuable upon exercise of
outstanding options and warrants, warrants the Company is committed to issue
within 90 days after completion of this offering and upon conversion of
outstanding convertible notes; (ii) 1,500,000 shares of Common Stock issuable
upon exercise of the Warrants included in the Units offered hereby; (iii) up to
450,000 shares of Common Stock issuable upon exercise of the Representative's
over-allotment option and underlying Warrants; and (iv) 300,000 shares of Common
Stock issuable upon exercise of the Underwriters' Warrants. See "Certain
Transactions."
(3) Gives effect to the recognition of $40,000 of expense upon the closing of
the offering representing debt discount and interest expense recorded on the
conversion of debt into and the issuance of Common Stock and other securities at
below market value. See "Use of Proceeds."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Years Ended June 30, 1998 and 1997
The Company generated subscription revenues earned from its provision
of wireless cable television services during fiscal 1998 and 1997 of $354,000
and $355,000 respectively. The Company did not have enough subscribers in either
period to generate revenues sufficient to cover its operating expenses which
totalled $3,174,000 and $1,594,000 respectively in fiscal 1998 and 1997. The
Company's operating expenses included service costs, programming and license
fees and selling, general and administrative expenses. Included in selling,
general and administrative expenses in fiscal 1998 is a charge recorded as
compensation for an option granted to the Principal Stockholder valued at
$1,468,000. In addition, the Company wrote off deferred offering expenses of
$197,000 in fiscal 1998.
The Company recorded interest expense of $1,585,000 in fiscal 1998 as
compared with $402,000 in fiscal 1997, the increase being primarily attributable
to interest expense incurred in connection with the issuance by the Company of
Common Stock and other securities at below market values.
As a result of the charge for the option granted to the Company's
Principal Stockholder, the increase in interest expense and the write-off of
deferred offering expenses, the Company incurred a net loss of $4,410,000 in
fiscal 1998 as compared to a net loss of $1,685,000 in fiscal 1997.
During each period, the Company experienced continuing cash shortages
due to an insufficient subscriber base. The resulting cash shortages rendered it
unable to advertise or otherwise aggressively promote its services. It also
rendered the Company unable to pursue the acquisition of other cable television
systems or the implementation of new technologies which might have improved its
profitability. See "Use of Proceeds" and "Business" as to the Company's
intention to apply a portion of the net proceeds of this offering to the
expansion of its wireless cable television system through the purchase of
digital compression equipment in order to digitize the system as well as its
intention to initiate Internet access services.
Liquidity and Capital Resources
At June 30, 1998, the Company's current assets of $32,000 were
substantially exceeded by current liabilities of $4,667,000 resulting in a
$4,635,000 working capital deficit. In August, 1998, an aggregate $655,763 of
current indebtedness plus $110,885 of accrued interest thereon was converted
into an aggregate 255,549 shares of Common Stock. The Company intends to apply a
portion of the net proceeds of the offering to the further reduction of its
current liabilities. See "Use of Proceeds."
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<PAGE>
The Company has financed its operations to date through private sales
of its debt and equity securities. The proceeds of sale of such indebtedness and
equity have been used to defray the ongoing operating cash shortfalls
experienced by the Company. The major source of capital to finance the Company's
activities have been loans from the Principal Stockholder. As of June 30, 1998,
the outstanding principal balance of loans made to the Company by the Principal
Stockholder totalled $1,740,881 plus accrued but unpaid interest calculated at
an annual rate varying between 7.5% and 15% and totalling $380,615. The Company
plans to retire $1,684,000 of such indebtedness out of the proceeds of the
offering. See "Use of Proceeds."
The Company intends to apply a substantial portion of the net proceeds
of the offering to the acquisition and installation of equipment necessary to
convert its cable television broadcast system to a system utilizing digital
technology. The Company expects that this level of funding should be sufficient
to complete such implementation and to expand the system. As the Company moves
to a digital platform, the existing 50-watt analog equipment will be modified to
operate in a digital format, and used in the Burlington, Vermont market. Any
equipment that cannot be modified will be used in smaller markets where
digitally platformed environments are not economically viable, such as rural
markets with fewer than 5,000 potential subscribers. See "Use of Proceeds" and
"Business."
Since July 1, 1996, in addition to loans from the Principal
Stockholder, the Company funded its operations through a number of loans from
private investors including stockholders and creditors of the Company.
Borrowings were made at annual interest rates varying form 7.5% to 15%.
In addition to its issuance of promissory notes, the Company issued
warrants exercisable to purchase shares of its Common Stock in connection with
certain of these loans, in some instances at an exercise price of $3.00 per
share and in other instances at a per share exercise price equal to the lesser
of $3.00 or 50% of the public offering price per share of the Common Stock in
the Company's initial public offering. In addition, the Company issued similar
warrants from time to time to noteholders to extend the due dates of certain of
the loans when it was unable to pay them at maturity.
During fiscal 1997, the Company borrowed an aggregate $700,000 in
various private transactions from ten individual lenders (in addition to loans
from the Principal Stockholder). In addition, three individuals holding an
aggregate $297,500 in promissory notes converted such notes and related accrued
interest into an aggregate 95,563 shares of Common Stock. In connection with
these transactions and loans made in prior fiscal periods, the Company issued
warrants exercisable to purchase an aggregate 255,375 shares of Common Stock.
During fiscal 1998, the Company borrowed an additional aggregate
$588,000 from twelve individual investors (in addition to loans from the
Principal Stockholder). In addition, eight individuals holding an aggregate
$360,000 in promissory notes converted such notes and related accrued interest
into an aggregate 130,438 shares of Common Stock. In connection
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<PAGE>
with these transactions and loans made in prior fiscal periods, the Company
issued and agreed to issue warrants exercisable to purchase an aggregate 209,255
shares of Common Stock. The Company also issued warrants during fiscal 1998 to
six individuals exercisable to purchase an aggregate 72,500 shares, for services
rendered.
As a result of all of the foregoing, the Company recorded non-cash
interest expense of $1,355,000 and $179,000 in fiscal 1998 and 1997
respectively, primarily as a result of its issuance of its securities at below
market value and amortization of the debt discount resulting from its warrant
issuances.
During the first quarter of fiscal 1999, the Company borrowed an
additional $368,067 from five individuals, all of whom were stockholders of the
Company at the times of their loans. In connection with these loans, the Company
issued notes in the aggregate principal amount of $368,067, one of which, in the
principal amount of $150,000 issued to a more than 5% beneficial owner of its
Common Stock, is convertible into 50,000 shares, and issued and/or agreed to
issue warrants exercisable to purchase an aggregate 96,534 shares of its Common
Stock.
On August 24, 1998, a group of eight noteholders converted an aggregate
$655,763 in principal amount of indebtedness and an aggregate $110,885 in
principal amount of accrued interest into an aggregate 255,549 shares of Common
Stock.
The Company's management believes that all of the above transactions
were in the best interests of the Company as without the various loans and
extensions, the Company would have been unable to fund its operations.
As a result of these transactions, two individuals, Alan Husak and
James Welch, through debt conversions into Common Stock and warrant issuances
became beneficial owners of more than 5% of the Company's Common Stock. See
"Certain Transactions."
Year 2000 Compliance (Y2K)
Many existing computer systems, including certain of the Company's
internal systems, use only the last two digits to identify years in the date
field. As a result, these computer systems do not properly recognize a year that
begins with "20" instead of the familiar "19," or may not function properly with
years later than 1999. If not corrected, many computer applications could fail
or create erroneous results. This is generally referred to as the "Year 2000" or
"Y2K" issue. Computer systems that are able to deal correctly with dates after
1999 are referred to as "Y2K" compliant.
The Company's internal computer systems are partially but not fully Y2K
compliant. The Company's computer hardware and software suppliers are currently
analyzing the Company's internal computer systems in order to determine whether
to update or replace portions in order to ensure compliance. The costs involved
in such an update and/or replacement have not yet been estimated.
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<PAGE>
The Company will be dependent upon its vendors, suppliers and its
customers to ensure they are Y2K compliant. The Company intends to require its
suppliers to confirm such compliance in agreements made with vendors and
suppliers of services that could affect the Company and/or its customers.
Because of the uncertainties involved, it is not possible to estimate the effect
upon the Company if any of its material vendors, suppliers and/or customers are
not Y2K compliant.
BUSINESS
Background
The Company is an owner and operator of a wireless cable television
system in northern Vermont. Through its wholly owned subsidiary, New England
Wireless, Inc. ("NEW"), the Company has obtained wireless cable channel (or
frequency) rights in Vermont through ownership and leases of FCC licenses.
Wireless cable television is provided to subscribers by transmitting microwave
frequencies over the air to a small receiving antenna at each subscriber's
location. The Company currently operates a broadcasting system from Mount
Mansfield, Vermont (the "Mount Mansfield System").
In March 1995, a wholly owned subsidiary of the Company, N.E.W.
Acquisition Co., Inc., merged with NEW. In connection with the merger, all of
NEW's shares of outstanding common stock were exchanged for 801,156 shares of
the Company's Common Stock. The merger was treated for accounting purposes as a
capital transaction rather than as a business combination. Concurrent with the
merger, the Company and the creditors of NEW agreed to exchange certain notes
aggregating $1,164,000 in return for 388,007 shares of the Company's Common
Stock. In addition, the Company issued notes payable in the amount of $680,966
to its founder, Alan R. Ackerman, in exchange for debt of NEW owed to him.
Prior to March 1, 1997, the Company's name was Worldwide Wireless, Inc.
In December 1997, effective March 1, 1997, the Company changed its name to
Worldwide Wireless Systems, Inc.
The Company commenced operations of its wireless cable system in August
1994 and, as of May 1, 1998, the Company had approximately 1,100 subscribers.
There are approximately 160,000 households within the Mount Mansfield System's
signal patterns. The Company offers 23 channels in the Mount Mansfield System,
consisting of 18 satellite channels and five local broadcast channels. The
Company currently is offering to its subscribers in the Mount Mansfield System,
network channels as well as MTV, ESPN, CNN, USA, WPIX, WTBS, WSBK, A&E,
Nickelodeon, the Discovery Channel, TNN, the Fox Family Channel, Lifetime, the
History Channel, the Weather Channel and the SCI-FI Channel. In addition, the
Company offers Showtime and the Movie Channel as premium channels. Through
digital compression technology, additional marketing of its services, and
focusing on consumers with respect to which it can offer significant cost
savings, such as multi-dwelling units, the Company anticipates servicing
approximately 5,420 wireless cable television
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subscribers through the Mount Mansfield System within the next three years. The
number of future subscribers and the timing of subscriber growth, however, will
depend on a number of factors, many of which are not within the Company's
control. These factors include future capital equipment costs, marketing
expenses and effectiveness, staffing levels, competitive conditions, cash flow
from operations and the Company's ability to raise additional capital. There can
be no assurance that the Company will achieve its subscriber goals.
Business Strategy -- Wireless Cable Television
The Company's business strategy is to expand operation of its existing
Mount Mansfield System through the employment of additional resources to the
digitization of the System and to the marketing and distribution of its
services. The Company expects to add channels to its programming mix to increase
its channels to a total of 40 channels by implementing digital compression
technology. This business strategy is expected to allow the Company to extend
its service offerings to include other enhanced services compatible with
wireless cable television.
The wireless cable television business is capital intensive. Since its
inception, the Company has expended funds to acquire channel rights in the
system, construct an initial operating system and finance initial operating
losses. Transmission equipment expenditures and other start-up expenditures were
made by the Company before it could commence the delivery of programming to its
subscribers.
With the proceeds of the offering, the Company plans to purchase
digital transmission and subscriber equipment. Digital technology offers the
potential for the Company to broadcast over 100 different television channels
over its existing broadcast frequencies, although the Company initially intends
to increase its channels to 40 through this technology and reserve other
channels for other applications. Implementation of digital technologies will
require the Company to invest additional funds to augment its transmission
facilities as well as to equip its existing subscribers with new receptors and
equipment necessary to accommodate digital transmission technology.
Although incremental equipment and labor installation costs per
subscriber are incurred after a subscriber signs up for the Company's wireless
cable service, such costs are incurred by the Company before it receives fees
from the subscribers and are only partially offset by installation charges. In
order to sustain subscriber growth beyond its current base of approximately
1,100 subscribers, and those subscribers which it is able to add with its
implementation of digital technology with the offering proceeds, the Company
will need to generate enough operating revenues to enable it to continue to
invest in subscriber reception equipment and installation or raise additional
debt or equity capital. In addition, in order to develop and launch additional
wireless cable systems, as well as pursue other technologies as described
elsewhere herein, the Company may need to raise additional capital. There can be
no assurance that operating revenues will be sufficient to sustain subscriber
growth or that
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additional financing, if required, will be available on terms acceptable to the
Company, if at all.
The Company's revenues will primarily be generated by subscription
fees, pay-per-view fees and installation charges. The Company's current
installation fees are $49.95 per subscriber (for one television) with $15.00 for
each additional television within the household. The Company's subscription fees
currently are $9.95 for a basic programming package which includes four local
broadcast channels and five satellite channels; $25.95 per month for an expanded
channel line-up (comparable to a hard-wire cable basic package) including a
premium movie channel; and $8.95 per month for an additional movie channel. The
Company expects to modify these rates to reflect its addition of digital
technology.
Expenses will consist primarily of service costs, selling, general and
administrative expenses, and depreciation and amortization. Service costs
include programming costs, channel lease payments, if any, transmitter site
rentals, cost of program guides and repair and maintenance expenditures. Of
these, programming costs, channel lease payments and costs of program guides
will be variable expenses which increase as the number of subscribers increase.
The addition of subscribers will also increase depreciation expense. The Company
currently expends approximately $400 to purchase and install its analog wireless
cable receiving antenna and related equipment necessary at each subscriber's
location. Upon implementation of digital technology, the Company estimates that
it will spend approximately $600 per subscriber to switch such equipment to
digital equipment.
Profitability will be determined by the Company's ability to increase
revenue from subscribers while controlling variable expenses. Significant
increases in revenues have to come from subscriber growth. Currently, the
Company has 13 employees. In addition, the Company engages additional persons as
necessary as contract labor for installations. The Company does not intend to
incur expenses relating to research and development during the next twelve
months, except for general market research in the ordinary course of business.
The growth of the Company's business beyond its Mount Mansfield System
market, and the implementation of additional cable technologies (such as digital
compression) will require a substantial investment on a continuing basis to
finance capital expenditures and related expenses for subscriber growth and new
system development. The Company does not have a bank line of credit and there
can be no assurance that any required or desired financing will be available,
through bank borrowings, debt or equity offerings, or otherwise, on acceptable
terms, if at all. See "Risk Factors -- Need for Additional Financing for
Growth."
The Company intends to develop its subscriber base in the Mount
Mansfield System and, potentially, to implement new technologies in that market
or in other markets by emphasizing the price-to-value relationship of the
Company's programming and other possible services; the reliability, service, and
picture quality of wireless cable; the advanced technical
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features of the Company's standard subscriber equipment such as video paging;
and the competitive choice afforded consumers by wireless cable.
The Cable Television Industry in General
The cable television industry began in the late 1940's and 1950's to
serve the needs of residents in predominately rural areas. Since that time, the
cable television industry has expanded to metropolitan areas due to, among other
things, the better reception cable television often provides and increased
programming alternatives. Today, pay television systems offer various types of
programming which generally include basic service, premium service, and, in some
instances, pay-per-view service.
A cable television subscriber generally pays an initial connection
charge and a fixed monthly fee for basic service. The amount of the monthly
basic service fee varies from one area to another and is a function, in part, of
the number of channels and services included in the basic service package and
the cost of such services to the cable television system operator. In most
instances, a separate monthly fee for each premium service and certain other
specific programming is charged to subscribers, with discounts generally
available to subscribers receiving multiple premium services. Monthly service
fees for basic and premium services constitute the major source of revenue for
cable television systems. Subscribers normally are free to discontinue any cable
service at any time. Converter rentals, remote control rentals, installation
charges, and reconnect charges for subscribers who were previously disconnected
are also included in a cable television system's revenues but generally are not
a major component of such revenues.
Wireless Cable Television Systems in General
Initially, all cable systems were "hard-wire" systems, using coaxial
cable to carry television signals. Over the past several years, wireless cable
has emerged as an alternative to the traditional hard-wire cable systems in the
provision of cable television programming. Wireless cable television is a
terrestrial, microwave broadcast system. It is, in effect, analogous to a
satellite broadcasting system in which the satellite is replaced by a microwave
transmitter located on a ground-based antenna. Wireless cable programming is
transmitted through the air via microwave frequencies that generally require a
direct "line-of-sight" from the transmission facility to the subscriber's
receiving antenna. Traditional hard-wire cable systems transmit signals from a
transmission facility, but deliver the signal to a subscriber's location through
a network of coaxial cable and amplifiers. Since wireless cable systems do not
require an extensive network of coaxial cable and amplifiers, the system's
capital cost per installed subscriber will be significantly less than for
hard-wire cable systems. In addition, operating costs of wireless cable systems
are generally lower than those of comparable hard-wire cable systems due to
lower network maintenance and depreciation expense.
The Company believes that wireless technology can effectively compete
with conventional hard-wire cable television distribution of entertainment. Most
programming that
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is available for purchase and resale on hard-wire cable systems can be
distributed over a wireless cable system. The factors contributing to the
increasing growth of wireless cable systems include: Federal laws limiting the
rates and practices of the hard-wire cable industry; improved technology,
particularly in signal encryption; regulatory reforms by the FCC to facilitate
the growth and competitive impact of the wireless cable industry; and the
increasing availability of programming for wireless cable systems. The Wireless
Cable Association estimates that wireless cable systems served approximately
1,100,000 subscribers as of December 1997.
Wireless cable subscribers can generally be served by a central
transmitting antenna, and two or three fill-in or repeating antennas. Microwave
powers involved are very low. Both outlying areas and customers in close
vicinity to the transmitting antenna can be served immediately following system
turn-on, whereas cable network installations could take years to reach these
same outlying areas. Wireless cable systems have no need for time-consuming and
disruptive excavation of public thoroughfares. Labor is required only at the
transmitting site, and for installation at the repeating antennas and end-user
locations. The receiving equipment consists of a small antenna that is cabled to
a converter at the subscriber's location, which is similar to a hard-wire cable
TV converter box.
Every subscriber has a unique, electronic "address" with which the
system communicates. In this manner, service can be activated or canceled from
the main control office thus reducing the need for service calls. Once a
wireless transmission system has been installed, signals can be delivered to
multi-unit dwellings at substantially lower costs than signals received directly
via satellite receivers.
The Mount Mansfield Cable Television System
Background. The Company has entered into lease agreements which provide
for the lease of commercial channel licenses in Mount Mansfield, Vermont (the
"Mount Mansfield Lease Agreements"). The Mount Mansfield Lease Agreements
commenced in 1991 and 1993 and have terms of ten years each. Channel licenses
are subject to non-renewal, revocation or cancellation for violations of the
Communications Act of 1934, as amended (the "Communications Act") or the FCC's
rules and policies. The termination of, or failure to renew, a channel lease
would result in the Company being unable to deliver television programming on
any such channel and could have a material adverse effect on the Company. The
Company has also entered into an eight and a ten year lease of space on a
transmission tower. The tower leases include the use of the tower, transmitter
building and electrical service.
Of the 23 channels the Company currently leases for its Mount Mansfield
System, 20 are instructional television fixed services ("ITFS") educational
licenses. Each ITFS channel must be used a minimum of twelve hours per week for
educational programming. The remaining "excess air time" on an ITFS channel may
be used by the Company without further restrictions (other than the right of the
ITFS license holder, at its option, to recapture up to
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an additional 20 hours of air time per week for educational programming).
Certain programs (e.g., CNN and The Discovery Channel) qualify as educational
and thereby permit full-time usage of an ITFS channel.
The Market. The Mount Mansfield System began operations in August 1994
and currently broadcasts 23 channels in the local area. The 23 channels in the
Mount Mansfield System consist of five broadcast channels and 18 satellite
channels. One transmitter is required to be placed in service for each channel
being broadcast. There are an estimated approximately 160,000 households within
the Company's 50-mile signal area for the Mount Mansfield System. Based upon the
research of its consulting engineers, the Company believes that its signal can
be received directly by approximately 67% of the households within the Company's
signal pattern in the local area. With the addition of beam-benders, which could
be installed at additional cost to the Company, the Company's wireless cable
signals could reach a substantial portion of the remaining households in this
market.
Programming. The Company arranges for programming from two sources for
the Mount Mansfield System: (i) local affiliate stations for the retransmission
of their VHF/UHF signals, and (ii) suppliers of satellite programming typically
broadcast over cable systems.
Programming from off-air broadcasters is negotiated on a case-by-case
basis and may be available for no charge or for a minimal royalty payment. The
VHF and UHF broadcasters in Burlington, Vermont (CBS, ABC, NBC, FOX and Vermont
Public Television), allow the Company's customers to receive their signals
through the same high grade microwave antenna as is provided by the Company.
In addition to off-air broadcasters, the Company has agreements with
program suppliers for ESPN, MTV, CNN, USA, WPIX, WSBK, WTBS, A&E, Nickelodeon,
Discovery, TNN, the History Channel, the Fox Family Channel, Lifetime, the
Sci-Fi Channel, the Weather Channel, the Movie Channel and Showtime for
broadcasting on the Mount Mansfield System. The program agreements generally
have three-year terms, with provisions for automatic renewals, and are subject
to termination for breach of the agreement, including non-payment. The
programming agreements generally provide for royalty payments based upon the
number of Company subscribers receiving the programming each month. Individual
program prices vary from supplier to supplier, and more favorable pricing
sometimes is afforded to operators with larger subscriber bases; however, the
Cable Act requires cable programming to be made available for purchase by all
system operators at competitive pricing.
The likelihood that program material will be unavailable to the Company
is significantly mitigated by the Cable Act and various FCC regulations issued
thereunder which, among other restrictions, impose limits on exclusive
programming contracts and prohibit cable programmers in which a cable operator
has an attributable interest from discriminating against cable competitors with
respect to the price, terms and conditions of sale of programming. Although the
Company has no reason to believe that any existing contracts for programming
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will be canceled or will not be renewed upon expiration, if any of such
contracts are canceled or are not renewed, the Company would have to seek
program material from other sources.
In addition to the programming alternatives described above, the
Company intends to introduce a "pay-per-view" service that enables customers to
order, and pay for, one program at a time. This pay-per-view service has been
successful for specialty events such as wrestling and heavyweight prize fights,
concerts, and early release motion pictures. This service can also be promoted
for the purchase of movies in competition with video rental stores. Pay-per-view
requires the subscriber to have an "addressable converter," which each of the
Company's subscribers already has. An addressable converter allows the Company
to control what the subscriber watches without having to visit the subscriber
location to change equipment. In order for customers to more conveniently order
pay-per-view events, however, an "impulse" pay-per-view converter is required.
An impulse pay-per-view converter, which has a return line via phone or cable to
the cable operator's computer system, enables a subscriber to order pay-per-view
events by pushing a button on a remote control rather than requiring the
subscriber to make a telephone call to order an event. Subscribers in the Mount
Mansfield System are equipped to take advantage of this feature when offered by
the Company.
Marketing and Customer Support. The Company intends to utilize media
advertising, telemarketing, direct mail, and door-to-door marketing to increase
its subscriber base in the Mount Mansfield System. The Company also intends to
run promotional pricing campaigns and take advantage of public relations
opportunities. The Company intends to emphasize the following themes in its
marketing:
1. Price/Value. The Company believes that it is offering its
subscribers competitively priced installation and subscription fees. The
Company's current installation fees are $49.95 per subscriber for a single
television, with an additional $15.00 for each additional television in the
household. (The fee for additional television sets increases to $30.00 after the
initial installation). Subscription fees start at $9.95 per month for the
Company's basic programming package, which includes nine channels, including
four local broadcast VHF/UHF channels and five satellite channels, and $25.95
for the Company's "expanded" package which is comparable to commercial hard-wire
cable service. This package includes five local broadcast channels, and 18
satellite channels, including one pay-premium channel. An additional premium
channel is available at a cost of $8.95 per month. As of December 1997, the
major hard-wire cable companies in the Burlington area offered installation for
$35.00 to $50.00, basic service for $9.17 to $10.99, and premium stations
ranging from $8.50 to $11.50. Cable customer charges are subject to a 5% local
franchise tax. Wireless cable customers do not have to pay any franchise tax,
but are required to pay a regulatory fee of approximately $.04 per subscriber.
The Company tries to focus its customers on the value received for the price
paid and believes its product/pricing offers a competitive choice.
2. Reliability, Service and Picture Quality. The Company seeks to
provide service within 24 hours of a repair request from a single subscriber
call, uniformed field personnel and flexible installation scheduling. The
Company emphasizes its picture quality and the
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reliability of its wireless transmission and is able to build out systems for
multiple subscribers more quickly than hard-wire cable systems. The Company
competes with traditional hard-wire cable systems on a quality of service basis.
Within its signal coverage pattern, the Company believes that the picture
quality of the Company's service is as good or better than that received by
hard-wire cable subscribers because, absent any line-of-sight obstruction, there
is less opportunity for signal degradation between transmitter and the
subscriber. Also, wireless cable service has proven very reliable, primarily due
to the absence of certain distribution system components that can fail and
thereby cause outages. The Company believes that it has positioned itself as a
reliable, cost-effective alternative to traditional hard-wire cable operations
by delivering a high quality signal throughout its signal area and personal
service to its subscribers.
3. Equipment Reliability. A number of manufacturers produce the
equipment used in wireless cable systems, from transmitters to the set-top
converters which feed the signal to the television set. Because the signal is
broadcast over the air directly to a receiving antenna, wireless cable does not
experience the problems caused by amplifying signals over long distances
experienced by some hard-wire cable subscribers. This is particularly the case
for a signal delivered over longer distances. Amplification of signals can lead
to greater signal noise and, accordingly, a grainier picture for some
subscribers. Also, the transmission of wireless signals is not subject to the
problems caused by deteriorating trunk cables used in conventional systems. As a
result, wireless cable is often more reliable than conventional cable, and
picture quality is generally equal to or better than ordinary cable.
Signal security is provided by encoding each wireless cable channel and
equipping the converter with a unique decoding device that responds to a pilot
signal carrying a data stream with authorization instructions. Thus, the system
is fully "addressable." The converter boxes will not be usable until they are
authorized for service by the Company's central computer. All channels, both
basic and premium, are scrambled. Because the wireless cable system is
addressable, it can also accommodate pay-per-view service.
Competition. In its Vermont markets, two traditional hard-wire cable
companies are the Company's primary direct competitors. Based on information
reported by third parties to the Vermont Department of Public Service, the
Company estimates that within its expected signal pattern for Mount Mansfield,
over 44% of the households are hard-wire cable subscribers. The two hard-wire
cable companies within this same area currently offer nine and 48 channels,
respectively, to their subscribers, compared to the 23 channels the Company
currently offers. Based on information reported by third parties to the Vermont
Department of Public Service, of the approximately 160,000 potential subscribers
within the Mount Mansfield System's signal pattern, approximately 54,000
currently are not wired for hard-wire cable and approximately 36,000 do not
subscribe to hard-wire cable service, although they have access to such
services. The Company intends to continue to direct its marketing efforts toward
potential subscribers who are either not wired for hard-wire cable or are not
presently hard-wire cable or satellite television customers. The Company also
intends to focus its marketing efforts on multi-unit dwellings. Unlike hard-wire
cable operators in its area, the
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Company is willing to provide service to such dwellings with less than 100%
subscription rates.
The subscription television industry is highly competitive. Currently,
the Company's existing and potential competitors consist of a broad range of
companies engaged in the communications and entertainment businesses, including
cable operators, digital satellite program providers, television networks and
home video products companies. The Company's strategy is to compete for cable
television subscribers by focusing on the price-to-value relationship of the
Company's programming services; the reliability, service and picture quality of
wireless cable; the advanced technical features of the Company's standard
equipment; and the competitive choice afforded consumers by wireless cable.
In addition to competition from traditional and established hard-wire
cable television systems, wireless cable television operators face competition
from a number of other sources. Premium movie services offered by cable
television systems have encountered significant competition from the home video
cassette recorder industry. In addition to the foregoing, wireless cable systems
face potential competition from emerging trends and technologies in the cable
television industry.
