<PAGE>
As filed with the Securities and Exchange Commission on January 13, 1999
Registration No. 333-33593
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
-----------------
PRE-EFFECTIVE
AMENDMENT NO. 3
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)
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<S> <C> <C>
Delaware 4841 13-3831117
(State of Incorporation) (Primary standard industrial (IRS Employer
classification code) Identification No.)
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575 Lexington Avenue, 4th Floor
New York, New York 10022
(212) 572-8308
(Address and telephone number of Principal Offices)
David E. Padilla, President
575 Lexington Avenue, 4th Floor
New York, New York 10022
(212) 572-8308
(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.
- --------------------------------------------------------------------------------
<PAGE>
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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>
Units, each Unit consisting of 1,725,000 Units $ 8.00 $13,800,000 $ 4,071.00
a) one share of Common Stock,
$.01 par value ("Common Stock") 1,725,000 shs -- -- --
and
b) one redeemable Units Warrant 1,725,000 wts -- -- --
("Units Warrant")
- -------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 1,725,000 shs $10.00 $17,250,000 $ 5,088.75
exercise of Unit Warrants
- -------------------------------------------------------------------------------------------------------------
Underwriters' (Unit) Warrants 150,000 Units $12.00 $ 1,800,000 $ 531.00
each Unit consisting of
a) one share of Common Stock 150,000 shs -- -- --
and
b) one redeemable Units Warrant 150,000 wts -- -- --
- -------------------------------------------------------------------------------------------------------------
Common Stock underlying Unit 150,000 shs $15.00 $ 2,250,000 $ 663.75
Warrants issuable upon exercise
of Underwriters' (Unit) Warrants
- -------------------------------------------------------------------------------------------------------------
Total..............................................................................$35,100,000 $10,354.50
Less Registration Fees previously paid.................................... 10,354.50
----------
Balance................................................................... $ 0(4)
- -------------------------------------------------------------------------------------------------------------
</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 and an additional filing fee of $3,309.75 was submitted with
Pre-effective Amendment No. 2 for a total filing fee of $10,354.50.
<PAGE>
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
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Item in Form SB-2 Prospectus Caption
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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>
----------------------------
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>
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 JANUARY , 1999
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.
1
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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.
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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
========================================================================================
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(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 ______________, 1999
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
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PROSPECTUS SUMMARY
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. To this end,
the Company has planned to utilize its wireless cable television expertise in
the exploration of existing systems and new technologies to implement digital
communications services. 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 developmental wireless cable
television activities. In August 1995, the Company commenced to provide wireless
cable television programming to a limited number of subscribing viewers in
northern Vermont and northeastern New York State.
In November 1998, the Company launched its planned Internet business
activities by commencing to provide high speed Internet access services for a
limited number of residential and commercial tenants in Trump Tower in New York
City. The Company is providing these services pursuant to an Internet Access
Services Agreement with FreeLinQ Communications Corporation as hereinafter
described. At December 1, 1998, these services were being provided to 34
subscribers.
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.
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
4
<PAGE>
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.
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.
The Company's Internet business strategy is to offer high speed
Internet access and data services to customers in multi-dwelling and
multi-tenant units, located initially in the Northeastern United States. It has
entered into network services agreements with OEM Networks, Inc. ("OEM"), a
Massachusetts based Internet service provider and with Icon CMT Corp. ("Icon
CMT"), a New Jersey based Tier-One Internet service provider which permits the
Company to obtain and market T-1 Frame Relay, local loop access and other
network/communications services. It is anticipated that the Company will
initially market these services in the New York City, Boston and Burlington,
Vermont areas. The Company has also executed a professional services agreement
with Vanguard Research, Inc. ("VRI") pursuant to which VRI will provide the
Company with Internet consulting services related to hardware procurement and
installation as well as networking.
On October 21, 1998, the Company executed an Internet Access Services
Agreement (the "FreeLinQ Contract"), with FreeLinQ Communications Corporation
("FreeLinQ"), a New York City based television program provider to residents of
multi-family dwellings. FreeLinQ has advised the Company that it has executed an
agreement with Trump New Media LLC ("Trump") to provide various services
including Internet access services to both residential and commercial tenants of
Trump multiple dwelling/tenant units in New York City. Pursuant to the FreeLinQ
Contract which is for a five-year term, the Company will incur the costs of
providing Internet access services to the FreeLinQ Cable Head-End point of
presence ("H-E POP") and FreeLinQ, in turn, will incur the costs of providing
Internet access services from the H-E POP to the various subscribers. In each
case, costs include network distribution, hardware and installation services.
Billings and collections under the arrangement are the responsibility of the
Company which will be entitled to retain a percentage of the revenues generated
at rates varying from 50% to 70%. The Company commenced providing Internet
access services under the FreeLinQ Contract in November 1998 using T-1 Frame
Relay and local loop access pursuant to its agreement with OEM. No significant
revenues have been
5
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realized to date under the FreeLinQ Contract and no assurances can be given that
significant revenues will be realized from this contract in the future.
In conjunction with high speed Internet access, the Company also
intends to continue to explore and 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 products
and services. The Company is currently in the process of exploring and
evaluating the possible use of wireless 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 exploring. 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 Company's wireless broadcast capabilities. The Company
has also executed a beta-site agreement with InterDigital Communications
Corporation ("IDC"), a provider of wireless local loop products, to test and
evaluate certain B-CDMA and wireless local loop technology. If the tests prove
satisfactory, the Company intends to market the technology to its subscribers.
See "Use of Proceeds" and "Business -- Internet Business Activities"; see
definitions of telephony, local loop, and beta-site in Glossary of Terms.
The Company's executive offices are located at 575 Lexington Avenue, 4th
Floor, New York, New York 10022 and its telephone number is (212) 572-8308.
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.
6
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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.
Internet An open global network of interconnected
commercial, educational and governmental
computer networks which utilize a common
communications protocol, TCP/IP.
Internet Website Portal A computer generated entryway to the Internet
network.
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.
Last mile The physical medium by which the service enters
the customer's premises (i.e. telephone line,
coaxial cable).
Leased Line A dedicated telecommunications line rented for use
along a predetermined route.
7
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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.
MDU Residential multi-dwelling building of at least
100 units.
MTU Commercial multi-tenant building of at least
100 tenants.
On-line services Commercial information services that offer a
computer user access through a modem to a specified
information, entertainment and communications.
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.
8
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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
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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 and
expand 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, Alan R.
Ackerman, 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
10
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CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" AND "DILUTION."
Proposed NASDAQ
SmallCap Market
Symbols(3) Common Stock - WWYD; Warrants - WWYDW.
- ------------
(1) Does not include (i) 1,644,261 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 217,225 shares issuable
upon conversion of $651,674 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.
11
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SUMMARY FINANCIAL INFORMATION
Statement of Operations Data:
<TABLE>
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Three Months Ended
Year Ended June 30, September 30,
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1998 1997 1998 1997
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Revenue ................................ $ 354,000 $ 355,000 $ 85,000 $ 97,000
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Service cost ........................... 101,00 101,000 27,000 27,000
Programming and license
fees ................................ 869,000 851,000 203,000 231,000
Selling, general and administrative
expenses ............................ 1,812,000 768,000 239,000 1,169,000
-----------------------------------------------------------------
(Loss) from operations ................. (2,428,000)(1) (1,365,000) (384,000) (1,330,000)
Interest expense ....................... (1,624,000)(1) (402,000) (2,449,000) (684,000)
Miscellaneous (expense)
income .............................. (5,000) (44,000) -- 1,000
-----------------------------------------------------------------
Net (loss)(1) .......................... $(4,057,000) $(1,811,000) $(2,833,000) $(2,013,000)
=========== =========== =========== ===========
Net (loss) per share of
common stock(2)...................... $(1.37) $(.65) $(.92) $(.70)
-----------------------------------------------------------------
Weighted average number of
shares of Common Stock
outstanding ......................... 2,963,000........ 2,792,000 3,075,000 2,895,000
=========== =========== =========== ===========
Balance Sheet Data:
June 30, 1998 September 30, 1998
-----------------------------------------------------------------
Actual Actual As Adjusted(3)
Working capital (deficit) .............. $(4,635,000) $(3,919,000 $ 6,350,000
Total assets ........................... 1,518,000 1,433,000 8,033,000
Total liabilities ...................... 4,734,000 4,476,000 1,081,000
Net tangible assets..................... (3,708,000) (3,432,000) 6,450,000
Accumulated deficit .................... (7,793,000) (10,626,000) (11,698,000)
(Capital deficiency)/stockholders'
equity .............................. (3,301,000) (2,958,000) 6,924,000
</TABLE>
- ----------------
(1) Included in Net (loss) are non-cash charges attributable to debt conversions
and the issuance of options and warrants in connection with loans and for
services at per share exercise prices which are less than the anticipated public
offering price per share in the Company's initial public offering. Such non-cash
charges were as follows:
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Year Ended June 30 Three Months Ended September 30
------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
$2,500,000 $372,000 $2,450,000 $1,623,000
Also contributing to the Net (loss) in the year ended June 30, 1998 was the
write-off of deferred offering expenses of $197,000 attributable to a previously
contemplated offering. (2) Net loss per share is computed based upon the
weighted average number of shares of Common Stock outstanding during the
periods. (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) additional borrowings by the
Company during the first seven months of fiscal 1999 of an aggregate $472,500
for working capital purposes and the related charge for warrants issued; and
(iii) the application of approximately $3,735,500 of the net proceeds of the
offering to repay indebtedness (including $312,500 of debt incurred in the
second quarter of fiscal 1999 and interest through December 31, 1998). 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
developmental operations, on a limited basis, in August 1994. To date, the
Company's operations have been principally 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. In November 1998,
the Company launched its planned Internet business activities by commencing to
provide high speed Internet access services for a limited number of residential
and commercial tenants in Trump Tower in New York City.
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 $2,428,000 and
$1,365,000, respectively. At June 30, 1998 the Company had a working capital
deficit of $4,635,000, an accumulated deficit of $7,793,000 and a capital
deficiency of $3,301,000. For the three months ended September 30, 1998, the
Company had revenues of $85,000, an operating loss of $384,000 and at September
30, 1998, had a working capital deficiency of $3,919,000. The Company's auditors
have stated in their report on the Company's financial statements for its fiscal
year
13
<PAGE>
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 costs. The Company expects to continue experiencing net
losses while it develops and expands its wireless cable systems and Internet
business strategy 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 $300,000
in indebtedness outstanding as of September 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. 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 may also be used to retire the
indebtedness incurred by the Company for working capital purposes subsequent to
September 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
14
<PAGE>
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 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.
15
<PAGE>
The Company intends to cure all payment defaults under these agreements with the
proceeds of the offering. See "Use of Proceeds."
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
16
<PAGE>
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 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
17
<PAGE>
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 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 a key executive who joined the Company in
August 1998 has such experience). The Company's Internet business strategy is to
offer high speed communications services to MDU and MTU customers by installing
and managing Internet communications infrastructures offering access at varying
speeds based on state of the art "last mile"
18
<PAGE>
technologies. 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, 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 individual, 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
19
<PAGE>
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.
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
20
<PAGE>
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 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
21
<PAGE>
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.
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 and Scott A. Wendel,
Executive Vice President, Chief Operating and Chief Financial Officer. 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 Mr. Padilla who
has had significant prior experience in the Internet services field. The Company
currently has no keyman insurance in force on its officers but pursuant to the
terms of the Underwriting Agreement with Tasin & Company, Inc. (the
"Representative"), has agreed within 90 days after the effective date of the
Registration Statement of which this Prospectus forms a part, to furnish key man
life insurance in the amount of $1,000,000 each on the lives of Messrs. Padilla
and Wendel. The loss of the services of Mr. Padilla or Mr. Wendel could have a
material, adverse effect on the Company. The Company has entered into employment
agreements with each of these two individuals pursuant to which each will devote
his full time to the business of the Company. See "Management."
22
<PAGE>
Ongoing Influence of the Representative
Under the terms of the Underwriting Agreement, 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 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 initial public
offering (in January 1995 of Units of Common Stock and Warrants for gross
proceeds of $5,075,000) as the managing underwriter and in one other initial
public offering (in February 1998 of shares of Common Stock for gross proceeds
of $6,250,000) as a co-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."
23
<PAGE>
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.
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 $265,000 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 two principal officers, and $1,684,000 will be
repaid, from the net proceeds of the offering, to the Company's Principal
Stockholder, Alan R. Ackerman, who participated in a prior financing, in
retirement of a portion of certain indebtedness owed to him. Another 5% or
greater beneficial owner of the Company's Common Stock, Alan Husak, may, at his
election, be paid $400,000 from the net proceeds of the offering to retire
certain promissory notes in said amount for loans made by him to the Company.
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.
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<PAGE>
Voting Power of Principal Stockholder
Upon completion of this offering (assuming non-exercise of the
Representative's over-allotment option), Alan R. Ackerman, the Company's
Principal Stockholder, will own approximately 33% of its outstanding Common
Stock. In addition, he holds an option exercisable to purchase an additional
377,776 shares of Common Stock which option is currently exercisable. If he
exercises the option in full, upon completion of the offering (assuming
non-exercise of the Representative's over-allotment option), the Principal
Stockholder will own approximately 37% of the outstanding 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."
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 1,914,386 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 13 months following the date of
this Prospectus
25
<PAGE>
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
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 September 30, 1998 would have been $1.41 per share
representing an immediate increase in net tangible book value of $2.47 per share
to the present shareholders and an immediate dilution of $6.59 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.
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<PAGE>
Risk of Market Confusion
An unaffiliated corporation has been formed in Delaware with the name
World Wide Wireless, Inc. which the Company's management has been advised is
engaged as a reseller of cellular telephones and related services. The Company
is also aware of a Delaware corporation formed under the name World Wide
Wireless Web, Corp. but has been unable to obtain any other information
concerning such entity including whether or not it is actually engaged in
business. In addition, the Company is aware of a Nevada corporation named World
Wide Wireless Communications, Inc. with headquarters in San Francisco which
purportedly is engaged in "...high speed wireless internet access and research
and development...." The Company has been advised that this corporation (unlike
the Company) is not a member of the Wireless Communications Association and has
been unable to verify the business actually being conducted by it. With the
possible exception of the above entities, 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 the foregoing as well as other entities using the name "Worldwide Wireless"
in some manner 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 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
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<PAGE>
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.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements and information contained under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" concerning future, proposed, and intended activities
of the Company, and other statements contained herein regarding matters that are
not historical facts are forward-looking statements. Forward-looking statements,
by their very nature, include risks and uncertainties. Accordingly, actual
results may differ, perhaps materially, from those expressed in or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially include those discussed herein under "Risk Factors."
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 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
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<PAGE>
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 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
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<PAGE>
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 September 30, 1998, the Company had a net tangible book value
(deficit) of $(3,432,000) or approximately $(1.06) 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 September 30, 1998 would increase to approximately $1.41.
Consequently, the purchasers of the Units offered hereby will sustain an
immediate dilution of $6.59 per share.
The following table illustrates the dilution per share of Common Stock
to be incurred by public investors from the public offering price:
Assumed initial public offering price(1)........... $8.00
Net (negative) tangible book value per
share of Common Stock at September 30, 1998..... $(1.06)
Increase in net tangible book value per
share of Common Stock attributable
to public investors(2).......................... 2.47
-----
Pro forma adjusted net tangible book
value per share of Common Stock
after offering.................................... 1.41
-----
Dilution of net tangible book value per
share to public investors......................... $ 6.59
======
- ------------
(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.
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:
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<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- --------------------- Weighted Average
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ----------------
Existing stockholders 3,244,948 68% $ 3,815,514(1) 24% $1.18
<S> <C> <C> <C> <C> <C>
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
1,914,386 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:
Percentage of
Amount Net Proceeds
------ -------------
Expansion of the Mount
Mansfield wireless cable
television system(1).............. $2,000,000 20.5%
Initiation of Internet
access services(2)................ 2,000,000 20.5%
Repayment of indebtedness(3)....... 3,735,500 38%
Working capital(4)................. 2,014,500 21%
---------- ---
Total $9,750,000 100%
========== ===
- ------------
(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.
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<PAGE>
(2) To initiate and expand 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. Up to an aggregate $286,000 of these proceeds
will be applied to pay for software the Company has agreed to purchase from
VocalTec and for the purchase of equipment pursuant to its agreement with
InterDigital Communications Corporation. See "Business -- Internet Business
Activities."
(3) Consists of the repayment of (i) approximately $1,312,500 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 (including $250,000 plus interest payable to InterDigital
Communications Corporation and $400,000 plus interest payable at his option to a
principal stockholder, Alan Husak pursuant to convertible promissory notes in
said aggregate principal amount held by him), (ii) repayment of indebtedness to
the Company's Principal Stockholder, Alan R. Ackerman of $1,684,000 (out of a
total indebtedness of $2,174,000 owed to such Principal Stockholder at September
30, 1998 including approximately $53,000 of interest accrued at an annual rate
of 10%), and (iii) repayment of trade indebtedness of approximately $753,000.
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. After payment of $1,684,000 to its Principal
Stockholder out of the net proceeds of this offering, the Company has agreed to
pay the balance of the indebtedness owed to him in 24 equal monthly installments
of $25,123 (representing principal and interest) commencing in January 1999.
Unless the Company generates sufficient revenues from operations to pay these
installments, they will be paid from working capital.
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
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<PAGE>
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.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 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>
September 30, 1998
----------------------------------
Actual As Adjusted
<S> <C> <C>
Notes Payable (as adjusted, net of debt discount of $160,000)(1)...... $ 3,001,000 $ 437,000
Preferred Stock; $.01 par value; 2,500,000
shares authorized; none issued and outstanding....................... -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; 3,244,948
shares issued and outstanding at September 30, 1998; 4,744,948
shares issued and outstanding at September 30, 1998, as adjusted(2). 32,000 48,000
Additional paid in capital............................................ 10,084,000 21,022,000
Deferred compensation................................................. (2,448,000) (2,448,000)
Accumulated deficit................................................... (10,626,000) (11,698,000)
----------- -----------
Total stockholders' equity (capital deficiency)....................... (2,958,000) 6,924,000
----------- -----------
Total capitalization.................................................. $ 43,000 $ 7,361,000
=========== ===========
</TABLE>
- ------------
(1) Includes $1,684,000 payable on the completion of the offering to the
Company's Principal Stockholder, repayment of other promissory notes outstanding
at September 30, 1998 of approximately $885,000 (including $300,000 in principal
amount of promissory notes payable on demand at said date), and promissory notes
issued in October and December 1998 in the aggregate principal amount of
$312,500. Does not include an additional $160,000 promissory note issued in
January 1999. After payment of $1,684,000 to its Principal Stockholder out of
the net proceeds of this offering, the Company has agreed to pay the balance of
the indebtedness owed to him in 24 equal monthly installments of $25,123
(representing principal and interest) commencing in January 1999. Unless the
Company generates sufficient revenues from operations to pay these installments,
they will be paid from working capital. See "Use of Proceeds."
(2) Excludes (i) 1,914,386 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."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1998 and 1997
The Company generated subscription revenues earned from its provision
of wireless cable television services for the quarters ended September 30, 1998
and 1997 of $85,000 and $97,000 respectively. The decrease in revenues in the
more recent period was primarily attributable to a reduction in the number of
subscribers in the more recent period (presumably due to increased competition)
and a reduction during the more recent period in the Company's charge to
subscribers for providing service to additional television sets in the
subscriber's household. Operating expenses totalled $469,000 for the quarter
ended September 30, 1998 as compared to $1,427,000 for the quarter ended
September 30, 1997. Included in operating costs in the earlier period is a
$943,000 charge recorded as compensation attributable to the Principal
Stockholder in consideration for services as the Company's chief executive
officer. He rendered such services without pay from the Company's inception in
1994 through December 1, 1997 and was granted an option in consideration
therefor valued at $1,468,000 of which $525,000 was charged to operations in
earlier periods..
Interest expense in the more recent quarter totalled $2,449,000,
primarily attributable to the additional interest recorded in August 1998 in
connection with the conversion of $766,648 of indebtedness into an aggregate
255,549 shares of Common Stock reflecting the difference between the $3.00 per
share conversion price and the assumed $8.00 per share fair market value of the
Common Stock, as compared to interest expense of $684,000 in the quarter ended
September 30, 1997. As a result, the Company incurred a net loss of $2,833,000
in the quarter ended September 30, 1998 compared to a net loss of $2,013,000 in
the quarter ended September 30, 1997.
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 $2,782,000 and $1,720,000 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 $943,000 charge recorded
as compensation for an option granted to the Principal Stockholder in
consideration for services rendered by him without pay as the Company's chief
executive officer from its inception in 1994 through December 1, 1997. A charge
of $175,000 attributable to such option was recorded as compensation in fiscal
1997. In addition, the Company wrote off deferred offering expenses of $197,000
in fiscal 1998.
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<PAGE>
The Company recorded interest expense of $1,624,000 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 $4,057,000 in
fiscal 1998 as compared to a net loss of $1,811,000 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 September 30, 1998, the Company's current assets of $138,000 were
substantially exceeded by current liabilities of $4,057,000 resulting in a
$3,919,000 working capital deficit. The Company intends to apply a portion of
the net proceeds of the offering to the reduction of its current liabilities.
See "Use of Proceeds."
In view of its current financial condition, the Company has no external
sources of liquidity (i.e. loans from commercial lenders are unavailable). 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 September 30, 1998, the
outstanding principal balance of loans made to the Company by the Principal
Stockholder totalled $2,174,000 including approximately $53,000 of interest
accrued at an annual rate of 10%. 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
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environments are not economically viable, such as rural markets with fewer than
5,000 potential subscribers. See "Use of Proceeds" and "Business."
The Company has commitments under employment agreements effective in
August 1998 and expiring December 31, 2001 with David E. Padilla and Scott A.
Wendel. 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 the completion of this offering or February 17,
1999. Pursuant to his agreement, Mr. Wendel 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 the completion of this
offering or February 17, 1999. 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 that such revenues in calendar year 2000
total at least $1,500,000. During the initial term, if the Company determines to
terminate either executive's employment, the Company is required to pay the
executive an amount equal to his base salary for the remaining period of the
initial term plus an amount equal to 100% of his annual base salary then in
effect.
From July 1, 1996 through September 30, 1998, 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 from 7.5% to 15%.
In October 1998, the Company borrowed an additional $250,000 from a more than 5%
stockholder at an annual interest rate of 15% as hereinafter described.
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.
The Company also issued warrants during fiscal 1997 to five individuals
exercisable to purchase an aggregate 65,000 shares of Common Stock for services
rendered. See "Certain Transactions" as to the issuance of 17,500 of these
warrants to a more than 5% stockholder, Alan Husak and as to the issuance of
2,500 of these warrants to a nominee for director, Leonard Gartner.
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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 220,452 shares of
Common Stock.
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.
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.
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 $168,067 was converted by the lender, Alan Husak (a more
than 5% beneficial owner of the Company's Common Stock), into 56,022 shares of
Common Stock. Of the remaining $200,000 of notes, one in the principal amount of
$150,000 issued to Alan Husak, is payable at Mr. Husak's option out of the net
proceeds of this offering or on December 31, 1998 together with interest at an
annual rate of 10% and is convertible into 50,000 shares of Common Stock. In
conjunction with these $368,067 of loans, the Company issued and/or agreed to
issue warrants exercisable to purchase an aggregate 96,534 shares of its Common
Stock of which warrants exercisable to purchase 84,000 shares were issued to Mr.
Husak. In October 1998, the Company borrowed an additional $250,000 from Mr.
Husak and issued its $250,000 principal amount promissory note payable at Mr.
Husak's option out of the net proceeds of this offering or on March 31, 1999
together with interest at an annual rate of 15% and convertible into 83,334
shares of Common Stock. In connection with this $250,000 loan, the Company
issued warrants to Mr. Husak exercisable to purchase 62,500 shares of its Common
Stock. At the same time, the Company issued warrants to Mr. Husak exercisable to
purchase 37,500 shares of Common Stock, for services rendered. In December 1998,
the Company borrowed $50,000 from a more than 5% stockholder and prior lender,
James Welch and an additional $12,500 from another individual who had loaned
money to the Company previously. In consideration therefor, the Company issued
promissory notes payable in May 1999 ($12,500) and in June 1999 ($50,000) or at
the holder's option, out of the net proceeds of this offering. The notes bear
interest at an annual rate of 15% and are convertible into an aggregate 20,834
shares of Common Stock. In connection with these loans, the Company issued
warrants to the lenders exercisable to purchase an aggregate 15,625 shares of
its Common Stock.
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In January 1999, the Company borrowed an additional $160,000 from Mr.
