<PAGE>
As filed with the Securities and Exchange Commission on February 1, 2000
Commission File No. 333-91717
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
TELECOM WIRELESS CORPORATION
(Name of Small Business Issuer In Its Charter)
UTAH 7370 94-3172556
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification
Identification organization) Code Number)
Number)
5299 DTC BOULEVARD, SUITE 1120
ENGLEWOOD, CO 80111
(303) 221-1999
(Address and Telephone Number of Principal Executive Offices)
CALVIN D. SMILEY
PRESIDENT
TELECOM WIRELESS CORPORATION
5299 DTC BOULEVARD, SUITE 1120
ENGLEWOOD, CO 80111
(303) 221-1999
(Name , Address and Telephone Number of Agent for Service)
----------------------------
COPY TO:
GERALD J. LAPORTE, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
(202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------- ---------------- ------------------- -------------------- ----------------
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered Offering price aggregate offering registration
per price fee
Share
- -------------------------------------------- ---------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share (1) 1,826,473 $7.00 (2) $12,785,311 (2) $3,554.32 (3)
- -------------------------------------------- ---------------- ------------------- -------------------- ----------------
Common Stock, par value $.001 per share (4) 1,545,333 $7.4375 (2) $11,493,414 (2) $3,034.26 (5)
- -------------------------------------------- ---------------- ------------------- -------------------- ----------------
</TABLE>
(1) Included in initial registration statement.
(2) Estimated solely for the purpose of calculating the registration fee
on the basis of Rule 457(e).
(3) Previously paid with filing of initial registration statement.
(4) Additional shares included in this Pre-Effective Amendment No. 1.
(5) Paid with this filing.
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>
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to Completion, dated February 1, 2000
PROSPECTUS
FEBRUARY ___, 2000
TELECOM WIRELESS CORPORATION
3,371,806 Shares of Common Stock
to be Sold by Current Stockholders
The selling stockholders identified in this prospectus may use the
prospectus to offer and sell up to 3,371,806 shares of the common stock of
Telecom Wireless Corporation from time to time. The selling stockholders will
receive all the proceeds from the sale of these shares. Telecom Wireless will
not receive any of the proceeds.
The common stock of Telecom Wireless has been traded in the
over-the-counter market and quoted through the OTC Bulletin Board under the
symbol "NOYRE." We expect it to continue to trade in that market. On January
28, 2000, the reported closing price of Telecom Wireless' common stock was
$7-7/8 per share.
These securities involve a high degree of risk. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE
DECIDING WHETHER TO INVEST IN TELECOM WIRELESS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
In deciding whether to buy the shares offered, you should rely only on
the information contained in this document. Telecom Wireless Corporation has not
authorized anyone to provide you with any information that is different from
this information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING............................................................................3
RISK FACTORS......................................................................................................5
A NOTE ABOUT FORWARD-LOOKING STATEMENTS..........................................................................10
USE OF PROCEEDS..................................................................................................11
DETERMINATION OF OFFERING PRICE..................................................................................11
DILUTION.........................................................................................................11
SELLING STOCKHOLDERS.............................................................................................11
PLAN OF DISTRIBUTION.............................................................................................13
SELECTED COMBINED PRO FORMA FINANCIAL DATA.......................................................................14
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES.......................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION................................16
BUSINESS.........................................................................................................26
MANAGEMENT.......................................................................................................41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................47
CERTAIN TRANSACTIONS AND RELATIONSHIPS...........................................................................48
TELECOM WIRELESS'STOCK...........................................................................................50
SECURITIES AND EXCHANGE POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES...............................52
EXPERTS..........................................................................................................52
LEGAL MATTERS....................................................................................................52
HOW TO OBTAIN ADDITIONAL INFORMATION.............................................................................52
INDEX TO FINANCIAL STATEMENTS....................................................................................55
</TABLE>
<PAGE>
This document may be used only where it is legal to sell these securities.
The information in the document may be accurate on the date on the cover only.
PROSPECTUS SUMMARY/SUMMARY OF OFFERING
<TABLE>
<S> <C>
Telecom Wireless Telecom Wireless Corporation intends to become a
leading consolidator in the Internet service
provide or "ISP" business and the competitive
local exchange carrier or "CLEC" business.
The Offering 3,371,806 shares of common stock may be offered
by selling stockholders. The selling
stockholders may sell all or any portion of the
shares in this offering in one or more
transactions by a variety of methods, including
through the OTC Bulletin Board or in negotiated
transactions. The selling stockholders will
determine the selling price of the shares. The
selling stockholders will also pay any broker or
dealer commission, fee or other compensation or
underwriter discount.
Use of Proceeds Telecom Wireless will not receive any proceeds
from the sale of the common stock by the selling
stockholders.
Trading Symbol and Market The common stock of Telecom Wireless is traded
through the OTC Bulletin Board under the symbol
"NOYRE." The market for the stock is
characterized generally by low volume and broad
price and volume volatility. Telecom Wireless
cannot give any assurance that a stable trading
market will develop for its stock. The "E" was
added to our symbol "NOYR" to indicate that the
common stock will no longer be eligible for
quotation on the OTC Bulletin Board if Telecom
Wireless does not meet the eligibility
requirements by February 24, 2000. If we do not
timely meet these requirements, the Telecom
Wireless common stock thereafter will be quoted
on the so-called "pink sheets" until our
eligibility for the OTC Bulletin Board is
reestablished.
Public Company Status Telecom Wireless has not previously filed annual
or quarterly reports with the Securities and
Exchange Commission as a public company. It will
begin to do so upon effectiveness of this
offering, which is the initial offering of its
securities registered with the Securities and
Exchange Commission, or, if earlier, upon
effectiveness of its registration statement
filed under Section 12 of the Securities
Exchange Act of 1934 on December 14, 1999. That
registration statement will become effective 60
days after filing unless withdrawn beforehand.
Effectiveness of either registration statement
by February 24, 2000, will allow the Telecom
Wireless common stock to continue to be quoted
on the OTC Bulletin Board.
Address and Phone Number The address of the principal executive offices
of Telecom Wireless and its telephone number at
that address are:
Telecom Wireless Corporation
5299 DTC Boulevard, Suite 1120
Englewood, Colorado 80111
Telephone No.: (303) 221-1999
</TABLE>
3
<PAGE>
SUMMARY HISTORICAL INDIVIDUAL FINANCIAL DATA
The following table presents summary historical statement of operations
data for Telecom Wireless Corporation and a recently acquired subsidiary of
Telecom Wireless. The historical statement of operations data presented below
have not been adjusted for the pro forma adjustments reflected in the
unaudited pro forma combined financial statements included elsewhere in this
prospectus.
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
June 30, September 30,
------------------------------------- -------------------------------------
1998 1999 1998 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Total revenues $ 650,000 $ 523,000 $ 144,000 $ 171,000
Total costs and expenses 2,305,000 3,968,000 357,000 3,034,000
---------------- ---------------- ---------------- ----------------
Net (Loss) $ (1,655,000) $ (3,445,000) $ (213,000) $ (2,863,000)
================ ================ ================ ================
Net (Loss) per common share-basic and
diluted $ (15.08) $ (.92) $ (.05) $ (.19)
================ ================ ================ ================
Weighted average shares outstanding - basic
and diluted 109,772 3,759,050 3,928,015 15,256,675
</TABLE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Periods Ended Six Months Ended
December 31, June 30,
------------------------------------- -------------------------------------
1997 1998 1998 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 47,000 $ 171,000 $ 88,000 $ 77,000
Internet operating costs and expenses 127,000 347,000 162,000 113,000
---------------- ---------------- ---------------- ----------------
Net income (loss) $ (80,000) $ (176,000) $ (74,000) $ (36,000)
================ ================ ================ ================
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before
deciding whether to invest in Telecom Wireless Corporation. If any of the
contingencies discussed in the following paragraphs or other materially
adverse events actually materialize, the business, financial condition and
results of operations of Telecom Wireless could be materially and adversely
affected. In such a case, the trading price of Telecom Wireless' common stock
could decline, and you could lose all or part of your investment.
TELECOM WIRELESS HAS EXPERIENCED DIFFICULTY IMPLEMENTING ITS BUSINESS PLAN
Telecom Wireless has an ambitious business plan that it has been
attempting to implement since April 1999. Since the company has experienced
difficulty obtaining financing from traditional sources, execution of most of
its business plan has been delayed. There can be no assurance that the
business plan can be implemented and successfully executed.
SUBSTANTIAL DOUBT EXISTS AS TO TELECOM WIRELESS' ABILITY TO CONTINUE AS A
GOING CONCERN
The independent auditor's report on the June 30, 1999, financial
statements of Telecom Wireless contains an explanatory paragraph which
indicates there is substantial doubt as to the company's ability to continue
as a going concern. Telecom Wireless incurred net losses of approximately
$3,445,000 and $2,862,000 for the year ended June 30, 1999 and for the
quarter ended September 30, 1999, respectively, and had an accumulated
deficit of approximately $9,828,000 as of September 30, 1999. During the same
periods, Telecom Wireless had negative cash flows from operations of
approximately $1,421,000 and $1,340,000, respectively.
Management projects that Telecom Wireless will continue to incur net
losses and experience negative cash flow for the foreseeable future. This
will require substantial amounts of capital. As of the date of this
prospectus, management does not have commitments for additional financing and
cannot be sure that Telecom Wireless will be able to obtain any such
commitments at all or upon reasonable terms and conditions.
Management expects Telecom Wireless to meet its additional capital
needs through sales of equity and debt securities, credit facilities and
other borrowings, and lease financings. Management is not sure whether it
will be able to raise sufficient capital through these or any other methods.
If it cannot, management may be required to modify, delay or abandon the
business plan. As of the date of this prospectus, management does not have
commitments for any additional financing and cannot be sure that Telecom
Wireless will be able to obtain any such commitments at all or upon
reasonable terms and conditions.
FAILURE TO INTEGRATE ACQUISITIONS SUCCESSFULLY MAY ADVERSELY AFFECT TELECOM
WIRELESS' OPERATING RESULTS
The success of Telecom Wireless will depend to a great extent on its
ability to integrate the operations and management of the businesses that it
has acquired and businesses that it may acquire in the future. Consolidating
acquired businesses and integrating regional operations may take a
significant period of time, will place a significant strain on Telecom
Wireless' resources and could prove to be more expensive than expected.
Telecom Wireless may increase expenditures to accelerate the integration and
consolidation of its acquired operations , but it cannot guarantee this
result nor can the company assure investors that its resources will be
sufficient to successfully implement its expansion program.
5
<PAGE>
TELECOM WIRELESS IS SUBJECT TO ALL RISKS FACED BY START-UP INTERNET COMPANIES
When making your investment decision, you should consider the risks
and difficulties Telecom Wireless may encounter in building and operating a
business in the rapidly evolving telecommunications sector, especially given
its limited operating history:
- Future revenues will depend heavily on management's ability to
acquire businesses, to attract and retain subscribers and
business customers, and to increase per subscriber revenues.
- The telecommunications services business, including the Internet
services sector, is extremely competitive and is changing
rapidly. Competition could result in loss of customers and
reduction of revenues. Most of our competitors have
significantly greater market presence, brand recognition, and
financial, technical and personnel resources than Telecom
Wireless has, and many have extensive coast-to-coast Internet
backbones and large customer bases.
- We expect increasing competition from Internet service providers
using alternative technologies including:
- telecommunications providers that bundle Internet access
with basic local and long distance telecommunications
services, which could force Telecom Wireless to price
its services at a level that would have an adverse
effect on its business, financial condition and results
of operations;
- major cable companies such as AT&T as they begin to
offer Internet connectivity through their cable
infrastructure, which is designed to increase the
connection speed to the Internet; and
- other alternative service companies that are approaching
the Internet connectivity market with various wireless
terrestrial and satellite-based service technologies,
which currently offer high-speed Internet access to
business customers.
- Management expects Telecom Wireless to encounter significant
pricing pressure as a result of competition and advances in
technology.
- Telecom Wireless will rely on a combination of copyright,
trademark and trade secret laws to protect its proprietary
rights. Management cannot be certain that the steps we, or the
companies we have acquired, have taken will be adequate to
prevent the misappropriation of Telecom Wireless' technology or
that third parties, including competitors, will not
independently develop technologies that are substantially
equivalent or superior to Telecom Wireless' proprietary
technology.
6
<PAGE>
MANAGEMENT'S PLANNED AGGRESSIVE GROWTH WILL STRAIN TELECOM WIRELESS' RESOURCES
Management intends to expand the operations of Telecom Wireless
rapidly through acquisitions by aggressively pursuing companies that provide
or can provide a national network system and infrastructure and then expand
the network through the acquisition and installation of necessary equipment,
extensive marketing efforts in new locations and the employment of qualified
technical, marketing and customer support personnel. This rapid growth will
place a significant strain on our managerial, operational and financial
resources.
To manage our growth, management must improve the operational
systems, procedures and controls of Telecom Wireless on a timely basis by
centralizing and standardizing Telecom Wireless' operations and upgrading and
replacing outdated infrastructure. If the demands placed on its network
resources by a growing subscriber base outpace its growth and operating
plans, the quality and reliability of our service may decline and
relationships with customers may be harmed as a result.
IF TELECOM WIRELESS IS UNABLE TO ESTABLISH SATISFACTORY PEERING
RELATIONSHIPS, COSTS MAY INCREASE
Management intends to establish and maintain "peering" relationships
with other ISPs and with CLECs so that Telecom Wireless can exchange traffic
without paying transit costs. If management is unable to establish adequate
peering relationships, our costs will increase and our revenues could
decrease. This would harm the business, financial condition and results of
operations of Telecom Wireless.
TELECOM WIRELESS COULD FACE LOSSES AND POTENTIAL LIABILITY IF INTRUSIONS,
VIRUSES OR SIMILAR DISRUPTIONS TO ITS NETWORK OR COMPUTER SYSTEMS IMPEDE ITS
SERVICE OR JEOPARDIZE ITS CONFIDENTIAL INFORMATION OR THAT OF ITS SUBSCRIBERS
Although management has implemented, and will continue to implement,
security measures, the computer systems of Telecom Wireless are vulnerable to
computer viruses, break-ins and similar disruptive problems caused by
customers or other users. Any such occurrences could lead to interruptions,
delays or cessation in service to our customers and could jeopardize the
security of confidential information stored in the computer systems of our
customers. This could, in turn, deter potential customers and adversely
affect existing customer relationships.
The security services that Telecom Wireless offers in connection
with its customers' networks cannot assure complete protection from these
problems. Although management will attempt to limit contractually Telecom
Wireless' liability in these instances, the occurrence of security-related
problems may result in claims against Telecom Wireless or liability on its
part. Such claims, regardless of their ultimate outcome, could result in
costly litigation and could have a material adverse effect on the business or
reputation of Telecom Wireless or on its ability to attract and retain
customers. Moreover, until consumers trust and rely on existing security
technologies, the security and privacy concerns of existing and potential
customers may inhibit the growth of the telecommunications services industry
and our customer base and revenues.
IF SUPPLIERS FAIL TO PROVIDE TELECOM WIRELESS WITH THE EQUIPMENT IT NEEDS, WE
MAY LOSE CUSTOMERS
There are only a limited number of businesses that can supply
Telecom Wireless with the key components it will need for its planned network
infrastructure, including telecommunications services and networking
equipment. Management cannot be certain that suppliers and telecommunications
carriers will continue to sell or lease their products and services to
Telecom Wireless at commercially reasonable prices or at all. If there are
delays in receiving this equipment, Telecom Wireless may not be able to
service its customers. Difficulties in developing alternative sources of
supply, if required, could adversely affect its business, future financial
condition or operating results. Moreover, failure of telecommunications
providers to provide the data communications capacity required by Telecom
Wireless for any reason could cause interruptions in its ability to provide
access services to its customers, which may materially and adversely affect
our business, financial condition and operating results.
7
<PAGE>
TELECOM WIRELESS MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY
STANDARDS TO REMAIN COMPETITIVE
Telecom Wireless is susceptible to rapid changes due to technology
innovation, evolving industry standards, changes in customer needs and
frequent new service and product introductions. New services and products
based on new technologies or new industry standards expose Telecom Wireless
to risks of obsolete equipment. Management will need to use leading
technologies effectively, continue to develop technical expertise and enhance
existing services on a timely basis to compete successfully in this industry.
We cannot assure that we will be able to do so or that any new technologies
or enhancements used by Telecom Wireless or offered to its customers will
achieve market acceptance.
Our ability to compete successfully also depends on the
compatibility and interoperability of our services with products and systems
sold by various third parties. Although management intends to support
emerging standards in the market for Internet access and enhanced business
services, we cannot be certain that industry standards will be established
or, if they become established, that Telecom Wireless will be able to conform
to these new standards in a timely fashion and maintain a competitive
position in the market.
Telecom Wireless is also at risk due to fundamental changes in the
way that Internet access may be delivered in the future. Currently, customers
access Internet services primarily by computers connected by telephone lines.
Recently, several companies have developed cable modems, some of which are
currently offered for sale. These cable modems have the ability to transmit
data at substantially faster speeds than the modems currently used by most
Internet users. Other alternative service companies are offering various
wireless terrestrial and satellite-based service technologies, which
currently offer high-speed Internet access to business customers. As the
Internet becomes accessible by broad segments of the U.S. population through
cable modems, wireless platforms and other consumer electronic devices, or as
subscriber requirements change the means by which Internet access is
provided, Telecom Wireless will have to develop new technologies or modify
existing technology to accommodate these developments and remain competitive.
Management's pursuit of these technological advances may require substantial
time and expense, and we cannot be certain that we will succeed in adapting
our Internet access services business to alternative Internet access devices
and conduits.
TELECOM WIRELESS FACES THE UNCERTAINTY OF SUBSCRIBER RETENTION IN THE ISP
BUSINESS
Sales, marketing and other costs of acquiring new subscribers in the
ISP business will be substantial relative to the monthly fees and other
revenues expected from subscribers. Accordingly, management believes that the
long-term success of Telecom Wireless depends largely on our ability to
retain subscribers, while continuing to obtain new subscribers through
acquisitions and organic growth. Management expects to invest significant
resources in a national network infrastructure and customer and technical
support capabilities to provide high levels of customer service. Management
cannot be certain that these investments will maintain or improve subscriber
retention. Management believes that intense competition from competing ISPs,
some of which offer many free hours of service or other enticements for new
subscribers, will cause some of Telecom Wireless' future ISP subscribers to
switch to its competitors' services. In addition, some new subscribers use
the Internet only as a novelty and do not become consistent users of Internet
services and, therefore, may be more likely to discontinue their service.
These factors may adversely affect subscriber retention rates. Any decline in
subscriber retention rates could have a material adverse effect on Telecom
Wireless' business, financial condition and operating results.
8
<PAGE>
TELECOM WIRELESS FACES A POTENTIAL CASH SHORTFALL IF IT DOES NOT ATTRACT NEW
ISP SUBSCRIBERS
Management anticipates that a portion of the ISP sales of Telecom
Wireless will be to customers who prepay for one year of service. Management
expects to apply a substantial portion of the proceeds from these prepayments
to acquire more equipment, purchase advertising, meet current obligations and
fund any operating deficits. Management does not expect to set aside proceeds
as capital reserves to reimburse subscribers who may decide to discontinue
their service before their prepaid term expires. As a result, the financial
condition of Telecom Wireless, including its operating results, cash flow and
liquidity, may be dependent upon increasing the number of new customers in
the current year and beyond. Any future decline in the rate of growth of new
subscribers, or any unanticipated increase in the rate of subscriber
reimbursements, could force management to raise additional capital to support
operations by selling equity securities or incurring additional debt.
ACQUISITIONS OF ISP SUBSCRIBERS MAY RESULT IN SUBSCRIBER CANCELLATIONS DUE TO
BILLING PROBLEMS AND UNFAMILIARITY WITH TELECOM WIRELESS' SERVICE;
ACQUISITIONS OF COMPANIES MAY DISRUPT TELECOM WIRELESS' BUSINESS AND DISTRACT
MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS
As part of management's growth strategy, Telecom Wireless may
acquire businesses, products, technologies and other assets, including ISP
subscriber accounts, or enter into joint venture arrangements that complement
our businesses. In an acquisition of ISP subscribers, Telecom Wireless may
experience subscription cancellations in the short-term period following the
acquisition due to the lack of the acquired subscribers' familiarity with
Telecom Wireless as their ISP and billing issues that may arise due to poor
record keeping and billing administration by the selling company. If Telecom
Wireless acquires another company, Telecom Wireless could encounter
difficulties in assimilating the acquiree's personnel and operations. This
may disrupt our ongoing business and distract management, as well as result
in unanticipated costs and difficulty in maintaining standards, controls and
procedures. Management cannot be certain that Telecom Wireless will succeed
in overcoming these risks or any other problems encountered in connection
with any acquisitions Telecom Wireless may make. In addition, Telecom
Wireless may be required to incur debt or issue equity securities to pay for
any future acquisitions or to fund any losses or unanticipated costs of the
combined companies.
TELECOM WIRELESS MAY FACE POTENTIAL LIABILITY FOR MATERIAL TRANSMITTED
THROUGH ITS NETWORK OR RETRIEVED THROUGH ITS SERVICES
The law relating to the liability of ISPs and ASPs for information
carried on or disseminated through their networks is unsettled. In addition,
the Federal Telecommunications Act of 1996 imposes fines on any entity that
knowingly permits any telecommunications facility under such entity's control
to be used to make obscene or indecent material available to minors via an
interactive computer service. As the law in this area develops, Telecom
Wireless may be required to expend substantial resources or discontinue
certain services to reduce its exposure to potential liability for
information carried on and disseminated through our network. Any costs that
Telecom Wireless incurs as a result of contesting any such asserted claims or
the consequent imposition of liability could materially and adversely affect
its business, financial condition and operating results.
In addition, because materials may be downloaded by users of our
services or their customers and subsequently distributed to others, people
may make claims against Telecom Wireless for defamation, negligence,
copyright or trademark infringement, personal injury or other causes of
action based on the nature, content, publication and distribution of such
materials. Telecom Wireless also could be exposed to liability with respect
to offering third-party content that may be accessible through our services,
including links to web sites maintained by our subscribers or other third
parties, or posted directly to a web site of Telecom Wireless, and
subsequently retrieved by a third party through our services. If any
third-party content provided through our services contains errors, third
parties who access such material could make claims against Telecom Wireless
for losses incurred in reliance on such information. Telecom Wireless may
also offer e-mail services, which would expose Telecom Wireless to other
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Such claims, with or without
merit, likely would divert management's time and attention and result in
significant costs to investigate and defend.
SHARES AVAILABLE FOR FUTURE SALE
The market price of Telecom Wireless' common stock could drop if
substantial amounts of shares are sold in the public market or if the market
perceives that such sales could occur. A drop in the market price could
adversely affect holders of the stock and could also harm Telecom Wireless'
ability to raise additional capital by selling equity securities. The
securities that may be sold from time to time under this prospectus represent
a market overhang. In addition, based on a market price of the common stock
of $7-7/8 per share as of January 28, 2000, Telecom Wireless had outstanding
options, warrants, including repricing warrants, and convertible securities
for the purchase of up to approximately 8,128,764 shares of common stock at
an average exercise price of $8.38 per share, representing approximately 33%
of the company's outstanding shares of common stock on a fully-diluted basis.
The perception that these instruments may be exercised for or converted into
common stock that could be sold into the public market could adversely affect
the market price of Telecom Wireless' common stock. In addition, shares
issued by Telecom Wireless in private transactions over the past two years
will become eligible for sale into the public market under SEC Rule 144.
9
<PAGE>
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains both historical and forward-looking
statements. All statements other than statements of historical fact are, or
may be deemed to be, forward-looking statements. The forward-looking
statements in this prospectus are not based on historical facts, but rather
reflect the current expectations of the management of Telecom Wireless
Corporation concerning future results and events.
The forward-looking statements generally can be identified by the
use of terms such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee," "likely," "will" or other similar words or phrases. Similarly,
statements that describe the objectives, plans or goals of Telecom Wireless
are or may be forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of Telecom Wireless to be different from any
future results, performance and achievements expressed or implied by these
statements. You should review carefully all information, including the
financial statements and the notes to the financial statements included in
this prospectus. In addition to the factors discussed above under "Risk
Factors," the following important factors could affect future results,
causing the results to differ materially from those expressed in the
forward-looking statements in this prospectus:
- the timing, impact and other uncertainties related to pending
and future acquisitions by Telecom Wireless;
- the impact of new technologies;
- changes in laws or rules or regulations of a governmental
agency, including the Federal Communications Commission;
- changes in tax requirements, including tax rate changes, new
tax laws and revised tax law interpretations; and
- interest rate fluctuations and other capital market
conditions.
These factors are not necessarily all of the important factors that
could cause actual results to differ materially from those expressed in the
forward-looking statements in this prospectus. Other unknown or unpredictable
factors also could have material adverse effects on the future results of
Telecom Wireless. The forward-looking statements in this prospectus are made
only as of the date of this prospectus and Telecom Wireless does not have any
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances. Telecom Wireless cannot assure you that
projected results will be achieved.
10
<PAGE>
USE OF PROCEEDS
Because this prospectus is solely for the purpose of permitting the
selling stockholders to offer and sell shares, Telecom Wireless will not
receive any proceeds from the sale of the shares being offered. The selling
stockholders will receive all the proceeds. Telecom Wireless has, however,
previously received proceeds from the original issuance of the shares covered
by this prospectus.
DETERMINATION OF OFFERING PRICE
This offering is solely for the purpose of allowing selling
stockholders to sell shares. The selling stockholders may elect to sell some
or all of their shares when they choose, in the near future or at a later
date, at the price at which they choose to sell. As the market develops, the
selling stockholders will determine the price for their shares.
DILUTION
This offering is for sales of shares by selling stockholders. Such
sales will not result in any dilution to the net tangible book value per
share of the common stock of Telecom Wireless before and after the sales.
Prospective investors should be aware, however, that the market price of
shares being sold may not bear any rational relationship to net tangible book
value per share.
SELLING STOCKHOLDERS
The following table gives the names of the stockholders for whose
accounts shares may be offered using this prospectus, the number of shares of
common stock of Telecom Wireless Corporation beneficially owned by each named
stockholder before this offering, the percentage of the total shares of
Telecom Wireless' common stock as of January 21, 2000, represented by the
shares beneficially owned, the number of shares that may be offered for the
stockholder's account in this offering, and the number of shares to be
beneficially owned by the stockholder following completion of the offering.
The number of shares to be beneficially owned following completion of the
offering is based on the assumption that the stockholder will sell all of the
shares that may be offered for the stockholder's account in this offering,
and that the stockholder will not purchase or sell any other shares.
Stockholders are not required to sell the shares that may be offered in this
offering. Under SEC rules, beneficial ownership includes all shares of
Telecom Wireless common stock issuable within 60 days after the date of this
prospectus upon exercise of outstanding options, warrants, convertible
securities or other rights.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------- ------------------- -------------- --------------
PERCENT OF
OUTSTANDING
SHARES NO. OF
NO. OF REPRESENTED BY NO. OF SHARES SHARES OWNED
NAME SHARES BENEFICIALLY OWNED TOTAL OFFERED AFTER SALE
-------------------------------
REPRICING
SHARES
INCLUDED IN
TOTAL TOTAL
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Anglo Irish Nominees (Trusts) Ltd.
A/C GRC241 20,000 10,000 Less than 1% 20,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Arab Commerce Bank Ltd. 28,570 14,285 Less than 1% 28,570 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Jack Augsback(1) 103,335(1) 0 Less than 1% 15,100 88,235
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Marshall M. Becker 50,000 0 Less than 1% 50,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Steve Bell 2,000 1,000 Less than 1% 2,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Caribbean Investors Group, Ltd 28,570 14,285 Less than 1% 28,570 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Chelverton Fund Ltd. 48,000 15,000 Less than 1% 48,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Commtel Services Ltd. 500,000 0 Less than 1% 500,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Francis J. Fernandez 14,000 7,000 Less than 1% 14,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Robert L. Franks 2,000 1,000 Less than 1% 2,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
GBS Capital Management, Inc. 42,000 0 Less than 1% 42,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Dale Geringer 10,000 5,000 Less than 1% 10,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Richard Geringer 10,000 5,000 Less than 1% 10,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Robert Geringer 4,000 2,000 Less than 1% 4,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
William R. Gillespie 4,000 2,000 Less than 1% 4,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Steven Gole 100,000 0 Less than 1% 100,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Daniel A. Gooze 12,000 6,000 Less than 1% 12,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Hampton-Porter Investment Bankers 1,550,000 0 8.9% 550,000 1,000,000
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
David Hettinger 2,335 1,000 Less than 1% 2,000(2) 335
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
HyperLight Network Corporation 952,381 0 5.8% 500,000 452,381
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
JHS Associates, Ltd. Retirement
Account(3) 681,000(3) 53,000 4.0% 106,000(3) 605,000
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
11
<PAGE>
<CAPTION>
- ------------------------------------- ------------------------------- ------------------- -------------- --------------
PERCENT OF
OUTSTANDING
SHARES NO. OF
NO. OF REPRESENTED BY NO. OF SHARES SHARES OWNED
NAME SHARES BENEFICIALLY OWNED TOTAL OFFERED AFTER SALE
-------------------------------
REPRICING
SHARES
INCLUDED IN
TOTAL TOTAL
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
John Kozik 13,500 6,750 Less than 1% 13,500 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Victor P. LaRosa 12,000 6,000 Less than 1% 12,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Kenneth R. Levine 165,000(4) 0 Less than 1% 150,000 15,000
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Deanna Wallin Lipman 14,281 0 Less than 1% 14,281 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Marie Walch Loughlin 26,000 13,000 Less than 1% 26,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Mach Products, Inc. 28,000 0 Less than 1% 28,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Gray M. Magee, Jr. 4,000 2,000 Less than 1% 4,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Magid Family Trust 7,000 3,500 Less than 1% 7,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Joshua Mailman 250,000 0 1.5% 250,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Robert L. Primm 4,000 2,000 Less than 1% 4,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Princeton Insurance 8,000 2,000 Less than 1% 8,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Rheta Sue Scammell 14,281 0 Less than 1% 14,281 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Silenus Limited 20,000 0 Less than 1% 20,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
SovCap Equity Partners Ltd. 188,954 90,477 1.1% 188,954 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Mark Stys 22,650(5) 0 Less than 1% 7,550 15,100
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Matthew Talbert 100,000 0 Less than 1% 100,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Thomson Kernaghan & Co. Ltd. 432,000(6) 180,000 2.6% 360,000(6) 72,000
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
Warren Zee 114,000 57,000 Less than 1% 114,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
James and Donita Zeller 2,000 1,000 Less than 1% 2,000 0
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
TOTALS 3,371,806
- ------------------------------------- --------------- --------------- ------------------- -------------- --------------
</TABLE>
(1) Telecom Wireless Corporation and Jack Augsback & Associates, Inc., of
which Jack Augsback is the controlling shareholder, are parties to a
Corporate Finance/Placement Agent Agreement dated March 26, 1999 under
which Telecom Wireless is required to pay the Augsback firm
performance-based compensation for introduction to resources capable of
providing financing to Telecom Wireless. The number of shares shown as
owned by Mr. Augsback includes (i) 58,035 shares that may be acquired by
the Augsback firm within the next 60 days upon the exercise of warrants
held by the firm that have an exercise price of $7.00 per share; (ii)
10,200 shares that may be acquired by Mr. Augsback within the next 60
days upon the exercise of warrants held by him that have an exercise
price of $7.00 per share; and (iii) 20,000 shares that may be acquired by
Mr. Augsback within the next 60 days upon the exercise of warrants held
by him that have an exercise price of $5.00 per share.
(2) The number of shares shown as owned by David Hettinger includes 335
shares that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share.
(3) John H. Sununu, who controls and is a beneficial owner of JHS Associates,
Ltd. Retirement Account, is a member of the Advisory Board of Telecom
Wireless and a party to a contract with Telecom Wireless that requires
him to provide financial consulting and other services to the company.
The number of shares shown as owned by JHS Associates, Ltd. Retirement
Account includes 500,000 shares that may be acquired by Mr. Sununu
personally within the next 60 days upon the exercise of a fully vested
warrant held by him with an exercise price of $5.50 per share and 105,000
shares that may be acquired by him personally within the next 60 days
upon the exercise of a partially vested warrant held by him out of
720,000 shares that potentially may vest under the warrant. Under the
720,000-share warrant, installments of 15,000 shares each vest on the
first day of each month, beginning October 1, 1999, as long as the
Services Agreement dated August 30, 1999 between Telecom Wireless and Mr.
Sununu has not been terminated by Telecom Wireless or by Mr. Sununu, and
certain other conditions are met. The exercise price per share for each
installment under the 720,000-share warrant is equal to 50% of the
average of the last reported sales price per share of the common stock
for the 20 trading days prior to the date that installment vests.
(4) The number of shares shown as owned by Kenneth R. Levine includes 7,500
shares that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share.
(5) The number of shares shown as owned by Mark Stys includes 15,100 shares
that may be acquired within the next 60 days upon the exercise of
warrants held by him that have an exercise price of $7.00 per share.
(6) The number of shares shown as owned by Thomson Kernaghan & Co. Ltd.
includes 72,000 shares that may be acquired within the next 60 days upon
the exercise of warrants held by Thomson Kernaghan that have an exercise
price of $7.00 per share.
The "No. of Shares Beneficially Owned" and "No. of Shares Offered"
columns in the table above include shares assumed to be acquired pursuant to
repricing warrants as an adjustment to the purchase price of an equal number of
shares purchased by the selling stockholder. The repricing shares will be
issued, however, only if the average of the closing bid prices of Telecom
Wireless' common stock for the 20 trading days immediately after the effective
date of the registration statement of which this prospectus is a part is less
than $8.75. Under the terms of the repricing warrants, the repricing shares are
required to be issued at a negligible exercise price, $.001 per share, on or
after the 21st trading day after the effective date if the average is less than
$8.75. The number of repricing shares to be issued will be calculated by taking
the number of shares of common stock originally purchased by the selling
stockholder and multiplying by a fraction, the numerator of which is $8.75 minus
the average and the denominator of which is the average itself. To assure that
sufficient repricing shares would be included in the registration statement,
Telecom Wireless calculated the number of repricing shares to be included by
assuming the average would be 50% of the $8.75 trigger price, or $4.375. This
assumption resulted in a 100% increase in the number of shares listed in the
"No. of Shares Beneficially Owned" and "No. of Shares Offered" columns in the
table above over the number of shares originally purchased for the selling
stockholders who hold repricing warrants. The calculation resulted in the
inclusion of 500,297 repricing shares in the registration statement, which is
the total number of repricing shares included in the "No. of Shares Beneficially
Owned" and "No. of Shares Offered" columns in the table above.
12
<PAGE>
PLAN OF DISTRIBUTION
Telecom Wireless is registering this offering of shares on behalf of
the selling stockholders. Telecom Wireless will pay all costs, expenses and
fees related to the registration, including all registration and filing fees,
printing expenses, fees and disbursements of its counsel, blue sky fees and
expenses. The selling stockholders will pay any underwriting discounts and
selling commissions in connection with the sale of the shares.
The selling stockholders may sell the shares covered by this
prospectus from time to time in one or more transactions through the OTC
Bulletin Board or an interdealer quotation system, on one or more securities
exchanges, in alternative trading markets or otherwise, at prices and at
terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The selling stockholders will determine the
prices at which they sell their shares in these transactions. The selling
stockholders may effect the transactions by selling the shares to or through
broker-dealers. In effecting sales, broker-dealers engaged by the selling
stockholders may arrange for other broker-dealers to participate in the
resales. The shares may be sold by one or more, or a combination, of the
following:
- a block trade in which the broker-dealer attempts to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction,
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account,
- an exchange distribution in accordance with the rules of the
applicable exchange,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
- privately negotiated transactions.
The selling stockholders may enter into hedging transactions with
broker-dealers. In these transactions, broker-dealers may engage in short
sales of the common stock in the course of hedging the positions they assume
with the selling stockholders. The selling stockholders also may sell the
common stock short pursuant to this prospectus and redeliver the shares to
close out these short positions. The selling stockholders may enter into
option or other transactions with broker-dealers that require the delivery to
the broker-dealer of the shares covered by this prospectus. The broker-dealer
may then resell or otherwise transfer the shares pursuant to this prospectus.
The selling stockholders also may loan or pledge the shares to a
broker-dealer. The broker-dealer may then sell the loaned shares or, upon a
default by the selling stockholder, the broker-dealer may sell the pledged
shares pursuant to this prospectus.
The selling stockholders may engage in other financing transactions
that may include forward contract transactions or borrowings from financial
institutions in which the shares are pledged as security. In connection with
any of these forward contract transactions, the selling stockholders would
pledge shares to secure their obligations and the counterparty to these
transactions would sell the common stock short to hedge its transaction with
the selling stockholder. Upon a default by the selling stockholder under any
of these financings, including a forward contract transaction, the pledgee or
its transferee may sell the pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation to a particular broker-dealer may be in excess of
customary commissions and will be in amounts to be negotiated with a selling
stockholder in connection with the sale. Broker-dealers or agents, any other
participating broker-dealers and the selling stockholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933 in connection with sales of the shares. Accordingly, any commission,
discount or concession received by them and any profit on the resale of the
shares purchased by them may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933. Because the selling
stockholders may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, the selling stockholders will be subject
to the prospectus delivery requirements of the Securities Act of 1933. Each
selling stockholder has advised Telecom Wireless Corporation that the
stockholder has not yet entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of
the shares.
The selling stockholders have agreed to sell the shares only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable
state or an exemption from registration or qualification is available and is
complied with.
The selling stockholders will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the associated rules and regulations,
including Regulation M. These provisions may limit the timing of purchases
and sales of shares of the common stock of Telecom Wireless by the selling
stockholders. Telecom Wireless will make copies of this prospectus available
to the selling stockholders and has informed them of the need for delivery of
copies of this prospectus to purchasers at or before the time of any sale of
the shares.
13
<PAGE>
SELECTED COMBINED PRO FORMA FINANCIAL DATA
The table below presents summary pro forma combined financial data
for the year ended June 30, 1999, combining the historical results of Telecom
Wireless Corporation with the results of its subsidiaries, one of which has
been acquired recently. The pro forma combined financial statements are
presented as if the acquisitions had closed on July 1, 1998.
The summary pro forma financial data include, under the line item
labeled "adjusted EBITDA," our earnings or losses before non-cash
compensation expense, interest, taxes, depreciation and amortization on a pro
forma combined basis for the year ended June 30, 1999. We have included
adjusted EBITDA in these data because it is a measure commonly used by
investors to analyze and compare companies on the basis of operating
performance. Adjusted EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be construed as
a substitute for operating income, net income or cash flows from operating
activities for purposes of analyzing our operating performance, financial
position or cash flows. Not all companies define EBITDA in the same way, and
our adjusted EBITDA is not necessarily comparable to EBITDA reported by other
companies.