In the future, the Company expects to face intense competition from
numerous other companies offering video, audio and data products and services.
Many of the Company's existing or potential competitors have substantially
greater name recognition and financial, technical and human resources than the
Company and may be better equipped to develop and operate systems providing
subscription television service, high-speed Internet access and telephony
services. In addition to the two hard-wire cable companies with which it
competes, the Company also competes in its service area with Direct Broadcast
Satellite and C-band Satellite Program Distributors.
Direct Broadcast Satellite ("DBS"). Competition from DBS providers has
increased greatly over the past several years. DBS involves the transmission of
an encoded signal directly from a satellite to the customer's home. Because the
signal is at a higher power level and frequency than most satellite-transmitted
signals, its reception can be accomplished with a relatively small (18-inch)
dish mounted on a rooftop or in the customer's yard. The cost of constructing
and launching the satellites used to distribute DBS programming has
significantly decreased. When first introduced, DBS reception equipment for a
single television set cost approximately $650 per customer, plus installation
fees, service charges and off-air antenna installation, where applicable.
Furthermore, each additional independent outlet requires a separate descrambling
device at additional cost to the subscriber. These prices have decreased as
additional competitors have entered the DBS market. Recent promotions have
offered DBS reception equipment for less than $99 (exclusive of installation and
other charges) when the consumer agrees to prepay a one-year subscription fee.
C-band Satellite Program Distributors. The Company also competes with
C-band satellite program distributors (also referred to as "backyard dish" or
television receive only
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("TVRO") systems. C-band systems have been popular (mostly in rural and
semi-rural areas) since the late 1970s, and currently serve approximately 2.1
million subscribers in the aggregate, according to trade publications. The
primary advantages of wireless cable systems over TVRO systems are lower
equipment costs and broader availability of local programming. TVRO systems, on
the other hand, enjoy the advantage of access to a wider variety of satellite
programming and serve areas not served by franchise or wireless cable systems. A
conventional TVRO antenna system costs in excess of $1,000 per subscriber, and
subscribers are charged monthly fees for access to certain programming. TVRO
systems typically cannot receive local off-air broadcast channels.
Internet Business Activities
Market and Industry Overview
The Internet is a global on-line network with over 100 million
estimated users communicating through it. According to the Forrester Report,
Sizing the Internet 1998, 59% of households and 50% of businesses will be
on-line by the year 2002. The Internet can be used to lower costs, increase
efficiency and, to generate higher revenues by redesigning and improving
business processes.
In the past five years the Internet has seen explosive growth.
Development has been greatly enhanced by the introduction of the "World Wide
Web" (or simply Web, or www). It is estimated that 400,000 businesses have web
sites today. The Internet has increased productivity and effectiveness of
management and employees, as it provides new ways of gathering business-related
information, learning and self-development, and communicating efficiently both
within and beyond a company's boundaries. The Internet's open standards allows
dispersed project teams to establish appropriate interactive working
environments, wherever, whenever and with whomever, regardless of the time,
location and personal mobility of team members.
The Internet has become a standard platform for the deployment of
digital multi-media applications. An increasing number of businesses - large and
small alike - are using the Internet to deploy new applications to gain business
advantages over their competition.
Businesses are increasingly incorporating Internet technology into
their business strategies. It is estimated that one new Internet address is
created every four seconds, and that access revenues from businesses will leap
from less than $1 billion in 1997 to more than $16 billion in 2002. While
services comparable to those of the Internet are available through other sources
(i.e. private e-mail carriers such as MCI and the French Minitel system), the
global adoption of the Internet, its low cost of access and its composite set of
services make it a unique resource.
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The Company's Internet Business Objectives
Through its relationships with Internet technology providers, the
Company believes it can help meet the needs of commercial enterprises as they
search for ways to extend their markets through the Internet. The Company plans
to market high speed Internet services within the northeast region of the United
States as a "last-mile" Internet service provider. The Company also plans to
package and integrate Internet solutions for businesses. These solutions are
expected to consist of Internet access, support and management of Internet and
intranet networks, e-mail, hosting and web site design.
The Company anticipates connecting users to the Internet using
dedicated access technologies, high-speed wireless modems and xDSL high speed
technologies, and through this Internet connection, to provide new enhanced
services to Internet subscribers, such as VOIP (Voice over IP), VOD (Video on
Demand), and distance learning.
The Company intends to be able to market Internet access at market or
better pricing, by aggregating its access to the Tier-1 backbone of several
providers.
In addition to Internet access, the Company expects to also offer other
Internet services that it anticipates obtaining from third party organizations
who specialize in electronic business applications, such as electronic commerce,
video conferencing, and content providers. These Internet services may also
include e-mail services, virtual private network services, shared web space on
the Company's facilities, and fire wall solutions.
The Internet market proposed to be served by the Company is extremely
competitive. The successful influx of new market entrants is expected to
continue in this market to meet the growing demand for information technology
and communications services and products. As a result, the Internet services
market is diversifying from a basic, undifferentiated set of offers to a rich
mix of speeds, access methods, and pricing plans. Going forward, further
granularity in the areas of feature packs, performance guarantees, and bundled
services is expected to push the access business from nearly $6 billion to more
than $38 billion in 2002, according to the Forrester Report, Sizing the Internet
1998.
Internet Business Activities
To date, the Company has had limited activities in its projected
Internet access service business. In September 1997, the Company executed an
agreement with VocalTec, Inc. ("VocalTec") pursuant to which it has agreed to
purchase software designed to permit IP telephony and fax services over the
Internet. The Company intends to pay VocalTec for such
software out of the net proceeds of this offering.
In addition, the Company has executed beta-site agreements with
InterDigital Communications Corporation to test certain B-CDMA and wireless
local loop technology. The Company intends to apply a portion of the net
proceeds of this offering to lease the necessary
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spectrum in order to test such technology. In addition, the Company has executed
a beta-site agreement with GK Intelligent Systems, Inc. to test an educational
software program. If the tests are satisfactory, the Company intends to market
such technology and software to Internet users.
In January and July 1998, the Company entered into network services
agreements with Icon CMT Corp. ("Icon CMT"), a New Jersey based Tier-One
Internet service provider, and OEM Networks, Inc. ("OEM Networks"), a
Massachusetts based Internet service provider, pursuant to which Icon CMT and
OEM will supply the Company with various network services, initially in the
Boston, New York City and Burlington, Vermont areas. At the same time, the
Company executed agreements with NorthTel, Inc. ("NorthTel") and two NorthTel
affiliates pursuant to which NorthTel and the affiliates have agreed to resell
Internet access services in the Company's behalf. Such reselling will initially
be conducted in the Boston area with the Company providing certain management
and support services.
In August 1998, the Company executed a letter of intent to enter into
an agreement with Free-LinQ Communications Corporation ("Free-LinQ"), a New York
City based television program provider to residents of multi-family dwellings.
Pursuant to the terms of the proposed agreement the Company will provide high
speed Internet access services to such residents in conjunction with the
services provided by Free-LinQ. The arrangement will be subject to performance
requirements that will be defined in the definitive agreement. Although no
assurances can be given that such agreement will be finalized and executed,
based upon the current state of the negotiations, the Company anticipates that
it will be entered into in the fourth quarter of calendar 1998.
In conjunction with high speed Internet access, the Company also
intends to pursue strategic relationships with companies that supply additional
value-added services such as hosting services, e-mail, web site design services,
Internet telephony, and video conferencing services. The Company is currently in
the process of evaluating the possible use of its wireless television spectrum
to provide Internet telephony services. Although the development of such
telephony services is in its early stages, management believes its wireless
spectrum is capable of delivering wireless local loop ("WLL") service in the
future through means and technologies it is currently evaluating.
Marketing
There can be no assurance that the Company will be successful in
marketing or otherwise distributing services provided by its access service
providers. The Company expects to use third-party network services firms to
market and sell certain of the Internet access and related services to be made
available to it through the access service providers. Those relationships are
also non-exclusive in nature and the entities which are expected to distribute
and sell the Company's services will also distribute and sell services made
available by the Company's competitors. There can be no assurance that such
firms will devote the time,
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attention and resources necessary to market and distribute the Company's
products as opposed to products made available through other ISP's.
Competition
The Internet market proposed to be served by the Company is extremely
competitive. The influx of new market entrants is expected to continue in this
market to meet the growing demand for information technology and communications
services and products. Additionally, the Company believes that such factors as
shifting customer demands and the rapid pace of technological advance will
intensify competition and result in continual pressures to reduce prices,
enhance services and products and develop and exploit new technology. The
Company's competitors enjoy a greater market presence and possess substantially
greater technical, financial and marketing resources than the Company. The
Company believes that its ability to compete successfully will depend upon a
number of factors, including the Internet products and services it is able to
obtain and resell from others, performance, reliability and security of its
communications infrastructure, its ability to maintain and expand its channels
of distribution, its ability to gain access to third party technologies, its
ability to attract and retain sales and service personnel and third party
distribution channels, the pricing policies of its competitors and suppliers,
the variety of services it offers, the timing of introductions of new services
by the Company and its competitors, customer support, the Company's ability to
support industry standards and industry and general economic trends.
The Company's current and prospective competitors in the Internet
communications services sector may be generally divided into the following
groups: (i) telecommunications companies; (ii) other Internet services providers
that wish to enter into the Company's prospective Internet access market; and
(iii) high-speed cable modem Internet providers. Many of these competitors have
substantially greater market presence, engineering and marketing capabilities,
and financial, technical and personnel resources than those available to the
Company. As a result, they can be expected to be able to develop and expand
their communications infrastructures more quickly, adapt more swiftly to new or
emerging technologies and changes in customer requirements, take advantage of
acquisitions and other opportunities more readily, and devote greater resources
to the marketing and sale of their services than can the Company. In addition,
the Company believes that new competitors, including large computer hardware and
software, media and telecommunications companies, may enter or expand their
presence in the Internet access market, resulting in even greater competition
for the Company. The Company believes that competitive factors in the Internet
services market include market presence, network capacity, reliability and
security, price, new products and enhancements and conformity with industry
standards.
Anticipated distributors of the Company's services and products may
also compete with the Company in the future. Certain companies are also
providing high-speed data services using alternative delivery methods to
hard-wire dial up services, such as cable television, direct broadcast
satellites and wireless cable. Although the Company will continue to seek ways
to utilize its wireless cable capabilities to augment its Internet services, the
Company has not yet
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developed definitive plans to do so and there can be no assurance that it will
be successful in doing so.
As a result of increased competition and vertical and horizontal
integration and consolidation in the industry, the Company could encounter
significant pricing pressures, which in turn could result in significant
reductions in the average selling price of the Company's services. For example,
certain of the Company's competitors that are telecommunications companies may
be able to provide customers with reduced communications costs in connection
with their Internet access services or private network services, reducing the
overall cost of their solutions and significantly increasing price pressures on
the Company. There can be no assurances that the Company will be able to offset
the effects of any such price reductions with an increase in the number of its
customers, higher revenues from enhanced services, cost reductions or otherwise.
Other Activities -- Social Responsibility
The Company was founded as a socially responsible company and is
developing this mission as illustrated by the selection of several socially
responsible members to serve on its Advisory Board. See "Management." The
Company has agreed to a supporting relationship with Project KidCare, a program
sponsored by a joint venture between Polaroid Corporation and the National
Center for Missing and Exploited Children. The Company plans to participate by
processing a complimentary enrollment of one child per subscriber family into
the KidCare program. The Company has no legally binding commitment or agreement
as to such participation.
Polaroid has stated that the purpose of the program is:
(i) To educate families about child safety, and
(ii) To encourage parents to obtain personal safety documents
with current, instant photographs of their child.
By pursuing these objectives, the program is intended to reduce the
number of missing children.
Government Regulation -- Wireless Cable
General. The wireless cable industry is indirectly subject to
regulation by the FCC pursuant to the Communications Act of 1934, as amended
(the "Communications Act"). The Communications Act empowers the FCC, among other
things: to issue, revoke, modify and renew licenses within the spectrum
available to wireless cable; to approve the assignment and/or transfer of
control over such licenses; to determine the location of wireless cable systems;
to regulate the kind, configuration and operation of equipment used by wireless
cable
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systems; and to impose certain equal employment opportunity requirements on
wireless cable operators.
The FCC has determined that wireless cable systems are not "cable
systems" for purposes of the Communications Act. Accordingly, a wireless cable
system does not require a franchise from a local authority and is subject to
fewer local regulations than a hard-wire cable system. Wireless cable operators
are also not required to pay local franchise fees. In addition, utility poles
and dedicated easements are not necessary.
The FCC has authorized access for wireless cable service to a series of
channel groups, consisting of certain channel groups specifically allocated for
wireless cable ("MDS"), and other channels originally authorized for educational
purposes ("ITFS"), although excess capacity can be leased from ITFS licensees by
wireless cable providers. Currently, up to 33 total channels are potentially
available for licensing, lease or purchase by wireless cable companies in each
market. Up to 13 channels in any given market typically can be owned by
commercial operators for full-time usage without programming restrictions. The
remaining 20 channels in a given market generally are allocated for ITFS use.
FCC rules generally prohibit the ownership or leasing of MDS and ITFS
authorizations by cable companies if the MDS facility is located within 35
miles, or the ITFS facility is located within 20 miles, of the cable company's
franchise or service areas. Pursuant to the Telecommunications Act of 1996, the
cable-MDS rule does not apply to a cable operator in a franchise area in which
the operator is subject to effective competition.
Authorizations have been issued, or are currently pending, for the
majority of MDS wireless cable licenses in most major U.S. markets, and, as
discussed below, under the current regulatory structure, only holders of a Basic
Trading Area ("BTA") authorization may apply for available MDS frequencies
within the BTA. In a number of markets, certain ITFS frequencies are still
available. However, except as noted below, eligibility for ownership of ITFS
licenses is limited to accredited educational institutions, governmental
organizations engaged in the formal education of enrolled students and
non-profit organizations whose purposes are educational and include providing
educational and instructional television material to such accredited
institutions and governmental organizations ("qualified ITFS educational
entities"). Non-local applicants must demonstrate that they have arranged with
local educational entities to provide them with programming and that they have
established a local programming committee. On July 10, 1996, the FCC adopted an
Order in which it authorized the interim use of certain digital compression
technologies for the provision of video, voice and data services over MDS and
ITFS frequencies. Such technology may be utilized by a wireless cable operator
or an MDS or ITFS licensee, after applying for, and being granted, such an
authorization by the FCC. The FCC has begun granting digital authorizations.
Upon receiving a digital authorization, a licensee also may transmit one-way
downstream Internet service. Certain wireless cable industry companies
petitioned the FCC in March 1997 to expand its digital authorizations to permit
the grant of applications for two-way transmission of interactive services over
MDS and ITFS frequencies. The petition proposed rule changes necessary for the
FCC to routinely grant wireless cable companies the right to implement
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two-way wireless services without licensing delays. Although the petition has
been granted, there can be no assurance that the Company will be able to
develop commercially successful products using two-way transmission.
FCC rules require ITFS operators to transmit a minimum amount of
educational programming per channel per week. If the educational programming
minimums are met, remaining air time can be leased to wireless cable operators
for profit and used to transmit non-educational programming. ITFS licensees are
now entitled to meet their minimum educational programming requirements for all
licensed channels using only one channel via "channel mapping," if desired.
Beginning in November 1995, the FCC auctioned all available MDS rights
on the basis of BTA's, with one such authorization available per BTA. The
winning bidder acquired the right to apply to operate one or more MDS stations
within the BTA, as long as its station proposals complied with the FCC's
interference requirements and other rules. With regard to commercial ITFS
channels, only the BTA license holder may apply for available authorizations, if
any, within the BTA. A BTA licensee has a five-year build-out period within
which to expand or initiate new service within its BTA. It may sell, trade or
otherwise alienate all or part of its rights in the BTA and may also partition
its BTA along geopolitical boundaries and contract with eligible parties to
allow them to apply for MDS authorizations within the partitioned area, and
conversely, acquire such rights from other BTA licensees. The license term for
each station authorized under these BTA procedures is ten years, commencing on
the date that the FCC announced that the auction for the BTA had closed.
The Company is also indirectly subject to various FCC regulatory
limitations relating to ownership and control. The Communications Act and FCC
rules require the FCC's approval before a license may be assigned or control of
the holder of a license may be transferred. Moreover, the Communications Act
provides that certain types of licenses, including those for MDS stations, may
not be held directly by corporations of which non-U.S. citizens or entities
("Aliens") own of record or vote more than 20% of the capital stock. In
situations in which such an FCC license is directly or indirectly controlled by
another corporation, Aliens may own of record or vote no more than 25% of the
controlling corporation's capital stock.
Telecommunications Act of 1996. On February 8, 1996, the
Telecommunications Act of 1996 (the "1996 Act") became law. Among other things,
the 1996 Act eliminates the cable/telephone cross-ownership restriction,
allowing a telephone company the option of providing video programming within
its telephone service area over a cable system or a video platform. Conversely,
cable companies are now permitted to provide telephone service. The 1996 Act
also limits, and in some cases eliminates, FCC regulation of cable rates
established by the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), depending upon the size of the cable system and
whether the system is subject to effective competition and the nature of the
rate. Moreover, small cable operators and systems subject to effective
competition are now exempt from rate regulation as a result of the 1996 Act. The
1996 Act also vests the FCC with exclusive jurisdiction over the provision of
Direct
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Broadcast Satellite (DBS) service and preempts the authority of local
authorities to impose certain taxes on such services.
While current FCC regulations are intended to promote the development
of a competitive subscription cable television industry, there can be no
assurance that these regulations will have a favorable impact on the Company.
Changes in FCC policies or procedures could have a negative effect on the
wireless cable industry as a whole and/or the Company in particular. In
addition, the FCC's regulation of other spectrum could permit the operation of
other wireless services to interfere with MDS and ITFS frequencies.
Pending Legislation. Legislation has been introduced in several states
that would authorize state and local authorities to impose taxes on providers of
subscription television programming, including wireless cable operators, based
upon their gross receipts. Because the nature of any such legislation, if
enacted, is unknown, the Company cannot predict what impact such legislation
would have upon its operations.
Other Forms of Regulation. Federal law requires that all "cable
companies," as defined by Section 602 of the Communications Act, obtain local or
state franchises prior to constructing a subscription television distribution
system. Because wireless cable systems deliver programming to subscribers by
means of microwave facilities rather than through coaxial cable and are not
specifically defined as "cable systems" in Section 602 of the Communications
Act, the 1992 Cable Act, or in earlier statutes or FCC regulations, they have
not been considered cable companies under FCC rules in this context.
Accordingly, wireless cable companies generally are not required to obtain
franchises and are generally not subject to state regulation by public utility
or cable commissions.
Wireless cable operators also are indirectly subject to regulation by
the Federal Aviation Administration and the FCC with respect to construction of
transmission towers and certain local zoning regulations affecting construction
of such towers and other facilities. Additional restrictions may also be imposed
by local authorities, neighborhood associations and other similar organizations
limiting the use of certain types of reception equipment used by the Company and
its subscribers.
Governmental Regulation -- Internet Services
The Company believes that it is not currently subject to direct
regulation by the FCC or any other governmental agency, other than regulations
applicable to businesses generally. To date, the FCC has not sought to regulate
the provision of Internet access and related services. Except for the
stand-alone provision of underlying basic transmission capability, the offering
of Internet services or access to the Internet has generally been considered an
'enhanced service,' a type of services offering that is not currently regulated
by the FCC. Whether the FCC will assert regulatory authority over the Internet
and the level of such regulation, if asserted, are pending issues being
considered by regulators and lawmakers at many levels of government. The Company
cannot predict whether regulation may be imposed
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in the future, what form such regulation may take or whether any such regulation
will adversely affect the Company's business, financial condition or results of
operations.
A determination by the FCC that providing Internet transport or
telephone services to customers over an IP-based network is subject to
regulation would adversely impact the Company's ability to provide various
existing and planned services could have a material adverse effect on the
Company's business, financial condition and results of operations. Some states
may, however, seek to exercise regulatory jurisdiction over certain aspects of
such offering.
As discussed above, the FCC also extensively regulates the cable and
broadcasting industries. These regulations address, among other things,
technical, ownership, competition and content-related issues. To date, the FCC
has not determined whether or to what extent its regulatory framework can or
should be extended to directly govern analogous communications on the Internet,
such as video and audio streaming. There can be no guarantee that the limited
regulatory burdens on the Internet to date will not increase or that new laws
governing the Internet will not be passed.
Changes in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or indirectly affect the
regulatory status of Internet services, affect telecommunications costs,
including the application of access charges to Internet services, or increase
the likelihood or scope of competition from regional telephone companies or
others, could have a material adverse effect on the Company's business,
financial condition and results of operations. Due to the increase in Internet
use and publicity, it is possible that laws and regulations may be adopted with
respect to the Internet, including with respect to privacy, pricing and
characteristics of services or products. Certain other legislative initiatives,
including those involving taxation of Internet services and transactions,
Internet regulation and universal service contribution requirements for Internet
providers have also been proposed. The Company cannot predict the impact, if
any, that these or other laws and regulations or legal or regulatory changes may
have on its business.
The FCC is considering elimination of certain tariff and regulatory
requirements applicable to Bell Atlantic as an RBOC. Currently Bell Atlantic
must obtain certain regulatory approvals before offering certain advanced
telecommunications services. Adoption of new or revised rules could lessen the
regulatory burden for Bell Atlantic competition with the Company in providing
advanced telecommunications services and could result in Bell Atlantic providing
such services on a highly competitive basis.
Additionally, certain groups are attempting to initiate legislation
which could compel ISPs to pay access charges for the use of some of the local
networks operated by the RBOCs. The adoption of such laws or regulations could
inhibit the continued growth of the Internet or other wide area information
networks, impose additional costs on the Company, expose the Company to greater
potential liability from regulatory actions or private legal proceedings or
otherwise adversely affect the Company's business operations or performance.
However, at
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present, the Company is unable to predict whether any laws or regulations
specifically applicable to the Company or its businesses will be adopted, or, if
any such laws or regulations are adopted, the nature or extent of their impact
on the information technology industry or the Company's business operations or
performance.
Federal and state laws and regulations relating to the liability of
online services companies and Internet access providers for information carried
on or disseminated through their networks is currently unsettled. Several
private lawsuits seeking to impose such liability upon online services companies
and Internet access providers are currently pending.
In addition, legislation has been enacted and new legislation has been
proposed that imposes liability for or prohibits the transmission on the
Internet of certain types of information. The imposition upon the Company and
other Internet access providers of potential liability for information carried
on or disseminated through their systems could require the Company to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources, or to discontinue certain service or
product offerings. The increased attention focused upon liability issues as a
result of these lawsuits and legislative actions and proposals could impact the
growth of Internet use. While the Company carries professional liability
insurance, it may not be adequate to compensate or may not cover the Company in
the event the Company becomes liable for information carried on or disseminated
over its networks. See "Risk Factors -- Governmental Regulation."
Legal Proceedings
A former administrative assistant with NEW filed a complaint on April
25, 1997 with the Vermont Attorney General's Office alleging sexual harassment
in the Company's workplace. The plaintiff raised the same claims with the
Department of Employment and Training when seeking unemployment compensation for
constructive discharge. After considering those claims, the Department of
Employment and Training denied her claim for unemployment compensation. NEW has
indicated to the Attorney General's Office a willingness to mediate the claims,
but believes the claims to be wholly without merit. No investigation has begun
by the Attorney General's Office except to request a response from NEW to the
Plaintiff's charges.
A default judgment was entered against the Company on October 2, 1997
in favor of Scientific Atlanta, Inc. in the Windsor Superior Court, State of
Vermont. Pursuant to that judgment, the Plaintiff was awarded $19,866.75. The
Company has not attempted to contest the judgment and the Plaintiff has not
commenced collection proceedings.
Employees
As of August 31, 1998, the Company had a total of 13 full-time
employees and expects to have approximately 25 full-time employees in the next
twelve months. In addition, the Company may engage up to four persons as
contract labor for installations in the Mount
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Mansfield System during the next twelve months. None of the Company's employees
is subject to a collective bargaining agreement. The Company has experienced no
work stoppages and believes that it has good relations with its employees.
Properties
The Company owns the real property where its headquarters are located
in Ascutney, Vermont. The Company's property consists of a building located on
4.6 acres which includes approximately 1,250 feet of office space. The Company
acquired the property in July 1994 for $106,000.
The Company leases approximately 900 square feet for its executive
offices in Jericho, Vermont, for a monthly rental of $1,792. In addition to
office space, the Company leases space at the transmission site for the Mount
Mansfield System under two separate lease agreements at an aggregate monthly
rental of $1,728. The leases each have terms of five years with two renewal
options remaining of five years each. The leases include space on the top of a
transmission tower, a concrete block and brick building which houses receiving
and transmission equipment and space for an exterior pad which supports three
satellite dish receivers. The Company expects to lease additional office and
transmitter space when it launches additional wireless cable systems.
The Company also leases approximately 800 square feet for its Internet
office space at 82 Church Street, 3rd floor, Burlington, Vermont at a monthly
rental of $625.
MANAGEMENT
Directors and Executive Officers
The following table lists certain information about the directors and
executive officers of the Company and the person who has agreed to become a
director of the Company upon the closing of this offering:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael Noel Russell 56 Chairman of the Board
David E. Padilla 51 President, Chief Executive Officer, Director
Scott A. Wendel 43 Executive Vice President, Treasurer, Chief Operating
and Chief Financial Officer, Director
Craig F. Sementilli 34 Vice President, Secretary
Leonard Gartner 55 Director (on completion of offering)
</TABLE>
On December 30, 1997, Michael Noel Russell was elected Chairman of the
Company's Board of Directors. Mr. Russell has served as Corporate Relations
Consultant for Neilson Management Limited in London, England since 1991. From
1982 to 1991, Mr. Russell was
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employed as a Corporate Relations executive at Prudential-Bache Securities (UK)
Inc., a subsidiary of Prudential-Bache Insurance Company of America. From 1984
to 1991. Mr. Russell reported to the Chairman of Prudential Bache-Capital
Funding (Europe), Inc. and was responsible for marketing and corporate
communication in Europe and the Far East for Prudential-Bache Capital Funding,
Prudential-Bache Securities and the Prudential Insurance Company of America.
David E. Padilla joined the Company as President, Chief Executive
Officer and a Director effective as of August 1998. Prior to joining the
Company, Mr. Padilla was Vice President, Sales of Icon CMT Corp., responsible
for operations in the Telecommunications, Cable, Wireless & Utilities Industry.
Mr. Padilla served in this position from October 1997 until August 1998. Prior
to joining Icon CMT Corp., Mr. Padilla served as Director of Business
Development for the Telecommunication Group of Data General Corporation from
1994 to 1997. From 1972 to 1994, Mr. Padilla was employed with Digital Equipment
Corporation ("DEC") in various sales and marketing positions, eventually serving
as the Intelligent Network Marketing Manager for the Americas and Business
Development Manager for the Latin American Region before he left DEC. Mr.
Padilla served his country's armed services in the U.S. Navy from 1968 to 1972
and received an Associates degree in electronic engineering from the U.S. Navy.
Mr. Padilla also served on the board of directors of The New Mexico Minority
Purchasing Council from 1986 to 1988.
Scott A. Wendel was appointed as a Director of the Company in August
1997. He served as the president and chief executive officer of the Company from
December 1997 through August 1998. He will continue to serve as Executive Vice
President and Treasurer, Chief Financial Officer and as a Director of the
Company effective August 1998. He is a founder of and has served as Chief
Operating Officer of New England Wireless, Inc. (NEW) since its inception in
1991. Mr. Wendel has served as NEW's President since 1991. Prior to founding New
England Wireless, Mr. Wendel served as President and Chief Engineer of Wendel
Communications in Walpole, New Hampshire from 1988 to 1990, a consulting
company. From 1976 to 1988, Mr. Wendel was employed in a variety of positions in
the cable television industry, with Covenant Communications in East Alstead, New
Hampshire as General Manager; Eastern Communications/James Communications in
Springfield, Vermont as Chief Engineer; and Saratoga Cable Television in
Saratoga, New York as Installation and Construction Supervisor. He served in the
U.S. Army from 1973 to 1976.