Husak and issued its $160,000 principal amount promissory note payable on
December 29, 1999 with interest at an annual rate of 15%. The note is
convertible into 53,334 shares of Common Stock. In connection with this $160,000
loan, the Company issued warrants to Mr. Husak exercisable to purchase 40,000
shares of Common Stock. As an inducement to Mr. Husak to lend this sum to the
Company, the Principal Stockholder transferred 40,000 shares of his Common Stock
to Mr. Husak and was paid $5,100 by Mr. Husak.
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 principal computer hardware and software suppliers,
namely WizTec Solutions, Inc. and Scientific Atlanta, 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 been estimated to aggregate approximately $50,000
with an expected completion sometime during the last quarter of fiscal 1999.
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.
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BUSINESS
Background
The Company, through its wholly owned subsidiary, New England Wireless,
Inc. ("NEW"), is an owner and operator of a wireless cable television system in
northern Vermont. NEW 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 the date hereof, the Company had approximately 1,000
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 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.
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In November 1998, the Company launched its planned Internet business
activities by commencing to provide high speed Internet access services for a
limited number of residential and commercial tenants in Trump Tower in New York
City. The Company is providing these services pursuant to an Internet Access
Services Agreement with FreeLinQ Communications Corporation as hereinafter
described. At December 1, 1998, these services were being provided to 34
subscribers.
Business Strategy -- Wireless Cable Television
The Company's wireless cable television 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
1,000 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 wireless cable television 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.
Business Strategy -- Internet
The Company's Internet business strategy is to offer high speed
communication services to MDU and MTU customers by installing and managing
Internet communications infrastructures offering access at varying speeds based
on state of the art "last mile" technologies. The Company also plans to explore
using its Internet portal to promote third party products and services.
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
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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.
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, additional
enhancements in the form of new features, improved reliability and bundled
service packs are 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.
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 to MDU and MTU
customers 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 firewall solutions.
Internet Business Activities
To date, the Company has engaged in a limited number of developmental
and exploratory activities regarding its projected Internet access service
business.
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In August 1997, the Company executed a beta-site agreement with
InterDigital Communications, Inc. ("IDC") to test certain B-CDMA and wireless
local loop technology. Pursuant to the agreement, the Company is required to
purchase 50 field service units and the necessary infrastructure equipment
necessary to accommodate the units from IDC at a purchase price of approximately
$186,000. The Company intends to fund the purchases out of the net proceeds of
this offering. The Company will apply a portion of the net proceeds of this
offering to lease the necessary spectrum to test the IDC technology and if the
tests prove satisfactory, to market the technology to Internet users. In
addition, the Company is currently testing an educational software program
pursuant to a beta-site agreement with GK Intelligent Systems, Inc. ("GK"). The
Company has no purchase obligations pursuant to this agreement, but, if the
tests are satisfactory, will negotiate terms with GK to market the software to
Internet users.
In September 1997, the Company executed an agreement with VocalTec,
Inc. ("VocalTec") pursuant to which it agreed to purchase software designed to
enable it to provide IP telephony and fax services over the Internet. The
VocalTec technology proposed to be used by the Company is intended to take
advantage of the Company's wireless broadcast capabilities. The Company has
taken delivery of the software and intends to pay the approximately $100,000
purchase price out of the net proceeds of this offering.
In July 1998, the Company executed a one-year network services
agreement with OEM Networks, Inc. ("OEM"), a Massachusetts based Internet
service provider, pursuant to which OEM has agreed to provide the Company with
Internet access circuits. The Company has placed an initial order under this
agreement for a T-1 Frame Relay and local loop access at a monthly charge of
approximately $1,300 for use in New York City. It is anticipated that OEM will
provide the Company with Internet access in the Boston, New York City, and
Burlington, Vermont areas. The agreement is for a one-year term and guarantees
the Company the ability to pass Frame Relay traffic to and from the OEM network.
The Company's initial T-1 Frame Relay circuit was connected into a New York City
location in November 1998 in connection with the FreeLinQ Contract hereinafter
described. Pursuant to its agreement with OEM, the Company can resell OEM's
services including Internet access services and web hosting.
The Company is also a party to a two-year Master Network Services
Agreement with Icon CMT Corp. ("Icon CMT"), a New Jersey based Tier-One Internet
service provider, which permits the Company to purchase network/communications
services from Icon CMT at such times as the Company may require such access, at
prices varying depending upon the size of the bank-width required. At the
present time, there are no commitments by the Company to purchase such services
from Icon CMT.
In June and July 1998, the Company executed agreements with NorthTel,
Inc. ("NorthTel") and two NorthTel affiliates pursuant to which NorthTel and the
affiliates have agreed over a two-year period to resell Internet access services
in the Company's behalf on
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a non-exclusive basis. Such reselling will initially be conducted in the Boston
area with the Company also providing certain management and support services.
On October 20, 1998, the Company executed a professional services
agreement with Vanguard Research, Inc. ("VRI"), a provider of systems
integration services to commercial and government agencies. Pursuant to the
agreement, which expires on April 30, 1999, VRI will provide the Company with
Internet consulting services related to hardware procurement and installation as
well as networking for hourly based fees.
On October 21, 1998, the Company executed an Internet Access Services
Agreement (the "FreeLinQ Contract"), with FreeLinQ Communications Corporation
("FreeLinQ"), a New York City based television program provider to residents of
multi-family dwellings. FreeLinQ has advised the Company that it has executed an
agreement with Trump New Media LLC ("Trump") to provide various services
including Internet access services to residential and commercial tenants of
Trump multiple dwelling/tenant units in New York City. Pursuant to the FreeLinQ
Contract which is for a five-year term, the Company will incur the costs of
providing Internet access services to the FreeLinQ Cable Head-End point of
presence ("H-E POP") and FreeLinQ, in turn, will incur the costs of providing
Internet access services from the H-E POP to the various subscribers. In each
case, costs include network distribution, hardware and installation services.
Billings and collections under the arrangement are the responsibility of the
Company which will be entitled to retain a percentage of the revenues generated
at rates varying from 50% to 70%. The Company commenced to provide Internet
access services under the FreeLinQ Contract in November 1998 using T-1 Frame
Relay and local loop access pursuant to its agreement with OEM. No significant
revenues have been realized to date under the FreeLinQ Contract and no
assurances can be given that significant revenues will be realized from this
contract in the future.
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
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Company's competitors. There can be no assurance that such firms will devote the
time, 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
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utilize its wireless cable capabilities to augment its Internet services, the
Company has not yet 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 participates by
processing complimentary enrollments of children 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 November 30, 1998, the Company had a total of thirteen 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
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the Mount 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 wireless cable television
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 wireless cable
television service facility in Jericho, Vermont, for a monthly rental of $1,792.
In addition, 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 500 square feet of office space
at 575 Lexington Avenue, 4th Floor, New York City for its executive offices at a
monthly rental of $2,600 and 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:
Name Age Position
---- --- --------
Michael Noel Russell 57 Chairman of the Board
David E. Padilla 52 President, Chief Executive Officer, Director
Scott A. Wendel 43 Executive Vice President, Treasurer, Chief Operating
and Chief Financial Officer, Director
Leonard Gartner 55 Director (on completion of offering)
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
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<PAGE>
Management Limited in London, England since 1991. From 1982 to 1991, Mr. Russell
was 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. On April 10, 1996, Mr. Padilla filed a
petition under Chapter 7 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of New Jersey (Case No. 96-32917) seeking
relief in bankruptcy as at such time, his liabilities exceeded his assets. He
obtained a discharge pursuant to Court Order on July 19, 1996.
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
Executive Officer and 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.
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,
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<PAGE>
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 SmallCap(TM) 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
regular basis.
The following persons are expected to serve on the Business Advisory
Committee of the Advisory Board:
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.
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
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<PAGE>
1988, Mr. Kristiensen was employed by ASEA of Oslo, Norway and its affiliate
ASEA, Inc. of New York, eventually serving as manager of the sales and order
department for transformers in Oslo.
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 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 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 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.
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
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<PAGE>
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 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 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 has been employed since September 1993 by Sight
Resource Corporation of Holliston, Massachusetts, a company which provides eye
care products and services. Since January 1996, he has held the post of Manager
of Corporate Communications at such firm. Prior to working at Sight Resource,
Mr. Bonde-Henriksen served as a development consultant in Cambridge,
Massachusetts providing real estate appraisal, real estate marketing
consultation and associated services.
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 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.
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<PAGE>
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 from
its inception in 1994 until December 1, 1997. 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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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>
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 as the
Company's chief executive officer from its inception in 1994, options to
purchase 402,776 shares of its Common Stock. The options are currently
exercisable and expire on April 1, 2001. The options are exercisable at the
lesser of $3.00 per share or 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.
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<PAGE>
Employment Agreements
Effective August and September 1998, the Company executed employment
agreements expiring December 31, 2001 with David E. Padilla and Scott A. Wendel.
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 has agreed to issue options to Mr. Padilla exercisable to
purchase 175,000 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 has
agreed to issue options to Mr. Wendel exercisable to purchase 165,000 shares of
its Common Stock. During the initial term, if the Company determines to
terminate either executive's employment, the Company is required to pay the
executive an amount equal to his base salary for the remaining period of the
initial term plus an amount equal to 100% of his annual base salary then in
effect. In the event of termination by the Company after the initial term, the
Company is required to pay the executive an amount equal to 75% of his annual
base salary then in effect. Each employment agreement contains a non-competition
provision restricting the executive from competing with the Company for a period
of one year after termination of his employment. However, no assurances can be
given that a court with appropriate jurisdiction will enforce such provision, in
whole or in part.
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").
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
65
<PAGE>
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. One executive officer
who was awarded options to purchase 100,000 shares has left the Company's
employ. As a result, his options were cancelled and new options exercisable to
purchase 100,000 shares were granted in equal amounts to Messrs. Padilla and
Wendel. All of the options are for a five-year term except for the options
issued to Messrs. Padilla and Wendel which are each for a term of ten years.
Those officers and directors (and the nominee for director) who have been
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 175,000
Scott A. Wendel 165,000
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 September 30, 1998, the
Company was indebted to the Principal Stockholder in the amount of $2,174,000
(including approximately $53,000 of interest accrued at an annual rate of 10%).
The Company and the Principal Stockholder have agreed that the Company will pay
$1,684,000 our 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.
Mr. Ackerman served as the Company's chief executive officer without
pay from its inception in 1994 until Mr. Wendel succeeded him in such position
on December 1, 1997.
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<PAGE>
During his term of office, Mr. Ackerman helped the Company to create and develop
its business strategy for marketing its services both domestically and
internationally as communications technologies evolved, including voice
telephony, Internet and E commerce. In consideration for these services, the
Company during the first quarter of fiscal 1998 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 48,138 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 17,500 shares of its Common Stock in
consideration for his loans to the Company in fiscal 1996 and 1997 and his
subsequent conversion of an aggregate $69,715 in loans and accrued interest. In
addition, the Company issued warrants to purchase 2,500 shares of Common Stock
to Mr. Gartner in June 1997 for his providing of tax consulting services to the
Company.
Alan Husak, a more than 5% beneficial owner of the Company's Common
Stock, acquired his 200,548 shares of Common Stock and warrants to purchase
321,910 shares of Common Stock in consideration for his lending an aggregate
$1,030,263 to the Company in fiscal 1996, 1997, 1998 and the first seven months
of fiscal 1999 and by converting $470,263 of such indebtedness plus accrued
interest into Common Stock. Mr. Husak currently holds an aggregate $560,000 in
principal amount of the Company's promissory notes convertible into an aggregate
186,667 shares of Common Stock. The notes were issued in consideration for
$560,000 of loans Mr. Husak made to the Company in September and October 1998
and in January 1999 ($150,000 at an annual interest rate of 10% and $410,000 at
an annual interest rate of 15%). Mr. Husak was issued an additional 17,500
warrants in fiscal 1997 and 37,500 warrants in fiscal 1999 for management
consulting services rendered to the Company by him from April 1996 through
September 30, 1998. As a result of the hiring of Mr. Padilla as chief executive
officer in August 1998, Mr. Husak's future consulting services are expected to
be minimal.
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 102,989 shares of Common Stock in consideration for his
loans to the Company in fiscal 1996, 1997, 1998 and 1999 and his subsequent
conversion of an aggregate $366,212 in loans and accrued interest. He acquired
the remaining 34,518 shares in private purchases.
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<PAGE>
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 recently 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.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of January 8,
1999 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, 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, and all shares of Common Stock issuable
to such holder in the event of ists of conversion of convertible notes owned by
such holder at such 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>
Directors and Nominee*
Michael Noel Russell 30,000 shs(2) .9% .6%
David E. Padilla 43,333 shs(3) 1.0% .9%
Scott A. Wendel 81,471 shs(4) 2.5% 1.7%
Leonard Gartner 71,478 shs(5) 2.2% 1.5%
Executive Officers and Directors
as a Group (four persons) 226,282 shs(2)(3)(4)(5) 6.7% 4.6%
</TABLE>
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<PAGE>
<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>
Other 5% Holders
Alan R. Ackerman 1,920,335 shs(6) 53.0% 37.5%
201 East 79th Street
New York, New York 10021
Alan Husak 709,126 shs(7) 18.9% 13.5%
403 Port Jersey Boulevard
Jersey City, New Jersey 07305
James Welch 273,745 shs(8) 8.1% 5.6%
509 Wycliff Way
Alexandria, Louisiana 71303
</TABLE>
- ------------
*The address of all of the Company's directors and executive officers
is c/o the Company, 575 Lexington Avenue, 4th Floor, New York, New York 10022.
(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 10,000 shares owned directly and 33,333 shares issuable upon
exercise of options at an exercise price of $3.00 per share. Does not include
141,667 shares issuable upon exercise of options at an exercise price of $3.00
per share which options are exercisable to purchase an additional 33,333 shares
in each calendar year commencing in calender year 2000.
(4) Consists of 48,138 shares owned directly and 33,333 shares issuable upon
exercise of options at an exercise price of $3.00 per share. Does not include
131,667 shares issuable upon exercise of options at an exercise price of $3,00
per share which options are exercisable to purchase an additional 33,333 shares
in each calendar year commencing in calender year 2000.
(5) 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."
(6) Consists of 1,542,569 shares owned directly and 377,766 shares issuable upon
exercise of options at an exercise price of $3.00 per share.
(7) Consists of 200,548 shares owned directly, 321,910 shares issuable upon
exercise of warrants at an exercise price of $3.00 per share and 186,667 shares
issuable upon conversion of an aggregate $560,000 in principal amount of
convertible notes. Mr. Husak has transferred all of these warrants to his three
adult children and three of his employees and disclaims beneficial ownership of
the shares underlying the warrants.
70
<PAGE>
(8) Consists of 154,089 shares owned directly, 102,989 shares issuable upon
exercise of warrants at an exercise price of $3.00 per share and 16,667 shares
issuable upon conversion of an aggregate $50,000 in principal amount of
convertible notes.
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 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.
71
<PAGE>
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 offering price, concessions and discounts will not be changed until
after the initial public offering has been completed.
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 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. The Underwriters' Warrants and the underlying securities may not be
sold, transferred, assigned or hypothecated for a period of one year from the
date of this Prospectus except to officers or partners of the Underwriters and
members of the selling group and/or their officers or partners. Any profit
realized upon any resale of the Underwriters' Warrants or upon any sale of the
shares of Common Stock
72
<PAGE>
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.
In March and April 1998, the Company borrowed an aggregate $150,000
through the sale of $150,000 of promissory notes, payable with interest at an
annual rate of 15%, to four customers of the Representative. In connection with
the sale, the Company issued warrants exercisable to purchase an aggregate
37,500 shares of its Common Stock to the lenders and paid an aggregate $15,000
in commissions to two individuals associated with the Representative.
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 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.
73
<PAGE>
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 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
74
<PAGE>
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 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."
In addition to the Warrants being offered hereby, the Company currently
has outstanding warrants and options exercisable to purchase an aggregate
1,697,161 shares of Common Stock (including warrants it is committed to issue
within 90 days after completion of this offering exercisable to purchase 52,900
of such shares).
75
<PAGE>
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
13 months 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.
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
76
<PAGE>
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).
77
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Contents
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance sheet as of June 30, 1998 and September 30, 1998 (unaudited) F-3
Statements of operations for the years ended June 30, 1998 and 1997 and
for the three month periods ended September 30, 1998 and 1997 (unaudited) F-4
Statements of changes in capital deficiency for the years ended June 30, 1998 and 1997
and for the three month period ended September 30, 1998 (unaudited) F-5
Statements of cash flows for the years ended June 30, 1998 and 1997 and
for the three month periods ended September 30, 1998 and 1997 (unaudited) F-6
Notes to financial statements F-7
</TABLE>
F-1
<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 Notes E[1] and H
September 24, 1998
F-2
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
------------ ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,000 $ 105,000
Accounts receivable 8,000 7,000
Prepaid expenses and other current assets 23,000 26,000
--------------- ----------------
Total current assets 32,000 138,000
Property and equipment, net 992,000 903,000
Wireless channel rights, net 100,000 96,000
Installation labor, net 21,000 19,000
Deferred offering costs 286,000 359,000
Security deposits and other assets 2,000 3,000
--------------- ----------------
$ 1,433,000 $ 1,518,000
=============== ===============
LIABILITIES
Current liabilities:
Notes payable - current $ 2,869,000 $ 2,648,000
Current portion of mortgages payable 3,000 3,000
Accounts payable 723,000 753,000
Accrued expenses 1,072,000 653,000
--------------- ----------------
Total current liabilities 4,667,000 4,057,000
Notes payable - noncurrent 353,000
Mortgages payable 67,000 66,000
--------------- ----------------
Total liabilities 4,734,000 4,476,000
--------------- ----------------
Commitments, contingencies and other matters
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 and 3,244,948 shares at June 30, 1998
and September 30, 1998, respectively 30,000 32,000
Additional paid-in capital 4,462,000 10,084,000
Deferred compensation (2,448,000)
Accumulated deficit (7,793,000) (10,626,000)
--------------- ----------------
Total capital deficiency (3,301,000) (2,958,000)
--------------- ----------------
$ 1,433,000 $ 1,518,000
=============== ===============
</TABLE>
See notes to financial statements F-3
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30, September 30,
--------------------------- ----------------------------
1998 1997 1998 1997
------------- ----------- ----------------------------
(unaudited)
<S> <C> <C> <C> <C>
Service revenue $ 354,000 $ 355,000 $ 85,000 $ 97,000
-------- -------- ----------- -----------
Costs and expenses:
Service cost 101,000 101,000 27,000 27,000
Programming and license fees 869,000 851,000 203,000 231,000
Selling, general and administrative expenses 1,812,000 768,000 239,000 1,169,000
--------- --------- ----------- -----------
Total costs and expenses 2,782,000 1,720,000 469,000 1,427,000
--------- --------- ----------- -----------
Operating loss before other (expense) income (2,428,000) (1,365,000) (384,000) (1,330,000)
Other (expense) income:
Interest (1,624,000) (402,000) (2,449,000) (684,000)
Miscellaneous (5,000) (44,000) 1,000
--------- ---------- ----------- --------------
Net loss $(4,057,000) $(1,811,000) $(2,833,000) $(2,013,000)
=========== =========== =========== ===========
Net loss per share - basic and diluted $(1.37) $(0.65) $(0.92) $(0.70)
====== ====== ====== ======
Weighted average number of common shares 2,963,000 2,792,000 3,075,000 2,895,000
=========== =========== =========== ==============
</TABLE>
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
------------------- -------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance - June 30, 1996 2,763,398 $28,000
Litigation settlement paid by stockholders
Common stock issued on conversion of debt 95,000 1,000
Common stock issued for interest 563
Warrants issued in connection with financing
Warrants issued for services
Compensation charge in connection with
services rendered by an officer/stockholder
Net loss
--------- -------
Balance - June 30, 1997 2,858,961 29,000
Common stock issued on conversion of debt
and interest 130,438 1,000
Warrants issued in connection with financing
Common stock received from
stockholder/officer in settlement
of advances (15,000) $(25,000)
Treasury stock issued in connection with
financing 15,000 25,000
Compensation charge in connection with
issuance of option to officer/stockholder
Warrants issued for services
Net loss
--------- ------- ------- --------
Balance - June 30, 1998 2,989,399 30,000 0 0
Common stock issued on conversion of debt
and interest 255,549 2,000
Warrants issued in connection with financing
Warrants issued for services
Interest charge on issuance of convertible
promissory note
Compensatory stock options granted
Net loss
--------- ------- ------- --------
Balance - September 30, 1998 (unaudited) 3,244,948 $32,000 0 $ 0
========= ======= ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Deferred Accumulated Capital
Capital Compensation Deficit Deficiency
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balance - June 30, 1996 $ 794,000 $ (1,925,000) $(1,103,000)
Litigation settlement paid by stockholders 108,000 108,000
Common stock issued on conversion of debt 297,000 298,000
Common stock issued for interest 2,000 2,000
Warrants issued in connection with financing 218,000 218,000
Warrants issued for services 18,000 18,000
Compensation charge in connection with
services rendered by an officer/stockholder 175,000 175,000
Net loss (1,811,000) (1,811,000)
----------- ----------- -----------
Balance - June 30, 1997 1,612,000 (3,736,000) (2,095,000)
Common stock issued on conversion of debt
and interest 847,000 848,000
Warrants issued in connection with financing 820,000 820,000
Common stock received from
stockholder/officer in settlement
of advances (25,000)
Treasury stock issued in connection with
financing 38,000 63,000
Compensation charge in connection with
issuance of option to officer/stockholder 943,000 943,000
Warrants issued for services 202,000 202,000
Net loss (4,057,000) (4,057,000)
----------- ----------- -----------
Balance - June 30, 1998 4,462,000 (7,793,000) (3,301,000)
Common stock issued on conversion of debt
and interest 2,042,000 2,044,000
Warrants issued in connection with financing 796,000 796,000
Warrants issued for services 41,000 41,000
Interest charge on issuance of convertible
promissory note 250,000 250,000
Compensatory stock options granted 2,493,000 $(2,448,000) 45,000
Net loss (2,833,000) (2,833,000)
----------- ----------- ------------ -----------
Balance - September 30, 1998 (unaudited) $10,084,000 $(2,448,000) $(10,626,000) $(2,958,000)
=========== =========== ============ ===========
</TABLE>
See notes to financial statements F-5
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30, September 30,
------------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,057,000) $(1,811,000) $(2,833,000) $(2,013,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 431,000 407,000 107,000 119,000
Loss on disposal of equipment 9,000 72,000
Noncash litigation settlement 108,000
Warrants issued for services 202,000 18,000 41,000 80,000
Noncash compensation for options issued 943,000 175,000 943,000
Noncash interest charge on debt conversion 457,000 1,278,000 383,000
Noncash interest charge on issuance of convertible
promissory note 250,000
Amortization of debt discount 898,000 179,000 836,000 217,000
Amortization of deferred compensation 45,000
Changes in:
Accounts receivable (1,000) 1,000 1,000
Prepaid expenses and other current assets 17,000 8,000 (3,000) 19,000
Security deposits and other assets 14,000 3,000 (1,000) 14,000
Accounts payable and accrued expenses 570,000 23,000 102,000 139,000
------------- ----------- ------------- -----------
Net cash used in operating activities (517,000) (817,000) (177,000) (99,000)
------------- ----------- ------------- -----------
Cash flows from investing activities:
Purchase of property and equipment (154,000) (37,000) (11,000) (22,000)
Proceeds from disposal of equipment 30,000
Additions to installation labor (14,000) (14,000) (2,000) (6,000)
Collections on notes receivable 20,000
------------- ----------- ------------- -----------
Net cash used in investing activities (168,000) (1,000) (13,000) (28,000)
------------- ----------- ------------- -----------
Cash flows from financing activities:
Repayment of debt (1,000) (2,000) (1,000) (1,000)
Proceeds on issuance of promissory notes and
warrants 743,000 924,000 368,000 122,000
Repayment of promissory notes (30,000)
Offering costs deferred (62,000) (45,000) (73,000)
Advances to officer/stockholder (3,000) (22,000) (1,000)
-------------- ----------- ----------- -----------
Net cash provided by financing activities 677,000 825,000 294,000 120,000
------------- ----------- ----------- -----------
Net increase (decrease) in cash (8,000) 7,000 104,000 (7,000)
Cash at beginning of period 9,000 2,000 1,000 9,000
------------- ----------- ----------- -----------
Cash at end of period $ 1,000 $ 9,000 $ 105,000 $ 2,000
=========== ============= =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,000 $ 36,000 $ 1,000
Noncash transactions:
Conversion of debt and interest into common
stock $ 391,000 $ 298,000 $ 766,000 $ 328,000
Deferred offering costs included in accrued
expenses $ 224,000 $ 110,000 $ 40,000
Common stock received from
stockholder/officer in settlement of advances $ 25,000
Conversion of accrued interest into notes payable $ 381,000
</TABLE>
See notes to financial statements F-6
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
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[4] and E[5]). 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
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
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 and September
30, 1998 is $59,000 and $63,000, respectively.