The summary pro forma financial data do not necessarily indicate the
operating results or financial position which would have resulted from our
operation on a combined basis during the period presented, nor does the pro
forma data necessarily represent any future operating results or financial
position. In addition to the summary financial data, you should also refer to
the more complete financial information included elsewhere in this
prospectus, including more complete historic results for the acquired
companies, and our unaudited pro forma combined financial statements and the
accompanying notes.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FISCAL YEAR ENDED
JUNE 30, 1999
------------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Access Revenues $159,000
Wireless Cable Revenues 523,000
Other -
------------
Total Revenues 682,000
Costs and Expenses
Cost of Access Revenues 57,000
Cost of Wireless Cable Revenues 276,000
Stock-Based Compensation 1,548,000
Selling, General and Administrative 2,108,000
Amortization 155,000
Depreciation 222,000
------------
Total Costs and Expenses 4,366,000
------------
Income (Loss) From Operations $ (3,684,000)
============
Earnings (Loss) Per Common Share B Basic and Diluted $.97
============
Weighted Average Shares Outstanding B Basic and
Diluted 3,787,612
============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FISCAL YEAR ENDED
JUNE 30, 1999
------------------
<S> <C>
OTHER OPERATING DATA
Cash Flow From Operating Activities $(1,535,000)
Cash Flow Used in Investing Activities (130,000)
Cash Flow From Financing Activities 2,276,000
Adjusted EBITDA (1,659,000)
</TABLE>
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR COMBINED BUSINESSES
The following table presents summary historical statement of
operations data for Telecom Wireless Corporation and the company recently
acquired by Telecom Wireless. The historical statement of operations data
presented below have not been adjusted for the pro forma adjustments
reflected in the unaudited pro forma combined financial statements included
elsewhere in this prospectus.
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------------ ----------------------------
1998 1999 1998 1999
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues
Access Revenues $ -- $ -- $ -- $ 29,000
Wireless Cable Revenues 636,000 517,000 138,000 138,000
Other 14,000 5,000 6,000 4,000
----------- ----------- --------- -----------
Total Revenues 650,000 523,000 144,000 171,000
----------- ----------- --------- -----------
Costs and Expenses
Cost of Access Revenues -- -- -- 27,000
Cost of Wireless Cable Revenues 337,000 276,000 100,000 106,000
Cost of M&A Operations -- -- -- 851,000
Stock-Based Compensation 928,000 1,548,000 -- 428,000
General, Administrative and Other 807,000 1,868,000 194,000 1,527,000
Amortization 19,000 53,000 13,000 34,000
Depreciation 214,000 223,000 50,000 61,000
----------- ----------- --------- -----------
Total Costs and Expenses 2,305,000 3,968,000 357,000 3,034,000
----------- ----------- --------- -----------
Net (Loss) $(1,655,000) $(3,445,000) $(213,000) $(2,863,000)
=========== =========== ========= ===========
Net (Loss) Per Common Share B Basic and
Diluted $(15.08) $(.92) $(.05) $(.19)
=========== =========== ========= ===========
Weighted Average Shares Outstanding B Basic
and Diluted 109,772 3,759,050 3,928,015 15,256,675
=========== =========== ========= ===========
</TABLE>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1998 1998 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $47,000 $171,000 $88,000 $77,000
-------- --------- -------- --------
Internet Operating Costs 24,000 61,000 29,000 25,000
General, Administrative and Other 103,000 286,000 133,000 88,000
-------- --------- -------- --------
Total Expenses 127,000 347,000 162,000 113,000
-------- --------- -------- --------
Net Income (Loss) $(80,000) $(176,000) $(74,000) $(36,000)
======== ========= ======== ========
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis are based on the combined pro
forma results of Telecom Wireless Corporation and the historical results for
each of its subsidiaries for which separate data has been included in this
prospectus. The basis of the pro forma presentation is described under the
caption "Unaudited Pro Forma Combined Financial Statements."
OVERVIEW
The goal of Telecom Wireless Corporation is to become a leading
consolidator in the highly fragmented Internet service provider or "ISP"
industry and in the competitive local exchange carrier or "CLEC" industry.
Telecom Wireless intends to achieve this goal through an aggressive
acquisition strategy. Reductions in operating costs are expected to be
achieved through integration of the operations and systems of acquired
businesses, including centralization of billing, customer support services,
marketing and advertising. Revenues per subscriber are expected to be
increased by making available to customers enhanced Internet products and
services. Telecom Wireless will attempt to reduce customer turnover, or
"churn," by maintaining a local presence for acquired businesses.
Telecom Wireless currently operates an ISP and a wireless cable
television company. Management believes this mix of technologies and markets
will provide the platform on which to validate planned new product offerings
and market assumptions.
BUSINESS PLAN
ACQUIRING AND CONSOLIDATING INDEPENDENT TELECOMMUNICATIONS BUSINESSES.
We expect to acquire businesses that will enable us to provide a
comprehensive range of telecommunications products and services. Although we
expect most businesses will be profitable, the implementation of new services
will require substantial expenditures for equipment in the field. This
generally will result in negative cash flow for at least the first year of
operations for each acquisition.
STANDARDIZING AND CENTRALIZING OPERATIONS TO CAPTURE EFFICIENCIES OF SCALE.
LOCAL PRESENCE. Telecom Wireless will attempt to retain key
employees of acquired companies to ensure a smooth transition and maintain
local institutional knowledge. This will be important, as the local operating
units will be required to maintain local presence as Telecom Wireless
develops a national brand. We believe that consolidation efforts by national
ISPs have been seriously flawed by a lack of sensitivity to the essentially
local nature of many ISP businesses. This has often resulted in sharply
increased subscriber churn rates after acquisitions and subsequent loss of
revenue. We intend to structure our integration and consolidation efforts to
retain the perception by subscribers of ISP businesses that we acquire that
their ISP is a local business providing superior service to that of national
services.
INTEGRATION TEAMS. To help integrate operations, Telecom Wireless
will establish integration teams. Each integration team will consist of
skilled technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the Telecom Wireless
organization. Additionally Telecom Wireless' accounting staff will work with
the integration team to centralize the accounting and billing systems
promptly upon closing of the acquisition. Upon completion of the initial
integration process, the operating units will begin executing the marketing
and branding programs established by Telecom Wireless to expand its customer
base and improve its customer retention.
16
<PAGE>
CONSOLIDATION OF FUNCTIONS. The two major expenses associated with
most ISP and CLEC operations are administrative, primarily personnel, and
technical, including upstream telecommunications and local area networks.
These factors interact with administrative elements common to all ISPs
including accounting, system administration, web hosting and design,
telephone and technical support. To the extent these common elements are
consolidated and standardized, significant savings can be achieved.
- - ACCOUNTING: A high priority for Telecom Wireless is the installation of
a common accounting platform across all ISP acquisitions. Management
currently is evaluating accounting and billing platforms. The selected
platform will be flexible enough to include on one bill all products
and services we may choose to offer in the future and be scalable to
include any number of subscribers.
- - TECHNICAL SUPPORT: Telecom Wireless plans to maintain regional
telephone technical support centers to handle all consumer problems,
service inquiries and new subscriptions. Such centers will reduce the
need for support staff at each location and improve service.
- - WEB DESIGN AND STORAGE: It is our goal to transfer all ISP web design,
maintenance and hosting to a single division. Such a strategy should
eliminate the need for programmers at each local ISP.
- - SYSTEMS ADMINISTRATION: Consolidation of telecommunications is a
challenging goal because of the number of factors that must be
considered for each acquisition. Prior to acquisition, each ISP
maintains its own modem banks, local area network, and routing to the
Internet. Platforms range from UNIX to NT to others. In addition, each
ISP may have its own upstream Internet service provider as well as a
local exchange carrier. Telecom Wireless will use care and caution so
that the quality of service is not jeopardized while consolidation is
implemented.
IMMEDIATELY BUNDLING VIDEO, VOICE, AND DATA PRODUCTS AND SERVICES.
Increasingly, businesses and consumers are drawn to ISPs that can meet all of
their telecommunications needs. Bundling services provides the ability to
become a "one stop shop" for all customers' needs. We expect bundling to
assist us in retaining existing customers and attracting additional customers.
DEVELOPING AND OFFERING VALUE-ADDED PRODUCTS AND SERVICES. In some
segments of the telecommunications business, the ability to offer value-added
products and services provides a tremendous competitive advantage. By
delivering value-added services, Telecom Wireless will attract and retain
customers. A typical example of a value-added service is voice over internet
protocol, or VoIP, which allows users to place long distance telephone calls
over the Internet at a very low cost. By installing new hardware that
supports not only this service but the traditional ISP services, Telecom
Wireless will be able to begin offering these types of service to the
existing subscribers of acquired ISPs and CLECs.
UNIFIED BRANDING. We intend to use the same brand name in marketing
our products and services. Unified branding should solidify our customer
base, ensure customer loyalty, help us to gain market share and enable us to
benefit from the efficiencies of centralization. In addition, it should
enhance our market visibility and perception. Branding also should enhance
our ability to sell additional products and services. In addition, past
industry experience indicates that unified branding should significantly
reduce customer churn.
WIRELESS BROADBAND NETWORK
Telecom Wireless intends to establish broadband wireless
communications networks in North America for small and medium sized
businesses and consumers. These networks would allow simultaneous real time
transmission of voice, video and data over the Internet. Subject to a trial
test of equipment by Keys Microcable Corporation, we have entered into a
contract to purchase, over a period of five years, $225 million of equipment
and services necessary to establish the networks. Other related costs will be
substantial such as infrastructure, including location agreements for
transmitters and receivers, installation and marketing, and sales. We
presently plan to market the wireless broadband services to subscribers of
ISPs we acquire and others in the communities served by those ISPs.
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ABILITY TO IMPLEMENT BUSINESS PLAN
The ability of Telecom Wireless to remain in business and implement
its business plan depends upon a variety of factors, primarily the ability to
obtain financing and the ability to attract and retain employees having the
necessary skills. Funding operations and acquisitions has been and is
expected to continue to be the major impediment to implementing the company's
business plan. We need capital to sustain operations and to consummate
acquisitions. Management can give no assurance that Telecom Wireless' capital
requirements can be satisfied at all or on reasonable terms.
COMBINED RESULTS OF OPERATIONS
REVENUES. Telecom Wireless Corporation and its subsidiaries
historically have derived their revenues primarily from subscription fees
paid by ISP subscribers for dial-up access to the Internet and subscription
fees paid for wireless cable television access. ISP subscription fees vary by
the billing plan within the subscriber base. The vast majority of the plans
in effect are monthly. However, there is a growing acceptance of annual
contracts that offer a discount over the monthly fee.
Wireless cable television subscribers pay monthly cable access fees.
Like ISP subscribers, wireless cable television subscribers pay fees based on
the billing plan they have selected.
COSTS. Our direct costs of sales with respect to ISP and wireless
cable television revenues consist primarily of maintaining sufficient
capacity to provide services to our subscribers. Capacity is a measurement of
the provider's ability to connect subscribers. ISP capacity costs include:
- the cost of leased routers and access servers and recurring
telecommunications costs, including the cost of local
telephone lines to carry subscriber calls to our points of
presence, or "POPs";
- the costs associated with leased lines connecting our POPs
directly to the Internet or to operations centers and
connecting operations centers to the Internet; and
- Internet backbone costs, which are the amounts paid to
Internet backbone providers for bandwidth, which allows
transmission of data from the Internet to subscribers.
Cost of ISP sales revenues will increase as required to support a
growing subscriber base. We will seek to leverage the combined scale of our
ISPs to lower telecommunications costs as a percentage of revenues by:
- negotiating one or more relationships with national backbone
providers to connect our ISPs to the Internet;
- negotiating favorable local loop contracts and establishing
co-location arrangements with local exchange carriers;
- establishing private peering relationships to reduce our costs
and improve access and reliability for our subscribers;
- negotiating discounts with equipment vendors; and
- implementing wireless technology to provide high speed
Internet access to the small office/home office market. The
wireless technology will allow high-speed access at costs less
than reselling the lines from the existing local exchange
carriers.
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Costs of sales of wireless cable television revenues consist
primarily of
- content costs;
- frequency license leases;
- technician labor costs; and
- purchase or lease of equipment necessary for the receiving and
retransmission of programming.
General, administrative and other expenses consist primarily of:
- the salaries of our non-technician employees and associated
benefits; and
- the cost of selling, marketing, accounting and legal services
related to merger and acquisition activities.
General, administrative and other expenses include expenses
associated with customer service and technical support, primarily salaries
and employment costs. We expect operations and customer support expenses to
increase in the short term to support new and existing subscribers. New
subscribers tend to have particularly heavy customer service and technical
support requirements. Because we anticipate growth in our subscriber base, we
expect these costs to comprise an increasing percentage of expenses in the
near term. In addition, providing customer service and technical support 24
hours a day, seven days a week, in our markets will increase these expenses
on an absolute basis. In the longer term, as a percentage of revenues, we
believe operations and customer support expenses should decline as the
existing subscriber base becomes less dependent on customer service, and due
to increased operating efficiencies. The consolidation of the help desk and
customer support functions will also offset increased costs caused by
increased demand.
General, administrative and other expenses also include the expenses
associated with acquiring subscribers, including salaries, bonuses, sales
commissions, advertising and referral bonuses. We expect ISP sales and
marketing expense to increase over time with the growth in our ISP subscriber
base. On a percentage of revenue basis, sales and marketing expense is a
relatively variable cost and may increase with our development of unified
branding.
In addition, general, administrative and other expense includes
internal and external merger and acquisition costs such as salaries, bonuses,
commissions and accounting, legal and other professional fees. We expect to
reduce merger and acquisition expenses as a percentage of revenues of
acquired businesses through standardization of procedures and documents.
We expect general, administrative and other costs to increase to
support our growth, particularly as we establish a network operations center
and implement common billing and financial reporting systems in the near
term. Over time, we expect these relatively fixed expenses to decrease as a
percentage of revenues. Additionally, as a result of consolidation of the
traditional back office activities such as help desk, technical support, and
centralized billing, we anticipate the reduction of labor costs for our
acquisitions. However, we will incur substantial costs and expenses in
connection with our integration and consolidation efforts, including
salaries, travel, software and equipment.
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Amortization expense primarily relates, on a pro forma basis, to the
amortization of goodwill and subscriber lists acquired in business
acquisitions. We expect amortization expense to increase as additional
acquisitions are closed and to vary according to the purchase price and
tangible assets involved in the acquisition. Our policy is to amortize the
portion of the acquisition purchase price attributable to subscriber lists,
goodwill and other intangible assets over three to five years. This
amortization will reduce income. Therefore, as we expand our subscriber base
through acquisitions, we will experience increasing amortization expense.
Depreciation primarily relates to our technology and office
equipment and is provided over the estimated useful lives of the assets
ranging from three to nine years using the straight-line method. We expect
depreciation expense to increase as we grow our networks to support new and
acquired subscribers and as we build a network operations center and
implement common billing and reporting systems.
Operating results in the future may fluctuate significantly
depending upon a variety of factors, including capital costs and costs
associated with the introduction of new products and services. Additional
factors that may cause operating results to vary include:
- the pricing and mix of services provided;
- subscriber retention rates;
- changes in pricing policies and product offerings by
competitors;
- demand for Internet access services;
- one-time costs associated with acquisitions; and
- general telecommunications services, performance and
availability.
On a pro forma basis, we have experienced seasonal variation in
Internet and wireless cable television use in Florida, and revenue streams
have fluctuated. As a result, variations in the timing and amounts of
revenues could have a material adverse effect on our operating results. Based
on the foregoing factors, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance.
DISCUSSION OF THE OPERATIONS OF TELECOM WIRELESS CORPORATION
During the fiscal quarter ended June 30, 1999, present management
assumed control of Telecom Wireless and started to plan, document and
implement its merger and acquisition activities. During that and the
following fiscal quarter, substantial time, effort and money were expended to
develop and document M&A due diligence and acquisition forms, documents and
procedures. At the same time, field personnel were actively seeking letters
of intent from acquisition targets. The initial M&A sales and marketing team
was later expanded from two senior managers and one support person to include
two more in sales and two in operations.
Between April and September 1999 Telecom Wireless entered into
non-binding letters of intent to acquire approximately 19 companies, and
definitive agreements for the acquisition of an additional five companies.
Due to the lack of acquisition funds, none of these transactions closed
except America's Web Station, Inc., and Prentice Technologies, Inc., which
were acquisitions largely for Telecom Wireless' common stock. On December 30,
1999, the acquisition of Prentice was rescinded. The remaining three definitive
agreements expired by September 30, 1999.
For the years ended June 30, 1998 and 1999, Telecom Wireless had
revenues of $636,000 and $517,000, respectively. For the three months ended
September 30, 1998, and 1999, revenues were $144,000 and $171,000,
respectively. The primary source of its operating revenues for these periods
was the wireless cable television operations of Keys Microcable Corporation,
a wholly-owned subsidiary of Telecom Wireless. Costs incurred resulted in
losses from operations by Keys Microcable of $1,031,000 for the year ended
June 30, 1999, and $348,000 for the three months ended September 30, 1999.
Currently, wireless cable television services are not part of our
strategic plan as the small market in the Key West area limits the value of
this subsidiary. However, Keys Microcable does provide a platform from which
we will be able to test technical, administrative and marketing plans
including the plan for deployment of wireless broadband services described
above. By utilizing Keys Microcable's MMDS radio frequencies, we are planning
to offer wireless high-speed Internet access to residential and business
customers, market web site development and hosting services, and an improved
billing system. To improve the performance of Keys Microcable, Telecom
Wireless is making investments in equipment and subscriber services.
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For the year ended June 30, 1999, and the quarter ended September
30, 1999, Telecom Wireless incurred approximately $177,000 and $730,000,
respectively, in M&A-related expenses for outside legal and accounting fees
and costs. Approximately $392,000 of direct external costs as of September
30, 1999, for accounting, legal and engineering work was classified as
deferred acquisition costs as management believes the acquisition of the
companies with respect to which the costs were incurred are likely to occur
if Telecom Wireless obtains adequate funding for that purpose. Management
expects that the level of M&A costs will decrease with the addition of
internal resources to replace more costly outside professional services.
To fully implement its business plan, Telecom Wireless will be
required to acquire or build a national infrastructure and establish and
train integration and consolidation teams. Since Telecom Wireless has made
few acquisitions, the staff presently required to manage integration and
consolidation is minimal. However, when funding for operations and
acquisitions is obtained, significant additional investment in technical and
integration personnel will be required.
DISCUSSION OF THE RESULTS OF OPERATIONS OF KEYS MICROCABLE CORPORATION
Keys Microcable Corporation, a Florida Corporation which may be
referred to as "KMC", provides wireless cable television services in Key
West, Florida. When current management assumed control of Telecom Wireless in
April 1999, KMC was in a state of decline and disarray caused by lack of
capital which hindered operations as well as growth. Non-payment of fees had
resulted in cancellation of several popular channels of programming. Many
other programmers were threatening to terminate service. In addition, there
were several claims pending against KMC.
During fiscal 1999 and the three month period ending September 30,
1999, the following actions were taken to reverse the financial and
operational conditions of KMC:
- All claims were settled for $159,000 except a lawsuit arising
from a traffic accident which is currently being settled by
our insurance carrier.
- More favorable payment terms have been renegotiated with key
suppliers of services and programming content.
- Overall overdue payables of greater than 90 days have been
reduced by $130,000.
- Settlement negotiations are underway with an equipment
supplier to return equipment that was received but is not in
use. Management anticipates a credit of $170,000 that will
further reduce overdue payables.
Investments in capital equipment and maintenance programs to improve
signal quality and programming content were also made. These investments have
resulted in a significant increase in customer satisfaction based on surveys of
the subscribers. Investments included enhanced power back up equipment as well
as increased levels of maintenance spares.
Investments were made to increase sales staff and local advertising
programs. Since April 1999 the number of equivalent billing unit subscribers has
increased by over 13% and the number of premium channel subscriptions has
increased over 100%. Increased marketing to developers of new commercial
properties and government agencies could substantially increase the total
subscriber count by the end of the current fiscal year.
KMC provides Telecom Wireless with a wireless platform on which to
add additional "bundled" services such as Internet access and voice over
internet protocol or VoIP services. To offer wireless two way high speed
Internet access will require a significant capital investment. This
investment may be as high as $300,000 in capital equipment costs in the
second and third fiscal quarters with $5,000 per month in recurring monthly
costs. This new service along with web site design and hosting is anticipated
to generate incremental annual revenues in excess of $240,000.
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DISCUSSION OF AMERICA'S WEB STATION, INC. RESULTS OF OPERATIONS
America's Web Station, Inc., which we sometimes refer to as "AWS,"
was founded in January 1997 to provide Internet solutions to the rapidly
expanding small- to medium-size business market in southwest Florida. The
initial focus was on high-end database-driven web sites and e-commerce
solutions. Dial-up Internet access and web site hosting for businesses
subsequently was added. In the first quarter of 1998, AWS began offering
residential Internet service. Revenues increased from $47,000 for the year
ended December 31, 1997, to $171,000 for the following fiscal year. However,
for the same periods, general and administrative expenses increased from
$102,000 to $283,000 due to hardware/software purchases and payroll for
additional staff.
For the six months ended June 30, 1999, revenue decreased to $77,000
from $88,000 for the same period in the preceding year primarily due to the
time and effort required of AWS management to negotiate, document and close
its acquisition by Telecom Wireless in July 1999. However, during the same
periods, general and administrative expenses decreased from $134,000 to
$82,000 due to final payment of equipment leases and staff reorganization.
Since the acquisition, hardware and software have been expanded and
upgraded and new sales and marketing staff have been hired. The staff has
been undergoing training with respect to new products and services. Also, AWS
has implemented a marketing campaign that management believes has been
favorably received by the local business community. At September 30, 1999,
AWS had 276 Internet access subscribers and 53 web site hosting customers.
Management also believes AWS will achieve profitability during the
fiscal year ending June 30, 2000.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a pro forma combined basis, Telecom Wireless had a negative cash
flow from operations of $1,535,000 and $1,340,000 for the 12 months ended
June 30, 1999, and the three months ended September 30, 1999, respectively.
Cash flow used in investing activities was primarily for the purchase of
equipment and acquisition costs. Cash flow generated by financing activities
was primarily from the issuance of stock and short-term debt. Substantial
additional cash will be required to implement our business plan.
Since April 1999, Telecom Wireless has funded its operations and
working capital needs primarily through private placements of its equity
securities and short-term debt instruments, lease financing and increases in
current liabilities. These private placements are discussed in Notes 7, 10
and 14 of the consolidated financial statements of Telecom Wireless
Corporation included in this prospectus.
In addition to normal operating expenses and current indebtedness,
Telecom Wireless has incurred substantial obligations payable during 2000
including the following:
- - Telecom Wireless entered into a Master Lease Agreement dated as of July
30, 1999, with the Internet Working Division of Lucent Technologies
Inc., as lessor. Subject to certain conditions, the lessor has agreed
to provide telecommunications and other equipment to Telecom Wireless
and its subsidiaries having a maximum aggregate purchase price of
$20,000,000. Telecom Wireless may lease equipment with a value of up to
$5,000,000 without having to satisfy certain covenants and financial
ratios. To date, Telecom Wireless has received equipment having a value
of approximately $1.2 million. Most of the equipment presently is in
storage in Albuquerque, New Mexico, awaiting field deployment. Lease
payments for the rental of this equipment, increasing to approximately
$47,000 per month by March 2000, were scheduled to commence in November
1999, but have been suspended pending completion of an inventory of
equipment delivered. The Master Lease Agreement meets the requirements
of an operating lease for accounting purposes.
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- - In December 1999, Telecom Wireless entered into an agreement with
Adaptive Broadband Corporation to purchase broadband wireless
telecommunications equipment and services to establish wireless
communications networks in North America for small- and medium-sized
businesses and consumers. The agreement requires expenditures over its
five-year term of approximately $225 million by Telecom Wireless.
Telecom Wireless is obligated to, but has not yet placed, a purchase
order in the amount of $13,635,375 covering equipment to be delivered
this year including equipment to conduct a trial test through Keys
Microcable Corporation. By March 15, 2000 or upon successful completion
of the test plan, whichever is earlier, Telecom Wireless must pay
Adaptive $3,450,090. Additional payments of $3,392,290 each are due on
the first day of June, September and December 2000. Telecom Wireless
may terminate the agreement without penalty at any time if Adaptive's
product technology is not reasonably competitive in the fixed wireless
broadband market.
Adaptive may terminate the Agreement if it is not satisfied with the
sales or promotional performance of Telecom Wireless. If Telecom
Wireless fails to purchase the amount of equipment specified in the
agreement by the end of any calendar year, it will be subject to a
penalty equal to five percent of the unpurchased equipment. In the
event of termination by Telecom Wireless without cause or termination
by Adaptive with cause, then Telecom Wireless must pay Adaptive five
percent of the purchase price of the unpurchased equipment for the
remainder of the term of the agreement.
- - A convertible promissory note in the principal amount of $700,000 is
due and payable in full on April 30, 2000. The conversion rate is $7.00
per share of common stock. Although the holder has registration rights
with respect to the common stock, it is probable the holder will not
exercise the conversion right unless the market price is substantially
higher than the conversion price on the conversion date.
- - Hyperlight Network Corporation claims Telecom Wireless is obligated to
pay it $900,000, of which $300,000 purportedly was due December 1,
1999, and $300,000 purportedly is due on each of March 1 and June 1,
2000. The parties are negotiating an agreement to defer the due date of
the past due amount, if any, to February 29, 2000, and, if Telecom
Wireless does not have sufficient cash on that date, to allow payment
in its common stock.
When present management assumed control of Telecom Wireless in
mid-April, 1999, the market for Internet and Internet-related stocks was
strong. However, beginning in July 1999, the market for many of such
securities weakened, and the market prices of many Internet stocks fell by
50% or more. Even though market prices for some Internet-based companies have
rebounded, it has become increasingly difficult for Telecom Wireless to
obtain financing, either debt or equity, to fund operations or acquisitions.
This has forced Telecom Wireless to obtain high cost short-term financing to
cover operating expenses and to delay closings of acquisitions.
Telecom Wireless has adopted a three-pronged financing plan:
- Seek mergers, joint ventures or financing arrangements with
larger private or public ISPs and other entities. These
entities may have ISP operational infrastructures already in
place and/or may require a source of acquisitions.
- Seek short- and long-term financing through private placements
of debt and equity securities in the capital markets. If
possible, Telecom Wireless will seek to finance its longer
term requirements with debt rather than equity so as to reduce
dilution to stockholders of Telecom Wireless.
- Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Telecom Wireless
common stock. This will require substantial working capital to
fund operating and merger and acquisition expenses and to pay
the significant cost of compliance with applicable securities
laws.
There can be no assurance that financing will be available in
amounts or on terms acceptable to Telecom Wireless, if at all. Should Telecom
Wireless be unsuccessful in its efforts to raise capital, it may be required
to curtail operations.
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FINANCING ARRANGEMENTS
JACK AUGSBACK & ASSOCIATES, INC. In March 1999, Telecom Wireless
entered into an agreement whereby Jack Augsback & Associates, Inc., West Palm
Beach, Florida, agreed to research and find sources for Telecom Wireless'
various needs of financing and to make introductions to persons capable of
providing such financing to Telecom Wireless. Telecom Wireless agreed to
compensate Augsback in the form of fees of up to 10% of gross proceeds to
Telecom Wireless, stock purchase warrants and expense reimbursement. The
Augsback agreement was effective through December 31, 1999. Pursuant to that
agreement, Augsback introduced Telecom Wireless to investors who purchased
securities for net proceeds to Telecom Wireless aggregating approximately
$3,868,745.
FIRST EQUITY CAPITAL SECURITIES, INC. First Equity Capital
Securities, Inc., New York, New York, raised $1,000,000 in bridge loan
financing for Telecom Wireless and introduced Telecom Wireless to a person
which loaned it $700,000. Telecom Wireless agreed to compensate First Equity
in the form of fees of up to 10% of gross proceeds to Telecom Wireless, stock
purchase warrants and expense reimbursement.
On October 15, 1999, Telecom Wireless entered into a supplemental
agreement with First Equity whereby the company agreed, among other things,
to issue five-year warrants to First Equity to purchase 300,000 shares of
Telecom Wireless' common stock at a price of $.001 per share and to provide
piggyback registration rights for the underlying shares. In consideration,
First Equity agreed to waive fees due and payable to it. First Equity has
exercised the warrant.
HAMPTON-PORTER. In December 1999 Telecom Wireless entered into an
Investment Banking Agreement with Hampton-Porter Investment Bankers. Under
the agreement, Hampton-Porter agreed to perform a variety of services on a
best efforts basis including advice and counsel regarding strategic business
and financial plans, negotiations with potential investors, acquisition
candidates, strategic partners and others, introductions to securities
broker-dealers, information and analysis of market-making activities in the
common stock of Telecom Wireless, and due diligence investigations of third
persons at the request of management. The agreement required a non-refundable
fee of $500,000 or 550,000 shares of the common stock of Telecom Wireless and
three-year warrants for the purchase of an additional 1,000,000 shares
exercisable at $5.50 per share. If the 550,000 shares are not free-trading by
March 21, 2000, then Telecom Wireless will be obligated to issue an
additional 200,000 shares to Hampton-Porter as a penalty. The 550,000 shares
have been included in this registration statement. The shares issuable upon
exercise of the warrants also have registration rights.
In addition, Telecom Wireless agreed to pay Hampton-Porter finder's
fees up to five percent of the value of transactions introduced by
Hampton-Porter to Telecom Wireless. The term of the agreement is one year
although it can be terminated by either party on five days' notice.
In January 2000, Hampton-Porter served as placement agent in a
non-public offering to one investor of 100,000 shares of Telecom Wireless
common stock for a purchase price of $2.50 per share and three-year warrants
for the purchase of an additional 75,000 shares at an exercise price of $2.50
per share for which Telecom Wireless has agreed to pay additional fees.
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YEAR 2000 READINESS
Management is not aware of any year 2000 problems experienced or yet
to be resolved by Telecom Wireless or its subsidiaries or any of their major
vendors or service providers. Year 2000 problems are the result of computer
programs using two digits rather than four to define the applicable year. As
a result, date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. The concern was that lack of year 2000
readiness could have resulted in system failures or miscalculation causing
disruptions of operations.
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BUSINESS
OVERVIEW
Telecom Wireless Corporation is an Internet communications company
which intends to capitalize on the convergence of video, voice and data
communications on the Internet. The company's business plan calls for initial
rapid growth through acquisitions and subsequent organic growth. Telecom
Wireless intends to accomplish its objectives by providing access or
"connectivity" for Internet and other electronic communications, Internet
content and electronic commerce, and other communications services. Its
target markets include both residential and business customers.
Key elements of Telecom Wireless' business plan are:
- acquiring and consolidating geographically disparate ISPs and
CLECs;
- standardizing and centralizing the back office operations of
acquired companies, integrating their networks into a
broadband network and providing them with national customer
and technical support services directly or by outsourcing;
- developing and offering additional value-added products and
services to customers, especially residential ISP customers,
such as bundled video, voice and data products and services;
and
- building customer loyalty and gaining market share through
unified branding.
Most of Telecom Wireless' business plan has yet to be implemented.
The company now owns and operates an ISP, America's Web Station, Inc., and a
wireless cable television system, Keys Microcable Corporation. Over the past
few months, we have conducted accounting and legal due diligence and, in many
cases, extensive contract negotiations, with several ISP and ASP acquisition
candidates, although Telecom Wireless currently has no arrangements,
agreements or understandings with potential acquisition candidates.
The ability of Telecom Wireless to remain in business and implement
its business plan depends upon a variety of factors, primarily financing and
the ability to attract and retain employees having the necessary skills.
Funding operations and acquisitions has been and is expected to continue to
be the major impediment to implementing our business plan. We need capital to
sustain operations and to consummate acquisitions. Management can give no
assurance that Telecom Wireless' capital requirements can be satisfied at all
or on reasonable terms.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET.
The Internet has become a global medium that enables millions of people
to obtain and share information, communicate and conduct business
electronically. The Internet has grown rapidly since its introduction to the
general public in the early 1990's. Factors driving the growth in the number of
Internet users and the number of web sites include:
- the large and growing installed base of personal computers;
- advances in the performance and speed and reduction in cost of
personal computers and modems;
- improvements in network infrastructure;
- easier and cheaper access to the Internet;
- the increasing importance of the Internet as a communications
medium, information resource and sales and distribution
channel; and
- reliability of service by Internet access providers.
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ACCESSING THE INTERNET.
Internet access services are the means by which ISPs interconnect
business and consumer users to the Internet's resources. Access services vary
from dial-up modem access for individuals and small businesses to high speed
dedicated transmission lines for broadband access by large organizations. An
ISP provides Internet access either by developing a proprietary network
infrastructure or by purchasing access service from a wholesale access
vendor, or through a combination of both. The rapid development and growth of
the Internet have resulted in a highly competitive and fragmented industry
consisting of a few large national and regional ISPs and a substantial number
of local ISPs with small subscriber bases. Most ISPs operate within a single
state or city, with only a handful of ISPs, such as EarthLink and MindSpring,
which are in the process of merging, having expanded the scope of their
operations from a single region to nationwide coverage. Due to the disparity
between the large number of smaller ISPs with limited resources and the
emergence of a limited number of national ISPs with their associated
economies of scale, the ISP industry is expected to undergo substantial
consolidation.
GROWTH IN ELECTRONIC COMMERCE.
For many businesses, the Internet has created a new communication
and sales channel that enables companies to interact with large numbers of
geographically dispersed consumers and businesses. In the last several years,
many companies have emerged that focus solely on the Internet as the
preferred medium for selling products or delivering services directly to
purchasers, bypassing traditional wholesale and retail channels. Furthermore,
traditional businesses are implementing sophisticated web sites to effect
electronic commerce initiatives that offer competitive advantages. These
businesses are deploying an expanding variety of Internet-enabled
applications, ranging from web site marketing and recruiting programs to
on-line customer interaction systems and integrated purchase order and
"just-in-time" inventory solutions for key customers and suppliers. These
capabilities require increasingly complex web sites and support operations.
In addition, advances in on-line security and payment mechanisms are
alleviating concerns associated with conducting transactions in an
open-platform environment, thus prompting more consumers and businesses to
use the Internet in conjunction with purchases and more businesses to offer a
greater breadth of electronic commerce services.
OUTSOURCING OF INTERNET OPERATIONS.
As the Web increasingly becomes synonymous with electronic commerce,
businesses are placing greater emphasis on their Internet transaction and
communication operations. Internet-based companies, and to a growing extent,
traditional businesses, require non-congested and scalable Internet
operations to allow them to perform digital communication and commerce
transactions globally over the Internet. Due to constraints posed by the lack
of technical personnel with Internet skills or experience, the high cost of
advanced networking equipment and the complexity of innovative web solutions,
many businesses are unable internally to develop, maintain and continually
enhance their facilities and systems to conduct desired levels of
Internet-based activities. As a result of these constraints and other
factors, many businesses are seeking to outsource their facilities and
systems requirements as the preferred means for providing electronic commerce
solutions. To this end, an increasing demand is developing for:
- dedicated and broadband Internet access services to support
reliable, high speed and/or constantly connected Internet
access and communication;
- web hosting and co-location services which enable businesses
to obtain equipment, technical expertise and infrastructure
for their Internet needs on an outsourced basis; and
- end-to-end electronic commerce solutions to sell goods and
services on the web in a secure transaction environment.
By outsourcing their facilities and systems needs, businesses are able
to focus on their core competencies rather than expending vital resources to
support their Internet operations.
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THE OPPORTUNITY FOR INTERNET SERVICE PROVIDERS.
Management believes the number of businesses and consumers accessing
the Internet will increase significantly in the foreseeable future.
Additionally, as businesses and consumers are developing greater levels of
comfort in the use of the Internet for electronic commerce, businesses are
increasingly implementing sophisticated electronic commerce solutions which,
in turn, require significantly greater bandwidth and other business services.
In response, an increasing number of ISPs are augmenting their basic Internet
access services with a wide range of business services, including web hosting
and Internet security. These ISPs will be positioned to attain greater
economies of scale through lower network expansion and marketing costs on a
per-subscriber basis. Management believes that only a few ISPs, and in
particular, national ISPs, will be in a position to benefit fully from this
continued growth. These ISPs likely will be characterized by:
- quick response to market demands;
- reliable coverage on a nationwide basis;
- superior technical skills and customer support capabilities;
- electronic commerce expertise and business services
capabilities;
- brand name recognition and the ability to exploit multiple
marketing channels; and
- relatively lower network costs.
THE OPPORTUNITY FOR COMPETITIVE LOCAL EXCHANGE CARRIERS.
The passage of the 1996 Telecommunications Act created a legal
framework for competitive telecommunications companies to provide local
analog and digital communications services in competition with the
traditional telephone companies. The 1996 Telecommunications Act eliminated a
substantial barrier to entry for competitive telecommunications companies by
enabling them to leverage the existing infrastructure built by the
traditional telephone companies, which required a $200 billion investment by
these telephone companies and their ratepayers, rather than constructing a
competing infrastructure at significant cost. The 1996 Telecommunications Act
requires traditional telephone companies, among other things, to:
- allow competitive telecommunications companies to lease copper
lines on a line by line basis;
- provide central office space for the competitive
telecommunications companies' digital subscriber line and
other equipment used to connect to the leased copper lines;
- lease access on their inter-central office fiber backbone to
link the competitive telecommunications companies' equipment;
and
- allow competitive telecommunications companies to use their
operational support systems to place orders and access their
databases.
The 1996 Telecommunications Act was designed to create an incentive for
incumbent carriers that were formerly part of the Bell system to cooperate with
competitive carriers. These incumbent carriers cannot provide long distance
service until regulators determine that there is competition in the incumbent
carrier's local market.
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OUR STRATEGY
The goal of Telecom Wireless is to become a full-service national
provider of Internet connectivity and enhanced Internet services to both the
consumer and business markets by combining national scale with local
presence. We intend to provide broadband connectivity through wireless and
other technologies, if available, to customers at an economical rate and to
rapidly integrate our acquisitions into a national network. Broadband
connectivity, if available, will allow us to offer bundled services at high
speeds and to develop and offer additional value-added products and services.
We intend to create shareholder value by building scale through the
acquisition, consolidating and integrating fragmented, independent ISPs and
CLECs, and then leveraging our large scale to increase revenues and reduce
costs. The key elements of our strategy to accomplishing this goal include:
- acquiring and consolidating independent ISPs and CLECs for
cash and/or our common stock;
- standardizing our acquisition documents and procedures to
minimize costs;
- standardizing and centralizing the back office operations of
our acquisitions to capture operational efficiencies of scale
by leveraging our national network infrastructure and customer
support services;
- developing and offering additional value-added products and
services to increase revenues from existing and future
customers; and
- building customer loyalty and gaining market share through
branding.
GROWTH THROUGH ACQUISITIONS.
We intend to establish a national presence and critical customer
mass by acquiring the stock or assets of, or making significant investments
in, established, independent ISPs and CLECs in selected geographic areas
throughout the U.S. We expect that these acquisitions will broaden our market
presence and expand our ability to offer new products and services. Given the
competitive market pressures, we believe that these providers will continue
to be attracted to and benefit from the consolidation opportunity we provide.
At present, Telecom Wireless does not have any current plans, arrangements,
agreements or understandings with potential acquisition partners.
STANDARDIZE AND CENTRALIZE OPERATIONS AND CAPTURE ECONOMIES OF SCALE.
ISPS. More and more businesses are looking to ISPs as a source of
multi-tiered or bundled products and services. As businesses look to expand
their use of electronic commerce solutions, ISPs must respond by offering the
bandwidth, products and services required to meet this demand. The Internet
provides an additional medium for businesses to market their products and
services, and it provides consumers with a method to research, compare, and
purchase these products and services.
In addition to providing Internet access, ISPs traditionally offer
services to accommodate these needs. During the acquisition process Telecom
Wireless will evaluate each candidate's ability to offer these various
services and a "best in class" will be identified whenever possible. Telecom
Wireless will consolidate the service offerings of each acquisition into this
"best in class" organization. This will reduce costs and build the expertise
required to gain market leadership.