Craig F. Sementilli joined the Company in September 1998 as Vice
President of Sales and Business Development. He also serves as Secretary of the
Company. Prior to joining the Company, he had been employed with Icon CMT Corp.,
directing business development and sales for the Telco, Cable and Wireless
Industries since 1997. Mr. Sementilli joined Icon CMT in 1997 as a
sales/business development manager. Prior to joining Icon CMT, Mr. Sementilli
was employed as a sales and business development manager with ANS CO+RE Systems,
Inc. in Elmsford, New York from 1992 to 1996. Prior to joining ANS, from 1987 to
1992 Mr. Sementilli served as a systems engineer with General Datacom Industries
in Middlebury, Connecticut. From 1983 to 1987, Mr. Sementilli served in the U.S.
Marine Corp.
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Leonard Gartner is a certified public accountant and has been the principal
of Gartner and Company, an accounting firm, for the past five years. His firm
specializes in structuring debt and equity instruments, advising clients on the
financial and tax aspects of acquisitions, stock option plans and stock issuance
matters. Mr. Gartner will also serve as a member of the Company's Audit
Committee. Mr. Gartner also serves as a director of INSCI Corporation which is
traded on the NASDAQ SmallCapTM Market. Mr. Gartner will assume the position of
a Director of the Company upon completion of this offering.
Upon completion of the offering, the Company intends to hire a new
Chief Financial Officer. Mr. Russell is expected to continue as Chairman of the
Board of Directors. Mr. Russell does not and Mr. Gartner will not devote his
full business time and attention to the Company.
Each Director of the Company holds such position until the next annual
meeting of shareholders and until his or her successor is duly elected and
qualified. The officers hold office until the first meeting of the Board of
Directors following the annual meeting of shareholders and until their
successors are chosen and qualified, subject to early removal by the Board of
Directors.
Upon completion of the offering, the Company shall appoint an audit
committee consisting of Mr. Padilla, Mr. Russell, and Mr. Gartner. The Company
also has adopted a stock option plan.
Mr. Russell and Mr. Gartner are outside directors and, as such, satisfy
NASDAQ's requirement that the board of directors include at least two outside
directors.
Advisory Board
In addition to its Board of Directors, the Company expects to utilize
an advisory board to consult with it regarding salient business issues and
community affairs issues. Accordingly, the Company's Advisory Board is expected
to be divided into two committees, a Business Advisory Committee and a Community
Affairs Committee. The Company expects that the advisory board will meet on a
quarterly basis.
The following persons are expected to serve on the Business Advisory
Committee of the Advisory Board:
Jack Polak. Jack Polak has been a member of the Board of Directors of
K.T.I., Inc. of Guttenberg, New Jersey, a waste-to-energy company since 1995,
and a director of C.C.A. Industries of Secaucus, New Jersey, which manufactures
health and beauty aid products, since 1991. Mr. Polak is a private investment
banker holding a certification as a member of the Netherlands Institute of Tax
Consultants. Mr. Polak also serves as chairman emeritus of the Anne Frank Center
U.S.A.
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H. Arne Kristiensen. H. Arne Kristiensen has been self-employed as a
civil engineering consultant for the electrical power industry since 1997. From
1988 to 1996, Mr. Kristiensen was employed with ABB Kraft in Drammen, Norway as
Sales manager, Norway for transformers. From 1962 to 1988, Mr. Kristiensen was
employed with ASEA of Oslo, Norway, eventually serving as manager of the sales
and order department for transformers in Oslo.
Blake Twedt. Blake Twedt has been a partner in Suncoast Communications
since 1988. Suncoast Communications owns channel leases in multiple markets and
as such, develops systems and locates buyers or operators for systems in these
markets. Prior to joining Suncoast Communications Mr. Twedt served as an active
duty officer in the U.S. Army from 1984 to 1988.
Michael M. Anderson. Michael M. Anderson is Manager, New Business
Development for AT&T Solutions, Multimedia Cell Center Line of Business. Prior
to joining AT&T in August 1998, Mr. Anderson served as Director of Corporate
Sales for VocalTec, Inc. Prior to joining VocalTec, Inc. in January 1997, Mr.
Anderson served as Director of Strategic Relations for USCONNECT, Inc. From 1992
to February 1996, Mr. Anderson was employed by Novell, Inc. in various positions
including Product Manager, Hardware Planning. He was Manager-Catalyst Programs
at Sun Microsystems, Inc. from January 1989 through May 1992. He served as
Manager, 3rd party software programs for Silicon Graphics from March 1987
through December 1988. From 1985 until March 1987, Mr. Anderson was employed
with Bridgeport Machines, Inc. as Sales Engineer and Software Products Manager.
Mr. Anderson started his career in 1982 as a field engineer at Appalachian Power
Co. He holds a B.S. in Electrical Engineering from Lehigh University.
Steven J. Schiffman. Steven J. Schiffman is currently the Vice
President of Marketing for the Track and Field Association. During 1997 and a
portion of 1998, he was Vice President of Strategic Marketing at NASCAR,
responsible for marketing the NASCAR brand. Before joining NASCAR in January
1997, Mr. Schiffman had been employed at Kraft Foods since 1989 as Senior Brand
Manager, Brand Manager and Region Brand Manager. From 1995 to 1996, Mr.
Schiffman managed the entire Kraft Singles franchise, the largest brand at Kraft
Foods. Mr. Schiffman holds a Masters degree in Management from the J.L. Kellogg
Graduate School of Management of Northwestern University, and a Bachelors degree
in Business Administration -- Marketing from the University of Massachusetts.
Gerald M. Dash. Gerald M. Dash has served as the Director of Marketing
and Sales of Bell Atlantic Video Services, Inc., in Chesapeake, Virginia, since
September 1996. In that capacity, he assisted in the preparation and development
of a digital television system in Hampton Roads, Virginia. Prior to that time,
he served as a consultant (from February to September 1996) and as Vice
President, Sales (from 1992) of People's Choice-TV Inc., a wireless cable
television company located in Tucson, Arizona.
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Brian Kiernan. Brian Kiernan is Senior Vice President of InterDigital
Communications Corporation ("IDC") of King of Prussia, Pennsylvania with
responsibility for development of new market and product initiatives, a position
he has held since 1993. Prior to that time, Mr. Kiernan was President of USTC
World Trade Corporation, an international sales and marketing subsidiary of
IDC's predecessor company, International Mobile Machines ("IMM") from 1991 to
1992. Prior to holding that position, Mr. Kiernan was IMM's Vice President of
Engineering and Operations with responsibilities for areas of product
development and sales engineering, manufacture, product support and quality
assurance.
Robert Morris. Robert Morris is currently an independent consultant
operating from offices in New York City. In that capacity, Mr. Morris provides
consulting services concerning profit and loss management, business development,
strategic planning, project management, and sales and marketing. From June 1997
through June 1998, Mr. Morris was the president and chief executive officer at
Omniverse Digital Solutions, an entertainment technology company. From 1991
until June 1997, he was the vice president of sales and marketing and then the
president of Dimensional Visions Group, a stereoscopic imaging/3D company. From
1984 through 1991, he was director of sales and marketing for NameBreak, a
corporate image management firm and then vice president of sales and marketing
for Paro, Inc., a venture capital firm. From 1972 through January 1984, Mr.
Morris was Director of Sales and Marketing, National Sales Manager and New
Product Manager for the Media Products Group of IBM and in addition, from March
1982, for the Media Products Group of Memorex.
Scott B. Mexic. Scott B. Mexic holds BA, MBA and JD degrees from Tulane
University and an LL.M. in Taxation from Boston University. He currently serves
as the Attorney-Advisor to the Chief Financial Officer at the U.S. Department of
Housing and Urban Development. Prior to assuming this position with HUD in 1997,
Mr. Mexic served for three years as the Legislative Fellow and
Telecommunications advisor to the Honorable Solomon P. Ortiz, a Member of the
U.S. House of Representatives. Prior to that, he served in a variety of public
sector positions, including an appointment as the Special Counsel for
Privatization within The Executive Office of The President from 1986 through
1989 under President Ronald Reagan and President George Bush.
The members of the Community Affairs Committee of the Advisory Board
are as follows:
Nils Bonde-Henriksen. Nils Bonde-Henriksen serves as Manager of
Corporate Communications at Sight Resource Corporation of Holliston,
Massachusetts, a company which provides eye care products and services. He has
held such post since September 1993. Prior to working at Sight Resources, Mr.
Bonde-Henriksen served as a development consultant in Cambridge, Massachusetts
providing real estate appraisal, real estate marketing consultation and
associated services.
Albert Kalter. Albert Kalter has been engaged in the private practice
of law in his own firm in New York City since 1961. Mr. Kalter specializes in
taxation, with particular focus
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<PAGE>
on estate and gift tax issues. Mr. Kalter is also Chairman and Professor of
Taxation, Pace University Lubin School of Business, and Adjunct Professor of
Law, New York Law School.
Norman Segal. Norman Segal served as a member of the Board of Directors
of the New College Library Association in Sarasota, Florida from 1990 to 1997
and from 1992 to 1995, served as Chairman of the New College Book Fair and
Reading Festival, an annual event promoting reading skills for children and
adults. He is currently, and since 1993 has been involved with fundraising on
behalf of Suncoast Gerontology of Tampa, Florida, which is engaged in research
activities regarding Alzheimer's Disease.
Executive Compensation
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three fiscal years ended June 30, 1998
to its Chief Executive Officer. Alan R. Ackerman, the Company's Principal
Stockholder served as the Company's president and Chief Executive Officer
throughout fiscal 1996 and fiscal 1997 as well as for the first five months of
fiscal 1998. Mr. Ackerman never received any cash compensation for his services.
Scott A. Wendel succeeded Mr. Ackerman as president and Chief Executive Officer
commencing in December 1997. No executive officer of the Company received annual
compensation in excess of $100,000 with respect to fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------ ------------------------------------
Year Other All
Ended Annual Restricted LTIP Other
Name and June Compen- Options Stock Pay- Compen-
Principal Position 30, Salary Bonus sation SARs Awards outs sation
- ------------------ --- ------ ----- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alan R. Ackerman 1998 $ -0- $ -0- $ -0- 402,776shs(1) -0- $ -0- $ -0-
president and 1997 $ -0- $ -0- $ -0- -0- -0- $ -0- $ -0-
chief executive 1996 $ -0- $ -0- $ -0- -0- -0- $ -0- $ -0-
officer (until
12/1/97)
Scott A. Wendel 1998 $62,000 $ -0- $ -0- -0- -0- $ -0- $ -0-
president and 1997 $62,000 $ -0- $ -0- -0- -0- $ -0- $ -0-
chief executive 1996 $62,000 $ -0- $ -0- -0- -0- $ -0- $ -0-
officer (12/1/97 -
8/17/98)
</TABLE>
- -----------------
(1) Mr. Ackerman is not currently an employee of the Company. In August 1997,
the Company issued to Mr. Ackerman for services previously rendered, options to
purchase 402,776 shares of its Common Stock. The options are exercisable during
either: (i) the period commencing after the thirteenth month and ending on the
thirty-sixth month following the Company's initial public offering; or (ii) the
five-year period ended January 1, 2002 if the offering has not been declared
effective by the Securities and Exchange Commission on or before December 31,
1997. The options are exercisable at the lesser of $3.00 per share or
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<PAGE>
50% of the price per share of the Company's Common Stock (determined with
reference to the price per Unit of the Company's securities if the Company's
Common Stock is included in such Units) in a public offering of the Company's
securities registered with the Securities and Exchange Commission.
Employment Agreements
Effective August and September 1998, the Company executed employment
agreements expiring December 31, 2001 with David E. Padilla, Scott A. Wendel and
Craig F. Sementilli. Pursuant to his agreement, Mr. Padilla will serve as the
Company's president and chief executive officer at an annual salary of $140,000
increasing to $160,000 upon the earlier of completion of this offering or
February 17, 1998. In addition, the Company agreed to issue options to Mr.
Padilla exercisable to purchase 125,000 shares of its Common Stock. Mr. Wendel's
agreement provides that he will serve as the Company's executive vice president
and chief operating officer at an annual salary of $62,000 increasing to
$105,000 upon the earlier of completion of this offering or February 17, 1998.
Mr. Wendel's annual salary will be increased to $125,000 in calendar year 2000
provided the Company's wireless cable related revenues in calendar year 1999
total at least $800,000, and will increase to $150,000 in calendar year 2001
provided such revenues in calendar year 2000 total at least $1,500,000. In
addition, the Company agreed to issue options to Mr. Wendel exercisable to
purchase 115,000 shares of its Common Stock. Mr. Sementilli's agreement provides
that he will serve as the Company's vice president of sales and business
development at an annual salary of $80,000 increasing to $105,000 upon the
earlier of completion of this offering or February 17, 1998. Mr. Sementilli's
annual salary will be increased to $125,000 in calendar year 2000 provided the
Company's Internet service related revenues in calendar year 1999 total at least
$750,000, and will increase to $150,000 in calendar year 2001 provided such
revenues in calendar year 2000 total at least $1,500,000. In addition, the
Company agreed to issue options to Mr. Sementilli exercisable to purchase
100,000 shares of its Common Stock.
Stock Options
In August 1998, the Company's directors adopted the 1998 Stock Option
Plan (the "1998 Plan") reserving an aggregate 550,000 shares of Common Stock for
issuance upon exercise of options granted under the Plan. The 1998 Plan was
ratified by the Company's Principal Stockholder in August 1998 in accordance
with Delaware law at a time when he owned more than 50% of the Company's
outstanding Common Stock.
The 1998 Plan provides for the grant of options to directors,
executives (officers) and key employees of the Company and its subsidiaries.
Under the terms of the 1998 Plan, options granted thereunder may be designated
as options which qualify for incentive stock option treatment ("ISOs") under
Section 422A of the Internal Revenue Code of 1986, as amended, or options which
do not so qualify ("Non-ISOs").
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<PAGE>
The 1998 Plan is administered by the Board of Directors or by a Stock
Option Committee designated by the Board of Directors. The Board or the Stock
Option Committee, as the case may be, has the discretion to determine the
eligible officers, directors and key employees to whom, and the times and the
prices at which, options will be granted; whether such options shall be ISOs or
Non-ISOs; the periods during which each option will be exercisable; and the
number of shares subject to each option. The Board or Committee shall have full
authority to interpret the 1998 Plan and to establish and amend rules and
regulations relating thereto.
Under the 1998 Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the Common Stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a ten percent stockholder such exercise price shall be at least 110%
of such fair market value. Exercise prices of Non-ISO options may be less than
such fair market value. The aggregate fair market value of shares subject to
options granted to a participant which are designated as ISOs which first become
exercisable in any calendar year shall not exceed $100,000.
On August 20, 1998, the Board of Directors granted options pursuant to
the 1998 Plan to 17 individuals including officers, directors (and a nominee for
director) and key employees, exercisable to purchase an aggregate 498,500 shares
of Common Stock at an exercise price of $3.00 per share. Those officers and
directors (and the nominee for director) who were granted options and the number
of shares issuable upon exercise of same are as follows:
Optionee Shares Issuable upon Exercise
-------- -----------------------------
Michael Noel Russell 30,000
David E. Padilla 125,000
Scott A. Wendel 115,000
Craig F. Sementilli 100,000
Leonard Gartner 30,000
The Company has also agreed to the issuance of stock options
exercisable to purchase 2,500 shares of Common Stock to each member of its
Advisory Board upon the satisfactory completion of the first year of service on
the Advisory Board. The options are exercisable at $3.00 per share.
Director's Compensation
The Company has also agreed to pay to each of its outside Board members
a meeting fee of $500 per meeting plus reimbursement of their reasonable costs
and expenses of attending the Board meetings and Committee meetings of the Board
of Directors.
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Indemnification
Section 145 of the Delaware General Corporations Law (DGCL) affords a
Delaware corporation the power to indemnify its present and former directors and
officers under certain conditions. Article Tenth of the Company's Certificate of
Incorporation provides that the Company shall, to the fullest extent permitted
by the provisions of Section 145 of the DGCL, indemnify any and all persons whom
it shall have power to indemnify under such section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section.
Section 102(b)(7) of the DGCL gives a Delaware corporation the power to
adopt a charter provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for breach of fiduciary duty as
directors, provided that such provision may not eliminate or limit the liability
of directors for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase that is illegal under
Section 174 of the DGCL, or (iv) any transaction from which the director derived
an improper personal benefit. Article Ninth of the Company's Certificate of
Incorporation states that to the maximum extent permitted by Section 102(b)(7)
of the DGCL, the personal liability of a director of the Company shall be
eliminated.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
Upon its incorporation in April 1994, the Company issued 1,509,235
shares of its Common Stock to Alan R. Ackerman (the "Principal Stockholder") for
total consideration of $15,000. In addition, the Principal Stockholder exchanged
$250,000 of prior indebtedness of New England Wireless, Inc. ("NEW") owed to him
for 83,334 shares of the Company's Common Stock on the same terms and conditions
as other noteholders of NEW on March 11, 1995. As of June 30, 1998, the Company
was indebted to the Principal Stockholder in the amount of $2,121,496 (including
$380,615 of interest accrued at an annual rate of 7.5%). The Company and the
Principal Stockholder have agreed that the Company will pay $1,684,000 out of
the net proceeds of this offering in reduction of this indebtedness, all of
which will be applied to principal. The balance will be paid in 24 equal monthly
installments of $25,123 (representing principal and interest) commencing in
January 1999.
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<PAGE>
In consideration of prior services rendered, the Company has issued
options to Mr. Ackerman exercisable to purchase 402,776 shares of the Company's
Common Stock. See "Management -- Executive Compensation" above.
Scott A. Wendel acquired 165,715 shares of the Company's Common Stock
through his exchange of shares of common stock of NEW on the same terms and
conditions as other shareholders of NEW in connection with the merger of NEW
with a subsidiary of the Company in March 1995. Subsequent stock transfers by
Mr. Wendel for personal reasons as well as in order to advance loans to the
Company and to induce employees to continue their employment reduced his
ownership to its current 58,138 shares of Common Stock. In addition, Mr. Wendel
agreed to post 15,000 of his shares as collateral with three investors to
secure repayment by the Company of $100,000 in borrowings made in March and
April 1998.
Leonard Gartner, a nominee for director who will take office after
completion of this offering, acquired his 21,478 shares of the Company's Common
Stock and warrants to purchase 20,000 shares of its Common Stock in
consideration for his lending to the Company in fiscal 1996 and 1997 and by
subsequently converting an aggregate $69,715 in loans and accrued interest.
Alan Husak, a more than 5% beneficial owner of the Company's Common
Stock, acquired his 170,548 shares of Common Stock and warrants to purchase
164,410 shares of Common Stock in consideration for his lending an aggregate
$620,263 to the Company in fiscal 1996, 1997, 1998 and the first quarter of
fiscal 1999 and by subsequently converting $470,263 of such indebtedness plus
accrued interest into Common Stock. Mr. Husak also currently holds a $150,000
promissory note convertible into 50,000 shares of Common Stock, issued in
consideration for a $150,000 loan he made to the Company in September 1998. (Mr.
Husak was issued an additional 17,500 warrants in fiscal 1998 for services.)
James Welch, also a more than 5% beneficial owner of the Company's
Common Stock, acquired 119,571 of his 154,089 shares of Common Stock and
warrants to purchase 90,489 shares of Common Stock in consideration for his
lending to the Company in fiscal 1996, 1997 and 1998 and by subsequently
converting an aggregate $366,212 in loans and accrued interest. He acquired the
remaining 34,518 shares in private purchases.
Except as set forth, there are currently no proposed transactions
between the Company and its officers, directors, shareholders, and affiliates.
Although future transactions between the Company and such parties are possible,
including a transaction relating to a business opportunity, the Board of
Directors of the Company has adopted a policy regarding transactions between the
Company and any officer, director or affiliate, including loan transactions,
requiring that all such transactions be approved by a majority of the
independent and disinterested members of the Board of Directors and that all
such transactions be for a bona fide business purpose and be entered into on
terms at least as favorable to the Company as could be obtained from
unaffiliated independent third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 25,
1998 concerning beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially 5% or more of the outstanding
shares of the Company's Common Stock, (ii) each director and nominee for
director, and (iii) all officers and directors of the Company as a group. The
percentages have been calculated on the basis of treating as outstanding for a
particular holder, all shares of the Common Stock outstanding on said date and
all shares of Common Stock issuable to such holder in the event of exercise of
outstanding options and warrants owned by such holder at said date which are
exercisable within 60 days of such date. The percentage ownership set forth in
the "After Offering" column assumes non-exercise of the Representative's
over-allotment option, the Warrants and the Underwriters' Warrants.
<TABLE>
<CAPTION>
Percentage Ownership
Shares of Common --------------------
Name and Address of Stock Beneficially Before After
Beneficial Owner Owned(1) Offering Offering
---------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Directors and Nominee*
Michael Noel Russell 30,000 shs(2) .9% .6%
David E. Padilla 125,000 shs(3) 3.7% 2.6%
Scott A. Wendel 173,138 shs(4) 5.2% 3.6%
Craig F. Sementilli 100,000 shs(5) 3.0% 2.1%
Leonard Gartner 71,478 shs(6) 2.2% 1.5%
Executive Officers and Directors
as a Group (five persons) 499,616 shs(2)(3)(4)(5)(6) 13.6% 9.7%
Other 5% Holders
Alan R. Ackerman 1,960,335 shs(7) 54.1% 38.3%
201 East 79th Street
New York, New York 10021
Alan Husak 402,458 shs(8) 11.6% 8.0%
403 Port Jersey Boulevard
Jersey City, New Jersey 07305
James Welch 244,578 shs(9) 7.3% 5.1%
509 Wycliff Way
Alexandria, Louisiana 71303
</TABLE>
65
<PAGE>
- ------------
*The address of all of the Company's directors and executive officers
is c/o the Company, P.O. Box 470, Ascutney, Vermont 05030.
(1) Except as otherwise noted, each holder named in the table has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned.
(2) Consists of 30,000 shares issuable upon exercise of options at an exercise
price of $3.00 per share.
(3) Consists of 125,000 shares issuable upon exercise of options at an exercise
price of $3.00 per share.
(4) Consists of 58,138 owned directly and 115,000 shares issuable upon exercise
of options at an exercise price of $3.00 per share.
(5) Consists of 100,000 shares issuable upon exercise of options at an exercise
price of $3.00 per share.
(6) Consists of 21,478 shares owned directly and 50,000 shares issuable upon
exercise of options and warrants at an exercise price of $3.00 per share. Mr.
Gartner is a nominee for director. See "Management."
(7) Consists of 1,582,569 shares owned directly and 377,766 shares issuable upon
exercise of options at an exercise price of $3.00 per share.
(8) Consists of 170,548 shares owned directly, 181,910 shares issuable upon
exercise of warrants at an exercise price of $3.00 per share and 50,000 shares
issuable upon conversion of a $150,000 principal amount convertible note.
(9) Consists of 154,089 shares owned directly and 90,489 shares issuable upon
exercise of options at an exercise price of $3.00 per share.
UNDERWRITING
Subject to terms and conditions contained in an underwriting agreement
("Underwriting Agreement"), the underwriters named below, for whom Tasin &
Company, Inc. is acting as the representative ("Representative") have severally
agreed to purchase the number of Units from the Company set forth opposite their
names below.
Underwriter Number of Units
----------- ---------------
Tasin & Company, Inc.
---------
1,500,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Units are subject to the approval of certain legal
matters by counsel and to
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<PAGE>
certain other conditions. If any of the Units are purchased by the Underwriters
pursuant to the Underwriting Agreement, all Units (other than the Units covered
by the over-allotment option described below) must be so purchased.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the company's securities in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the securities originally sold by such syndicate
member are purchased in a syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the securities to be higher than they
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq Stock Market and/or on the OTC Bulletin Board.
The Company has been advised by the Representative that the
Underwriters propose to offer the Units to the public initially at the price
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed $____
per Unit. The Underwriters may allow, and such dealers may re-allow, discounts
not in excess of $____ per Unit to any other Underwriter and certain other
dealers.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act. To the extent that this section may purport to provide
exculpation from possible liabilities arising under the federal securities laws,
it is the position of the Commission that such indemnification is contrary to
public policy and unenforceable.
The Company has agreed to pay to the Underwriters a non-accountable
expense allowance of three percent (3%) of the gross proceeds of this offering
(including proceeds attributable to any securities purchased pursuant to the
Representative's over-allotment option).
Upon the exercise of any Warrants and to the extent not inconsistent
with the guidelines of the National Association of Securities Dealers and the
Rules and Regulations of the Commission, the Company has agreed to pay the
Underwriters a commission equal to ten percent (10%) of the gross proceeds
received by the Company from the exercise of the Warrants provided such exercise
occurs at least one year after the effective date of the Registration Statement
of which this Prospectus forms a part. No compensation will be paid to the
Underwriters in connection with the exercise of the Warrants if (a) the market
price
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<PAGE>
of the Common Stock is lower than the exercise price, (b) the Warrants were held
in discretionary accounts, (c) the Warrants are exercised in an unsolicited
transaction, (d) disclosure of compensation arrangements was not made at the
time of the offering and the exercise of the Warrants, or (e) the solicitation
of the exercise of the Warrants did not comply with Regulation M promulgated
under the Securities Exchange Act of 1934.
The Company has agreed to sell to the Representative or its designees,
at nominal consideration, a total of 150,000 Warrants (the "Underwriters'
Warrants") to purchase a like number of Units of the Company (the "Underwriters'
Units"). Each of the Underwriters' Units consists of one share of Common Stock
and one five-year Warrant identical to the Warrant contained in the Units
offered to the public hereunder but exercisable at $15 per share. The
Underwriters' Warrants will be exercisable at a per Unit price equal to 150% of
the public offering price per Unit. The Underwriters' Warrants will be
exercisable for a period of five years commencing on the date of this
Prospectus. Such Warrants and their underlying securities will not be
transferable for one year from the date hereof except to other underwriters and
selected dealers, officers and partners thereof. Any profit realized upon any
resale of the Underwriters' Warrants or upon any sale of the shares of Common
Stock or Warrants underlying the same may be deemed to be additional
Underwriters' compensation. The Company has agreed to register (or file a
post-effective amendment with respect to any registration statement registering)
the Underwriters' Warrants and their underlying securities under the Securities
Act at its expense subject to the rules and regulations of the National
Association of Securities Dealers, Inc. during the period commencing on the
first anniversary of the effective date and ending on the fifth anniversary of
the effective date of this offering. The Company has agreed to pay a finder's
fee to the Representative if the Company enters into an agreement to sell all or
substantially all of the assets of the Company to a party introduced by the
Representative within two years from the initial public offering.
In addition, the Company has agreed to include the Underwriters'
Warrants and the underlying securities in any Registration Statement filed by
the Company during the period commencing one year after the effective date of
the offering and ending on the seventh anniversary of such effective date.
For the life of the Underwriters' Warrants, the holders are given, at
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock of the Company without assuming the risk of ownership, with a
resulting dilution in the interest of other security holders. As long as such
Warrants remain unexercised, the terms under which the Company could obtain
additional capital may be adversely affected. Moreover, the holders of such
Warrants might be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain any needed capital by a new offering of its
securities on terms more favorable than those provided by the Underwriters'
Warrants.
The Company has agreed to provide to the Representative the right to
designate a member of its board of directors for a period of five years. The
Representative has not designated any such representative to date. Prior to this
offering, there has been no public
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<PAGE>
market for the Units. Accordingly, the offering price of the Units was
determined by negotiation between the Company and the Representative. Factors
considered in determining such price, in addition to prevailing marketing
conditions, included the history of and the prospects for the industry in which
the Company competes, an assessment of the Company's management, the prospects
of the Company, its capital structure, the general condition of the securities
market, and such other factors as were deemed relevant.
The Underwriters do not intend to make sales to accounts over which
they exercise discretionary authority in excess of 2% of the Units offered
hereby.
DESCRIPTION OF SECURITIES
The Company will issue pursuant to the Offering, 1,500,000 Units each
consisting of one share of Common Stock and one Redeemable Common Stock Purchase
Warrant.
The following summaries of the terms of the Company's securities is
intended to address all material aspects of the Company's securities. With
respect to Preferred Stock and Common Stock, the discussion is qualified in all
respects by reference to the Certificate of Incorporation and By-Laws of the
Company.