[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 and the three months ended
September 30, 1998, as their effect would be antidilutive, are as
follows:
June 30, 1998 September 30, 1998
------------- ------------------
Stock options 402,776 shares 901,276 shares
Warrants to purchase common stock 540,826 shares 637,360 shares
Convertible debt 59,275 shares
[6] Revenue recognition:
Revenue from subscribers are recognized in the period that service is
rendered.
[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
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
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] Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation". SFAS 123 encourages but does not require
companies to record compensation cost for stock-based employee
compensation at fair value. The Company has elected to account for its
employee stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and disclose the pro forma
effects on net earnings (loss) and earnings (loss) per share had the fair
value of options been charged to operations. Under the provisions of APB
25, compensation cost for stock options is measured as the excess, if any,
of the market price of the Company's common stock at the date of grant
over the exercise price.
[11] 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.
[12] Interim financial information:
The financial information presented as of September 30, 1998 and for the
three month periods ended September 30, 1998 and 1997 is unaudited, but
in the opinion of management contains all adjustments (consisting only of
normally recurring adjustments) necessary for a fair presentation of such
financial information. Results of operations for interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
F-9
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30, September 30,
1998 1998
---------- -------------
(unaudited)
Transmission equipment $1,291,000 $1,297,000
Subscriber equipment 630,000 630,000
Office furniture and equipment 191,000 196,000
Vehicles 44,000 44,000
Leasehold improvements 65,000 65,000
Building and land 128,000 128,000
---------- ----------
2,349,000 2,360,000
Accumulated depreciation (1,357,000) (1,457,000)
---------- ----------
$ 992,000 $ 903,000
========== ==========
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
========
F-10
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE E - COMMITMENTS AND OTHER MATTERS
[1] Employment agreements:
In August 1998, the Company entered into three-year employment agreements
with three officers (one of who has since resigned from the Company). The
remaining two agreements provide for an aggregate base salary at the rate
of $202,000 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 $265,000 per
year. One agreement provides 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 ten years at $3.00 per share. The options vest ratably over five
years.
[2] 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.
[3] 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.
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 and expire on January 1, 2002. The warrants have been
valued using the Black Scholes pricing model at approximately $67,000 and
have been accounted for as debt discount and were amortized over the life
of the loan. In estimating the value of the warrants, the Company used
the following assumptions:
Risk free interest rate 6.50%
Expected life 3.25 years
Expected volatility 0.40
Dividend yield 0.00%
[4] 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.
F-11
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE E - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[5] 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.
[6] 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
=======
[7] Related party transactions:
The Company's former chief executive officer/principal stockholder served
without pay from inception to December 1, 1997. The Company, based on a
survey of other companies in the wireless cable industry, valued such
services at $175,000 per year. In this connection the Company reflected a
compensation charge to selling, general and administrative expenses and a
credit to paid in capital over the periods when the services were
rendered.
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
=======
F-12
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE F - OPERATING LEASES (CONTINUED)
[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 and the three month periods ended
September 30, 1998 and 1997 was approximately $91,000, $128,000, $24,000
and $24,000, 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.
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, 1998 are as follows:
Net operating losses - deferred tax asset $ 1,750,000
Less valuation allowance thereon (1,750,000)
-----------
$ 0
===========
F-13
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE H - STOCK WARRANTS
Outstanding stock warrants consist of the following at September 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 January 2002
(iv) 15,000 3.00 January 2002
(v) 7,500 3.00 January 2002
(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) 24,105 (A) (A)
(xiv) 10,000 (A) (A)
(xv) 27,989 (A) January 2002
(xvi) 46,481 (A) January 2002
(xvii) 21,876 (A) January 2002
(xviii) 37,500 (A) January 2002
(xix) 96,534 (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 estimating the value of the
warrants, the Company used the following assumptions:
<TABLE>
<CAPTION>
Year Ended
June 30, Three Months Ended
---------------------------------- September 30,
1998 1997 1998
-------------- ------------- ------------------
<S> <C> <C> <C>
Risk-free interest rate 5.85% - 6.50% 5.70% - 6.50% 5.45%
Expected life 2 - 3.25 years 3 years 3 years
Expected volatility 0.40 0.40 0.40
Dividend yield 0.00% 0.00% 0.00%
</TABLE>
F-14
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE H - STOCK WARRANTS (CONTINUED)
The valuation of warrants in 1998 varied because of a difference in the fair
value of the shares underlying the warrant. This difference reflected an
increase in the expected offering price in the Company's Initial Public
Offering. Further, in certain instances [(xvi), (xviii) and (xix) below], the
value of the warrants issued with debt, computed using the Black-Scholes pricing
model exceeded the value of the related debt. The value ascribed to such
warrants was limited to the cash received, Black-Scholes not withstanding:
(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.
These warrants expired in August 1998 and the Company agreed to
issue new warrants to the holders. Such new warrants have been
valued at approximately $454,000 and charged to interest expense
in the period ended September 30, 1998.
(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. These
warrants will expire in December 1998 and, in August 1998, the
Company agreed to issue new warrants to the holder. Such new
warrants have been valued at approximately $83,000 and charged to
interest expense in the period ended September 30, 1998.
(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. These
warrants will expire in January 1999 and, in August 1998, the
Company agreed to issue new warrants to the holder. Such new
warrants have been valued at approximately $41,000 and charged to
interest expense in the period ended September 30, 1998.
(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.
F-15
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE H - STOCK WARRANTS (CONTINUED)
(ix) See Note E[3] - 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
$58,000 and have been included in selling, general and
administrative expenses in the periods in which the services were
rendered as follows:
Prior to July 1, 1996 $41,000
Year ended June 30, 1997 17,000
(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 amortized over the term of the note.
(xiii) In July and August 1997, the Company agreed to issue warrants to
purchase 24,105 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 have been
valued at approximately $86,000 and were recorded as a charge to
interest expense.
(xiv) 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.
(xv) 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.
(xvi) Warrants issuable to three note holders in connection with
promissory notes aggregating $185,000, issued between November
1997 and January 1998. The warrants were valued at $185,000, and
have been accrued as interest expense in the year ended June 30,
1998.
(xvii) 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.
(xviii) Warrants issuable in connection with four promissory notes
aggregating $150,000. The warrants were valued at $150,000, and
have been accrued as interest expense in the year ended June 30,
1998.
(xix) Warrants issued in July and August 1998, in connection with five
promissory notes aggregating $218,000. The warrants were valued
at $218,000, and have been accounted for as debt discount and
amortized over the term of the notes.
F-16
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE H - STOCK WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1998 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Warrants Price Warrants Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 335,375 $3.02 40,000 $3.19
New Issuances 220,451 3.00 295,375 3.00
Cancellations (15,000) 3.50
------- ----- ------- -----
Outstanding - end of year 540,826 $3.00 335,375 $3.02
======= ===== ======= =====
Warrants exercisable 406,980 $3.00 None None
======= ===== ======= =====
Three Months Ended September 30,
---------------------------------------------------------
1998 1997
------------------------ -------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Warrants Price Warrants Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 540,826 $3.00 335,375 $3.02
New Issuances 201,534 3.00 65,408 3.00
Cancellations/expiration (105,000) 3.00 (15,000) 3.50
------- ----- ------- -----
Outstanding - end of period 637,360 $3.00 385,783 $3.00
======= ===== ======= =====
Warrants exercisable 301,980 $3.00 None None
======= ===== ======= =====
</TABLE>
The weighted average fair value of warrants issued are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------
1998 1997
-------------------------- --------------------------
Weighted Weighted
Average Average
Number of Fair Number of Fair
Exercise Price Warrants Value Warrants Value
-------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
$3.00 15,000 $3.00 295,375 $3.00
$3.00 34,105 $6.00
$3.00 37,500 $6.50
$3.00 133,846 $8.00
</TABLE>
F-17
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE H - STOCK WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Three Month Periods Ended September 30,
-----------------------------------------------------------
1998 1997
-------------------------- --------------------------
Weighted Weighted
Average Average
Number of Fair Number of Fair
Exercise Price Warrants Value Warrants Value
-------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
$3.00 201,534 $8.00 15,000 $3.00
$3.00 12,908 $6.00
$3.00 37,500 $6.50
</TABLE>
NOTE I - NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
---------- -------------
(unaudited)
<S> <C> <C>
Notes payable to the principal stockholder, interest at 7.5% to 15% $1,741,000 $2,121,000
Notes payable to stockholders, interest at 8.5% to 10% 355,000 150,000*
Notes payable to third parties, interest at 7.5% to 15% 788,000 705,000
Convertible promissory notes, interest at 7.5% to 8% 25,000 25,000
---------- ----------
2,909,000 3,001,000
Less unamortized debt discount 40,000
---------- ----------
Notes payable $2,869,000 $3,001,000
========== ==========
</TABLE>
* Convertible note issued in September 1998.
Except for four notes aggregating $430,000 which mature between October 1998 and
December 1998, the notes matured on various dates through September 1998 and are
payable on demand. The Company lacks the resources to repay those notes. In
September 1998, the Company's principal stockholder 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
in January 1999.
Certain notes payable aggregating approximately $681,000 and $621,000 at June
30, 1998 and September 30, 1998, respectively, are subject to increased interest
rates of 12% to 17%.
Interest payable to stockholders of approximately $475,000 and $105,000 at June
30, 1998 and September 30, 1998, respectively, 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.
F-18
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE I - NOTES PAYABLE (CONTINUED)
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 has been 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.
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 $110,000 have been converted into 255,549 shares
pursuant to the offer. In connection with the conversion, the Company recorded
an additional interest expense 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.
In connection with a $150,000 convertible promissory note (convertible into
50,000 shares of common stock) which was issued in September 1998 to a
stockholder, the Company has recorded an additional interest charge of $250,000
for the difference between the estimated fair value of the common stock and the
conversion price of $3.00 in the three-month period ended September 30, 1998.
Interest incurred on debt for the years ended June 30, 1998 and 1997 and the
three-month periods ended September 30, 1998 and 1997 was approximately
$214,000, $189,000, $83,000 and $47,000, respectively, including approximately
$160,000, $155,000, $65,000 and $39,000, 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-19
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
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 OPTIONS
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.
The excess over amounts reflected in prior periods of $525,000 (Note E[7]) 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-20
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE L - STOCK OPTIONS (CONTINUED)
In August 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. 158,500 of such options will expire in five years and the remaining
340,000 options will expire in ten years from the date of the grant.
Options to purchase 340,000 shares vest over a five year period and are
exercisable at a cumulative rate of 66,667 shares per year. The options have
been valued at $5 per share, the difference between the exercise price and the
fair value, of the common stock at the date of grant. The total value,
$1,700,000, will be charged to expense over the vesting period.
Options to purchase 158,500 shares vest over a four year period and are
exercisable at a cumulative rate of 25% of the number of shares per year and
have been similarly valued. The total value, $793,000, will be charged to
expense over the vesting period.
In addition, each member of the Company's advisory board has been granted, at
the end of each year of service, an option to purchase 2,500 shares of the
Company's common stock.
The Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for its employee options. Accordingly, no
compensation cost has been recognized for the difference in the fair value
($5.69) and the intrinsic value ($5.00) of its stock options granted. In
estimating the fair value of these options pursuant to the provisions of SFAS
123, the Company used the following assumptions:
Risk free interest rate 5.27%
Expected life 5 years
Expected volatility 0.10
Dividend yield 0.00%
Had compensation cost for the stock option grants been determined based on fair
value at the grant dates for awards consistent with the method in Statement of
Financial Accounting Standards 123, the Company's net loss and net loss per
share - basic and diluted at September 30, 1998 would have been $(2,839,000) and
$(0.92), respectively.
Total compensation expense recognized for options granted during the year ended
June 30, 1998 and three month period ended September 30, 1998 was $943,000 and
$45,000, respectively.
F-21
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE L - STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Exercise Weighted Average
Price Outstanding Exercisable Remaining Contractual Life
-------- ----------- ----------- ------------------------------------
<S> <C> <C> <C>
$3.00 402,776 Exercisable from 14th month from IPO
$3.00 158,500 4.91 years
$3.00 340,000 9.91 years
</TABLE>
NOTE M - STOCKHOLDERS' EQUITY
At June 30, 1998 and September 30, 1998, shares of the Company's common stock
have been reserved for future issuance as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
-------- -------------
(unaudited)
<S> <C> <C>
Warrants issued for services and with debt 540,826 637,360
Stock options 402,776 901,276
Convertible debt 59,275
------- --------
943,602 1,597,911
======= =========
</TABLE>
NOTE N - SUBSEQUENT EVENTS
In October 1998, the Company borrowed $250,000 from a shareholder. The note
bears interest at 15%, is due March 31, 1999, and is convertible into common
stock at $3.00 per share.
In connection with the loan the Company issued 62,500 warrants, exercisable at
the lower of $3.00 or 50% of the IPO price. The warrants are exercisable from 13
to 36 months after close of the IPO. If no IPO occurs by March 31, 1999, then
they are exercisable from April 1, 1999 to April 1, 2002. Since the
Black-Scholes valuation of the warrants exceeded the amount of the borrowing,
the value ascribed to the warrants was $250,000, and accounted for as debt
discount and amortized over the life of the loan. Further, the Company will
record an additional interest charge of $417,000, representing the difference
between the estimated fair value of the common stock ($8.00) and the conversion
price ($3.00), which will be recognized over the term of the note.
In addition, the shareholder was issued 37,500 warrants on the same terms as
those described above. The warrants, which were issued for consulting services
rendered to the Company during the period from July 1997 to September 1998 have
been valued by the Black-Scholes method at $204,000 and were charged to expense
as follows: $163,000 for the year ended June 30, 1998 and $41,000 for the three
months ended September 30, 1998.
In January 1999, the Company borrowed $160,000 from the same shareholder. The
note bears interest at 15%, is due December 29, 1999, and is convertible into
common stock at $3.00 per share.
F-22
<PAGE>
WORLDWIDE WIRELESS SYSTEMS, INC. AND SUBSIDIARY
Notes to Financial Statements
(unaudited with respect to September 30, 1998 and for the periods ended
September 30, 1998 and 1997)
NOTE N - SUBSEQUENT EVENTS (CONTINUED)
In connection with the loan, the Company issued 40,000 warrants, exercisable at
the lower of $3.00 or 50% of the IPO price. The warrants are exercisable from 13
to 36 months after close of the IPO. If no IPO occurs by March 31, 1999, then
they are exercisable from April 1, 1999 to April 1, 2002. Since the
Black-Scholes valuation of the warrants exceeded the amount of the borrowing,
the value ascribed to the warrants was $160,000, and accounted for as debt
discount and amortized over the life of the loan. Further, the Company will
record an additional interest charge of $267,000, representing the difference
between the estimated fair value of the common stock ($8.00) and the conversion
price ($3.00), which will be recognized over the term of the note.
In addition, the Company's principal shareholder, as an inducement to the lender
to make the loan, has agreed to transfer 40,000 of his shares of the Company's
common stock to the lender for $5,100. In connection with the transfer, the
Company will record an interest charge of $315,000, representing the difference
between the estimated fair value of the common stock ($8.00) and the amount
paid.
In December 1998, the Company borrowed an aggregate of $62,500 from a
stockholder and another individual. The notes bear interest at 15%, are due on
the earlier of (a) consummation of the proposed public offering or (b) in May
1999 $12,500 and June 1999 $50,000, and are convertible into common stock at
$3.00 per share.
In connection with these loans, the Company issued 15,625 warrants on the same
terms as those noted above. Since the Black-Scholes valuation of these warrants
exceeded the amount of the borrowing, the value ascribed to the warrants was
$62,500 and accounted for as debt discount and amortized over the life of the
loans. Further, the Company will record an additional interest charge of
$104,000 representing the difference between the estimated fair value of the
common stock ($8.00) and the conversion price ($3.00), which will be recognized
over the terms of the notes.
F-23
<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 , 1999 (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.
, 1999
- --------------------------------------------------------------------------------
<PAGE>
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.
Item 25. Other Expenses of Issuance and Distribution.
Registration Fee......................... $ 10,354.50
NASD Filing Fee.......................... 4,010.00
NASDAQ SmallCap Market Fee............... 10,000.00
Printing and Engraving................... 80,000.00
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)
II-1
____________
(1) All Figures Estimated
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
On March 11, 1995, the Company issued 801,156 shares of its common
stock in exchange 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 its Principal
Stockholder, 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, 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). All of the lenders were accredited investors.
One, InterDigital Communications Corp., also executed a beta-site agreement with
the Company. Two others, Alan Husak and James Welch, subsequently became more
than 5% beneficial owners of the Company's Common Stock. A fourth, Leonard
Gartner, will become a director of the Company after completion of the offering.
Two others were prior lenders to the Company. The remaining four lenders had no
prior affiliation with the Company. 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
II-2
<PAGE>
made in prior fiscal periods, the Company issued warrants exercisable to
purchase an aggregate 255,375 shares of Common Stock.
The Company issued warrants during fiscal 1997 to five individuals
(including Messrs. Husak and Gartner) exercisable to purchase an aggregate
65,000 shares of Common Stock for services rendered. Included were warrants
issued to Mr. Husak exercisable to purchase 17,500 shares for management
consulting services rendered by him to the Company from April 1996 through June
1997, warrants exercisable to purchase an aggregate 40,000 shares issued to two
individuals in consideration for arranging a private financing for NEW completed
in 1994; warrants exercisable to purchase 2,500 shares issued to Mr. Gartner for
providing tax consulting services to the Company in June 1997 and warrants
exercisable to purchase 5,000 shares issued to an employee to compensate her for
operating the customer service department of the Mount Mansfield System from
January 1995 through May 1995 without pay.
During fiscal 1998, the Company borrowed an additional aggregate
$588,000 from twelve individual investors (in addition to loans from the
Principal Stockholder). These lenders included Mr. Husak, Mr. Welch, two other
prior lenders to the Company, a member of the Company's Advisory Board and seven
other individuals with no prior affiliation with the Company. Four of these
lenders were customers of the Representative. All of the lenders were accredited
investors. 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.
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. One of the lenders was Mr. Husak, two
others were prior lenders to the Company both in fiscal 1997 and fiscal 1998,
and two were NEW stockholders who became stockholders of the Company through the
merger. All were accredited investors. 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 Mr. Husak, 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. In October 1998, the
Company borrowed an additional $250,000 from Mr. Husak and issued its $250,000
principal amount promissory note payable at Mr. Husak's option out of the net
proceeds of this offering or on March 31, 1999 together with interest at an
annual rate of 15% and convertible into 83,334 shares of Common Stock. In
connection with this loan, the Company issued warrants to Mr. Husak exercisable
to purchase 62,500 shares of its Common Stock. At the same time, the Company
issued warrants to Mr. Husak
II-3
<PAGE>
exercisable to purchase 37,500 shares of Common Stock, for services rendered. In
December 1998, the Company borrowed $50,000 from a more than 5% stockholder and
prior lender, James Welch and an additional $12,500 from another individual who
had loaned money to the Company previously. In consideration therefor, the
Company issued promissory notes payable in May 1999 ($12,500) and in June 1999
($50,000) or at the holder's option, out of the net proceeds of this offering.
The notes bear interest at an annual rate of 15% and are convertible into an
aggregate 20,834 shares of Common Stock. In connection with these loans, the
Company issued warrants to the lenders exercisable to purchase an aggregate
15,625 shares of its Common Stock.
In January 1999, the Company borrowed an additional $160,000 from
Mr. Husak and issued its $160,000 principal amount promissory note payable on
December 29, 1999 with interest at an annual rate of 15%. The note is
convertible into 53,334 shares of Common Stock. In connection with this $160,000
loan, the Company issued warrants to Mr. Husak exercisable to purchase 40,000
shares of Common Stock. As an inducement to Mr. Husak to lend this sum to the
Company, the Principal Stockholder transferred 40,000 shares of his Common Stock
to Mr. Husak and was paid $5,100 by Mr. Husak.
On August 24, 1998, a group of eight noteholders including Mr. Husak
and Mr. Welch, 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 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.
II-4
<PAGE>
Item 27. Exhibits.
Exhibit No. Description
----------- -----------
++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 Underwriters' 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
10.11(a) November 23, 1998 Amendment to 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)
II-5
<PAGE>
Exhibit No. Description
----------- -----------
+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 WorldWide Wireless Systems, Inc. 1998 Stock Option Plan
10.33 Leased Line/Resale Agreement with OEM Networks, Inc.
10.34 Internet Access Services Agreement with FreeLinQ
Communications Corp.
10.35 Services Agreement with Vanguard Research, Inc.
+21.1 Statement of Subsidiaries
+++23.1 Consent of Counsel
++23.2 Consent of Independent Auditors
23.3 Consent of Leonard Gartner to serve as a director after
the offering
27 Financial Data Schedule
____________
+ Previously filed
++ Previously filed exhibit is revised in this amendment
+++ To be filed by Amendment
Item 28. Undertakings.
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
II-6
<PAGE>
(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 Registrant will provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
3. 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.
4. The Registrant 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 Registrant 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-7
<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 New
York, New York on the 12th day of January 1999.
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
/s/David E. Padilla Executive Officer and
- ------------------------- Director January 12, 1999
David E. Padilla
Executive Vice President,
Principal Financial and
/s/Scott A. Wendel Accounting Officer and
- ------------------------- Director January 12, 1999
Scott A. Wendel
II-8
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
++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 Underwriters' 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
10.11(a) November 23, 1998 Amendment to 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)
<PAGE>
Exhibit No. Description
- ----------- -----------
Exhibit No. Description
+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 WorldWide Wireless Systems, Inc. 1998 Stock Option Plan
10.33 Leased Line/Resale Agreement with OEM Networks, Inc.
10.34 Internet Access Services Agreement with FreeLinQ
Communications Corp.
10.35 Services Agreement with Vanguard Research, Inc.
+21.1 Statement of Subsidiaries
+++23.1 Consent of Counsel
++23.2 Consent of Independent Auditors
23.3 Consent of Leonard Gartner to serve as a director after the
offering
27 Financial Data Schedule
______________
+ Previously filed
++ Previously filed exhibit is revised in this amendment
+++ To be filed by Amendment
<PAGE>
EXHIBIT 1.1
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.
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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
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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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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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<PAGE>
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.
(e) Notwithstanding anything contained in this Underwriting
Agreement, termination of this Agreement may only be based on events that result
in a material impairment of this Agreement to offer the securities for sale in
accordance with the Securities and Exchange Commission "Letter Regarding First
Boston Corporation, 1985 SEC No. Act. LEXIS 2481 (August 2, 1985).
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
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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 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
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<PAGE>
(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 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.
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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: (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.
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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 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
28
<PAGE>
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.
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.
29
<PAGE>
SCHEDULE I
Underwriters Number of Firm Units to be
- ----------------------- Purchased
--------------------------
Tasin & Company, Inc.
Total 1,500,000
30
<PAGE>
EXHIBIT 10.11(a)
AMENDMENT TO BETA-SITE AGREEMENT
This Amendment is made as of the 23rd day of November, 1998 between
InterDigital Communications Corporation ("IDC") and WorldWide Wireless
Corporation, Inc. ("WWW"), with reference to the following recitals:
A. IDC and WWW are parties to a certain Beta-Site Agreement (the
"Agreement") dated August 12, 1997 regarding the deployment of IDC's wireless
local loop TrueLink(TM) equipment for the Vermont Beta-Site (as defined in the
Agreement). The Agreement as amended hereby is also refereed to herein as the
"Agreement".
B. IDC and WWW have reassessed their respective needs in view of
further analysis of the scope of the Beta-Site test and the passage of time
without receipt of all necessary licenses, permits, etc. under Section 9.0 of
the Agreement, and desire to amend the Agreement as set forth below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and intending to be legally bound thereby, the parties
agree as follows:
I. Obligations of InterDigital. Section 2.0 of the Agreement is hereby amended
at line 5 to specify the number of lines to be fifty (50).
II. Obligations of WWW. Section 3.0 is amended at line 8 to read "...FSUs units
eleven (11) through fifty (50), as described in ...", and to add to the end of
line 9 the following: "; and such additional amount as InterDigital may
determine necessary for infrastructure equipment necessary to accommodate units
fifty (50) to one hundred (100), to the extent pursued."
III. Coordination & Time for Performance. Pursuant to Section 4.0 of the
Agreement, the Technical Liaisons for WWW and IDC are as follows:
Chris Giacoponello
Director, Program Management
InterDigital Communications Corporation
781 Third Ave.
King of Prussia, PA 19406
610-878-5658 (tel.)
610-992-9432 (fax)
Mr. Michael Tedesco
Operations Manager
New England Wireless
RR#2, Box #218 Rte. 15
Jericho, VT 05465
802-899-1301 (tel.)