CLECS. CLECs compete with incumbent local exchange carriers, which
are sometimes referred to as Baby Bells, through low-cost resale agreements
and value-added bundled service packages. Initially, CLECs operated as basic
telephone service resellers. CLECs have evolved by positioning themselves as
integrated communications providers, offering a full suite of
telecommunications services that includes providing customers with voice,
data, Internet and video services. Integrated communications providers are
often a result of strategic partnerships or merged communication companies.
The deregulation of the telecommunications industry, changes in policy, and
technological advances have expanded service options for CLECs.
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Telecom Wireless intends to integrate the broadband wireless and
copper pair technology into the CLECs it acquires. The ability to provide a
high bandwidth connection at a significantly lower cost than the Baby Bells
will create opportunities for immediate market penetration and higher margins.
The organizational plan Telecom Wireless implements will be a
critical component of its ability to manage the rapid internal growth and
disparate operational units obtained through acquisitions. Telecom Wireless
plans to consolidate acquired ISPs and CLECs into as many as eight
geographically positioned operating units. At the same time, core
administrative functions must be centralized to obtain scale efficiencies and
improve margins. We currently plan to centralize network and back office
administrative operations in Denver, Colorado.
REGIONAL ROLL-UPS.
Telecom Wireless will hire key individuals from acquired businesses
to ensure a smooth transition and maintain local institutional knowledge. We
expect this will allow local operating units to maintain local presence as
Telecom Wireless develops its national brand. To help integrate acquisitions,
Telecom Wireless will establish integration teams. Each integration team will
consist of skilled technical and marketing personnel. The integration team
will have the responsibility to help with the overall centralization,
standardization, and eventual branding of the local company as a part of the
Telecom Wireless network. Additionally, Telecom Wireless' accounting staff
will work with the integration team to centralize the accounting and billing
systems which we expect to be able to accomplish immediately after the
acquisition. Telecom Wireless expects that integration of other systems
initially will require about 60 days for any acquisition, although total
integration of operations may take several months. Upon completion of the
initial integration process, the operating units will begin executing the
marketing and branding programs established by Telecom Wireless to expand its
customer base and improve its customer retention.
CONSOLIDATION OF FUNCTIONS.
In order to maximize operating efficiencies and back office
functions, marketing, research, and network maintenance will be headquartered
in one location. Additionally, Telecom Wireless must take steps to maintain
our existing customers, attract new customers, offer new services, and
increase margins, such as establishing a common billing system, centralizing
technical support functions, and creating a national operations center to
monitor the entire network. Telecom Wireless recognizes that rapid and
orderly consolidation and integration of ISP operations is essential to
increase profitability and for orderly growth. We estimate reductions of ISP
operating costs by approximately 10% with a carefully executed plan of
consolidation and integration. However, the cost of integration and
consolidation will be substantial.
Our aggressive approach to consolidation must be tempered as local,
independent ISPs often are viewed by their subscribers as providing superior
service to that of national ISPs. Management believes that consolidation
efforts by national ISPs have been seriously flawed by a lack of sensitivity
to the essentially local nature of many ISP businesses, which often results
in sharply increased subscriber churn rates after acquisitions, and
subsequent loss of revenue. Telecom Wireless' efforts will be tempered with
the understanding that much of the appeal of acquired ISPs is based on the
perception by subscribers that their ISP is a local business.
- ACCOUNTING: A high priority for Telecom Wireless is installing
a common intranet accounting platform across all ISPs. Telecom
Wireless is currently evaluating accounting and billing
platforms for implementation. The selected platform will be
flexible enough to include on one bill all products and
services we may choose to offer in the future and be scalable
to include any number of subscribers.
- CONSOLIDATED TECHNICAL SUPPORT: Telecom Wireless plans to
maintain a national telephone technical support center to
handle all consumer problems, service inquiries and new
subscriptions. Such a center would reduce the need for support
staff at each location, improve service and facilitate our
national marketing effort.
- WEB DESIGN AND STORAGE: It is our goal to move all ISP web
design and maintenance to one location. Such a strategy should
eliminate the need for programmers at each local ISP.
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- SYSTEMS ADMINISTRATION: Because so much of the cost of
operating an ISP is bound up in telecommunications, a natural
inclination is to quickly consolidate the technical operations
that support and monitor telecommunications. Each ISP
maintains its own modem banks, local area network or local
area network, and routing to the Internet. In addition, each
ISP may have its own upstream backbone as well as a CLEC. With
all these interacting factors, we plan to favor the quality of
service over speed of consolidation.
It is not the intent of Telecom Wireless to "re-invent" the wheel when
it comes to establishing these operational elements. While it is possible for
Telecom Wireless to build them internally, Telecom Wireless may seek to acquire
or merge with a national ISP which has many of the elements already in place.
Telecom Wireless may also seek to outsource ISP management to third parties
having excess capacity.
INTEGRATION OF ISPS AND CLECS.
Telecom Wireless' business plan calls for providing high-speed
connectivity and common services across ISPs and to all our subscribers. To
accomplish this goal, we will take a multi-faceted approach to integration of
ISPs. Telecom Wireless presently intends to utilize a "hub and spoke"
configuration.
- CRITICAL MASS: For any ISP to be integrated, it must either: (a) have
sufficient capacity and staff to stand alone profitably and act as a
regional hub for smaller external acquisitions in the same or
contiguous regions or (b) be absorbed as an external acquisition in a
region where a Telecom Wireless hub already exists. These smaller
assets become spokes of the regional wheel.
Our plan calls for hub ISPs to "reside" on network access points or
NAPs providing redundant high speed access to the Internet. Each hub
will be equipped with high capacity switches capable of handling
voice and data traffic. Where appropriate, Telecom Wireless intends
to obtain CLEC status either by acquisition or application to take
advantage of the options such a designation offers. Collectively,
these hubs will form a larger critical mass justifying connection of
an asynchronus transfer mode or ATM backbone to form a ubiquitous
wide area network to be administered by Telecom Wireless staff at a
central network operations center expected to be housed in Denver.
In addition to providing a high speed-switching platform, we plan
that each hub ISP will provide the full compliment of connectivity
options including high-speed wireless access via local metropolitan
area wireless networks.
- BASELINE EVALUATION: Each potential acquisition will be evaluated for
baseline service capability, hardware suitability, and strategic
location and importance. Such an evaluation will help in determining
the cost and types of equipment that must be added and/or upgraded,
staffing, and marketing. This evaluation and screening process also
assists in determining a best course to reduce or eliminate the cost
of "last mile" services.
- VERTICAL INTEGRATION OF SERVICES: We expect our ISPs will offer
connectivity options including 56Kb dial up, dedicated ISDN, DSL, and
analog services, and point-to-point and multipoint wireless
connectivity. Our applications will include web design and hosting
and provision of all necessary components for electronic commerce,
such as construction of relational databases and market baskets.
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ACQUISITION STRATEGY
Growth through acquisitions represents the principal strategy of our
business plan. We expect to deepen and broaden our market presence, strengthen
our Internet connectivity, and enhance service capabilities through
acquisitions. Our early acquisitions will provide regional integration hubs to
validate our technology and marketing plans and provide network infrastructure.
When our hub operations are identified, we will target for acquisition ISPs and
CLECs to increase our density in these markets. We will focus on acquisition
criteria including the following:
- rapid revenue and customer growth;
- low customer turnover or churn rate;
- limited competition; and
- enhanced products and services offered.
We believe ISPs and CLECs in our target markets will be attracted to
and benefit from the opportunity to affiliate with us, based upon, among other
factors:
- empowering managers to use their local market knowledge to
build market share and density by providing services and
products best suited for these areas; and
- offering a combination of liquidity and upside potential
through equity ownership in a publicly traded entity to
current owners and employees.
We expect that consolidation will create added value through
centralizing operations and systems, sharing of technology, branding and
bundling products and services. We plan to integrate acquired operations at a
divisional group level to:
- eliminate redundant network costs;
- consolidate operations; and
- retain sales staff and key managers.
Our plan is to pursue a regional acquisition strategy by targeting
independent, local ISPs in selected geographic areas. In each area, we will seek
a larger ISP to serve as the vehicle for integrating and optimizing the networks
and operations. In general, the acquisitions in each region will be consolidated
into integrated operating subsidiaries that are wholly owned by us. In certain
instances, some of the acquired providers may continue to exist as separate,
wholly owned subsidiaries, but operated as part of the local operating region.
MANAGEMENT OF TELECOM WIRELESS' GROWTH
To implement our plan to expand rapidly through acquisitions, we will
need to implement additional management information systems capabilities,
further develop our operating, administrative and financial and accounting
systems and controls, improve coordination between engineering, accounting,
finance, marketing and operations, and hire and train additional personnel.
Our ability to manage rapid growth and disparate operational
methodologies will be dependent upon the operational plan we will implement to
integrate and consolidate these new operations. We plan to employ managers in
each of our geographical divisions to ensure the implementation of our
operational plan and the smooth transition of each of these operations. Our plan
generally is to identify employees of acquisitions who we believe have the
necessary technical and management skills to fill these positions.
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We intend to roll our ISPs and CLECs into geographic operating
divisions. We presently plan to have up to seven operating divisions,
including Pacific, Mountain, Southwest, Midwest, Northeast, Atlantic and ASP.
Acquired operations will be required to maintain local presence as we begin
national branding. We plan to establish integration teams to help integrate
our acquisitions.
We must establish, complete and expand our national network
infrastructure and support services to supply sufficient geographic reach,
capacity, reliability and security at an acceptable cost. This will require
that we enter into agreements with providers of infrastructure capacity and
equipment and support services. We do not yet know whether any or all of the
requisite agreements can be obtained on satisfactory terms and conditions.
To exchange traffic with ISPs and CLECs without incurring transit
costs, we must establish and maintain peering relationships. As Internet
access and related services have expanded, so have peering relationships and
settlement charges continued to evolve. A small group of dominant national
ISPs have driven corporate peering policies. If the major national ISPs
increase requirements to maintain peering relationships with them, we may
have to comply with those additional requirements to maintain peering
relationships. We also anticipate expanding and adapting our network
infrastructure to respond to a growing customer base, increased demands to
transmit larger amounts of data and changes to our customers' product and
service requirements. The expansion and adaptation of our network
infrastructure will require substantial financial, operational and managerial
resources.
While we believe there are various economies and efficiencies of
scale that can be realized as a result of acquiring and integrating
businesses, consolidating these businesses and implementing our strategic
integration may take significant time, will strain our resources, and could
subject us to additional expenses during the integration process. Our efforts
to integrate businesses we have acquired successfully and in a timely manner
pose special challenges. Whether we are able to do so effectively will have a
material effect on our business, financial condition and results of
operations.
We do not have the capital, personnel, equipment, procedures or systems
in place required to implement our integration, consolidation and
standardization plan. In the short term, the businesses we acquire will operate
on a largely independent basis as subsidiaries of Telecom Wireless, generally
retaining their personnel, systems, procedures and employee benefits. Depending
upon the availability of capital, we will gradually implement the integration,
consolidation and standardization aspects of our business plan. This means
Telecom Wireless may not realize operational cost savings for a significant
period of time. However, to expedite the process, we may seek to acquire or
merge with one or more companies having established operational infrastructures
and the capacity to integrate, consolidate and standardize our operations
quickly and on a cost-effective basis.
CURRENT OPERATIONS
Telecom Wireless currently conducts operations through two
subsidiaries, Keys Microcable Corporation and America's Web Station.
KEYS MICROCABLE CORPORATION. In June 1998, Telecom Wireless acquired
all the issued and outstanding stock of Keys Microcable Corporation. KMC has
operated a 32-channel wireless cable television system in the lower Florida Keys
and Key West, Florida, since 1994. Television programming received from
satellites is retransmitted to residential, business, and maritime subscribers
in the Key West geographic area. The signals are transmitted from a single
transmitter location and are received by small antennas that are installed by
Keys Microcable at each subscriber location. Typically, each subscriber location
services a single residence or business. There are locations however, such as
hotels, condominium associations and marinas that service multiple subscribers
from a single antenna. At some of these locations additional equipment such as
signal amplifiers and splitters are required.
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KMC is performing engineering studies to expand its product line in
its service area to provide wireless Internet services to subscribers and new
customers. The expanded capabilities will include voice-over-Internet
protocol or VoIP. KMC served approximately 1,600 cable TV subscribers as of
September 30, 1999, and management believes that approximately 50% of its
current subscribers will become Internet service subscribers and a smaller
number will become telephone customers as well.
AMERICA'S WEB STATION, INC. In July 1999, Telecom Wireless acquired
all the stock of America's Web Station, Inc. AWS was founded in 1997 to
provide Internet solutions to the rapidly expanding small- to medium-size
business market in southwest Florida. The initial focus was on high-end
database-driven web sites and e-commerce solutions. Dial-up Internet access
and web site hosting for businesses subsequently were added. In the first
quarter of 1998, AWS began offering residential Internet service. Its
customer base has grown largely as a result of referrals. At September 30,
1999, AWS had 276 Internet access subscribers and 53 web site hosting
customers.
Other than the operations of the Keys Microcable and America's Web
Station subsidiaries, the primary focus of management at present is to raise
necessary capital for both operations and acquisitions. The company's
financing team has had numerous meetings over the past few months with
investment bankers and other potential financing sources. In addition,
management has met with larger ISPs regarding possible management of our
acquired ISPs on an outsourcing basis. Management believes that these efforts
will result in financing adequate to implement our business plan, although we
cannot assure whether or when that will occur.
In addition, Telecom Wireless has entered into two equipment
agreements which will enable it to build the infrastructure required to
implement its business plan, including building a broadband wireless network,
when adequate funding is obtained.
ADAPTIVE BROADBAND CORPORATION. One equipment agreement was entered
into in December 1999 with Adaptive Broadband Corporation. The agreement with
Adaptive Broadband contemplates purchase by Telecom Wireless of broadband
wireless telecommunications equipment and services to establish wireless
communications networks in North America for small- and medium-size
businesses and consumers. Adaptive has represented that its technology offers
wireless line of sight data transmission rates of 25 megabits per second
(Mbps) with 100 Mbps planned for later this year. These transmission rates
would provide capacity for simultaneous real-time video conferencing,
transmission of full streaming video, web surfing and transmission of data
files. The wireless point to multi-point system will enable installation of
networks at a lower cost and in a much shorter period of time as compared to
a "wired" network. The system requires minimal termination equipment at the
customer site and generally will utilize existing building wiring.
Telecom Wireless plans to deploy Adaptive Broadband equipment in
both the licensed multimedia distribution system or MMDS frequency spectrums
as well as the unlicensed national information infrastructure or U-NII. The
U-NII spectrum was set aside by the FCC to facilitate rapid and inexpensive
wireless access to informational resources by educational institutions,
business, industry, and consumers.
The agreement with Adaptive Broadband requires expenditures over its
five-year term of approximately $225 million by Telecom Wireless. We are
obligated to, but have not yet placed, a purchase order in the amount of
$13,635,375 covering equipment to be delivered this year including equipment
to conduct a trial test through Keys Microcable Corporation. Adaptive
Broadband will provide the test plan for the trial and Telecom Wireless and
Adaptive Broadband will jointly conduct the test. Subject to the availability
of capital, we plan to rapidly deploy wireless broadband services in a
substantial number of markets. Initial planning for a five-city rollout is
currently under way.
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Either party may terminate the agreement if the other party is,
among other things, insolvent, bankrupt or is unable to pay its debts. In
addition, Adaptive Broadband may terminate the agreement if it is not
satisfied with the sales or promotional performance of Telecom Wireless. In
the event Adaptive Broadband should breach the agreement, including
infringement of its technology on the rights of others, the indemnification
obligation of Adaptive Broadband to Telecom Wireless is limited to the
purchase price of the infringing product. The costs to the company of
defending infringement litigation and securing necessary licenses could
substantially exceed that amount.
LUCENT TECHNOLOGIES LEASE/FINANCING. Telecom Wireless entered into
an equipment agreement styled as a Master Lease Agreement dated as of July
30, 1999, with the Internet Working Division of Lucent Technologies Inc., as
lessor. Subject to certain conditions, Lucent has agreed to provide
telecommunications and other equipment to Telecom Wireless and its
subsidiaries having a maximum aggregate purchase price of $20,000,000.
Telecom Wireless may lease equipment with a value of up to $5,000,000 without
having to satisfy certain covenants and financial ratios. To date, Telecom
Wireless has received equipment having a value of approximately $1.2 million.
Most of the equipment presently is in storage in Albuquerque, New Mexico.
Among other potential uses, Telecom Wireless may use Lucent
equipment to build a high-capacity asynchronous transfer mode or ATM voice
and data network, which will allow Telecom Wireless to provide high quality,
high-speed voice and data network services to corporations, alternative
carriers and ISPs. The revenue generating services that could be offered
through such a network include high-speed ATM and frame relay backbone
connections, dedicated and dial-up Internet access, and virtual private
networks which are restricted access Internet-based networks established by
businesses for internal use such as among employees, vendors and customers.
POTENTIAL BUSINESS PROSPECTS
Telecom Wireless has entered into transactions which may provide
business or investment opportunities in the future. As of the date of this
prospectus, whether these transactions will result in benefit to Telecom
Wireless is unknown.
INTERNATIONAL DATACASTING CORPORATION. Telecom Wireless has granted
Joshua Mailman the right, exercisable at any time until February 1, 2000, to
cause Telecom Wireless to purchase from Mr. Mailman a total of 2,600,000
shares of the capital stock of International Datacasting Corporation, a
Canadian corporation based in Ottawa, Ontario, Canada. The purchase price is
$1.00 per share in cash or, at the option of Mr. Mailman, in the form of a
note or the equivalent value of Telecom Wireless' common stock. In addition,
Telecom Wireless agreed to purchase from Mr. Mailman an additional 2,000,000
shares of IDC common stock upon the same terms within 30 days after the date
of the first purchase. To the extent Mr. Mailman elects to take shares of
Telecom Wireless' common stock in payment for the IDC stock, the stock will
be valued at the lower of US $5.00 per share or 70% of the market price on
the date of the transaction. IDC is a public Canadian company whose stock is
traded on the Montreal Stock Exchange under the symbol IDA. IDC is engaged in
the business of selling advanced satellite communications products. It claims
to own applications that include internet via satellite, corporate intranets,
radio networks, business radio networks, weather networks, financial
information, sports updates, paging networks and email transmission. It also
claims to have more than 25,000 installations in 35 countries.
HYPERLIGHT NETWORK CORPORATION. Telecom Wireless is investigating a
new technology which involves software and hardware modulation and
compression equipment that appears to be able to transmit data at rates as
high as 45 mega bits per second ("Mbps") over traditional copper pair
transmission facilities. It also appears to be able to support the 45 Mbps
transmission over a coast-to-coast dial-up telephone call and perhaps over
fiber cable, wireless and coaxial cable. The technology is in the development
stage. Management has been informed that the technology currently is
undergoing testing to determine commercial viability by an independent third
party.
Telecom Wireless entered into agreements to acquire what management
believes is approximately a 4.9% equity interest in Hyperlight Network
Corporation, the entity that purports to own the technology or to have the
right to acquire the technology. The sellers claim we are in default under
these agreements and claim to have terminated two of the agreements. The
agreements purport to obligate Telecom Wireless to pay $1.6 million and
deliver 500,000 shares of our common stock for this equity interest. We have
delivered the 500,000 shares and have paid $700,000, financed with borrowed
funds under a convertible promissory note due April 30, 2000. Of the
remaining $900,000, sellers claim payment of $300,000 is in default and that
$300,000 is due on each of March 1 and June 1, 2000. In consideration of the
agreement of Hyperlight to renegotiate the agreements in good faith, Telecom
Wireless delivered to Hyperlight an additional 452,381 shares of common stock.
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The agreements to be renegotiated include a world-wide, non-exclusive,
five-year license agreement which gave us the right to distribute the technology
and to sublicense the technology to the end users, with the exception of the
United States government. The seller purportedly has terminated the license
agreement due to our default.
Whether the sellers will renegotiate the agreements on terms economic
to Telecom Wireless and whether the sellers will provide adequate information
with respect to the viability and ownership of the technology is unknown. In
addition, we are in discussions with venture capitalists and others to provide
the necessary financing. At present, we have no financing commitments and can
give no assurance that financing can be obtained at all or upon reasonable
terms. For all of these reasons, whether the technology will have any value to
Telecom Wireless is speculative.
COMPETITION
The market for Internet connectivity and related services is
extremely competitive. We anticipate that competition will continue to
intensify as use of the Internet grows. The rapid growth and potential market
size of the Internet access market has attracted many new start-ups, as well
as existing businesses from different industries. In addition to other
national, regional and local ISPs and CLECs, current and prospective
competitors of Telecom Wireless include long distance and local exchange
telecommunications companies, cable television companies, direct broadcast
satellite and wireless communications providers, and on-line service
providers. We believe the primary competitive factors determining success for
ISPs in the markets we expect to serve are:
- a reputation for reliability and high quality service;
- effective customer support;
- access speed;
- pricing;
- effective marketing techniques for customer acquisition;
- ease of use; and
- scope of geographic coverage.
We believe that national providers lack a local presence that
customers demand and local providers lack the technical and human resources
required to offer enhanced services cost effectively. By creating a national
network of ISPs and CLECs, our customers will obtain the benefits of a global
infrastructure with personal, around-the-clock customer support. We believe
that national scale and local presence will result in long term customer
loyalty and help expand our customer base. We intend to enhance this value as
we continue to develop by expanding our network through acquisitions and
strategic vendor relationships and providing a comprehensive array of
enhanced, higher-margin products and services such as electronic commerce.
ISPS.
Our current primary competitors include other ISPs with a significant
national presence which focus on business customers. These competitors include
UUNet, GTE Internet working (formerly BBN), PSINet, Concentric Network and
DIGEX. While we believe that our planned level of local service and support and
focus on the target market will distinguish us from these competitors, most of
them have significantly greater market presence, brand recognition, and
financial, technical and personnel resources than we do, and have extensive
coast-to-coast Internet backbones. We also compete with unaffiliated regional
and local ISPs and ASPs in our targeted geographic regions
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TELECOMMUNICATIONS CARRIERS.
All the major long distance companies, which are also known as
interexchange carriers, including AT&T, MCI, and Sprint, offer Internet
access services and compete with us. The recent sweeping reforms in the
federal regulation of the telecommunications industry have created greater
opportunities for local exchange carriers, including the regional bell
operating companies, to enter the ISP market. To address the Internet
connectivity requirements of the current business customers of long distance
and local carriers, interexchange carriers are partnering with, and/or
acquiring, ISPs. The WorldCom/MFS/UUNet consolidation, the NETCOM/ICG merger,
the Intermedia/DIGEX merger, and GTE's acquisition of BBN are examples.
Accordingly, we expect that Telecom Wireless will experience increased
competition from the traditional telecommunications carriers. Many
telecommunications carriers, in addition to their substantially greater
network coverage, market presence, and financial, technical and personnel
resources, also have large existing commercial customer bases. Furthermore,
telecommunications providers may be able to bundle Internet access with basic
local and long distance telecommunications services. Bundling services may
make it more difficult to compete effectively with the telecommunications
providers and may result in pricing pressure that would have an adverse
effect our business, financial condition and results of operations. We
believe combining local presence with a strong technical and data-oriented
sales force could be an important feature distinguishing us from the
centralized voice-oriented sales approach typified by the current Internet
connectivity services offered by the interexchange carriers and local
exchange carriers.
CABLE COMPANIES, DIRECT BROADCAST SATELLITE AND WIRELESS
COMMUNICATIONS COMPANIES.
Many major cable companies have announced that they are exploring
the possibility of offering Internet connectivity, by using cable modems and
upgrading their networks. MediaOne Group and TCI have recently announced
trials to provide Internet cable service to residential customers in select
areas. However, the cable companies are faced with large-scale upgrades of
their existing plant, equipment and infrastructure to support connections to
the Internet backbone via high-speed cable access devices. Additionally,
their current subscriber base and market focus is residential, which requires
that they join with business-focused providers or undergo massive sales and
marketing and network development efforts to target the business sector.
Several announcements also have recently been made by other alternative
service companies that are approaching the Internet connectivity market with
various wireless terrestrial and satellite-based service technologies, which
currently offer high-speed Internet access to business customers.
ON-LINE SERVICE PROVIDERS AND CABLE AND TELEPHONE COMPANIES.
The predominant on-line service providers, including America Online,
Microsoft Network, and Prodigy, have all entered the Internet access business
by engineering their current proprietary networks to include Internet access
capabilities. We plan to compete to a lesser extent with these on-line
service providers. The offerings of the on-line service providers may
significantly affect the pricing of our service offerings.
BROADBAND SERVICE PROVIDERS.
Advanced Internet applications and quicker access require additional
bandwidth. In the last year or two, several cable and telephone companies
have announced plans to deploy broadband services for high speed Internet
access through new technologies such as cable modems and xDSL. While these
providers have initially targeted the residential consumer, it is likely that
their target markets will expand to encompass our target markets, which may
significantly affect the pricing of our service offerings. As a result of an
increase in the number of competitors, and vertical and horizontal
integration in the industry, we expect to encounter significant pricing
pressure and other competition in the future. Advances in technology as well
as changes in the marketplace and the regulatory environment are constantly
occurring. We cannot predict the effect that ongoing or future developments
may have on us or the pricing of our products and services. We intend to
continue to improve our products and services to remain competitive.
With respect to our potential competitors, we believe that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will intensify competition. In addition, as consumers
and businesses increasingly move on-line in greater numbers, we expect
existing competitors to increase further their emphasis on Internet access
and electronic commerce initiatives, resulting in even greater competition
for us in our markets. The ability of competitors or others to enter into
business combinations, strategic alliances or joint ventures, or to bundle
their services and products with Internet access, could place us at a
significant competitive disadvantage.
37
<PAGE>
GOVERNMENTAL REGULATION
REGULATION OF INTERNET ACCESS SERVICES.
We provide Internet access, in part, using telecommunications
services provided by carriers. Terms, conditions and prices for
telecommunications services are subject to economic regulation by state and
federal agencies. As an Internet access provider, we are not currently
subject to direct economic regulation by the Federal Communications
Commission or any state regulatory body, other than the type and scope of
regulation that is applicable to businesses generally. In April 1998, the
Federal Communications Commission reaffirmed that Internet access providers
should be classified as unregulated "information service providers" rather
than regulated "telecommunications providers" under the terms of the federal
Telecommunications Act of 1996. As a result, our ISP business is not subject
to federal regulations applicable to telephone companies and similar carriers
merely because we provide our ISP services using telecommunications services
provided by third-party carriers. To date, no state has attempted to exercise
economic regulation over Internet service providers.
Governmental regulatory approaches and policies for Internet access
providers and others that use the Internet to facilitate data and
communication transmissions are continuing to develop and in the future we
could be exposed to regulation by the Federal Communications Commission or
other federal agencies or by state regulatory agencies or bodies. For
example, the Federal Communications Commission has expressed an intention to
consider whether to regulate providers of voice and fax services that employ
the Internet or Internet protocol switching as "telecommunications providers"
even though Internet access itself would not be regulated. The Federal
Communications Commission is also considering whether providers of
Internet-based telephone services should be required to contribute to the
universal service fund, which subsidizes telephone service for rural and low
income consumers, or should pay carrier access charges on the same basis as
regulated telecommunications providers. To the extent that we engage in the
provision of Internet or Internet protocol based telephony or fax services,
we may become subject to regulations promulgated by the Federal
Communications Commission or states with respect to such activities. We
cannot assure you that such regulations will not adversely affect our ability
to offer certain enhanced business services in the future.
Furthermore, in a rulemaking proposal issued in August 1998, the
Federal Communications Commission has proposed that if an incumbent local
exchange carrier establishes a separate affiliate to pursue the deployment of
advanced telecommunications services, such as those we intend to offer, and
if that affiliate interconnects with the incumbent local exchange carrier's
network on the same terms and conditions as offered to the incumbent local
exchange carrier's competitors, then the affiliate would not be subject to
the unbundling, discounted resale or co-location obligations in the federal
Telecommunications Act of 1996 that apply to incumbent local exchange
carriers. Rather, the affiliate would be treated like a competitive local
exchange carrier. If the Federal Communications Commission ultimately adopts
this or any similar proposal, we would likely face increased competition from
incumbent local exchange carrier affiliates and our access to providers of
high speed data technology could be curtailed, which could materially and
adversely affect our business, operating results and financial condition.
REGULATION OF THE INTERNET.
Due to the increasing popularity and use of the Internet by broad
segments of the population, it is possible that laws and regulations may be
adopted with respect to the Internet pertaining to content of web sites,
privacy, pricing, encryption standards, consumer protection, electronic
commerce, taxation, and copyright infringement and other intellectual
property issues. We cannot predict the effect, if any, that any future
regulatory changes or developments may have on the demand for our access or
enhanced business services. Changes in the regulatory environment relating to
the Internet access industry, including the enactment of laws or promulgation
of regulations that directly or indirectly affect the costs of
telecommunications access, or that increase the likelihood or scope of
competition from national or regional telephone companies, could materially
and adversely affect our business, operating results and financial condition.
38
<PAGE>
REGULATIONS PERTINENT TO OUR COMPETITIVE LOCAL EXCHANGE CARRIER
OPERATIONS.
To the extent that we conduct business as a competitive local
exchange carrier, the telecommunications services that we provide will be
subject to regulation by federal, state and local governmental agencies.
State regulatory commissions exercise jurisdiction over intrastate services.
Municipalities and other local government agencies may regulate certain
aspects of the operations of competitive local exchange carriers, such as use
of rights-of-way. Although typically start-up telecommunications carriers are
not subject to all of the Federal Communications Commission's regulations
applicable to incumbent local exchange carriers, such as price caps or
rate-of-return regulation, the federal Telecommunications Act of 1996
requires the Federal Communications Commission to establish a subsidy
mechanism for universal telephone service to which our competitive local
exchange carrier subsidiary will be required to contribute based on its
telecommunications revenues. In addition, the federal Telecommunications Act
of 1996 requires all carriers, including competitive local exchange carriers
and incumbent local exchange carriers, to make their services available for
resale by other carriers, to interconnect their networks and ensure they
interoperate and provide non-discriminatory rights-of-way, offer reciprocal
compensation for termination of local telecommunication traffic, and provide
dialing parity and local telephone number portability. The federal
Telecommunications Act of 1996 further reserves to the individual states the
authority to impose state regulation of local exchange services, including
state universal service subsidy programs, so long as the state's regulations
are not inconsistent with the requirements of the federal Telecommunications
Act of 1996. We are unable to predict the manner in which any state where we
may receive certification as a competitive local exchange carrier will seek
to regulate our telecommunications operations.
In providing interstate, intrastate and international services, our
competitive local exchange carrier operation would generally be subject to
tariff or price list filing requirements pursuant to which the competitive
local exchange carrier operation will be required to publicly disclose, or in
some instances obtain approval of, its terms, conditions and prices for
telecommunications services prior to or soon after offering such services. In
addition, individual states where our operation conducts activities as a
competitive local exchange carrier may subject us to state certification
proceedings and intrastate and local tariff regulations. These certifications
generally require a showing that the carrier has adequate financial,
managerial and technical resources to offer the proposed services consistent
with the public interest. While uncommon, challenges to these tariffs and
certification proceedings by third parties could cause our competitive local
exchange carrier operation to incur substantial legal and administrative
expenses. Many states also impose additional regulatory requirements, such as
minimum service quality reporting and customer service requirements and
uniform local exchange carrier accounting requirements. Under some state
laws, changes in the ownership of a competitive local exchange carrier's
outstanding voting securities may require prior approval of the state public
utility commission. In certain jurisdictions, an investor who acquires as
little as 10% of a competitive local exchange carrier's voting securities may
have to obtain prior approval for the acquisition of such securities because
such ownership interest might be deemed to constitute an indirect controlling
interest in the carrier.
INTELLECTUAL PROPERTY
We expect to receive authorization to use the products of each
manufacturer of software that is bundled in our software for users with
personal computers operating on the Windows or Macintosh platforms. While
certain of the applications included in our start-up kit for ISP subscribers
will be shareware that we have obtained permission to distribute or that are
otherwise in the public domain and freely distributable, certain other
applications included in the start-up kit will be licensed where necessary.
We currently intend to maintain or negotiate renewals of all existing
software licenses and authorizations as necessary, although we cannot be
certain that such renewals will be available to us on acceptable terms, if at
all. We may also enter into licensing arrangements in the future for other
applications.
39
<PAGE>
EMPLOYEES
As of January 28, 2000, Telecom Wireless and its subsidiaries had 22
full-time employees, including executive officers. Five of these employees
were employed by America's Web Station, Inc. and seven were employed by Keys
Microcable. Telecom Wireless' employees are not covered by any collective
bargaining agreement, and it has never experienced a work stoppage.
Management believes that Telecom Wireless' employee relations are good.
PROPERTIES
Telecom Wireless' principal executive offices are located in
approximately 8,215 square feet of leased space at 5299 DTC Boulevard, Suite
1120, Englewood, Colorado 80111. The current monthly lease payment is
$16,800. The lease expires in 2002.
Telecom Wireless also has a lease for office space in West Palm
Beach, Florida covering approximately 7,439 square feet. The lease expires
August 1, 2004. The monthly lease payment is approximately $8,369. Due to a
change in Telecom Wireless' business plan, it has advised the landlord that
it does not intend to occupy the premises and the landlord has declared
Telecom Wireless to be in default under the lease. Telecom Wireless may be
liable to the landlord for the amount of unpaid rent under the lease.
America's Web Station, Inc., a subsidiary of Telecom Wireless,
operates out of 1,584 square feet of leased space in Naples, Florida. Telecom
Wireless' Keys Microcable subsidiary is headquartered in leased space in Key
West, Florida, where it also leases land for an unmanned "head end" facility
containing electronic equipment.
LEGAL PROCEEDINGS
No litigation is pending or, to the knowledge of management,
threatened against Telecom Wireless Corporation or any of its subsidiaries
that, individually or collectively, could have a material adverse effect upon
Telecom Wireless' financial condition except as set forth below.
Telecom Wireless is the defendant in Coker & Palmer, Inc. v. Telecom
Wireless Corporation, a lawsuit filed September 3, 1999, in the County Court
of the First Judicial District of Hinds County, Mississippi, Civil Action No.
251-99-4537-CO. Coker & Palmer alleges that Telecom Wireless failed to
promptly disclose to the public through the news media material information
that would reasonably be expected to affect the value of its securities or
influence investors' decisions in connection with a reverse stock split of
Telecom Wireless= common stock effected on or about May 4, 1999. Coker &
Palmer alleges that it incurred losses of $28,613 because of the failure and
seeks that amount in compensatory damages plus an unspecified amount in
consequential and incidental damages plus costs. Telecom Wireless has reached
an agreement with Coker & Palmer whereby Telecom Wireless will pay to Coker &
Palmer the sum of $14,300 in settlement of Coker & Palmer's claims.
Telecom Wireless entered into an office lease with One Clearlake
Centre VEF III, LLC, for approximately 7,439 square feet of office space.
Prior to taking occupancy of the space, Telecom Wireless notified the
landlord that it did not intend to occupy the space. The landlord has taken
the position that Telecom Wireless is now in default under the lease and has
filed a complaint in the Circuit Court of the 15th Judicial Circuit in and
for Palm Beach County, Florida, Case No. CL 9910570-AD, seeking damages of
approximately $900,000 for the unpaid rent for the remaining term of the
lease including court costs, interest and a reasonable attorney=s fee. It is
expected that court-ordered mediation of the dispute will occur in the next
few weeks.
As described above under "Potential Business Prospects," HyperLight
Network Corporation claims Telecom Wireless is in default under certain
agreements, purports to have canceled some of those agreements and has
threatened to file a lawsuit against Telecom Wireless and Mr. Roberts,
Chairman of its Board of Directors. The claims HyperLight has threatened to
make include breach of contract, fraudulent concealment and fraudulent
misrepresentation of certain facts and breach of fiduciary duty. HyperLight
also may seek exemplary damages, although it has not specified the claimed
amount of actual or exemplary damages. Management of Telecom Wireless
believes it has meritorious defenses to any claims that may be made by
HyperLight and will vigorously defend any lawsuit filed by HyperLight.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the directors and executive officers
of Telecom Wireless:
<TABLE>
<CAPTION>
Beginning of Term of
Name Age Positions Held Service as Director
- ----------------------- -------- -------------------------------------- ----------------------------------
<S> <C> <C> <C>
James C. Roberts 46 Chairman of the Board of Directors 4/99
Calvin D. Smiley 46 Chief Executive Officer, President 4/99
and Director
Kosta S. Kovachev 48 Chief Financial Officer and Director 4/99
Robert L. Fredrick 54 Senior Vice President 4/99
</TABLE>
No arrangements exist between directors, officers, or other persons
which resulted in the selection or election of any of the above-named
persons. All directors hold office until the next annual meeting of
shareholders or until their successors are duly elected and qualified.
Officers serve at the pleasure of the board of directors. Mr. Roberts and
Lynne K. Roberts, an officer of Telecom Wireless whose professional
qualifications are discussed below, are husband and wife.
The principal occupations of each executive officer and director of
Telecom Wireless for at least the past five years are as follows:
JAMES C. ROBERTS, 46, has served as Chairman of the Board of
Directors and a director of Telecom Wireless since April 1999 and served as
Chief Executive Officer from April 1999 until January 2000. Mr. Roberts
co-founded and served as President, Chief Operating Officer and a director of
Voice and Data Communications, Inc., Greenwich, Connecticut, an international
long distance company servicing Asia, America, Europe and Latin America, from
March 1998 to November 1998. Previous to that, he served as President and
Chief Executive Officer of CGI Worldwide, Inc. from its inception in 1986
until 1997. CGI was a multifaceted telecommunications company that designed,
engineered, constructed and developed over 80 cellular, paging and cable
television systems around the world. Before joining CGI, Mr. Roberts spent
over ten years in the telecommunications business, holding senior management
positions with McCaw Cellular Communications, Inc., MCI Communications Corp.
and Motorola, Inc. During this period, Mr. Roberts was responsible for
building and operating over 50 cellular, paging and cable TV systems. Mr.
Roberts was a charter member of the Cellular Telephone Industry Association.
He holds several university degrees including a doctoral degree in business
administration with emphasis in international economics from Newport
University, Newport Beach, California, which was conferred in 1992.
CALVIN D. SMILEY, 46, has served as an officer and director of
Telecom Wireless since April 1999. In October 1999, he was elected President
of the company and in January 2000 was elected Chief Executive Officer. From
March 1997 to March 1999, Mr. Smiley was President of Communicast, Inc., a
turn-key advertising sales company representing the wireless and cable
television industries based in Denver, Colorado. From September 1995 to
February 1997, he served as Chief Operating Officer and Executive Vice
President for Across Media Networks, LLC, Denver, Colorado, a photo digital
classified advertising company. Before joining Across Media, Mr. Smiley was
President of Act One Cable Television Advertising, Inc. and Cable Advertising
Networks, Inc., both advertising and marketing companies based in Columbus,
Ohio, serving rural cable operators. For fourteen years before September
1995, Mr. Smiley held management and executive positions with
TeleCommunications, Inc. in advertising sales and marketing. He held various
positions in radio and television before joining TCI.
KOSTA S. KOVACHEV, 48, has been an officer and director of Telecom
Wireless since May 1999. From January 1997 to February 1999, Mr. Kovachev
served as a director of Alma Fund Group, a global venture capital firm that
he co-founded. From April 1996 to January 1997, Mr. Kovachev was a Managing
Director of Gem Advisors, Inc., a venture capital firm that specialized in
private placements of funds. From September 1995 to March 1996, Mr. Kovachev
was Managing Director of W.G. Trading, a convertible sales and trading firm.