Preferred Stock
The Board of Directors has the authority to issue 2,500,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of the Company's Common Stock. At present, the Company has no plans to issue any
of the Preferred Stock.
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$.01 par value, of which 3,244,948 shares are issued and outstanding. The issued
and outstanding shares of Common Stock are fully paid and non-assessable.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of shareholders and may not cumulate their
votes for the election of directors. Shares of Common Stock are not redeemable,
do not have any conversion or preemptive rights and are not subject to further
calls or assessments once fully paid.
Holders of Common Stock will be entitled to share pro rata in such
dividends and other distributions as may be declared from time to time by the
Board of Directors out of
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<PAGE>
funds legally available therefore, subject to any prior rights accruing to any
holders of Preferred Stock of the Company. Upon liquidation or dissolution of
the Company, holders of shares of Common Stock will be entitled to share
proportionately in all assets available for distribution to such holders. As of
August 31, 1998, there were 100 registered holders of the Company's Common
Stock.
Common Stock Purchase Warrants
The following summary of the material provisions of the Warrants is
qualified in all respect by reference to the actual text of the Warrant
Agreement between the Company and North American Transfer Co. (the "Transfer and
Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit to
the registration statement of which this Prospectus is a part. See "Additional
Information."
The Company is offering hereby an aggregate of 1,500,000 Warrants
(1,725,000 if the Underwriters' over-allotment option is exercised in full).
Each Warrant entitles the holder thereof to purchase, at any time from the date
of this Prospectus through the fifth anniversary of the date of this Prospectus,
one share of Common Stock at a price of $10.00 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to below.
The Warrants are subject to redemption by the Company, at any time
commencing twelve months after the date of this Prospectus, at a price of $.10
per Warrant upon 30 days prior written notice if the closing sale or bid price
per share of the Common Stock equals or exceeds $12.00 per share for the 20
consecutive trading days ending on the fifteenth trading day prior to the
mailing of the notice of the redemption. The exercise price of the Warrants
should in no event be regarded as an indication of any future market price of
the securities offered hereby. See "Underwriting" as to the commissions to be
paid by the Company to the Underwriters upon exercise of the Warrants provided
certain conditions are met.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Warrants are subject to adjustment upon the occurrence
of certain events, including stock dividends, stock splits, combinations or
reclassification of the Common Stock. The Warrants do not confer upon the
holders, any voting or any other rights as shareholders of the Company.
The Company is required to have a current registration statement on
file with the Commission and to effect appropriate qualifications under the laws
and regulations of the states in which the holders of Warrants reside in order
to comply with applicable laws in connection with the exercise of Warrants and
the resale of the Common Stock issued upon such exercise. The Company,
therefore, will be required to file post-effective amendments to its
registration statement when subsequent events require such amendments in order
to continue the registration of the Common Stock underlying the Warrants and to
take appropriate action under state securities laws. There can be no assurance
that the Company will be able to keep
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<PAGE>
its registration statement current or to effect appropriate action under
applicable state securities laws. Its failure to do so may restrict the ability
of the Warrant holders to exercise the Warrants and resell or otherwise dispose
of the underlying Common Stock. See "Risk Factors -- Non-Registration of
Securities in Certain Jurisdictions."
Transfer Agent or Registrar
The Transfer Agent and Registrar for the Common Stock is North American
Transfer Co., 147 W. Merrick Road, Freeport, New York 11520.
Shares Eligible for Future Sale
Upon completion of this offering, members of management and other
existing shareholders of the Company will own 3,244,948 shares of Common Stock
of the Company, representing approximately 68% of the outstanding shares of
Common Stock immediately following the offering. All of these shares are deemed
"restricted securities" as defined by Rule 144 under the Securities Act of 1933,
as amended (the "Act") and were acquired or were derived from securities
purchased prior to the date hereof. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one-year holding period
may, under certain circumstances, sell within any three-month period a number of
restricted securities which does not exceed the greater of one percent (1%) of
the shares outstanding or the average weekly trading volume during the four
calendar weeks preceding the notice of sale required by Rule 144. In addition,
Rule 144 permits, under certain circumstances, the sale of restricted securities
by a person who is not an affiliate of the Company and has satisfied a two-year
holding period without any quantity limitations. Any sales of shares by
shareholders pursuant to Rule 144 may have a depressive effect on the price of
the Common Stock. The vast majority of shares issued prior to inception of the
offering (other than shares held by affiliates) may be sold pursuant to Rule 144
immediately after completion of the offering; however, shareholders of the
Company owning an aggregate _,___,___ shares of Common Stock and holders of
options, warrants and convertible notes exercisable to purchase or convertible
into an aggregate _,___,___ shares of Common Stock have agreed with the
Representative not to offer or sell any shares of Common Stock for a period of
one year following the date of this Prospectus without the prior written consent
of the Representative.
LEGAL MATTERS
The validity of the securities offered by this Prospectus will be
passed upon for the Company by Tolins & Lowenfels, A Professional Corporation,
of New York, New York, as securities counsel, and Gravel and Shea, a
Professional Corporation, of Burlington, Vermont, as corporate counsel. Lester
Morse, P.C. of Great Neck, New York, has served as counsel to the Underwriters
in connection with this offering.
71
<PAGE>
EXPERTS
The consolidated financial statements of Worldwide Wireless Systems,
Inc. as of June 30, 1998 and for the years ended June 30, 1998 and June 30,
1997, appearing in this Prospectus and Registration Statement have been audited
by Richard A. Eisner & Company, LLP, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph with respect to the
substantial doubt about the Company's ability to continue as a going concern, as
discussed in Note A to the Financial Statements) appearing in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, with respect to the
Common Stock and Warrants to which this Prospectus relates. As permitted by the
rules and regulations of the Commission, this Prospectus does not contain all of
the information set forth in the Registration Statement. For further information
with respect to the Company and the Shares and Warrants offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
which may be copied and inspected, without charge, at the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's regional offices at 1801 California
Street, Suite 4800, Denver, Colorado 80202-2648 and 7 World Trade Center, Suite
1300, New York, NY 10048.Copies of such material also may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, NW, Washington,
DC 20549, upon payment of certain fees prescribed by the Commission. Electronic
registration statements made through the Electronic Data Gathering, Analysis and
Retrieval system are publicly available through the Commission's Web site
(http://www.sec.gov).
72
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Contents Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance sheeet as of June 30, 1998 F-3
Statements of operations for the years ended June 30, 1998 and 1997 F-4
Statements of changes in capital deficiency for the years ended
June 30, 1998 and 1997 F-5
Statements of cash flows for the years ended June 30, 1998 and 1997 F-6
Notes to financial statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Worldwide Wireless Systems, Inc.
Ascutney, Vermont
We have audited the accompanying consolidated balance sheet of Worldwide
Wireless Systems, Inc. and subsidiary (the "Company") as of June 30, 1998 and
the related consolidated statements of operations, changes in capital deficiency
and cash flows for the years ended June 30, 1998 and 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Worldwide Wireless
Systems, Inc. and subsidiary as of June 30, 1998 and the consolidated results of
their operations and their consolidated cash flows for the years ended June 30,
1998 and 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 A to the
financial statements, the Company has sustained operating losses since
inception, has a working capital deficiency, is unable to pay debt currently
due, and is delinquent in making certain lease payments to wireless channel
license holders and sublessors. These factors 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 A. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
August 7, 1998
With respect to Note M
September 24, 1998
F-2
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1998
ASSETS (Note A)
Current assets:
Cash $ 1,000
Accounts receivable 8,000
Prepaid expenses and other current assets 23,000
----------
Total current assets 32,000
Property and equipment, net (Notes B[2], C, E[5] and J) 992,000
Wireless channel rights, net (Notes B[3] and D) 100,000
Installation labor, net (Note B[6]) 21,000
Deferred offering costs (Note K) 286,000
Security deposits and other assets 2,000
----------
$1,433,000
LIABILITIES
Current liabilities:
Notes payable (Notes A and I) $2,869,000
Current portion of mortgages payable (Note E[5]) 3,000
Accounts payable (Notes D and F[2]) 723,000
Accrued expenses (Notes A and I) 1,072,000
----------
Total current liabilities 4,667,000
Mortgages payable (Note E[5]) 67,000
----------
Total liabilities 4,734,000
----------
Commitments, contingencies and other matters
(Notes D, E, F, J and K)
CAPITAL DEFICIENCY
Preferred stock - authorized 2,500,000 shares; none issued
and outstanding
Common stock - par value $.01 per share; authorized
20,000,000 shares; issued and outstanding, 2,989,399 shares 30,000
Additional paid-in capital 4,298,000
Accumulated deficit (7,629,000)
----------
Total capital deficiency (3,301,000)
----------
$1,433,000
See notes to financial statements F-3
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Year Ended June 30,
-----------------------
1998 1997
---- ----
Service revenue $354,000 $355,000
---------- --------
Costs and expenses:
Service cost 101,000 101,000
Programming and license fees 869,000 851,000
Selling, general and administrative expenses 2,204,000 642,000
----------- -----------
Total costs and expenses 3,174,000 1,594,000
----------- -----------
Operating loss before other expenses (2,820,000) (1,239,000)
Other expenses:
Interest (1,585,000) (402,000)
Miscellaneous (5,000) (44,000)
----------- -----------
Net loss $(4,410,000) $(1,685,000)
=========== ===========
Net loss per share - basic and diluted $(1.49) $(0.60)
====== ======
Weighted average number of common shares 2,963,000 2,792,000
=========== ===========
See notes to financial statements F-4
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Capital Deficiency
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Issued Treasury Additional Total
------------------ ----------------- Paid-in Accumulated Capital
Shares Amount Shares Amount Capital Deficit Deficiency
------ ------ ------ ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996 2,763,398 $28,000 $ 403,000 $(1,534,000) $(1,103,000)
Litigation settlement paid by stockholders 108,000 108,000
Common stock issued on conversion of debt 95,000 1,000 297,000 298,000
Common stock issued on settlement of interest 563 2,000 2,000
Warrants issued in connection with financing 218,000 218,000
Warrants issued for services 67,000 67,000
Net loss (1,685,000) (1,685,000)
--------- ------- ---------- ---------- -----------
Balance - June 30, 1997 2,858,961 29,000 1,095,000 (3,219,000) (2,095,000)
Common stock issued on conversion of debt
and interest 130,438 1,000 847,000 848,000
Warrants issued in connection with financing 820,000 820,000
Common stock received from stockholder/officer
in settlement of advances (15,000) $(25,000) (25,000)
Treasury stock issued in connection with financing 15,000 25,000 38,000 63,000
Compensation charge in connection with
issuance of option to officer/stockholder 1,468,000 1,468,000
Warrants issued for services 30,000 30,000
Net loss (4,410,000) (4,410,000)
--------- ------- ------ -------- ---------- ----------- ---------
Balance - June 30, 1998 2,989,399 $30,000 0 $ 0 $4,298,000 $(7,629,000) $(3,301,000)
========= ======= ====== ======== ========== =========== ===========
</TABLE>
See notes to financial statements F-5
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,410,000) $ (1,685,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 431,000 407,000
Loss on disposal of equipment 9,000 72,000
Noncash litigation settlement 108,000
Warrants issued for services 30,000 67,000
Noncash compensation for options issued 1,468,000
Noncash interest charge on debt conversion 457,000
Amortization of debt discount 898,000 179,000
Changes in:
Accounts receivable (1,000) 1,000
Prepaid expenses and other current assets 17,000 8,000
Security deposits and other assets 14,000 3,000
Accounts payable and accrued expenses 570,000 23,000
------------- -------------
Net cash used in operating activities (517,000) (817,000)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (154,000) (37,000)
Proceeds from disposal of equipment 30,000
Additions to installation labor (14,000) (14,000)
Collections on notes receivable 20,000
------------- -------------
Net cash used in investing activities (168,000) (1,000)
------------- -------------
Cash flows from financing activities:
Repayment of debt (1,000) (2,000)
Proceeds on issuance of promissory notes and warrants 743,000 924,000
Repayment of promissory notes (30,000)
Deferred offering costs (62,000) (45,000)
Advances to officer/stockholder (3,000) (22,000)
------------- -------------
Net cash provided by financing activities 677,000 825,000
------------- -------------
Net increase (decrease) in cash (8,000) 7,000
Cash at beginning of period 9,000 2,000
------------- -------------
Cash at end of period $ 1,000 $ 9,000
============= =============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 3,000 $ 36,000
Noncash transactions:
Conversion of debt and interest into common stock $ 391,000 $ 298,000
Deferred offering costs included in accrued
expenses $ 224,000 $ 110,000
Common stock received from stockholder/officer in settlement
of advances $ 25,000
</TABLE>
See notes to financial statements F-6
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Worldwide Wireless Systems Inc., a Delaware Corporation, ("Worldwide" or the
"Company"), formerly known as Worldwide Wireless, Inc., through its
wholly-owned subsidiary, is engaged in investing, leasing, and purchasing
wireless channel rights (including multi-channel, multi-point distribution
services ("MMDS") licenses and instructional television fixed services
("ITFS") licenses) and operating a wireless cable system and intends to
provide telecommunications and internet access services (see Notes D, E[3] and
E[4]). Substantial financing will be required by the Company to fund its
operating activities. There is no assurance that such financing will be
available when needed or that the Company's efforts to develop its business
will be successful.
Prior to March 1995 Worldwide had no operations. In March 1995, the Company's
founder and sole stockholder approved a merger with New England Wireless, Inc.
("NEWI"), a Vermont corporation through its wholly owned subsidiary, N.E.W.
Acquisition Co., Inc. Accordingly, NEWI is treated as a predecessor entity and
as the merger survivor, became the Company's wholly owned operating
subsidiary. In connection with the merger, all of NEWI's 10,000 shares of
outstanding common stock were exchanged for 801,156 shares of the Company's
common stock. The merger was treated for accounting purposes as a capital
transaction rather than a business combination. In connection with this
recapitalization/reorganization, assets and liabilities were recorded at their
historical amounts. Concurrent with the merger, the Company and creditors of
NEWI agreed to exchange certain notes aggregating $1,164,000 in consideration
of receiving 388,007 shares of the Company's common stock. In addition,
Worldwide issued notes payable in the amount of $681,000 to its founder in
exchange for debt of NEWI owed to him.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has sustained recurring
operating losses since inception and such losses are expected to continue. As
a result, the Company has a substantial working capital deficiency and a
capital deficiency and lacks the resources to repay its indebtedness which is
due and payable on demand. In addition, the Company is delinquent in making
the monthly lease payments to the wireless channel license holders and
sublessors. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Continuation of the Company is dependent upon
its ability to maintain its wireless channel rights under license, obtain
additional debt or equity financing and, ultimately, upon its ability to
achieve profitable operations. The financial statements do not include any
adjustments concerning the recoverability or classification of recorded asset
amounts or the amounts or classification of liabilities if the Company is
unable to continue as a going concern.
The Company is currently seeking financing and is planning an initial public
offering of its securities (see Note K). There is no assurance, however, that
such public offering will be consummated or that the Company's efforts will
ultimately be successful.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Basis of preparation and use of estimates:
The accompanying consolidated financial statements include the accounts of
Worldwide Wireless Systems, Inc. and New England Wireless, Inc. in a manner
similar to a pooling of interests (see Note A). Intercompany accounts and
transactions between Worldwide, the parent and NEWI, its wholly owned
subsidiary are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[2] Property and equipment:
Property and equipment are carried at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the related assets
ranging from 5 - 31.5 years. The Company intends to modify certain of its
equipment to provide for digital technology transmission of television
programs. Unmodified equipment will be relocated and will continue to be
used to transmit programs using existing technology.
[3] Wireless channel rights:
Wireless channel rights are carried at cost and amortized over their
ten-year terms. Accumulated amortization at June 30, 1998 is $59,000.
[4] Installation labor:
The Company capitalizes subcontractor and direct employee labor costs
incurred in connection with the installation of its television reception
equipment on subscriber premises. Amortization of such costs is based on
the subscriber turnover rate estimated to be three years.
[5] Net loss per share:
During the year ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," and
has retroactively applied the effects thereof for all periods presented.
Accordingly, the presentation of per share information includes
calculations of basic and diluted loss per share. The impact on the per
share amounts previously reported was not significant for any of the
periods presented.
Potential common shares not included in the calculation of the net loss per
share for the year ended June 30, 1998 as their effect would be
antidilutive, are as follows:
Stock option 402,776 shares
Warrants to purchase common stock 537,129 shares
[6] Revenue recognition:
Revenue from subscribers are recognized in the period that service is
rendered. Installation fees are recognized as revenues upon subscriber
hook-up to the extent of costs to obtain subscribers.
[7] Credit and equipment concentration:
The Company's customers are primarily located in the State of Vermont.
Credit risk with respect to receivables is limited because of the number of
customers comprising the Company's customer base. All of the Company's
transmission equipment is located in the State of Vermont.
F-8
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] Impairment of long-lived assets:
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS
121"). During 1996, SFAS 121 established accounting standards for the
impairment of long-lived assets, certain identifiable assets and goodwill
related to those assets. There was no financial statement impact from the
adoption of SFAS 121. The Company periodically reviews wireless channel
rights and other long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. When such circumstances occur, the Company will evaluate the
possible effects on the carrying amount of such assets.
The Company has estimated its cash flows and has determined that no
provision for impairment is required.
[9] Fair values of financial instruments:
The estimated fair value of financial instruments has been determined based
on available market information and appropriate valuation methodologies.
The carrying amounts of cash, accounts receivable, and other assets,
accounts payable, and accrued expenses approximate fair value at June 30,
1998 because of the short maturity of these financial instruments. The
estimated carrying value of the mortgages payable for financial statement
purposes at June 30, 1998 approximate fair value because the interest rates
on these instruments approximate the prevailing market rate at that date.
The fair value estimates were based on the information available to
management.
[10] Recent pronouncements:
The Financial Accounting Standards Board has recently issued SFAS No. 129,
"Disclosure of Information about Capital Structure," No. 130, "Reporting
Comprehensive Income," and No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Management believes that the adoption
of these pronouncements will not significantly affect the information
presented in the consolidated financial statements.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 1998 consists of the following:
Transmission equipment $ 1,291,000
Subscriber equipment 630,000
Office furniture and equipment 191,000
Vehicles 44,000
Leasehold improvements 65,000
Building and land 128,000
-------------
2,349,000
Accumulated depreciation (1,357,000)
-------------
$ 992,000
=============
F-9
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE D - WIRELESS CHANNEL RIGHTS
The Company acquired wireless channel rights through license holders and
sub-lessors of certain licenses. The Company's wireless channel rights are
principally located in the Vermont market.
The lease and sub-lease agreements frequently require initial fees followed by
certain monthly fees based on subscriber volume, subject to certain minimum
fees. Most of the agreements do not require minimum fees until the channel
starts operations. The Company is in arrears in paying the monthly fees to
such license holders and sub-lessors. The accounts payable balance at June 30,
1998 includes approximately $244,000 of monthly fees payable to the license
holders and sub-lessors of the wireless channel rights. The lease and
sub-lease agreements contain provisions for the termination of the agreements
in the event of nonpayment.
The lease and sub-lease periods generally follow the periods corresponding to
the actual Federal Communications Commission ("FCC") license dates with
provisions for extensions upon license renewal from the FCC. The FCC licenses
are typically granted for ten-year periods. The Company, as at June 30, 1998,
is obligated to pay minimum fees to license holders or sub-lessors in future
periods for channels which have begun operations as follows:
Year Ending
June 30,
-------------
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 60,000
Thereafter 100,000
--------
$400,000
========
NOTE E - COMMITMENTS AND OTHER MATTERS
[1] Programming contracts:
In connection with its distribution of television programming, the
Company has fixed-term contracts with various program suppliers, such
as ESPN, TMC and NESN. Contract terms range in length from one year to
five years and expire at various dates through 1999. Most contracts are
subject to automatic renewal upon expiration unless notice is given, by
either party, of intent not to renew. These contracts require the
Company to pay fees to program suppliers based on the number of
subscribers and certain contracts are subject to a minimum charge
ranging from $92 to $128 per month.
[2] InterDigital Communications Corporation Agreement:
In August 1997, the Company entered into an agreement with InterDigital
Communications Corporation ("InterDigital") whereby, InterDigital will
use the Company's service territory and facilities for testing certain
of its proprietary technologies. In conjunction with the agreement, the
Company is obligated to purchase equipment from InterDigital commencing
January 1998. The Company has not made any equipment purchases pursuant
to the agreement. The estimated total cost of purchases will vary based
on the number of subscriber units purchased and installed. Each
subscriber unit will cost approximately $1,500 and related
infrastructure equipment to support up to 500 subscriber units will
cost approximately $250,000. In connection therewith, InterDigital made
a bridge loan of $250,000 at an interest rate of prime (as declared by
Citibank) plus 1% and is due the earlier of December 31, 1998 (original
due date December 31, 1997), or the completion of the proposed public
offering.
F-10
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE E - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[2] InterDigital Communications Corporation Agreement: (continued)
In connection with the loan, the Company issued warrants for the
purchase of 62,000 shares of common stock. The warrants are exercisable
at 50% of the offering price during the period ending January 1, 2002.
The warrants have been valued at approximately $67,000 and have been
accounted for as debt discount and were amortized over the life of the
loan. The effective interest rate on the note is 56%.
[3] VocalTec, Inc. Agreement:
In September 1997, the Company entered into an agreement with VocalTec,
Inc. ("VocalTec") pursuant to which, the Company has agreed to purchase
approximately $150,000 of telecommunications equipment and software
products from VocalTec designed to permit telephone conferencing and
facsimile services over the Internet. The Company has also agreed to
share marketing and sales support activities with respect to the
VocalTec services provided by the Company. The Company has purchased
approximately $100,000 of equipment from VocalTec through June 30,
1998.
[4] Other Agreements:
The Company intends to commence providing high speed internet access
services in various markets in the northeastern region of the United
States of America. In this regard, in June and July 1998 the Company
entered into two nonexclusive one and two year agreements with internet
access service providers from whom it will acquire the related network
access equipment and services. The agreements require the Company to pay
variable monthly fees which will commence on the date the services are
provided and are based on the type of services used and include
additional charges for installation.
[5] Mortgages payable:
The Company has entered into a first and second mortgage for certain
property at the base of a future transmitting site. The mortgages bear
interest at 8.0% and 8.75%, respectively. Aggregate monthly principal and
interest payments total approximately $620, with the mortgages maturing
in 2009 and 2023, respectively. Future principal payments on these
mortgages as of June 30, 1998 are as follows:
Year Ending
June 30,
-------------
1999 $ 3,000
2000 3,000
2001 3,000
2002 3,000
2003 3,000
Thereafter 55,000
-------
$70,000
=======
F-11
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE F - OPERATING LEASES
[1] The Company has entered into a noncancellable operating lease for
office facilities at one of its tower sites. The lease agreement is
adjusted annually for the percentage increase based on the Consumer
Price Index - All Urban Consumers. The lease expires in January 2002.
The lease agreement contains renewal options for up to two additional
five-year periods on the existing terms and conditions. The future
minimum lease obligations at June 30, 1998 are as follows:
Year Ending
June 30,
-----------
1999 $23,000
2000 23,000
2001 23,000
2002 13,000
-------
$82,000
=======
[2] The Company has entered into two operating leases with the same party
to lease space at the location which the Company uses to broadcast its
signal. The leases are adjusted annually for the percentage increase
based on the Consumer Price Index - All Urban Consumers.
The lease terms range from 8 - 10 years and the Company has the option
to renew the leases at the end of the initial terms. The future minimum
lease obligations at June 30, 1998 are as follows:
Year Ending
June 30,
-----------
1999 $ 58,000
2000 35,000
2001 35,000
2002 26,000
---------
$ 154,000
=========
[3] The total rent expense incurred by the Company for operating leases for
the years ended June 30, 1998 and 1997 was approximately $91,000 and
$128,000, respectively.
NOTE G - INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," which requires the Company to recognize
deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases.
From inception through the date of the merger, NEWI had elected to be treated
as an S corporation for federal and state income tax purposes, whereby,
earnings and losses were included in the personal tax returns of the
stockholders and are excluded from the net operating loss carryforward
available for use by the Company to reduce future taxable income.
F-12
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE G - INCOME TAXES (CONTINUED)
At June 30, 1998, the Company has net operating loss carryforwards for income
tax purposes aggregating approximately $4,375,000 which expire in the years
2010 through 2013. The use of these carryforwards may be limited on an annual
basis pursuant to the Internal Revenue Code due to certain changes in
ownership.
The Company has provided a 100% valuation allowance for such asset since the
likelihood of realization cannot be determined.
Deferred taxes at June 30 are as follows:
1998
-----------
Net operating losses - deferred tax asset $ 1,750,000
Less valuation allowance thereon (1,750,000)
-----------
$ 0
===========
NOTE H - STOCK WARRANTS
Outstanding stock warrants issued with debt consist of the following at June
30, 1998:
Number of Exercise Expiration
Shares Price Date
---------- --------- -----------
(i) 37,500 (A) (A)
(ii) 25,000 3.00 (A)
(iii) 82,500 3.00 August 1998
(iv) 15,000 3.00 December 1998
(v) 7,500 3.00 January 1999
(vi) 6,250 (A) (A)
(vii) 43,500 (A) (A)
(viii) 12,375 (A) (A)
(ix) 62,000 (A) (A)
(x) 1,250 (A) (A)
(xi) 65,000 (A) (A)
(xii) 15,000 (A) (A)
(xiii) 12,908 (A) (A)
(xiv) 7,500 (A) (A)
(xv) 10,000 (A) (A)
(xvi) 27,989 (A) January 2002
(xvii) 46,481 (A) January 2002
(xviii) 21,876 (A) January 2002
(xix) 37,500 (A) January 2002
(A) The warrants are exercisable at the lower of $3.00 or 50% of the
contemplated offering price from January 1, 1998 through January 1,
2001. The warrants were valued by the Company on the dates they were
issued, using the Black-Scholes pricing model. In those instances where
the Black-Scholes valuation exceeded the amount of the promissory note,
the value ascribed to the warrants was the value of the debt.
F-13
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE H - STOCK WARRANTS (CONTINUED)
(i) Contingent warrants were issued with convertible promissory notes
aggregating $150,000 in August 1995. The notes matured in June
1996. These contingent warrants were valued at approximately
$18,000 and accounted for as debt discount and fully amortized
over the term of the notes. In August 1997, the Company issued
15,000 new warrants and an additional 22,500 warrants to the same
noteholders as the contingency regarding the August 1995 warrants
did not occur and they were not issued. The Company recorded
approximately $135,000 as a charge to interest expense in the year
ended June 30, 1998 for such new warrants.
(ii) Warrants issued with a promissory note of $100,000, exercisable
during a three-year period following an initial public offering.
The note matured in October 1996 and remains unpaid. The warrants
were valued at approximately $32,000 and accounted for as debt
discount and amortized over the term of the note.
(iii) Warrants issued with promissory notes aggregating $330,000 in
August 1996. The notes matured in March 1997 and remain unpaid.
The warrants were valued at approximately $68,000 and accounted
for as debt discount and amortized over the term of the notes.
(iv) Warrants issued with a promissory note of $60,000 in December
1996. The note matured in March 1997 and remains unpaid. The
warrants were valued at approximately $12,000 and accounted for as
debt discount and amortized over the term of the note.
(v) Warrants issued with a promissory note of $30,000 in January 1997.
The note matured in July 1997 and remains unpaid. The warrants
were valued at approximately $6,000 and accounted for as debt
discount and amortized over the term of the note.
(vi) Warrants issued in connection with a promissory note for $25,000
in April 1997. The note's due date was extended from December 1997
to March 1998. The warrants were valued at approximately $5,000
and accounted for as debt discount and are being amortized over
the term of the note.
(vii) Additional warrants issued upon conversion of two promissory notes
in May 1997. The warrants were valued at approximately $45,000 and
charged as interest expense in the year ended June 30, 1997.
(viii) Warrants issued in June 1997 to the holders of two promissory
notes which matured in June and July 1996. The warrants were
valued at approximately $13,000 and charged as interest expense in
the year ended June 30, 1997.
(ix) See Note E[2] - InterDigital Communications Corporation Agreement.