802-899-1302
IV. Notices. Section 13.0 of the Agreement is hereby amended to indicate that
the address and person for notices to WWW is as follows:
<PAGE>
Scott Wendel
Chief Operating Officer
New England Wireless
RR#2, Box #218 Rte. 15
Jericho, VT 05465
802-674-2206 (tel.)
802-674-2751 (fax)
V. Schedule - A. Schedule - A of the Agreement is to be replaced by the Amended
Schedule - A, attached hereto and made a part of this Amendment. In part, this
amended schedule reduces the number of FSUs required to be purchased by WWW to
fifty (50) FSUs. Accordingly, WWW shall have the option to purchase an
additional four hundred and fifty (450) FSUs under the terms and provisions set
forth in the Agreement by providing IDC with WWW's written order for the same,
conditioned on IDC's acceptance of such order within thirty (30) days of its
receipt of the order.
VI. Termination. IDC shall have the right, at any time at least fifteen (15)
days prior to the installation of the TrueLink(TM) equipment at the Beta-Site in
accordance with the Agreement, to terminate the Agreement for any reason by
notice to WWW. The Agreement shall terminate automatically on March 15, 1999 in
the event installation of the TrueLink(TM) equipment at the Beta-Site in
accordance with the Agreement has not commenced by such date. Termination of the
Agreement pursuant to this paragraph shall be without liability to either party
on account of such termination.
VII. Effect. Except as amended and modified herein, the Agreement shall continue
in full force and effect.
INTENDING TO BE LEGALLY BOUND, the parties have executed this Amendment as of
the date first above written.
INTERDIGITAL COMMUNICATIONS CORPORATION
By: /s/Joseph Gifford
----------------------------------------
Joseph Gifford, Executive Vice President
WORLDWIDE WIRELESS CORPORATION, INC.
By: /s/Scott Wendel
---------------------------------------------------
Scott Wendel, President and Chief Operating Officer
2
<PAGE>
AMENDED SCHEDULE - A
TECHNICAL SPECIFICATION
Initial frequency contemplated as being 1.8 gHz;
Equipment Provided:
The Central Office Terminal (COT) and Radio Distribution Unit (RDU)
equipment connect the TrueLink(TM) Radio Carrier Station (RCS) to the phone
network switch. The RCSs are the "base stations". The Fixed Subscriber Units
(FSUs) are installed at the customers premises. The Local Craft Terminals (LCTs)
and Field Measurement Units (FMUs) are used for installation and system control.
The site, when completely built-out will consist of 1 RDU, 1 COT, 1
LCT, 1 RCS, 50 FSUs and 1 FMU.
Time Frame:
The TrueLink(TM) equipment, and more importantly the system's
operation, will be installed and made operational on a phased schedule. During
this period service may be interrupted as RDU, COT and RCS capacity is increased
and/or modified. The final schedule will depend on material availability,
availability of installation personnel and system performance. Phases shall not
be initiated until the installation and verification of system performance is
verified for the previous stage.
Detailed scheduling will be determined prior to installation by mutual
agreement. Installation of the TrueLink(TM) equipment will not commence until
the required licenses and frequencies are procured pursuant to Section 9.0 of
this Agreement.
Provided Services/Capabilities:
32 Kbit/s ADPCM - Voice call - with dial and DTMF capability.
64 Kbit/s PCM channel for up to 14.4 Kbit/s FAX and 28.8 Kbit/s modem
data.
All equipment is supplied for indoor installation and use only.
Network interface will be 2 wire analog provided by conversion of V5.1
interface with COT.
3
<PAGE>
RCS Antenna height will be the maximum that WWW can provide. The RCS
antenna will be omni-directional.
The FSUS antenna height shall not extend beyond the roof line, except
where an existing TV antenna mast can be used, unless permission of the owner is
granted. There may be situations where a "line of sight" antenna installation
aimed toward the base station will not be possible without extending above the
roof line.
The FSUS will require 120 VAC, 60 Hz at a maximum of 30 watts. IDC will
assume no responsibility for installation or upgrading of customer's electrical
service or outlets.
Miscellaneous:
Subsequent to Beta-Site installation, the capability for POTS (as that
term is used in the industry), and thereafter ISDN data capability, may be
evaluated upon terms and conditions as agreed upon at that time between the
parties.
4
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made and
entered into by and between Worldwide Wireless Systems Inc., a Delaware
Corporation (the "Company") and Scott A. Wendel (the "Executive").
N O W , T H E R E F O R E ,
In consideration of the mutual covenants and agreements herein set
forth, the parties hereby agree as follows:
Section 1. Employment. The Company hereby agrees to employ the
Executive as its Executive Vice President and COO, and the Executive hereby
accepts such employment in accordance with the terms of this Agreement and the
terms of employment applicable to regular employees of the Company. In the event
of any conflict or ambiguity between the terms of this Agreement and terms of
employment applicable to regular employees, the terms of this Agreement shall
control.
Section 2. Duties of Executive. In his capacity as Executive Vice
President and COO, the Executive shall have overall responsibility for the
operations of the Company. The Executive shall further perform such other duties
and projects as may be assigned by a superior officer.
The Executive shall devote his entire productive time, ability and
attention to the business of the Company and shall perform all duties in a
professional, ethical and businesslike manner. The Executive will not, during
the term of this Agreement, directly or indirectly engage in any other business,
either as an employee, employer, consultant, principal, officer, director,
advisor, or in any other capacity, either with or without compensation, without
the prior written consent of the Company.
Section 3. Compensation. The Executive will be paid compensation during
this Agreement as follows:
a. Base Salary. A base salary of sixty two thousand dollars ($62,000)
per year until completion of an initial public offering by the
Company or six months after the effective date of this Agreement,
whichever occurs first, and thereafter one hundred five thousand
dollars ($105,000) per year, payable in installments according to
the Company's regular payroll schedule. The Executive's base salary
shall be increased to $125,000 per annum 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
per annum in calendar year 2001 provided such revenues in calendar
year 2000 total at least $1,500,000.
b. Stock Options. The Executive shall receive options to purchase
165,000 shares of the Company's Common Stock at an exercise price
equal to the current fair market value thereof. The options will
vest ratably to permit the exercise of options to purchase 33,333
shares (as well as the exercise of previously exercisable options)
in each calendar year commencing with calendar year 1999, will
expire ten years after grant, and will be subject to the terms and
conditions of a stock option plan to be adopted by the Company.
Unless otherwise agreed by the Executive or the Executive causes
such options to be ineligible for such classification, the Company
shall cause such
- 1 -
<PAGE>
options to qualify as incentive stock options pursuant to Section
422 of the Internal options to qualify as incentive stock options
pursuant to Section 422 of the Internal Revenue Code.
Section 4. Benefits.
a. Holidays. The Executive will be entitled to at least eight (8) paid
holidays each calendar year and two (2) personal days. The Company
will notify the Executive on or about the beginning of each
calendar year with respect to the holiday schedule for the coming
year. Personal holidays, if any, will be scheduled in advance
subject to requirements of the Company. Such holidays must be taken
during the calendar year and cannot be carried forward into the
next year. The Executive will not be entitled to any personal
holidays during the first six months of employment.
b. Vacation. Following the first six months of employment, the
Executive shall be entitled to twenty one (21) paid vacation days
each year.
c. Sick Leave. The Executive shall be entitled to sick leave and
emergency leave according to the regular policies and procedures of
the Company. Additional sick leave or emergency leave over and
above paid leave provided by the Company, if any, shall be unpaid
and shall be granted at the discretion of the board of directors.
d. Medical and Group Life Insurance. The Company agrees to include the
Executive in the group medical and hospital plan of the Company and
provide group life insurance for the Executive at no charge to the
Executive in the amount equal to three times base salary during
this Agreement. The Executive shall be responsible for payment of
any federal or state income tax imposed upon these benefits.
e. Pension and Profit Sharing Plans. The Executive shall be entitled
to participate in any pension or profit sharing plan or other type
of plan adopted by the Company for the benefit of its officers
and/or regular employees.
f. Expense Reimbursement. The Executive shall be entitled to
reimbursement for all reasonable expenses, including travel and
entertainment, incurred by the Executive in the performance of the
Executive's duties. The Executive will maintain records and written
receipts as required by the Company policy and reasonably requested
by the board of directors to substantiate such expenses.
Section 5. Term and Termination; Confidentiality; Non-Competition.
a. Term. The Initial Term of this Agreement shall commence on August
18, 1998 and shall continue in effect through December 31, 2001.
Thereafter, the Agreement shall be renewed upon the mutual
agreement of the Executive and the Company. This Agreement and the
Executive's employment may be terminated at the Company's
discretion during the Initial Term, provided that the Company shall
pay to the Executive an amount equal to payment at the Executive's
base salary rate for the remaining period of the Initial Term, plus
an amount equal to One Hundred percent (100%) of the Executive's
annual base salary in effect at the time of termination. In
- 2 -
<PAGE>
the event of such termination, the Executive shall be entitled to
any incentive salary the event of such termination, the Executive
shall be entitled to any incentive salary payment or any other
compensation then in effect, prorated or otherwise.
b. Termination by the Company. This Agreement and the Executive's
employment may be terminated by the Company at its discretion after
the initial term, provided that the Company shall pay to the
Executive an amount equal to Seventy Five percent (75%) of the
Executive's then applicable annual base salary. In the event of
such a discretionary termination, the Executive shall be entitled
to receive any incentive salary payment or any other compensation
then in effect, prorated or otherwise.
c. Termination by the Executive. This Agreement may be terminated by
the Executive at the Executive's discretion by providing at least
thirty (30) days prior written notice to the Company. In the event
of termination by the Executive pursuant to this subsection, the
Company may immediately relieve the Executive of all duties and
immediately terminate this Agreement, provided that the Company
shall pay the Executive at the then applicable annual base salary
rate to the termination date included in the Executive's original
termination notice which shall not exceed thirty (30) days without
the prior consent of the Company.
d. Termination for Breach. In the event that the Executive is in
breach of any material obligation owed the Company in this
Agreement, habitually neglects the duties to be performed under
this Agreement, engages in any conduct which is dishonest, damages
the reputation or standing of the Company, or is convicted of any
criminal act or engages in any act of moral turpitude, then the
Company may terminate this Agreement upon five (5) days notice to
the Executive. In event of termination of the agreement pursuant to
this subsection, the Executive shall be paid only at the then
applicable base salary rate up to and including the date of
termination. The Executive shall not be paid any incentive salary
payments or other compensation, prorated or otherwise.
e. Acquisition. In the event the Company is acquired, or is the
non-surviving party in a merger, or sells all or substantially all
of its assets, this Agreement shall not be terminated and the
Company agrees to use its best efforts to ensure that the
transferee or surviving company is bound by the provision of this
Agreement.
f. Confidential Information. The Executive agrees that during the term
of employment the Executive will become privy to confidential
information at both clients of the Company and the Company itself.
The Executive agrees that all work product, as defined below, in
any form (the "Work Product"), created by the Executive while
employed by the Company (or created upon or after termination of
employment with the Company in the event that the Executive
breaches this paragraph or paragraph 5(g) of this Agreement) is the
exclusive property of the Company, or of the client of the Company
in instances when the Company is engaged in contracts which
specifically vest ownership of such work product in the Company's
client. For purposes of this Agreement, Work Product means all of
the work, materials and products created for or on behalf of the
Company in whole or part by the Executive or others (whether or not
the particular work, materials and/or products are ever completed
and whether or not they were developed by the Executive in
conjunction with others), including but
- 3 -
<PAGE>
not limited to (i) computer software (in object code, source code
and commented source code form), (ii) all flow charts and
technical, design, functional and other specifications therefore,
(iii) all graphical user interface(s), date of display(s) and
screen display(s) of such software, (iv) all documentation for such
software, (v) all sound recording, pictorial, graphic, audio/visual
and/or literary works and all other art, designs and technology
(including icons) incorporated in such documentation or
incorporated or generated by such software, and (vi) all
enhancements, modifications, alterations, improvements,
corrections, revisions, upgrades, new versions of and other changes
to computer software, documentation and other works and materials
including those set forth above. In no case shall Executive own any
copyrights to software or other product developed or acquired while
employed by the Company. The Executive agrees that during the term
of his employment by the Company and thereafter, he shall not copy,
permit access by, or divulge to any other person, firm, partnership
or corporation any customer lists or records, marketing plans,
financial statements, development plans, trade secrets, software,
proprietary information or product information of the Company which
the Company may impart to the Executive or which the Executive may
acquire (including confidential information obtained by the
Executive while working with, at, or for clients of the Company)
during his employment by the Company ("Information"), except to the
extent the Executive is specifically authorized by the Company to
do so; and he shall not use any Information for any purpose other
than the performance of services on behalf of the Company. In
addition, the Executive also agrees to honor any and all
confidentiality agreements entered into with clients of the Company
whether signed by the Executive or by the Company on behalf of the
Executive. The Executive agrees that upon termination of his
employment by the Company at any time and for any reason, he shall
immediately return to the Company all materials and/or documents
bearing the Company name, as well as any Work Product, Information
and all copies thereof in his possession or under his control.
g. Non-Disclosure; Non-Competition Agreement. The Executive agrees
that any knowledge or information gained through access to the
Company's clients, contacts or liaisons is proprietary and may not
be used to compete with the Company. The Executive agrees not to
solicit employment or consulting arrangements from or with any
clients of the Company while employed by the Company or while
subject to the non-competition provisions set forth herein without
the consent of the Company which may be withheld in its sole
discretion. Without the Company's prior written approval, the
Executive agrees that during the term of his employment by the
Company, he shall not directly or indirectly work for, advise, be a
consultant to, or otherwise participate in any business which sells
any product or services which compete in any way with those
provided by the Company (including, but not limited to, the
development or sale of Internet services, Internet products,
software, support, technical service, or consulting services in the
Internet services business) similar to those sold by the Company
and which might reasonably be expected to compete in any way with
the Company, or with any Company product or system. If this
Agreement is terminated by the Executive pursuant to Paragraph 1(c)
or by the Company pursuant to Paragraph 1(d), the covenant
described in the immediately preceding sentence shall extend for
one (1) year after termination of employment. It is of the essence
of this Agreement that, in addition to all other rights and
remedies of the Company hereunder, the Company,
- 4 -
<PAGE>
following termination of the Executive's employment, is entitled to
following termination of the Executive's employment, is entitled to
a total period of twelve (12) months during which the Executive
does not compete with the Company. Accordingly, the date on which
the non-competition restriction otherwise would expire shall be
extended by one (1) full week for each week or any portion thereof
during which the Executive shall have failed in whole or in any
part to honor and abide by the terms and provisions of this
paragraph.
h. Remedies on Default of Paragraphs 5(f) and 5(g). If the Employee
breaches the provisions of paragraphs 5(f) or 5(g) of this
Agreement, the Company shall have the right to institute such legal
proceedings as it deems necessary to prevent further breach of this
Agreement, including, without limitation, an action for injunctive
or equitable relief, and to recover damages for any past breach. In
the event that the Company brings an action for equitable or
injunctive relief, the Executive agrees not to assert that the
Company has an adequate remedy at law, and hereby irrevocably
waives any such defense. If the Company prevails in those
proceedings, the Executive will pay for the Company's costs and
expenses of suit and enforcement, including reasonable attorneys'
fees. If the Executive prevails in those proceedings, the Company
will pay the Executive's costs and expenses of suit, including
reasonable attorneys' fees.
Section 6. Notices. Any notice required by this Agreement or given in
connection with it, shall be in writing and shall be given to the appropriate
party by personal delivery or by certified mail, postage prepaid, or recognized
overnight delivery services;
If to the Company: Worldwide Wireless Systems Inc.
575 Lexington Avenue, 4th Floor
New York, New York 10022
If to the Executive: Scott A. Wendel
HCR 33, Box 45
Grafton, Vermont 05146
Section 7. Final Agreement. This Agreement terminates and supersedes
all prior understandings or agreements on the subject matter hereof. This
Agreement may be modified only by a further writing that is duly executed by
both parties.
Section 8. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the state of New York.
Section 9. Headings. Headings used in this Agreement are provided for
convenience only and shall not be used to construe meaning or intent.
Section 10. No Assignment. Neither this Agreement nor any or interest
in this Agreement may be assigned by the Executive without the prior express
written approval of the Company, which may be withheld by the Company at the
Company's absolute discretion.
Section 11. Severability. If any term, covenant or condition of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to persons or
- 5 -
<PAGE>
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law.
Section 12. Arbitration. The parties agree that they will use their
best efforts to amicably resolve any dispute arising out of or relating to this
Agreement. Any controversy, claim or dispute that cannot be so resolved shall be
settled by final binding arbitration in accordance with the rules of the
American Arbitration Association and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Any such arbitration shall be conducted in New York, NY, or such other
place as may be mutually agreed upon by the parties. Within fifteen (15) days
after the commencement of the arbitration, each party shall select one person to
act as arbitrator, and the two arbitrators so selected shall select a third
arbitrator within ten (10) days of their appointment. Each party shall bear its
own costs and expenses and an equal share of the arbitrator's expenses and
administrative fees of arbitration.
Section 13. Superseding Prior Agreements. This Agreement supersedes all
prior agreements related to the Executive's employment by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 17th day of August, 1998.
Worldwide Wireless Systems Inc.
By: /s/ David E. Padilla /s/ Scott A. Wendel
-------------------------- --------------------
David E. Padilla Scott A. Wendel
President and CEO
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<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the "Agreement") is made and
entered into by and between Worldwide Wireless Systems Inc., a Delaware
Corporation (the "Company") and David E. Padilla (the "Executive").
N O W , T H E R E F O R E ,
In consideration of the mutual covenants and agreements herein set
forth, the parties hereby agree as follows:
Section 1. Employment. The Company hereby agrees to employ the
Executive as its Chief Executive Officer and President, and the Executive hereby
accepts such employment in accordance with the terms of this Agreement and the
terms of employment applicable to regular employees of the Company. In the event
of any conflict or ambiguity between the terms of this Agreement and terms of
employment applicable to regular employees, the terms of this Agreement shall
control.
Section 2. Duties of Executive. In his capacity as President and CEO,
the Executive shall have overall management responsibility for the Company's
affairs as described in the bylaws of the Company and such other duties and
projects as may be assigned by the board of directors of the Company. Without
limitation, the Executive's duties shall include:
o Managing the activities of the Company in a manner intended to
achieve the goals and objectives for the Company as determined
by its Board of Directors, including the identification and
realization of new revenue streams for the Company, and
satisfaction of other financial requirements.
o Overall responsibility for the retention of appropriate senior
staff for the Company.
The Executive shall devote his entire productive time, ability and
attention to the business of the Company and shall perform all duties in a
professional, ethical and businesslike manner. The Executive will not, during
the term of this Agreement, directly or indirectly engage in any other business,
either as an employee, employer, consultant, principal, officer, director,
advisor, or in any other capacity, either with or without compensation, without
the prior written consent of the Company.
Section 3. Compensation. The Executive will be paid compensation during
this Agreement as follows:
a. Base Salary. A base salary of one hundred forty thousand
dollars ($140,000) per year until completion of an initial
public offering by the Company or six months after the
effective date of this Agreement, whichever occurs first, and
thereafter one hundred sixty thousand dollars ($160,000) per
year, payable in installments according to the Company's
regular payroll schedule. The base salary shall be adjusted at
the end of each year of employment at the discretion of the
board of directors.
b. Stock Options. The Executive shall receive options to purchase
175,000 shares of the Company's Common Stock at an exercise
price equal to the current fair market value thereof. The
options will vest ratably to permit the exercise of options to
purchase 33,333 shares (as well as the exercise of previously
exercisable options) in each calendar year commencing with
calendar year 1999, will expire ten years after grant,
<PAGE>
and will be subject to the terms and conditions of a stock
option plan to be adopted by the Company. Unless otherwise
agreed by the Executive or the Executive causes such options
to be ineligible for such classification, the Company shall
cause such options to qualify as incentive stock options
pursuant to Section 422 of the Internal Revenue Code.
Section 4. Benefits.
a. Holidays. The Executive will be entitled to at least eight (8)
paid holidays each calendar year and two (2) personal days.
The Company will notify the Executive on or about the
beginning of each calendar year with respect to the holiday
schedule for the coming year. Personal holidays, if any, will
be scheduled in advance subject to requirements of the
Company. Such holidays must be taken during the calendar year
and cannot be carried forward into the next year. The
Executive will not be entitled to any personal holidays during
the first six months of employment.
b. Vacation. Following the first six months of employment, the
Executive shall be entitled to twenty one (21) paid vacation
days each year.
c. Sick Leave. The Executive shall be entitled to sick leave and
emergency leave according to the regular policies and
procedures of the Company. Additional sick leave or emergency
leave over and above paid leave provided by the Company, if
any, shall be unpaid and shall be granted at the discretion of
the board of directors.
d. Medical and Group Life Insurance. The Company agrees to
include the Executive in the group medical and hospital plan
of the Company and provide group life insurance for the
Executive at no charge to the Executive in the amount equal to
three times base salary during this Agreement. The Executive
shall be responsible for payment of any federal or state
income tax imposed upon these benefits.
e. Pension and Profit Sharing Plans. The Executive shall be
entitled to participate in any pension or profit sharing plan
or other type of plan adopted by the Company for the benefit
of its officers and/or regular employees.
f. Expense Reimbursement. The Executive shall be entitled to
reimbursement for all reasonable expenses, including travel
and entertainment, incurred by the Executive in the
performance of the Executive's duties. The Executive will
maintain records and written receipts as required by the
Company policy and reasonably requested by the board of
directors to substantiate such expenses.
Section 5. Term and Termination; Confidentiality; Non-Competition.
a. Term. The Initial Term of this Agreement shall commence on
August 17, 1998 and shall continue in effect through December
31, 2001. Thereafter, the Agreement shall be renewed upon the
mutual agreement of the Executive and the Company. This
Agreement and the Executive's employment may be terminated at
the Company's discretion during the Initial Term, provided
that the Company shall pay to the Executive an amount equal to
payment at the Executive's base salary rate for the
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<PAGE>
remaining period of the Initial Term, plus an amount equal to
One Hundred percent (100%) of the Executive's annual base
salary in effect at the time of termination. In the event of
such termination, the Executive shall be entitled to any
incentive salary payment or any other compensation then in
effect, prorated or otherwise.
b. Termination by the Company. This Agreement and the Executive's
employment may be terminated by the Company at its discretion
after the initial term, provided that the Company shall pay to
the Executive an amount equal to Seventy Five percent (75%) of
the Executive's then applicable annual base salary. In the
event of such a discretionary termination, the Executive shall
be entitled to receive any incentive salary payment or any
other compensation then in effect, prorated or otherwise.
c. Termination by the Executive. This Agreement may be terminated
by the Executive at the Executive's discretion by providing at
least thirty (30) days prior written notice to the Company. In
the event of termination by the Executive pursuant to this
subsection, the Company may immediately relieve the Executive
of all duties and immediately terminate this Agreement,
provided that the Company shall pay the Executive at the then
applicable annual base salary rate to the termination date
included in the Executive's original termination notice which
shall not exceed thirty (30) days without the prior consent of
the Company.
d. Termination for Breach. In the event that the Executive is in
breach of any material obligation owed the Company in this
Agreement, habitually neglects the duties to be performed
under this Agreement, engages in any conduct which is
dishonest, damages the reputation or standing of the Company,
or is convicted of any criminal act or engages in any act of
moral turpitude, then the Company may terminate this Agreement
upon five (5) days notice to the Executive. In event of
termination of the agreement pursuant to this subsection, the
Executive shall be paid only at the then applicable annual
base salary rate up to and including the date of termination.