From April 1994 to August 1995, Mr. Kovachev was Senior Portfolio Director
for the Palladin Group, an investment fund management firm, where he headed
the firm's international funds area. Mr. Kovachev was Managing Director and
head of the international convertible desk at McMahan Securities, a fund
management and broker/dealer firm, from 1992 to 1994. Mr. Kovachev was
employed by Morgan Stanley from 1987 to 1992 where he was promoted to Vice
President in International Convertible Sales. Mr. Kovachev's experience with
Wall Street firms includes employment by Morgan Stanley, Drexel Burnham
Lambert and Arnhold & S. Bleichroeder.
41
<PAGE>
ROBERT L. FREDRICK, 54, has served as an officer and director of
Telecom Wireless since April 1999 and, in October 1999, was elected to the
position of Senior Vice President. He also serves as President of Keys
Microcable Corporation, a wholly owned subsidiary of Telecom Wireless. Keys
Microcable provides wireless television programming in Monroe County,
Florida. Before joining Keys Microcable, Mr. Fredrick was President of
Strategic Solutions Group Inc. from 1994 to 1998. Strategic Solutions Group
provided business strategy, operational, and product development consulting
services to manufacturers of voice and data equipment for the
telecommunications industry. Mr. Fredrick also served as Senior Vice
President, Commercial Services for Digicon Corporation from 1995 to 1996.
Digicon is a supplier of data and telecommunications services to the federal
government. While at Digicon, Mr. Fredrick was involved in the development of
cellular telephone service in the Middle East and Russia. Mr. Fredrick served
as a General Manager for Optelecom Corporation, a manufacturer of fiber optic
telecommunications hardware, from 1996 to 1998. From 1991 to 1996, he served
as Vice President of Business Development, Vice President of Marketing, and
General Manager of the Storage Systems Business Group of Network Imaging
Corporation, a developer of client server software systems for the
telecommunications industry.
OTHER OFFICERS
The following paragraphs identify other officers of Telecom Wireless:
PAUL L. FRANCIS, 49, has been an officer of Telecom Wireless since
April 1999. He was appointed Chief Technology Officer in October 1999. A
British native, Mr. Francis has more than 30 years' experience in the
telecommunications industry. He has spent the past 19 years as an independent
engineer and consultant. From May 1998 to April 1999, he was associated with
Francis Walker & Co., London, England. He has consulted for such companies as
Plessey, British Petroleum, Reuters and Solomon Brothers. He is an associate
member of The Institute of Incorporated Engineers and is an affiliate of the
Engineering Council in the United Kingdom. In 1979, he earned a Full
Technological Certificate at the Chelmer Institute in the United Kingdom.
ESPER GULLATT JR., 41, has been an officer of Telecom Wireless since
April 1999. He was appointed Vice President-Business Development of Telecom
Wireless in October 1999. Previously, Mr. Gullatt was Chief Executive Officer
and a director of Capstone Group, Inc., Denver, Colorado, a
telecommunications business he founded in January 1994. From October, 1995 to
August, 1998, Mr. Gullatt was Chief Financial Officer and a director of DCC
Solutions, Inc., Denver, Colorado, a wireless telephone dealer and airtime
reseller that he co-founded. From November, 1988 to October, 1995, Mr.
Gullatt served as Chief Financial Analyst for the Colorado Department of
Public Safety. He received a Bachelor of Accountancy degree from the
University of Oklahoma-Norman in 1983, and was employed as an accountant by
Deloitte, Haskins & Sells from January 1981 to March 1982.
42
<PAGE>
LEWIS G. POLLACK, 54, has served as an officer of Telecom Wireless
since April 1999. In October 1999, he was appointed Vice President-Product
Development. Mr. Pollack founded World Lynx, Inc., a regional high-speed
Internet provider based in Little Rock, Arkansas, in 1993 and served as its
Chief Executive Officer until 1998. From 1990 to 1993 he served as Vice
President, Marketing for the Information Management Services Division of
Lockheed Corporation. He also helped establish and from 1986 to 1991 served
as Vice President of Marketing for Program Monitor, Inc., a company in the
electronic home detention business. Mr. Pollack was educated at the
University of California at Los Angeles, where he was a Fellow in special
education and pursued graduate studies in that field. He also received an
M.A. from Trenton State College and a B.A. from Franklin & Marshall College.
LYNNE K. ROBERTS, 48, has served as Vice President-Human Resources
and Secretary of Telecom Wireless since May 1999. From March 1997 through
November 1998, she was Vice President of Voice and Data Communications, Inc.,
a Greenwich, Connecticut, telecommunications company. From 1986 through
February 1997, Ms. Roberts was associated with CGI Worldwide, Inc.,
Englewood, Colorado, where her duties included business development for that
company. CGI is a telecommunications company which has designed, engineered,
constructed and developed over 80 cellular, paging and cable television
systems around the world. Before joining CGI, Ms. Roberts was a senior credit
analyst with Motorola Communications, San Mateo, California.
ADVISORY BOARD
Telecom Wireless has established an Advisory Board to consist of
persons having experience and expertise in areas relevant to the business of
Telecom Wireless who are not employed by Telecom Wireless. The purpose of the
Advisory Board is to provide information and guidance to the Board of
Directors with respect to Telecom Wireless' business, including technological
advances, pricing strategies, electronic content and services, and financial
and operational structure. To date, only one member of the advisory board has
been identified. When Telecom Wireless obtains the funding required to
implement its business plan, it is expected that the Board of Directors of
the company expects to identify additional advisory board members based upon
their experience, education and other qualifications. To date, no
compensation arrangements have been made for advisory board members.
JOHN H. SUNUNU is the sole current member of the Advisory Board.
Governor Sununu served as Chief of Staff and Counselor to President George
Bush from 1989 to 1992. He had served as Governor of New Hampshire from 1983
until 1989. Since leaving the White House, Governor Sununu has pursued
various business interests and was co-host of CNN's nightly "Crossfire"
program from 1992 to 1998. Before becoming Governor of New Hampshire, he was
an educator, engineer and small businessman. He earned his Ph.D. in
mechanical engineering from Massachusetts Institute of Technology in 1966.
From 1968 until 1973, he was Associate Dean of the College of Engineering and
Associate Professor of Mechanical Engineering at Tufts University. He was on
the Advisory Board of the Technology and Policy Program at MIT from 1984 to
1989. From 1963 until his election as Governor, he was President of JHS
Engineering Company and Thermal Research, Inc. He helped establish and from
1960 until 1965 served as Chief Engineer of Astro Dynamics, Inc.
43
<PAGE>
EXECUTIVE COMPENSATION
SALARY AND BONUS; EMPLOYMENT AGREEMENTS. No executive officer was
paid more than $100,000 in salary and bonus for services provided to Telecom
Wireless during the fiscal year ended June 30, 1999.
Telecom Wireless has entered into written employment agreements with
three of its four executive officers, but has no written employment agreement
with Mr. Roberts. Except as to Mr. Kovachev, each written agreement has a
term of three years from April 1, 1999, and provides for payment of a base
salary, which may be increased at the end of each year. Mr. Kovachev's
employment agreement will terminate in July 2000. The annual salaries payable
by Telecom Wireless to the executive officers under these agreements and to
Mr. Roberts under an oral understanding with the company's board of directors
were as follows as of the date of this prospectus:
<TABLE>
<CAPTION>
ANNUAL SALARY
-------------
<S> <C>
James C. Roberts $250,000
Calvin D. Smiley $225,000
Kosta S. Kovachev $250,000
Robert L. Fredrick $225,000
</TABLE>
Under the written employment agreements, Telecom Wireless may
terminate the officer's employment at its discretion at any time during the
initial three-year term. However, Telecom Wireless must pay the officer an
amount equal to the officer's base salary for the remainder of the initial
term. After the initial term, the officer's employment may be terminated by
Telecom Wireless without cause upon payment on the termination date of an
amount equal to six times the officer's then monthly base salary. An officer
may terminate a written employment agreement on 30 days' notice to Telecom
Wireless.
All officers of Telecom Wireless are eligible to participate in the
executive bonus pool, which is fixed at an amount equal to five percent of
the company's adjusted net profits less certain items, including
contributions to pension or profit sharing plans, of which there currently
are none, extraordinary gains or losses, and refunds or deficiencies of
federal or state income taxes paid in a prior year. The maximum bonus payable
for any one year may not exceed 100% of the officer's base salary for the
year.
OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information on options granted to the executive officers of Telecom Wireless
during the fiscal year ended June 30, 1999. All such options are
non-qualified options exercisable at the market price of a share of Telecom
Wireless' common stock on the date of grant. The options have no value unless
Telecom Wireless' stock price appreciates beyond the exercise price and the
holder satisfies all applicable vesting requirements. All the options granted
to executive officers during 1999 vest 33-1/3% per year over three years.
They also vest in full on a change in control of Telecom Wireless. The
options reflected in the table were granted before adoption of Telecom
Wireless' 1999 Stock Option and Restricted Stock Plan, which is discussed
below.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE
---- --------------- ----------- --------- ----
<S> <C> <C> <C> <C>
James C. Roberts 2,000,000 36.1% $10.55 Apr. 13, 2004
Calvin D. Smiley 200,000 3.6% $10.55 Apr. 13, 2004
Kosta S. Kovachev 1,000,000* 18.0% $10.55 Apr. 13, 2004
Robert L. Fredrick 500,000 9.0% $10.55 Apr. 13, 2004
</TABLE>
- -------------------
* Canceled under oral agreement effective in January 2000.
OPTION EXERCISES AND VALUES. None of the options granted to the
executive officers of Telecom Wireless before the end of fiscal year 1999 were
exercisable before the end of that year. In accordance with Securities and
Exchange Commission regulations, the following table nevertheless provides
information on exercises of stock options during the fiscal year and the fiscal
year-end value of unexercised options:
44
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Value Unexercised In-the-Money
Acquired on Realized Options at Fiscal Options at Fiscal
Name Exercise (#) ($) Year End (#) Year End ($)
- ----------------------------- ----------------- --------------- -------------------- ------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
-------------------- ------------------
<S> <C> <C> <C> <C>
James C. Roberts 0 0 0/2,000,000 0/$3,556,000
Calvin D. Smiley 0 0 0/200,000 0/$355,600
Kosta S. Kovachev 0 0 0/1,000,000* 0/$1,778,000
Robert L. Fredrick 0 0 0/500,000 0/$889,000
</TABLE>
- ------------------
* Canceled under oral agreement effective in January 2000.
RECENT GRANT OF OPTIONS. In connection with Mr. Smiley's appointment
as chief operating officer of Telecom Wireless in August 1999, Telecom
Wireless granted him options to purchase 300,000 shares of common stock at an
exercise price of $14.42 per share, the market price of a share of Telecom
Wireless' common stock on the date of grant. The options vest in equal
installments over three years beginning one year from the date of grant, and
expire in August 2004. For administrative convenience, these options were not
granted under Telecom Wireless' 1999 Stock Option and Restricted Stock Plan.
1999 STOCK OPTION AND RESTRICTED STOCK PLAN
The Board of Directors of Telecom Wireless adopted Telecom Wireless'
1999 Stock Option and Restricted Stock Plan, which we sometimes refer to
below as the "1999 Plan," to attract and retain qualified personnel. A total
of 800,000 shares of Telecom Wireless' common stock may be issued to grantees
and recipients under the plan. The plan allows issuance of both qualified or
incentive stock options and non-qualified options as well as awards of shares
of restricted stock and by its terms continues in effect for ten years.
Options and stock awards may be granted to employees, independent
contractors, officers, directors and consultants at the discretion of the
Board of Directors or committee administering the plan. The board of
directors may ask shareholders at the next annual meeting to increase the
number of shares of common stock reserved for issuance under the 1999 Plan.
The Board of Directors adopted the plan on May 4, 1999, but the plan
must be approved by a vote of the stockholders of Telecom Wireless within one
year of that date to become effective permanently. The plan provides for
appropriate adjustment in the number of shares subject to the plan and to
grants previously made if there is a stock split, stock dividend,
reorganization or other similar change affecting Telecom Wireless' corporate
structure or its equity securities. If shares under a grant are not issued to
the extent permitted before the expiration or forfeiture of the grant, those
shares would again be available for future grants under the plan. No grant
may be made under the plan after May 4, 2009, but awards granted before or on
that date may extend beyond it.
The Board of Directors has delegated administration of the 1999 Plan
to a committee of the Board consisting of two members of the Board. At such
time as Telecom Wireless has any class of equity security which is registered
under Section 12 of the Act, the committee is required to consist of two or
more non-employee directors, the members of which will meet the Securities
and Exchange Commission definition of "disinterested directors" and the IRS
definition of "outside directors." The option exercise price, exercise
period, time of vesting, and other terms of an option, in addition to terms
that are applicable to a stock award, will be determined by the committee.
Telecom Wireless currently does not have any disinterested directors.
45
<PAGE>
All employees, officers, directors, and consultants of Telecom
Wireless or a subsidiary of Telecom Wireless are eligible for options and
stock awards under the 1999 Plan. At this time, it is not possible to predict
the number of employees who will be selected to receive options and/or stock
awards under the 1999 Plan, and the number of grantees could vary from time
to time.
Unless otherwise fixed by the committee, the term of an option will
be five years from the date of grant, but no option may have a term of more
than ten years from the date of grant.
Stock awards granted under the 1999 Plan may be subject to a
restricted period or may be fully vested as of the date of issuance. The
Board, in its sole discretion, at the time an award is made may prescribe
other restrictions in addition to expiration of the restricted period, such
as satisfaction of corporate or individual performance objectives.
There are no federal income tax consequences to a participant or
Telecom Wireless upon the grant of a stock option granted under the plan.
All stock options, and stock awards for which restrictions
prescribed by the Board have not been satisfied, are non-transferable, other
than by will or by the laws of descent and distribution, and may be exercised
during the grantee's lifetime only by the grantee.
Unvested portions of stock options and stock awards immediately
expire upon termination of employment for any reason other than death or
disability, unless the Board, in its discretion, determines otherwise; vested
options may be exercised for up to three months following the termination,
unless termination is for cause. If Telecom Wireless terminates employment
for cause, all unexercised awards expire upon the termination.
Shares of stock may not be issued or delivered upon exercise of a
stock option or grant of a stock award until the optionee or recipient pays
the exercise price in full, or makes any payment required under a stock grant
agreement, and pays any required tax withholding and, if applicable, the
completion of registration and listing of the shares or qualification as a
private placement and the obtaining of any other required approvals.
The Board of Directors may amend, alter or discontinue the 1999
Plan, provided that any such amendment, alteration or discontinuance does not
impair the rights of any grantee, without his or her consent, under any stock
option or stock award previously granted. The Board of Directors may not,
without stockholder approval, (i) increase the total amount of stock which
may be purchased or issued through options or awards granted under the 1999
Plan, or (ii) change the class of employees or consultants eligible to
participate in the 1999 Plan.
46
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of January 28,
2000, with respect to each person who owned of record as of that date or is
known to Telecom Wireless to own beneficially more than 5% of the outstanding
shares of common stock and the beneficial ownership of such securities by
each executive officer and director of Telecom Wireless and by all the
executive officers and directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
POSITIONS AND OFFICES COMMON STOCK PERCENT OF
NAME AND ADDRESS HELD OWNERSHIP CLASS
- --------------------------------------- -------------------------------- ------------------------- -----------------
<S> <C> <C> <C>
James C. Roberts Chairman of the Board 10,916,333(1) 66.3%
5299 DTC Blvd., #1200 of Directors and Director
Englewood, CO 80111
Calvin D. Smiley Chief Executive Officer, 161,611(2) 1.0%
5299 DTC Blvd., #1200 President and Director
Englewood, CO 80111
Kosta S. Kovachev Chief Financial Officer and 750,000 4.6%
580 Village Blvd., #140 Director
West Palm Beach, FL 33409
Robert L. Fredrick Senior Vice President 500,000 3.0%
580 Village Blvd., #140
West Palm Beach, FL 33409
Allen Leeds Stockholder 1,000,000 6.1%
108 17th Street
Bellair Beach, FL 34635
All executive officers and directors 12,366,333 75.2%
of Telecom Wireless as a group (three
persons)
</TABLE>
(1) Of the shares beneficially owned by Mr. Roberts, 10,616,333 are owned
of record by The Roberts Family Trust, of which Mr. Roberts and Lynne
K. Roberts, his spouse, are sole trustees, and 300,000 are owned of
record by Mrs. Roberts. Mr. and Mrs. Roberts are husband and wife.
(2) Includes 61,611 shares issuable upon exercise of presently-exercisable
warrants.
47
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
PHOENIX COMMUNICATIONS SHARE EXCHANGE
In April 1999, Telecom Wireless acquired all the issued and
outstanding shares of Phoenix Communications, Inc. The stockholders of
Phoenix received 13,825,000 shares of the common stock of Telecom Wireless in
exchange all of Phoenix's outstanding shares. Phoenix at the time was, and
remains, inactive and with no assets or liabilities. Accordingly, the value
attributed to Phoenix for accounting purposes was nil. Prior to the
transaction, it appears Telecom Wireless did not have sufficient cash to
cover the negative cash flow of its subsidiary, Keys Microcable Corporation,
and was insolvent. The then board of directors determined that the share
exchange was advisable due to the proposal of the stockholders of Phoenix to
provide interim funding, new management and a long-term management and
finance plan.
The stockholders of Phoenix included several present and former
members of the management of Telecom Wireless. Shares of Telecom Wireless'
common stock were issued to the following officers and directors, directly or
indirectly, in the following amounts and for the following deemed values in
the exchange:
<TABLE>
<CAPTION>
NAME NO. SHARES
---- ----------
<S> <C>
James C. Roberts(1) 10,450,000
Calvin D. Smiley 100,000
Kosta S. Kovachev 750,000
Robert L. Fredrick 500,000
Lynne K. Roberts 300,000
Allen Leeds 1,000,000
Esper Gullatt, Jr. 100,000
Paul L. Francis 100,000
Lewis G. Pollack 100,000
Shawn P. Richmond 100,000
</TABLE>
(1) Held in the name of The Roberts Family Trust, of which Mr. Roberts and
his spouse, Lynne K. Roberts, are sole trustees.
48
<PAGE>
JOHN H. SUNUNU
On August 31, 1999, Telecom Wireless entered into a Services
Agreement with John H. Sununu, a member of Telecom Wireless' Advisory Board.
The Services Agreement requires Governor Sununu to render financial
consulting and other services to Telecom Wireless for 48 months. As
consideration, Telecom Wireless issued to Governor Sununu two stock purchase
warrants at the time the parties entered into the Services Agreement. The
first is for the purchase of 500,000 shares of Telecom Wireless' common stock
at an exercise price of $5.50 per share. The closing price of Telecom
Wireless' common stock on the trading day immediately before the execution
and delivery of the Services Agreement was $13.75 per share. The second
warrant is for the purchase of 720,000 shares of Telecom Wireless' common
stock. This warrant vests at the rate of 15,000 shares per month for 48
consecutive months. The exercise price for each installment is 50% of the
market value of Telecom Wireless' common stock on the vesting date for that
installment. For this purpose, market value is deemed to be the average of
the closing prices for the 20 trading days preceding the vesting date. In the
event of a change in control, an additional number of installments are to
vest and become exercisable equal to the number of previously vested
installments, and the number of shares included in each monthly installment
will double. The parties can terminate the Services Agreement at any time
upon giving ten days' notice to each other. Telecom Wireless recorded
approximately $122,000 of stock-based compensation for the quarter ended
September 30, 1999, as a result of the issuance of these two warrants.
On August 5, 1999, Governor Sununu, through a retirement plan
controlled by him, purchased 53,000 shares of restricted common stock of
Telecom Wireless for $7.00 per share in a private placement. The shares had
registration rights and were accompanied by repricing warrants. The closing
price of Telecom Wireless' publicly traded common stock on the trading day
immediately before Governor Sununu's purchase was $14.38 per share. These
53,000 shares and 53,000 shares issuable under the repricing warrants are
among the shares covered by this prospectus.
KEYS MICROCABLE TRANSACTION
In early 1999, Calvin D. Smiley, the President and a director of
Telecom Wireless, and Esper Gullatt, Jr., the Vice President - Business
Development of Telecom Wireless, entered into a management agreement through
an entity controlled by them whereby they were to receive a 50% equity
interest in Keys Microcable Corporation, a wholly-owned subsidiary of Telecom
Wireless, in consideration of the performance of management services. At that
time, Messrs. Smiley and Gullatt were not associated with Telecom Wireless,
so that the agreement was negotiated at arms' length. However, this agreement
was terminated, after partial performance, in connection with the April 1999
Phoenix Communications share exchange described above. The Board of
Directors, Mr. Smiley abstaining, has approved a settlement of any claims
Messrs. Smiley and Gullatt may have for an equity interest in KMC for
$650,000, payable by issuance of warrants for the purchase of 123,222 shares
of restricted common stock of Telecom Wireless at an exercise price of $5.275
per share, which was 50% of the average closing price per share for the 20
trading days preceding April 12, 1999, the date on which present management
assumed control of Telecom Wireless.
LOAN TO OFFICER
In August 1999, Telecom Wireless loaned $60,000 to Kosta S.
Kovachev, a director of Telecom Wireless and then one of its executive
officers. In January 2000 Mr. Kovachev and Telecom Wireless entered into an
oral agreement whereby his employment agreement will terminate in July 2000 and
non-qualified options for the purchase of 1,000,000 shares held by him will
be canceled. In addition, he agreed to deposit 375,000 shares of Telecom
Wireless common stock owned by him into escrow. If certain performance
targets are met, the loan will be forgiven, in whole or in part, and all or a
portion of the escrowed shares will be returned to him.
LOAN FROM OFFICER
In October 1999, James C. Roberts, Chairman of the Board of
Directors of Telecom Wireless, sold an option to Mr. Mailman to purchase
250,000 shares of Telecom Wireless' common stock from Mr. Roberts for
$250,000. The term of the option is two years and the option exercise price
is $.10 per share. Mr. Roberts loaned the $250,000 to Telecom Wireless. Mr.
Mailman has registration rights with respect to the shares for which the
option is exercisable. In January 2000, the board of directors of Telecom
Wireless approved the issuance of 250,000 shares of its common stock to Mr.
Mailman in satisfaction of the loan. Mr. Roberts, a director, abstained from
voting on this transaction.
Telecom Wireless has entered into a consulting agreement with Mr.
Mailman. Mr. Mailman and Allen Leeds, formerly an officer of Telecom Wireless,
are the co-owners of First Broadcast Partners, LLC, a wireless spectrum holding
company based in New York, New York.
49
<PAGE>
TELECOM WIRELESS' STOCK
The authorized capital stock of Telecom Wireless consists of
100,000,000 shares of common stock, par value $.001 per share, and 25,000,000
shares of preferred stock, par value $.001 per share. As of January 21, 2000,
Telecom Wireless had 16,455,009 shares of common stock outstanding, held by
452 stockholders of record, and was obligated to issue 20,000 shares of
preferred stock to one stockholder.
DESCRIPTION OF COMMON STOCK
All shares of Telecom Wireless' common stock have equal voting
rights and, when validly issued and outstanding, have one vote per share in
all matters to be voted upon by the common stockholders. The shares of common
stock have no preemptive, conversion or redemption rights and may only be
issued as fully paid and nonassessable shares. Cumulative voting in the
election of directors is not allowed, which means that the holders of a
majority of the issued and outstanding shares of common stock will be able to
elect all Telecom Wireless' directors should they choose to do so. Each
holder of common stock, upon liquidation of Telecom Wireless, is entitled to
receive a pro rata share of Telecom Wireless' assets available for
distribution to common stockholders.
The common stock of Telecom Wireless is traded in the
over-the-counter or OTC market and quoted through the OTC Bulletin Board
under the symbol "NOYR." The market for the common stock is characterized
generally by low volume and broad price and volume volatility. Telecom
Wireless cannot give any assurance that a stable trading market will develop
for its stock or that an active trading market will be sustained. Moreover,
the trading price of Telecom Wireless' common stock could be subject to wide
fluctuations due to such factors as quarterly variations in operating
results, competition, announcements of technological innovations or new
products by Telecom Wireless or its competitors, product enhancements by
Telecom Wireless or its competitors, regulatory changes, differences in
actual results from those expected by investors and analysts, changes in
financial estimates by securities analysts, and other events or factors.
The following table sets forth the range of high and low bid
quotations for Telecom Wireless' common stock for each of the quarters within
the last two fiscal years:
<TABLE>
<CAPTION>
HIGH AND LOW BID PRICES
FISCAL YEAR ENDED JUNE 30, 1998 LOW BID HIGH BID
- ------------------------------- ------- --------
<S> <C> <C>
First Quarter $ * $ *
Second Quarter $ * $ *
Third Quarter $ 8-3/4 $12-1/2
Fourth Quarter $ 5 $42-1/2
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1999 LOW BID HIGH BID
- ------------------------------- ------- --------
<S> <C> <C>
First Quarter $22-1/2 $61-1/4
Second Quarter $ 5 $33-1/8
Third Quarter $ 8-1/8 $18-3/4
Fourth Quarter $ 3-3/4 $18
</TABLE>
The quotations in the table above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent
actual transactions. They have been adjusted for a one-for-50 reverse stock
split effected on April 23, 1998, and a one-for-five reverse stock split
effected on May 4, 1999.
50
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The board of directors of Telecom Wireless has the authority to
issue shares of the company's preferred stock in one or more series, and to
fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations and restrictions of the
series. As of the date of this prospectus, the board has authorized the
issuance of 20,000 shares of preferred stock in one series, designated as
Redeemable, Non-Voting, Convertible Preferred Stock - Series 1998-1. Telecom
Wireless is obligated to issue all the shares of such series. Holders of this
series are entitled to such dividends as the board of directors of the
company may declare. They have no voting rights and are not entitled to
notices of meetings of stockholders. The Series 1998-1 preferred stock is
convertible into shares of Telecom Wireless common stock, at the option of
the holders, at the conversion rate described below, upon the filing of a
registration statement with the Securities and Exchange Commission for a
public offering of shares of Telecom Wireless. If not previously converted,
these preferred shares are redeemable by Telecom Wireless at their
liquidation value at any time after December 31, 2004. The liquidation value
is $100 per share plus any accumulated but unpaid dividends. The number of
shares into which each share of Series 1998-1 preferred stock is to be
converted will be determined by multiplying the number of shares being
converted by the conversion rate, which is a fraction (a) the numerator of
which is $100 and (b) the denominator of which is 125% of the price at which
a share of Telecom Wireless common stock is offered to the public under the
registration statement for the public offering.
SHARES AVAILABLE FOR FUTURE SALE
The market price of Telecom Wireless' common stock could drop if
substantial amounts of shares are sold in the public market or if the market
perceives that such sales could occur. A drop in the market price could
adversely affect holders of the stock and could also harm Telecom Wireless'
ability to raise additional capital by selling equity securities. The
securities that may be sold from time to time under this prospectus represent
a market overhang. In addition, based on a market price of the common stock
of $7-7/8 per share as of January 28, 2000, Telecom Wireless had outstanding
options, warrants and convertible securities for the purchase of up to
approximately 8,128,764 shares of common stock at an average price of $8.38
per share, representing approximately 33% of the company's outstanding shares
of common stock on a fully-diluted basis. The perception that these
instruments may be exercised for or converted into common stock that could be
sold into the public market could adversely affect the market price of
Telecom Wireless' common stock. In addition, Telecom Wireless has entered
into registration rights agreements with certain of its stockholders
entitling them to include their shares of common stock in registration
statements for securities filed by Telecom Wireless under the Securities Act
of 1933, as amended. Awareness of the existence of these registration rights
could lead to a perception that sales of the shares subject to the
registration rights could occur, which could materially and adversely affect
Telecom Wireless' stock price or could impair Telecom Wireless' ability to
obtain capital through sales of equity securities. In addition, shares issued
by Telecom Wireless in private transactions over the past two years will
become eligible for sale in the public market under SEC Rule 144.
These shares are restricted securities as defined in Rule 144. Under
that rule, a stockholder who owns restricted shares that have been
outstanding for at least one year is entitled to sell, within any three-month
period, a number of restricted shares that does not exceed the greater of 1%
of the then outstanding shares of common stock, or approximately 164,550
shares as of January 21, 2000, or the average weekly trading volume in the
common stock during the four calendar weeks preceding the sale. Approximately
13,825,000 shares issued in April 1999 in the transaction in which current
management assumed control of Telecom Wireless will be eligible for sale
under Rule 144 on or about April 13, 2000.
In addition, 90 days after effectiveness of the registration
statement of which this prospectus is a part, 190,994 shares issued to
employees and consultants under SEC Rule 701 will become eligible for sale in
the public market. Finally, Telecom Wireless intends to register for public
sale all other shares issued to officers, employees, consultants and others
in compensatory transactions shortly after effectiveness of the registration
statement of which this prospectus is a part. Telecom Wireless intends to
include in the registration shares issuable upon exercise of compensatory
stock options and stock purchase warrants that are not eligible for public
sale. As of January 28, 2000, the number of such shares that Telecom Wireless
intends to include in the registration totaled 5,352,186 shares.
Officers of Telecom Wireless holding an aggregate of 12,466,333
shares of its common stock and options and warrants for the purchase of an
additional 2,923,222 shares of common stock have entered into stock sale
restriction agreements whereby they agreed, among other things, that the
maximum amount each could sell during any period of 30 consecutive calendar
days would not exceed the lesser of $25,000 in gross proceeds or 5,000
shares; that no share would be sold for a price less than $4.25; and that
they would not engage in any short sales of the stock. The board of directors
may waive any of the restrictions on an individual basis and may terminate
the agreement at any time.
51
<PAGE>
SECURITIES AND EXCHANGE POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
The Articles of Incorporation of Telecom Wireless Corporation
require it to indemnify its officers, directors, employees and agents against
certain liabilities incurred by them in those capacities if they acted in
good faith and reasonably believed their conduct was in the best interests of
Telecom Wireless or not opposed to it. Telecom Wireless is also required to
indemnify a person who is or was a director, officer, employee or agent of
Telecom Wireless and who was successful, on the merits or otherwise, in
defense of any proceeding to which he was a party, against reasonable
expenses, which include attorneys' fees, incurred by him or her in connection
with the proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Telecom Wireless under the provisions discussed in the
previous paragraph, or otherwise, Telecom Wireless has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
EXPERTS
The consolidated balance sheet of Telecom Wireless Corporation and
subsidiary as of June 30, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the year then ended included in this
prospectus have been included herein in reliance on the report of Ehrhardt
Keefe Steiner & Hottman PC, independent certified public accountants, given
on authority of that firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and
cash flows of Telecom Wireless Corporation and subsidiary for the year ended
June 30, 1998 included in this prospectus have been included herein in
reliance on the report of Gerstle, Rosen & Associates, P.A., independent
certified public accountants, given on authority of that firm as experts in
accounting and auditing.
The balance sheets of America's Web Station as of December 31, 1997
and 1998 and the statements of operations, stockholders' equity and cash
flows for the period then ended included in this prospectus have been
included herein in reliance on the report of Girardin Baldwin & Associates
LLP, independent certified public accountants, given on authority of that
firm as experts in accounting and auditing.
With respect to the unaudited interim financial information included
herein, the independent certified public accountants have not audited or
reviewed the information and have not expressed an opinion or any other form
of assurance with respect to this information.
The pro forma combined statement of operations and cash flows for
the year ended June 30, 1999 and the three months ended September 30, 1999
have not been audited or reviewed by the independent certified public
accountants and they do not express an opinion or purport to give any other
form of assurance on them.
In May 1999, the board of directors of Telecom Wireless appointed
Ehrhardt Keefe Steiner & Hottman P.C. to serve as its principal independent
accountant for the fiscal year ending June 30, 1999. Gerstle, Rosen &
Associates, P.A., reported on the financial statements of Telecom Wireless
for the fiscal year ended June 30, 1998. Its report for that year noted that
Telecom Wireless had suffered recurring losses from operations that raised
substantial doubt about its ability to continue as a going concern. The same
matter was emphasized in the auditor's report for the fiscal year June 30,
1999. There were no disagreements with the former accountants on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
LEGAL MATTERS
Kruse, Landa & Maycock, L.L.C., Salt Lake City, Utah, has passed
upon the legality of the shares offered by this prospectus.
HOW TO OBTAIN ADDITIONAL INFORMATION
Telecom Wireless Corporation has filed a registration statement with
the Securities and Exchange Commission relating to the securities offered by
this prospectus. The prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to
Telecom Wireless and the securities offered by this prospectus, refer to the
registration statement. In addition, Telecom Wireless will become a public
company required to file annual and quarterly reports with the Securities and
Exchange Commission upon the effectiveness of the registration statement or,
if earlier, upon effectiveness of the company's registration statement filed
under Section 12 of the Securities Exchange Act of 1934 on December 14, 1999.
That registration statement will become effective 60 days after filing,
unless withdrawn. You may read and copy the registration statement and any
materials Telecom Wireless files with the Securities and Exchange Commission
at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
also maintains an Internet site at www.sec.gov where Telecom Wireless'
Securities and Exchange Commission filings can be viewed.
52
<PAGE>
UNTIL MAY ___, 2000, 90 DAYS AFTER THE DATE OF THE PROSPECTUS, ALL
PERSONS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
53
<PAGE>
TELECOM WIRELESS CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
54
<PAGE>
JUNE 30, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
Independent Auditors' Reports....................................................................................F-1
Consolidated Financial Statements
Consolidated Balance Sheets..................................................................................F-3
Consolidated Statements of Operations........................................................................F-4
Consolidated Statement of Changes in Stockholders' Equity....................................................F-5
Consolidated Statements of Cash Flows........................................................................F-6
Notes to Consolidated Financial Statements.......................................................................F-8
SYS-GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
Independent Auditors' Report....................................................................................F-31
Financial Statements
Balance Sheets..............................................................................................F-32
Statements of Operations....................................................................................F-33
Statement of Changes in Shareholders' Equity................................................................F-34
Statements of Cash Flows....................................................................................F-35
Notes to Financial Statements...................................................................................F-36
AMERICA'S WEB STATION, INC.
Independent Auditors' Report....................................................................................F-42
Financial Statements
Balance Sheets..............................................................................................F-43
Statements of Operations....................................................................................F-44
Statement of Changes in Shareholders' Equity................................................................F-45
Statements of Cash Flows....................................................................................F-46
Notes to Financial Statements...................................................................................F-47
UNAUDITED PRO FORMA INFORMATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS.................................................................F-52
UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS.................................................................F-54
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS...........................................................F-56
</TABLE>
55
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Telecom Wireless Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Telecom
Wireless Corporation and Subsidiaries (the Company) as of June 30, 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the fiscal year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Telecom
Wireless Corporation and Subsidiary at June 30, 1999, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
October 26, 1999
Denver, Colorado
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Telecom Wireless Corporation
Boca Raton, Florida
We have audited the accompanying consolidated statements of operations,
accumulated deficit, and cash flows of Telecom Wireless Corporation and
Subsidiary (the Company) for the year ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Wireless Corporation
and Subsidiary at June 30, 1998, and the results of their operations and
their cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Gerstle, Rosen & Associates, P.A.