(x) Warrants issued with a convertible promissory note of $5,000 in
April 1997. The note matured in October 1997. The warrants have
been valued at approximately $1,000 and accounted for as debt
discount and are being amortized over the term of the note.
(xi) Warrants issued in May and June 1997 in connection with services
rendered. Recipients of such warrants included shareholders of the
Company. The warrants have been valued at approximately $67,000
and have been included in selling, general and administrative
expenses in the year ended June 30, 1997.
(xii) Warrants issued with a promissory note for $60,000 in July 1997.
The note matured in December 1997. The warrants have been valued
at approximately $16,000 and have been accounted for as debt
discount and are being amortized over the term of the note.
F-14
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE H - STOCK WARRANTS (CONTINUED)
(xiii) In August 1997, the Company agreed to issue warrants to purchase
12,908 shares of common stock to those NEWI noteholders who
exchanged their notes for shares of the Company's common stock
pursuant to the merger (see Note A). The warrants were issued at
the rate of one warrant for every $4 of accrued interest payable.
The warrants have been valued at approximately $47,000 and was
recorded as a charge to interest expense in the three-month period
ended September 30, 1997.
(xiv) Warrants issued in October 1997 in connection with services
rendered. The warrants have been valued at approximately $30,000
and have been included in selling, general and administrative
expenses in the period ended March 31, 1998.
(xv) Warrants issued in connection with a convertible promissory note
of $35,000 which was converted into common stock in October 1996.
The warrants were valued at approximately $33,000 and charged as
interest expense upon issuance.
(xvi) Warrants issuable to a note holder in connection with a
convertible promissory note of $52,500 which was converted into
common stock in December 1996, and to extend payment of accrued
interest on additional promissory notes held by the note holder.
The warrants were valued at approximately $133,000 and accrued as
interest expense in the year ended June 30, 1998.
(xvii) Warrants issuable to three note holders in connection with
promissory notes aggregating $185,000, issued between November
1997 and January 1998. The value ascribed to the warrants is
$185,000 and has been accrued as interest expense in the year
ended June 30, 1998.
(xviii) Warrants issuable to a principal stockholder to extend the
payment of accrued interest on promissory notes. The warrants were
valued at approximately $120,000 and accrued as interest expense
in the year ended June 30, 1998.
(xix) Warrants issuable in connection with four promissory notes
aggregating $150,000. The value ascribed to the warrants is
$150,000 and has been accrued as interest expense in the year
ended June 30, 1998.
NOTE I - NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
1998
----------
<S> <C>
Notes payable to the principal stockholder, interest at 7.5% and 15.0% $1,741,000
Notes payable to stockholders, interest at 8.5% to 10% 355,000
Notes payable to third parties, interest at 7.5% to 15% 788,000
Convertible promissory notes, interest at 7.5% to 8% 25,000
----------
2,909,000
Less unamortized debt discount 40,000
----------
Notes payable $2,869,000
==========
</TABLE>
F-15
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE I - NOTES PAYABLE (CONTINUED)
Except for four notes aggregating $430,000 which mature between July 1998 and
December 1998, the notes matured on various dates through June 1998 and are
payable on demand. The Company lacks the resources to repay those notes. The
Company's principal stockholder has agreed to be repaid as follows: $1,684,000
out of the net proceeds of the contemplated public offering, all of which will
be applied to principal; the balance will be paid in 24 equal monthly
installments of $25,123 (representing principal and interest) commencing January
1999.
Certain notes payable aggregating approximately $681,000 at June 30, 1998 are
subject to increased interest rates of 12% to 17%.
Interest payable to stockholders of approximately $475,000 at June 30, 1998 is
included in accrued expenses.
Three notes aggregating $150,000 are collateralized by 15,000 shares of the
Company's common stock owned by the Company's President.
In June 1998, in connection with a promissory note for $60,000 issued to a
stockholder, the Company issued 15,000 shares from its treasury. The Company
ascribed the cash received as the value of the common stock issued and
recorded $60,000 as debt discount which is being amortized over the term of
the note.
The Company also issued 500 shares of common stock from its treasury stock to
a noteholder in June 1998. These shares of common stock have been valued at
approximately $3,000 and have been recorded as a charge to interest expense in
the year ended June 30, 1998.
In August 1997, the Company made an offer to all holders of its promissory
notes as of March 31,1997 to exchange the notes and accrued interest for
common stock at the lower of $3.00 or 50% of the offering price per share.
Holders of notes aggregating $299,500 plus accrued interest of $28,526 opted
to convert their notes and interest into 109,341 shares, converted using $3.00
per share. In the event the proposed offering price (Note K) is less than
$6.00 per unit, the Company will need to issue a proportional number of
additional shares. In connection with the conversion, the Company recorded
additional interest expense of approximately $383,000 for the difference
between the estimated fair value of the common stock issued and the value of
the notes and accrued interest.
Interest incurred on debt for the years ended June 30, 1998 and 1997 was
approximately $214,000 and $189,000, respectively, including approximately
$160,000 and $155,000 respectively, due to stockholders.
NOTE J - LITIGATION AND CONTINGENCIES
The Company's President instituted a lawsuit against an ex-employee claiming
defamation by the ex-employee. In October 1996, the ex-employee filed a
counterclaim against the Company and its President alleging wrongful
termination, misconduct by the President and violations of Securities and
Exchange Commission Regulations. Subsequent to June 30, 1997, the Company
settled the counterclaim for $155,000, $120,000 of which is covered by
insurance. The remaining $35,000 is to be borne by the Company of which
$10,000 was advanced by the insurance carrier and is to be repaid by the
Company and the Company issued a noninterest bearing promissory note for
$25,000, due on or before November 10, 1997 and secured by certain real estate
and the Company's common stock owned by the Company's President. The note was
paid in November 1997. Included in selling, general and administrative
expenses for the year ended June 30, 1997, is a charge for $35,000 related to
the settlement.
F-16
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE J - LITIGATION AND CONTINGENCIES (CONTINUED)
In January 1997, the Company settled a claim of wrongful termination
instituted by a former employee. The settlement terms included 36,050 shares
transferred from two stockholders, including one who is an officer of the
Company and an agreement to use the plaintiff's corporation as an exclusive
marketing agency to obtain customers for the Company within the states of
Vermont and New York for years beginning March 1, 1997. During the two year
period, the Company shall pay a $45 fee for each subscriber enrolled through
the plaintiff's corporation. The shares transferred on settlement, have been
valued at approximately $108,000 and have been included in selling, general
and administrative expenses in the year ended June 30, 1997. From March 1,
1997 through June 30, 1998, the Company incurred $18,000 in fees for
subscribers enrolled through the plaintiff's corporation and the amount owed
at June 30, 1998 was $3,000.
In April 1997, the Company's President and its wholly owned subsidiary NEWI
were sued by one of the original investors and the ex-wife of another original
investor claiming that the President misrepresented material facts about
himself and NEWI and they relied on these representations when deciding to
invest in NEWI. The suit was dismissed in November 1997.
In April 1997, a former employee filed a complaint with the Vermont Attorney
General's office ("AGO") alleging sexual harassment in the workplace. The
former employee raised the same claims with the Vermont Department of
Employment and Training ("DOE&T") when seeking unemployment compensation. The
DOE&T has denied the claim for unemployment compensation. The Company believes
the former employee's complaint filed with AGO to be wholly without merit but
has indicated to the AGO a willingness to mediate the claim.
The proceedings are at an early stage and the Company is not able to determine
the likelihood that it will prevail nor the likely magnitude of damages awarded
in the event it should not prevail.
NOTE K - PROPOSED PUBLIC OFFERING
The Company has signed a letter of intent with an underwriter with respect to
a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection with the offering, the
Company has incurred and anticipates incurring additional substantial expenses
which, if the offering is not consummated, will be charged to expense.
The Company expects to offer 1,500,000 units at $8.00 per unit. Each unit
consists of one share of common stock and one redeemable warrant. Each warrant
will entitle the holder to purchase one share of common stock at an exercise
price of $10.00.
NOTE L - STOCK OPTION
In August 1997, the Company granted an option to purchase 402,776 shares of
common stock to the Company's principal stockholder. The option is exercisable
during the period commencing on the 14th month and ending on the 36th month
following completion of the contemplated public offering at the lower of $3.00
or 50% of the proposed offering price per share. The option has been valued by
the Company at approximately $1,468,000, using the Black-Scholes pricing
model, and has been recorded as compensation expense in the year ended June
30, 1998. In estimating the value of the option pursuant to the provisions of
SFAS No. 123, the Company used the following assumptions:
Risk free interest rate 6.50%
Expected life 3 years
Expected volatility 0.40%
Dividend yield 0.00%
F-17
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
June 30, 1998
NOTE M - SUBSEQUENT EVENTS
Subsequent to June 30, 1998, the Company issued six promissory notes
aggregating $368,000 and maturing on various dates through December 31, 1998.
One such note for $150,000 is convertible into 50,000 shares of common stock. In
connection with the notes, the Company also issued 96,534 warrants exercisable
at the lower of $3.00 or 50% of the offering price during January 1, 1999 to
January 1, 2002. The warrants have been valued at approximately $218,000 and
will be accounted for as debt discount and amortized over the terms of the
notes.
In August 1998, the Company agreed to issue new warrants to replace certain
warrants (which will expire during August 1998 and January 1999) to purchase
105,000 shares of the Company's common stock. Such warrants will be accounted
for as a new issuance, and have been valued at approximately $578,000 and will
be charged to interest expense upon issuance.
In August 1998, the Company made an offer to all but its principal
stockholder, to convert their notes and accrued interest into shares of the
Company's common stock at $3.00. Notes aggregating $656,000 and related
accrued interest aggregating approximately $111,000 have been converted into
255,549 shares pursuant to the offer. In connection with the conversion, the
Company will record an additional charge of approximately $1,278,000 for the
difference between the estimated fair value of the common stock issued and the
value of notes and accrued interest converted.
Subsequent to June 30, 1998, the stockholders approved the Company's 1998
Stock Option Plan (the "Plan"), under which all Directors, officers and key
employees of the Company or its current or future subsidiaries will be
eligible to receive options. Options to purchase an aggregate of 550,000
shares of the Company's common stock may be granted pursuant to the Plan.
Options granted under the Plan may be incentive stock options or non-qualified
stock options. The exercise price and exercise period of such options will be
determined by the Company's Board of Directors or by a Stock Option Committee
appointed by the Board (the "Committee"). The Plan requires the exercise price
of incentive stock options to be at least equal to the fair market value of
the common stock on the date of the grant. The option price for non-qualified
options, at the discretion of the compensation committee, may be less than the
fair market value of the common stock on the date of grant. Unexercised
options expire ten years after the date of grant. In the case of options
granted to a stockholder owning, directly or indirectly, in excess of 10% of
the total combined voting power of all shares of stock of the Company, the
option price shall not be less than 110% of the fair market value of the
Company's common stock on the date of grant of the option and stock options
may not be exercised more than five years after the date of grant. Options
granted pursuant to the Plan may be exercised in whole in the event of a
"Change in Control" as defined in the Plan. Payment of the exercise price for
options granted under the Plan may be made in cash, shares of common stock or
a combination of both.
In August 1998, options to purchase 498,500 shares at $3.00 per share have been
granted. These options will expire five years from the date of the grant.
In addition, each member of the Company's advisory board will be granted, at the
end of each year of service, an option to purchase 2,500 shares of the Company's
common stock.
In August 1998, the Company entered into three-year employment agreements with
three officers. The agreements provide for an aggregate base salary at the
rate of $282,000 per year until the completion of the proposed public offering
or six months from the respective effective dates, whichever occurs first and
thereafter, an aggregate base salary at the rate of $370,000 per year. Two of
the agreements provide for annual salary increments based on attaining certain
specified revenue thresholds. Pursuant to the terms of the agreements, the
Company granted the officers options to purchase an aggregate of 340,000
shares of the Company's common stock exercisable over five years at a price
equal to the fair market value of the shares on the date of the grant. The
options vest ratably over four years.
F-18
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY WORLDWIDE WIRELESS SYSTEMS, INC. TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
STATED IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..................................................
The Company.........................................................
Glossary............................................................
The Offering........................................................
Summary Financial Information.......................................
Risk Factors........................................................
Goverment Regulation................................................
Dilution............................................................
Use of Proceeds.....................................................
Dividend Policy.....................................................
Capitalization......................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................
Business............................................................
Management..........................................................
Certain Transactions................................................
Principal Stockholders..............................................
Underwriting........................................................
Description of Securities...........................................
Legal Matters.......................................................
Experts.............................................................
Additional Information..............................................
Financial Statements................................................
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELVIER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
<PAGE>
================================================================================
WORLDWIDE WIRELESS SYSTEMS, INC.
1,500,000 UNITS
Each Unit Consisting of
One Share of Common Stock
and One Redeemable Warrant
------------
PROSPECTUS
------------
TASIN & COMPANY, INC.
, 1998
================================================================================
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware General Business Law, the Company's
Certificate of Incorporation and By-Laws provide for indemnification of a
Director or Officer under certain circumstances against reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of an action brought against him by reason of his being a Director
or Officer. In addition, the Company"s charter documents provide for the
elimination of Directors' liability to the Company or its stockholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law, or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Directors, Officers,
and controlling persons of the Company pursuant to any charter, provision,
by-law, contract, arrangement, statute, or otherwise, the Company has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a Director, Officer, or
controlling person of the Company in the successful defense of any such action,
suit, or proceeding) is asserted by such Director, Officer, or controlling
person of the Company in connection with the Securities being registered
pursuant to this Registration Statement, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication by such court of such issue.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee........................................... $10,354.50
NASD Filing Fee............................................ 4,010.00
NASDAQ SmallCap Market Fee................................. 10,000.00
Printing and Engraving..................................... 8,000.00
Legal Fees and Expenses.................................... 300,000.00
Accounting Fees and Expenses............................... 200,000.00
Transfer Agent Fees........................................ 10,000.00
State Filing Fees and Blue Sky
Expenses.......................................... 50,000.00
Underwriters' Non-Accountable Expense
Allowance......................................... 360,000.00
Miscellaneous.............................................. 25,635.50
-------------
Total $1,050,000.00(1)
</TABLE>
- ------------
(1) All Figures Estimated
Item 26. Recent Sales of Unregistered Securities.
On March 11, 1995, the Company issued 801,156 shares of its common
stock for the common stock of 31 former shareholders of NEW in connection with
the merger of NEW into its wholly owned subsidiary. In addition, the Company
issued 388,007 shares of its stock in cancellation of $1,164,000 of indebtedness
of NEW owed to its note holders, including Alan R. Ackerman.
The Company has financed its operations to date through private sales
of its debt and equity securities. The proceeds of sale of such indebtedness and
equity have been used to defray the ongoing operating cash shortfalls
experienced by the Company. The major source of capital to finance the Company's
activities have been loans from the Principal Stockholder. As of June 30, 1998,
the outstanding principal balance of loans made to the Company by the Principal
Stockholder totalled $1,740,881 plus accrued but unpaid interest calculated at
an annual rate varying between 7.5% and 15% and totalling $380,615. The Company
plans to retire $1,684,000 of such indebtedness out of the proceeds of the
offering.
Since July 1, 1996, in addition to loans from the Principal
Stockholder, the Company funded its operations through a number of loans from
private investors including stockholders and creditors of the Company.
Borrowings were made at annual interest rates varying form 7.5% to 15%.
In addition to its issuance of promissory notes, the Company issued
warrants exercisable to purchase shares of its Common Stock in connection with
certain of these loans,
II-2
<PAGE>
in some instances at an exercise price of $3.00 per share and in other instances
at a per share exercise price equal to the lesser of $3.00 or 50% of the public
offering price per share of the Common Stock in the Company's initial public
offering. In addition, the Company issued similar warrants from time to time to
noteholders to extend the due dates of certain of the loans when it was unable
to pay them at maturity.
During fiscal 1997, the Company borrowed an aggregate $700,000 in
various private transactions from ten individual lenders (in addition to loans
from the Principal Stockholder). In addition, three individuals holding an
aggregate $297,500 in promissory notes converted such notes and related accrued
interest into an aggregate 95,563 shares of Common Stock. In connection with
these transactions and loans made in prior fiscal periods, the Company issued
warrants exercisable to purchase an aggregate 255,375 shares of Common Stock.
During fiscal 1998, the Company borrowed an additional aggregate
$588,000 from twelve individual investors (in addition to loans from the
Principal Stockholder). In addition, eight individuals holding an aggregate
$360,000 in promissory notes converted such notes and related accrued interest
into an aggregate 130,438 shares of Common Stock. In connection with these
transactions and loans made in prior fiscal periods, the Company issued and
agreed to issue warrants exercisable to purchase an aggregate 209,255 shares of
Common Stock. The Company also issued warrants during fiscal 1998 to six
individuals exercisable to purchase an aggregate 72,500 shares, for services
rendered.
As a result of all of the foregoing, the Company recorded non-cash
interest expense of $1,355,000 and $179,000 in fiscal 1998 and 1997
respectively, primarily as a result of its issuance of its securities at below
market value and amortization of the debt discount resulting from its warrant
issuances.
During the first quarter of fiscal 1999, the Company borrowed an
additional $368,067 from five individuals, all of whom were stockholders of the
Company at the times of their loans. In connection with these loans, the Company
issued notes in the aggregate principal amount of $368,067, one of which, in the
principal amount of $150,000 issued to a more than 5% beneficial owner of the
Common Stock, is convertible into 50,000 shares, and issued and/or agreed to
issue warrants exercisable to purchase an aggregate 96,534 shares of its Common
Stock.
On August 24, 1998, a group of eight noteholders converted an aggregate
$655,763 in principal amount of indebtedness and an aggregate $110,885 in
principal amount of accrued interest into an aggregate 255,549 shares of Common
Stock.
The Company's management believes that all of the above transactions
were in the best interests of the Company as without the various loans and
extensions, the Company would have been unable to fund its operations.
Securities Act Registration Exemptions
In connection with the Company's various stock, warrant and note
issuances described above (excluding the acquisition of NEW), each of the
purchasers and/or recipients confirmed
II-3
<PAGE>
that he, she or it was acquiring the various securities for investment and not
with a view to distribution. Each such purchaser made representations which
permitted the Company to conclude that such purchaser was an "accredited
investor" as defined in Rule 501 of Regulation D under the Securities Act.
Furthermore, many of the lenders were prior stockholders of the Company. None of
such issuances involved a general solicitation. Each stock certificate, warrant
certificate and promissory note bears an appropriate restrictive legend and
transfer stops have been placed against each such security.
Exemption from the registration requirements of the Securities Act is
claimed pursuant to Section 4(2) of said Act, the regulations promulgated
thereunder and judicial precedent.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
++1.1 Underwriting Agreement
++1.2 Agreement Among Underwriters
++1.3 Selected Dealers Agreement
+1.4 Lock-up Agreement
+3.1 Certificate of Incorporation
+3.2 By-Laws
+3.3 Certificate for Renewal and Revival of Charter
+4.1 Form of Stock Certificate
+4.2 Selected pages of Certificate of Incorporation defining number of
shares of common stock
+4.3 Form of Warrant Agreement and Warrant Certificate
++4.4 Form of Underwriters' Unit Purchase Warrant
4.5 Form of Underwriter's Warrant Exercise Fee Agreement
+++5.1 Form of Opinion re legality of securities
+10.1 MMDS Channel Lease Agreement
+10.2 Lease Agreement between Glenn Martin and Elouise Martin
+10.3 OFS Channel Lease Agreement with Ivan Nachman
+10.4 OFS Channel Lease Agreement with Blake Twedt
+10.5 OFS Channel Lease Agreement with John Dudeck
+10.6 MMDS Channel Lease Agreement with New England Wireless
+10.7 Agreement between Vermont ETV and New England Wireless
+10.8 Agreement between Vermont ETV and New England Wireless
+10.9 Commercial Lease between Kevin McGovern and New England
Wireless
+10.10 Ascutney Associates, Inc. Lease Agreement
+10.11 Beta-Site Agreement with Interdigital Communications
Corporation
+10.12 Note and Mortgage and Assumption Agreement
++10.13 Promissory Note to Alan Ackerman
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
+10.15 VocalTec, Inc. Agreement
+10.16 Form of Promissory Notes Outstanding (Form C)
+10.17 Form of Promissory Notes Outstanding (Form D)
+10.18 Form of Promissory Notes Outstanding (Form E)
+10.19 Form of Promissory Notes Outstanding (Form F)
+10.20 Promissory Notes Outstanding (Form G)
+10.21 Form of Warrants Outstanding (Form A)
+10.22 Form of Warrants Outstanding (Form B)
+10.23 Form of Warrants Outstanding (Form C)
+10.24 Form of Warrants Outstanding (Form D)
+10.25 Form of Warrants Outstanding (Form E)
+10.26 Allonge to Note G-1
+10.27 Icon Master Network Services Agreement
+10.28 Icon Reciprocal Nondisclosure Agreement
+10.29 Lease with Martin S. Tierney
+++10.30 Scott A. Wendel Employment Agreement
+++10.31 David E. Padilla Employment Agreement
+++10.32 Craig Sementilli Employment Agreement
+21.1 Statement of Subsidiaries
+++23.1 Consent of Counsel
++23.2 Consent of Independent Auditors
</TABLE>
- ------------
+ Previously filed
++ Previously filed exhibit is revised in this amendment
+++ To be filed by Amendment
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement;
(b) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(c) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and
(d) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(e) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
2. The Company hereby undertakes that, if relying on Rule 430A under
the Securities Act:
(a) for determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company under Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be treated as part of this Registration Statement as of the
time the Commission declared it effective.
(b) for determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be treated as
a new registration statement for the securities offered in this Registration
Statement and that offering of the securities at that time shall be treated as
the initial bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Amendment to
its Registration Statement to be signed on its behalf by the undersigned in
Ascutney, Vermont on the 29th day of September 1998.
WORLDWIDE WIRELESS SYSTEMS, INC.
By /s/David E. Padilla
-------------------------------------------
David E. Padilla, President,
Principal Executive Officer
By /s/Scott A. Wendel
--------------------------------------------
Scott A. Wendel, Executive Vice President,
Principal Financial and Accounting Officer
In accordance with the requirements of the Securities Act of 1993, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated:
Signature Title Date
--------- ----- ----
President and Principal
Executive Officer and
/s/David E. Padilla Director September 29, 1998
- ------------------------
David E. Padilla
Executive Vice President,
Principal Financial and
Accounting Officer and
/s/Scott A. Wendel Director September 29, 1998
- ------------------------
Scott A. Wendel
II-7
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement on Form SB-2
(registration number 333-33593) of our report dated August 7, 1998 (with respect
to Note M; September 24, 1998) which contains an explanatory paragraph with
respect to the Company's ability to continue as a going concern, on our audits
of the consolidated financial statements of Worldwide Wireless Systems, Inc. and
subsidiary as of June 30, 1998 and for each of the two years then ended. We also
consent to the reference to our firm under the caption "Experts".
Richard A. Eisner & Company, LLP
New York, New York
September 29, 1998
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
++1.1 Underwriting Agreement
++1.2 Agreement Among Underwriters
++1.3 Selected Dealers Agreement
+1.4 Lock-up Agreement
+3.1 Certificate of Incorporation
+3.2 By-Laws
+3.3 Certificate for Renewal and Revival of Charter
+4.1 Form of Stock Certificate
+4.2 Selected pages of Certificate of Incorporation defining number of
shares of common stock
+4.3 Form of Warrant Agreement and Warrant Certificate
++4.4 Form of Underwriters' Unit Purchase Warrant
4.5 Form of Underwriter's Warrant Exercise Fee Agreement
+++5.1 Form of Opinion re legality of securities
+10.1 MMDS Channel Lease Agreement
+10.2 Lease Agreement between Glenn Martin and Elouise Martin
+10.3 OFS Channel Lease Agreement with Ivan Nachman
+10.4 OFS Channel Lease Agreement with Blake Twedt
+10.5 OFS Channel Lease Agreement with John Dudeck
+10.6 MMDS Channel Lease Agreement with New England Wireless
+10.7 Agreement between Vermont ETV and New England Wireless
+10.8 Agreement between Vermont ETV and New England Wireless
+10.9 Commercial Lease between Kevin McGovern and New England
Wireless
+10.10 Ascutney Associates, Inc. Lease Agreement
+10.11 Beta-Site Agreement with Interdigital Communications
Corporation
+10.12 Note and Mortgage and Assumption Agreement
++10.13 Promissory Note to Alan Ackerman
+10.15 VocalTec, Inc. Agreement
+10.16 Form of Promissory Notes Outstanding (Form C)
+10.17 Form of Promissory Notes Outstanding (Form D)
+10.18 Form of Promissory Notes Outstanding (Form E)
+10.19 Form of Promissory Notes Outstanding (Form F)
+10.20 Promissory Notes Outstanding (Form G)
+10.21 Form of Warrants Outstanding (Form A)
+10.22 Form of Warrants Outstanding (Form B)
+10.23 Form of Warrants Outstanding (Form C)
+10.24 Form of Warrants Outstanding (Form D)
+10.25 Form of Warrants Outstanding (Form E)
+10.26 Allonge to Note G-1
+10.27 Icon Master Network Services Agreement
+10.28 Icon Reciprocal Nondisclosure Agreement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
+10.29 Lease with Martin S. Tierney
+++10.30 Scott A. Wendel Employment Agreement
+++10.31 David E. Padilla Employment Agreement
+++10.32 Craig Sementilli Employment Agreement
+21.1 Statement of Subsidiaries
+++23.1 Consent of Counsel
++23.2 Consent of Independent Auditors
</TABLE>
- ------------
+ Previously filed
++ Previously filed exhibit is revised in this amendment
+++ To be filed by Amendment
<PAGE>
WORLDWIDE WIRELESS, INC.
Route 5 South
Ascutney, VT 05030
UNDERWRITING AGREEMENT
Tasin & Company, Inc. ___________, 1998
1377 Motor Parkway
Hauppauge, New York 11788
Gentlemen:
Worldwide Wireless, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Tasin & Company, Inc. ("Tasin" or the
"Representative") and to each of the other underwriters named in Schedule I
hereto (the "Underwriters"), for each of whom you are acting as Representative,
an aggregate of 1,500,000 Units (each Unit consisting of one share of Common
Stock, ("Common Stock"), and one Common Stock Purchase Warrant (the "Warrants")
of the Company) at a public offering price of $8.00 per Unit. Each Warrant shall
entitle the holder to purchase one share of Common Stock for a five year period
from the Effective Date (hereinafter defined) at a price of $10.00 per share.
The Unit Warrants will be immediately detachable from the Common Stock on the
Effective Date. The Warrants may be called by the Company commencing one year
from Effective Date upon at least thirty days prior written notice at a price of
$.10 per Warrant at any time provided the closing bid for the Common Stock is at
least an average of 120% of the then current exercise price during each day of
the consecutive 20 trading days ending five days preceding the date of the
written notice. The 1,500,000 Units are hereinafter sometimes referred to as the
"Firm Units." Upon the request of the Representative, and as provided in Section
3 hereof, the Company will also issue and sell to the Underwriters up to a
maximum of an additional 225,000 Units for the purpose of covering
over-allotments. Such additional Units are hereinafter sometimes referred to as
the "Optional Units." Both the Firm Units and the Optional Units are sometimes
collectively referred to herein as the "Units." All of the securities which are
the subject of this Agreement are more fully described in the Prospectus of the
Company described below. In the event that the Representative does not form an
underwriting group but decides to act as the sole Underwriter, then all
references to Tasin herein as Representative shall be deemed to be to it as such
sole Underwriter and Section 14 hereof shall be deemed deleted in its entirety.
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The Company
hereby confirms its agreement with the Representative and the other Underwriters
as follows:
<PAGE>
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments
thereto (No. 333-33593) with respect to the Units, including a form of
prospectus relating thereto, copies of which have been previously delivered to
you, have been prepared by the Company in conformity with the requirements of
the Act, and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission under the Act. The Company, subject to the provisions
of Section 6(a) hereof, may file one or more amendments to such Registration
Statement and Prospectus. The Underwriters will receive copies of each such
amendment.