The Executive shall not be paid any incentive salary payments
or other compensation, prorated or otherwise.
e. Acquisition. In the event the Company is acquired, or is the
non-surviving party in a merger, or sells all or substantially
all of its assets, this Agreement shall not be terminated and
the Company agrees to use its best efforts to ensure that the
transferee or surviving company is bound by the provision of
this Agreement.
f. Confidential Information. The Executive agrees that during the
term of employment the Executive will become privy to
confidential information at both clients of the Company and
the Company itself. The Executive agrees that all work
product, as defined below, in any form (the "Work Product"),
created by the Executive while employed by the Company (or
created upon or after termination of employment with the
Company in the event that the Executive breaches this
paragraph or paragraph 5(g) of this Agreement) is the
exclusive property of the Company, or of the client of the
Company in instances when the Company is engaged in contracts
which specifically vest ownership of such work product in the
Company's client. For purposes of this Agreement, Work Product
means all of the work, materials and products created for or
on behalf of the Company in whole or part by the Executive or
others (whether
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<PAGE>
or not the particular work, materials and/or products are ever
completed and whether or not they were developed by the
Executive in conjunction with others), including but not
limited to (i) computer software (in object code, source code
and commented source code form), (ii) all flow charts and
technical, design, functional and other specifications
therefore, (iii) all graphical user interface(s), date of
display(s) and screen display(s) of such software, (iv) all
documentation for such software, (v) all sound recording,
pictorial, graphic, audio/visual and/or literary works and all
other art, designs and technology (including icons)
incorporated in such documentation or incorporated or
generated by such software, and (vi) all enhancements,
modifications, alterations, improvements, corrections,
revisions, upgrades, new versions of and other changes to
computer software, documentation and other works and materials
including those set forth above. In no case shall Executive
own any copyrights to software or other product developed or
acquired while employed by the Company. The Executive agrees
that during the term of his employment by the Company and
thereafter, he shall not copy, permit access by, or divulge to
any other person, firm, partnership or corporation any
customer lists or records, marketing plans, financial
statements, development plans, trade secrets, software,
proprietary information or product information of the Company
which the Company may impart to the Executive or which the
Executive may acquire (including confidential information
obtained by the Executive while working with, at, or for
clients of the Company) during his employment by the Company
("Information"), except to the extent the Executive is
specifically authorized by the Company to do so; and he shall
not use any Information for any purpose other than the
performance of services on behalf of the Company. In addition,
the Executive also agrees to honor any and all confidentiality
agreements entered into with clients of the Company whether
signed by the Executive or by the Company on behalf of the
Executive. The Executive agrees that upon termination of his
employment by the Company at any time and for any reason, he
shall immediately return to the Company all materials and/or
documents bearing the Company name, as well as any Work
Product, Information and all copies thereof in his possession
or under his control.
g. Non-Disclosure; Non-Competition Agreement. The Executive
agrees that any knowledge or information gained through access
to the Company's clients, contacts or liaisons is proprietary
and may not be used to compete with the Company. The Executive
agrees not to solicit employment or consulting arrangements
from or with any clients of the Company while employed by the
Company or while subject to the non-competition provisions set
forth herein without the consent of the Company which may be
withheld in its sole discretion. Without the Company's prior
written approval, the Executive agrees that during the term of
his employment by the Company, he shall not directly or
indirectly work for, advise, be a consultant to, or otherwise
participate in any business which sells any product or
services which compete in any way with those provided by the
Company (including, but not limited to, the development or
sale of Internet services, Internet products, software,
support, technical service, or consulting services in the
Internet services business) similar to those sold by the
Company and which might reasonably be expected to compete in
any way with the Company, or with any Company product or
system. If this Agreement is terminated by the Executive
pursuant to Paragraph 5(c) or by the Company pursuant to
Paragraph 5(d), the covenant described in the immediately
preceding sentence shall extend for one (1)
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<PAGE>
year after termination of employment. It is of the essence of
this Agreement that, in addition to all other rights and
remedies of the Company hereunder, the Company, following
termination of the Executive's employment, is entitled to a
total period of twelve (12) months during which the Executive
does not compete with the Company. Accordingly, the date on
which the non-competition restriction otherwise would expire
shall be extended by one (1) full week for each week or any
portion thereof during which the Executive shall have failed
in whole or in any part to honor and abide by the terms and
provisions of this paragraph.
h. Remedies on Default of Paragraphs 5(f) and 5(g). If the
Employee breaches the provisions of paragraphs 5(f) or 5(g) of
this Agreement, the Company shall have the right to institute
such legal proceedings as it deems necessary to prevent
further breach of this Agreement, including, without
limitation, an action for injunctive or equitable relief, and
to recover damages for any past breach. In the event that the
Company brings an action for equitable or injunctive relief,
the Executive agrees not to assert that the Company has an
adequate remedy at law, and hereby irrevocably waives any such
defense. If the Company prevails in those proceedings, the
Executive will pay for the Company's costs and expenses of
suit and enforcement, including reasonable attorneys' fees. If
the Executive prevails in those proceedings, the Company will
pay the Executive's costs and expenses of suit, including
reasonable attorneys' fees.
Section 6. Notices. Any notice required by this Agreement or given in
connection with it, shall be in writing and shall be given to the appropriate
party by personal delivery or by certified mail, postage prepaid, or recognized
overnight delivery services;
If to the Company: Worldwide Wireless Systems Inc.
575 Lexington Avenue, 4th Floor
New York, New York 10022
If to the Executive: David E. Padilla
25 Broad Street #16M
New York, New York 10004
Section 7. Final Agreement. This Agreement terminates and supersedes
all prior understandings or agreements on the subject matter hereof. This
Agreement may be modified only by a further writing that is duly executed by
both parties.
Section 8. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the state of New York.
Section 9. Headings. Headings used in this Agreement are provided for
convenience only and shall not be used to construe meaning or intent.
Section 10. No Assignment. Neither this Agreement nor any or interest
in this Agreement may be assigned by the Executive without the prior express
written approval of the Company, which may be withheld by the Company at the
Company's absolute discretion.
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<PAGE>
Section 11. Severability. If any term, covenant or condition of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law.
Section 12. Arbitration. The parties agree that they will use their
best efforts to amicably resolve any dispute arising out of or relating to this
Agreement. Any controversy, claim or dispute that cannot be so resolved shall be
settled by final binding arbitration in accordance with the rules of the
American Arbitration Association and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. Any such arbitration shall be conducted in New York, NY, or such other
place as may be mutually agreed upon by the parties. Within fifteen (15) days
after the commencement of the arbitration, each party shall select one person to
act as arbitrator, and the two arbitrators so selected shall select a third
arbitrator within ten (10) days of their appointment. Each party shall bear its
own costs and expenses and an equal share of the arbitrator's expenses and
administrative fees of arbitration.
Section 13. Superseding Prior Agreements. This Agreement supersedes all
prior agreements related to the Executive's employment by the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 17th day of August, 1998.
Worldwide Wireless Systems Inc.
By: /s/Scott Wendel /s/David E. Padilla
--------------------- -------------------
Scott Wendel David E. Padilla
Duly Authorized
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<PAGE>
EXHIBIT 10.32
WORLDWIDE WIRELESS SYSTEMS, INC.
1998 STOCK OPTION PLAN
Section 1. Purpose of the Plan. The purpose of the 1998 Stock Option
Plan (hereinafter called the "Plan") of WORLDWIDE WIRELESS SYSTEMS, INC., a
Delaware corporation (hereinafter called the "Corporation"), is to provide
incentives for future endeavors and to advance the interests of the Corporation
and its stockholders by encouraging ownership of its common stock, par value
$.01 per share (hereinafter called the "Common Stock"), of the Corporation by
its directors, executives and other key employees, upon whose judgment, interest
and continuing special efforts the Corporation is largely dependent for the
successful conduct of its operations, and to enable the Corporation to compete
effectively with other enterprises for the services of such new directors,
executives and employees as may be needed for the continued improvement of the
Corporation's business, through the grant of options to purchase shares of the
Common Stock. It is intended that certain Options issued under the Plan and so
designated pursuant to Section 6(iii) hereof by the Board of Directors, or by a
Stock Option Committee appointed by the Board of Directors, shall qualify as
"incentive stock options" (hereinafter called "ISOs") under Section 422(b) of
the Internal Revenue Code of 1986, as amended from time to time (hereinafter
called the "Code"), and the terms of the Plan shall be interpreted in accordance
with such intention where applicable. Other Options also may be issued under the
Plan and any Option issued under the Plan and not expressly designated as an ISO
shall be conclusively deemed to be a non-qualified stock option.
Section 2. Participants. Options may be granted under the Plan to
directors of the Corporation and to such executives and key employees of the
Corporation and its subsidiaries as shall be determined by the Board of
Directors or by a Stock Option Committee appointed by the Board of Directors as
set forth in Section 5 of the Plan; provided, however, that no Option may be
granted to any person if such grant would cause the Plan to cease to be an
"employee benefit plan" as defined in Rule 405 of Regulation C promulgated under
the Securities Act of 1933, as amended (the "Securities Act"); and provided
further that no ISO may be granted to any person ineligible to be granted ISOs
under Section 422(b) of the Code.
Section 3. Term of the Plan. The Plan shall become effective as of
August 12, 1998, upon receipt of approval by the holders of a majority of the
shares of issued and outstanding Common Stock of the Corporation, such approval
to be obtained either by a vote of such holders at a duly held meeting of
stockholders of the Corporation or by the written consent of the holders of a
majority of such issued and outstanding shares in the manner provided by law.
The Plan shall terminate on the earliest of (a) August 11, 2008, (b) such time
as all shares of Common Stock reserved for issuance under the Plan have been
acquired through the exercise of Options granted under the Plan, or (c) such
earlier time as the Board of Directors of the Corporation may determine. Any
Option outstanding under the Plan at the time of its termination shall remain in
effect in accordance with its terms and conditions and those of the Plan. No
Option shall be granted under the Plan after August 11, 2008.
Section 4. Stock Subject to the Plan. Subject to the provisions of
Section 13, the aggregate number of shares of Common Stock for which Options may
be granted under the Plan shall not exceed 550,000 shares. If, on or prior to
the termination of the Plan as provided in Section 3, an Option granted under
the Plan shall have expired or terminated for any reason without having been
exercised in full, the unpurchased shares covered thereby shall again become
available for the grant of Options under the Plan.
<PAGE>
The shares to be delivered upon exercise of Options under the Plan
shall be made available, at the discretion of the Board of Directors, either
from authorized but previously unissued shares of the Common Stock as permitted
by the Articles of Incorporation of the Corporation or from shares re-acquired
by the Corporation, including shares of Common Stock purchased in the open
market, and shares held in the treasury of the Corporation. Any shares of Common
Stock issuable upon the exercise of Options may be subject to such restrictions
on transfer, repurchase rights or other restrictions as shall be specified in
the related Stock Option Agreement (as hereinafter defined).
Section 5. Administration of the Plan. The Plan shall be administered
by the Board of Directors of the Corporation or by a Stock Option Committee
which may be appointed by the Board of Directors of the Corporation (hereinafter
called the "Committee"). If appointed, the Committee shall include at least one
member of the Board of Directors. The Board of Directors may, from time to time,
remove members from the Committee, and vacancies on the Committee shall be
filled by the Board of Directors. The Committee shall hold meetings at such
times and places as the Committee may determine. The acts of a majority of the
Committee, at any meeting thereof at which a quorum is present, or acts reduced
to or approved in writing by a majority of the members of the Committee, shall
be the valid acts of the Committee. If appointed, the Committee may itself
determine, or may, from time to time at its discretion, make recommendations to
the Board of Directors with respect to, the directors, executives and key
employees of the Corporation and its subsidiaries who shall be granted Options
and the number of shares of Common Stock to be subject to each Option; provided,
however, that only the Board of Directors may determine stock options to be
granted to any member of the Committee.
The interpretation and construction of any provision of the Plan or of
any Option granted under it by the Board of Directors or the Committee (within
the scope of their respective authorities) shall be final, conclusive and
binding upon all parties, including the Corporation, its stockholders and
directors, and the executives and employees of the Corporation and its
subsidiaries; provided, however, that the Board of Directors shall have the
power and authority to overrule the Committee. No member of the Board of
Directors or the Committee shall be liable to the Corporation, any stockholder,
any optionholder or any employee of the Corporation or its subsidiaries for any
action or determination made in good faith with respect to the Plan or any
Option granted under it. No member of the Committee or Board of Directors may
vote on any Option to be granted to him.
The expenses of administering the Plan shall be borne by the
Corporation.
Section 6. Grant of Options.
i. Options may be granted under the Plan by the Board of Directors
of the Corporation or by the Committee, in accordance with the
provisions of Section 5, at any time prior to the termination of
the Plan. In making any determination as to directors,
executives and key employees to whom Options shall be granted
and as to the number of shares to be covered by such Options,
the Board of Directors or the Committee, as the case may be,
shall take into account the duties of the respective directors,
executives and key employees, their present and potential
contribution to the success of the Corporation, and such other
factors as the Board of Directors or the Committee shall deem
relevant in connection with the accomplishment of the purposes
of the Plan.
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<PAGE>
ii. Each Option granted under the Plan shall be granted pursuant to
and subject to the terms and conditions of a stock option
agreement to be entered into between the Corporation and the
optionholder at the time of such grant. Each such stock option
agreement shall be in a form from time-to-time adopted for use
under the Plan by the Board of Directors (such form being
hereinafter called a "Stock Option Agreement"). Any such Stock
Option Agreement shall incorporate by reference all of the terms
and provisions of the Plan as in effect at the time of grant and
may contain such other terms and provisions as shall be approved
and adopted by the Board of Directors.
iii. At the time of the grant of each Option under this Plan, the
Board of Directors shall determine whether such Option is to be
designated as an ISO. If an Option is to be designated as an
ISO, then the provisions of Sections 6(iv), 7(ii) and 8(ii)
shall apply to such Options. The Stock Option Agreement relating
to the grant of any option designated as an ISO shall reflect
such designation.
iv. Notwithstanding any contrary provision contained in this
Agreement, the aggregate fair market value (determined as of the
time each ISO is granted) of the shares of Common Stock with
respect to which ISOs issued to any one person hereunder are
exercisable for the first time during any calendar year shall
not exceed $100,000.
Section 7. Option Price.
i. The purchase price of the shares of Common Stock covered by each
Option granted under the Plan which is designated as an ISO
shall be at least 100% of the fair market value (but in no event
less than the par value) of such shares at the time the Option
is granted, or such higher purchase price as shall be determined
by the Board of Directors or the Committee, as the case may be.
The purchase price of the shares of Common Stock covered by any
Option which is not designated as an ISO shall be as determined
by the Board of Directors or the Committee, as the case may be,
but shall in no event be less than the par value of such shares.
ii. Notwithstanding any contrary provision contained in Section 7(i)
hereof, no Option granted to any person who, at the time of such
grant, owns, taking into account the attribution rules of
Section 424(d) of the Code, stock possessing more than 10% of
the total combined voting power of all classes of the
Corporation's stock or of the stock of any of its corporate
subsidiaries, may be designated as an ISO unless at the time of
such grant the purchase price of the shares of Common Stock
covered by such Option is at least 110 % of the fair market
value (but in no event less than the par value) of such shares.
iii. If the Common Stock is not listed upon a national securities
exchange or exchanges, such fair market value shall be as
determined by the Board of Directors of the Corporation (which
determination shall be conclusive and binding for all purposes)
or, if applicable, shall be deemed to be the last reported sale
price for the Common Stock as quoted by brokers and dealers
trading in the Common Stock in the over-the-counter market (or
if the Common Stock shall be quoted by the National Association
of Securities Dealers Automatic Quotation system, then such
NASDAQ quote) immediately prior to the commencement of the
meeting of the Board of Directors or
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<PAGE>
the Committee at which the Option is granted. If the Common
Stock is listed upon a national securities exchange or
exchanges, such fair market value shall be deemed to be the last
reported sale price at which the shares of Common Stock were
traded on such securities exchange or exchanges immediately
prior to the commencement of the meeting of the Board of
Directors or the Committee at which the Option is granted, or if
no sale of the Common Stock was made on any national securities
exchange on such date, then the closing price per share of the
Common Stock on such securities exchange or exchanges on the
next preceding day on which there was a sale of the Common
Stock.
iv. Notwithstanding any contrary provision contained in this Plan,
the Board of Directors or the Committee, as the case may be,
may, in the exercise of its business judgment, cancel
outstanding Options and reissue new Options at a lower exercise
price in the event that the fair market value of the Common
Stock at any time prior to the date of exercise falls below the
exercise price of Options previously granted under the Plan.
Section 8. Term of Options.
i. The expiration date of an Option granted under the Plan shall
be as determined by the Board of Directors or the Committee at
the time of grant, provided that each such Option shall expire
not more than ten years after the date such Option was granted.
ii. Notwithstanding any contrary provision contained in Section
8(i) hereof, no Option granted to any person who, at the time of
such grant, owns, taking into account the attribution rules of
Section 424(d) of the Code, stock possessing more than 10% of
the total combined voting power of all classes of the
Corporation's stock or of the stock of any of its corporate
subsidiaries, may be designated as an ISO unless by its terms
each such Option shall expire not more than five years after the
date such Option was granted.
Section 9. Exercise of Options.
i. Each Option shall become exercisable in whole or in part, or in
installments, at such time or times as the Board of Directors or
the Committee may prescribe at the time the Option is granted
and as specified in the Stock Option Agreement. No Option shall
be exercisable after the expiration of ten years from the date
on which it was granted.
ii. Options may be exercised by giving written notice to the
Corporation of intention to exercise, specifying the number of
shares to be purchased pursuant to such exercise, in accordance
with the procedures set forth in the Stock Option Agreement. All
shares purchased upon exercise of any Option shall be paid for
in full at the time of purchase in accordance with the
procedures set forth in the Stock Option Agreement. Except as
provided in Section 9(iii) hereof, such payment shall be made in
cash or through delivery of shares of Common Stock or a
combination of cash and Common Stock as provided in the Stock
Option Agreement. Any shares so delivered shall be valued at
their fair market value determined as of the date of exercise of
the Option under the method set forth in Section 7(iii) hereof.
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<PAGE>
iii. Payment for shares purchased upon exercise of any such Option
may be made by delivery to the Corporation of a
properly-executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation
an amount of sale or loan proceeds sufficient to pay the
exercise price. Additionally, the Corporation will accept, in
payment for shares purchased upon exercise of any such Option,
proceeds of a margin loan obtained by the exercising
optionholder from a broker, provided that the exercising
optionholder has delivered to the Corporation, with delivery of
a properly-executed exercise notice, irrevocable instructions to
the Corporation to deliver share certificates directly to such
broker upon payment for such shares.
Section 10. Nontransferability of Options. Options granted under the
Plan shall be assignable or transferable only by will or pursuant to the laws of
descent and distribution and shall be exercisable during the optionholder's
lifetime only by the optionholder.
Section 11. Stockholder Rights of Optionholder. No holder of any Option
shall have any rights to dividends or other rights of a stockholder with respect
to shares subject to an Option prior to the purchase of such shares upon
exercise of the Option.
Section 12. Termination of Option. With respect to all Options granted
under the Plan, if an optionholder's employment by, or other relationship with,
the Corporation is terminated by reason of his death, the Option shall terminate
one year after the date of death, unless the Option otherwise expires earlier.
If an optionholder's employment by, or other relationship with, the Corporation
terminates for any reason other than death, the Option shall terminate three
months after the date of termination of such employment or other relationship
unless the Option otherwise expires earlier, provided that (a) if the
optionholder dies within such three-month period, the Option shall terminate one
year after the date of his death unless the Option otherwise expires earlier;
(b) the Board of Directors may, at any time prior to any termination of such
employment or other relationship under the circumstances covered by this Section
12, determine in its discretion that the Option shall terminate on the date of
termination of such employment or other relationship with the Corporation; and
(c) the exercise of any Option after termination of such employment or other
relationship with the Corporation may be made subject to satisfaction of the
conditions precedent that the optionholder refrain from engaging, directly or
indirectly, in any activity which is competitive with any activity of the
Corporation or any subsidiary thereof and from otherwise acting, either prior to
or after termination of such employment or other relationship, in any manner
inimical or in any way contrary to the best interests of the Corporation and
that the optionholder furnish to the Corporation such information with respect
to the satisfaction of the foregoing condition precedent as the Board of
Directors shall reasonably request. For purposes of this Section 12, a
"relationship with the Corporation" shall be limited to any relationship that
does not cause the Plan to cease to be an "employee benefit plan" as defined in
Rule 405 of Regulation C under the Securities Act of 1933. The mere ownership of
stock in the Corporation shall not be deemed to be a "relationship with the
Corporation".
Nothing in the Plan or in the Stock Option Agreement shall confer upon
any optionholder the right to continue in the employ of the Corporation or any
of its subsidiaries or in any other relationship thereto or interfere in any way
with the right of the Corporation to terminate such employment or other
relationship at any time.
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<PAGE>
A holder of an Option under the Plan may make written designation of a
beneficiary on forms prescribed by and filed with the Secretary of the
Corporation. Such beneficiary, or if no such designation of any beneficiary has
been made, the legal representative of such optionholder or such other person
entitled thereto as determined by a court of competent jurisdiction, may
exercise, in accordance with and subject to the provisions of this Section 12,
any unterminated and unexpired Option granted to such optionholder to the same
extent that the optionholder himself could have exercised such Option were he
alive or able; provided, however, that no Option granted under the Plan shall be
exercisable for more shares than the optionholder could have purchased
thereunder on the date his employment by, or other relationship with, the
Corporation and its subsidiaries was terminated.
Section 13. Adjustment of and Changes in Capitalization. In the event
that the outstanding shares of Common Stock shall be changed in number or class
by reason of split-ups, combinations, mergers, consolidations or
recapitalizations, or by reason of stock dividends, the number or class of
shares which thereafter may be purchased through exercise of Options granted
under the Plan, both in the aggregate and as to any individual, and the number
and class of shares then subject to Options theretofore granted and the price
per share payable upon exercise of such Option, shall be adjusted so as to
reflect such change, all as determined by the Board of Directors of the
Corporation. In the event there shall be any other change in the number or kind
of the outstanding shares of Common Stock, or of any stock or other securities
into which such Common Stock shall have been changed, or for which it shall have
been exchanged, then if the Board of Directors shall, in its sole discretion,
determine that such change equitably requires an adjustment in any Option
theretofore granted or which may be granted under the Plan, such adjustment
shall be made in accordance with such determination.
Notice of any adjustment shall be given by the Corporation to each
holder of an Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
Fractional shares resulting from any adjustment in Options pursuant to
this Section 13 may be settled in cash or otherwise as the Board of Directors
may determine.
Section 14. Securities Acts Requirements. No Option granted pursuant to
the Plan shall be exercisable in whole or in part, and the Corporation shall not
be obligated to sell any shares of Common Stock subject to any such Option, if
such exercise and sale would, in the opinion of counsel for the Corporation,
violate the Securities Act or other Federal or state statutes having similar
requirements, as they may be in effect at that time. Each Option shall be
subject to the further requirement that, at any time that the Board of Directors
shall determine, in its discretion, that the listing, registration or
qualification of the shares of Common Stock subject to such Option under any
securities exchange requirements or under any applicable law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the issuance
of shares thereunder, such Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board of
Directors.
As a condition to the issuance of any shares upon exercise of an Option
under the Plan, the Board of Directors or the Committee, as the case may be, may
require the optionholder to furnish a written representation that he is
acquiring the shares for investment and not with a view to distribution of the
shares to the public and a written agreement restricting the transferability of
the shares solely
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<PAGE>
to the Corporation, and may affix a restrictive legend or legends on the face of
the certificate representing such shares. Such representation, agreement and/or
legend shall be required only in cases where in the opinion of the Board of
Directors or the Committee, as the case may be, and counsel for the Corporation,
it is necessary to enable the Corporation to comply with the provisions of the
Securities Act or other Federal or state statutes having similar requirements,
and any stockholder who gives such representation and agreement shall be
released from it and the legend removed at such time as the shares to which they
applied are registered or qualified pursuant to the Securities Act or other
Federal or state statutes having similar requirements, or at such other time as,
in the opinion of the Board of Directors or the Committee, as the case may be,
and counsel for the Corporation, the representation and agreement and legend
cease to be necessary to enable the Corporation to comply with the provisions of
the Securities Act or other Federal or state statutes having similar
requirements.
Section 15. Amendment of the Plan. The Plan may, at any time or from
time to time, be terminated, modified or amended by the stockholders of the
Corporation by the affirmative vote or written consent of the holders of a
majority of the outstanding shares of the Corporation's Common Stock entitled to
vote in the manner provided by law. The Board of Directors of the Corporation
may, insofar as permitted by law, from time to time with respect to any shares
of Common Stock at the time not subject to Options, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however, that,
without approval of the stockholders of the Corporation, no such revision or
amendment shall increase the number of shares subject to the Plan, decrease the
price at which the Options may be granted, permit exercise of Options unless
full payment is made at the time of exercise (except as so provided in Section 9
hereof), extend the period during which Options may be exercised, or change the
provisions relating to adjustment to be made upon changes in capitalization. The
Company may amend the Plan to the extent necessary to ensure the qualification
of the Plan under Rule 16b-3 issued under the provisions of the Securities and
Exchange Act of 1934 (the "1934 Act") at such time, if any, as the Company has a
class of stock registered pursuant to Section 12 of the 1934 Act, and to the
extent necessary to qualify the shares issuable upon exercise of any outstanding
Options granted, or to be granted, under the Plan for listing on any national
securities exchange or quotation in any national automated quotation system of
securities dealers.