September 22, 1998
F - 2
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 620,666 $ 615,998
Accounts receivable, net of allowance of $14,000 49,559 119,526
Accounts receivable - employees - 105,163
Stock subscription receivable (paid in full subsequent to year end) (Note 11) 352,666 -
--------------- ---------------
Total current assets 1,022,891 840,687
--------------- ----------------
Property and equipment, net (Note 4) 589,797 754,672
--------------- ----------------
Intangible assets
Subscribers list (Note 3) - 225,000
Licenses (Note 14) 523,117 523,117
Goodwill (Note 3) - 177,980
Less accumulated amortization (208,247) (242,049)
--------------- ----------------
Net intangible assets 314,870 684,048
--------------- ----------------
Investment in subsidiary (Note 3) - 2,754,942
Idle equipment (Note 14) 181,256 174,285
Deferred acquisition costs - 391,858
Deferred offering costs - 100,850
Other assets 18,961 20,869
--------------- ----------------
Total assets $ 2,127,775 $ 5,722,211
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 618,006 $ 1,701,275
Short-term notes payable (Note 7) - 1,294,135
Accrued expenses (Note 5) 140,703 37,003
Current portion of notes payable (Note 8) - 5,662
--------------- ----------------
Total current liabilities 758,709 3,038,075
Note payable, less current portion (Note 8) - 7,772
--------------- ----------------
758,709 3,045,847
--------------- ----------------
Commitments and contingencies (Notes 6, 10, 11, 14 and 15)
Stockholders' equity (Notes 9, 10, 11 and 12)
Preferred stock, $.001 par value, 25,000,000 shares authorized, 20,000 shares
subscribed 2,000,000 2,000,000
Less discount on preferred stock (631,932) (607,493)
--------------- ----------------
1,368,068 1,392,507
Common stock, $.001 par value, 100,000,000 shares authorized; 15,107,920
(June 30, 1999) and 15,753,518 (unaudited) (September 30, 1999) shares
issued and outstanding 15,108 15,754
Additional paid-in capital 6,950,836 11,096,023
Accumulated deficit (6,964,946) (9,827,920)
--------------- ----------------
Total stockholders' equity 1,369,066 2,676,364
--------------- ----------------
Total liabilities and stockholders' equity $ 2,127,775 $ 5,722,211
=============== ================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
June 30, September 30,
-------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Internet services $ - $ - $ - $ 28,535
Wireless TV revenues 636,074 517,261 137,859 138,390
Other 13,904 5,393 6,495 4,075
-------------- -------------- -------------- --------------
Total revenues 649,978 522,654 144,354 171,000
Internet service operating costs - - - 27,823
Direct costs - wireless TV 337,155 275,705 100,044 106,342
General and administrative 1,039,764 2,051,568 234,881 2,383,165
Stock based compensation (Note 11) 928,252 1,547,560 - 427,699
-------------- -------------- -------------- --------------
Total operating expenses 2,305,171 3,874,833 334,925 2,945,029
-------------- -------------- -------------- --------------
Net loss from operations (1,655,193) (3,352,179) (190,571) (2,774,029)
Other income (expense)
Interest expense - (1,114) - (64,506)
Accretion on preferred stock (Note 9) - (91,227) (22,807) (24,439)
-------------- -------------- -------------- --------------
- (92,341) (22,807) (88,945)
-------------- -------------- -------------- --------------
Net loss $ (1,655,193) $ (3,444,520) $ (213,378) $ (2,862,974)
============== ============== ============== ==============
Net loss per common share
Basic and diluted $ (15.08) $ (.92) $ (.05) $ (.19)
============== ============== ============== ==============
Shares used in computing net loss per common share
Basic and diluted 109,772 3,759,050 3,928,015 15,256,675
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------------- --------------------- Accumulated Paid-in Stockholders'
Shares Amount Shares Amount Deficit Capital Equity
-------- ----------- ---------- --------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1997 - $ - 113 $ - (1,823,558) $ 1,721,246 $ (102,312)
Issuance of common stock for
acquisition - - 519,278 519 (41,675) 41,156 -
Sale of common stock - - 100,000 100 - 92,400 92,500
Issuance of stock for services - - 78,600 79 - 1,000,913 1,000,992
Issuance of preferred stock to
extinguish debt 20,000 1,276,841 - - - - 1,276,841
Net loss - - - - (1,655,193) - (1,655,193)
-------- ----------- ---------- --------- ------------ -------------- -----------
Balance - June 30, 1998 20,000 1,276,841 697,991 698 (3,520,426) 2,855,715 612,828
Accretion on preferred stock (Note 9) - 91,227 - - - - 91,227
Issuance of stock for services - - 12,000 12 - 29,988 30,000
Sale of common stock - - 155,144 155 - 290,403 290,558
Common stock issued in connection
with business reorganization
(Note 3) - - 13,825,000 13,825 - (13,825) -
Proceeds of private offering (net
of offering costs of $83,095)
(Note 10) - - 120,000 120 - 516,785 516,905
Proceeds of private offering (net
of offering costs of $359,994)
(Note 10) - - 297,785 298 - 1,724,210 1,724,508
Stock based compensation (Note 11) - - - - - 1,547,560 1,547,560
Net loss - - - - (3,444,520) - (3,444,520)
-------- ----------- ---------- --------- ------------ -------------- -----------
Balance - June 30, 1999 20,000 1,368,068 15,107,920 15,108 (6,964,946) 6,950,836 1,369,066
Proceeds from Private Offering
(net of offering costs of
$95,625) (Note 10) (unaudited) - - 127,935 128 - 641,242 641,370
Proceeds from Private Offering
(net of offering costs of
$59,382) (Note 10) (unaudited) - - 97,227 97 - 387,772 387,869
Accretion on preferred stock
(Note 9) (unaudited) - 24,439 - - - - 24,439
Stock issued for acquisition of
America's Web (Note 3) (unaudited) - - 28,562 29 - 199,902 199,931
Stock based compensation (Note 11)
(unaudited) - - 27,707 28 - 305,171 305,199
Stock issued for acquisition of
Prentice (Note 3 and 15) (unaudited) - - 346,667 347 - 2,426,322 2,426,669
Stock issued for services (Note 14)
(unaudited) - - 17,500 17 - 122,483 122,500
Warrants issued in conjunction with
bridge loan (Note 7) (unaudited) - - - - - 62,295 62,295
Net loss (unaudited) - - - - (2,862,974) - (2,862,974)
-------- ----------- ---------- --------- ------------ -------------- -----------
Balance - September 30, 1999
(unaudited) 20,000 $ 1,392,507 15,753,518 $ 15,754 $ (9,827,920) $ 11,096,023 $ 2,676,364
======== =========== ========== ========= ============ ============== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
June 30, September 30,
-------------------------------- --------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (1,655,193) $ (3,444,520) $ (213,378) $ (2,862,974)
-------------- -------------- -------------- --------------
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 370,423 255,978 62,646 94,163
Stock issued for services 72,741 30,000 30,000 122,500
Stock based compensation 928,252 1,547,560 - 305,199
Warrants issued - - - 62,294
Loss on sale of equipment 18,942 - - -
Accretion on preferred stock - 91,227 22,807 24,439
Changes in assets and liabilities
Accounts receivable (1,803) 12,245 (4,612) (55,074)
Other assets - (3,880) (2,830) 1,049
Accounts payable 127,320 (14,510) (6,273) 1,072,337
Accrued expenses 2,831 104,445 (28,049) (103,699)
Cash overdraft (2,333) - - -
-------------- -------------- -------------- -------------
1,516,373 2,023,065 73,689 1,523,208
-------------- -------------- -------------- --------------
Net cash used by operating activities (138,820) (1,421,455) (139,689) (1,339,766)
-------------- -------------- -------------- --------------
Cash flows from investing activities
Purchase of equipment (29,244) (121,117) (8,911) (164,726)
Cash acquired from acquisitions - - - 5,878
Acquisition costs - - - (554,884)
License development costs (18,297) - - -
-------------- -------------- -------------- -------------
Net cash used by investing activities (47,541) (121,117) (8,911) (713,732)
-------------- -------------- -------------- --------------
Cash flows from financing activities
Net activity - due to officer 94,461 (16,667) (2,000) (105,163)
Offering costs - - - (100,850)
Payments on short-term notes - - - (127,062)
Proceeds on short-term notes - - - 1,000,000
Proceeds from issuance of common stock 92,500 2,179,305 150,000 1,381,905
-------------- -------------- -------------- --------------
Net cash provided by financing activities 186,961 2,162,638 148,000 2,048,830
-------------- -------------- -------------- --------------
Net increase (decrease) in cash 600 620,066 (600) (4,668)
Cash at beginning of period - 600 600 620,666
-------------- -------------- -------------- --------------
Cash at end of period $ 600 $ 620,666 $ - $ 615,998
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information
Cash paid for interest for the years ended June 30, 1998 and 1999 was
$2,387 and $1,411, respectively and $0 and $2,211 for the three months
ended September 30, 1998 and 1999 (unaudited).
Supplemental disclosure of non-cash investing and financing activities:
During the year ending June 30, 1998, Telecom Wireless Corporation (the
Company) issued 28,600 shares of common stock to pay legal fees of
$71,500 for services involved with the acquisition of Keys Microcable
Corporation (the Subsidiary).
During the year ending June 30, 1998, the Company agreed to issue
20,000 shares of preferred stock to settle the Subsidiary's $1,276,841
credit facility and 30,891 shares of common stock in exchange for an
18% interest held by the minority stockholder in Keys. The Company then
exchanged 432,202 shares of common stock for all of the stock of the
Subsidiary. In exchange for issuing the 432,202 shares of common stock,
the Company received 82% of the shares of the common stock of the
Subsidiary. Thus the Company acquired 100% of the outstanding stock of
Keys.
During the year ended June 30, 1999, the Company acquired 100% of the
outstanding common stock of Phoenix Communications, Inc. (Phoenix).
During the three months ended September 30, 1999, the Company acquired
100% of the outstanding stock of America's Web Station, Inc. (America's
Web) and 90% of the outstanding common stock of Prentice Technologies,
Inc. (Prentice) (Note 3).
See notes to consolidated financial statements.
F - 7
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Telecom Wireless Corporation (the Company, formerly Stetson Oil Exchange,
Inc.) was incorporated on April 12, 1984 under the laws of the State of Utah.
Subsequent to incorporation, the Company participated in various ventures;
however, it was dormant for a number of years prior to 1998.
In June 1998, the Company acquired Keys Microcable Corporation (Keys) in a
stock-for-stock exchange that was accounted for as a reverse purchase.
Keys was incorporated on May 2, 1995 under the laws of the State of Florida
to operate a Wireless Cable Television (WCTV) system which serves the Lower
Keys of Florida. It was formed in 1995 to further the venture of Keys
Microcable, JV, the predecessor company in a tax free exchange of interests.
To do this, its majority shareholder, Wireless Development Group, Inc.
(formerly Key West Wireless Partners, G.P. (KWWP), had entered into a Joint
Venture Agreement with Satellite Microcable Corp. (SMC) to jointly develop a
WCTV system to serve Key West and the adjacent Lower Keys (the System).
REORGANIZATION
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of common stock
for all the outstanding common stock of Phoenix. The purpose of the merger
was to provide immediate interim funding for the operations of the Company as
Keys' had significant liabilities and no cash to meet its needs. The merger
resulted in an immediate takeover of the Company's management, which
represented a long-term management and financial plan to assure the viability
of the Company. At the time of the merger, Phoenix had no assets,
liabilities, equity or operations. After the merger, Phoenix shareholders
held 94% of the common stock of the Company. The transaction was accounted
for at historical cost as Phoenix was a shell company and acquired control.
The business plan of the Company involves capitalizing on the convergence on
the Internet of video, voice and data through the acquisition of Internet
Service Providers ("ISPs") and Competitive Local Exchange Carriers ("CLECs").
The goal of TWC is to provide broadband connectivity, content, and electronic
commerce via an Internet platform to residential and business customers in
both the United States and abroad.
The Company has acquired, in separate transactions, the stock of one ASP and
one ISP subsequent to year end and plans to continue to acquire companies to
expand its operations.
F - 8
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPALS OF CONSOLIDATION
The consolidated balance sheet includes the accounts of the parent company,
Telecom Wireless Corporation and its wholly-owned subsidiaries, Keys and
Phoenix, as of June 30, 1999 and America's Web as of September 30, 1999
(unaudited) (Note 3). Affiliated companies in which Telecom does not have a
controlling interest, or which control is likely to be temporary are
accounted for under the equity method. As of September 30, 1999 the Company's
investment in 90% of Prentice Technologies has been recorded under the equity
method due to the Company having temporary control of Prentice (Notes 3 and
15). All significant intercompany transactions and balances have been
eliminated.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company at
September 30, 1999 and 1998 and the results of its operations and changes in
cash flows for the three months then ended. The results of operations for the
three months ended September 30, 1998 and 1999 are not necessarily indicative
of the results to be expected for a full year.
PROPERTY AND EQUIPMENT
Equipment is recorded at cost and depreciated by the straight-line method
over the estimated useful lives of the assets ranging from 3 to 9 years.
Leasehold improvements are recorded at cost and amortized by the
straight-line method over the terms of the leases, or the estimated useful
lives of the assets.
LICENSE DEVELOPMENT COSTS, SUBSCRIBER LISTS AND GOODWILL
Intangibles are capitalized and amortized utilizing the straight-line method.
License development costs are amortized over the life of the license (7 - 8
years), goodwill is amortized over its economic life of 3 years and
subscriber lists are amortized over 3 years.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist of costs associated with the Company's
investigation of potential future acquisitions. Indirect acquisition costs,
including salaries, are expensed as incurred. These costs will be capitalized
upon completion of the acquisition or charged to expense if the acquisition
is unsuccessful.
F - 9
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Deferred offering costs represents costs incurred in conjunction with the
Company's equity offering and registration activities. Deferred offering
costs will be offset against net proceeds, if successful, or expensed in
operations if the offering is unsuccessful.
LONG-LIVED ASSETS
The Company assesses valuation of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including goodwill and other
intangible assets, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair market value
of the long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved.
REVENUE RECOGNITION
Wireless television revenue and internet service revenue consist of the
monthly fees charged to subscribers. Subscribers are billed at the beginning
of each month and revenue is recognized as service is provided.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs to date
have not been significant.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
F - 10
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
In accordance with the provisions of Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share", basic earnings per share
is computed by dividing net income by the number of weighted average common
shares outstanding during the year. Diluted earnings per share is computed by
dividing net income by the number of weighted average common shares
outstanding during the year, including potential common shares. For the years
ended June 30, 1998 and 1999 all potential common shares, which included
convertible preferred stock, stock options and warrants, were antidilutive
and therefore were excluded from these calculations.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No. 130 (SFAS
130), "Comprehensive Income", for the years ending June 30, 1998 and 1999.
There were no components of comprehensive income; consequently, no separate
statement of comprehensive income has been presented.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value due to the short term maturity of these instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration
of credit risk consist primarily of temporary cash investments. The Company
places its cash investments with high credit quality financial institutions
and, by policy, limits the amount of credit exposure to any one institution.
The Company does, however, on occasion exceed the Federal Deposit Insurance
Corporation federally insured limits.
F - 11
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
During June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 establishes
new standards by which derivative financial instruments must be recognized in
any entity's financial statements. Besides requiring derivatives to be
included on balance sheets at fair value, Statement No. 133 generally
requires that gains and losses from later changes in a derivative's fair
value be recognized currently in earnings. Statement No. 133 also unifies
qualifying criteria for hedges involving all kinds of derivatives, requiring
that a company document, designate and assess the effectiveness of its
hedges. Statement No. 133 is required to be adopted by the Company in 2000.
Management, however, does not expect the impact from this Statement to have a
material impact on the financial statement presentation, financial position
or results of operations.
NOTE 2 - GOING CONCERN
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended June 30,
1999, the Company incurred a consolidated net loss of approximately
$3,445,000, including negative cash flow from operations of approximately
$1,421,000. Cash requirements were covered by sales of the Company's equity
securities.
The Company will require substantial additional funds to satisfy its working
capital requirements and to meet the objectives of its business plan.
Management plans to obtain these funds primarily from debt and equity
placements with institutional investors and wealthy individuals until such
time as its cash requirements can be satisfied from operations. However, no
assurance can be given that the Company will be able to raise sufficient
funds from such sources or to generate sufficient cash flow from operations
to meet its working capital requirements. The consolidated financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
NOTE 3 - ACQUISITIONS
During the year ending June 30, 1998, the Company agreed to issue 20,000
shares of preferred stock to settle the Subsidiary's $1,276,841 credit
facility and 30,891 shares of common stock in exchange for an 18% interest
held by the minority stockholder in Keys.
In June 1998, the Company exchanged 432,202 shares of common stock for the
remaining 82% of the common stock of Keys. Thus the Company acquired 100% of
the outstanding stock of Keys. After the merger, Keys' shareholder held 89%
of the outstanding common stock of the Company. This transaction was
accounted for at historical cost through a reverse acquisition by the
Company. The Company was a shell company with no assets or liabilities.
F - 12
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 3 - ACQUISITIONS (CONTINUED)
In April 1999, the Company completed a reorganization through a merger with
Phoenix Communications, Inc. by exchanging 13,825,000 shares of its common
stock for all the outstanding common stock of Phoenix. At the time of the
merger, Phoenix had no assets, liabilities, equity or operations. After the
merger, Phoenix shareholders held 94% of the outstanding common stock of the
Company. The transaction was accounted for at historical cost as Phoenix was
a shell company and acquired control.
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of
common stock valued at $199,931 for purposes of the acquisition. The
acquisition has been accounted for as a purchase. The purchase price,
including acquisition costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
--------------
311,176
Liabilities assumed (191,814)
--------------
119,362
Consideration given and acquisition costs (255,390)
--------------
Excess purchase price recorded as goodwill $ 136,028
==============
</TABLE>
The following unaudited pro forma data summarizes the results of operations
for the year indicated as if the acquisition of America's Web had been
completed as of the beginning of the period presented. The proforma data
gives effect to actual operating results prior to the acquisition, adjusted
to include depreciation of fixed assets, amortization of intangibles and
additional interest expense. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisitions occurred as of the beginning of the periods presented of that
may be obtained in the future.
<TABLE>
<S> <C>
Three months ended September 30, 1999 (A)
Revenues $ 171,000
Net (loss) $ (2,888,525)
Basic and diluted (loss) per share $ (.19)
Year ended June 30, 1999
Revenues $ 681,822
Net (loss) $ (3,684,295)
Basic and diluted (loss) per share $ (.89)
</TABLE>
F - 13
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 3 - ACQUSITIONS (CONTINUED)
(A) The figures for America's Web for the one month ended July 31, 1999
have been excluded as they are immaterial for this presentation.
INVESTMENT IN SUBSIDIARY
Effective September 30, 1999 the Company consummated the acquisition of 90%
of the issued and outstanding common stock of Prentice Technologies, Inc for
346,667 shares of common stock valued at $2,426,669 and issued a $253,750
note payable.
This investment has been accounted for under the equity method because the
Company retained only temporary control of Prentice. Subsequently, the
Company and Prentice entered into a rescission agreement dated December 29,
1999 (Notes 7 and 15).
Summarized information of Prentice Technologies as of and for the three
months ended 9/30/99 is as follows:
<TABLE>
<S> <C>
Total assets $ 951,002
==============
Total liabilities $ (790,389)
==============
Net loss (3 months ended 9/30/99) $ (3,240)
==============
</TABLE>
F - 14
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
---------------- ----------------
<S> <C> <C>
Service center property and equipment
Office equipment and computer $ 61,091 $ 191,909
Furniture and fixtures 14,696 19,945
---------------- ----------------
75,787 211,854
---------------- ----------------
Wireless television plant
Machinery and equipment 61,752 29,109
Leasehold improvement headend 35,535 35,535
TV transmission equipment 314,387 350,938
Test equipment 26,879 42,057
Subscriber recoverable equipment 121,502 121,502
Subscriber non-Recoverable Equipment 45,997 45,997
Vehicles and Equipment 49,261 107,588
Engineering 10,164 51,623
---------------- ----------------
665,477 784,349
---------------- ----------------
Total property and equipment 741,264 996,203
Less accumulated depreciation (151,467) (241,531)
---------------- ----------------
$ 589,797 $ 754,672
================ ================
</TABLE>
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
---------------- ----------------
<S> <C> <C>
Accrued lawsuit settlements $ 97,000 $ -
Accrued payroll costs 43,703 37,003
---------------- ----------------
$ 140,703 $ 37,003
================ ================
</TABLE>
NOTE 6 - LEASE OBLIGATIONS
The Company leases certain telecommunications and technology equipment under
an operating lease agreement. The Company has leased equipment for the
purpose of expanding its Internet capabilities. The equipment presently is in
storage in Albuquerque, New Mexico. Lease payments on this equipment
aggregate approximately $45,780 per month and will commence in November 1999.
F - 15
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 6 - LEASE OBLIGATIONS (CONTINUED)
The future minimum rental payments due under the lease agreements are as
follows:
<TABLE>
<S> <C>
Year Ending June 30
-------------------
1999 (nine months remaining) $ 309,179
2000 549,360
2001 549,360
----------------
Total $ 1,407,899
================
</TABLE>
NOTE 7 - SHORT-TERM NOTES PAYABLE
On September 1, 1999, the Company obtained various bridge loans totaling
$250,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) October 31, 1999 or (b) the
date of receipt by the Company of financing aggregating at least $2,000,000.
These loans are personally guaranteed by a shareholder of the Company. These
loans are past due (Note 15).
On September 23, 1999, the Company obtained various bridge loans totaling
$750,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) November 23, 1999 or (b) the
date of receipt by the Company of financing aggregating at least $2,000,000.
These loans are past due (Note 15).
Attached to these loans are warrants for the purchase of 100,000 shares of
the Company's common stock at $7 per share. These warrants terminate after
four years or the date on which a registration statement relating to the
shares underlying the warrants has been in effect for two years. If the loans
are not repaid in full within one month of the date of issuance, the lenders
are entitled to receive an additional 100,000 warrants subject to the same
terms as the repricing warrants issued in conjunction with the private
placements discussed in Note 10. The Company also issued warrants for the
purchase of 300,000 shares at an exercise price of $.001. The Company will
amortize approximately $2,000,000 of loan costs using the interest method
over the remaining term of the loans related to these warrants (Note 11).
In connection with the acquisition of Prentice Technologies, the Company
signed a $253,750 note payable, due March 2000 with principal and interest of
$43,284 payable monthly. Interest is calculated at 8% per annum. The Company
entered into a rescission agreement with Prentice in December 1999 which
resulted in the cancellation of this note.
The Company assumed notes payable in conjunction with the acquisition of
America's Web which are due on demand. Interest is calculated at 7% - 19% per
annum and the notes are unsecured.
F - 16
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 8 - NOTE PAYABLE
The Company assumed a note with a financial institution in conjunction with
the acquisition of America's Web. Payments of $364, including interest at
8.9%, are due monthly and the note is collateralized by a vehicle. The note
matures in April 2002.
Note payable matures as follows:
<TABLE>
<S> <C>
Year Ending June 30,
--------------------
2000 $ 5,662
2001 5,662
2002 2,110
---------------
$ 13,434
===============
</TABLE>
NOTE 9 - PREFERRED STOCK
AGREEMENT WITH MINORITY SHAREHOLDER
As of June 10, 1998, JRHW17 Corporation (owned by a minority shareholder of
Keys) had advanced Keys $1,276,841. On that date, the Company entered into an
agreement with JRHW17 Corporation to cancel this debt. The Company is
obligated to issue 20,000 shares of the Company's $100 par value Class H
Non-voting, Convertible Preferred Stock, which has not been issued as of
September 30, 1999. The 20,000 shares of Class H stock shall be redeemable by
the Company at par value if not previously converted, provided that the
Company shall not exercise its redemption right prior to January 1, 2005.
Class H preferred stock shall be convertible to common stock of the Company
upon the filing of a Registration Statement with the Securities and Exchange
Commission (SEC) for a public offering of shares of the Company. One half of
the shares issuable upon exercise of the conversion will have "piggyback"
registration rights on the first public offering, the remaining shares
resulting from the conversion will have registration rights on the next
subsequent or secondary offering. Subject to approval of the regulatory
authorities and the underwriters, the Class H shares will convert to common
stock of the Company on the following basis: the conversion rate will be
determined at the time of the public offering by first taking 125% of the
price at which a share of the Company's common stock will be offered to the
public. This number so calculated will be the divisor and the par value per
share of Class H stock (i.e., $100.00) will be the dividend and the quotient
will then be the number of common shares into which each share of Class H
stock will be convertible. The common stock received upon conversion by the
Class H stockholder, subject to the foregoing registration rights, shall be
restricted pursuant to SEC Rule 144 and shall contain a legend on each
certificate to that effect.
F - 17
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 10 - PRIVATE PLACEMENTS
In April 1999, the Company privately placed 120,000 shares of its common
stock at a price of $5 per share. The company received proceeds of $516,905
net of related costs of $83,095.
In May 1999, the Company privately placed 297,786 shares of its common stock
accompanied by registration rights at a price of $7.00 per share. Proceeds to
the company aggregated $1,724,508, net of $359,994 in offering costs. In July
1999, $352,666 of the proceeds were received and are reflected as a stock
subscription receivable as of June 30, 1999.
In connection with the May 1999 private placement, the Company also issued a
warrant to Thomson Kernaghan & Co., Ltd., a Canadian broker-dealer that acted
as co-placement agent, for the purchase of 45,000 shares of common stock at
an average exercise price of $7.25 per share expiring June 8, 2002. In
addition, the company issued warrants for the benefit of the purchasers in
the name of Thomson Kernaghan & Co., Ltd., as Agent, for allocation by it as
placement agent, for the purchase of 27,000 shares of common stock at an
exercise price of $7.00 per share expiring on June 8, 2002.
In August 1999, the Company privately placed 105,285 shares of its common
stock accompanied by registration rights at a price of $7.00 per share.
Proceeds to the Company aggregated $641,370 net of $95,625 in offering costs.
The Company issued 22,650 shares of stock to the placement agent.
In September 1999, the Company privately placed 63,893 shares of its common
stock accompanied by registration rights at a price of $7.00 per share.
Proceeds to the Company aggregated for $387,868 net of $59,383 in offering
costs in a private placement. In addition, the Company issued an additional
33,334 shares to one investor in a private placement at no additional cost
for failure to have a registration statement declared effective on a timely
basis.
The purchasers of restricted shares of the Company's common stock in certain
private placements acquired certain registration rights in connection with
their purchases. The rights include a right to require the Company, at its
cost, to file by specified deadlines registration statements covering such
common stock and the shares issuable upon exercise of the repricing warrants
issued in connection with the purchases of the common stock. If a
registration statement is not declared effective within 90 days after the
relevant filing deadline, the Company may be obligated to pay a cash penalty
equal to 2% per month of the final amount of the completed offering until the
registration statement is declared effective. The filing deadline was August
31, 1999, with respect to $737,000; September 30, 1999, with respect
$447,250; and the agreement was silent with respect to $2,084,495.
F - 18
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 10 - PRIVATE PLACEMENTS (CONTINUED)
The August and September Private Placements contained repricing warrants
which entitle the holder to purchase, at an exercise price of $.001 per
share, that number of shares as equals the number of shares purchased by that
holder multiplied by a fraction the numerator of which is $8.75 minus the
average closing bid prices of the common stock during the twenty (20) days
following the effective date of the registration statement, and the
denominator of which is the average closing bid prices of the common stock
during the twenty (20) days following the effective date. The number of
repricing warrants to be issued is dependent on a future event and therefore
cannot be valued utilizing the Black-Scholes model until all contingent
factors are known.
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS
CONSULTING AGREEMENT
On June 18, 1998 the Company entered into an option agreement with the former
minority shareholder of Keys under which the shareholder has the right to
purchase a number of shares of Company's common stock equal to $400,000
divided by the exercise price of the option. The exercise price of the option
is calculated as the lower of 50% of the closing bid price of the shares on
the trading day immediately prior to the exercise date or 50% of the opening
bid price on the next trading day. The options expire in June 2002. No
options related to this agreement had been exercised as of September 30,
1999. The options were valued at approximately $487,000 utilizing the
Black-Scholes pricing model with the following assumptions: expected life 4
years, 0% volatility, risk-free interest rate of 5.5% and a dividend yield of
0%. This expense has been recognized for the year ended June 30, 1998.
As a part of a June 1, 1998 agreement with a consultant, the Company granted
the consultant an irrevocable common stock purchase option exercisable for an
aggregate of 185,000 shares of common stock of the Company through June 2001.
The consultant may exercise the option as follows: 5,000 options are
exercisable at an exercise price of $2.50 per option, provided that the bid
price of the Company's common stock shall be at least $5.00 per share at the
date of exercise; 80,000 options are exercisable at an exercise price of
$3.75 per option, provided that the bid price of the Company's common stock
shall be at least $7.50 per share at the date of exercise; and 100,000
options are exercisable at an exercise price of $5.00 per option, provided
that the bid price of the Company's common stock shall be at least $10.00 per
share at the date of exercise. The options were valued at approximately
$450,000 utilizing the Black-Scholes pricing model with the following
assumptions: expected life 3 years, 0% volatility, risk-free interest rate of
5.5% and a dividend yield of 0%. This expense has been recognized for the
year ended June 30, 1998.
F - 19
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
CONSULTING AGREEMENT (CONTINUED)
In early 1999 two current officers of the Company, entered into a management
agreement through an entity controlled by them whereby they were to receive a
50% equity interest in Keys in consideration of the performance of management
services. At that time, these officers were not associated with the Company,
so the agreement was negotiated at arms' length. However, this agreement was
terminated, after partial performance, in connection with the Phoenix
Communications share exchange (Note 3). A settlement of the Company's
obligations under this agreement has been made by the issuance of warrants
for the purchase of 123,222 shares of common stock of the Company at an
exercise price of $5.275 per share. The fair value of these warrants was
$212,560 based upon the Black-Scholes pricing model with the following
assumptions: expected life five years, 0% volatility, risk free interest rate
of 5.5% and a dividend yield of 0%. This expense has been reflected in the
accompanying financial statements for the year ended June 30, 1999.
EMPLOYMENT AGREEMENT
In August 1999, in conjunction with the acquisition of Prentice, one of its
officers received an option to purchase 350,000 shares of common stock which
were subject to certain performance requirements. No compensation expense was
reflected in the accompanying financial statements due to the uncertainty of
meeting the performance criteria. These options were cancelled in December
1999.
1999 STOCK OPTION PLAN
In 1999, the Company adopted its Amended and Restated 1999 Stock Option and
Restricted Stock Plan (the Plan). The total number of shares of the Company's
common stock that may be issued to grantees and recipients under the plan is
800,000. The plan allows issuance of both qualified (or incentive) options
and non-qualified options as well as shares of restricted stock (stock
awards). Options and stock awards may be granted to employees, independent
contractors, officers, directors and consultants at the discretion of the
Board of Directors or a committee to be appointed by the Board of Directors.
No grant may be made under the 1999 Plan after ten years, but awards granted
prior to that time may extend beyond it. Unless otherwise stated by the
committee that governs the Plan, the term of an option will be five years
from the date of grant, but no option may have a term of more than ten years
from the date of grant.
F - 20
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
1999 STOCK OPTION PLAN (CONTINUED)
Options granted under the plan vest 20% at the end of each of the five years
of service following the grant date. The board of directors of the Company
may specify terms and conditions other than those noted above. During 1999,
83,868 options were issued under this plan to employees with exercise prices
from $7.73 to $13.53, and none were vested as of June 30, 1999. The exercise
prices of the options were greater than the fair value of the common stock on
the date of grant. The fair value of 45,060 of these options is $0 and 38,808
of these options have a fair value of $97,408 utilizing the Black-Scholes
model with the following assumptions: expected life of 5 years, 0%
volatility, risk-free interest rate of 5.5% and a 0% dividend yield. As the
Company has adopted the disclosure only provisions of the Statement of
Financial Accounting Standard No. 123, (SFAS 123) "Accounting for Stock-Based
Compensation," no compensation expense has been recognized related to those
options.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board No. 25, (APB
25) Accounting for Stock Issued to Employees; and complies with the
disclosure requirements of SFAS 123. Under APB 25, compensation cost, if any,
is recognized over respective vesting periods based on the difference, on the
date of grant, between the fair value of the Company's common stock and the
grant price.
During 1999, the Company issued options for the purchase of 5,584,414 shares
of the company's common stock to several employees of the Company. The fair
value of the common stock on the dates of issuance was $7 and the exercise
prices are between $2.55 and $10.55. Approximately $1,548,000 and $111,250 in
compensation expense is included in the June 30, 1999 and September 30, 1999,
financial statements, respectively. This expense reflects options granted to
employees with exercise prices below fair value on the date of grant.
The company issued 27,707 shares of common stock to employees of a subsidiary
which were valued at $7 per share for a total of $193,949. This expense is
reflected as stock based compensation in the financial statements for the
three months ended September 30, 1999.
Had compensation cost for stock-based compensation been determined based on
the fair value on the grant date consistent with the method of SFAS 123, the
Company's net income and earnings per share would have been reduced by (1)
either the fair value of grants to employees at greater than fair market
value based upon calculating the fair value utilizing the Black-Scholes
option pricing model or (2) the fair value of the options will be reflected
over the time of services to be rendered which will correlate the individual
employee's vesting schedule.
F - 21
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
Net income (loss) and earnings (loss) per share would have been reduced to
the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
June 30, September 30,
-------------------------------- -----------------------------
1998 1999 1998 1999
------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net income (loss) - as reported $ (1,655,193) (3,444,520) (213,378) (2,862,974)
Net income (loss) - pro forma $ (1,655,193) (3,444,520) (213,378) (2,925,724)
Earnings (loss) per share - basic and assuming
dilution as reported $ (15.08) (.92) (.05) (.19)
Earnings (loss) per share - pro forma $ (15.08) (.92) (.05) (.19)
</TABLE>
Summarized information relating to stock options is as follows:
The following is a summary of options and warrants granted, exercised and
expired:
<TABLE>
<CAPTION>
Currently Exercisable
--------------------------------------------
Weighted
Average Weighted
Exercise Average
Price of Exercise Price
Options and of Options and
Options Warrants Warrants Options Warrants Warrants
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C>
Outstanding June 30, 1997 - - -
Granted 350,090 - $ 4.00
Exercised - - -
------------- -------------
Outstanding June 30, 1998 350,090 - 4.00 350,090 - $ 4.00
-------------- --------------
Granted 5,545,060 195,222 9.60 423,222 72,000 3.90
-------------- --------------
Exercised - -
Cancelled (115,090) -
------------- ------------
Outstanding June 30, 1999 5,780,060 195,222 9.52 535,000 195,222 4.17
-------------- --------------
Granted 977,071 280,487 9.59 278,125 2,362 9.69
-------------- --------------
Exercised - -
Cancelled - -
------------- -------------
Outstanding September 30, 1999 6,757,131 475,709 $ 9.50 990,489 74,362 $ 4.64
============= ============= ============= =============
</TABLE>
F - 22
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
------------------------------------------------ -----------------------------
Weighted
Average
Weighted remaining Weighted
Number Average Exercise Contractual Number Average Exercise
Outstanding Price Life Exercisable Price
----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
Range of Options and Warrants
Exercisable Price
- -----------------------------
June 30, 1999
- -------------
$2.55 - $7.73 1,130,222 $ 4.81 7.38 680,222 $ 3.88
$10.00 - $13.53 4,845,060 10.56 4.75 50,000 8.00
September 30, 1999
- ------------------
$2.55 - $7.73 1,787,780 4.97 6.30 1,064,851 4.64
$10.00 - $13.53 5,445,060 $ 10.98 4.55 - $ -
</TABLE>
The weighted average exercise prices for the options and warrants granted are
as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Number of Grant Date Fair
Options Warrants Value
------- -------- -----
<S> <C> <C> <C>
Granted during the year ended June 30, 1998
Less than fair value 350,090 - $ 1.00
Equal to fair value - - -
Greater than fair value - - -
---------------- ---------------
350,090 -
================ ===============
Granted during the year ended June 30, 1999
Less than fair value 400,000 123,222 $ 3.81
Equal to fair value - 42,000 1.05
Greater than fair value 5,145,060 30,000 -
---------------- ----------------
5,545,060 195,222
================ ================
Granted during the period ended September 30, 1999
Less than fair value 202,071 30,000 $ 5.80
Equal to fair value - 250,487 1.40
Greater than fair value 775,000 - .25
---------------- ----------------
977,071 280,487
================ ================
</TABLE>
F - 23
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 12 - STOCK SPLITS
The Company approved a 1 for 5 reverse stock split to be effective May 3,
1999. The par value was changed from .006 per share to .001 per share.
All share and per share amounts have been restated to reflect the above stock
splits.
NOTE 13 - INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through September 30, 1999. The
following table sets forth the primary components of:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
June 30, September 30,
-------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 690,000 $ 1,330,000 $ 762,000 $ 1,659,000
Valuation allowance (690,000) (1,330,000) (762,000) (1,659,000)
-------------- -------------- -------------- --------------
$ - $ - $ - $ -
============== ============== ============== ==============
</TABLE>
At June 30, 1998 and 1999 and September 30, 1998 and 1999, the Company fully
reserved its deferred tax assets. The Company believes sufficient uncertainty
exists regarding the reliability of tax assets such that a full valuation is
appropriate.
At September 30, 1999, the Company had approximately $4,850,000 of federal
net operating loss carryforwards for tax reporting purposes available to
offset future taxable income subject to certain limitations due to change in
control. These net operating losses expire through 2009.
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES
LICENSE RIGHTS
A Joint Venture affiliate of Keys, Satellite Microcable Corporation, has
negotiated lease agreements with ten third-party FCC commercial WCTV (Note 1)
license holders for exclusive use of their licenses for the purpose of
broadcasting WCTV transmissions. As of the report date, some channels are
under STA (Special Temporary Authority) pending issuance of permanent
licenses.
F - 24
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
EMPLOYMENT CONTRACTS
The Company entered into various employment agreements with certain officers
for terms of three years each, expiring March 31, 2002. The agreements call
for a minimum annual salary, aggregating $1,025,000, with increases based on
annual review by the compensation committee. If the Company terminates the
employment agreement without cause, the Company will be obligated to pay the
base salary for the remainder of the initial term.
IDLE EQUIPMENT
The Company purchased 15 transmitters which are not in current use. The
Company has negotiated acceptable terms for return of transmitters to the
seller. The asset is being carried at approximately $175,000, and the Company
owes approximately $210,000 on the transmitters as of September 30, 1999. The
seller has agreed to refund the full purchase price upon return of the
equipment, less damage, if any, handling and shipping.
OFFICE SPACE AND TRANSMISSION TOWERS
Keys entered into a lease agreement for the non-exclusive use of a
transmission tower and the exclusive use of the space within a building which
contains satellite signal receiving equipment. The current lease period has
expired as so the lease is on a month to month basis. Keys has the option to
renew the lease for two additional five year periods. Keys is responsible for
its proportionate share of operating expenses, utilities, insurance and taxes.
On June 1, 1998, Keys entered into a lease agreement expiring May 31, 2001
for office space in Key West, Florida, at $2,040 per month. This lease is
subject to increases based on the Consumer Price Index and has an option to
renew for a three year period.
On July 30, 1999, the Company entered into a lease agreement for office
facilities in West Palm Beach, Florida. The agreement, expiring July 31,
2004, requires base monthly rental payments of $8,369, plus operating
expenses, with a 4% annual increase in the base. The Company is responsible
for its prorated share of operating expenses, taxes, utilities and insurance
on all office spaces. The Company is currently in default on this lease and
the landlord has filed a lawsuit to recover costs and rents due over the
remaining term of the lease of approximately $900,000.
Prentice leases office space under a non-cancelable operating lease which
expires 2002. Operating expenses and taxes are paid by Prentice. The Company
sub-leases a portion of this space under an oral agreement. The monthly
rental payment for September 1999 was $15,598 and increase during the term of
the lease.
F - 25
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OFFICE SPACE AND TRANSMISSION TOWERS (CONTINUED)
Total annual minimum base rent commitments for the years ended June 30 are as
follows:
<TABLE>
<S> <C>
For The Year Ended June 30,
---------------------------
2000 (9 months remaining) $ 291,594
2001 517,447
2002 498,211
2003 502,513
2004 214,502
Thereafter 9,782
--------------
Total $ 2,034,049
==============
</TABLE>
Total rent expense for the years ended June 30, 1998 and 1999 was $17,053 and
$61,700, respectively and $16,246 and $88,132 for the three months ended
September 30, 1998 and 1999, respectively.
SERVICES AGREEMENT
In August 1999, the Company entered into a Services Agreement with a
consultant whose services were to begin in October 1999. The Services
Agreement requires that the consultant render financial consulting and other
services to the Company. As consideration, the Company issued to the
consultant two stock purchase warrants. The first is for the purchase of
500,000 shares of the Company's common stock at an exercise price of $5.50
per share, which has a fair value of approximately $1,500,000 utilizing the
Black-Scholes pricing model with the following assumptions: expected life of
6 years, 0% volatility, risk-free interest rate of 5.5% and a 0% dividend
yield. The second is for the purchase of 720,000 shares of the Company's
common stock which vests at the rate of 15,000 shares per month for 48
consecutive months, which has an aggregate fair value of approximately
$3,220,000 utilizing the Black-Scholes pricing model with the following
assumptions: expected life of 6 years, 0% volatility, risk-free interest rate
of 5.5% and a 0% dividend yield. This is subject to change as the exercise
price on the options issued in each monthly installment is contingent upon
the market value of the common stock as defined below. No compensation costs
were reflected in the accompanying financial statements, as services were not
performed until October 1999. The exercise price for each installment is 50%
of the market value of the Company's common stock on the vesting date for
that installment. For this purpose, market value is deemed to be the average
of the closing prices for the 20 trading days preceding the vesting date of
the installment. In the event of a change in control (as defined), an
additional number of installments shall vest and become exercisable as equals
the number of previously vested installments, and the number of shares
included in each monthly installment will double.
F - 26
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
PLACEMENT AGENT AGREEMENT
In March 1999, the Company entered into an agreement whereby a placement
agent agreed to research and find sources for the Company's various needs of
financing and to make introductions to persons capable of providing such
financing to the Company. If any person introduced to the Company by the
agent provides any investment capital or other types of financing, the
Company is obligated to pay the agent 10% of the first $10,000,000 of
capital, 7.5% of the following $5,000,000 of capital, and 5% of any balance.
The fee is payable in cash at closing. The Company also agreed to pay the
agent a non-accountable project expense fee in the amount of 1% of the
financing.
In addition, the Company agreed to issue five-year warrants to the agent for
the purchase of up to five shares of the Company's common stock for each $100
of funds raised at an exercise price equal to 85% of the fair market value of
the Company's common stock for the 20 trading days prior to closing of the
financing. The holders of the warrants were granted "piggyback" registration
rights with respect to the underlying shares and the Company agreed to pay
all costs of registration. As of September 30, 1999, the Company had issued
warrants for the purchase of up to 150,487 shares of its common stock to the
agent and its affiliates and 22,650 shares of common stock to the agent and
its affiliates. The fees earned under this agreement are included in the
offering costs reflected in these financial statements.
OTHER AGREEMENTS
In August 1999, the Company entered into an agreement with an individual
giving him the right, exercisable at any time until February 1, 2000, to
cause the Company to purchase from him a total of 2,600,000 shares of the
capital stock of International Datacasting Corporation, a Canadian
corporation based in Ottawa, Ontario, Canada ("IDC"). The purchase price is
CDN $1.00 per share in cash or, at the option of the seller, in the form of a
note or the equivalent value of the Company's common stock. In addition, the
Company agreed to purchase from the seller an additional 2,000,000 shares of
IDC common stock upon the same terms within 30 days after the date of the
first purchase. To the extent the seller elects to take shares of the
Company's common stock in payment for the IDC stock, the stock will be valued
at the lower of US $5.00 per share or 70% of the market price on the date of
the transaction. IDC is a public Canadian company whose stock is traded on
the Montreal Stock Exchange (symbol:IDA).