The date on which such Registration Statement is declared
effective under the Act and the public offering of the Units as contemplated by
this Agreement is therefore authorized to commence, is herein called the
"Effective Date." The Registration Statement and Prospectus, as finally amended
and revised immediately prior to the Effective Date, are herein called
respectively the "Registration Statement" and the "Prospectus." If, however, a
prospectus is filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations which differs from the Prospectus, the term "Prospectus" shall also
include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time
it becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the Rules and Regulations, and will not contain an untrue statement of a
material fact and will not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subsection (b)
shall extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon information
furnished in writing to the Company by the Underwriters specifically for use in
connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on
the Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in
2
<PAGE>
good standing in all of the jurisdictions in which it conducts its business or
the character or location of its properties requires such qualifications except
where the failure to so qualify would not materially adversely affect the
Company's business, properties or financial condition. The Company has no
subsidiaries, except as are set forth in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) To the best of the Company's knowledge, Richard A. Eisner
& Company, LLP independent auditors, who have given their report on certain
financial statements which are included as a part of the Registration Statement
and the Prospectus are independent public accountants as required under the Act
and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus, (i) the Company has not incurred,
nor will it incur, any material liabilities or obligations, direct or
contingent, nor has it, nor will it have entered into any material transactions,
in each case not in the ordinary course of business; (ii) there has not been,
and will not have been, any material change in the Company's Certificate of
Incorporation or in its capital stock or funded debt; and (iii) there has not
been, and will not have been, any material adverse change in the business, net
worth or properties or condition (financial or otherwise) of the Company whether
or not arising from transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real
and personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company by
good and marketable title free and clear of all liens and encumbrances, except
those specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as disclosed in the Prospectus and Registration
Statement, the Company in all material respects has full right and licenses,
permits and governmental authorizations required to maintain and operate its
business and properties as the same are now operated and, to its best knowledge,
none of the activities or business of the Company is in material violation of,
or causes the Company to violate any laws, ordinances and regulations applicable
thereto, the violation of which would have a material adverse impact on the
condition (financial or otherwise), business, properties or net worth of the
Company.
3
<PAGE>
(h) The Company has no material contingent obligations, nor
are its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock are duly
authorized and validly issued and outstanding, fully paid, and non-assessable,
and are free of preemptive rights. The Common Stock and the shares of Common
Stock issuable upon exercise of the Warrants, when paid for, issued and
delivered in accordance with this Agreement and the Warrant Agreement between
the Company and North American Transfer Co., dated as of the date hereof will be
duly authorized, validly issued, fully paid and non-assessable and will not be
issued in violation of any preemptive rights. The Underwriters will receive good
and marketable title to the Units purchased by them from the Company, free and
clear of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever. Except as set forth in
the Prospectus, there are no outstanding options, warrants, or other rights,
providing for the issuance of, and no commitments, plans or arrangements to
issue, any shares of any class of capital stock of the Company, or any security
convertible into, or exchangeable for, any shares of any class of capital stock
of the Company. All of the securities of the Company to which this Agreement
relates conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
(k) The certificate or certificates required to be furnished
to the Underwriters pursuant to the provisions of Section 11 hereof will be true
and correct.
(l) The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and it is a
valid and binding obligation of the Company, enforceable against it in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining to
creditors rights generally.
(m) No default exists, and no event has occurred which, with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any material term, covenant or condition by the
Company or any other party, of any material indenture, mortgage, deed of trust,
note or any other material agreement or instrument to which the Company is a
party or by which it or its business or its properties may be bound or affected,
except (i) as disclosed in the Prospectus, (ii) such defaults as
4
<PAGE>
have been waived by all parties who would otherwise have a remedy or right with
respect thereto or (iii) such defaults which will not cause any material adverse
change in the business, net worth, properties or conditions (financial or
otherwise), of the Company. The Company has full power and lawful authority to
authorize, issue and sell the Units to be sold by it hereunder on the terms and
conditions set forth herein and in the Registration Statement and in the
Prospectus. No consent, approval, authorization or other order of any regulatory
authority is required for such authorization, issue or sale, except as may be
required under the Act or State securities laws. The execution and delivery of
this Agreement, the consummation of the transactions herein contemplated, and
compliance with the terms hereof will not conflict with, or constitute a default
under any indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company is now a party or by which it or its business or
its properties may be bound or affected; the Certificate of Incorporation and
any amendments thereto; the by-laws of the Company, as amended; or any law,
order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court, domestic or foreign, having jurisdiction
over the Company or its business or properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Units, the
Common Stock or the Warrants in the open market following the Closing Date or
any other type of action designed to, or that may reasonably be expected to
cause or result in such stabilization or manipulation, or that may reasonably be
expected to facilitate the initial sale, or resale, of any of the securities
which are the subject of this Agreement.
(o) The Warrants to purchase Units to be issued to the
Representative (the "Underwriters' Unit Warrants") hereunder will be, when
issued, duly and validly authorized and executed by the Company and will
constitute valid and binding obligations of the Company, legally enforceable in
accordance with their terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
pertaining to creditors rights generally), and the Company will have duly
authorized, reserved and set aside the shares of its Common Stock issuable upon
exercise of the Underwriters' Unit Warrants and the underlying warrants, and
such stock, when issued and paid for upon exercise of the Underwriters' Unit
Warrants and the underlying warrants in accordance with the provisions thereof,
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements, and
warranties shall survive delivery of, and payment for, the Units.
5
<PAGE>
SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units and the Underwriters' Warrants.
(a) Upon the basis of the representations, warranties,
covenants and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of the Firm Units set forth opposite the respective
names of the Underwriters in Schedule I hereto, plus any additional Units which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 14 hereof.
The purchase price of the Units to be paid by the several
Underwriters shall be $7.20 per Unit ($8.00 per Unit less a ten percent
discount).
In addition, and upon the same basis, and subject to the
same terms and conditions, the Company hereby grants an option to you to
purchase, but only for the purpose of covering over-allotments, upon not less
than two days' notice from the Representative, the Optional Units, or any
portion thereof, at the same price per Unit as that set forth in the preceding
sentence; and each Underwriter agrees, severally and not jointly, to purchase
Optional Units in the same proportion in which it has agreed to purchase Firm
Units. Notwithstanding anything contained herein to the contrary, you
individually and not as Representative may purchase all or any part of the
Optional Units and are not obligated to offer the Optional Units to the other
Underwriters. The Optional Units may be exercised at any time, and from time to
time, thereafter within a period of 45 calendar days following the Effective
Date. The time(s) and date(s) (if any) so designated for delivery and payment
for the Optional Units shall be set forth in the notice to the Company. Such
dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company, at the offices of the Representative, or its clearing agent, or at
such other place as shall be agreed upon by the Representative and the Company,
upon delivery of the Firm Units to the Representative for the respective
accounts of the Underwriters. In making payment to the Company, the
Representative may first deduct all sums due to it for the balance of the
non-accountable expense allowance (as hereinafter defined). Such delivery and
payment shall be made at 10:00 A.M., New York City Time on the third business
day after the first day of trading (i.e., T+3) which may be extended by the
Representative for an additional two business days (unless postponed in
accordance with the provisions of Section 14 hereof) or at such other time as
shall be agreed upon by the Representative and the Company. The time and date of
such delivery and payment are hereby defined as the Closing Date. It is
understood that each Underwriter has authorized the Representative, for the
account of such Underwriter, to accept delivery of, receipt for, and make
payment of the purchase price for, the Firm Units which it has agreed to
purchase. You, individually, and not as Representative may (but shall not be
obligated to) make payment of the purchase price for the Firm Units to be
purchased by any Underwriter whose check shall not have been received by the
Closing Date, for the account of such
6
<PAGE>
Underwriter, but any such payment shall not relieve such Underwriter from its
obligations hereunder.
(c) Payment for the Optional Units shall be made at the
offices of the Representative, or its clearing agent or at such other place as
shall be agreed upon by the Representative and the Company, in accordance with
the notice delivered pursuant to Section 3(a) which shall be no later than seven
business days from the expiration of the forty-five day option period.
(d) Certificates for the Firm Units and for the Optional Units
shall be registered in such name or names and in such authorized denominations
as the Representative may request in writing at least two business days prior to
the Closing Date, and the Additional Closing Date(s) (if any). The Company shall
permit the Representative to examine and package said certificates for delivery
at least one full business day prior to the Closing Date and prior to the
Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Units except upon tender of payment by the Underwriters
for all of the Firm Units agreed to be purchased by them hereunder. The
Representative, however, shall have the sole discretion to determine the number
of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the
Company also hereby agrees to sell to the Representative, Underwriters' Unit
Warrants to purchase 150,000 Units for an aggregate purchase price of $150. Each
Unit issuable upon exercise of the Underwriters' Unit Warrants shall be
identical to the Units sold to the public, except that the exercise price of the
underlying Warrants shall be at 150% of the then effective exercise price of the
Warrants. Each Underwriters' Unit Warrant shall entitle the owner thereof to
purchase one Unit of the Company at an exercise price of $12.00 per Unit (150%
of the initial public offering price per Unit). Such Underwriters' Unit Warrants
are to become exercisable immediately after from the Effective Date, and
thereafter shall remain exercisable for a period of five years. For a period of
one year after the Effective Date, the Underwriters Unit Warrants shall not be
transferable except to co-underwriters, selling group members and their officers
or partners. The Underwriters Unit Warrants shall contain customary clauses
protecting the holders thereof in the event the Company pays stock dividends,
effects stock splits, or effects a sale of assets, merger or consolidation.
(f) On and subject to the Closing Date, the Company at its
sole expense will give irrevocable instructions to its transfer agent (which it
agrees to appoint) to deliver to the Representative for a period of five years
from the Closing Date, daily advice sheets showing any transfers of Units,
shares of common stock and Warrants and from time to time during the aforesaid
period a complete stockholders' list will be promptly furnished by the Company
when requested by the Representative on not more than two occasions per year.
Furthermore, the Company at its sole expense will give irrevocable instructions
to Depository Trust Company for a period of five years from the Closing Date to
deliver weekly transfer sheets showing any transfers of Units, shares of common
stock and Warrants.
7
<PAGE>
SECTION 4. Public Offering. The several Underwriters agree, subject to
the terms and provisions of this Agreement, to offer the Units to the public as
soon as practicable after the Effective Date, at the initial offering price of
$8.00 per Unit and upon the terms described in the Prospectus. The
Representative may, from time to time, decrease the public offering price, after
the initial public offering, to such extent as the Representative may determine,
however, such decreases will not affect the price payable to the Company
hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for distribution
to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed
copies of a Preliminary Prospectus and of the Prospectus as the Representative
may request for the purposes contemplated by this Agreement. If, while the
Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the Company
shall occur which should be set forth in a supplement to or an amendment of the
Prospectus in order to comply with the Act (or other applicable law) or with the
Rules and Regulations, the Company will forthwith prepare, furnish and deliver
to the Representative and to each of the other Underwriters and to others whose
names and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected
dealers, if any, in connection with the distribution of the Units and all
dealers to whom any of the Units may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees
with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the Prospectus, or any supplement to the Prospectus,
of which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative or the Underwriters' counsel shall
have reasonably objected in writing on the ground that it is not in compliance
with the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective (provided, however, the Company shall
not cause the Registration Statement to become effective without the written
consent of Tasin) and will
8
<PAGE>
advise the Representative, (i) when the Registration Statement shall have become
effective and when any amendment thereto shall have become effective, and when
any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make request or suggestion for any
amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof, and (iii) of the issuance by
the Commission of an order suspending the effectiveness of the Registration
Statement or of the initiation of any proceedings for that purpose, and will use
its best efforts to prevent the issuance of such an order, or if such an order
shall be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, such amendments, or supplements
to the Registration Statement or Prospectus, in form and substance satisfactory
to counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Units, and will diligently use its best
efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by
the Representative, supply all necessary documents, exhibits and information,
and execute all such applications, instruments and papers as may be required, in
the opinion of the Underwriters' counsel, to qualify the Units or such part
thereof as the Representative may determine, for sale under the so-called "Blue
Sky" Laws of such states as the Representative shall designate, and to continue
such qualification in effect so long as required for the purposes of the
distribution of the Units, provided, however, that the Company shall not be
required to qualify as a foreign corporation or dealer in securities or to file
a consent to service of process in any state in any action other than one
arising out of the offering or sale of the Units.
(e) The Company will, at its own expense, file and provide,
and continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Units may be qualified for sale, for so long as required
by applicable law, rule or regulation and will provide the Representative with
copies of all such registrations, filings and reports on a timely basis.
(f) During the period of five years from the Effective Date,
the Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-QSB), all in reasonable detail, signed by its principal
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of cash flow for such
fiscal year (Form 10-KSB), such balance sheet and statement of cash flow for
such fiscal year to be in reasonable detail and to be accompanied by a
certificate or report of independent public accountants,
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(who may be the regular accountants for the Company), (iii) as soon as available
a copy of every other report (financial or other) mailed to the stockholders,
and (iv) as soon as available a copy of every non-confidential report and
financial statement furnished to or filed with the Commission or with any
securities exchange pursuant to requirements by or agreement with such exchange
or the Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "1934 Act"), or any regulations of the Commission thereunder. If and for so
long as the Company has one or more active subsidiaries, the financial
statements required by (i) and (ii) above shall be furnished on a consolidated
basis in respect of the Company and all of the Company's subsidiaries. The
financial statements referred to in (ii) shall also be furnished to all of the
stockholders of the Company as soon as practicable after the 90 days referred to
therein.
(g) The Company represents that with respect to the Warrants
and the shares of Common Stock, it will prepare and file a Registration
Statement with the Commission pursuant to Section 12(g) of the 1934 Act, prior
to the Effective Date with a request that such Registration Statement will
become effective on the Effective Date. The Company understands that, to
register, it must prepare and file with the Securities and Exchange Commission a
General Form of Registration of Securities (Form 8-A or Form 10). In addition,
the Company agrees to qualify its Units, Common Stock and the Warrants for
listing on the NASDAQ system on the Effective Date and will take all reasonable
and necessary and appropriate action so that the securities continue to be
listed for trading in the NASDAQ system for at least ten years from the
Effective Date provided the Company otherwise complies with the prevailing
maintenance requirements. In addition, at such time as the Company qualifies for
listing its securities on the National Market System of NASDAQ, the Company will
use its best efforts to have the Company's Units and components thereof listed
on the National Market System of NASDAQ in lieu of listing as Small-Cap Issues
on NASDAQ. For so long as the Company is a reporting company under the 1934 Act,
the Company shall comply with all periodic reporting and proxy solicitation
requirements imposed by the Commission pursuant to the 1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply
for listing in Standard and Poor's Corporation Records and Standard & Poor's
Monthly Stock Guide and shall use its best efforts to have the Company listed in
such reports for a period of not less than ten (10) years from the Closing Date.
The Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
(j) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to
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appoint such auditors or such other auditors as are reasonably acceptable to the
Representative for a period of five (5) years following the Effective Date of
the Registration Statement. Said financial statements shall be prepared in
accordance with Regulation S-X under the Rules and Regulations. The Company
shall appoint North American Transfer Co. as transfer agent for the Common Stock
(the "Transfer Agent") and as warrant agent for the Warrants.
(k) Prior to the Effective Date, the Company will enter into
employment contracts with its executive officers and directors in the form filed
with the Securities and Exchange Commission and approved by the Representative.
(l) Within ninety (90) days subsequent to the Effective Date,
the Company will furnish "Key Man" Life Insurance in the amount of $1,000,000
each on the lives of Scott A. Wendel, David E. Padilla and Craig F. Sementilli
with the Company as the beneficiary thereof and the Company shall pay the annual
premiums, therefore, for a period of not less than five years from the Effective
Date.
(m) The Company will for a period of five years:
(i) Furnish to the Representative and to the Company's
shareholders annual audited financial statements contained in an annual report
and unaudited financial statements contained in quarterly reports for each of
the Company's first three quarters.
(ii) Designate an Audit Committee which will generally
supervise the financial affairs of the Company.
(iii) At its expense, shall cause its regularly engaged
independent certified public accountants to examine (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's 10-QSB quarterly report and the mailing of quarterly financial
information to security holders.
(n) Until such time as the securities of the Company are
listed on the New York Stock Exchange, the American Stock Exchange or
NASDAQ/NMS, the Company shall cause its legal counsel or an independent third
party acceptable to the Representative to provide the Representative with a
survey with the first one to be delivered at Closing, to be updated at least
annually, of those states in which the securities of the Company may be traded
in non-issuer transactions under the Blue Sky laws of the states and the basis
for such authority.
(o) As soon as practicable after the Closing Date, the Company
will deliver to the Representative and its counsel a total of two bound volumes
of copies of all documents relating to the public offering which is the subject
of this Agreement.
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(p) Stock certificates and Warrant certificates shall be first
submitted to the Representative for approval prior to printing. The Company
shall, as promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Units, Common Stock and Unit Warrants
and have each of the securities eligible for closing through Depository Trust
Company.
(q) The Company will not file a Form S-8 Registration
Statement for a period of thirteen months from the Effective Date without the
Representative's prior written consent. Further, the Company will not offer its
securities pursuant to Regulation S of the Securities Act of 1933, as amended,
for a period of thirteen months from the Effective Date without the
Representative's prior written consent.
(r) No funds were paid or are owed to Dupont Securities Group,
Inc., in connection with it previously agreeing to serve as Managing
Underwriter. Dupont Securities Group, Inc. and the Company have exchanged
general releases releasing each other and its respective officers, directors,
agents, servants and employees and neither Dupont Securities Group, Inc. nor the
Company have rescinded or amended such general releases.
SECTION 7. Expenses of the Company.
The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Offering Documents
and amendments thereto, including NASD, SEC and NASDAQ filing and/or application
fees, preliminary and final Prospectus and the printing of the Underwriting
Agreement, the Agreement Among Underwriters and the Selected Dealers' Agreement,
a Blue Sky Memorandum, material to be circulated to the Underwriters by us and
other incidental material; (ii) the issuance and delivery of certificates
representing the Common Stock and Unit Warrants, including original issue and
transfer taxes, if any; (iii) the qualifications of the Company's Units (covered
by the "firm commitment" offering) under State Securities or Blue Sky Laws,
including counsel fees of the Representative relating thereto in the sum of
Twenty-two Thousand Five Hundred ($22,500) Dollars together with appropriate
state filing fees) plus disbursements relating to, but not limited to,
long-distance telephone calls, photocopying, messengers, excess postage,
overnight mail and courier services; (iv) the fees and disbursements of counsel
for the Company and the accountants for the Company; and (v) any other costs of
qualifying the Units and components thereof for listing on NASDAQ.
The Company shall, upon receipt of an invoice from the Representative,
reimburse the Representative for any costs of otherwise unreimbursed postage and
including mailing of preliminary and final prospectuses incurred by or on behalf
of the Representative and the Underwriters in preparation for, or in connection
with the offering and sale and distribution of the Units on an accountable
basis, and for the cost of investigative reports (such as Bishop's Reports) of
the Company's executive officers, directors and principal shareholders.
Reimbursement of the costs of investigative reports shall not exceed the
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actual cost of the invoice(s) and in no event shall exceed $5,000. After closing
of the public offering, the Company shall bear the costs of tombstone
announcements not to exceed $10,000.
SECTION 8. Payment of Underwriters' Expenses.
On the Closing Date and Additional Closing Date(s) (if
any) the Company will pay to Tasin an expense allowance equal to three (3%)
percent of the total gross proceeds derived from the public offering
contemplated by this Agreement for the fees and disbursements of counsel to the
Underwriters and for costs of otherwise unreimbursed advertising, traveling,
postage, telephone and telegraph expenses and other miscellaneous expenses
incurred by or on behalf of the Representative and the Underwriters in
preparation for, or in connection with the offering and sale and distribution of
the Units; and Tasin shall not be obligated to account to the Company for such
disbursements and expenses. In the event, however, that the Representative
terminates this Agreement pursuant to the provisions of Section 12 hereof, the
Representative shall be obligated to account for expenditures of any advance
payment to Tasin and to refund to the Company any portion of the advance not
expended. In the event that the Representative terminates this agreement
pursuant to the provisions of Section 12(b), the Representative shall be
entitled to reimbursement of expenses on an accountable basis.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters, and each person who controls each of the Underwriters within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages, expenses, or liabilities, joint or several, to which they or
any of them may become subject under the Act or any other statute or at common
law or otherwise, and to reimburse persons indemnified as above for any
reasonable legal or other expense (including the cost of any investigation and
preparation) incurred by them (as incurred), or any of them, in connection with
investigating, defending against or appearing as a third party witness in
connection with any claim or litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, liabilities, expenses or
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented, if amended or supplemented), or in any
"Blue Sky" application, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however, that
the indemnity agreement contained in this subsection (a) shall not apply to
amounts paid in settlement of any such claims or litigation if such settlement
is effected without the consent of the Company, nor shall it apply to the
Underwriters or any person controlling the Underwriters in respect of any such
losses, claims, damages, expenses, liabilities or litigation arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with written information furnished in writing to the
Company by such
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Underwriter, or on its behalf, specifically for use in connection with the
preparation of the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto or any such blue sky application.
(b) Each of the Underwriters severally agrees, in the same
manner and to the same extent as set forth in subsection (a) above, to indemnify
and hold harmless the Company, each of the directors and officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act, with respect to any
statement in or omission from the Registration Statement, or the Prospectus (as
amended or as supplemented, if amended or supplemented), or in any "Blue Sky"
application, if such statement or omission was made in reliance upon and in
conformity with written information furnished in writing to the Company by such
Underwriter, or on its behalf, specifically for use in connection with the
preparation of the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, or any such application. An Underwriter
shall not be liable for amounts paid in settlement of any such claim or
litigation if such settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the defendants in any such action include both the indemnified and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not
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<PAGE>
have the right to assume the defense of such action on behalf of such
indemnified party or parties), it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party which firm shall be designated in writing by the indemnified
party.
(d) The respective indemnity agreements between the
Underwriters and the Company contained in subsections (a) and (b) above, and the
representations and warranties of the Company set forth in Section 2 hereof or
elsewhere in this Agreement, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or by or on behalf of any controlling person of the Underwriters or the Company
or any such officer or director or any controlling person of the Company, and
shall survive the delivery of the Units. Any successor of the Company, or of the
Underwriters, or of any controlling person of the Underwriters or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity agreements.
(e) In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contributing party"), notify
the contributing party, in writing, of the commencement thereof, but the
omission so to notify the contributing party will not relieve it from any
liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any
party, and such party so notifies a contributing party or his or its
representative of the commencement thereof within the
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aforesaid twenty days, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified. Any such contributing party shall not be liable to any party seeking
contribution on account of any settlement of any claim, action or proceeding
effected by such party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this Section 9 are
in addition to any other rights or remedies which either party hereto may have
with respect to the other or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Units,
or the time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Units which
the Underwriters have agreed to purchase hereunder are subject to: the accuracy,
as of the date hereof and as of the Closing Dates, of all of the representations
and warranties of the Company contained in this Agreement; the Company's
compliance with, or performance of, all of its covenants, undertakings and
agreements contained in this Agreement that are required to be complied with or
performed on or prior to each of the Closing Dates and to the following
additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to
the Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, is material, or omits
to state a fact which, in the opinion of
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such counsel, is material and is required to be stated therein, or is necessary
to make the statements therein not materially misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or other cause, of such character as materially adversely
affects its business or property, whether or not such loss is covered by
insurance.
(d) Between the date hereof and the Closing Date, there shall
be no litigation instituted or threatened against the Company, and there shall
be no proceeding instituted or threatened against the Company before or by any
federal or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any material liabilities or obligations (direct or contingent), or
disposed of any of its assets, or entered into any material transaction, and (C)
the Company shall not have suffered or experienced any material adverse change
in its business, affairs or in its condition, financial or otherwise. On the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the Units except to the extent that any decrease is
disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of Tolins & Lowenfels counsel for the Company, that:
(i) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; it has authorized and outstanding capital as set forth
in the Registration Statement and Prospectus; and the Company is duly licensed
or qualified as a foreign corporation in all jurisdictions in which the
ownership or leasing of its properties requires such qualification or license,
except
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where failure to be so qualified or licensed would have no material adverse
effect on the business of the Company.
(ii) All of the outstanding shares of Common Stock are
duly authorized, validly issued, fully paid, and non-assessable, and do not have
any preemptive rights. The Company will have duly authorized, reserved and set
aside shares of Common Stock issuable upon exercise of the Warrants and any
other outstanding options, warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriter's
Unit Warrant conform to descriptions thereof under "Description of Securities"
contained in the Prospectus.
(iv) The Underwriters will receive good and marketable
title to the Units purchased by them from the Company in accordance with the
terms and provisions of this Agreement, to the best of such counsel's knowledge,
free and clear of all liens, encumbrances, claims, security interests,
restrictions, stockholders' agreements and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there are no
outstanding options, warrants, or other rights, providing for the issuance of,
and, to the best of the knowledge of such counsel, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the Company,
or any security convertible into, or exchangeable for, any shares of any class
of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Units hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for that purpose have been instituted or are pending before or
threatened by, the Commission;
(viii) To the best of such counsel's knowledge and based
upon the investigation described below, the Registration Statement and
Prospectus, and each amendment thereof and supplement thereto, comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the Registration
Statement or Prospectus). Such counsel has participated in conferences with
officers and representatives of the Company and with its certified public
accountants in the preparation of the Registration Statement and the Prospectus.
At such conferences counsel has made inquiries of such officers, representatives
and
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accountants, and discussed the contents of the Registration Statement and the
Prospectus. Such counsel has not independently verified, and, accordingly, does
not assume any responsibility for, the accuracy, completeness or fairness of the
information contained in the Registration Statement or the Prospectus, other
than as set forth the Prospectus insofar as such statements relate to the
contents of particular documents therein described. On the basis of the
foregoing, nothing has come to the attention of such counsel to cause such
counsel to believe that the Registration Statement, the Prospectus or any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make statements therein,
in light of the circumstances under which they were made, not misleading
(except, in the case of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial and statistical data and schedules
contained therein, as to which such counsel need express no opinion); and such
counsel is familiar with all contracts referred to in the Registration Statement
or in the Prospectus and such contracts are sufficiently summarized or disclosed
therein, or filed as exhibits thereto, as required, and such counsel does not
know of any other contracts required to be summarized or disclosed or filed; and
such counsel does not know of any legal or governmental proceedings to which the
Company is a party, or in which property of the Company is the subject, of a
character required to be disclosed in the Registration Statement or the
Prospectus which are not so disclosed therein.
(ix) The statements in the Registration Statement under
the caption Business Facilities" have been reviewed by such counsel and insofar
as they refer to descriptions of agreements, statutes, licenses, certifications,
rules or regulations or legal conclusions, are correct in all material respects.
(x) This Agreement has been duly authorized and executed
by the Company and is a valid and binding agreement of the Company enforceable
in accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors rights generally and except that
no opinion need be given with regard to the enforceability of Section 9 hereof
or the availability of equitable relief.
(xi) To the best knowledge of such counsel: (a) no default
exists, and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any material
term, covenant or condition by the Company, of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company is a party
or by which it or its business or its properties may be bound or affected,
except where such default would not have a material adverse effect on the
business of the Company and except as disclosed in the Prospectus; (b) the
Company has full power and lawful authority to authorize, issue and sell the
Units on the terms and conditions set forth herein and in the Registration
Statement and in the Prospectus; (c) no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or State securities laws,
clearance with the NASD and such other consent, approval, authorization or order
as has been obtained and is in full force and effect; and
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(d) the execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and compliance with the terms hereof will not
conflict with, or constitute a default under, any material indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company is
now a party or by which it or its business or its properties may be bound or
affected, the Certificate of Incorporation and any amendments thereto, the
by-laws of the Company, or any order, rule or regulation, writ, injunction or
decree of any government, governmental instrumentality, or court, domestic or
foreign, having jurisdiction over the Company or its business or properties.
(xii) Except as disclosed in the Registration Statement
and Prospectus, to the best knowledge of such counsel, there are no material
actions, suits or proceedings at law or in equity of a material nature pending,
or to such counsel's knowledge, threatened against the Company which are not
adequately covered by insurance and there are no proceedings pending or, to the
knowledge of such counsel, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially and adversely affect the business, operation or condition (financial
or otherwise) of the Company, which are not disclosed in the Prospectus.