Section 16. Changes in Law. Subject to the provisions of Section 15,
the Board of Directors shall have the power to amend the Plan and any
outstanding Options granted thereunder in such respects as the Board of
Directors shall, in its sole discretion, deem advisable in order to incorporate
in the Plan or any such Option any new provision or change designed to comply
with or take advantage of requirements or provisions of the Code or any other
statute, or Rules or Regulations of the Internal Revenue Service or any other
Federal or state governmental agency enacted or promulgated after the adoption
of the Plan.
Section 17. Legal Matters. Every right of action by or on behalf of the
Corporation or by any stockholder against any past, present or future member of
the Board of Directors, officer or employee of the Corporation arising out of or
in connection with this Plan shall, irrespective of the place where such action
may be brought and irrespective of the place of residence of any such director,
officer or employee, cease and be barred by the expiration of three years from
the date of the act or omission in respect of which such right of action arises;
and any and all rights of action by any employee or executive of the Corporation
(past, present or future) against the Corporation arising out of or in
connection with this Plan shall, irrespective of the place where such action may
- 7 -
<PAGE>
be brought, cease and be barred by the expiration of three years from the date
of the act or omission in respect of which such right of action arises.
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of Delaware, applied without giving effect to any
conflicts-of-law principles, and construed accordingly.
- 8 -
<PAGE>
LOGO
Leased Line / Resale Agreement
Company Information
- --------------------------------------------------------------------------------
Full Legal Company Name Telephone Fax
Worldwide Wireless Systems, Inc. (802) 674-2206 (802) 674-2751
- --------------------------------------------------------------------------------
Primary Address City State Zip
P.O. Box 470, Route 5 South Ascutney, VT 05030
- --------------------------------------------------------------------------------
Primary Contact Name Telephone Pager e-Mail
Scott A. Wendel (802) 674-2206 (802) 290-5135 [email protected]
- --------------------------------------------------------------------------------
Emergency Contact Telephone Pager e-Mail
Michael Tedesco (802) 899-1301 (802) 290-5138 [email protected]
- --------------------------------------------------------------------------------
NOC Location (if different from above) City State Zip Suite/Floor
- --------------------------------------------------------------------------------
Resale Circuits
- --------------------------------------------------------------------------------
Pricing (Internet only. Local loop charges additional):
56k Frame relay - $80/month $300 setup
384k Frame Relay - $290/month $400 setup
T1 Frame Relay - $725/month $800 setup
56k Point to point - $120/month $400 setup
384k Point to point - $290/month $500 setup
T1 point to point - $500/month $800 setup
All of the above include Primary DNS for 1 domain, Mail relay and news
read/write for corporate accounts.
Attach Schedule 'D' and amend as circuits ordered.
- --------------------------------------------------------------------------------
This Agreement authorizes OEM Networks, Inc. (OEM) to act as agent for the above
named (Customer) including but not limited to, ordering local
telecommunications, OEM internet services, WAN services, adding to, terminating,
decreasing, removing or rearranging such service or facilities on Customer's
behalf. Unless otherwise specified, charges for local service and other service
or facilities ordered by OEM on behalf of Customer may be billed directly to
Customer by the serving local exchange owner or other service provider.
(Separate local sales contracts may be required) Service is provided pursuant to
Terms & Conditions On attached Pages. Order is not valid, unless accompanied by
this signed page, an initialed copy of Terms & Conditions, a credit application
and up to a 2 month deposit.
Worldwide Wireless Systems, Inc. Scott A. Wendel
- --------------------------------------------------------------------------------
Company Name Name of Person Signing
/s/ Scott A. Wendel July 22, 1998 President/CEO
- --------------------------------------------------------------------------------
Signature Date Title
OEM Networks, Inc. - 1 International Place, 14th Floor - Boston, MA 02110
817.204.0200 Voice - 617.204.0210 Fax - http://www.oem.net/ -
e-Mail: [email protected]
Page 1 of 4
<PAGE>
YEARLY RESALE SERVICE AGREEMENT - TERMS OF SERVICE
1. ACCESS. OEM.NET shall provide the basic routing and network management
required to keep an active link which will be of a quality usual and
customary in the industry for similarly situated companies. While OEM.NET
cannot guarantee continuous service, OEM.NET will repair disruption in
services to the extent reasonably possible consistent with its obligations to
other customers. OEM.NET shall also provide news feed and/or mail services if
ordered at current pricing available at http://www.oem.net.
2. PRICING. Please refer to Schedule A attached hereto and incorporated
herewith.
3. TERMS AND CONDITIONS. Customer agrees to comply with OEM.NET's Network Policy
outlined in Schedule B attached hereto and incorporated herewith. Customer
further agrees to require its end users to comply with terms and conditions
in substance identical to those in sections One, Two, Three, Four, Five, Six
and Seven of Schedule B.
4. TERM. This is a one year agreement from the date first written above, and is
automatically renewable for an additional one year term provided that neither
party has provided written notice of intent not to renew to the other party
via certified mail, return receipt requested. Such notice must be provided
not less than thirty (30) days prior to the expiration of the current term,
and notice of such must be sent via or overnight courier or certified mail,
return receipt requested.
5. TERMINATION. Except where modified by Schedules A, B, or attached C, this
contract may be terminated by either party in the event that there has been a
material breach of the contract. Prior to such termination, the party wishing
to terminate shall give the other party written notice (E-Mail transmission
of such notice shall be considered written notice) of intent to terminate
together with a thorough description of the problems which constitute the
breach. The other party shall have fifteen (15) days in which to correct the
breach. If the problem is not corrected, the party intending to terminate may
do so. In the event that Customer is in violation of Section 2 of the OEM.NET
Network Policy, or has permitted such violation and does not act immediately
to correct such violation when it becomes aware of such violation, OEM.NET
shall have the right to terminate this contract without penalty with five (5)
days written notice (E-Mail transmission of such notice shall be considered
written notice). If there are any amounts due and owing by Customer remain
unpaid for more than sixty (60) days, OEM.NET may terminate this agreement
immediately without penalty upon written notice (E-Mail transmission of such
notice shall be considered written notice).
6. DISCLAIMER OF WARRANTY. CUSTOMER EXPRESSLY AGREES THAT USE OF THE OEM.NET
SERVICES IS AT CUSTOMER'S SOLE RISK. NEITHER OEM.NET, ITS EMPLOYEES,
AFFILIATES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS, MERCHANTS, LICENSORS
OR THE LIKE WARRANT THAT THE OEM.NET SERVICES WILL BE UNINTERRUPTED OR ERROR
FREE; NOR DO THEY MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED
FROM THE USE OF THE OEM.NET SERVICES OR AS TO THE ACCURACY, RELIABILITY OR
CONTENT OF ANY INFORMATION OR SERVICE PROVIDED THROUGH THE OEM.NET SERVICES.
THE OEM.NET SERVICES ARE PROVIDED ON AN "AS IS," "AS AVAILABLE" BASIS WITHOUT
WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF TITLE OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OTHER THAN THOSE WARRANTIES THAT ARE
IMPLIED BY AND INCAPABLE OF EXCLUSION, RESTRICTION OR MODIFICATION UNDER THE
LAWS APPLICABLE TO THIS AGREEMENT. NO ORAL ADVICE OR WRITTEN INFORMATION
GIVEN BY OEM.NET, ITS EMPLOYEES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS,
MERCHANTS, LICENSORS OR THE LIKE SHALL CREATE A WARRANTY, NOR SHALL CUSTOMER
RELY ON ANY SUCH INFORMATION OR ADVICE.
LIMITATION OF LIABILITY, UNDER NO CIRCUMSTANCES, INCLUDING NEGLIGENCE, SHALL
OEM.NET OR ANYONE ELSE INVOLVED IN CREATING, PRODUCING OR DISTRIBUTING THE
OEM.NET SERVICES BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES THAT RESULT FROM THE USE OF OR INABILITY TO USE THE
OEM.NET SERVICES, INCLUDING, BUT NOT LIMITED TO, RELIANCE BY A CUSTOMER ON
ANY INFORMATION OBTAINED ON THE OEM.NET SERVICES; OR THAT RESULT FROM ANY
MISTAKES, OMISSIONS, INTERRUPTIONS, DELETION OF FILES OR E-MAIL, ERRORS,
DEFECTS, VIRUSES, DELAYS IN OPERATION, OR TRANSMISSION, OR ANY FAILURE OF
PERFORMANCE, WHETHER OR NOT LIMITED TO ACTS OF GOD, COMMUNICATIONS FAILURE,
THEFT, DESTRUCTION OR UNAUTHORIZED ACCESS TO OEM.NET'S RECORDS, PROGRAMS OR
SERVICES, CUSTOMER HEREBY ACKNOWLEDGES THAT THIS PARAGRAPH SHALL APPLY TO ALL
CONTENT, MERCHANDISE OR SERVICES AVAILABLE THROUGH THE OEM.NET SERVICES.
BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OF OR LIMITATION OF LIABILITY
FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, IN SUCH STATES OEM.NET'S LIABILITY
IS LIMITED TO THE GREATEST EXTENT PERMITTED BY LAW.
7. Notwithstanding the foregoing, in no event shall the total liability of
OEM.NET or its employees, affiliates, agents, third-party Information
Providers, merchants or licensors, for all damages, losses and causes of
action whether on contract, tort, including negligence, or otherwise, either
jointly or severally, exceed the aggregate amount paid by Customer to OEM.NET
in the twelve (12) months prior to the claimed injury or damage. The
foregoing provisions of this Section are for the benefit of OEM.NET, its
employees, directors, affiliates, agents, Information Providers, merchants,
and licensors, and each shall have the right to assert and enforce these
provisions directly on their own behalf.
OEM Networks, Inc. Terms of Service
Page 2 of 4
<PAGE>
8. INDEMNIFICATION. Upon request of OEM.NET, Customer agrees to defend,
indemnify and hold harmless OEM.NET and its officers, directors, employees,
agents, third-party Information Providers, merchants and licensees, from any
claims and expenses, including, but not limited to, reasonable attorneys
fees, related to any violation of the OEM.NET Network Policy by Customer (or
by Customer's end users) or in connection with the placement or
transmission by or through Customer (or by Customer's end users) of any
Content on the OEM.NET services and the services of its third-party
Information Providers and Customers.
9. SEVERABILITY. In the event that any portion of this Agreement is held to be
unenforceable, the invalid or unenforceable portion shall be construed in
accordance with applicable law as nearly as possible to reflect the
original intentions of the parties, and the remainder of the Agreement shall
remain in full force and effect. The paragraph headings herein are provided
only for reference and shall have no effect on the construction or
interpretation of the Agreement.
10. NO IMPLIED WAIVER/MODIFICATION. The failure to insist upon or enforce strict
performance by the other party of any provision of the Agreement shall not
be construed as a waiver of any provision or right. Neither the course of
conduct between parties nor trade practice shall act to modify any
provision of the Agreement.
11. NO AGENCY. No agency, partnership, joint venture or employment is created as
a result of this agreement. Neither party is authorized to bind the other in
any respect.
12. ASSIGNABILITY. OEM.NET reserves the right to assign this Agreement upon
thirty days written notice to the Customer. The Customer shall not have the
right to assign this Agreement except by written consent of OEM.NET.
13. CONFIDENTIALITY. OEM.NET and Customer agree that any and all knowledge
gained of either party's systems, services, marketing and practices and the
like shall remain confidential. Such knowledge shall not be used by either
party for any purpose whether personal, business or otherwise and shall not
be given, sold or shared with any other individual or entity.
14. EXCUSED PERFORMANCE. Neither party shall be liable to the other under this
Agreement for any failure in performance that is due to causes beyond its
reasonable control, including, but not limited to, acts of nature,
governmental actions, fires, civil disturbances, interruption of power or
transportation problems.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts. Each party
irrevocably consents to the exclusive jurisdiction of the courts of the
Commonwealth of Massachusetts and the federal courts situated in the
Commonwealth of Massachusetts in connection with any action arising under
the Terms of Service Agreement or relating to the OEM.NET services. Any
cause of action of Customer or its authorized user(s) with respect to the
OEM.NET services must be commenced within one (1) year after the claim or
cause of action arose or said cause of action shall be barred.
<PAGE>
SCHEDULE A
OEM.NET SERVICES FEES & CHARGES
1. All charges are listed on page #1 of this Agreement, under "Services
Ordered"
2. Telco charges, if applicable or indicated, are estimated using tariff
database information. Actual charges may vary. Any taxes, state or federal
or FCC/DPU surcharges will be passed through to the customer. OEM makes no
warranty or guarantee of telco pricing accuracy.
3. OEM may require customer to pay a two month deposit with bank certified
funds prior to the establishment of service. Once the customer has
established a timely payment history, OEM will issue a credit against future
service for the amount of the deposit.
4. Interruption of Service Credit - For any interruption of service that is not
due to negligence or non-compliance with this agreement on the part of the
customer or the operation or the malfunction of facilities, power, or
equipment provided by the customer, customer will receive a credit for the
period during which service was interrupted. An interruplton begins when the
customer reports a service, facility, or circuit to be interrupted and
releases it for testing and repair. An interruption ends when the service,
facility, or circuit is operating properly. Credit allowances are
calculated on the basis of a 30-day month; and the credit shall be pro-rata
allowance against the service charge, based on the duration of the
interruption as follows: First 30 minutes - none, 30 minutes to 3 hours -
1/10 day, each additional 3 hour period (or fraction thereof) 1/5 day.
Two or more interruptions of 15 minutes during anyone 24 hour period shall
be considered a single interruption. No more than one full day's credit will
be allowed for any period of 24 hours. For any interruption of service which
is directly attributable to OEM equipment or engineering failures and not
originated by failures not directly attributable to OEM, including but not
limited to: the customer or facilities, power or equipment provided by the
customer, OEM's upstream providers, interruptions of service experienced due
to an uphill outage, or acts of God customer will receive a credit.
SCHEDULE B
OEM.NET NETWORK POLICY FOR LEASED LINE AND IP RESALE ACCOUNTS
1. OEM.NET exercises no control whatsoever over the content of the information
passing through it's network. OEM.NET makes no warranties of any kind,
whether expressed or implied, for the service it is providing. OEM.NET also
disclaims any warranty of merchantability or fitness for a particular
purpose. OEM.NET will not be responsible for any damage you suffer. This
includes loss of data resulting from delays, non-deliveries, mis-deliveries,
or service interruptions caused by it's own negligence or your errors or
omissions. Use of any information obtained by OEM.NET's network is at your
own risk. OEM.NET specifically denies any responsibility for the accuracy or
quality of information obtained through it's services.
OEM Networks, Inc. Terms of Service
Page 3 of 4
<PAGE>
2. OEM.NET's network may only be used for lawful purposes. Transmission of any
material in violation of any U.S., State or foreign laws or regulations is
prohibited. This includes, but is not limited to: copyright material,
material legally judged to be threatening or obscene, or material protected
by trade secret law. You agree to indemnify and hold harmless OEM.NET from
any claims resulting from your use of the service which damages you or
another party.
3. On-Line Etiquette: Customer and Customer's end users are prohibited from
activities which would disrupt OEM.NET Internet Services. In addition, users
are forbidden from impersonating others and making unsolicited commercial
appeals. Examples of prohibited conduct include:
a. SPAMMING
b. HACKING IP SPOOFING PING FLOODING
c. ATTEMPTING TO GAIN ENTRY INTO ANY OEM.NET COMPUTER SYSTEM
4. OEM.NET"s RIGHT TO MONITOR. OEM.NET may, but is in no way required to or
promises to, electronically monitor through router and/or any and all
traffic which passes over our Wide Area Network. This monitoring may include
public as well as private communications and data transfers from our
Customers and their end users and to our Customers and their end users as
well as any and all communications and data transfers to and from any other
internet sites. OEM.NET will monitor our Customers and their end users and
those who use or transmit communications or other data over our network for
security purposes and system utilization and for compliance with the OEM.NET
Network Policy. Furthermore, OEM.NET reserves the right to monitor and
disclose any content, records or electronic communications of any kind (1)
to satisfy any law, regulation or authorized governmental request; (2) if
such disclosure is necessary to operate OEM.NET; or (3) to protect the
rights or property of OEM.NET, its Customers or Information Providers or
Merchants. The monitoring and disclosure activities of OEM.NET may negate
the privacy protections which the Customer would otherwise enjoy under
federal and state law, including the Electronic Privacy Communications Act.
Customer acknowledges that OEM.NET may do so and Customer understands they
may be giving up privacy rights which they would otherwise be entitled to
under state, federal and other laws.
5. Any access to other networks connected to OEM.NET's network must comply with
the rules appropriate for that other network. Use of OEM.NET's network
itself may be for any lawful purpose. Use of OEM.NET's network for lawful
commercial purposes is both permitted and encouraged. Connectivity is
provided for your organization only, and resale of direct IP connectivity to
other organizations or individuals is prohibited, unless noted in Schedule
'A'.
6. OEM.NET attempts to run an "open" system which allows customer access to a
wide ranage of internet offerings. OEM.NET does not censor the content of
newsgroups, and it is up to each individual user to determine which
newsgroups are appropriate for viewing and participation. There are a number
of tools which can allow Customers and end users to screen out unwanted
material. It is up to each individual to Site such available tools to
screen for content.
<PAGE>
7. OEM.NET retains the right in its sole discretion not to carry on its Service
"unlawful material" and further OEM.NET reserves the right to restrict
access to any material which violates OEM.NET's Network Policy. OEM.NET,
will refuse to connect to and will terminate any offending Service, in the
event that offending material is created, offered or encouraged by Customer
or its End Users which is unlawful as determined by applicable
international, federal, state or local laws, regulations, or ordinances such
Customer or end user account will be termianted. In addition, such Customer
account will be terminated if the Customer is found to have had any role in
the creation, implementation, distribution, posting or the like of such
material. Such termination shall occur immediately and without prior notice.
Whether the Customer played any such role shall be determined exclusively
by OEM.NET.
8. Payment is due when indicated on invoice. Accounts are in default if
payment is not received by that date. If your payment is returned to us
unpaid, you are immediately in default and subject to a returned check fee
of $25 from us. Accounts unpaid after due date may have their service
interrupted. Such an interruption does not relieve you from the obligation
to pay the monthly charge. Only a written request to terminate your service
60 days from termination relieves you of your obligation to pay the monthly
charge. Accounts in default are subject to 1.8% monthly interest. If you
default, you agree to pay OEM.NET it's reasonable expenses, including
attorney and collection costs, incurred in enforcing it's rights under these
terms and conditions.
9. Billing for OEM.NET will normally commence when the connection from the
OEM.NET hub is completed to your site, and IP packets can be passed.
However, in certain circumstances billing may occur when an OEM.NET hub and
a functioning telelphone circuit are prepared to route IP packets to your
site. Service is invoiced in advance and may be canceled in writing with 60
days notice with no penalty. In the event of early cancellation of this one
year term commitment, without such notice, the customer will be required to
pay 75% of OEM.NET's standard monthly charge for each month remaining in the
term commitment. OEM.NET reserves the right to change the rates by notifying
you 30 days in advance of the effective date of the change.
10. These terms and conditions supersede all previous representations,
understandings or agreements and shall prevail notwithstanding any variance
with terms and conditions of any order submitted. Use of OEM.NET's network
constitutes acceptance of these terms and conditions.
OEM Networks, Inc. Terms of Service
Page 4 of 4
<PAGE>
EXHIBIT 10.34
AGREEMENT FOR INTERNET
ACCESS SERVICES
This Agreement for Internet Access Services (the "Agreement"), dated
October 21, 1998 (the "Effective Date"), is made and entered into by and between
Worldwide Wireless Systems Inc., a Delaware corporation ("Worldwide"), and
FreeLinQ Communications Corporation, a Nevada corporation ("FreeLinQ").
WHEREAS, FreeLinQ has entered into that certain Agreement (the "Trump
Agreement"), dated as of June 25, 1998, with Trump New Media LLC, a New York
limited liability company ("Trump New Media"), pursuant to which, among other
things, FreeLinQ has agreed to provide Trump New Media with certain internet
services as more fully set forth in the Trump Agreement;
WHEREAS, FreeLinQ anticipates entering into additional contracts or
other arrangements (the "Additional Agreements") to provide video on demand
("VOD"), internet and other services (the "FreeLinQ Channel");
WHEREAS, FreeLinQ desires that Worldwide provide internet services to
residential and commercial properties identified in the Trump Agreement and the
Additional Agreements, and Worldwide has the necessary personnel, experience and
equipment to perform the internet services and is willing to perform such
internet services subject to the terms and conditions hereinafter set forth; and
WHEREAS, Worldwide and FreeLinQ desire to set forth the terms and
conditions of the marketing efforts to be conducted by them in connection with
the solicitation of users for the internet services to be provided by Worldwide;
NOW THEREFORE, in consideration of the premises and the
representations, warranties and covenants and mutual agreements contained
herein, FreeLinQ and Worldwide hereby agree as follows:
1. INTERNET SERVICES AND SUPPORT.
1.1. Services. Subject to the terms and conditions of this Agreement,
Worldwide will provide (i) the internet access services set forth
on Exhibit A (the "Residential Internet Services") to those
residential buildings set forth on Exhibit A (the "Residential
Buildings"), (ii) the internet access services set forth on
Exhibit B (the "On-Net Commercial Internet Services") to those
commercial buildings set forth on Exhibit B where FreeLinQ has an
established wired infrastructure to provide internet access (the
"On-Net Commercial Buildings") and (iii) the internet access
services set forth on Exhibit C (the "Off-Net Commercial Internet
Services" and together with the Residential Internet Services and
the On-Net Commercial Internet Services, the "Internet Services")
to those commercial buildings set forth on Exhibit C where
FreeLinQ does not have an established wired infrastructure to
provide internet access but does have the option to wire such
buildings pursuant to the Trump Agreement or the Additional
Agreements (the "Off- Net Commercial Buildings" and together with
the Residential Buildings and the On-Net
<PAGE>
Commercial Buildings, the "Buildings"). During the term of this
Agreement, unless otherwise agreed to in writing by Worldwide,
FreeLinQ agrees not to hire, retain or otherwise engage any other
entity or individual to provide the Internet Services to or in
respect of any of the Buildings.
1.2. Additional Off-Net Buildings. In the event that Worldwide obtains
access to any building that is not provided for in the Trump
Agreement or the Additional Agreements (the "Off-Net Buildings"),
Worldwide hereby agrees to give FreeLinQ the right of first
refusal to provide the FreeLinQ Channel to such Off-Net Buildings.
FreeLinQ shall have fifteen (15) days to exercise such right of
first refusal and shall notify Worldwide in writing on or prior to
the last day of such fifteen day period whether or not the right
of first refusal shall be exercised. If such right of first
refusal is exercised, such Off-Net Building shall be deemed an
"On-Net Commercial Building" for purposes of this Agreement. In
the event the right of first refusal is not exercised, FreeLinQ
shall not restrict Worldwide's access to such Off-Net Building.
1.3. Support. Worldwide will provide the technical support set forth on
Exhibit A (the "Worldwide Residential Support Services") for the
Residential Internet Services and the technical support set forth
on Exhibit B (the "Worldwide Commercial Support Services" and
together with the Residential Support Services, the "Worldwide
Support Services") for the On-Net Commercial Internet Services and
the Off-Net Commercial Internet Services.
1.4. Worldwide Installation Services. Worldwide will provide the
installation services set forth on Exhibit D.
1.5. Internet Website Portal Page. FreeLinQ and Worldwide hereby agree
that the posting of any advertisements, including, but not limited
to, banner advertisements and hyperlinks to other websites, on any
internet website portal page created as part of the Internet
Services to be provided hereunder (the "Web Page") shall be
mutually agreed upon by FreeLinQ and Worldwide. All revenues
generated, if any, from the posting of such advertisements on the
Web Page shall be split equally between FreeLinQ and Worldwide,
provided that FreeLinQ and Worldwide share equally in the cost of
administering such advertisements.
2. SOLICITATION OF END-USERS; RESPONSIBILITIES OF FREELINQ AND
WORLDWIDE.
2.1. Solicitation of End-Users. FreeLinQ shall, and shall permit
Worldwide to, solicit all of the tenants of the Buildings (each an
"End-User") to subscribe to the Internet Services and provide the
Marketing Services (as defined herein) during the Initial Term (as
defined herein) and any Renewal Term (as defined herein) of
<PAGE>
this Agreement, and FreeLinQ shall include in each VOD service
questionnaire (the "VOD Questionnaire") furnished to each End-User
a page substantially in the form of Exhibit E hereto. FreeLinQ
shall deliver each such signed and completed page to Worldwide
promptly, but in any event within five (5) days, after receipt
thereof.