F - 27
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OTHER AGREEMENTS (CONTINUED)
In August, the Company agreed to enter into a financial consulting agreement
with the same individual to provide financial review, analysis and consulting
services to the Company for a period of one year. As consideration, the
Company agreed to issue to the consultant a three-year warrant for the
purchase of 100,000 shares of the Company's common stock at an exercise price
of $6.25 per share. The fair value of these warrants is approximately
$170,000 utilizing the Black-Scholes pricing model with the following
assumptions: expected life of three years, 0% volatility, risk free interest
rate of 5.5% and a 0% dividend yield. The expense will be recognized ratably
over his period of service. The Company can terminate the financial
consulting agreement at any time upon the giving of ten days' written notice.
In April, 1999 the Company entered into a one-year agreement with a
consultant for various public relations services in exchange for shares of
the Company's common stock. The first payment of 17,500 shares was made in
July, 1999. An additional 17,500 shares are required to be issued since the
Company elected to continue these services. The Company recognized
approximately $122,000 of compensation expense for the three months ended
September 30, 1999. The value ascribed to the common stock is $7 as the
Company has a history of selling stock for cash at $7 per share.
NOTE 15 - SUBSEQUENT EVENTS
(UNAUDITED)
About September 13, 1999 the Company entered into agreements to acquire what
management believes is approximately a 4.9% equity interest in an entity
which purports to own certain technology. The entity claims the Company is in
default and has terminated two of the three agreements. These agreements
obligate the Company to pay $1.6 million and deliver 500,000 shares of common
stock for this equity interest. The 500,000 shares were delivered in November
1999 and $700,000 (financed with borrowed funds under a convertible
promissory note due April 30, 2000) has been paid. The entity claims the
balance of $300,000 is past due and that $600,000 is due in installments over
the next five months. In consideration of the agreement by the seller to
renegotiate the agreements in good faith, Telecom Wireless delivered to the
seller an additional 452,381 shares of common stock in December 1999. The
agreements to be renegotiated include a worldwide, non-exclusive, five-year
license agreement which the entity purports to have cancelled.
In October 1999, the majority stockholder of the Company sold an option to
purchase 250,000 shares of the Company's common stock for $250,000 and lent
the proceeds to the Company. The term of the option is two years and the
option exercise price is $.10 per share. The fair value of this option is
approximately $1,700,000 utilizing the Black-Scholes pricing model with the
following assumptions: expected life of 2 years, 0% volatility, risk-free
rate of 5.5% and a 0% dividend yield. Compensation expense will be recognized
in October 1999 for this option. The Company issued 250,000 shares of its
common stock in January 2000 to the option holder in payment of the loan and
termination of this option.
In November 1999, the Company authorized the issuance of warrants for the
purchase of 300,000 shares of its common stock as partial consideration for
consulting services rendered by a financial consultant. In November 1999, the
consultant indicated its desire to exercise the warrants. In January 2000,
the Company issued the shares underlying the warrants to three individuals
identified by the holder of the warrant.
Effective December 29, 1999, the Company entered into a rescission agreement
with Prentice. The Company returned its 90% ownership in Prentice and
received the 346,667 shares of its common stock that were originally issued.
The note payable to Prentice in the amount of $253,750 was cancelled. No
payments had been made on the note since its issuance in September 1999.
Options for the purchase of 550,000 shares of common stock and 100,000 shares
of common stock issued to the sole shareholder of Prentice were cancelled.
The Company owes Prentice approximately $57,000 relating to operating costs
incurred while the Company subleased office space from Prentice. If the
Company pays this debt in full, with interest at 12%, by February 1, 2000,
the Company will receive an approximate 1% interest in Prentice.
F - 28
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
UNAUDITED (CONTINUED)
In December 1999, the Company entered into an agreement with a vendor to
purchase broadband wireless telecommunications equipment and services to
establish wireless communications networks in north america. The agreement
requires expenditures over its five-year term of approximately $225,000,000
by the Company. The Company is obligated to purchase $13,635,375 of equipment
during the first year of the contract. Upon satisfaction of a trial test of
the system, the Company must pay $3,450,090, with additional payments of
$3,392,290 each due on June 1, 2000, September 1, 2000 and December 1, 2000.
The Company must pay the vendor five percent of the purchase price of any
equipment that it was obligated but failed to purchase by the end of each
calendar year upon termination of the agreement by either party.
In December 1999, the Company issued a promissory note in the principal
amount of $140,000. The Company is obligated to issue up to 50,000 shares of
its common stock pursuant to the terms of the promissory note.
In December 1999, the Company entered into an agreement with an individual to
issue 100,000 shares of the Company's common stock at a purchase price of
$2.50 per share and warrants for the purchase of an additional 100,000 shares
of common stock at an exercise price of $2.50 per share. The warrants will be
exercisable at any time within three years from the date of the contract.
F - 29
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
UNAUDITED (CONTINUED)
In December 1999, the Company entered into a one-year investment banking
agreement with an institution. Under the agreement, the investment banker
is to perform a variety of services including advice and counsel
regarding strategic business and financial plans, negotiations with potential
investors, acquisition candidates, strategic partners and other such
services. The agreement requires a non-refundable fee of $500,000 or 550,000
shares of the Company's common stock and a three-year warrant for the
purchase of an additional 1,000,000 shares exercisable at $5.50 per share.
The Company issued the 550,000 shares in January 2000. If the 550,000 shares
are not free-trading by March 21, 2000, the Company is obligated to issue an
additional 200,000 shares of common stock as a penalty. The Company also
agreed to pay finder's fees with respect to transactions introduced to the
Company by the investment banker. The investment banking company may assess
finder's fees to the Company for a two and a half-year period subsequent to
the term of this agreement.
In January 2000, the Company issued 2,300 shares of its common stock to 23
non-officer employees of the Company and its two subsidiaries as a stock
bonus pursuant to an exemption from securities registration provided by Rule
701 under the Securities Act.
In January 2000, the Company issued 1,476,000 shares of its common stock and
warrants for the purchase of a net of 1,100,000 shares of its common stock in
consideration of $690,000 in cash, $625,000 in debt cancellation and
investment banking services to be rendered. Substantially all of the shares
have registration rights.
The 1,000,000 in bridge financing that was due in October and November 1999
is past due with the exception of $375,000 which has been converted to common
stock in January 2000. Demand for payment or conversion on the remaining
balance has not been made.
F - 30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
SYS-Group, Inc. d/b/a Prentice Technologies, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of SYS-Group, Inc. d/b/a
Prentice Technologies, Inc. as of December 31, 1998 and the related
statements of operations, stockholder's equity and cash flows for the years
ended December 31, 1997 and 1998. 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 referred to above present fairly, in
all material respects, the financial position of SYS-Group, Inc. d/b/a
Prentice Technologies, Inc. as of December 31, 1998 and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
As described in Note 7 to the financial statements, a significant part of the
Company's business is dependent on one customer and loss of this customer
could have a materially adverse effect on the Company.
Ehrhardt Keefe Steiner & Hottman PC
May 26, 1999
Denver, Colorado
F - 31
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 14,273 $ 104,156
Accounts receivable (Note 5) 213,270 416,604
---------------- ----------------
Total current assets 227,543 520,760
Property and equipment, net (Notes 2, 4 and 5) 150,369 181,499
Other assets (Note 5) 8,711 51,648
Advance to shareholder - 30,000
---------------- ----------------
Total assets $ 386,623 $ 783,907
================ ================
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities
Line-of-credit (Note 3) $ 69,936 $ 63,055
Financing agreement (Note 5) - 218,924
Accounts payable 99,897 51,901
Accrued liabilities - 18,504
Current portion of capital lease obligations (Note 4) 27,110 44,345
Deferred revenue - 7,500
Deferred rent expense - 124,413
---------------- ----------------
Total current liabilities 196,943 528,642
Capital lease obligations less current portion (Note 4) 76,582 91,412
---------------- ----------------
Total liabilities 273,525 620,054
---------------- ----------------
Commitments (Note 7)
Stockholder's equity
Common stock, no par value, 1,000,000 shares authorized; 600,000 shares
issued and outstanding 1,000 1,000
Retained earnings 112,098 162,853
---------------- ----------------
113,098 163,853
---------------- ----------------
Total liabilities and stockholder's equity $ 386,623 $ 783,907
================ ================
</TABLE>
See notes to financial statements.
F - 32
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the Years Ended Six Months Ended
December 31, June 30,
-------------------------------- ---------------------------------
1997 1998 1998 1999
-------------- --------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Consulting income (Note 8) $ 384,847 $ 1,197,801 $ 457,312 $ 1,251,325
-------------- --------------- -------------- --------------
Direct expenses
Salaries and other direct expenses 158,271 563,550 146,565 549,371
Referral fees 54,563 132,999 40,782 218,218
-------------- --------------- -------------- --------------
Total direct expenses 212,834 696,549 187,347 767,589
-------------- --------------- -------------- --------------
Gross profit 172,013 501,252 269,965 483,736
General, administrative and selling expenses 70,583 303,736 130,463 391,627
Research and development - 45,068 5,136 74,335
-------------- --------------- -------------- --------------
Income from operations 101,430 152,448 134,366 17,774
-------------- --------------- -------------- --------------
Other income (expense)
Interest and other income - 7,213 - 47,887
Interest expense (297) (10,928) (3,723) (14,906)
-------------- --------------- -------------- --------------
Total other income (expense) (297) (3,715) (3,723) 32,981
-------------- --------------- -------------- --------------
Net income before taxes 101,133 148,733 130,643 50,755
Pro forma income tax provision (Note 6) 37,000 55,000 49,000 19,000
-------------- --------------- -------------- --------------
Pro forma net income $ 64,133 $ 93,733 $ 81,643 $ 31,755
============== =============== ============== ==============
</TABLE>
See notes to financial statements.
F - 33
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------------------- Retained
Shares Amount Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
Balance - December 31, 1996 600,000 $ 1,000 $ 9,739
Stockholder distributions - - (58,488)
Net income - - 101,133
-------------- -------------- --------------
Balance - December 31, 1997 600,000 1,000 52,384
Stockholder distributions - - (89,019)
Net income - - 148,733
-------------- -------------- --------------
Balance - December 31, 1998 600,000 1,000 112,098
Net income (unaudited) - - 50,755
-------------- -------------- --------------
Balance - June 30, 1999 (unaudited) 600,000 $ 1,000 $ 162,853
============== ============== ==============
</TABLE>
See notes to financial statements.
F - 34
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the Years Ended Six Months Ended
December 31, June 30,
-------------------------------- ----------------------------------
1997 1998 1998 1999
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 101,133 $ 148,733 $ 130,643 $ 50,755
-------------- -------------- -------------- --------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation - 20,899 7,421 33,322
Deferred rent expense - - - 124,413
Changes in assets and liabilities
Accounts receivable (84,539) (118,992) (9,954) (203,334)
Prepaid expenses (5,270) 5,270 5,270 3,000
Accounts payable 63,597 36,300 (12,701) (47,996)
Accrued liabilities - - - 18,504
Deferred revenue - - - 7,500
-------------- -------------- -------------- --------------
(26,212) (56,523) (9,964) (64,591)
-------------- -------------- -------------- --------------
Net cash provided (used) by operating activities 74,921 92,210 120,679 (13,836)
-------------- -------------- -------------- --------------
Cash flows from investing activities
Increase in other assets (8,711) - - (45,937)
Purchases of property and equipment (7,775) (41,592) - (10,736)
-------------- -------------- -------------- --------------
Net cash used by investing activities (16,486) (41,592) - (56,673)
-------------- -------------- -------------- --------------
Cash flows from financing activities
Distributions to stockholder (63,040) (89,019) (61,266) -
Payments of capital lease obligations (947) (17,262) (6,585) (21,651)
Financing agreement, net - - - 218,924
Line-of-credit, net - 69,936 - (6,881)
Advance to shareholder - - - (30,000)
-------------- -------------- -------------- --------------
Net cash (used) provided by financing activities (63,987) (36,345) (67,851) 160,392
-------------- -------------- -------------- --------------
Net increase (decrease) in cash (5,552) 14,273 52,828 89,883
Cash at beginning of period 5,552 - - 14,273
-------------- -------------- -------------- --------------
Cash at end of period $ - $ 14,273 $ 52,828 $ 104,156
============== ============== ============== ==============
</TABLE>
Supplemental disclosure of cash flow information
Cash paid for interest for the years ended December 31, 1997 and 1998
was $297 and $10,492, respectively, and for the six months ended June
30, 1998 and 1999 was $3,723 and $15,285, respectively (unaudited).
During the years ended December 31, 1997 and 1998, the Company acquired
assets under capital leases totaling $11,860 and $110,041,
respectively, and $46,668 and $53,716 for the six months ended June 30,
1998 and 1999, respectively (unaudited).
See notes to financial statements.
F - 35
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Sys-Group, Inc. was incorporated in January 1994 under the laws of Texas.
The Company was doing business as The Enterprise Systems Group, Inc. from
January 1994 to January 1999 and has operated as Prentice Technologies, Inc.
since January 1999. In August 1999, the Company changed its legal name to
Sys-Group, Inc. (the Company). The Company provides computer related services
including enterprise application hosting and relating consulting services to
businesses in the United States, Canada and Europe.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company at June 30,
1999 and the results of its operations and changes in cash flows for the six
months ended June 30, 1999 and 1998. The results of operations for the six
months ended June 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for a full year.
CONCENTRATION OF CREDIT RISK
The Company grants credit in the normal course of business to customers in
the United States, Canada and Europe. The Company periodically performs
credit analysis and monitors the financial condition of its customers to
reduce credit risk.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost while equipment under capital
lease is stated at the lower of fair value or net present value of minimum
lease payments at the inception of the lease. Depreciation and amortization
are computed on the straight-line method over the estimated lives ranging
from three to five years.
DEFERRED RENT
For financial reporting purposes, rent expense is recorded on a straight-line
basis over the terms of the respective lease. Differences between rent
expenses recorded in the accompanying financial statements and the actual
payments made under each lease is recorded as deferred rent.
See notes to financial statements.
F - 36
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(CONTINUED)
REVENUE AND COST RECOGNITION
The Company generates revenue with both hourly-rate and fixed price
contracts. Revenue generated from hourly-rate contracts is recognized as
costs are billed to the customer. Revenue is determined by the contract
billing rates and the time incurred to perform the service plus reimbursable
expenses. Expense is determined by actual cost incurred. Revenue generated
from fixed price contracts is recognized when the contract is completed. The
contract is considered complete when all costs, except for insignificant
amounts, have been incurred. Revenue received in advance of being earned is
deferred until earned.
RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products
are charged to operations in the year incurred.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company is not subject
to income taxes as a separate entity. Income or loss of the Company is
required to be included in the income tax returns of the stockholders.
Included in the statement of operations are compiled pro forma income tax
adjustments computed using the statutory rates in effect, which represents
the estimated federal and state tax provisions that would have been required
had the Company been taxed as a C-corporation. The Company's effective
statutory rate based on the pretax income was 37% for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
See notes to financial statements.
F - 37
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash, receivables and
accounts payable approximate their fair values as of December 31, 1998 and
June 30, 1999 because of the relatively short maturity of these instruments.
The carrying amounts of capital lease obligations and debt outstanding also
approximates their fair values as of December 31, 1998 and June 30, 1999
because interest rates on these instruments approximate the interest rate on
debt with similar terms available to the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. This statement currently has no impact
on the financial statements of the Company, as the Company does not hold any
derivative instruments or participate in any hedging activities.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---------------- ----------------
<S> <C> <C>
(Unaudited)
Furniture and equipment $ 46,668 $ 54,443
Computer equipment 124,600 181,348
---------------- ----------------
171,268 235,791
Less accumulated depreciation (20,899) (54,221)
---------------- ----------------
$ 150,369 $ 181,570
================ ================
</TABLE>
See notes to financial statements.
F - 38
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 3 - LINE-OF-CREDIT
The Company has available a $75,000 line-of-credit with interest at 2.9% over
prime (totaling 10.65% at June 30, 1999). The line has no stated maturity and
is personally guaranteed by the Company's majority Stockholder. At December
31, 1998 and June 30, 1999, $69,936 and $63,055 respectively, was borrowed
against the line.
NOTE 4 - CAPITAL LEASE OBLIGATIONS
The Company leases computer equipment and office furniture under capital leases
with monthly payments ranging from $253 to $1,880 and interest rates ranging
from 9.4% to 21.5%. The future minimum rental payments due under capital leases
are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999 (six months remaining) $ 35,970
2000 70,791
2001 62,048
2002 16,418
2003 2,804
----------------
Total minimum lease payments 188,031
Less amount representing interest (50,847)
----------------
Net minimum lease payments 137,184
Less current portion (43,940)
----------------
$ 93,244
================
</TABLE>
NOTE 5 - FINANCING AGREEMENT
During 1999, the Company entered into an agreement to transfer certain of its
accounts receivable with recourse to a finance company. Inventory, equipment,
accounts receivables and intangible assets collateralized the agreement. The
finance company advances 80% of the account receivable upon submission and
remits the remaining 20% less interest and fees when the account is paid by
the customer. Proceeds from the finance company during the six months ended
June 30, 1999 were approximately $607,581. Fees and interest paid for the six
months ended June 30, 1999 were approximately $14,309. In addition, the
Company is at risk for credit losses associated with sold receivables and
provides for such in the Company's financial statements. The receivables and
related note payable are reflected in the Company's balance sheet.
See notes to financial statements.
F - 39
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 6 - INCOME TAXES
Upon consummation of an agreement with Telecom Wireless Corporation
("Telecom") to sell the outstanding stockholders' interest of the Company,
the Company's tax status as an S corporation will terminate and, accordingly,
the Company will be subject to federal and state corporate income taxes. The
Company has no significant differences between the book and tax basis of its
assets or liabilities and therefore no deferred tax asset of liability exists
at the date of consummation.
NOTE 7 - COMMITMENTS
OPERATING LEASES
The Company leases office space and computer equipment under noncancelable
operating leases which expire in 2002. Operating expenses and taxes are paid
by the Company. During the six months ended June 30, 1999, the Company
subleased some of their office space. The rental expense for these leases was
$13,144 and $81,210 for the years ended December 31, 1997 and 1998,
respectively and $34,153 and $26,974 for the six months ended June 30, 1998
and 1999, respectively.
Future minimum lease payments as of June 30, 1999 are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999 (six months remaining) $ 119,893
2000 380,167
2001 384,089
2002 389,949
2003 389,949
Thereafter 97,487
----------------
$ 1,761,534
================
</TABLE>
EMPLOYEE LEASING
The Company leases its employees from a third party. In the event an
individual ceases to be engaged by the company, the Company could be
obligated to pay 60 days service fees, not including employee salaries, to
the leasing company.
See notes to financial statements.
F - 40
<PAGE>
SYS GROUP, INC. D/B/A PRENTICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 8 - MAJOR CUSTOMERS AND VENDORS
The Company has a certain customer that accounted for 96% and 81% of the
Company's total revenue for the year ended December 31, 1997 and 1998,
respectively. The same customer accounted for 90% and 30% of the Company's
total revenue for the six months ended June 30, 1998 and 1999, respectively.
A second customer, based in Europe, accounted for 26% of revenue for the six
months ended June 30, 1999.
NOTE 9 - SUBSEQUENT EVENTS
In August 24, 1999, the Company merged with Prentice Technologies, Inc. (a
Delaware Corporation) which was a company with common ownership and no assets
or liabilities as of the date of the merger. Effective September 30, 1999,
90% of Prentice Technologies, Inc. was acquired by Telecom Wireless
Corporation.
See notes to financial statements.
F - 41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
America's Web Station, Inc.
Naples, Florida
We have audited the accompanying balance sheets of America's Web
Station, Inc. (an S corporation) as of December 31, 1998 and 1997, and the
related statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year ended December 31, 1998 and for the period from
January 29, 1997 (inception) through December 31, 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
audits 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 referred to above present
fairly, in all material respects, the financial position of America's Web
Station, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year and period then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to
the financial statements the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 7. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
July 30, 1999
F - 42
<PAGE>
AMERICA'S WEB STATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- June 30,
1998 1997 1999
---------------- ---------------- ----------------
ASSETS (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 32,330 $ 942 $ 5,878
Accounts receivable - trade 10,476 11,877 14,893
---------------- ---------------- ----------------
Total current assets 42,806 12,819 20,771
---------------- ---------------- ----------------
FURNITURE AND EQUIPMENT, at cost 90,066 58,044 90,214
Less accumulated depreciation 27,459 8,259 36,509
---------------- ---------------- ----------------
62,607 49,785 53,705
---------------- ---------------- ----------------
OTHER ASSETS
Goodwill, net of accumulated amortization 1999 - $1,127; 1998 -
$797; 1997 - $139 9,073 9,731 8,743
Other 3,326 347 2,957
---------------- ---------------- ----------------
12,399 10,078 11,700
---------------- ---------------- ----------------
$ 117,812 $ 72,682 $ 86,176
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 22,310 $ 3,945 $ 22,549
Demand notes payable-stockholders 66,360 7,432 77,460
Accounts payable and accrued expenses 6,986 3,437 10,933
---------------- ---------------- ----------------
Total current liabilities 95,656 14,814 110,942
LONG-TERM DEBT, less current maturities 92,157 15,997 80,872
---------------- ---------------- ----------------
Total liabilities 187,813 30,811 191,814
---------------- ---------------- ----------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.05 per share; 1,500 shares authorized,
1,200 shares issued and outstanding 60 60 60
Additional paid in capital 186,065 121,940 186,065
Accumulated (deficit) (256,126) (80,129) (291,763)
---------------- ---------------- ----------------
(70,001) 41,871 (105,638)
---------------- ---------------- ----------------
$ 117,812 $ 72,682 $ 86,176
================ ================ ================
</TABLE>
See accompanying notes and accountant's reports.
F - 43
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 19, 1997
Year Ended (Inception) Six Months Ended
-------------- through June 30,
December 31, December 31, ---------------------------------
1998 1997 1999 1998
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 170,736 $ 47,405 $ 76,708 $ 88,276
-------------- -------------- -------------- --------------
Costs and expenses
Internet service operating costs 60,805 24,024 24,842 28,557
General and administrative 283,415 102,207 82,415 133,646
-------------- -------------- -------------- --------------
344,220 126,231 107,257 162,203
-------------- -------------- -------------- --------------
(Loss) from operations (173,484) (78,826) (30,549) (73,927)
Interest expense 2,513 1,303 5,088 136
-------------- -------------- -------------- --------------
Net (loss) $ (175,997) $ (80,129) $ ( 35,637) $ (74,063)
============== ============== ============== ==============
Earnings (loss) per share, basic and diluted $ (146.66) $ (311.79) $ (29.70) $ (61.72)
====== ====== ===== =====
Weighted average shares outstanding 1,200 257 1,200 1,200
============== ============== ============== ==============
</TABLE>
See accompanying notes and accountant's reports.
F - 44
<PAGE>
AMERICA'S WEB STATION, INC.
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1997 -
(Inception) - $ - $ - $ - $ -
Capital contributions 1,200 60 121,940 - 122,000
Net (loss) - - - (80,129) (80,129)
-------------- -------------- -------------- -------------- --------------
Balance, December 31, 1997 1,200 60 121,940 (80,129) 41,871
Capital contributions - - 64,125 - 64,125
Net (loss) - - - (175,997) (175,997)
-------------- -------------- -------------- -------------- --------------
Balance, December 31, 1998 1,200 60 186,065 (256,126) (70,001)
Net (loss) (unaudited) - - - (35,637) (35,637)
-------------- -------------- -------------- -------------- --------------
Balance, June 30, 1999 (unaudited) 1,200 $ 60 $ 186,065 $ (291,763) $ (105,638)
============== ============== ============== ============== ==============
</TABLE>
See accompanying notes and accountant's reports.
F - 45
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 29, 1997
(Inception) Six Months Ended
Year Ended through June 30,
December 31, December 31, ----------------------------------
1998 1997 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (175,997) $ (80,129) $ (35,637) $ (74,065)
Adjustments to reconcile net loss to net cash used
by operating activities
Depreciation and amortization 19,858 8,398 9,380 9,600
(Increase) decrease in assets:
Accounts receivable 1,401 (11,877) (4,417) (1,454)
Other (2,979) (347) 369 (300)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 3,549 3,437 3,947 (547)
--------------- --------------- --------------- ---------------
Net cash used by operating activities (154,168) (80,518) (26,358) (66,766)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (32,022) (58,044) (148) (23,543)
Payment of goodwill - (9,870) - -
--------------- --------------- --------------- --------------
Net cash used by investing activities (32,022) (67,914) (148) (23,543)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholder loans 58,928 7,432 14,700 104,450
Proceeds from borrowings 100,000 22,368 - -
Principal payments on debt (5,475) (2,426) (14,646) (325)
Proceeds from capital contributions 64,125 122,000 - -
--------------- --------------- --------------- --------------
Net cash provided by financing activities 217,578 149,374 54 104,125
--------------- --------------- --------------- ---------------
Net change in cash and cash equivalents 31,388 942 (26,452) 13,816
Cash and cash equivalents:
Beginning 942 - 32,330 942
--------------- --------------- --------------- ---------------
Ending $ 32,330 $ 942 $ 5,878 $ 14,758
=============== =============== =============== ===============
Supplemental disclosure of cash flow information:
Cash payments for interest $ 2,513 $ 1,303 $ 4,903 $ 138
=============== =============== =============== ===============
</TABLE>
See accompanying notes and accountant's reports.
F - 46
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 1. Organization and Summary of Significant Accounting Policies
Organization
America's Web Station, Inc. (the Company) formerly known as
Millennium Market Tech, Inc. (Note 4), commenced operations in
January 1997 for the purpose of providing regional internet
services throughout Southwest Florida.
Revenue Recognition
The Company recognizes revenue as services are rendered.
Interim Financial Statements (Unaudited)
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the
financial position of the Company at June 30, 1999 and the
results of its operations and changes in cash flows for the six
months ended June 30, 1999 and 1998. The results of operations
for the six months ended June 30, 1999 and 1998 are not
necessarily indicative of the results to be expected for a full
year.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
money market accounts to be cash equivalents.
F - 47
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 1. Organization and Summary of Significant Accounting Policies - Continued
Furniture and Equipment
Depreciation of furniture and equipment is computed under
accelerated methods over the estimated useful lives of the
assets. Depreciation expense for the six months ended June 30,
1999 and 1998 was $9,050 and $9,600, respectively, and totaled
$19,200 and $8,259 for the year and period ended December 31,
1998 and 1997, respectively.
The cost of assets retired or sold, together with the related
accumulated depreciation, is removed from the accounts and any
profit or loss on disposition is credited or charged to
earnings.
Goodwill
Goodwill is recorded as the differences between net assets
acquired and the related purchase price. Amortization is
calculated over an estimated useful life of fifteen years.
Advertising Costs
All advertising costs are expensed as incurred. Total
advertising costs for the years ended December 31, 1998 and 1997
were $11,548 and $18,269, respectively and totaled $3,051 and
$6,002 for the six month periods ended June 30, 1999 and 1998,
respectively.
Income Taxes
The Company, with the consent of its stockholders, elected under
the Internal Revenue Code to be taxed as an S corporation. In
lieu of corporate income taxes, the proportionate share of the
Company's taxable income or loss is recognized by the
stockholders. Accordingly, no provision for income taxes is
included in the accompanying financial statements.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed based upon
the weighted average number of common shares outstanding during
the period. Diluted earnings per share consists of the weighted
average number of common shares outstanding plus the dilutive
effects of options and warrants calculated using the treasury
stock method. In loss periods, dilutive common equivalent shares
are excluded as the effect would be anti-dilutive.
F - 48
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 2. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- June 30,
1998 1997 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Note payable to financial institution, monthly payments of $1,500 plus interest
at 9.75%, collateralized by all equipment and personally guaranteed by the
stockholders, final balloon payment due November
2003 $ 98,500 $ - $ 89,500
Note payable to financial institution, monthly payments of $463, including
interest at 8.9%, collateralized by vehicle, final payment
due April 2002 15,967 19,942 13,921
-------------- -------------- --------------
114,467 19,942 103,421
Less current maturities 22,310 3,945 22,549
-------------- -------------- --------------
$ 92,157 $ 15,997 $ 80,872
============== ============== ==============
</TABLE>
Long-term debt matures as follows as of June 30, 1999:
<TABLE>
<S> <C>
Twelve Months Ending June 30,
------------------------------
2000 $ 22,549
2001 22,923
2002 22,449
2003 18,000
2004 17,500
--------------
$ 103,421
==============
</TABLE>
Note 3. Related Party Transactions
Notes payable to stockholders are unsecured, payable on demand,
and bear interest at 7% to 19%.
F - 49
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 4. Business Combinations
The Company commenced operations January 1997, as Millennium
Market Tech, Inc. In October 1997, America's Web Station, Inc. was
formed for the primary purpose of changing the name of the
business. Effective January 1998, the Company began operating
under the corporate name America's Web Station, Inc.
The outstanding shares of common stock of Millennium Market Tech,
Inc., which totaled 1,000 shares, were exchanged and canceled in
consideration for the issuance of 1,000 shares of America's Web
Station, Inc. common stock. The combination was accounted for as a
pooling of interests and neither entity recognized a gain or loss.
America's Web Station, Inc. was dormant until the merger occurred.
The Company acquired the assets of Wow Factor in October 1997 for
$12,470, which was accounted for using the purchase method. The
Company's results of operations include the Wow Factor effective
October 15, 1997.
Note 5. Lease Commitment
The Company leases office space and equipment under non-cancelable
operating leases expiring through November 2000. Future minimum
lease payments under the leases as of June 30, 1999 were as
follows:
<TABLE>
<S> <C>
Twelve Months Ending June 30,
-----------------------------
2000 $ 28,214
2001 6,809
--------------
$ 35,023
==============
</TABLE>
Rent expense for the six months ended June 30, 1999 and 1998 was
$18,408 and $12,610, respectively and rent expense for the year
and period ended December 31, 1998 and 1997 was $41,634 and
$16,019, respectively.
F - 50
<PAGE>
AMERICA'S WEB STATION, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1999 AND 1998 IS UNAUDITED)
Note 6. Subsequent Event
In July 1999, the Company's stockholders entered into an agreement
to exchange all outstanding shares of the Company for shares in
Telecom Wireless Corporation (TWC). Under the agreement, TWC will
assume or pay approximately $150,000 of the Company's
indebtedness. Such indebtedness includes the note payable to a
financial institution and accounts payable as of the closing date.
Any remaining amount of the $150,000 is to be applied towards the
Company's notes payable to stockholders. Any residual balance then
remaining for notes payable to stockholders will be converted to
additional paid in capital.
Note 7. Uncertainty
The Company incurred cumulative net losses through June 30, 1999
totaling $291,763 and its liabilities are substantially in excess
of its assets.
As discussed in Note 6, the stockholders have entered into an
agreement whereby $150,000 of Company liabilities are to be
assumed or repaid. In addition, TWC has committed to certain
equipment additions and upgrades resulting in increased capacity
for customer services. The Company will also benefit from
administrative, technical and marketing support from TWC.
The Company's continued existence is dependent upon obtaining
additional financing or capital, increasing revenues and/or
reducing expenses. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
F - 51
<PAGE>
UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
AND CASH FLOWS
The unaudited pro forma statements of operations and cash flows for the year
ended June 30, 1999 give effect to the business combination of Telecom Wireless
Corporation and America's Web Station, Inc., as if it occurred effective July 1,
1998.
These financial statements include the related pro forma adjustments described
in the notes thereto. The transactions between Telecom Wireless Corporation and
America's Web Station, Inc. have been accounted for under the purchase method of
accounting.
These pro forma statements are not necessarily indicative of the results of
operations or cash flows as they may be in the future or as they might have been
had the transaction become effective on the above mentioned dates.
The unaudited pro forma statements of operations and cash flows should be read
in conjunction with the historical financial statements and notes thereto of
Telecom Wireless Corporation.
F - 52
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom Pro Forma Adjustments Pro Forma
Wireless America's Web ----------------------------- Consolidated
Corp. Station, Inc. Total Debit Credit Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Internet services $ - $ 159,168 $ 159,168 $ - $ - $ 159,168
Wireless cable revenues 517,261 - 517,261 - - 517,261
Consulting fees 5,393 - 5,393 - - 5,393
------------- ------------- ------------- ------------- ------------- -------------
522,654 159,168 681,822 - - 681,822
------------- ------------- ------------- ------------- ------------- -------------
Expenses
Direct expenses 275,705 - 275,705 - - 275,705
Internet service operating costs - 57,090 57,090 57,090
Stock based compensation 1,547,560 - 1,547,560 - - 1,547,560
Selling, general and administrative 2,051,568 232,182 2,283,750 (1) 102,206 - 2,385,956
------------- ------------- ------------- ------------- ------------- -------------
Total cost of sales and expenses 3,874,833 289,272 4,164,105 102,206 - 4,266,311
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations (3,352,179) (130,104) (3,482,283) (102,206) - (3,584,489)
Other income (expenses)
Interest income - - - - -
Interest expense (92,341) (7,465) (99,806) - - (99,806)
------------- ------------- ------------- ------------- ------------- -------------
Total other income (expense) (92,341) (7,465) (99,806) - - (99,806)
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
minority interest (3,444,520) (137,569) (3,582,089) (102,206) - (3,684,295)
Income tax expense (benefit) - - - - - -
------------- ------------- ------------- ------------- ------------- ------------
Income (loss) before minority interest (3,444,520) (137,569) (3,582,089) (102,206) (3,684,295)
Minority interest - - - - - -
------------- ------------- ------------- ------------- ------------- ------------
Net income (loss) (3,444,520) (137,569) (3,582,089) (102,206) (3,684,295)
Dividends on preferred stock - - - - - -
------------- ------------- ------------- ------------- ------------- ------------
Net income (loss) available to common
stockholders (3,444,520) $ (137,569) $ (3,582,089) $ (102,206) $ - $ (3,684,295)
============= ============= ============= ============= ============= ============
Earnings (loss) per common share -
basic and diluted $ (.92) $ (.97)
============ ============
Weighted average shares outstanding -
basic and diluted 3,759,050 3,787,612
============ ============
</TABLE>
F - 53
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom Pro Forma Pro Forma
Wireless America's Web Acquisition Consolidated
Corp. Station, Inc. Total Adjustments Total
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (3,444,520) $ (137,569) $ (3,582,089) $ (102,206) $ (3,684,295)
------------ ------------- ------------- ------------- -------------
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 255,978 19,638 275,616 102,206 377,822
Stock issued for services 30,000 - 30,000 - 30,000
Imputed value of options granted for services 1,547,560 - 1,547,560 - 1,547,560
Accretion on preferred stock 91,227 - 91,227 - 91,227
Changes in assets and liabilities
Accounts receivable 12,245 (1,562) 10,683 - 10,683
Other assets (3,880) (2,310) (6,190) - (6,190)
Accounts payable (14,510) 8,043 (6,467) - (6,467)
Accrued expenses 104,445 - 104,445 - 104,445
Other liabilities - - - - -
------------ ------------- ------------- ------------- -------------
2,023,065 23,809 2,046,874 102,206 2,149,080
------------ ------------- ------------- ------------- -------------
Net cash used by operating activities (1,421,455) (113,760) (1,535,215) - (1,535,215)
------------ ------------- ------------- ------------- -------------
Cash flows from investing activities
Acquisition of equipment (121,117) (8,627) (129,744) - (129,744)
Net change in other assets - - - - -
------------ ------------- ------------- ------------- -------------
Net cash used by investing activities (121,117) (8,627) (129,744) - (129,744)
------------ ------------- ------------- ------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - - - - -
Net repayments to related party (16,667) (30,822) (47,489) - (47,489)
Sale of common stock/capital contribution 2,179,305 64,125 2,243,430 - 2,243,430
Net payments on notes payable - (19,796) (19,796) - (19,796)
Net proceeds from notes payable - 100,000 100,000 - 100,000
Net payments on capital leases - - - - -
Dividends/distributions paid - - - - -
------------ ------------- ------------- ------------- -------------
Net cash provided by financing activities 2,162,638 113,507 2,276,145 - 2,276,145
------------ ------------- ------------- ------------- -------------
Net increase (decrease) in cash 620,066 (8,880) 611,186 - 611,186
Cash at beginning of period 600 14,758 15,358 - 15,358
------------ ------------- ------------- ------------- -------------
Cash at end of period $ 620,666 $ 5,878 $ 626,544 $ - $ 626,544
============ ============= ============= ============= =============
</TABLE>
F - 54
<PAGE>
TELECOM WIRELESS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
In July 1999 the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of
common stock valued at $199,931 for purposes of the acquisition. The
acquisition has been accounted for as a purchase. The purchase price,
including acquisition costs, was allocated as follows:
<TABLE>
<S> <C>
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment, net 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
--------------
311,176
Liabilities assumed (191,814)
--------------
119,362
Consideration given and acquisition costs (225,390)
--------------
Excess purchase price recorded as goodwill $ 136,028
==============
</TABLE>
(1) To record amortization of goodwill and subscriber lists.
F - 55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $6,589
Printing and Engraving *
Transfer Agent's Fee and Expenses *
Legal Fees and Expenses *
Blue Sky Qualification Fees and Expenses *
Accountants' Fees and Expenses *
Miscellaneous Expenses *
---------
Total $6,589
=========
</TABLE>
--------------------
* To be supplied by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, Registrant has sold the following
securities without registering them under the Securities Act of 1933:
Present management assumed control of Registrant in April 1999.
Records regarding sales of Registrant's securities prior to that time are
incomplete and many records prior to about May 1998 are largely unavailable.
Prior management has advised Registrant that all available books and records
have been delivered to current management. Registrant has no present
affiliation with prior management.
Between March 10, 1998 and July 20, 1998, Registrant authorized the
issuance of and issued 255,400 shares of common stock and an option for the
purchase of 260,000 shares of common stock to ten individuals and one entity
which appears to have been affiliated with one of such individuals.
Management believes these securities were issued in consideration of services
rendered to Registrant. The securities registration exemption relied upon by
Registrant is unknown.
On or about May 8, 1998, Registrant authorized the issuance of and
thereafter issued 5,200 shares of its common stock to four individuals in
consideration of $.50 per share. The securities registration exemption relied
upon by Registrant is unknown.
In June, 1998, Registrant authorized the issuance of and issued
463,092 shares of its common stock to five persons in exchange for all of the
common stock of Keys Microcable Corporation. Registrant also authorized the
issuance to one of the former shareholders of Keys Microcable Corporation
convertible preferred stock in connection with the conversion to equity of
approximately $1.2 million of debt owed by Keys Microcable Corporation.
Registrant also issued an option for the purchase of shares of its common
stock to the same individual. It appears Registrant relied upon the exemption
from securities registration provided by Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
In August 1998, Registrant authorized the issuance of and issued
120,000 shares of common stock to Cavalier Securities, Ltd., or its nominees.
Management believes that all or a substantial portion of these securities
were sold for cash. It appears Registrant relied upon the exemption from
securities registration provided by Rule 504 of Regulation D under the
Securities Act.
On or about March 26, 1999, Registrant authorized for issuance and
thereafter issued 13,825,000 shares of its common stock in exchange for the
13,500 outstanding shares of the common stock of Phoenix Communications,
Inc.,
II-1
<PAGE>
held by 13 persons of which nine were accredited investors. The exchange was
consummated in April 1999. Of the 13 former shareholders of Phoenix
Communications, Inc., 11 either are or have been members of management of
Registrant subsequent to the exchange.