(xiii) The Underwriters' Unit Warrants to be issued to the
Representative hereunder will be, when issued, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors rights generally and the
Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Underwriters' Unit Warrants and the
underlying warrants and such stock, when issued and paid for upon exercise of
the Underwriters' Unit Warrants and the underlying warrants in accordance with
the provisions thereof, will be duly and validly issued, fully-paid and
non-assessable.
Such opinion shall also cover such other matters incident
to the transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the President and a Vice-President of the Company, dated as of
the Closing Date, and Additional Closing Date(s), to the effect that:
(i) Each of the representations and warranties of the
Company contained in Section 2 hereof is true and correct in all material
respects at and as of such Closing Date, and the Company has performed or
complied with all of its agreements, covenants and undertakings contained in
this Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at the Closing Date;
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(ii) The Registration Statement has become effective and
no order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined
the Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except changes which the
Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the
Registration Statement and Prospectus, since the respective dates as of which,
or periods for which, information is given in the Registration Statement and
Prospectus and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise), of
the Company (in each case whether or not arising in the ordinary course of
business), and (B) the Company has not incurred any material liabilities, direct
or contingent, or entered into any material transactions, otherwise than in the
ordinary course of business other than as referred to in the Registration
Statement or Prospectus and except changes which the Registration Statement and
Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on
the Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each
Closing Date you shall have received a letter from Richard A. Eisner & Company
LLP, addressed to the Representative, as Representative of the Underwriters, and
dated, respectively, as of the date of this Agreement and as of each Closing
Date in form and substance reasonably satisfactory to the Representative, to the
effect that:
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(i) They are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations of the
Commission;
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures in accordance
with standards established by the American Institute of Certified Public
Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder, or were not
prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby or (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial position
included in the Prospectus and covered by their reports contained therein to the
date of the letter, there has been any material adverse change in the financial
condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in their
reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Executive
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Compensation", "Certain Transactions", "Selected Financial Data," "Dilution,"
and "Risk Factors," as well as such other financial information as may be
specified by the Representative, and that they have compared such amounts,
percentages and financial information with the accounting records of the Company
and have found them to be in agreement.
All the opinions, letters, certificates and evidence
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel to the Underwriters, whose approval shall not
be unreasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement and all obligations of the Underwriters hereunder may be
terminated and canceled by the Representative by notifying the Company of such
termination and cancellation in writing or by telegram at any time prior to, or
on, the Closing Date and any such termination and cancellation shall be without
liability of any party hereto to any other party, except with respect to the
provisions of Sections 7 and 8 hereof. The Representative may, of course, waive,
in writing, any conditions which have not been fulfilled or extend the time for
their fulfillment.
SECTION 12. Termination.
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Representative
and an opportunity to cure, shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either inabilities
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any action, suit or proceeding, threatened or pending, at law or equity against
the Company, or by any Federal, State or other commission, board or agency
wherein any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
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(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such exchange shall have
been suspended or a general banking moratorium shall have been established by
Federal or New York State authorities or (ii) a war or other national calamity
shall have occurred involving the United States or (iii) the condition of the
market for securities in general shall have materially and adversely changed, or
(iv) the condition of any matter materially affecting the Company or its
business or business prospects, is such that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section
12 shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses.
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Units hereunder and if the aggregate amount
of such Units which all Underwriters so defaulting have agreed to purchase does
not exceed 10% of the aggregate number of Units constituting the Units, the
non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Units set forth opposite
their names in Schedule I) the full amount of the Units agreed to be purchased
by all such defaulting Underwriters and not so purchased, in proportion to their
respective commitments hereunder. In such event the Representative, for the
accounts of the several non-defaulting Underwriters, may take up and pay for all
or any part of such additional Units to be purchased by each such Underwriter
under this
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subsection (a), and may postpone the Closing Date to a time not exceeding seven
full business days; or
(b) If one or more Underwriters (other than the
Representative) default in its or their obligations to purchase and pay for the
Units hereunder and if the aggregate amount of such Units which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Units, or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Units
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Units in such proportion as may be agreed among them, at the
Closing Date. If the Remaining Underwriters do not purchase and pay for such
Units at such Closing Date, the Closing Date shall be postponed for one business
day and the remaining Underwriters shall have the right to purchase such Units,
or to substitute another person or persons to purchase the same or both, at such
postponed Closing Date. If purchasers shall not have been found for such Units
by such postponed Closing Date, the Closing Date shall be postponed for a
further two business days and the Company shall have the right to substitute
another person or persons, satisfactory to you to purchase such Units at such
second postponed Closing Date. If the Company shall not have found such
purchasers for such Units by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters for damages
occasioned by its default hereunder (and such damages shall be deemed to
include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
SECTION 15. Registration of the Underwriters' Unit Warrants
and/or securities underlying the Underwriter's Unit Warrants. The Company agrees
that it will, upon request by the Representative or the holders of a majority of
the Underwriters' Unit Warrants and Underlying Securities within the period
commencing one year after the Effective Date, and for a period of five years
from the Effective Date, on one occasion only at the Company's sole expense,
cause the Underwriter's Unit Warrants and/or the Underlying Securities issuable
upon exercise of the Underwriter's Unit Warrants, to be the subject of a
post-effective amendment, a new Registration Statement, if appropriate
(hereinafter referred to as the "demand Registration Statement"), so as to
enable the Representative and/or its assigns to offer publicly the Underwriter's
Unit Warrants and/or the underlying securities. The Company agrees to register
such securities expeditiously and, where possible, within forty-five (45)
business days after receipt of such requests. The Company agrees to use its
"best efforts" to cause the post-effective amendment, new
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<PAGE>
Registration Statement to become effective and for a period of nine (9) months
thereafter to reflect in the post-effective amendment, new Registration
Statement, financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising which, individually or in
the aggregate, represent a fundamental and/or material change in the information
set forth in such post-effective amendment or new Registration Statement. The
holders of the Underwriters' Unit Warrants may demand registration without
exercising such Warrants and, in fact, are never required to exercise same.
The Company understands and will agree that if, at any
time within the period commencing one year after the Effective Date and ending
seven years after the Effective Date of the Company's Registration Statement, it
should file a Registration Statement with the Securities and Exchange Commission
pursuant to the Securities Act, regardless of whether some of the holders of the
Underwriters' Unit Warrants and Underlying Securities shall have theretofore
availed themselves of the right provided above, the Company, at its own expense,
will offer to said holders the opportunity to register the Underwriters' Unit
Warrants and Underlying Securities. This paragraph is not applicable to a
Registration Statement filed by the Company with the SEC on Form S-8 or any
other inappropriate form.
In addition to the rights above provided, the Company will
cooperate with the then holders of the Underwriter's Warrants and Underlying
Securities in preparing and signing a Registration Statement, on one occasion
only in addition to the Registration Statements discussed above, required in
order to sell or transfer the aforesaid Underwriter's Unit Warrants and
underlying securities and will supply all information required therefor, but
such additional Registration Statement shall be at the then holders' cost and
expense unless the Company elects to register additional shares of the Company's
Common Stock in which case the cost and expense of such Registration Statement
will be prorated between the Company and the holders of the Underwriter's Unit
Warrants and underlying securities according to the aggregate sales price of the
securities being issued. The holders of the Underwriter's Unit Warrants may
include such Warrants in any such filing without exercising the Underwriter's
Warrants, and in fact, are never required to exercise same. The Company can, at
any time for any reason, withdraw any such registration except in connection
with a Registration Statement filed pursuant to the Company's demand
Registration Statement.
For purposes of this Section 15, the term "Underlying
Securities" shall refer to and include the Common Stock and underlying warrants
issuable and issued upon exercise of the Underwriters' Unit Warrants as well as
any Common Stock issued upon the exercise of the underlying warrants.
SECTION 16. Warrant Exercise Fee Agreement. Commencing twelve
months after the Effective Date, the Company will pay Tasin an amount equal to
ten (10%) percent of the aggregate exercise price of each Warrant exercised of
which a portion may be allowed to the dealer who solicited the exercise (which
may also be Tasin); provided:
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(1) the market price of the Common Stock on the date the Warrant was exercised
was greater than the Warrant exercise price on that date; (2) exercise of the
Warrant was solicited by a member of the NASD; (3) the Warrant was not held in a
discretionary account; (4) disclosure of compensation arrangements was made both
at the time of the offering and at the time of exercise of the Warrant; and (5)
the solicitation of the exercise of the Warrant was not in violation of
Regulation M promulgated under the Securities Exchange Act of 1934 or Rule 2710
of the NASD Rules of Conduct. The Warrant Exercise Fee shall be paid in
accordance with the provisions of this paragraph and the Warrant Exercise Fee
Agreement filed as an exhibit to the Registration Statement (the "Warrant
Exercise Fee Agreement"). The Company also agrees to execute and deliver the
Warrant Exercise Fee Agreement to Tasin on the Closing Date.
SECTION 17. Designation of a Director or Non-voting Advisor to the
Board: Unless waived by us, we shall have the right to designate a director or a
non-voting advisor to the Board for a period of three years after the Effective
Date. Said designee, shall attend meetings of the Board and receive no more or
less compensation than is paid to other non-management directors of the Company
and shall be entitled to receive reimbursement for all reasonable costs incurred
in attending such meetings, including but not limited to, food, lodging and
transportation. Moreover, to the extent permitted by law, the Company will agree
to indemnify the Representative and its designee for the actions of such
designee as director or as an advisor of the Company. In the event the
Underwriter designates a director, then the Company will utilize its best
efforts to obtain officer and director liability insurance of at least
$1,000,000 dollars prior to such person serving as a director and if obtained,
to maintain such policy in effect until five years from the Effective Date. To
the extent permitted under the policy, it will also include each of the
Representative and its designee as an insured under such policy.
SECTION 18. Restriction on Securities All officers, directors and
present stockholders (including holders of derivative securities) as of the
Effective Date, have agreed not to sell, transfer, hypothecate or convey any
capital stock or derivative securities by registration or otherwise for a
"Lock-Up" period of thirteen months from the Effective Date without the prior
written consent of the Representative (except that, subject to compliance with
applicable securities laws, any such officer, director or stockholder may
transfer his or her stock to a member of his family or in the event of death, by
will or operation of law, provided that any such transferee shall agree, as a
condition to such transfer, to be bound by the restrictions set forth herein and
further provided that the transferor (except in the case of the transferor's
death) shall continue to be deemed the beneficial owner of such shares in
accordance with Regulation 13d-(3) of the Securities Exchange Act of 1934, as
amended). An appropriate legend shall be marked on the face of stock
certificates representing all of such securities.
SECTION 19. Finder's Fee: The Company agrees that if it shall within
two (2) years from the Effective Date, enter into any agreement or understanding
with any person or entity introduced by the Representative involving (i) the
sale of all or substantially all of the assets and properties of the Company,
(ii) the merger or
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consolidation of the Company (other than a merger or consolidation effected for
the purpose of changing the Company's domicile) or (iii) the acquisition by the
Company of substantially all the assets or stock of another business entity,
which agreement or understanding is thereafter consummated, whether or not
during such two (2) year period, the Company, upon such consummation, shall pay
to the Representative an amount equal to the following percentages of the
consideration paid or received by the Company in connection with such
transaction:
5% of the first $1,000,000 or portion thereof, of such
consideration;
4% of the second $1,000,000 or portion thereof, of such
consideration; and
3% of such consideration in excess of the first $2,000,000 of
such consideration.
The fee payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any such
transactions.
SECTION 20. Notice. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at P.O. Box 470, Ascutney, VT 05030,
copy to Roger Tolins, Esq., Tolins & Lowenfeld, 12 E. 49th Street, New York, NY
10017; and (B) whenever notice is required by the provisions hereof to be given
to the Underwriters, such notice shall be in writing addressed to the
Representative at the address set forth on the first page of this Agreement,
copy to Steven Morse, Esq., Lester Morse P.C., 111 Great Neck Road, Suite 420,
Great Neck, New York 11021. Any party may change the address for notices to be
sent by giving written notice to the other persons.
SECTION 21. Representations and Agreements to Survive Delivery. Except
as the context otherwise requires, all representations, warranties, covenants,
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof and
as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Firm Units and the Optional Units to the several Underwriters.
SECTION 22. Miscellaneous. This Agreement is made solely for the
benefit of the Underwriters and the Company and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchaser, as such, of any of the
Units.
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This Agreement shall not be assignable by any party
without the other party's prior written consent. This Agreement shall be binding
upon, and shall inure to the benefit of, our respective successors and permitted
assigns. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same instrument.
If a party signs this Agreement and transmits an
electronic facsimile of the signature page to the other party, the party who
receives the transmission may rely upon the electronic facsimile as a signed
original of this Agreement.
If the foregoing is in accordance with your understanding
of our agreement, kindly sign and return to us a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between the Company and the Underwriters in accordance with its terms.
Very truly yours,
WORLDWIDE WIRELESS, INC.
By:________________________
Scott A. Wendel
Executive Vice-President
CONFIRMED AND ACCEPTED, as of the
date first above written:
TASIN & COMPANY, INC.
By:_____________________________________________
Salvatore Sapienza, President
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
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SCHEDULE I
Number of Firm Units to be
Underwriters Purchased
- ------------ --------------------------
Tasin & Company, Inc.
Total 1,500,000
=========
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WORLDWIDE WIRELESS, INC.
1,500,000 Units, Each Unit Consisting of one shares of Common
Stock and one Common Stock Purchase Warrant
AGREEMENT AMONG UNDERWRITERS
____________, 1998
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. Underwriting Agreement. Worldwide Wireless, Inc., a Delaware
corporation (the "Company"), proposes to enter into an underwriting agreement in
the form of the Underwriting Agreement attached hereto as Exhibit "A" (the
"Underwriting Agreement") with the underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters"), acting severally and not jointly,
with respect to the purchase from the Company of 1,500,000 Units, each unit
consisting of one share of Common Stock and one Common Stock Purchase Warrant
(the "Firm Units"). Upon our request, and as provided in Section 3 of the
Underwriting Agreement, the Company will also issue and sell to the Underwriters
up to a maximum of an additional 225,000 Units (the "Optional Units"). Both the
Firm Units and the Optional Units are sometimes collectively referred to herein
as the "Units." All of the Units which are the subject of this Agreement are
more fully described in the Prospectus of the Company described below. Under the
terms of the Underwriting Agreement, each of the Underwriters will agree, in
accordance with the terms thereof to purchase the aggregate number of Firm Units
set forth opposite its name in said Schedule I, subject to adjustment pursuant
to Section 12 hereof and Section 14 of the Underwriting Agreement.
2. Registration Statement and Prospectus. The Units are described in a
registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or will be filed in which you have been or will be named as one of the
Underwriters of the Units. Copies of the registration statement as filed and as
amended have been delivered to you, and you hereby authorize us to approve on
your behalf any further amendments or supplements which may be necessary or
appropriate. The registration statement, as amended at the time it becomes
effective, is called the "Registration Statement" and the
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final prospectus relating to the Units as filed by the Company with the
Commission pursuant to Rule 424(b) under the Act is referred to as the
"Prospectus."
3. Authority of Representative. You authorize us as your Representative
to execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Units to be purchased by you except as provided
herein and therein) and to take such action as in our discretion we may deem
advisable in respect of all matters pertaining to the Underwriting Agreement,
this Agreement, the transactions for the accounts of the several Underwriters
contemplated thereby and hereby, and the purchase, carrying, sale and
distribution of the Units.
4. Public Offering. In connection with the public offering of the
Units, you authorize us, in our discretion:
(a) To determine the time and manner of the initial public
offering (after the Registration Statement become effective), the initial public
offering price, and the concessions and reallowances to dealers, to change the
public offering price and such concessions and reallowances after the initial
public offering, to furnish the Company with the information to be included in
the Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Units and any communications
with dealers or others;
(b) To reserve all or any part of your Units for sale to
retail purchasers (including institutions) and to dealers selected by us
("Selected Dealers") among which may be included any Underwriter (including
ourselves) and each of which shall be a member of the National Association of
Securities Dealers, Inc., and each of which shall agree that in making sales to
purchasers in the United States it will conform to the Rules of Fair Practice of
said Association (or, in the case of a foreign dealer not eligible for
membership in such Association, which shall agree not to reoffer, resell or
deliver Units in the United States, its territories or its possessions, or to
persons whom it has reason to believe are citizens thereof or residents
therein), such reservations for sales to retail purchasers to be as nearly as
practicable in proportion to the respective underwriting obligations of the
Underwriters and such reservations for sales to Selected Dealers to be in such
proportion as we determine, and from time to time to add to the reserved Units
such Units retained by you remaining unsold and to release to you any of your
Units reserved but not sold;
(c) To sell reserved Units as nearly as practicable in
proportion to the respective reservations to retail purchasers at the public
offering price, and to Selected Dealers at the public offering price less the
Selected Dealer's concession pursuant to the Selected Dealers Agreement in
substantially the form attached; and
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(d) To buy Units for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
After advice from us that the Units are released for public offering,
you will offer to the public in conformity with the terms of offering set forth
in the Prospectus, or any amendment or supplement, such of your Units as we
advise you are not reserved.
You recognize the importance of a broad distribution of the Units among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Units to Selected Dealers we will take
such action as we deem appropriate to effect a broad distribution.
5. Repurchase of Units Not Effectively Placed for Investment. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
Underwriter prior to termination of the provisions referred to in Section 11 of
this Agreement, shall be purchased by you upon demand from us at the cost of
such purchase plus brokerage commissions and transfer taxes on redelivery. Units
delivered on such repurchase need not be identical to those purchased by you. In
lieu of demand repurchase by you we may in our discretion (i) sell for your
account the Units so purchased by us, at such price and upon such terms as we
may determine, and debit or credit your account with the loss and expense or net
profit resulting from such sale, or (ii) charge your account with an amount not
in excess of the Selected Dealer's concession with respect to such Units plus
brokerage commissions and transfer taxes paid in connection with such purchase.
6. Payment and Delivery. We shall give you at least 24 hours prior
notice of the Closing Date. You agree to deliver to us at or before 9:00 a.m.,
New York City time, on such Closing Date and at or before 9:00 a.m. New York
City time, on the Additional Closing Date referred to in the Underwriting
Agreement if the Optional Units are purchased, at the office of Tasin & Company,
Inc., 1377 Motor Parkway, Hauppauge, New York 11788 (or such other office as we
may direct), a certified check or bank cashier's check payable in New York
Clearing House funds to the order of Tasin & Company, Inc., as Representative,
for the full purchase price of the Units which you shall have agreed to purchase
from the Company less the concession to selected dealers. If you are a member or
clear through a member of the Depository Trust Company ("DTC"), you may, in your
discretion, deliver payment and receive Units through the facilities of DTC. The
proceeds shall be delivered in the amounts required in each case for payment of
the full purchase price by us to the Company against delivery of the Units to us
for your account. We are authorized to accept that delivery and to give a
receipt therefor. We may in our discretion make such payment on your behalf with
our own funds, in which event you will reimburse us promptly upon request. You
authorize us, as your custodian, to take delivery of your
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Units, registered as we may direct in order to facilitate deliveries. You also
authorize us to hold for your account such of your Units as we have reserved for
sale to retail purchasers and to Selected Dealers, and to deliver your reserved
Units against such sales. We will deliver your unreserved Units to you promptly
and, after we receive payment for reserved Units sold by us for your account, we
will remit to you, as promptly as practicable, an amount equal to the price paid
by you for such Units. As soon as practicable after termination of Sections 4, 5
and 9 and the first and penultimate sentences of Section 8 of this Agreement
(pursuant to Section 11 hereof) we will deliver to you any of your Units
reserved but not sold. All Units delivered to you pursuant to this Section will
be evidenced by certificates in such denominations as you shall direct by
written notice received by us not later than the second full business day
preceding the Closing Date.
7. Authority to Borrow. In connection with the purchase or carrying of
any Units purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Units. Any lender may rely on our instructions in all matters relating to
any such loan. Any of your Units held by us for your account may be delivered to
you for carrying purposes only, and subject to our further direction.
8. Stabilization and Over-Allotment. To facilitate the distribution of
the Units, you authorize us during the term of this Agreement, or for such
longer period as may be necessary in our discretion, to make purchases and sales
of the Units for your account in the open market or otherwise, for long or short
account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Units granted by Section 3 of the Underwriting Agreement.
Except with respect to the exercise of such over-allotment option, all such
purchases and sales (other than purchases and sales of the Optional Units) shall
be made for the accounts of the several Underwriters as nearly as practicable in
proportion to their respective underwriting obligations. Your net commitment
under this Section shall not, at the end of any business day, exceed 15% of your
maximum underwriting obligation. You will on our demand take up at cost or
deliver against payment any Units purchased or sold or over-allotted for your
account and, if any such other Underwriter defaults in its corresponding
obligation, you will assume your proportionate share of such obligation without
relieving the defaulting Underwriter from liability. You will be obligated in
respect to purchases and sales made for your account hereunder whether or not
the proposed purchase of the Units is consummated. Upon request you will advise
us of Units retained by you and unsold and will sell to us for the account of
one or more of the Underwriters such of your unsold Units as we may designate,
at the public offering price thereof less such amount as we may determine, but
not in excess of the Selected Dealer's concession with respect thereto. Until
the termination of this Agreement pursuant to Section 11 hereof,
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or prior notification by us, we shall have the sole right to effect stabilizing
transactions in the Units. You agree that until such time you will not make any
purchases or sales of any of such Units except as provided in Section 9 hereof.
You also agree to timely provide us with the information required by Rule
17a-2(d) under the Securities Exchange Act of 1934, as amended (the "1934 Act").
9. Open Market Transactions. You agree not to bid for, purchase,
attempt to induce others to purchase, or sell, directly or indirectly, any
Units, except as brokers pursuant to unsolicited orders and as otherwise
provided in this Agreement or in the Underwriting Agreement. You further agree
not to offer the Units for sale until notified by us, as the Representative of
the Underwriters, that they are released for that purpose.
10. Expenses and Settlement. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Units. Our determination of the amount and
allocation of expenses shall be conclusive. As soon as practicable after
termination of the provisions referred to in Section 11, the accounts hereunder
will be settled, but we may reserve from distribution such amount as we deem
advisable to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (i)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association, partnership,
unincorporated business or other separate entity, and of any expenses incurred
by us, or by any other Underwriter with our approval, in contesting any such
liability, and (ii) any transfer taxes which may be assessed and paid after such
settlement on account of any sale or transfer for your account.
11. Termination and Settlement. This Agreement will terminate (a) at
the close of business on the 30th day after the date of the Underwriting
Agreement; or (b) on such earlier or later date, not more than 30 days after the
date specified in (a), as we may determine; or (c) on the date of termination of
the Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b) your obligation to pay any claims referred to in the
last paragraph of this Section, (c) the obligations with respect to indemnity
set forth in Section 15 hereof (all obligations of which will continue until
fully discharged), and (d) your obligation with respect to purchases which
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may be made by us from time to time thereafter to cover any short position with
respect to the offering, all of which will continue until fully discharged, and
except our authority with respect to matters to be determined by us, or by us
and the Company, pursuant to the terms of the Underwriting Agreement, which will
survive the termination of this Agreement.
The accounts arising pursuant to this Agreement will be settled and
paid as soon as practicable after termination. The determination by us of the
amounts to be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement,
you will pay your proportionate share of any amount asserted against and
discharged by the Underwriters, or any of them, based upon the claim that the
Underwriters constitute an association, unincorporated business or other
separate entity, or based upon or arising out of a claim that this Agreement or
the Underwriting Agreement is invalid or illegal for any reason, including any
expense incurred in defending against such claim, and will pay any transfer
taxes which may be assessed thereafter on account of any sale or transfer of
Units for our account.
12. Default by Underwriters. Default by one or more Underwriters
hereunder or under the Underwriting Agreement shall not release the other
Underwriters from their obligations or affect the liability of any defaulting
Underwriter to the other Underwriters for damages resulting from such default.
In case of default under the Underwriting Agreement by one or more Underwriters,
we may arrange for the purchase by others, including non-defaulting
Underwriters, of Units not taken up by such defaulting Underwriter and you will,
at our request, increase pro rata with the other non-defaulting Underwriters the
aggregate principal amount of Units which you are to purchase, or both, by an
amount not exceeding one-ninth of your original underwriting obligations. In the
event any such arrangements are made, the respective Units to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. Position of Representative. We shall be under no liability to you
for any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the Underwriters, or any of them, an association, partnership,
unincorporated business or other separate entity and the rights and liability of
ourselves and each of the Underwriters are several and not joint.
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14. Compensation to Representative. As compensation for our services as
Representative, you agree to pay us $____ per Unit out of the aggregate
underwriting discount attributable to Units which you agree to purchase from the
Company under the Underwriting Agreement. We are authorized to charge your
account with such an amount.
15. Indemnification. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as
or as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
16. Blue Sky Matters. We shall not have any responsibility with respect
to the right of any Underwriter or other person to sell Units in any
jurisdiction, notwithstanding any information we may furnish in that connection.
You hereby authorize us to take such action as may be necessary or advisable to
qualify the Units for offering and sale in any jurisdiction. We have caused to
be filed Further State Notices respecting the Units to be offered to the public
in New York in the form required by, and pursuant to, the provisions of Article
23A of the General Business Law of the State of New York.
17. Title to Units. The Units purchased for the respective accounts of
the several Underwriters shall remain the property of those Underwriters until
sold; and no title to such Units shall in any event pass to us, as
Representative, by virtue of any of the provisions of this Agreement.
18. Capital Requirements. Unless the provisions of clause (b) of the
second sentence of the last paragraph of this Agreement are applicable to you,
you confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(c) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the
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1934 Act, including, without limitation, Rule 15c3-1, or any provision of any
applicable rules of any securities exchange to which you are subject or of any
restriction imposed upon you by such exchange.
19. Notices and Governing Laws. Any notice from you to us shall be
mailed or transmitted by any standard form of written telecommunication to us at
1377 Motor Parkway, Hauppauge, New York 11788. Any notice from us to you shall
be mailed or transmitted by any standard from of written telecommunication to
you at your address as set forth in your Underwriter's Questionnaire. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Units only outside the United States and its territories and possessions
to persons who are not citizens or residents of the United States or its
territories or possessions, and that in making any such sales, you will comply
with such Association's Interpretation with respect to Free-Riding and
Withholding. You further represent that: (i) you will notify each of your
customers with respect to whose account you have investment discretion and to
whose account you intend to sell any Units that you propose to sell Units to
such account as a principal and you will obtain the customer's written consent
to such sale; and (ii) you will comply with the requirements of Rule 15c2-8
under the 1934 Act and have distributed or are distributing copies of a
Preliminary Prospectus to all persons to whom you then expected to mail
confirmations of sale, not less than 48 hours prior to the time it is expected
to mail such confirmations.
Very truly yours,
TASIN & COMPANY, INC.
By:_____________________________________
As Representative of the several
Underwriters
Confirmed and accepted as of
the date first above written.
_________________________________
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
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Tasin & Company, Inc.
1377 Motor Parkway
Hauppauge, NY 11788
WORLDWIDE WIRELESS, INC.
1,500,000 Units
SELECTED DEALER AGREEMENT
Dear Sirs: ____________, 1998
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from Worldwide Wireless, Inc. (the "Company") at the price set forth on
the cover of such Prospectus, 1,500,000 Units and up to an additional 225,000
Units from the Company being called the "Units"). The Units and certain of the
terms on which they are being purchased and offered are more fully described in
the enclosed Prospectus (the "Prospectus"). Additional copies of the Prospectus
will be supplied to you, in reasonable quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Units, at the
public offering price less a concession of $___ per Unit. The offering to
Selected Dealers is made subject to the issuance and delivery of the Units to us
and their acceptance by us, to the approval of legal matters by our counsel, and
to the terms and conditions hereof, and may be made by us on the basis of the
reservation of Units or an allotment against subscription, or otherwise in our
discretion.
The initial public offering price of the Units is set forth in the
Prospectus. With our consent, Selected Dealers may allow a discount of not in
excess of $___ per Unit in selling the Units to other dealers meeting the
requirements of the specifications set forth in the affirmation of dealers
contained in the attached Acceptance and Order. Upon our request, you will
notify us of the identity of any dealer to whom you allow such a discount and
any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Units. No dealer is authorized to act as agent for the Underwriter or for
the Company, when offering any of the Units. Nothing contained herein shall
constitute the Selected Dealers partners with us or with one another.