2.2. Marketing Responsibilities of FreeLinQ. In connection with
soliciting End-Users and providing the Marketing Services,
FreeLinQ shall:
(a) perform the sales and marketing services set forth on Exhibit
F provided, however, that Worldwide shall have the right, but
not the obligation, by written notice given to FreeLinQ, to
delete one or more of the marketing services from Exhibit F
and/or itself perform all or any portion of any such services
and provide such services directly to the End-Users (such
services listed on Exhibit F as the same may be modified in
accordance with the terms of this Agreement, being referenced
to as the "Marketing Services");
(b) pay for any and all costs, fees and expenses in connection
with the performance of its obligations hereunder, including,
but not limited to, those arising in connection with the
Marketing Services;
(c) conduct its business so as to maintain the goodwill of
Worldwide;
(d) use only promotional material approved by Worldwide in
connection with performing the Marketing Services;
(e) comply fully with all applicable federal, local and state
laws, regulations and ordinances; and
(f) with respect to each Residential Building and On-Net
Commercial Building, provide the installation services set
forth on Exhibit G.
2.3. Other Responsibilities of FreeLinQ. FreeLinQ shall provide
unrestricted access to the FreeLinQ headends to Worldwide.
FreeLinQ shall provide internet connectivity to each End-User in a
Residential Building using the FreeLinQ broadband network and the
customer premise equipment and network located in such Residential
Building.
2.4. Responsibilities of Worldwide. (a) Worldwide may enter into an
internet service provider agreement (each an "ISP Agreement") with
each residential End-User who subscribes to the Residential
Internet Services and may enter into a network service provider
agreement (each a "NSP Agreement") with each End-User that
subscribes to either the On-Net Commercial Internet Services or
the Off-Net Commercial Internet Services.
<PAGE>
(b) In the event that Worldwide includes any reference to or
information about FreeLinQ in connection with soliciting
End-Users and performing Marketing Services directly to
End-Users, Worldwide shall use only promotional material
approved by FreeLinQ.
3. LIMITS OF AUTHORITY
FreeLinQ shall not:
(a) hold itself out as Worldwide's agent or representative except
as provided herein, or make any representation or warranty
concerning Worldwide or the Internet Services to be provided
by Worldwide;
(b) enter into any agreement with any End-Users with respect to
the Internet Services or solicit the End-Users to enter into
any other agreement with respect to the Internet Services
other than the ISP Agreements and the NSP Agreements as
provided herein;
(c) waive, alter or change any provision of any ISP Agreement or
NSP Agreement;
(d) modify or extend the amount or time of payment of any charge
or fee arising under any ISP Agreement or NSP Agreement;
(e) incur any expense or obligation in the name of Worldwide; or
(f) use Worldwide's name or Marks (as defined herein) in
connection with its business other than in the manner
expressly provided for herein and consistent with proper
trademark practices.
4. TERM AND TERMINATION.
4.1. Term. This Agreement will commence on the Effective Date and
continue until the fifth anniversary thereof ("Initial Term").
Upon expiration of the Initial Term and each Renewal Term
thereafter, this Agreement will be automatically renewed for an
additional five (5) year term ("Renewal Term") unless terminated
by either party upon 180 days' written notice given prior to the
expiration of the Initial Term or any Renewal Term, as the case
may be.
4.2. Termination for Breach. Either party may terminate this Agreement
prior to the expiration of the Initial Term or any Renewal Term in
the event of a material breach of the terms or conditions of this
Agreement by the other party which breach is not cured within
thirty (30) days of written notice from the party not in breach.
In addition to these rights of termination, each party will have
the right, in the event of an uncured breach by the other party,
to avail itself of all remedies or causes of action, in law or
equity, for damages as a result of such breach.
<PAGE>
4.3. Effects of Termination. (a) Termination or expiration of this
Agreement for any reason shall not (i) release either party from
any liability or obligation which has already accrued as of the
effective date of such termination, including, but not limited to,
the obligation of Worldwide to pay any amounts due pursuant to
Article 7 hereof; provided, however, that such payment obligations
shall terminate upon the termination of the ISP Agreements and the
NSP Agreements that have been entered into as a result of the
Marketing Services and prior to termination hereof and (ii)
constitute a waiver or release of, or otherwise be deemed to
prejudice or adversely affect, any rights, remedies or claims,
whether for damages or otherwise, which a party may have
hereunder, at law, equity or otherwise.
(b) In the event this Agreement is terminated by Worldwide
pursuant to Sections 4.2 or 5.5(a) hereof, FreeLinQ shall pay
to Worldwide any and all costs and fees required to be paid
by Worldwide to bandwidth providers arising under any and all
agreements entered into with such bandwidth providers in
connection with the provision of the Internet Services
pursuant to this Agreement.
5. TITLE AND OWNERSHIP.
5.1. Disclosed Material. All technical, creative or business
information or material including, but not limited to, business or
marketing plans, analytical methods, computer programs, data
files, drawings, photographs, films, scripts, sketches, samples,
or financial or marketing data, whether oral, written or otherwise
furnished or disclosed under, or in contemplation of, this
Agreement ("Disclosed Material") shall remain the disclosing
party's property. All Disclosed Material shall be used only in
connection with the performance of the obligations arising under
this Agreement and shall not be otherwise used, copied, or
disclosed to any third party without the disclosing party's prior
written consent.
5.2. Return of Disclosed Material. Upon written request and upon
termination of this Agreement for any reason, all Disclosed
Material in tangible form shall be returned immediately to the
disclosing party and all Disclosed Material not capable of return
shall be destroyed and the receiving party shall certify to the
disclosing party that such Disclosed Material has been destroyed.
5.3. Marketing Materials. Each party acknowledges and agrees that,
except for Disclosed Material provided by either party (including
without limitation each party's proprietary methods, techniques,
processes, strategies and other know-how relating to interactive
advertising and promotions, regardless of the manner or form in
which the foregoing are disclosed to one party by the other
party), all documents, reports, creative designs and other
deliverables prepared by one party for the other party ("Marketing
Materials") pursuant to this Agreement shall be the property of
the creating party. While this Agreement is in effect, each party
shall have a personal, non-exclusive, royalty-free,
non-transferable license to use
<PAGE>
any Marketing Material in connection with the provision of the
Marketing Services.
5.4. Trademark License. (a) During the Term of this Agreement,
Worldwide grants FreeLinQ a nonexclusive, non-transferable license
to use, copy, display, reproduce and transmit its trademarks,
tradenames and logos (collectively, the "Worldwide Marks") in
connection with the Marketing Services solely in the manner set
forth herein. Within five (5) days of the termination of this
Agreement, FreeLinQ shall cease all display, advertising and use
of all of the Worldwide Marks, and shall not thereafter use,
advertise or display any of the Worldwide Marks except to the
extent expressly permitted in this Agreement. All use of the
Worldwide Marks shall inure to the benefit of Worldwide.
(b) During the Term of this Agreement, FreeLinQ grants Worldwide
a nonexclusive, non-transferable license to use, copy,
display, reproduce and transmit its trademarks, tradenames
and logos (collectively, the "FreeLinQ Marks" and together
with the Worldwide Marks, the "Marks") in connection with the
Marketing Services solely in the manner set forth herein.
Within five (5) days of the termination of this Agreement,
Worldwide shall cease all display, advertising and use of all
of the FreeLinQ Marks, and shall not thereafter use,
advertise or display any of the FreeLinQ Marks except to the
extent expressly permitted in this Agreement. All use of the
FreeLinQ Marks shall inure to the benefit of FreeLinQ.
5.5. Marketing Materials. (a) Prior to any use of any Mark or any
Marketing Material, each party will provide to the other party
copies of the Marketing Materials for such party's written
approval. Each party shall respond promptly by e-mail or by any of
the other means of notice set forth in Section 11.3 hereof, but in
no event later than ten (10) business days after receipt (failing
which response, the materials shall be deemed accepted by the
non-disclosing party). The release of any Marketing Materials
embodying a Mark without prior review and written approval (or
deemed acceptance, as provided herein) shall be a material breach
of this Agreement, and grounds for immediate termination by the
non-disclosing party, without the right to cure. This provision
applies to all Marketing Materials embodying a Mark, whether in
electronic or print format. The parties agree that acceptance of
Marketing Materials embodying a Mark under this paragraph shall be
continuing for all previously approved Marketing Materials which
are materially unchanged. The parties acknowledge that breach of
this provision will cause irreparable harm to the non-disclosing
party, and such party may seek injunctive relief without having to
prove damages to restrain any breach or threatened breach of this
provision, in addition to all other remedies which it may have, in
law or in equity.
<PAGE>
(b) To the extent FreeLinQ has the right to approve of marketing
materials, including press releases, which include
Worldwide's name or Marks and which are to be used by Trump
New Media in connection with the promotion or provision of
the Internet Services, such approval by FreeLinQ shall not be
granted to Trump New Media without the prior written consent
of Worldwide.
5.6. Use of Mark. The Worldwide Marks may be used only as a means of
identifying Worldwide as the source and provider of the Internet
Services, and the FreeLinQ Marks may be used only as a means of
identifying FreeLinQ as the source and provider of the VOD
services. The Marks may be used only in form expressly approved by
each party as provided in this Agreement, and under no
circumstances may they be altered in any way whether by change of
color, type, design, or otherwise. The presentation of the Marks
shall at all times be such that ownership of any particular Mark
is clear. All Marks shall have the (R) or (TM) or symbols where so
designated by each party. Each party shall have the unilateral
right to establish, monitor and enforce such quality standards and
additional terms and conditions concerning the use of its Marks as
it deems necessary to reasonably protect its Marks. Each party
hereby renounces ownership of and assigns to the other party any
goodwill which accrues as a result of either party's use of the
Marks.
5.7. Proprietary Rights in Marks. Title to and ownership of all Marks,
and all rights therein, including, without limitation,
intellectual property rights applicable thereto, are and shall
remain the exclusive property of the party that owns the Mark.
Neither party shall take any action to jeopardize, limit or
interfere in any manner with the aforesaid rights. Each party
shall have only those rights in or to the Marks expressly granted
to it pursuant to this Agreement.
6. CONFIDENTIALITY.
"Confidential Information" means all information disclosed by the
disclosing party ("Discloser") to the receiving party ("Recipient") (in writing,
orally or in any other form), including, without limitation, Disclosed Material,
source code, trade secrets, customer lists, development tools and processes,
computer printouts, computer programs, design drawings and manuals,
improvements, business plans, technical data, product ideas, personnel,
contracts and financial information, unless (i) the information is or becomes
publicly known through lawful means; (ii) the information was, and is documented
in writing to have been, rightfully in Recipient's possession or part of
Recipient's general knowledge prior to receipt of the Confidential Information;
(iii) the information is disclosed to Recipient without confidential or
proprietary restriction by a third party who rightfully possesses the
information (without confidential or proprietary restriction) and did not learn
of it, directly or indirectly, from Recipient, or (iv) the information is
independently developed by the Recipient without use of the Discloser's
Confidential Information. Recipient shall reproduce the other party's
Confidential Information only for purposes of this Agreement and only to the
extent necessary for such
<PAGE>
purpose and shall hold all Confidential Information in strict confidence and
shall not disclose any Confidential Information to any third party. Recipient
shall take all reasonable measures to protect the confidentiality and avoid the
unauthorized use, disclosure, publication, or dissemination of Confidential
Information. If either party should receive a subpoena, court order or other
legal process (each a "Legal Order") which would compel the disclosure of such
Confidential Information, that party shall promptly notify the other party of
such event so as to provide such party with a reasonable opportunity to obtain
an appropriate court order protecting such Confidential Information. Any
information required to be disclosed pursuant to any Legal Order shall no longer
be Confidential Information but only to the extent required to be disclosed in
the Legal Order and subject to the restrictions ordered by the court.
7. BILLING AND PAYMENT.
7.1. Collection of Fees. Worldwide shall be responsible for the billing
and collection of fees in connection with all of the ISP Agreements and the NSP
Agreements entered into with End-Users in Residential Buildings and On-Net
Commercial Buildings as a result of FreeLinQ Marketing Services.
7.2. Payment and Reports. Within forty-five (45) days after the end of
each month, Worldwide will pay FreeLinQ the amount as determined in accordance
with the schedule set forth on Exhibit H hereto but only to the extent amounts
are collected by Worldwide and not refunded.
7.3. Commissions for Off-Net Buildings. Worldwide and FreeLinQ agree
that Worldwide shall pay a commission to FreeLinQ for those Off-Net Commercial
Buildings to which Worldwide decides, in its sole discretion, to provide Off-Net
Internet Services. Such commission shall be mutually agreed upon by Worldwide
and FreeLinQ at the time Worldwide agrees to provide the Off-Net Internet
Services to such Off-Net Commercial Buildings.
7.4. End User Information. Worldwide shall provide to FreeLinQ, within
forty-five (45) days after the end of each month, a report for that month
showing the name and address of each End-User to whom Worldwide is providing
Internet Services.
7.5. Book and Records. (a) Worldwide agrees to maintain adequate books
and records relating to the provision of Internet Services to End-Users. Such
books and records shall be available at their place of keeping for inspection by
FreeLinQ or its representative, for the purpose of determining whether the
correct fees and/or commissions, if any, have been paid to FreeLinQ in
accordance with the terms of this Agreement and whether Worldwide has otherwise
complied with the terms of this Agreement. FreeLinQ shall have the right to
conduct such an audit, for the prior three month period only, upon thirty (30)
days advance notice once each quarter. Such audit is to occur during Worldwide's
normal business hours, at a time and location designed to minimize disruption to
Worldwide's business. Information contained in Worldwide's books and records
shall constitute Confidential Information as defined in Section 6.
<PAGE>
(b) If the results of any such audit as provided for in
subsection (a) of this Section 7.5 establish that Worldwide
has underpaid FreeLinQ by an amount greater than ten percent
(10%) in any quarter, then Worldwide shall pay promptly to
FreeLinQ the amount of the shortfall plus an amount computed
at the rate of eighteen percent (18%) per annum, compounded
monthly, on the shortfall (the "Additional Amount") for the
period commencing on the date such payment was due and owing
and terminating on the date such shortfall and Additional
Amount is paid in full.
(c) If the results of any such audit as provided for in
subsection (a) of this Section 7.5 establish that Worldwide
has overpaid FreeLinQ by any amount, then FreeLinQ shall pay
promptly, but in any event within fifteen (15) days after the
discovery of such overpayment, the total amount overpaid by
Worldwide or, at the option of Worldwide, such amount shall
be credited to amounts payable by Worldwide under the next
month's invoice.
8. REPRESENTATIONS AND WARRANTIES.
8.1. Worldwide's Representations.
(a) Worldwide is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted, is properly
qualified to do business in all jurisdictions where it
currently conducts business and to enter into this Agreement
and to perform its obligations hereunder.
(b) Worldwide has full corporate power and authority to enter
into and execute this Agreement and to carry out the
transactions contemplated hereby in accordance with its
terms. The execution, delivery and performance by Worldwide
of this Agreement and the consummation by Worldwide of the
transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of
Worldwide, and no other corporate proceedings on the part of
Worldwide are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
Worldwide and constitutes a legal, valid and binding
obligation of Worldwide, enforceable against it in accordance
with its terms, except that (i) such enforceability may be
subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws now or hereafter in
effect affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
Neither
<PAGE>
the execution, delivery and performance by Worldwide of this
Agreement nor the consummation by Worldwide of the
transactions contemplated hereby will, with or without the
giving of notice or the passage of time, or both, (i) violate
any provision of law, rule, regulation, order, judgment,
writ, injunction or decree applicable to Worldwide or any of
its properties or assets, (ii) conflict with, result in a
breach of, terminate, modify, or cancel, or require any
notice under any note, bond, mortgage, indenture, license,
contract or agreement to which it is a party or by which
Worldwide or any of its assets is bound or result in the
imposition of any lien upon any of the assets of Worldwide;
or (iii) conflict with, violate or result in a breach of any
of the terms, conditions or provisions of the Certificate of
Incorporation or By-Laws of Worldwide.
(c) Worldwide, to the best of its knowledge, warrants that the
Marks and all Disclosed Material provided by Worldwide to
FreeLinQ under this Agreement do not infringe upon the
intellectual property rights or any other rights of any third
party, or defame or invade the privacy of any third party.
(d) Worldwide warrants that the Worldwide Support Services shall
be performed by qualified personnel who will perform the
tasks thereunder consistent with good professional practice
and generally accepted standards in the internet industry.
8.2. FreeLinQ's Representations.
(a) FreeLinQ is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted, is properly
qualified to do business in all jurisdictions where it
currently conducts business and to enter into this Agreement
and to perform its obligations hereunder.
(b) FreeLinQ has full corporate power and authority to enter into
and execute this Agreement and to carry out the transactions
contemplated hereby in accordance with its terms. The
execution, delivery and performance by FreeLinQ of this
Agreement and the consummation by FreeLinQ of the
transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of
FreeLinQ, and no other corporate proceedings on the part of
FreeLinQ are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
FreeLinQ and constitutes a legal, valid and binding
obligation of FreeLinQ, enforceable against it in accordance
with its terms, except that
<PAGE>
(i) such enforceability may be subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization or other
similar laws now or hereafter in effect affecting or relating
to enforcement of creditors' rights generally and (ii)
general equitable principles. Neither the execution, delivery
and performance by FreeLinQ of this Agreement nor the
consummation by FreeLinQ of the transactions contemplated
hereby will, with or without the giving of notice or the
passage of time, or both, (i) violate any provision of law,
rule, regulation, order, judgment, writ, injunction or decree
applicable to FreeLinQ or any of its properties or assets,
(ii) conflict with, result in a breach of, terminate, modify,
or cancel, or require any notice under any note, bond,
mortgage, indenture, license, contract or agreement to which
it is a party or by which FreeLinQ or any of its assets is
bound or result in the imposition of any lien upon any of the
assets of FreeLinQ; or (iii) conflict with, violate or result
in a breach of any of the terms, conditions or provisions of
the Certificate of Incorporation or By-Laws of FreeLinQ.
(c) FreeLinQ represents that it shall perform its obligations
under this Agreement in a good and workmanlike fashion and in
accordance with the highest professional standards of the
industry.
(d) FreeLinQ represents that all Marketing Materials created,
produced and/or developed by FreeLinQ shall be works of
original authorship and will not infringe the rights of any
third party.
8.3. THIS ARTICLE 8 SETS FORTH ALL OF THE REPRESENTATIONS AND
WARRANTIES OF A PARTY TO THE OTHER PARTY. EACH PARTY HEREBY
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. WORLDWIDE DOES NOT MAKE ANY
REPRESENTATIONS AND WARRANTIES REGARDING ANY CONTENT, WEBSITE OR
OTHER MATERIALS ACCESSIBLE VIA THE INTERNET SERVICES. THE PARTIES
ACKNOWLEDGE THAT, BECAUSE OF THE NATURE OF THE INTERNET AND THE
INTERNET RELATED TECHNOLOGY, THERE MAY BE DISRUPTIONS TO INTERNET
SERVICES BEYOND THE CONTROL OF WORLDWIDE AND THAT WORLDWIDE SHALL
BEAR NO RESPONSIBILITY FOR SUCH DISRUPTIONS.
9. INDEMNIFICATION.
9.1. Worldwide Indemnification. Worldwide shall indemnify, hold
harmless and defend FreeLinQ, its affiliates, officers, directors,
employees and agents from and against any claim, suit or
proceeding and any damages or liability therefrom or settlement
thereof (including reasonable attorneys' fees and disbursements)
to the
<PAGE>
extent (i) based on a claim that the Worldwide Marks or any
Disclosed Material provided by Worldwide infringe the patent,
copyright, trademark, trade secret, publicity, privacy or other
rights of any person, defame any person, or violate any applicable
law or regulation or (ii) resulting from any breach of this
Agreement by Worldwide.
9.2. FreeLinQ Indemnification. FreeLinQ shall indemnify, hold harmless
and defend Worldwide, its affiliates, officers, directors,
employees and agents from and against any third party claim, suit
or proceeding and any damages or liability therefrom or settlement
thereof (including reasonable attorneys' fees) to the extent (i)
based on a claim that the FreeLinQ Marks or any Disclosed Material
provided by FreeLinQ infringe the patent, copyright, trademark,
trade secret, publicity, privacy or other rights of any person,
defame any person, or violate any applicable law or regulation or
(ii) resulting from any breach of this Agreement by FreeLinQ.
9.3. Exceptions. The indemnities set forth in Sections 9.1 and 9.2
shall not apply if (i) the indemnified party fails to give the
indemnifying party prompt notice of any claim it receives and such
failure materially prejudices the indemnifying party; or (ii) the
indemnifying party is not given the opportunity to control the
defense and settlement of any claim.
9.4. Settlement. The indemnified party shall not, without the prior
written consent of the indemnifying party, enter into any
settlement the result of which would materially limit or modify
the rights of the indemnifying party under this Agreement.
10. LIMIT ON LIABILITY.
NEITHER PARTY SHALL HAVE ANY LIABILITY FOR LOSS OF PROFITS OR SPECIAL,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, EVEN IF EITHER PARTY
HAS WARNED OR BEEN WARNED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, EITHER PARTY'S LIABILITY
UNDER THIS AGREEMENT SHALL NOT EXCEED THE TOTAL AMOUNT OF FEES AND COMMISSIONS
ACTUALLY PAID BY WORLDWIDE TO FREELINQ PURSUANT TO THIS AGREEMENT.
11. GENERAL PROVISIONS.
11.1. Assignment. This Agreement may not be assigned by either party to
any other person or entity without the express written consent of
the other party; provided, however, that Worldwide may assign this
Agreement to any other person or entity upon 30 days' prior to
written notice to FreeLinQ and with the express written consent of
FreeLinQ, which consent shall not be unreasonably withheld,
pursuant to the sale of all or substantially all of the assets of
Worldwide or pursuant to a merger of Worldwide with another
entity.
<PAGE>
11.2. Invalidity; Enforceability; Severability. If any provision or
provisions of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or limited
thereby.
11.3. Notices. Any notices or other communications required or
permitted hereunder shall be given in writing and shall be
delivered by hand or sent by telecopy, by certified or registered
mail, postage prepaid and return receipt requested, or by
nationally recognized overnight courier service and shall be
deemed given when so delivered by hand or telecopied (but only if
receipt thereof is acknowledged by return telecopy or if a
conforming copy is delivered or sent within one business day
thereafter by any other means of delivery permitted by this
Section 11.3), or if mailed, on the date of actual receipt and in
the case of overnight courier service, the business day following
dispatch, addressed as set forth on Exhibit I or to such other
address as shall be furnished in writing by either party; provided
that any notice or communication changing either of the addresses
set forth on Exhibit I shall be effective and deemed given only
upon its receipt.
11.4. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
11.5. Dispute Resolution. (a) Any disagreement, dispute, controversy or
claim arising out of or relating to this Agreement or the
transactions contemplated hereby, including, without limitation,
the interpretation hereof and any breach, termination or
invalidity hereof, shall be settled exclusively and finally
through arbitration (irrespective of the magnitude thereof, the
amount in controversy or whether such matter would otherwise be
considered justiciable or ripe by a court or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration
Association (the "Arbitration Rules"), except as those rules
conflict with the provisions of this Section 11.5, in which
event the provisions of this Section 11.5 shall control.
(c) The arbitral tribunal shall consist of three arbitrators
chosen in accordance with the Arbitration Rules. The
arbitration shall be conducted in New York County. Any
submission of a matter for arbitration shall include joint
written instructions of Worldwide and FreeLinQ requiring the
arbitral tribunal to render a decision resolving the matters
submitted within 60 days following the submission thereof.
Arbitration proceedings shall be conducted in confidence.
(d) Any decision or award of the arbitral tribunal shall be final
and binding upon the parties to the arbitration proceeding.
Worldwide and FreeLinQ
<PAGE>
agree that the arbitral award may be enforced against them or
their assets wherever they may be found and that a judgment
upon the arbitral award may be entered in any court having
jurisdiction thereof.
(e) All out-of-pocket costs and expenses incurred by any party in
connection with the resolution of any disagreement, dispute,
controversy or claim pursuant to this Section 11.5,
including, but not limited to, reasonable attorney's fees and
disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall
have the discretion to declare either party as the
"prevailing party" with respect to one or more of the issues
that were the subject of the arbitration and to require the
other party to reimburse such "prevailing party" for some or
all of its costs and expenses incurred in connection with
such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between the parties, unless there is a "prevailing party, "
in which case the arbitral tribunal may allocate more or all
of such costs to the party thereto that is not the
"prevailing party."
(g) This Section 11.5 shall not prohibit or limit in any way any
party from seeking or obtaining preliminary or interim
injunctive or other equitable relief from a court for a
breach or alleged breach of any of the covenants and
agreements of another party contained in this Agreement.
11.6. Relationship of the Parties. Each party is acting as an
independent contractor and not as an agent, partner, or joint
venturer with the other party for any purpose. Except as expressly
provided in this Agreement, neither party shall have the right,
power, or authority to act or to create any obligation, express or
implied, on behalf of the other.