In April, 1999, Registrant authorized for issuance and thereafter
sold 120,000 shares of common stock for gross proceeds aggregating $600,000
to six persons pursuant to the exemption from securities registration
provided by Rule 504 of Regulation D under the Securities Act. Placement
agent fees and costs aggregating $83,100 were paid to Jack Augsback &
Associates, Inc., a non-affiliated third party, and others.
Registrant entered into Common Stock Purchase Agreements dated May
25, 1999, July 28, 1999, and September 10, 1999, pursuant to which 466,963
shares of Registrant's common stock thereafter were sold to 28 persons for
gross proceeds aggregating $3,268,745. One such person was not an accredited
investor. Registrant also issued repricing warrants to purchasers in the
offering. Placement agent fees and costs aggregating $500,020 were paid to
Jack Augsback & Associates, Inc., and Thomson Kernaghan & Co. Ltd.,
non-affiliated third parties, and others. Jack Augsback & Associates, Inc.,
Thomson Kernaghan & Co. Ltd. and their assignees also were issued warrants
for the purchase of 195,487 shares of the Company's common stock.
On July 7, 1999, Registrant authorized for issuance and subsequently
issued 17,500 shares of its common stock to one entity in consideration of
services rendered to Registrant by that entity.
Effective in April, May and August 1999, Registrant issued
non-qualified options for the purchase of 5,561,192 shares of its common
stock to nine officers and one employee of Registrant of which eight were
accredited investors.
Between April 14, 1999, and September 30, 1999, Registrant issued
38,046 shares of its common stock and issued or has agreed to issue
non-qualified and incentive options for the purchase of 170,328 shares of its
common stock to employees of Registrant and a subsidiary of Registrant in
compensatory transactions pursuant to the exemption from securities
registration provided by Rule 701 under the Securities Act.
In August 1999, Registrant issued or authorized the issuance of
warrants for the purchase of up to 1,340,000 shares of its common stock to
three financial consultants.
Effective in August 1999, Registrant issued warrants for the purchase
of 119,432 shares of its common stock to two officers of Registrant, one of
which was an accredited investor, in consideration of management services
rendered to a subsidiary of the company prior to April 1999.
In November 1999, Registrant issued to one person a promissory note
in the principal amount of $700,000 convertible into shares of Registrant's
common stock at a conversion price of $7.00 per share in consideration of the
assignment of certain technology-related equity interests.
In September and October 1999, Registrant issued for $1,000,000 in
cash promissory notes aggregating $1,000,000 in principal amount and warrants
for the purchase of 200,000 shares of its common stock to seven persons.
Placement agent fees in the form of a warrant for the purchase of 300,000
shares of Registrant's common stock were paid to First Equity Capital
Securities, Inc., a non-affiliated third party.
In July and September 1999, Registrant issued 375,229 shares of its
common stock and options for the purchase of 350,000 shares of its common
stock in connection with its acquisitions of America's Web Station, Inc. and
Prentice Technologies, Inc. to three individuals. Two of the three
individuals were not accredited investors.
In November and December 1999, Registrant issued 942,381 shares of
its common stock to one entity in connection with its acquisition of certain
technology-related equity interests.
In November 1999, Registrant authorized the issuance of warrants for
the purchase of 300,000 shares of its common stock as partial consideration
for consulting services rendered by one financial consultant. In November
1999,
II-2
<PAGE>
the consultant exercised the warrants. In January 2000, Registrant issued the
shares underlying the warrants to three individuals as directed by the holder
of the warrants.
In December 1999, Registrant issued to one person a promissory note
in the principal amount of $140,000. Registrant is obligated to issue up to
50,000 shares of its common stock pursuant to the terms of the promissory
note.
In January 2000, Registrant issued 1,200,000 shares of its common
stock and warrants for the purchase of 1,000,000 shares of its common stock
to three persons in consideration of $625,000 in debt cancellation and
investment banking services to be rendered.
With respect to all of the transactions described above that occurred
after present management assumed control of Registrant in April 1999:
1. The purchasers represented they were taking the securities for
investment and not for distribution.
2. The purchasers acknowledged that the certificates evidencing the
securities would bear a legend restricting transfer under the
Securities Act since they had not been sold in a registered
offering.
3. Except as stated above and except as to transactions claimed to
be exempt from registration pursuant to Rule 701 under the
Securities Act, the Company believes all purchasers were
accredited investors as defined in the Securities Act.
4. Except as stated above, Registrant relied upon the exemption
from securities registration provided by Section 4(2) and/or
Rule 506 of Regulation D under the Securities Act and/or Rule
701 under the Securities Act with respect to certain
compensatory transactions. Section 4(2) of the Securities Act
covers "transactions by an issuer not involving any public
offering," with respect to the issuance of securities without
registration under the Securities Act of 1933. The Company
believes that the persons to whom the securities were issued did
not need the protections that registration would afford.
On January 6, 2000, an independent NASD-licensed broker dealer sold
76,000 shares of Registrant's common stock for $190,000, believing such
shares could be sold pursuant to the exemption from registration provided by
Section 3(b) of the Securities Act of 1933, as amended, as implemented by
Rule 504 of Regulation D. On January 21, 2000, corporate counsel advised
Registrant that there was a potential integration issue and the
afore-referenced exemption might not be available. On January 21, 2000,
Registrant made a rescission offer. Registrant has since instituted new
corporate procedures to insure such transactions do not occur in the future.
All share amounts in the discussion above have been restated to reflect
the 1-for-50 reverse stock split of the Registrant on April 23, 1998 and the
1-for-5 reverse stock split of the Registrant on May 4, 1999.
ITEM 27. EXHIBITS
The exhibits to this registration statement are listed in the Exhibit
Index, which appears immediately after the signature page and is incorporated in
this Item 27 by this reference.
II-3
<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 authorized this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned, in
Denver, Colorado, on January 31, 2000.
TELECOM WIRELESS CORPORATION,
By: /s/ Calvin D. Smiley
--------------------------------
Calvin D. Smiley
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James C. Roberts, Calvin D.
Smiley and Kosta S. Kovachev, and each or any of them, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and any and all amendments
(including post-effective amendments) to this registration statement and to
any registration statement filed pursuant to Rule 462(b), and to file same,
with all exhibits thereto and, other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James C. Roberts Chairman of the Board and Director January 31, 2000
- -------------------------------
James C. Roberts
/s/ Calvin D. Smiley President, Principal Executive Officer and January 31, 2000
- ------------------------------- Director
Calvin D. Smiley
/s/ Kosta S. Kovachev Principal Financial and Accounting Officer January 31, 2000
- ------------------------------- and Director
Kosta S. Kovachev
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.1** Articles of Incorporation of Telecom Wireless as filed with the
Utah Secretary of State on April 12, 1984
3.2** Articles of Amendment to Articles of Incorporation as filed with
the Utah Secretary of State on March 12, 1998
3.3** Articles of Amendment to Articles of Incorporation as filed with
the Utah Secretary of State on April 20, 1999
3.4** Articles of Amendment to Articles of Incorporation setting forth
the Preferences, Limitations, and Relative Rights of Redeemable,
Non-voting, Cumulative Preferred Stock, Series 1998-1 as filed
with the Utah Secretary of State on November 9, 1999
3.5** Bylaws of Telecom Wireless
3.6 Articles of Amendment to Articles of Incorporation setting forth
the Amended and Restated Preferences, Limitations, and Relative
Rights of Redeemable, Non-voting, Cumulative Preferred Stock,
Series 1998-1 as filed with the Utah Secretary of State on
January 19, 2000
5.1* Opinion of Kruse, Landa & Maycock, L.L.C.
10.1** Stock Purchase Option dated June 1, 1998, between Telecom
Wireless and Marc L. Baker Consulting, Inc., as amended and
assigned to Joshua Mailman
10.2** Stock Purchase Option dated June 18, 1998 between Telecom
Wireless and Herman L. Walker
10.3** Office Lease Agreement dated January 20, 1999 between Prentice
Point Limited Partnership and The Enterprise Systems Group, Inc.
10.4** Corporate Finance/Placement Agent Agreement dated March 26, 1999
between Telecom Wireless and Jack Augsback & Associates, Inc.
10.5** Executive Employment Agreement made and effective as of March
29, 1999 between Phoenix Communications, Inc. (predecessor to
Telecom Wireless) and each of its executive officers accompanied
by a schedule identifying such Agreements to which Telecom
Wireless is a party that are substantially identical and
material details in which such agreements differ from filed
agreement
10.6** Common Stock Purchase Agreement dated April 6, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.7** Nonqualified Stock Option Agreement dated April 13, 1999 between
Telecom Wireless and James C. Roberts accompanied by a schedule
identifying other Nonqualified Stock Option Agreements to which
Telecom Wireless is a party that are substantially identical and
material details in which such agreements differ from filed
agreement
10.8** Non-Qualified Stock Option Agreement dated May 4, 1999, issued
to Jay W. Enyart, an employee of Telecom Wireless for the
purchase of 400,000 shares
II-5
<PAGE>
10.9** Non-Qualified Stock Option Agreement dated May 4, 1999, issued
to Jay W. Enyart, an employee of Telecom Wireless for the
purchase of 261,192 shares
10.10** Placement Agent Agreement dated May 25, 1999 between Telecom
Wireless and Jack Augsback & Associates, Inc.
10.11** Common Stock Purchase Agreement dated May 25, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.12** Registration Rights Agreement between Telecom Wireless and the
persons listed on the purchaser signature pages thereto
accompanied by a schedule identifying other Registration Rights
Agreements to which Telecom Wireless is a party that are
substantially identical and material details in which such
agreements differ from filed agreement
10.13** Repricing Warrant issued by Telecom Wireless to each of the
persons identified in the accompanying schedule
10.14** Warrant Certificate No. TK-2 dated May 24, 1999 issued by
Telecom Wireless to Thomson Kernaghan & Co., Ltd., as Agent
10.15** Placement Agent Warrant Certificate No. TK-1 dated June 9, 1999
issued by Telecom Wireless to Thomson Kernaghan & Co. Ltd.
10.16** Common Stock Purchase Agreement dated July 28, 1999 between
Telecom Wireless and those persons identified on accompanying
schedule
10.17** Master Lease Agreement dated July 30, 1999 between Lucent
Technologies, Inc. Internetworking Division and Telecom Wireless
10.18** Warrant Agreement dated August 26, 1999 issued by Telecom
Wireless to Jack Augsback & Associates, Inc. accompanied by a
schedule identifying other Warrant Agreements to which Telecom
Wireless is a party that are substantially identical and
material details in which such agreements differ from filed
agreement
10.19** Services Agreement dated August 30, 1999 between Telecom
Wireless and John H. Sununu
10.20** Letter Agreement dated September 1, 1999 between Telecom
Wireless and First Equity Capital Securities, Inc., as amended
10.21** Bridge Loan Agreement between Telecom Wireless and Commtel
Services Ltd. accompanied by a schedule identifying other Bridge
Loan Agreements to which Telecom Wireless is a party that are
substantially identical and material details in which such
agreements differ from filed agreement
10.22** Guaranty dated September 1, 1999 by Dr. James C. Roberts for the
benefit of Commtel Services Ltd., Kenneth R. Levine and Stanley
Becker, in their capacity as Bridge Lenders
10.23** Common Stock Purchase Agreement dated as of September 10, 1999
between Telecom Wireless and those persons identified on
accompanying schedule
10.24** Agreement and Plan of Merger dated September 21, 1999 among
Telecom Wireless, TWC/Prentice Acquisition Company, Inc. and
Prentice Technologies, Inc.
10.25** Executive Employment Agreement dated September 23, 1999, between
Telecom Wireless Corporation and Shawn P. Richmond
II-6
<PAGE>
10.26** Warrant issued by Telecom Wireless to John H. Sununu for the
purchase of 720,000 shares
10.27** Warrant issued by Telecom Wireless to John H. Sununu for the
purchase of 500,000 shares
10.28** Amended and Restated 1999 Stock Option and Restricted Stock Plan
10.29** Put/Call Agreement between Telecom Wireless and Joshua Mailman,
as amended
10.30** Form of Warrant to Purchase Shares of Common Stock issued to
each of Calvin D. Smiley and Esper Gullatt, Jr. for the purchase
of 61,611 shares
10.31 Form of Stock Sale Restriction Agreement by and between Telecom
Wireless and certain of its present or former officers and/or
directors
10.32 Letter Agreement dated December 6, 1999, regarding investment by
Matthew L. Talbert
10.33 Investment Banking Agreement dated December 9, 1999, by and
between Telecom Wireless Corporation and Hampton-Porter
Investment Bankers
10.34 Office Lease Agreement dated December 21, 1999 between Prentice
Point Limited Partnership and Telecom Wireless Corporation
together with letter agreement dated December 21, 1999, setting
forth additional understandings and agreements in connection
with the Office Lease Agreement
10.35 Settlement Agreement dated December 22, 1999, regarding bridge
loans between Commtel Services Ltd. and Telecom Wireless
Corporation
10.36 Purchase Agreement dated December 22, 1999, between Adaptive
Broadband Corporation and Telecom Wireless Corporation
10.37 Promissory Note dated December 23, 1999, in the original
principal amount of $140,000 payable to Leonard Gorelick
10.38 Subscription Agreement for the acquisition by Telecom Wireless
of 250 shares of Series C Common Stock of HyperLight Network
Corporation
10.39 Assignment and Subscription Agreement for the acquisition by
Telecom Wireless of a 2% of 100% of the liquidating distribution
of VisionTek, L.P.
10.40 Interim Funding Agreement dated September 13, 1999, between
HyperLight Network Corporation and Telecom Wireless
10.41 Technology Marketing and License Agreement dated September 13,
1999, between HyperLight Network Corporation and Telecom
Wireless
16.1 Letter dated January 28, 2000, from Gerstle, Rosen & Associates,
P.A. regarding change in certifying accountants
21.1 List of Subsidiaries of Telecom Wireless
23.1* Consent of Kruse, Landa & Maycock, L.L.C. (included in Exhibit
5.1)
23.2 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood,
Colorado
II-7
<PAGE>
23.3 Consent of Ehrhardt Keefe Steiner & Hottman PC, Englewood,
Colorado
23.4 Consent of Gerstle, Rosen & Associates, P.A., Boca Raton,
Florida
23.5 Consent of Girardin Baldwin & Associates LLP, Naples, Florida
27.1 Financial Data Schedule
</TABLE>
- ---------------------------------
* To be filed by amendment.
** Previously filed.
II-8
<PAGE>
ARTICLES OF INCORPORATION
AMENDED AND RESTATED
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
REDEEMABLE, NON-VOTING, CONVERTIBLE
PREFERRED STOCK, SERIES 1998-1
OF
TELECOM WIRELESS CORPORATION
TELECOM WIRELESS CORPORATION, a Utah corporation (the "Corporation"),
does hereby certify that, pursuant to the authority conferred upon the Board
of Directors by the Articles of Incorporation, as amended, of the Corporation
and pursuant to Section 16-10a-821 of the Utah Revised Business Corporation
Act, said Board of Directors, pursuant to a Unanimous Written Consent to
Action of the Board of Directors dated January 10, 2000, duly adopted the
following resolution without shareholder action, which action was not
required by the Articles of Incorporation, as amended, of the Corporation:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of TELECOM WIRELESS CORPORATION, a Utah
corporation (the "Corporation"), by the Articles of Incorporation of the
Corporation, the Board of Directors hereby creates out of the authorized
preferred stock, par value $.001 per share, of the Corporation a series of
preferred stock to consist of not more than 20,000 shares, and this Board of
Directors hereby fixes the designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the shares of
such series as follows:
1. DESIGNATION. This resolution shall provide for a single series of
preferred stock, the designation of which shall be "Redeemable, Non-Voting,
Convertible Preferred Stock C Series 1998-1" (hereinafter the "Preferred
Shares" or the "Preferred Stock") and the number of authorized shares
constituting the Preferred Stock is 20,000. The number of authorized
Preferred Shares may be reduced or increased by a further resolution duly
adopted by the Board of Directors of the Corporation and by the filing of an
amendment to the Corporation's Articles of Incorporation pursuant to the
provisions of the Utah Revised Business Corporation Act stating that such
reduction or increase has been so authorized.
2. VOTING. Except as provided herein or otherwise expressly required by
the laws of the State of Utah, the holders of the Preferred Shares shall have
no voting rights and shall not be entitled to notice of meetings of
shareholders, and the exclusive voting power shall be vested in the holders
of the shares of the Corporation's Common Stock, $.001 par value per share
(the "Common Stock"), and/or in any other series of the Corporation's
preferred stock now or at any time hereafter issued and outstanding having
voting rights.
2.1 MEETINGS. Whenever holders of the Preferred Stock are entitled
to vote as provided herein, the Corporation shall call a special meeting of
holders of the Preferred Stock upon not less than ten nor more than 60 days
notice to such holders. The Corporation shall also call a special meeting of
such holders upon the request made by any holder(s) of ten percent or more of
the number of outstanding Preferred Shares, In the event the matter to be
voted on shall be subject to any laws, rules or regulations with respect to
the solicitation of proxies or otherwise, the holders of the Preferred Stock
agree to timely provide the Corporation with such information as it shall
reasonably require to comply therewith.
2.2 QUORUM. The holders of a majority of the outstanding shares of
Preferred Stock, present in person or by proxy, shall constitute a quorum for
all meetings of Preferred Stockholders.
<PAGE>
2.3 VOTING RIGHTS. Unless otherwise required by law, action on a
matter required to be voted upon by the holders of the Preferred Stock shall
be approved if a quorum exists and if the votes cast favoring the action
exceed the votes cast opposing the action. If any corporate action shall
require a vote of the holders of the Preferred Shares other than as a class,
the Preferred Shares shall vote as a group with all other shares of capital
stock having voting rights. The holders of the Preferred Stock may also act
by unanimous written consent, signed by all such holders, without a meeting.
3. REDEMPTION.
3.1 VOLUNTARY REDEMPTION. Except as provided herein to the
contrary and subject to Regulatory Requirements, the Corporation shall have
the right to redeem the Preferred Stock at any time and from time to time in
whole or in part on or after January 1, 2005.
3.2 REDEMPTION PRICE. The redemption price for each share of
Preferred Stock shall be $100.00 (the "Redemption Price"). In the event of a
redemption of only a part of the outstanding Preferred Stock, the Corporation
shall effect such redemption ratably according to the number of shares held
by each holder of the Preferred Stock.
3.3 REDEMPTION NOTICE. At least ten and not more than 60 days
prior to the date fixed for any such redemption of the Preferred Stock (the
"Redemption Date"), written notice (the "Redemption Notice") shall be mailed,
postage prepaid, to each holder of record of the Preferred Stock at his or
her post office address last shown on the records of the Corporation. The
Redemption Notice shall state:
(a) Whether all or less than all of the outstanding shares of
Preferred Stock are to be redeemed and the total number of shares being
redeemed.
(b) The number of shares of Preferred Stock held by the holder
that the Corporation intends to redeem.
(c) The Redemption Date and the Redemption Price.
(d) That the holder is to surrender to the Corporation, in the
manner and at the place designated, his or her certificate or certificates
representing the shares of Preferred Stock to be redeemed.
3.4 SURRENDER OF CERTIFICATES. On or before the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender the certificate
or certificates representing such shares to the Corporation in the manner and
at the place designated in the Redemption Notice and, thereupon, the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof
and each surrendered certificate shall be canceled and retired. In the event
less than all the shares represented by such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
3.5 TERMINATION OF RIGHTS AS STOCKHOLDER. If the Redemption Notice
shall have been duly given and if on the Redemption Date the Redemption Price
is either paid or set apart for payment, then, notwithstanding that the
certificates evidencing any of the shares of Preferred Stock so called for
redemption shall not have been surrendered, all rights with respect to such
shares shall forthwith after the Redemption Date terminate, except only the
right of the holders to receive the Redemption Price, without interest, upon
surrender of their certificate or certificates therefor.
2
<PAGE>
4. CONVERSION.
4.1 VOLUNTARY CONVERSION. The Preferred Stock shall be convertible
into shares of Common Stock of the Corporation ("Conversion Shares") upon the
filing of a Registration Statement with the Securities and Exchange
Commission ("SEC") for a public offering of shares of the Corporation.
One-half of the shares upon exercise of the conversion will have "piggyback"
registration rights on the first public offering; the remaining shares
resulting from the conversion will have registration rights on the next
subsequent or secondary offering. These registration rights shall be granted
pursuant to Section 4.2. Subject to approval of the regulatory authorities
and the underwriters, the Preferred Shares will convert to Common Stock of
the Corporation on the following basis: The conversion rate will be
determined at the time of the public offering by first taking 125% of the
price at which a share of the Corporation's Common Stock will be offered to
the public. This number so calculated will be the divisor and the Redemption
Price ($100) will be the dividend and the quotient will then be the number of
shares of Common Stock into which each share of Preferred Stock will be
convertible. For example, if the offering price to the public is $10.00, the
exchange or conversion rate will be determined as follows: 125% of the
offering price = $12.50, then $100.00 ) $12.50 = 8 shares of Common Stock for
each share of Preferred Stock. The Common Stock received upon conversion by a
holder of Preferred Shares, subject to the foregoing registration rights,
shall be restricted pursuant to Rule 144 and shall contain a legend on each
certificate to that effect.
4.2 REGISTRATION RIGHTS.
(a) DEFINITIONS.
(i) "Commission" means the Securities and Exchange
Commission.
(ii) "Exchange Act" means the Securities Exchange Act of
1934.
(iii) The terms "register," "registered," and
"registration" refer to a registration effected by preparing and
filing a registration statement in compliance with the Securities Act
and the declaration or ordering of effectiveness of such registration
statement.
(iv) "Securities Act" means the Securities Act of 1933,
as amended.
(b) CORPORATION REGISTRATION. Subject to paragraph 4.2(f),
immediately prior to both the first and second public offerings after the
Preferred Shares are issued, in which the Corporation proposes to register
its Common Stock under the Securities Act, the Corporation shall promptly
give each holder of Preferred Stock written notice of such determination.
Upon the written request of any holder ("Selling Holder") given within ten
(10) days after mailing of any such notice by the Corporation, the
Corporation shall use its best efforts to cause to be registered under the
Securities Act up to one-half of the Conversion Shares in the first offering
and the remaining Conversion Shares in the second offering that each such
Selling Holder has requested to be registered. Such written request shall be
accompanied by the certificate or certificates evidencing the shares of
Preferred Stock to be converted, duly endorsed or accompanied by duly
executed stock powers and received at the office of the Corporation. The
Corporation shall concurrently with effectiveness of the registration
statement issue the Conversion Shares in the name of such converting holder
and/or in the name of such holder's designee.
(c) OBLIGATIONS OF THE CORPORATION. Whenever required under
paragraph 4.2(b) to use its best efforts to effect the registration of any
Conversion Shares, the Corporation shall, as expeditiously as reasonably
possible:
3
<PAGE>
(i) Prepare and file with the Commission a registration
statement with respect to such Conversion Shares and use its best
efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed
registration intended to permit an offering of any securities from
time to time (i.e., a so-called "shelf registration"), the
Corporation shall in no event be obligated to cause any such
registration to remain effective for more than ninety (90) days.
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement.
(iii)Furnish to the Selling Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition
of Conversion Shares owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue-sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that the Corporation shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided
that (anything in this Agreement to the contrary notwithstanding with
respect to the bearing of expenses) if any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that
jurisdiction be borne by selling shareholders pro rata, to the extent
required by such jurisdiction.
(d) FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Corporation to take any action that the Selling
Holders shall furnish to the Corporation such information regarding them, the
Conversion Shares held by them, and the intended method of disposition of
such securities as the Corporation shall reasonably request and as shall be
required in connection with the action to be taken by the Corporation.
(e) REGISTRATION EXPENSES. The Corporation shall pay all
costs and expenses relating to such registration; provided, however, that if
any such cost or expense is attributable solely to one or more but fewer than
all Selling Holders and does not constitute a normal cost or expense of such
a registration, such cost or expense shall be allocated to those Selling
Holders. In addition, each Selling Holder shall bear the fees and costs of
its own counsel.
(f) UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of Common Stock being issued by
the Corporation, the Corporation shall not be required under paragraph 4.2(b)
to include any of the Selling Holders' Conversion Shares in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Corporation and the underwriters selected by it, and then only in such
quantity as will not, in the written opinion of the underwriters, jeopardize
the success of the offering by the Corporation. If the total amount of
securities that all Selling Holders request to be included in such offering
exceeds the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, the Corporation shall only be
required to include in the offering so many of the securities of the Selling
Holders as the underwriters believe will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
Selling Holders according to
4
<PAGE>
the total amount of securities owned by said selling Holders, or in such
other proportions as shall mutually be agreed to by such Selling Holders),
provided that no such reduction shall be made with respect to any securities
offered by the Corporation for its own account.
(g) DELAY OF REGISTRATION. No Selling Holder shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
(h) INDEMNIFICATION. In the event any Conversion Shares are
included in a registration statement:
(i) To the extent permitted by law, the Corporation will
indemnify and hold harmless each Selling Holder requesting or joining
in a registration, any underwriter (as defined in the Securities Act)
for it, and each such person, if any, who controls such Selling
Holder or underwriter within the meaning of the Securities Act,
against any losses, claims, damages, or liabilities, joint or
several, to which they may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading;
and will reimburse each such Holder, such underwriter, or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this paragraph 4.2(h)(i) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably
withheld) nor shall the Corporation be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished expressly for
use in connection with such registration by any such Selling Holder,
underwriter, or controlling person.
(ii) To the extent permitted by law, each Selling Holder
requesting or joining in a registration will indemnify and hold
harmless the Corporation, each of its directors, each of its officers
who have signed the registration statement, each person, if any, who
controls the Corporation within the meaning of the Securities Act,
and each agent and any underwriter for the Corporation (within the
meaning of the Securities Act) against any losses, claims, damages,
or liabilities to which the Corporation or any such director,
officer, controlling person, agent, or underwriter may become
subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in
5
<PAGE>
reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Corporation or any such director,
officer, controlling person, agent, or underwriter in connection
with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this paragraph 4.2(h)(ii) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of such
Selling Holder (which consent shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party under
this paragraph of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this paragraph, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this paragraph, but the omission to so notify the
indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this paragraph.
(i) LOCKUP AGREEMENT. In consideration for the Corporation
agreeing to its obligations under this Agreement, each Holder agrees in
connection with any registration of the Corporation's securities that, upon
the request of the Corporation or the underwriters managing any underwritten
offering of the Corporation's securities, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Conversion Shares (other than those included in the registration) without the
prior written consent of the Corporation or such underwriters, as the case
may be, for such period of time (not to exceed ninety (90) days) from the
effective date of such registration as the Corporation or the underwriters
may specify.
4.3 ADDITIONAL CONDITION. Notwithstanding anything herein
contained to the contrary, the Corporation shall not be obligated to issue
the Conversion Shares until there shall have been delivered to the
Corporation or to its transfer agent, as applicable, an opinion of counsel
reasonably satisfactory to the Corporation to the effect that the issuance of
such Common Stock is exempt from registration under the Securities Act of
1933, as amended, and from qualification under applicable state laws or that
a registration statement with respect thereto has been filed with the
Securities and Exchange Commission and with the appropriate state regulatory
authorities and has become effective.
4.4 RESERVATION OF SHARES. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Preferred Shares,
such number of shares of Common Stock issuable upon the conversion of all
outstanding Preferred Stock. All shares of Common Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such shares of Common Stock may
be so issued without violation of any applicable law or government regulation or
any requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Common Stock to
6
<PAGE>
be less than the number of such shares required to be reserved hereunder for
issuance upon conversion of the Preferred Shares.
4.5 NO FRACTIONAL SHARES; CURRENT MARKET VALUE. No fractional
shares or scrip representing fractional shares shall be issued upon
conversion of the Preferred Stock. With respect to any fraction of a share
called for upon any conversion thereof, the Corporation shall pay to the
holder an amount in cash equal to such fraction multiplied by the per-share
public offering price of the Common Stock less underwriting discounts and
commissions.
5. EXCHANGE, ASSIGNMENT OR LOSS OF PREFERRED SHARES. Subject to the
provisions of Section 6 hereof, the Preferred Stock is assignable and
exchangeable, without expense, at the option of the holder, upon presentation
and surrender of such Preferred Stock to the Corporation, together with
written instructions signed by the holder of such Preferred Stock with
respect to reissuance thereof and good funds sufficient to pay any transfer
or similar tax; whereupon the Corporation shall, without charge, execute and
deliver Preferred Stock in the designated denominations and in the designated
name(s) and the Preferred Stock so surrendered promptly shall be canceled.
Upon receipt by the Corporation of evidence satisfactory to it of the loss,
theft, destruction or mutilation of Preferred Stock certificates, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification including a surety bond, and upon surrender and cancellation
of Preferred Stock certificates, if mutilated, the Corporation will execute
and deliver new Preferred Stock certificates of like tenor and date. Any such
new Preferred Stock certificates executed and delivered shall constitute
additional contractual obligation on the part of the Corporation, whether or
not the Preferred Stock certificates so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
6. LEGENDS AND SECURITIES LAW COMPLIANCE.
6.1 SECURITIES LAW COMPLIANCE. Neither the Preferred Stock nor the
Common Stock nor any other security issued or issuable upon conversion of the
Preferred Stock may be issued, offered or sold except in conformity with the
Securities Act of 1933, as amended, and applicable state laws, and then only
against receipt of an agreement of such person to whom such offer of sale is
made to comply with the provisions of this Section with respect to any resale
or other disposition of such securities.
6.2 SECURITIES LEGEND. The Corporation may cause the following
legend to be set forth on each certificate representing Preferred Stock or
any other security issued or issuable upon conversion of the Preferred Stock,
unless counsel for the Corporation is of the opinion as to any such
certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act"), or pursuant to an exemption from registration under the Act
the availability of which is to be established to the reasonable
satisfaction of the Corporation.
6.3 OTHER LEGENDS. All certificates representing the Preferred
Shares and any and all securities issued in replacement thereof or upon
conversion thereof shall bear such additional legends as shall be required by
law or contract.
7. RIGHTS ON LIQUIDATION. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, resulting
in any distribution of its assets to its shareholders, the holders of the
Preferred Shares then issued and outstanding shall be entitled to receive an
amount equal
7
<PAGE>
to $100.00 per Preferred Share plus any accumulated but unpaid dividends (the
"Liquidation Value"), and no more, before any payment or distribution of the
assets of the Corporation is made to or set apart for the holders of Common
Stock. If the assets of the Corporation distributable to the holders of
Preferred Shares are insufficient for the payment to them of the full
preferential amount described above, such assets shall be distributed ratably
among the holders of the Preferred Shares. The holders of the Common Stock
shall be entitled to the exclusion of the holders of the Preferred Shares to
share in all remaining assets of the Corporation in accordance with their
respective interests. For purposes of this paragraph, a consolidation or
merger of the Corporation with any other corporation or corporations shall
not be deemed to be a liquidation, dissolution or winding up of the
Corporation.
8. DEFINITION. The term "Regulatory Requirements" shall mean any and
all applicable (i) laws (whether statutory or otherwise), rules, regulations,
requirements, restrictions, licenses and registrations of all governmental,
judicial, legislative, executive, administrative or regulatory authorities
(federal, state, municipal, departmental, foreign or otherwise); and (ii)
judgments, orders, directives, rulings, decisions, injunctions, decrees or
awards of any federal , state, municipal, departmental or foreign court,
arbitrator or administrative or governmental authority, bureau or agency.
Without limiting the foregoing, no distribution, by dividend, redemption or
otherwise, shall be made with respect the Preferred Shares if such
distribution would be in violation of Utah law or in violation of the net
capital or other financial requirements applicable to the Company or any of
its subsidiaries as a securities broker-dealer registered under the
Securities Exchange Act of 1934 or as an investment adviser registered under
the Investment Advisers Act or under applicable state laws.
9. NOTICE. Any notices or certificates by the Corporation to the Holder
and by the Holder to the Corporation shall be deemed to have been given if in
writing and upon the earlier of personal delivery (including by messenger,
facsimile or other receipted delivery during normal business hours or, if
delivered other than during normal business hours, at the beginning of the
first business day following such delivery) or three business days following
deposit in the United States mails, by registered or certified mail, return
receipt requested, addressed to the holder at such holder's address of record
on the books of the Corporation or to the Corporation at its principal
executive offices. Any person may change the address for the giving of notice
by notice duly given effective five (5) business days thereafter.
IN WITNESS WHEREOF, TELECOM WIRELESS CORPORATION has caused its
corporate seal to be affixed hereto and this certificate to be signed by its
President this ___th day of January, 2000.
TELECOM WIRELESS CORPORATION
By: /s/ Calvin D. Smiley, President
---------------------------------
Calvin D. Smiley, President
[S E A L]
8
<PAGE>
STOCK SALE RESTRICTION AGREEMENT
TELECOM WIRELESS CORPORATION
The undersigned is a founder and/or a present or former officer
and/or director of Telecom Wireless Corporation, a Utah corporation ("TWC"),
who beneficially owns or may hereafter acquire beneficial ownership of shares
of its common stock, par value $.001 per share ("Common Stock"), and/or
securities or rights exercisable for or convertible into shares of Common
Stock ("Derivative Securities"). For purposes of this Agreement, "founder"
means each of the former shareholders of Phoenix Communications, Inc. who
received TWC Common Stock in connection with the acquisition of Phoenix by
TWC.
The undersigned acknowledges and agrees that maintaining an orderly
market for the Common Stock is in the best interests of TWC and all of its
shareholders. Accordingly, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned agrees as
follows:
1. RESALE LIMITATIONS. The undersigned agrees not to sell shares of Common
Stock now owned or hereafter acquired by him, including shares acquired
upon exercise or conversion of Derivative Securities (the "Shares"), on
the OTC Bulletin Board, the Nasdaq Stock Market, or any other market or
exchange on which shares of Common Stock are listed or a trading market
shall exist, except in accordance with the following limitations
("Resale Limitations"):
a. The maximum amount which can be sold during any period of 30
consecutive calendar days shall not exceed the lesser of
$25,000 in gross proceeds or 5,000 Shares (adjusted for stock
splits and combinations and stock dividends).
b. No Share may be sold for a price less than $4.25.
c. The terms "Shares," "Derivative Securities" and "Common Stock"
shall include any securities issued in connection with or in
exchange or substitution for such securities pursuant to
merger, consolidation, dividend or otherwise.
2. SHORT SALE PROHIBITION. During the term of this Agreement, the
undersigned agrees not to engage in any short sales or other
transactions where the undersigned could profit or otherwise benefit
from a decline in the value of the Common Stock or any Derivative
Securities.
3. CHANGE OF RESALE LIMITATIONS. The board of directors of TWC, in the
exercise of its discretion, may change or terminate the Resale
Limitations without prior notice to or approval by the undersigned,
except that the Resale Limitations may not be made more restrictive
than as originally provided herein without the consent of the
undersigned.
-1-
<PAGE>
TWC shall promptly give notice of termination or any change in the
Resale Limitations to the undersigned. The board of directors, in the
exercise of its discretion, may waive all or any portion of the
Resale Limitations.
4. LEGEND. The undersigned agrees to promptly deliver to TWC all
certificates in his possession or control evidencing Shares and
Derivative Securities. TWC shall imprint the following legend or one
substantially similar thereto on the certificates and promptly return
them to the undersigned:
The securities evidenced by this certificate are subject to a
Stock Sale Restriction Agreement dated January ___, 2000, a
copy of which is on file at the offices of the Company.
Such certificates shall bear such additional legends as may be required
by law or contract.
5. TERM. The term of this Agreement shall commence as of the date set
forth below and shall continue for two years thereafter unless sooner
terminated by the board of directors as provided herein; provided,
however, that this Agreement shall automatically terminate if the
average daily trading volume of shares of Common Stock on any market or
exchange equals or exceeds 138,500 shares (adjusted for stock splits
and combinations and stock dividends) for each of 20 consecutive
trading days.
6. MISCELLANEOUS. (i) This Agreement sets forth the entire understanding
of the parties and supersedes all prior written or oral understandings
and agreements and may be modified only by a writing signed by all
parties; (ii) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the successors, assigns (including
assignees of Shares or Derivative Securities in violation of the Resale
Limitations), legal representatives, heirs and estates of the parties
hereto; (iii) This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado without regard to the
conflict of laws provisions thereof and the parties consent to
exclusive venue in any federal court located in the state or any state
court located in the county where TWC maintains its principal executive
offices; (iv) The waiver or failure of any party to insist in any one
or more instances upon performance of any terms or conditions of this
Agreement shall not be construed as a waiver of future performance of
such or any other term, covenant or condition; (v) In the event any
party takes legal action against any other party in order to enforce
the terms of this Agreement, the party in whose favor a final judgment
is rendered shall be entitled to recover from the other party his or
its reasonable attorneys' fees and costs to be fixed by the court which
renders such judgment. Such fees and costs shall include those incurred
in connection with any appeal or appeals; (vi) Should any term or
condition of this Agreement be determined by a court of competent
jurisdiction to be void or unenforceable, all other provisions of this
Agreement shall remain in full force and effect; and (vii) All notices
required hereunder shall be deemed to have been given when in writing
upon the earlier of personal delivery or three
-2-
<PAGE>
days following deposit in the United States mails by certified or
registered mail, postage prepaid, to the party at the addresses set
forth below. Any party hereto, by notice duly given, may change the
address for the giving of notice.
Dated this ________ day of January 2000.
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
------------------------------------
Address
TWC securities owned as of the date of this Agreement:
Shares: _______________________________________________________________
Options: ______________________________________________________________
Warrants: _____________________________________________________________
Convertibles: _________________________________________________________
Other: ________________________________________________________________
TELECOM WIRELESS CORPORATION
------------------------------------
By Authorized Officer
5299 DTC Boulevard, Suite 1120
Englewood, CO 80111
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<PAGE>
[LETTERHEAD OF LAW OFFICES OF
SAPHIER, REIN & WALDEN]
December 6, 1999
Mr. Calvin D. Smiley By Facsimile
President (858) 509-0861
Telecom Wireless Corporation
5299 DTC Boulevard, No. 1200
Englewood, CO 80111
Re: Matthew L. Talbert - Investment in Telecom Wireless Corporation
Dear Mr. Smiley:
This firm represents Matthew L. Talbert. We are in receipt of a
letter from Jay Enyart dated November 29, 1999, containing a preliminary
prospectus and a subscription agreement. The purpose of this letter is to
confirm the terms pursuant to which Mr. Talbert has agreed to purchase
100,000 shares of restricted $.001 par value common stock (the "Subject
Shares") of Telecom Wireless Corporation ("Telecom"), which are as follows:
(a) The purchase price shall be $2.50 per share or an
aggregate purchase price of $250,000.
(b) In exchange for such sum, in addition to the Subject
Shares, Mr. Talbert will be issued warrants (the "Warrants") to purchase an
additional 100,000 shares of restricted common stock at a price of $2.50 per
share. The Warrants will be exercisable at any time within three years.
(c) The Subject Shares and the shares that will be issued
upon exercise of the Warrants will be included in the Registration Statement
on Form SB-2 which was filed with the SEC on November 29, 1999, and for which
you have provided us a preliminary prospectus. There will be no cost or
expense to Mr. Talbert in doing so. Telecom has represented that the
Registration Statement may become effective within 60 days, so that the
Subject Shares may be sold in the open market without restriction. To secure
this commitment, Telecom has agreed that in th event the Subject Shares have
not been registered within 90 days of the date of investment for any reason,
then on the 91st day, the number of shares included in the Subject Shares
will be increased by 25,000 shares, and will be further increased by an
additional 25,000 shares for each 30 days period after the 91st day that this
obligation has not been fulfilled.