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Upon release by us, you may offer the Units at the public offering
price, subject to the terms and conditions hereof. We may, and the Selected
Dealers may, with our consent, purchase Units from and sell Units to each other
at the public offering price less a concession not in excess of the concession
to Selected Dealers.
Payment for Units purchased by you is to be made at our office (or at
such other place as instructed) at the public offering price, on such date as we
may advise, on one day's notice to you, by certified or official bank check in
New York Clearing House funds payable to our order. Delivery to you of
certificates for Units will be made as soon as is practicable thereafter. Unless
specifically authorized by us, payment by you may not be deferred until delivery
of certificates to you. The concession payable to you will be paid as soon as
practicable after the closing.
This Agreement shall terminate at the close of business on the 45th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
In the event that, prior to the termination of this Agreement we
purchase in the open market or otherwise any Units delivered to you, you agree
to repay to us for the account of the Underwriter the amount of the above
concession to Selected Dealers plus brokerage commissions and any transfer taxes
paid in connection with such purchase; which amounts can be withheld from the
concession otherwise payable to you hereunder. Certificates for Units delivered
on any such purchase need not be the identical certificates originally issued to
you.
At any time prior to the termination of this Agreement, you will, upon
our request, report to us the number of Units purchased by you under this
Agreement which then remain unsold and will, upon our request, sell to us for
the account of the Underwriter the number of such unsold Units that we may
designate, at the public offering price less an amount to be determined by us
not in excess of the concession allowed you.
We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the offering, including,
without limitation, stabilization and over-allotment. We shall be under no
liability to you except for our lack of good faith and for obligations assumed
by us in this Agreement, except that you do not waive any rights that you may
have under the Securities Act of 1933 (the "1933 Act") or the rules and
regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Units are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no
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responsibility with respect to your right to sell Units in any jurisdiction. We
have filed a Further State Notice with respect to the Units with the Department
of State of the State of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if
telephoned, and subsequently mailed or transmitted by any standard form of
written tele-communication to you at the address to which this Agreement is
mailed, or if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
telecommunication of the principal amount of Units ordered by you and confirm
your agreement hereto by signing the Acceptance and Order on the enclosed
duplicate hereof and returning promptly such signed duplicate copy to Tasin &
Company, Inc., 1377 Motor Parkway, Hauppauge, New York 11788. Upon receipt
thereof, this instrument and such signed duplicate copy will evidence the
agreement between us.
Very truly yours,
TASIN & COMPANY, INC.
By:_________________________________
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ACCEPTANCE AND ORDER
Tasin & Company, Inc.
1377 Motor Parkway
Hauppauge, New York 11788
Dear Sirs:
We hereby enter our order for ______ Units of Worldwide Wireless, Inc.
under the terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above Units
and we further state that in entering this order we have relied upon said
Prospectus and no other statements whatsoever, written or oral. We affirm that
we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories, or possessions
and not registered under the Securities Exchange Act of 1934 and not eligible
for membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Units purchased by us in
conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: , 1998
--------------------------------
(Name of Selected Dealer)
By:
-----------------------------
(Authorized Signature)
Address:
------------------------
------------------------
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No sale, offer to sell or transfer of the securities represented by this
certificate or any interest therein shall be made unless a registration
statement under the Federal Securities Act of 1933, as amended (the "Act"), with
respect to such transaction is then in effect, or the issuer has received an
opinion of counsel satisfactory to it that such transfer does not require
registration under that Act.
This Warrant will be void after 5:00 p.m. New York time on
___________, 2003 (i.e. five years from the effective date of the Registration
Statement).
Warrant No. 1
UNDERWRITER'S UNIT WARRANT
To Subscribe for and Purchase Units of
WORLDWIDE WIRELESS, INC.
(Transferability Restricted as Provided in Paragraph 2 Below)
THIS CERTIFIES THAT, for value received, ______________
__________________ or registered assigns, is entitled to subscribe for and
purchase from Worldwide Wireless, Inc., incorporated under the laws of the State
of Delaware (the "Company"), up to ________ fully paid and non-assessable Units
(the "Underwriter's Warrant") consisting of one fully paid and non-assessable
share of Common Stock of the Company and one Common Stock Purchase Warrant at
the "Unit Warrant Price" and during the period hereinafter set forth, subject,
however, to the provisions and upon the terms and conditions hereinafter set
forth. This Warrant is one of an issue of the Company's Underwriter's Unit
Warrants identical in all respects except as to the names of the holders thereof
and the number of Units purchasable thereunder, representing on the original
issue thereof rights to purchase up to 150,000 Units.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to
the Company's common stock as more fully set forth in Section 5 hereof.
(b) The "Warrant Agreement" shall refer to the Warrant
Agreement dated as of ___________, 1998 between North American Transfer Co. and
the Company.
(c) Warrants shall refer to the Warrant(s) included in the
Units offered to the public by the Company through TASIN & COMPANY, INC.
pursuant to a Registration Statement declared effective by the Securities and
Exchange Commission ("SEC") on __________, 1998 and issued or to be issued
subject to terms and conditions of the Warrant Agreement.
<PAGE>
(d) "Underwriter's Warrants" shall refer to the Warrants
issuable upon exercise of this Warrant to the holder thereof and shall be
identical in all respects to the Warrants issued in the public offering, except
that the exercise price of the Underwriter's Warrants shall be 150% of the then
effective exercise price of the Warrants.
(e) "Units" shall consist of one share of Common Stock and one
Warrant. The Common Stock included in the Units and issuable upon the exercise
of the Warrant are subject to adjustment pursuant to Section 4 hereof and the
Warrant Agreement.
(f) "Effective Date" shall mean the date that the Securities
and Exchange Commission declares effective form SB-2, File No. 333-33593.
(g) "Unit Warrant Price" shall be $12.00 which is subject to
adjustment pursuant to Section 4 hereof.
(h) "Underwriter" shall refer to TASIN & COMPANY, INC.
(i) "Underwriting Agreement" shall refer to the Underwriting
Agreement dated ___________, 1998 between the Company and the Underwriter.
(j) "Underwriter's Unit Warrants" shall refer to Warrants to
purchase an aggregate of up to 150,000 Units issued to the Underwriter or its
designees by the Company pursuant to the Underwriting Agreement (including the
Warrants represented by this Certificate), as such may be adjusted from time to
time pursuant to the terms of Section 4 hereof (and including any Warrants
represented by any certificate issued from time to time in connection with the
transfer, partial exercise, exchange of any Warrants or in connection with a
lost, stolen, mutilated or destroyed Warrant certificate, if any, or to reflect
an adjusted number of Units).
(k) "Underlying Securities" shall refer to and include the
Common Shares and Underwriter's Warrants issuable or issued upon exercise of the
Underwriter's Unit Warrants as well as any Common Shares issued upon the
exercise of the Underwriter's Warrants.
(l) "Holders" shall mean the registered holder of the
Underwriter's Warrants or any issued Underlying Securities.
2. The purchase rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part at any time, and from time to time,
during the period commencing on the Effective Date and expiring on ___________,
2003 (the "Expiration Date"), by the surrender of this Warrant, with the
purchase form attached duly executed, at the Company's office (or such office or
agency of the Company as it may designate in writing to the Holder hereof by
notice pursuant to Section 14 hereof), and upon payment by the Holder to the
Company in cash, or by certified check or bank draft of the Unit Warrant Price
for such Units. The Company agrees that the Holder hereof shall be deemed the
record owner of such Underlying Securities as of the close of business on the
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<PAGE>
date on which this Warrant shall have been presented and payment made for such
Units as aforesaid. Certificates for the Underlying Securities so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
five (5) days, after the rights represented by this Warrant shall have been so
exercised. If this Warrant shall be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, deliver a new Underwriter's
Unit Warrant evidencing the rights of the Holder hereof to purchase the balance
of the Units which such Holder is entitled to purchase hereunder. Exercise in
full of the rights represented by this Warrant shall not extinguish the rights
granted under Section 9 hereof.
In the event that the Underwriter's Unit Warrants have expired, this
Warrant will entitle the holder to purchase only the shares of Common Stock
included in the Units, subject to adjustment as provided for herein.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Underwriter's Unit Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of Units as are
purchasable hereunder; and (ii) this Warrant may be divided or combined with
other Underwriter's Unit Warrants which carry the same rights, in either case,
upon presentation hereof at the aforesaid office of the Company together with a
written notice, signed by the Holder hereof, specifying the names and
denominations in which new Underwriter's Unit Warrants are to be issued, and the
payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of the Warrant Agreement, the
Unit Warrant Price, the exercise price per share of the Underwriter's Unit
Warrants and number of shares of Common Stock included in and issuable in
connection with the Units and the exercise of the Underwriter's Warrants subject
to this Warrant shall be subject to adjustment from time to time as set forth in
the Warrant Agreement.
5. For the purposes of this Warrant, the terms "Common Shares" or
"Common Stock" shall mean (i) the class of stock designated as the common stock
of the Company on the date set forth on the first page hereof or (ii) any other
class of stock resulting from successive changes or re-classifications of such
Common Stock consisting solely of changes in par value, or from no par value to
par value, or from par value to no par value. If at any time, as a result of an
adjustment made pursuant to Section 4, the securities or other property
obtainable upon exercise of this Warrant shall include shares or other
securities of the Company other than Common Shares or securities of another
corporation or other property, thereafter, the number of such other shares or
other securities or property so obtainable shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in Section 4 and all
other provisions of this Warrant with respect to Common Shares shall apply on
like terms to any such other shares or other securities or property. Subject to
the foregoing, and unless the context requires otherwise, all references herein
to Common Shares shall, in the event of an adjustment pursuant to
3
<PAGE>
Section 4, be deemed to refer also to any other securities or property then
obtainable as a result of such adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by
this Warrant may be exercised, the Company shall, at all times, reserve and keep
available out of its authorized capital stock, solely for the purposes of
issuance upon exercise of this Warrant, such number of its Common Shares as
shall be issuable upon the exercise of this Warrant and the exercise of the
Underwriter's Warrants and at its expense will obtain the listing thereof on all
national securities exchanges on which the Warrants are then listed; and if at
any time the number of authorized Common Shares shall not be sufficient to
effect the exercise of this Warrant and the exercise of the Underwriter's
Warrants included therein, the Company will take such corporate action as may be
necessary to increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose; the Company shall have
analogous obligations with respect to any other securities or property issuable
upon exercise of this Warrant.
(b) All Common Shares which may be issued upon exercise of the
rights represented by this Warrant or upon the exercise of the Underwriter's
Warrants will, upon issuance and payment be validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof (except as may be concurrently discharged by the Company or the
Holder); and,
(c) All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant or the Underwriter's Warrants shall be borne by the Company but in no
event shall the Company be responsible or liable for income taxes or transfer
taxes upon the transfer of any Underwriter's Unit Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a shareholder of the Company, except that
the Holder of this Warrant shall be deemed to be a shareholder of this Company
for the purpose of bringing suit on the ground that the issuance of shares of
stock of the Company is improper under the laws of the Company's state of
incorporation.
8. This Warrant shall not be sold, transferred, assigned or
hypothecated for a period of twelve (12) months from the effective date of the
Company's public offering with respect to which this Warrant has been issued,
except to officers of the Underwriter, and/or the other underwriters and/or
selected dealers who participated in such offering, or the officers or partners
of such underwriters and/or selected dealers. In no event shall this Warrant be
sold, transferred, assigned or hypothecated except in conformity with the
applicable provisions of the Securities Act of 1933, as then in force (the
"Act"), or any similar Federal statute then in force, and all applicable "Blue
Sky" laws.
4
<PAGE>
9. The Holder of this Warrant, by acceptance hereof, agrees that, prior
to the disposition of this Warrant or of any Underlying Securities theretofore
purchased upon the exercise hereof, under circumstances that might require
registration of such securities under the Act, or any similar Federal statute
then in force, such Holder will give written notice to the Company expressing
such Holder's intention of effecting such disposition, and describing briefly
such Holder's intention as to the disposition to be made of this Warrant and/or
the Underlying Securities theretofore issued upon exercise hereof. Promptly upon
receiving such notice, the Company shall present copies thereof to its counsel
and the provisions of the following subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed
disposition does not require registration under the Act, or any similar Federal
statute then in force, of this Warrant and/or the securities issuable or issued
upon the exercise of this Warrant, the Company shall, as promptly as
practicable, notify the Holder hereof of such opinion, whereupon such holder
shall be entitled to dispose of this Warrant and/or such Underlying Securities
theretofore issued upon the exercise hereof, all in accordance with the terms of
the notice delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such proposed
disposition requires such registration or qualification under the Act, or
similar Federal statute then in effect, of this Warrant and/or the Underlying
Securities issuable or issued upon the exercise of this Warrant, the Company
shall promptly give written notice of such opinion to the Holder hereof and to
the then holders of the securities theretofore issued upon the exercise of this
Warrant at the respective addresses thereof shown on the books of the Company.
Section 15 of the Underwriting Agreement provides for certain registration
rights which are incorporated herein by reference as if set forth herein in its
entirety.
10. Whenever, pursuant to Section 9 hereof, a registration statement
relating to the Underwriter's Unit Warrant or Underlying Securities is filed
under the Act, the Company agrees to indemnify and hold harmless the holder of
this Warrant, or of securities issuable or issued upon the exercise hereof, from
and against any claims and liabilities arising out of or based upon any untrue
statement of a material fact, or omission to state a material fact required to
be stated, in any such registration statement or prospectus, except insofar as
such claims or liabilities are caused by any such untrue statement or omission
based on information furnished in writing to the Company by such holder, or by
any other such holder affiliated with the holder who seeks indemnification, as
to which the holder hereof, by acceptance hereof, agrees to indemnify and hold
harmless the Company, in the same manner as set forth herein.
11. If this Warrant, or any of the securities issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any similar
Federal statute at the time in force), before such shares may be issued on the
exercise hereof, the Company, at its expense, will take all requisite action in
connection with such qualification, and will use its best efforts to cause such
securities and/or this Warrant to be duly registered or approved, as may be
required.
5
<PAGE>
12. This Warrant is exchangeable, upon its surrender by the registered
holder at such office or agency of the Company as may be designated by the
Company, for new Underwriter's Unit Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Units or Common
Shares as the case may be that may be subscribed for and purchased hereunder,
each of such new Underwriter's Unit Warrants to represent the right to subscribe
for and purchase such number of Units or Common Shares as the case may be as
shall be designated by the registered holder at the time of such surrender. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity satisfactory to the Company,
or in the case of such mutilation, upon surrender or cancellation of this
Warrant, the Company will issue to the registered holder a new Underwriter's
Unit Warrant of like tenor, in lieu of this Warrant, representing the right to
subscribe for and purchase the number of Units or Common Shares as the case may
be that may be subscribed for and purchased hereunder. Nothing herein is
intended to authorize the transfer of this Warrant except as permitted under
Section 8.
13. Every holder hereof, by accepting the same, agrees with any
subsequent holder hereof and with the Company that this Warrant and all rights
hereunder are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent may deem and treat the registered holder of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
14. All notices required hereunder shall be given by first-class mail,
postage prepaid; if given by the holder hereof, addressed to the Company at P.O.
Box 470, Ascutney, VT 05030; or such other address as the Company may designate
in writing to the holder hereof; and if given by the Company, addressed to the
holder at the address of the holder shown on the books of the Company.
15. The Company will not merge or consolidate with or into any other
corporation, or sell or otherwise transfer its property assets and business
substantially as an entirety to another corporation, unless the corporation
resulting from such merger or consolidation (if not the Company), or such
transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement satisfactory in form to the Underwriter, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
6
<PAGE>
16. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws provisions thereof and jurisdiction is hereby vested in the
Courts of said State in the event of the institution of any legal action under
this Warrant.
IN WITNESS WHEREOF, WORLDWIDE WIRELESS, INC. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, to be dated
_____________, 1998.
WORLDWIDE WIRELESS, INC.
By:
--------------------------
Attest:
- --------------------------
(Corporate Seal)
7
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase Common Shares and
__________ Underwriter's Warrants evidenced by the within Warrant, according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full. The undersigned requests that certificates for such shares and
warrants shall be issued in the name set forth below.
Dated: ,19
----------------------------------
Signature
----------------------------------
Print Name of Signatory
----------------------------------
Name to whom certificates are to
be issued if different from above
Address:
------------------------
----------------------------------
----------------------------------
Social Security No. or other
identifying number
If said number of shares and warrants shall not be all the shares and
warrants purchasable under the within Warrant, the undersigned requests that a
new Warrant for the unexercised portion shall be registered in the name of:
----------------------------------
Please Print
Address:
-------------------------
----------------------------------
----------------------------------
Social Security No. or other
identifying number
----------------------------------
Signature
8
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby
sells assigns and transfers to , Soc. Sec. No.
[ ] the within Warrant, together with all rights, title and interest therein,
and does hereby irrevocably constitute and appoint attorney to transfer such
Warrant on the register of the within named Company, with full power of
substitution.
----------------------------------
Signature
Dated: , 19
Signature Guaranteed:
- -------------------------
9
<PAGE>
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ___ day of ___________, 1998 by and among
Tasin & Company, Inc. ("Tasin"), Worldwide Wireless, Inc. (the "Company") and
North American Transfer Co. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,500,000 Units (a
maximum of 1,725,000 Units including the over-allotment option), the Company
proposes to issue, in accordance with an agreement dated ___________, 1998 by
and between the Company and the Warrant Agent (the "Warrant Agreement"),
Warrants to purchase shares of Common Stock; and
WHEREAS, the parties hereto wish to provide Tasin, a member of the
National Association of Securities Dealers, Inc. ("NASD") with certain rights on
an exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after _________, 1998 and expire at 5:00 p.m. New York time on
_________, 2003 (the "Expiration Date"), subject to (i) the Company's right to
extend the Expiration Date, at which time all rights evidenced by the Warrants
shall cease and the Warrants shall become void and (ii) certain redemption
rights commencing on or after __________, ____. In accordance with the
provisions of the Warrant Agreement, the holder of each Warrant shall have the
right to purchase from the Company, and the Company shall issue and sell to such
holders of Warrants, one fully paid and non-assessable share of the Company's
Common Stock for every Warrant exercised at an Exercise Price of $10.00 per
share, subject to adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within five (5) days of the last
day of each month commencing with the date that the Warrants first become
exercisable, but no sooner than _________, 1999, the Warrant Agent or the
Company will notify Tasin of each Warrant certificate which has been properly
completed and delivered for exercise by holders of Warrants during each such
month, the determination of the proper completion to be in the sole and absolute
reasonable discretion of the Company and the Warrant Agent. The Company or the
Warrant Agent will provide Tasin with such information, in connection with the
exercise of each Warrant, as Tasin shall reasonably request.
<PAGE>
Section 3. Payment to Tasin. The Company hereby agrees to pay to Tasin
an amount equal to ten (10%) percent of the exercise price (i.e. $1.00 per share
based on the initial exercise price of the Warrants which is $10.00 per share)
for each Warrant exercised (the "Exercise Fee") a portion of which may be
allowed by Tasin to the dealer who solicited the exercise (which may also be
Tasin) provided that:
(a) such Warrant is exercised on or after the date the Warrants first
become exercisable, but no sooner than __________, 1999, which represents one
year from the effective date of the Company's Registration Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in writing,
either in the Form of Election contained on the specimen Warrant Certificate
attached hereto as Exhibit A, or by written documents signed and dated by the
holders and specifically stating that the exercise of such Warrants were
solicited by Tasin or another member of the NASD; and
(d) Tasin, and/or the member of the NASD which solicited the exercise
of Warrants delivers a certificate to the Company within five (5) business days
of receipt of information relating to such exercised Warrants from the Company
or the Warrant Agent in the form attached hereto as Exhibit B, stating that:
(1) the Warrants exercised were not held in a discretionary
account;
(2) Tasin or the member of the NASD which solicited the
exercise of Warrants did not, (unless granted an exemption by the Securities and
Exchange Commission from the provisions thereof), within the applicable number
of business days under Regulation M of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") immediately preceding the date of exercise of the
Warrant bid for or purchase the Common Stock of the Company or any securities of
the Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Regulation M of the Exchange Act under the Securities Exchange Act
of 1934, as amended, with one engaged in a distribution of the Company's
securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to
pay over to Tasin within two (2) business days after receipt by the Company of
the certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the applicable Exercise Price paid for the Warrants to
which the certificate relates.
2
<PAGE>
Section 5. Inspection of Records. Tasin may at any time during business
hours, at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
Section 6. Termination. Tasin shall be entitled to terminate this
Agreement prior to the exercise of all Warrants at any time upon five (5)
business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, Tasin shall be entitled to receive
an Exercise Fee for the exercise of any Warrant for which it has already
delivered to the Company prior to any such termination the certificate required
by Section 3(d) of this Agreement.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
P.O. Box 470, Ascutney, VT 05030, copy to Roger Tolins, Esq., Tolins &
Lowenfeld, 12 E. 49th Street, New York, NY 10017, if to Tasin at 1377 Motor
Parkway, Hauppauge, New York 11788, copy to Steven Morse, Esq., Lester Morse
P.C., 111 Great Neck Road, Suite 420, Great Neck, New York 11021; and if to the
Warrant Agent at North American Transfer Co. at 147 West Merrick Road, Freeport,
NY 11520, or such other address as such party shall have given notice to other
parties hereto in accordance with this Section. All such notices or other
communications shall be deemed given three (3) business days after mailing, as
aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent
and Tasin may from time-to-time supplement or amend this Agreement by a written
instrument signed by the party to be charged, without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provisions contained herein or to make any other provisions in regard to
matters or questions arising hereunder which the Company, the Warrant Agent and
Tasin may deem necessary or desirable and which do not adversely affect the
interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that Tasin may
assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under the
laws of the State of New York with respect to matters of contract law and for
all purposes shall be governed by and construed in accordance with the internal
laws of said State, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give any person or corporation other than the Company, the
Warrant Agent and Tasin any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of,
and be binding upon, the
3
<PAGE>
Company, the Warrant Agent and Tasin and their respective successors and
permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and
all prior agreements between the parties with respect to the subject matter
hereof.
Section 14. Exclusive Agreement. It is understood that this agreement
is on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of Tasin.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
WORLDWIDE WIRELESS, INC.
By:
------------------------------
TASIN & COMPANY, INC.
By:
------------------------------
NORTH AMERICAN TRANSFER CO.
By:
------------------------------
4
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of Tasin & Company, Inc. ("Tasin")
pursuant to Section 3(d) of the Warrant Exercise Fee Agreement relating to the
exercise of Warrants dated ____________, 1998 between Worldwide Wireless, Inc.
(the "Company") and North American Transfer Co. (the "Warrant Agent") hereby
certifies that:
1. The Company or the Warrant Agent has notified Tasin that
______________ Warrants (as defined in the Agreement) have been exercised during
_____________, 199___.
2. The exercise of ______________ of such Warrants was solicited by
Tasin.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of the Warrants,
_____________ disclosed the compensation it will receive to holders of the
Warrants.
DATED: _______________, 199___
TASIN & COMPANY, INC.
By:
-----------------------
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC.
10% Promissory Note
$ 2,121,496 As of June 30, 1998
-----------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
UNLESS: (1) AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS COVERS THE PROPOSED TRANSFER; (2) THE HOLDER
HAS NOTIFIED THE COMPANY OF THE PROPOSED TRANSFER AND, IF REQUESTED BY THE
COMPANY, THE HOLDER HAS FURNISHED THE COMPANY WITH AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED TRANSFER
WILL NOT REQUIRE REGISTRATION UNDER SUCH ACT OR UNDER APPLICABLE STATE
SECURITIES LAWS; OR (3) THE NOTE IS SOLD PURSUANT TO RULE 144 OR ANOTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS.
WORLDWIDE WIRELESS SYSTEMS, INC., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Maker"),
its successors and assigns, for value received/in consideration of a loan to
Company's wholly-owned subsidiary, New England Wireless Inc., the benefit and
value of which is acknowledged by the Maker to inure to the Maker, hereby
promises to pay to ALAN R. ACKERMAN ("Holder"), or its successors and assigns,
in lawful money of the United States of America, the principal sum of Two
Million, One Hundred Twenty One Thousand, Four Hundred Ninety Six Dollars
($2,121,496), together with interest as provided below. This Note shall bear
interest (determined on the basis of a 365 day year) from the date hereof at an
annual rate of 10% (Ten percent) computed on the unpaid principal balance.
Principal and interest shall be paid as follows:
(a) At the earlier of (a) three (3) business days after the
closing of the initial public offering of its securities, or
(b) December 31, 1998, the Maker shall pay the amount of One
Million Six Hundred
1
<PAGE>
Eighty-Four Thousand ($1,684,000) Dollars to the Holder, all
of which shall be deemed repayment of principal.
(b) The balance shall be paid in 23 consecutive equal monthly
installments of $25,123.19 (representing principal and
interest) commencing January 31, 1999 with a final payment of
$25,123.30 due and payable on December 31, 2000.
Payments shall be deemed made when received by the Holder at 201 East
79th St., Apartment 14I, New York, New York 10021, or at such other place as
Holder may designate in writing from time to time.
In the event of Maker's default in any obligation of Maker expressed in
this Note or in any instrument securing this Note, which default is not cured
within five (5) days of written notice of such default given to Maker by the
Holder hereof, the Holder may, at the Holder's sole option, declare the unpaid
principal and all accrued and unpaid interest due under this Note immediately
due and payable. Maker agrees to pay all costs for the collection of this Note,
including reasonable attorneys' fees, and to pay interest on all amounts not
paid when due (pursuant to the terms hereof, by acceleration or otherwise), at
the greater of twelve percent (12%) per annum or at the rate specified in the
first paragraph of this Note plus two percent (2%) until such amounts are paid
in full.
Each party who is, or may become, liable on this Note in any capacity,
hereby waives presentment, demand, notice of dishonor and protest, notice of
extensions, modifications or alterations of the date or terms of payment hereof,
right to trial by jury, and all surety defenses in the nature thereof and
further consents to all extensions or modifications of the due date and terms of
payment of this Note. No delay or omission on the part of the Holder shall
operate as a waiver of such right or of any other right of such party, nor shall
any delay, omission or waiver on any one occasion be deemed a bar to or a waiver
of the same or any other right on any future occasion.
This Note may be prepaid in whole or in part at any time without
penalty. Any sums paid before the due date thereof shall not postpone or delay
the due date of any payment subsequently due.
2
<PAGE>
This Note shall be construed in accordance with and governed by the
laws of the State of Vermont. Any action arising out of this Note shall be
subject to the jurisdiction and venue of the courts of the State of Vermont in
Windsor County and the U.S. District Court for the District of Vermont, with
respect to which each party hereby consents.
This Note supersedes all prior Notes issued by the Maker to the Holder.
The Holder represents that he has waived all rights to payment under such prior
Notes, that he has not sold or otherwise transferred any of such prior Notes and
that he has waived all rights to a lien upon and/or a security interest in all
or any part of the assets of the Maker and/or any of its subsidiaries to secure
payment hereof or thereof.
Anything to the contrary herein contained notwithstanding, in the event
of Maker's default of any obligation of Maker expressed in this Note, which
default is not cured within five (5) days of written notice of such default
given to Maker by the Holder hereof, in addition to any and all rights granted
to Holder hereunder, the Maker also agrees to execute and deliver to the Holder
within three (3) business days after its failure to cure said default, such
security agreements and UCC financing statements as Holder may reasonably
require in order to secure its rights to payment of the outstanding principal
balance of this Note and any accrued but unpaid interest thereon.
IN WITNESS WHEREOF, the Maker has executed this Note on the date
written above.
IN PRESENCE OF: WORLDWIDE WIRELESS SYSTEMS, INC.
/s/Kristal M. Heinz By: /s/David E. Padilla
- ----------------------------- ---------------------------------
Witness David E. Padilla / CEO
Agreed and Accepted this
28th day of September 1998
/s/Alan R. Ackerman
- -----------------------------
Alan R. Ackerman
3