11.7. Survival of Certain Provisions. Notwithstanding the termination
or expiration of this Agreement, the following provisions shall
survive, along with either party's obligations to pay any payments
or fees accrued prior to termination or expiration: 4.3, Articles
5, 6, 8, 9, 10 and 11.
11.8. Headings. The titles and headings of the various sections and
paragraphs in this Agreement are intended solely for convenience
of reference and are not intended for any other purpose
whatsoever, or to explain, modify or place any construction upon
or on any of the provisions of this Agreement.
11.9. All Amendments in Writing. No provisions in any other business
forms, including the VOD Questionnaires, the ISP Agreements and
the NSP Agreements, employed by either party will supersede the
terms and conditions of this Agreement, and no supplement,
modification, or amendment of this Agreement shall be binding,
unless executed in writing by a duly authorized representative of
each party to this Agreement.
<PAGE>
11.10. Waiver. It is understood and agreed that no failure or delay by
either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any right, power or privilege hereunder.
11.11. Entire Agreement. This Agreement, together with the Exhibits
annexed hereto, constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes
all prior and contemporaneous agreements, arrangements and
understandings, either oral or written, relating thereto. No
representations or statements of any kind made by either party,
which are not expressly stated herein, shall be binding on such
party.
11.12. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
11.13. Further Assurances. The parties agree to promptly execute and
deliver to the requesting party, upon reasonable request, any
documents necessary to effectuate the purposes of this Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
WORLDWIDE WIRELESS SYSTEMS INC. FREELINQ COMMUNICATIONS CORPORATION
By: /s/David E. Padilla By: /s/ Maury DiDomenico
-------------------- -----------------------
Name: David E. Padilla Name: Dr. Maury DiDomenico
Title: President & CEO Title: President and CEO
<PAGE>
Exhibit A
---------
RESIDENTIAL INTERNET SERVICES, RESIDENTIAL BUILDINGS
AND WORLDWIDE RESIDENTIAL SUPPORT SERVICES
Worldwide shall provide the following Residential Internet Services to
the Residential Buildings:
Internet access provided to the FreeLinQ switch will include:
(a) full network management and support of the internet access
provided to the FreeLinQ headend switch;
(b) an appropriate router and device to manage internet bandwidth so
as to not reasonably interfere with the VOD services;
(c) the appropriate DNS Service;
(d) up to 10Mb web space per ip address;
(e) news services;
(f) one (1) free e-mail account per End-User;
(g) a Caching server to support VOD service initiated Internet Ad
links; and
(h) optional additional e-mail accounts for each user at a fee
specified by Worldwide.
Residential Buildings shall mean all residential buildings which FreeLinQ has
the right to provide VOD or internet services to from time to time pursuant to
the Trump Agreement or the Additional Agreements during the Initial Term and any
Renewal Term. FreeLinQ shall provide to Worldwide a list of the Residential
Buildings as of the date hereof and notify Worldwide in writing promptly of any
new Residential Buildings to be added to such list.
Worldwide shall provide the following Residential Support Services to the
Residential Buildings:
Support of the Residential Internet Services to the FreeLinQ switch with second
level support to FreeLinQ technical personnel for the support required beyond
the switch to each End- User in a Residential Building for either STB (Set Top
Box) or PC connections to the internet.
Support shall be provided on a 12 hour 7 day basis.
<PAGE>
Exhibit B
---------
ON-NET COMMERCIAL INTERNET SERVICES, ON-NET COMMERCIAL
BUILDINGS AND WORLDWIDE COMMERCIAL SUPPORT SERVICES
Worldwide shall provide the following On-Net Commercial Internet Services to the
On- Net Commercial Buildings:
Internet access to the FreeLinQ headends will include router, DNS Service and
fee based e-mail services as required by End-Users located in On-Net Commercial
Buildings.
On-Net Commercial Buildings shall mean those commercial buildings which FreeLinQ
has the right to provide On-Net Internet Services to from time to time during
the Initial Term and any Renewal Term. FreeLinQ shall provide to Worldwide a
list of the On-Net Commercial Buildings as of the date hereof and notify
Worldwide in writing promptly of any new On-Net Commercial Buildings to be added
to such list.
Worldwide shall provide the following Worldwide Commercial Support Services to
the On-Net Commercial Buildings and the Off-Net Commercial Buildings:
(a) Full network management and support of the internet access
provided to the FreeLinQ headends;
(b) Second level support to FreeLinQ technical personnel for problems
encountered on the FreeLinQ broadband network and/or the customer
premise network and equipment; and
(c) Full support of all Internet Services provided by Worldwide
including the DNS Services, e-mail services and other services as
purchased by the End-Users located in the On-Net Commercial
Buildings and the Off-Net Commercial Buildings.
<PAGE>
Exhibit C
---------
OFF-NET COMMERCIAL INTERNET SERVICES AND
OFF-NET COMMERCIAL BUILDINGS
Worldwide shall provide the following Off-Net Commercial Internet Services to
the Off- Net Commercial Buildings:
(a) Dedicated internet access from the Worldwide internet routers
directly to End-Users located in Off-Net Commercial Buildings;
and
(b) DNS Service and fee based e-mail services as required by
End-Users located in Off-Net Commercial Buildings.
Off-Net Commercial Buildings shall mean all commercial buildings and/or
End-Users to which FreeLinQ has access to provide Internet Services. FreeLinQ
shall provide to Worldwide a list of the Off-Net Commercial Buildings as of the
date hereof and notify Worldwide in writing promptly of any new Off-Net
Commercial Buildings to be added to such list.
<PAGE>
Exhibit D
---------
WORLDWIDE INSTALLATION SERVICES
Worldwide shall provide the following installation services:
Installation of internet access to the Worldwide internet routers located in the
points of presence ("POPs") provided by FreeLinQ, including all wiring, hardware
and resources necessary to install a working internet access POP.
<PAGE>
Exhibit E
---------
WORLDWIDE INTERNET ACCESS SUBSCRIPTION INFORMATION
Name:
----------------------------------------------------------
Address:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Phone Number:
---------------------------------------------------
E-Mail Address:
-------------------------------------------------
Billing Information:
Credit Card:
-------------------------------------------
Account Number:
----------------------------------------
Date of Expiration:
------------------------------------
General Authorization
The undersigned hereby grants authorization to FreeLinQ Communications
Corporation and its personnel to release to Worldwide Wireless Systems Inc.
("Worldwide") the information set forth above to be used in connection with the
provision of internet services by Worldwide.
Date: By:
----------------------- ----------------------------
Name:
--------------------------
<PAGE>
Exhibit F
---------
MARKETING SERVICES
FreeLinQ shall develop a marketing program (the "Marketing Program")
for the VOD and Internet Services which shall include, but not be limited to,
taking the following actions:
(a) FreeLinQ shall include Worldwide promotional sales material in all
FreeLinQ customer promotions and sales literature;
(b) In the event FreeLinQ enters into any advertising agreements to
promote its services (either on a barter or full-pay basis),
FreeLinQ shall use its best efforts to integrate Worldwide
promotional materials and information relating to Worldwide's
services therein;
(c) FreeLinQ shall run television promotions of Worldwide on the
FreeLinQ dedicated promotional channel and run of station
promotion as a standard operating procedure;
(d) FreeLinQ shall invite Worldwide to participate in any
presentations or discussions with vendors, advertisers and
alliance partners (whether as "packaged-buys" or as stand alone,
as necessary);
(e) FreeLinQ shall use its best efforts to include Worldwide in
interactive activities and to develop new projects and programs in
order to promote the combined services provided by Worldwide and
FreeLinQ; and
(f) In the cases where FreeLinQ telecommunications distribution is not
sufficient for its expansion, FreeLinQ shall use its best efforts
to expand its services through the Worldwide distribution system
and all Marketing Materials previously designed to promote and
sell both FreeLinQ and Worldwide services shall be applied
accordingly.
Worldwide shall participate in the development of the Marketing Program.
<PAGE>
Exhibit G
---------
FREELINQ INSTALLATION SERVICES
FreeLinQ shall provide the following installation services to
Residential Buildings and On-Net Commercial Buildings:
(a) high speed connectivity to the buildings from the Headends;
(b) switching capability at the building end;
(c) DSL or other highspeed connectivity from the building switch to
the user premises;
(d) physical connection of FreeLinQ system to the user PC or Network;
and
(e) computer IP configurations and troubleshooting
<PAGE>
Exhibit H
---------
PAYMENT SCHEDULE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ON-NET Residential Up to: 2501 to: 5001 To: 7501 to: 10001 *
Subscribers -------------------------------------------------------------------------------------
2500 5000 7500 10000 15000 20000 30000 40000 60000
-------------------------------------------------------------------------------------
(Month to Month Incremental revenues only; shown below)
* Monthly Rev. @$29.95 74,875 74,875 74,875 74,875 149,750 149,750 299,500 299,500 299,500
Rev. Split % FLQ/WWSI 30/70 35/65 40/60 45/55 50/50 50/50 50/50 50/50 50/50
- ---------------------------------------------------------------------------------------------------------------------
Monthly FreeLinQ Revenue 22,463 26,206 29,950 33,694 74,875 74,875 149,750 149,750 149,750
Monthly WWSI Revenue 52,413 46,869 44,925 41,181 74,875 74,875 149,750 149,750 149,750
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Note: The first 10,000 Subscribers will remain at the Rev. Split indicated,
for the life of the program.
Assumptions:
Monthly Internet Charge $29.95
Trump Towers to have free Internet service through 12/98
Subscribers to the VOD service without Internet service will have access to the
Internet for Advertising sites only.
WWSI Costs: Bandwidth
Head End Internet Equipment
Support, Customer Care and Billing, Network Management,
Emall, Caching & DNS servers etc.
FLQ Costs: CPE Equipment (Customer Premise Equipment), i.e.. Set Top
Box, modems etc.. Installation Resources (All Install
Revenue goes to FreeLinQ)
<PAGE>
Exhibit I
---------
NOTICES
If notice to Worldwide:
Worldwide Wireless Systems Inc.
Route 5
Ascutney, Vt.
Attn: David E. Padilla, President & CEO
Phone: 802-674-2206
Fax:
E-mail: [email protected]
With a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Mark L. Mandel, Esq.
Phone: (212) 468-8000
Fax: (212) 468-7900
E-mail: [email protected]
If notice to FreeLinQ:
Dr. Maury DiDomenico
721 Fifth Avenue, 29th Floor
New York, NY 10022
Phone: (212) 752-6549
Fax: (212) 752-6546
E-mail: [email protected]
With a copy to:
Martin Firestone, Esq.
E & M Firestone Associates Incorporated
2045 La Alley Lane
DeLand, Florida 32720
Phone: (904) 740-0031
Fax: (904) 740-1503
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
WORLDWIDE WIRELESS SYSTEMS INC. FREELINQ COMMUNICATIONS CORPORATION
By: /s/David E. Padilla By: /s/ Maury DiDomenico
-------------------- -----------------------
Name: David E. Padilla Name: Dr. Maury DiDomenico
Title: President & CEO Title: President and CEO
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
WORLDWIDE WIRELESS SYSTEMS INC. FREELINQ COMMUNICATIONS CORPORATION
By: /s/David E. Padilla By: /s/ Maury DiDomenico
-------------------- -----------------------
Name: David E. Padilla Name: Dr. Maury DiDomenico
Title: President & CEO Title: President and CEO
<PAGE>
EXHIBIT 10.35
SERVICES AGREEMENT
This Agreement is made and entered into as of the 20th day of
October, 1998, between Worldwide Wireless Systems Inc., a Delaware corporation
(herein "Client"), and Vanguard Research, Inc., a Virginia corporation (herein
"VRI").
WHEREAS, VRI has knowledge and experience in the areas of the Internet
and related technologies and Internet systems support, and Client desires to
engage the services of VRI in one or more of these areas.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, it is mutually agreed as follows:
1. Engagement, Term and Compensation. Client hereby engages VRI
for the performance of consulting and other services (the "Services") in
accordance with the Statement of Work annexed hereto as Exhibit A and by this
reference incorporated into this Agreement.
1.1. The term of this Agreement shall commence as of November
1, 1998 and shall end on April 30, 1999, subject, however, to earlier
termination pursuant to the terms and conditions of this Agreement.
1.2. VRI shall be paid for the Services at the hourly rate of
$120.00. The maximum allowable number of hours per week shall be 35.
1.3. VRI shall also be reimbursed for its reasonable travel
expenses in performing the Services.
2. Assignments and Reports.
2.1. Client shall have the responsibility to determine and to
advise VRI of Client's weekly project requirements and to provide VRI with
guidance and assignments as necessary for development of the project.
2.2. VRI will perform all assignments given to VRI in
accordance with the reasonable standards of performance set forth in the
Statement of Work and/or written task orders issued by Client from time to time
and accepted by VRI.
2.3. In addition to any other duties specified VRI will make
such written reports as may be directed and will participate in such periodic
reviews of VRI's assignments as may be requested by Client.
3. Acceptance.
3.1. VRI hereby accepts the engagement and will provide the
Services to Client in accordance with the Statement of Work and any written task
order accepted by VRI.
1
<PAGE>
3.2. Under no circumstances will VRI hold VRI out as an
employee or agent of Client, nor shall Client hold itself out as an employee or
agent of VRI. The relationship between Client and VRI is one of independent
contractors, and no employee of one party shall be deemed to be an employee of
the other party.
4. Proprietary Information. The parties anticipate that it may be
necessary for either party to transfer or disclose Proprietary Information (a
defined herein) to the other party. As an express condition to such disclosure,
both parties agree as follows:
4.1. "Proprietary Information" means all information disclosed
by the disclosing party ("Discloser") to the receiving party ("Recipient") (in
writing, orally or in any other form) that is described as or provided under
circumstances indicating that it is confidential or proprietary, including
without limitation, business plans, technical data, product ideas, personnel,
contracts and financial information, unless:
(a) the information is or becomes publicly known
through lawful means;
(b) the information was rightfully in Recipient's
possession or part of Recipient's general knowledge prior to exploring the
possibility of a business transaction of mutual interest;
(c) the information is disclosed to Recipient without
confidential or proprietary restriction by a third party who rightfully
possesses the information (without confidential or proprietary restriction) and
did not learn of it, directly or indirectly, from Discloser; or
(d) the information is required to be disclosed
pursuant to the order of a court or government agency (in such case, the party
directed by such order shall notify the other party as soon as possible prior to
such disclosure so that such other party may elect to intervene.)
4.2. Recipient shall hold all Proprietary Information in
strict confidence and shall not disclose or transfer Proprietary Information to
any third party. Recipient shall disclose Proprietary Information only to
employees who need to know such information and who have signed agreements that
obligate them to use and keep confidential the Proprietary Information as
required under this Section 4. Recipient shall take all reasonable measures to
protect its own confidential and Proprietary Information, to protect the
confidentiality and avoid the unauthorized use, disclosure, publication, or
dissemination of Proprietary Information. No copies of Proprietary Information
may be made unless approved in writing by Discloser.
4.3. The Recipient for three (3) years from the date of its
receipt shall hold such information in trust and confidence, shall use
Proprietary Information only for the
2
<PAGE>
purpose of this Agreement, and shall not disclose such information to any third
party without prior written approval of the Discloser.
4.4. Such Proprietary Information shall remain the property of
the transmitting party and shall be returned (along with all copies thereof in
any format) upon the earlier of (i) written request or (ii) upon the receiving
party's determination that it no longer has a need for such Proprietary
Information or (iii) the termination of this Agreement.
5. Termination. This Agreement may be terminated in accordance
with the following:
5.1. By either party upon the occurrence of a material breach
of any provision of this Agreement by the other party, and the breaching party's
failure to cure such breech within thirty (30) days after receiving notice
thereof from the non-breaching party.
5.2. By either party, at its option, immediately upon notice,
if a receiver is appointed for the other party or its property; the other party
becomes insolvent or makes an assignment for the benefit of its creditors; the
other party seeks relief or if proceedings are commenced against the other
party, or on its behalf under any bankruptcy, insolvency or debtor's relief law,
and such proceedings have not been vacated or set aside within sixty (60) days
from the date of commencement thereof; or if the other party is liquidated or
dissolved.
5.3. Upon termination of this Agreement, all rights and
obligations of the parties hereunder will terminate forthwith, except as to the
continuing obligations of the parties under Sections 4, 6 and 7 and any
remaining obligation of Client under Section 12. Sections 8, 10, 13, 14 and 15
shall also survive termination. During the period between the giving of such
notice and the date of termination, each party will continue to perform its
obligations hereunder.
6. Limitation of Liability.
NEITHER PARTY SHALL BE LIABLE FOR DAMAGES RESULTING FROM LOSS OF DATA,
PROFITS, USE OF PRODUCTS, OR FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS AGREEMENT OR SERVICES OR
GOODS PROVIDED HEREUNDER.
7. Intellectual Property Rights.
7.1. No license to the other party, under any trademark,
patent or copyright or applications which am now or may hereafter be owned by
the transmitting party, is either granted or implied by the conveying of
information to the receiving party. None of the information which may be
submitted or exchanged by the parties shall constitute any representation,
warranty, assurance, guarantee or inducement by either party to the other with
3
<PAGE>
respect to the infringement of trademarks, patents, copyrights or any right of
privacy, or other rights of third persons.
7.2. Neither party shall acquire directly or by implication
any rights in the background patents and inventions of the other party hereto,
including, but not limited to, inventions described and claimed in applications
for U.S. patents filed prior to the date of this Agreement. In addition, neither
party shall acquire directly or by implication any rights in data or copyrights
in works of authorship, including software, firmware or other forms of computer
programs, created by one or more employees of one of the parties hereto during
the term of this Agreement shall be the sole property of that party. Copies of
data and works of authorship released by the party owning such to the other
party hereto (a) shall be treated by the recipient in accordance with Section 4
"Proprietary Information" of this Agreement and (b) shall be treated by
Recipient in accordance with the applicable U.S. Copyright Laws.
7.3. Any inventions or discoveries made or conceived by one or
more employees of one of the parties hereto during the term of this Agreement
shall be the sole property of that party. In the event of any invention made
jointly by one or more employees of one party with one or more employees of the
other party in the course of work under this Agreement, the parties shall
establish their respective rights by negotiations between them.
8. No Additional Warranties. Except as expressly set forth in
this Agreement, VRI hereby specifically disclaims any representations or
warranties, express or implied, regarding the consulting services, including any
implied warranty of merchantability or fitness for a particular purpose and
implied warranties arising from a course of dealing or course of performance.
9. Notices. Except as otherwise provided herein, any notice or
communication to be given pursuant to the terms of this Agreement must be in
writing. Notice will be deemed given when received if: (a) delivered personally;
(b) sent by confirmed telex or facsimile; (c) sent by commercial overnight
courier with written verification of receipt; (d) sent by registered or
certified mail/return receipt requested postage prepaid; or (e) sent by
electronic mail. Such notice shall be treated as having been received upon the
earlier of actual receipt or three (3) days after posting.
If to Client:
Worldwide Wireless Systems Inc.
25 Broad Street
Suite 16M
New York, New York 10004
Attn: David E. Padilla, President and CEO
Phone: (212) 509-2119
Fax No.: (212) 509-2152
E-mail: [email protected]
4
<PAGE>
With a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104-0050
Attn: Mark L. Mandel, Esq.
Phone: (212) 468-8231
Fax No.: (212) 468-7900
E-mail: [email protected]
If to VRI:
Vanguard Research, Inc.
10400 Eaton Place, Suite 450
Fairfax, VA 22030-2201
Attn: Kellie K. Banker
Phone: (703) 934-6300
Fax No.: (703) 273-9398
E-mail: [email protected]
or to such address, or marked to the attention of such person, as either party
may be written notice direct. Any such notice shall be considered to have been
given when personally delivered or mailed in the manner herein provided.
10. Nonsolicitation of Employees. During the term of this
Agreement and for a period of twelve (12) months after its termination, neither
party shall solicit for employment, hire or otherwise retain any employee of the
other party assigned to work on the assignments described herein without prior
written approval of the party whose employee is being considered for an offer or
hire.
11. Assignment of the Agreement. VRI shall not assign its rights
and/or obligations under this Agreement without the prior written consent of
Client, such consent not be unreasonably withheld.
12. Billings.
12.1. Invoices are to be submitted twice a month on the 1st
and 15th day of each month, including any reasonable expenses. Invoices are due
and payable within ten (10) days of invoice date.
12.2. All payments required by this Agreement are exclusive of
taxes, and Client shall bear and be responsible for the payment of all such
taxes, including, but not limited to, all sales, use, rental receipt, personal
property, value added, consumption, goods
5
<PAGE>
and services, or other taxes which may be levied or assessed in connection with
this Agreement, excluding taxes based on VRI's income.
12.3. Client hereby agrees to pay VRI $16,800.00 on the date
hereof as payment for the services to be completed by VRI during the month of
November.
13. Entire Agreement. With respect to the subject matter hereof,
this Agreement supersedes and cancels all prior negotiations, writings,
commitments, agreements and understandings, either oral or written, regarding
the subject matter herein, if any, between VRI and Client and contains the
entire agreement between the parties hereto and may not be modified except in a
writing signed by the duly authorized representatives of VRI and of Client.
14. Applicable Law. This Agreement is entered into under, and is
to be construed in accordance with, the laws of the State of New York, exclusive
of its choice of law principles. Any dispute, controversy or claim arising under
or relating to this Agreement shall be resolved by a state or federal court
sitting in the Borough of Manhattan in the City of New York in the State of New
York. Each party hereby waives any jurisdictional, venue or inconvenient forum
objections to such court. In any action to enforce this Agreement, the
prevailing party will be entitled to costs and attorneys' fees.
15. Section Headings and Severability. The section headings herein
are inserted for the convenience of the parties, are not a part hereof, and
shall have no effect upon the construction or interpretation of this Agreement.
In the event that any of the provisions of this Agreement shall be held by a
court or other tribunal of competent jurisdiction to be unenforceable, such
provisions shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable.
16. Force Majeure. No party shall be liable for failure to perform
or delay in performing its obligations under this Agreement, and shall not be
deemed to be in breach of its obligations hereunder, if and to the extent and
for so long as such failure or delay in performance or breach is due to natural
disaster; wars; strikes or labor disputes; any loss or disruption of facilities;
or other cause beyond the control of such party. In the event of such, the
affected party shall promptly provide the other parties with notice of such
occurrence and shall diligently attempt to restore or continue its performance.
17. Counterparts. This Agreement may be executed in counterparts,
each of which when executed and delivered shall be deemed an original and both
of which shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf as of the date and year first above written.
WORLDWIDE WIRELESS SYSTEMS, INC.
Signature:/s/David E. Padilla
----------------------------------
Name: David E. Padilla
Title: President and Chief Executive Officer
VANGUARD RESEARCH, INC.
Signature:/s/Mel Chaskin
----------------------------------
Name: Mel Chaskin
Title: President and Chief Executive Officer
7
<PAGE>
EXHIBIT A
VRI will perform the following Services for and on behalf of Client:
1. Manage the roll out of the Internet Services (as defined in that
certain Agreement for Internet Access Services proposed to be entered into by
the Client and FreeLinQ Communications Corporation), including, but not limited
to, the following:
o Coordinate with and manage vendors, resellers, and partners
o Recommend and implement network design and solutions
o Coordinate with and develop strategic relationships with
partners
o Recommend, design, and manage build out of back office
functionality
o Develop and contract with third party vendors
2. Recommend future strategic direction for Client's new and existing
services.
3. Support Client's staff in their execution of related services.
4. Aid Client's executive staff in organizational design and
implementation.
5. Perform other business development activities/processes as defined.
8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement on Form SB-2
(registration number 333-335-93) of our report dated August 7, 1998 (with
respect to Notes E[1] and H, September 24, 1998), 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
January 12, 1999
<PAGE>
ACCOUNTANTS' CONSENT
LEONARD GARTNER
140 East 56th Street
New York, New York 10022
December 14, 1998
In accordance with Rule 438 of Regulation C under the Securities Act of
1933, the undersigned hereby consents to being named in the WorldWide Wireless
Systems, Inc. Registration Statement on Form SB-2 (File No. 333-33593) as an
individual who will assume the position of a Director of WorldWide Wireless
Systems, Inc. upon completion of its public offering.
/s/Leonard Gartner
-------------------------
Leonard Gartner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 105,000
<SECURITIES> 0
<RECEIVABLES> 7,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 138,000
<PP&E> 2,360,000
<DEPRECIATION> 1,457,000
<TOTAL-ASSETS> 1,518,000
<CURRENT-LIABILITIES> 4,057,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 10,084,000
<TOTAL-LIABILITY-AND-EQUITY> 1,518,000
<SALES> 85,000
<TOTAL-REVENUES> 85,000
<CGS> 230,000
<TOTAL-COSTS> 469,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,449,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,833,000)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> 0
</TABLE>