<PAGE>
Mr. Calvin D. Smiley
Telecom Wireless Corporation
December 6, 1999
Page 2
(d) There will be no lockup in connection with the Subject
Shares or any shares issued upon exercise of the Warrants. Telecom has
represented to Mr. Talbert that Telecom has lockup agreements with holders of
approximately 25% of the shares that are covered by the Registration
Statement.
If the foregoing accurately sets forth the terms pursuant to which
Mr. Talbert has agreed to invest, please execute a copy of this letter in the
place indicated and then return it to us by both facsimile and mail for our
files. Upon receipt, Mr. Talbert will execute the subscription agreement
which was forwarded to him and arrange to have the $250,000 investment wire
transferred to Telecom.
Very truly yours,
/s/ Robert S. Rein
ROBERT S. REIN
RSR:kz
cc: Mr. Matthew L. Talbert
The undersigned agrees to all of the terms and conditions set forth in the
foregoing letter.
Dated: December ____, 1999 Telecom Wireless Corporation
By: /s/ Calvin D. Smiley
---------------------------
Calvin D. Smiley, President
<PAGE>
INVESTMENT BANKING AGREEMENT
This Agreement is made on December 9, 1999, by and between Telecom Wireless
Corporation, a Utah corporation ("Contractor") with its principal offices at
5299 DTC Boulevard, Suite 1200 Englewood, CO 80111 and Hampton-Porter
Investment Bankers, a California LLC, ("HAMPTON") with its principal offices
at 600 W Broadway 14th Fl. San Diego, CA 92101.
Witnesseth
WHEREAS, Contractor requires expertise in the area of investment banking to
support it's business and growth;
WHEREAS, HAMPTON has substantial contacts among the members of the investment
community, investment banking expertise, and desires to act as a consultant
to provide investment banking and advisory services;
NOW, THEREFORE, in consideration of the premise and the mutual promises and
covenants contained herein and subject specifically to the conditions hereof,
and intending to be legally bound thereby, the parties agree as follows:
1. CERTAIN DEFINITIONS - When used in this Agreement, the following terms
shall have the meanings set forth below:
1.1 AFFILIATE - any persons or entities controlled by a party.
---------
1.2 CONTRACTOR - the Contractor who use the services of HAMPTON.
----------
1.3 CONTRACTOR CLIENTS - the Contractor's clients who use the services of
HAMPTON through the Contractor.
1.4 CONTACT PERSON - the person who shall be primarily responsible for
carrying out the duties of the parties hereunder. Contractor and
HAMPTON shall each appoint a Contact Person to be responsible for
their respective duties. In the event that one party gives notice to
the other party in writing that, in their reasonable opinion, the
other party's Contact Person is not able to fulfill their duties and
responsibilities hereunder, both parties shall mutually agree upon a
replacement Contact Person within 10 days of the said notice.
1.5 EXTRAORDINARY EXPENSES - expenses that are beyond those expenses that
are usual, regular, or customary in the conduct of in-house
activities in fulfillment of the scope of this agreement.
Page 1 of 13
<PAGE>
1.6 EQUITY - cash, securities or liquid assets, specifically excluding
real property.
1.7 PAYMENT OR PAYABLE IN KIND - distribution of the proceeds of a
transaction in the same type and form as was given as valuable
consideration for the transaction.
2. CONTACT PERSONS. The Contact Person for Contractor is James C. Roberts,
Chairman/CEO. The Contact Person for HAMPTON is Gregory D. Walker,
President.
3. SERVICES TO BE RENDERED BY HAMPTON. Services to be rendered, on a best
efforts basis, by HAMPTON are as follows:
3.1 ADVICE AND COUNSEL. HAMPTON will provide advice and counsel regarding
Contractor's strategic business and financial plans, strategy and
negotiations with potential lenders/investors, merger/acquisition
candidates, joint ventures, corporate partners and others involving
financial and financially related transactions.
3.2 INTRODUCTIONS TO THE SECURITIES BROKERAGE COMMUNITY. HAMPTON has a
close association with numerous broker/dealers and investment
professionals across the country and will enable contact between
Contractor and/or Contractor Clients to facilitate business
transactions among them. HAMPTON shall use their contacts in the
brokerage community to assist Contractor in establishing
relationships with securities dealers and to provide the most recent
corporate information to interested securities dealers on a regular
and continuous basis. HAMPTON understands that this is in keeping
with Contractor's business objective to establish a nationwide
network of securities dealers who have an interest in Contractor's
securities.
3.3 MARKET-MAKING INTELLIGENCE. HAMPTON's clearing agent, Fiserv
Correspondent Services, is a market-maker in numerous securities, and
HAMPTON has access to proprietary information through Fiserv's
market-making facilities and personnel. HAMPTON will monitor and
react to sensitive market information on a timely basis and provide
advice and counsel and proprietary intelligence (including but not
limited to information on price, volume and the identification of
market-makers, buyers and sellers) to Contractor in a timely fashion
with respect to securities in which Contractor has an interest.
Contractor understands that this information is available from other
sources but acknowledges that HAMPTON can provide it in a more timely
fashion and with substantial value-added interpretation of such
information. The foregoing
Page 2 of 13
<PAGE>
notwithstanding, no information will be provided to Contractor with
respect to the activities of any other HAMPTON customers or customer
accounts without such customer's prior consent.
3.4 CONTRACTOR AND/OR CONTRACTOR CLIENT TRANSACTION DUE DILIGENCE.
HAMPTON will undertake due diligence on all proposed financial
transactions affecting the Contractor, of which HAMPTON is notified
in writing in advance, including investigation and advice on the
financial, valuation and stock price implications thereof.
3.5 ADDITIONAL DUTIES. Contractor and HAMPTON shall mutually agree upon
any additional duties, which HAMPTON may provide for compensation
paid or payable by Contractor under this Agreement. Such additional
agreement(s) may, although there is no requirement to do so, be
attached hereto and made a part hereof by written amendments to be
listed as "Exhibits" beginning with "Exhibit A" and initialed by both
parties.
3.6 BEST EFFORTS. HAMPTON shall devote such time and best efforts to the
affairs of the Contractor as is reasonable and adequate to render the
consulting services contemplated by this agreement. HAMPTON is not
responsible for the performance of any services which may be rendered
hereunder without the Contractor providing the necessary information
in writing prior thereto, nor shall HAMPTON include any services that
constitute the rendering of any legal opinions or performance of work
that is in the ordinary purview of the Certified Public Accountant.
HAMPTON cannot guarantee results on behalf of Contractor, but shall
pursue all avenues available through its' network of financial
contacts. At such time as an interest is expressed in Contractor's
needs, HAMPTON shall notify Contractor and advise it as to the source
of such interest and any terms and conditions of such interest. The
acceptance and consummation of any transaction is subject to
acceptance of the terms and conditions by Contractor. It is
understood that a portion of the compensation to be paid hereunder is
being paid hereunder by Contractor to have HAMPTON remain available
to assist with transactions on an as-needed basis.
4. COMPENSATION TO HAMPTON.
4.1 INITIAL FEES. Contractor shall pay HAMPTON a non-refundable initial
fee of $500,000. In lieu of a $500,000 cash fee the Contractor shall pay
HAMPTON 550,000 (Five Hundred Fifty Thousand) shares of the company's
stock that will be registered and become free trading no later than
February 21, 2000 and 1,000,000 (One Million) warrants exercisable at
$5.50 per share and expiring three years from the signing of this contract
for HAMPTON's initial set-up of activities which are necessary for HAMPTON
to provide the services herein. In the event that the 550,000 shares are
not free trading by March 21, 2000 then a penalty will apply and will be
payable in the amount of 200,000 (Two Hundred Thousand) additional
Page 3 of 13
<PAGE>
shares of free trading stock. Warrants are due on signing and shall have
piggyback registration rights.
4.2 ADDITIONAL FEES. Contractor and HAMPTON shall mutually agree upon any
additional fees, which Contractor may, pay in the future for services
rendered by HAMPTON under this Agreement. Such additional agreement(s)
may, although there is no requirement to do so, be attached hereto and
made apart hereof as Exhibits beginning with Exhibit A.
4.3 OPTIONAL FORM OF PAYMENT. HAMPTON may, at the time for each payment
and at its' option, elect to receive all or a portion of said fees in the
form of securities, equity, or financing instruments issued by Contractor
to HAMPTON on terms agreed by Contractor in writing.
4.4 EXTRAORDINARY EXPENSES. Extraordinary expenses (those not defined in
4.7) of HAMPTON shall be submitted to Contractor for approval prior to
expenditure and shall be paid by Contractor, within ten (10) business days
of receipt of HAMPTON's request for payment.
4.5 FINDER FEES.
A. In the event that HAMPTON, on a non-exclusive basis introduces
Contractor or a Contractor affiliate to any third party funding
source(s), underwriter(s), merger partner(s) or joint venture(s) who
enters into a funding underwriting merger joint venture or similar
agreement with Contractor or Contractor's affiliate, Contractor
hereby agrees to pay HAMPTON advisory fees based on the following
schedule derived from such funding, underwriting, merger, joint
venture or similar agreement with Contractor or Contractor's client,
unless generally accepted industry standards or SEC Rules and
regulations dictate otherwise, payable upon the commencement of such
funding, underwriting, merger, joint venture or similar agreement
with Contractor or Contractor's client. This provision shall survive
this agreement for a period of two and half years event though the
term of this agreement may have expired, as pursuant to the section
titled "Term of Agreement and Termination".
FEE SCHEDULE
------------
5% on First 5,000,000
4% on Next 1,000,000
3% on Next 1,000,000
2% on Next 1,000,000
1% on Balance
B. HAMPTON may, at its' sole option, elect to receive all or a
portion of said advisory fees as payment in kind, i.e., prorated in
the same form and
Page 4 of 13
<PAGE>
type of securities, equity or financing instruments issued to the
funding source or underwriter by Contractor. In the event the
exercise of this option results in additional expense over and above
the expense of the funding and/or underwriting then the additional
expenses shall be borne by HAMPTON. In addition the exercise of this
option by HAMPTON shall not impede or otherwise have a negative
effect on the funding or underwriting. As determined by the
underwriter or funding source, however, the issuance will not be
unreasonably withheld.
4.6 INTEREST ON FUNDS DUE. Contractor shall pay interest on all payments
in arrears due HAMPTON, at the rate of ten percent (10%) per annum.
4.7 EXPENSES. All expenses including, but not limited to, all registration
fees paid to the Securities and Exchange Commission, fees and expenses of
accountants, fees and expenses of legal counsel, printing and engraving
expenses, postage and distribution fees, transfer agent fees, escrow fees,
NASD registration or exchange listing fees (but not including underwriting
discounts and commissions relating to shares and warrants of any holder
being offered thereby and fees and expenses of any special counsel of any
selling shareholder) of any registration(s) made pursuant to paragraph
(4.1) hereof shall be borne and paid by the Contractor. Underwriting
discounts and commissions shall be borne pro rata by any selling
shareholder in proportion to the number of shares being offered by such
selling shareholder.
5. INDEMNIFICATION. The Contractor agrees to indemnify and hold harmless
HAMPTON, each of its officers, directors, employees and each person, if
any, who controls HAMPTON against any and all liability, loss and costs,
expenses or damages, including but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever
or howsoever caused by reason of any injury (whether to body, property,
personal or business character or reputation) sustained by any person or
to any person or property by reason of any act, neglect, default or
omission, or any untrue or alleged untrue statement of a material fact, or
any misrepresentation of any material fact or any breach of any material
warranty or covenant as the Contractor or any of its agents, employees, or
other representatives arising out of, or in relation to, this Agreement.
Nothing herein is intended to nor shall it relieve either party from
liability for its own act, omission or negligence. All remedies provided
by law, or in equity shall be cumulative and not in the alternative.
HAMPTON agrees to indemnify and hold harmless Contractor, each of its
officers, directors, employees and each person, if any, who controls
Contractor against any and all liability, loss and costs, expenses or
damages, including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever or howsoever
caused by reason of any injury (whether to body,
Page 5 of 13
<PAGE>
property, personal or business character or reputation) sustained by any
person or to any person or property by reason of any act, neglect, default
or omission, or any untrue or alleged untrue statement of a material fact,
or any misrepresentation of any material fact or any breach of any
material warranty or covenant as HAMPTON or any of its agents, employees,
or other representatives arising out of, or in relation to, this
Agreement. Nothing herein is intended to nor shall it relieve either party
from liability for its own act, omission or negligence. All remedies
provided by law, or in equity shall be cumulative and not in the
alternative.
6. CONTRACTOR REPRESENTATIONS. Contractor hereby represents, covenants and
warrants to HAMPTON as follows:
6.1 AUTHORIZATION. Contractor and its signatories herein have full power
and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
6.2 NO VIOLATION. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate any
provision of the charter or by-laws of Contractor, or violate any terms of
provision of any other Agreement or any statute or law.
6.3 AGREEMENT IN FULL FORCE AND EFFECT. All contracts, agreements, plans,
leases, policies, and licenses referenced herein to which Contractor is a
party are valid and in full force and effect.
6.4 LITIGATION. Except as set forth below, there is no action, suit,
inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission
pending or, to the best knowledge of Contractor threatened against or
invoking Contractor, or which questions or challenges the validity of this
Agreement and its subject matter, and Contractor does not know or have any
reason to know of any valid basis for any such action, proceeding or
investigation.
6.5 CONSENTS. No consent of any person, other than the signatories hereto,
is necessary to the consummation of the transactions contemplated hereby,
including, without limitation, consents from parties to loans, contracts,
lease or other Agreements and consents from governmental agencies, whether
federal, state, or local.
6.6 HAMPTON RELIANCE. HAMPTON has and will rely upon the documents,
instruments and written information furnished to HAMPTON by the
Contractor's officers or designated employees.
Page 6 of 13
<PAGE>
A. CONTRACTORS MATERIAL. All representations and statements provided
herein about the Contractor are true and complete and accurate to the
best of Contractor's knowledge. Contractor agrees to indemnify, hold
harmless, and defend HAMPTON, its officers, directors, agents and
employees at Contractor's expense for any proceeding or suit which
may raise out of any inaccuracy or incompleteness of any such
material or written information supplied to HAMPTON.
B. CONTRACTOR CLIENT AND OTHER MATERIAL. Contractor warrants that all
representation and statements provided, other than that about the
Contractor, are, to the best of its knowledge, true, complete and
accurate.
6.7 SERVICES NOT EXPRESSED OR IMPLIED.
A. HAMPTON has not agreed with Contractor in this Agreement or any
other Agreement, verbal or written, to be a market-maker (but may be
a placement agent by other "Selling Agreement" from time-to-time) in
Contractor's securities or in any specific securities or securities
in which Contractor or Contractor's Client has an interest; and
B. Any payments made herein to HAMPTON are not, and shall not be
construed as, compensation to HAMPTON for the purposes of making a
market, to cover HAMPTON out-of-pocket expenses for making a market,
or for the submission by HAMPTON of an application to make a market
in any securities; and
C. No payments made herein to HAMPTON are for the purpose of
affecting the price of any security or influencing any market-making
functions, including but not limited to bid/ask quotations,
initiation and termination of quotations, retail securities
activities, or for the submission of any application to make a
market.
7. CONFIDENTIALITY.
7.1. HAMPTON and Contractor each agree to provide reasonable security
measures to keep information confidential where release may be detrimental
to their respective business interests. HAMPTON and Contractor shall each
require their employees, agents, affiliates, subcontractors, other
licensees, and others who will have access to the information through
HAMPTON and Contractor respectively, to first enter appropriate
non-disclosure Agreements requiring the confidentiality contemplated by
this Agreement in perpetuity.
7.2 HAMPTON will not, either during its engagement by the Contractor
pursuant to this agreement or at any time thereafter, disclose, use or
make known for its or another's benefit, any confidential information,
knowledge, or data of the
Page 7 of 13
<PAGE>
Contractor or any of its affiliates in any way acquired or used by HAMPTON
during its engagement by the Contractor. Confidential information,
knowledge or data of the Contractor and its affiliates shall not include
any information, which is, or becomes generally available to the public
other than as a result of a disclosure by HAMPTON or its representatives.
8. MISCELLANEOUS PROVISIONS.
8.1 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
and supplemented only by written agreement of HAMPTON and Contractor.
8.2 WAIVER OF COMPLIANCE. Any failure of HAMPTON, on the one hand, or
Contractor, on the other, to comply with any obligation, agreement, or
condition herein may be expressly waived in writing, but such waiver or
failure to insist upon strict compliance with such obligation, cotenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
8.3 EXPENSES; TRANSFER TAXES, ETC. Whether or not the transaction, if any,
contemplated by this Agreement shall be consummated, HAMPTON agrees that
all fees and expenses incurred by HAMPTON in connection with this
Agreement shall be borne by HAMPTON and Contractor agrees that all fees
and expenses incurred by Contractor in connection with this Agreement
shall be borne by Contractor, including, without limitation as to HAMPTON
or Contractor, all fees of counsel and accountants.
8.4 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in this
Agreement, each party hereto shall have the right independently to engage
in and receive full benefits from business activities. In case of business
activities which would be competitive with the other party, notice shall
be given prior to this Agreement or, if such activities are proposed,
within ten (10) days prior to engagement therein. The doctrines of
"corporate opportunity" or "business opportunity" shall not be applied to
any other activity, venture, corporation of either party.
8.5 COMPLIANCE WITH REGULATORY AGENCIES. Each party agrees that all
actions, direct or indirect, taken by it and it's respective agents,
employees and affiliates in connection with this agreement any financing
or underwriting hereunder shall conform to all applicable Federal and
State securities laws.
8.6 NOTICES. Any notices to be given hereunder by any party to the other
may be effected by personal delivery in writing or in by mail, registered
or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the "Contact Person" at the addresses
appearing in the introductory paragraph
Page 8 of 13
<PAGE>
of this Agreement, but any party may change his address by written notice
in accordance with this subsection. Notices delivered personally shall be
deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of five (5) days after mailing.
8.7 ASSIGNMENT. This agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement
nor any right, interest or obligations hereunder will be assigned by any
of the parties hereto without the prior written consent of the other
parties, except by operation of law.
8.8 DELEGATION. Neither party shall delegate the performance of its duties
under this agreement without the prior written consent of the other party.
8.9 PUBLICITY. Neither HAMPTON nor Contractor shall make or issue, or
cause to be made or issued, any announcement or written statement
concerning this Agreement or the transaction contemplated hereby for
dissemination to the general public without the written consent of the
other party. This provision shall not apply, however, to any announcement
or written statement required to be made by law or the regulations of any
Federal or State governmental agency, except that the party concerning the
timing and consent of such announcement before such announcement is made.
8.10 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance
with the laws of the State of California, without regard to its
conflict of law doctrine. Contractor and HAMPTON agree that if
any action is instituted to enforce or interpret any provision
of this Agreement, the jurisdiction and venue shall be Los
Angeles County, CA.
8.11 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.12 HEADINGS. The heading of the sections of this Agreement are inserted
for convenience only and shall not constitute a part hereto or affect in
any way the meaning or interpretation of this Agreement.
8.13 ENTIRE AGREEMENT. This Agreement, including any Exhibits hereto, and
the other documents and certificates delivered pursuant to the terms
hereto, sets forth the entire Agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and supersedes
all prior agreements, promise, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto.
Page 9 of 13
<PAGE>
8.14 THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other than
the parties hereto and their successors or assigns, any rights or remedies
under or by reason of this Agreement.
8.15 ATTORNEYS' FEES AND COSTS. If any action is necessary to enforce and
collect upon the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, in addition to any other
relief to which that party may be entitled. This provision shall be
construed as applicable to the entire Agreement.
8.16 SURVIVABILITY. If any part of this Agreement is found, or deemed by a
court of competent jurisdiction to be invalid or unenforceable, that part
shall be severable from the remainder of the Agreement.
8.17 FURTHER ASSURANCES. Each of the parties agrees that it shall from
time-to-time take such actions and execute such additional instruments as
may be reasonably necessary or convenient to implement and carry out the
intent and purpose of this Agreement.
8.18 RIGHT TO DATA AFTER TERMINATION. After termination of this Agreement
each party shall be entitled to copies of all information acquired
hereunder as of the date of termination and not previously furnished to
it.
8.19 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement
shall be deemed to constitute either party to become the partner of the
other, the agent or legal representative of the other, nor create any
fiduciary relationship between them, except as otherwise expressly
provided herein. It is not the intention of the parties to create nor
shall this Agreement be construed to create any commercial relationship or
other partnership. Neither party shall have any authority to act for or to
assume any obligation or responsibility on behalf of the other party,
except as otherwise expressly provided herein. The rights, duties,
obligations and liabilities of the parties shall be separate, not joint or
collective. Each party shall be responsible only for its obligations as
herein set out and shall be liable only for its share of the costs and
expenses as provided herein.
8.20 NO AUTHORITY TO OBLIGATE THE CONTRACTOR. Without the consent of the
Board of Directors of the Contractor, HAMPTON shall have no authority to
take, nor shall it take, any action committing or obligating the
Contractor in any manner, and it shall not represent itself to others as
having such authority.
9. ARBITRATION. WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, THE UNDERSIGNED
HEREBY ACKNOWLEDGE THAT:
A. ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
Page 10 of 13
<PAGE>
B. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDY IN COURT, INCLUDING
THEIR RIGHT TO JURY TRIAL;
C. PRE-ARBITRATION DISCOVER IS GENERALLY MORE LIMITED AND DIFFERENT FROM
COURT PROCEEDING;
D. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT OF APPEAL OR TO SEEK MODIFICATION OF
RULING BY THE ARBITRATORS IS STRICTLY LIMITED;
E. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH SECURITIES INDUSTRY; AND
F. THIS ARBITRATION AGREEMENT IS SPECIFICALLY INTENDED TO INCLUDE ANY AND
ALL STATUTORY CLAIMS WHICH MIGHT BE ASSERTED BY ANY PARTY.
G. ALL DISPUTES, CONTROVERSIES, OR DIFFERENCES BETWEEN THE CONTRACTOR,
HAMPTON OR ANY OF THEIR OFFICERS, DIRECTORS, LEGAL REPRESENTATIVES,
ATTORNEYS, ACCOUNTANTS, AGENTS OR EMPLOYEES, OR ANY CUSTOMER OR OTHER
PERSON OR ENTITY, ARISING OUT OF, IN CONNECTION WITH OR AS A RESULT OF
THIS AGREEMENT, SHALL BE RESOLVED THROUGH ARBITRATION RATHER THAN THROUGH
LITIGATION.
H. THE UNDERSIGNED CONTRACTOR HEREBY AGREES TO SUBMIT THE DISPUTE FOR
RESOLUTION TO EITHER THE AMERICAN ARBITRATION ASSOCIATION, IN LOS ANGELES,
CALIFORNIA, OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., IN
LOS ANGELES, CALIFORNIA , WHICHEVER ASSOCIATION MAY ASSERT JURISDICTION
OVER THE DISPUTE WITHIN FIVE (5) DAYS AFTER RECEIVING A WRITTEN REQUEST TO
DO SO FROM ANY OF THE AFORESAID PARTIES.
I. IN ANY PARTY FAILS TO SUBMIT THE DISPUTE TO ARBITRATION ON REQUEST,
THEN THE REQUESTING PARTY MAY COMMENCE AN ARBITRATION PROCEEDING, BUT IS
UNDER NO OBLIGATION TO DO SO.
J. ANY HEARING SCHEDULED AFTER AN ARBITRATION IS INITIATED SHALL TAKE
PLACE IN LOS ANGELES COUNTY, CALIFORNIA, AND THE FEDERAL ARBITRATION ACT
SHALL GOVERN
Page 11 of 13
<PAGE>
THE PROCEEDING AND ALL ISSUES RAISED BY THIS AGREEMENT TO ARBITRATE.
K. IF ANY PARTY SHALL INSTITUTE ANY COURT PROCEEDING IN AN EFFORT TO
RESIST ARBITRATION AND BE UNSUCCESSFUL IN RESISTING ARBITRATION OR
SHALL UNSUCCESSFULLY CONTEST THE JURISDICTION OF ANY ARBITRATION
FORUM LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, OVER ANY MATTER
WHICH IS THE SUBJECT TO THIS AGREEMENT, THE PREVAILING PARTY SHALL BE
ENTITLED TO RECOVER FROM THE LOSING PARTY ITS LEGAL FEES AND ANY
OUT-OF-POCKET EXPENSES INCURRED IN CONNECTION WITH THE DEFENSE OF
SUCH LEGAL PROCEEDING OR ITS EFFORTS TO ENFORCE ITS RIGHTS TO
ARBITRATION AS PROVIDED FOR HEREIN.
L. EACH PARTY WILL SIGN ANY REQUIRED NASD UNIFORM SUBMISSION AGREEMENT OR
THE APPLICABLE PAPERWORK FOR THE AMERICAN ARBITRATION ASSOCIATION, AT THE
TIME ANY DISPUTE IS SUBMITTED FOR ARBITRATION OR THE APPLICABLE PAPERWORK
FOR THE AMERICAN ARBITRATION ASSOCIATION, AT THE TIME ANY DISPUTE IS
SUBMITTED FOR ARBITRATION, WHICHEVER ONE IS APPLICABLE.
M. THE PARTIES SHALL ACCEPT THE DECISION OF ANY AWARD AS BEING FINAL AND
CONCLUSIVE AND AGREE TO ABIDE THEREBY.
N. ANY DECISION MAY BE FILED WITH ANY COURT AS A BASIS FOR JUDGMENT AND
EXECUTION FOR COLLECTION.
10. TERM OF AGREEMENT AND TERMINATION. This Agreement shall be effective upon
execution, shall continue for one year unless terminated sooner, by either
party, upon giving to the other party five (5) days written notice, after
which time this Agreement is terminated. HAMPTON shall be entitled to the
finders fees described in this Agreement for funding or underwriting
commitments entered into by Contractor's client within one (1) year after
the termination of this Agreement if said funding or underwriting was the
result of HAMPTON efforts prior to the termination of Agreement. Any
future compensation due HAMPTON after termination shall be cancelled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
CONTRACTOR: Telecom Wireless Corporation
By: /s/ James C. Roberts
-------------------------------------
Dr. James C. Roberts, Chairman/CEO
Page 12 of 13
<PAGE>
HAMPTON: Hampton-Porter Investment Bankers, LLC
By: /s/ Gregory D. Walker
---------------------------------------
Gregory D. Walker, President
Page 13 of 13
<PAGE>
Telecom
Wireless
Corporation
December 21, 1999
Prentice Point Limited Partnership
c/o Boston Financial
437 Madison Avenue, 18th Floor
New York, NY 10022
RE: PRENTICE POINT LEASE, SUITE 1120
Ladies and Gentlemen:
This will confirm our additional understandings and agreements with
respect to the Office Lease dated as of December 21, 1999 (the "Office
Lease"), between Prentice Point Limited Partnership, as landlord ("Prentice
Point"), and Telecom Wireless Corporation, as tenant ("TWC"): 1) the net
rentable space of the premises is 8,215 sq. ft.; 2) the minimum rent per
square foot is $24.50 for the first twenty-five months of the Office Lease;
3) TWC may install telephone, telecommunications and other equipment anytime
after the Office Lease is signed and may move into Suite 1120 anytime during
or after the week of December 27, 1999, but not on January 1 or 2, 2000; 4)
TWC may install antennae and satellite/microwave dishes on the roof of the
building at the standard charge to other tenants and may run necessary wiring
to the premises; and 5) Prentice Point will lower the height of or remove, at
the option of TWC, the partial walls on the west side of Suite 1120 at no
cost to TWC. We understand that moving and installation of equipment and
wiring must be coordinated with the building engineer.
Please sign in the space provided below and return this letter to
us. Thank you for your consideration of our requirements.
Sincerely,
/s/ Calvin D. Smiley
Calvin D. Smiley, President
Accepted and agreed to this _____ day of December, 1999.
Prentice Point Limited Partnership
---------------------------------
Authorized Partner
<PAGE>
OFFICE LEASE
between
PRENTICE POINT LIMITED PARTNERSHIP,
a Delaware limited partnership
(as Landlord)
and
TELECOM WIRELESS CORPORATION,
a Utah corporation
(as Tenant)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. PRINCIPAL TERMS..........................................................................................1
2. GENERAL COVENANTS........................................................................................2
3. TERM.....................................................................................................2
4. RENT.....................................................................................................2
5. COMPLETION OR REMODELING OF THE PREMISES.................................................................2
6. OPERATING EXPENSES/REAL ESTATE TAXES.....................................................................3
7. SERVICES.................................................................................................6
8. QUIET ENJOYMENT..........................................................................................7
9. DEPOSIT..................................................................................................7
10. CHARACTER OF OCCUPANCY...................................................................................7
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.........................................................7
12. ALTERATIONS AND REPAIRS BY TENANT........................................................................8
13. MECHANICS' LIENS.........................................................................................8
14. SUBLETTING AND ASSIGNMENT................................................................................8
15. DAMAGE TO PROPERTY.......................................................................................9
16. INDEMNITY TO LANDLORD....................................................................................9
17. SURRENDER AND NOTICE....................................................................................10
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES........................................................10
19. CONDEMNATION............................................................................................10
20. DEFAULT BY TENANT.......................................................................................11
21. DEFAULT BY LANDLORD.....................................................................................12
22. SUBORDINATION AND ATTORNMENT............................................................................13
23. REMOVAL OF TENANT'S PROPERTY............................................................................13
24. HOLDING OVER: TENANCY MONTH-TO-MONTH....................................................................13
25. PAYMENTS AFTER TERMINATION..............................................................................13
26. STATEMENT OF PERFORMANCE................................................................................14
27. MISCELLANEOUS...........................................................................................14
28. AUTHORITIES FOR ACTION AND NOTICE.......................................................................15
29. PARKING.................................................................................................15
30. SUBSTITUTE PREMISES.....................................................................................16
31. BROKERAGE...............................................................................................16
32. LEGAL FEES; PREPARATION OF LEASE........................................................................16
33. COUNTERPARTS............................................................................................16
34. ADDENDUM/EXHIBITS.......................................................................................16
</TABLE>
<PAGE>
LEASE AGREEMENT
THIS LEASE, dated as of December 21, 1999, is by and between PRENTICE POINT
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and TELECOM
WIRELESS CORPORATION, a Utah corporation ("Tenant").
WITNESSETH:
1. PRINCIPAL TERMS. Capitalized terms, first appearing in quotations in
this Section, elsewhere in the Lease or any Exhibits, are definitions of such
terms as used in the Lease and Exhibits and shall have the defined meaning
whenever used.
<TABLE>
<S> <C>
1.1 "BUILDING": Prentice Point, 5299 DTC Boulevard, Englewood, CO 80111
1.2 "PREMISES": Suite #1120
1.3 "INITIAL TERM": 2 years, 1 month
"Commencement Date": February 1, 2000
"Expiration Date": February 28, 2002
1.4 "MINIMUM RENT": PERIOD ANNUAL MONTHLY
------ ------ -------
Months 1-25 $201,267.50 $16,772.29
1.5 OPERATING EXPENSES/ Base Operating Expenses: calendar year 2000
REAL ESTATE TAXES: Base Real Estate Taxes: calendar year 2000
Pro Rata Share: 4.09%
1.6 "DEPOSIT": $17,000.00
1.7 "PERMITTED USE": General business offices
1.8 "GUARANTOR": None
1.9 PARKING: 32 spaces ("Tenant's Maximum")
1.10 LANDLORD'S NOTICE ADDRESS: Prentice Point Limited Partnership
c/o Boston Financial
437 Madison Avenue, 18th Floor
New York, NY 10022
Attn: Legal Coordinator
copy to: Prentice Point Limited Partnership
c/o Boston Financial
101 Arch Street
Boston, MA 02110-1106
Attn: General Counsel
and copy to: Isaacson, Rosenbaum, Woods & Levy, P.C.
633 17th Street. Suite 2200
Denver, CO 80202-3622
Attn: David L. Kuosman, Esq.
<PAGE>
and copy to: Mr. Randall G. Frisk
Boston Financial Group
211 East Ocean Boulevard, Suite 241
Long Beach, CA 90802
and copy to: Prentice Point Limited Partnership
5299 South DTC Boulevard
Englewood, CO 80111
Attn: Building Manager
1.11 LANDLORD'S TAX I.D.: 84-1269269
1.12 TENANT'S NOTICE ADDRESS:
Precommencement Address: 5299 DTC Boulevard, Suite 1200
Englewood, CO 80111
Attn: President
Post Commencement Address: 5299 DTC Boulevard, Suite 1120
Englewood, CO 80111
Attn: President
1.13 TENANT'S TAX I.D.: [PLEASE PROVIDE] 94-3172556
1.14 LANDLORD'S BROKER: Venture Group Real Estate, LLC
1.15 COOPERATING BROKER: None
1.16 ATTACHMENTS: [check if applicable]
_X_ Exhibit A - Diagram of Premises
_X_ Exhibit B - Real Property
___ Exhibit C - Premises Completion
___ Exhibit D - Form of First Amendment
_X_ Exhibit E - Rules and Regulations
</TABLE>
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and
perform the obligations hereafter set forth and in consideration therefor
Landlord leases to Tenant the Premises as depicted on the plat attached as
EXHIBIT A, together with a non-exclusive right, subject to the provisions
hereof, to use plazas, common areas, or other areas on the real property
legally described on Exhibit B (the "Real Property") designated by Landlord
for the exclusive or non-exclusive use of the tenants of the Building
("Common Areas"). The Building, Real Property, Common Areas, and
appurtenances are hereinafter collectively sometimes called the "Building
Complex."
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on the
Commencement Date and terminates at 12:00 midnight on the Expiration Date
(the Initial Term together with any extensions thereof is herein referred to
as the "Term"). Tenant and its agents and contractors shall have the right,
commencing on January 4, 2000, to enter and occupy the Premises with no
obligation to pay Minimum Rent during such early occupancy period; provided,
however, that such occupancy shall be on all other terms and conditions of
this Lease. During such early occupancy period, Tenant will allow Landlord
access to any portion of the Premises during ordinary business hours
necessary for the purpose of completing the Finish Work. Landlord will use
reasonable efforts subject to causes beyond its reasonable control to
minimize any disruption of Tenant's business in completing the Finish Work.
Tenant acknowledges that some inconvenience and disruption of its business is
inevitable. Landlord will not be liable for any loss of business due to such
disruption, and it will not constitute an eviction of Tenant or entitle
Tenant to any abatement of rent.
4. RENT. Subject to the provisions below, commencing on the Commencement
Date and on the first day of each month thereafter, Tenant shall pay Minimum
Rent in the amount stated in Section 1.4, in advance without notice (all
amounts, including Minimum Rent, to be paid by Tenant pursuant to this Lease
as the context requires are sometimes referred to collectively as "Rent(s)").
Rents shall be paid without set off, abatement, or diminution, at the
management office in the Building, or at such other place as Landlord from
time to time designates in writing. Notwithstanding the foregoing, Tenant
2
<PAGE>
shall have the right to occupy the Premises without payment of Minimum Rent
for the first month following the Commencement Date (the "Deferred Rent
Period"). It is agreed that the Rent payable under this Lease is allocable
to, and shall be accrued by the parties during, their fiscal periods in which
the same is actually paid. Landlord and Tenant agree that no portion of the
Minimum Rent paid by Tenant during the Initial Term occurring after the
expiration of the Deferred Rent Period will be allocated by Landlord or
Tenant to such Deferred Rent Period, nor is such Rent intended by the parties
to be allocable to the Deferred Rent Period. If for any reason at any time
during the Term Tenant is in default hereunder, which default is not cured
within any applicable cure periods, Tenant shall owe to Landlord, in addition
to all other amounts otherwise set forth herein, all amounts of Minimum Rent
deferred pursuant to this Section. Such amounts shall be immediately due and
payable upon the occurrence of any such default. Tenant shall have no
obligation to pay such amounts if no Event of Default has occurred prior to
the expiration of the Term.
5. COMPLETION OR REMODELING OF THE PREMISES.
5.1 Landlord shall, at Landlord's cost and expense, prior to
February 1, 2000, paint all currently painted walls of the Premises with
Building standard paint with the same color that currently exists, shampoo
all existing carpet, and demise the Premises (including separating electric
and HVAC systems) (collectively, the "Finish Work"). "Initial Tenant Finish"
means the Premises in its as-is condition as modified by all work, if any,
performed by Landlord at its expense prior to the Commencement Date in
accordance herewith. Except as provided herein, Landlord has no obligation
for the completion or remodeling of the Premises, and Tenant accepts the
Premises in its "as is" condition on the Commencement Date. The Initial Lease
Term shall commence on February 1, 2000, regardless if the Finish Work is
completed.
5.2 Taking possession of the Premises by Tenant is conclusive
evidence that the Premises are in the condition agreed between Landlord and
Tenant and acknowledgment by Tenant of satisfactory completion of any work
which Landlord has agreed to perform.
6. OPERATING EXPENSES/REAL ESTATE TAXES. Tenant shall pay Operating
Expense Rent and Tax Rent as additional Rent hereunder in accordance with the
following:
6.1 DEFINITIONS. The additional terms below have the following
meanings in this Lease:
(1) "Base Operating Expenses" means an amount equal to the
Operating Expenses for the calendar year set forth in Section 1.5, as
determined by Landlord in accordance with this Section. Tenant acknowledges
Landlord has not made any representations or warranties that the Base
Operating Expenses will equal any specified amounts (any estimates provided
by Landlord are non-binding estimates only).
(2) "Base Real Estate Taxes" means an amount equal to the Real
Estate Taxes for the calendar year set forth in Section.1.5, as determined by
Landlord in accordance with this Section. Tenant acknowledges Landlord has
not made any representations or warranties that the Base Real Estate Taxes
will equal any specified amounts (any estimates provided by Landlord are
non-binding estimates only).
(3) "Landlord's Accountants" means that individual or firm
employed by Landlord from time to time to keep the books and records for the
Building Complex, and/or to prepare the federal and state income tax returns
for Landlord with respect to the Building Complex, which books and records
shall be certified to by a representative of Landlord. All determinations
made hereunder shall be made by Landlord's Accountants unless otherwise
stated.
(4) "Tenant's Pro Rata Share" means the percentage set forth in
Section 1.5.
(5) "Operating Expense Year" means each calendar year during
the Term, except that the first Operating Expense Year begins on the
Commencement Date and ends on December 31 of such year and the last Operating
Expense Year begins on January 1 of the calendar year in which this Lease
expires or is terminated and ends on the date of such expiration or
termination. If an Operating Expense Year is less than twelve (12) months,
Operating Expenses for such year shall be prorated.
(6) "Operating Expenses" means all operating expenses of any
kind or nature which are in Landlord's reasonable judgment necessary,
appropriate, or customarily incurred in connection with the operation and
maintenance of the Building Complex. Operating Expenses include, but are not
limited to, the following:
(a) Costs of supplies, including costs of relamping
and replacing ballasts in all Building standard tenant lighting;
(b) Costs of energy for the Building Complex, including
costs of propane, butane, natural gas, steam, electricity, solar energy and
fuel oils, coal or any other energy sources;
(c) Costs of water and sanitary and storm drainage
services;
3
<PAGE>
(d) Costs of janitorial and security services;
(e) Costs of general maintenance, repairs, and
replacements including costs under HVAC and other mechanical maintenance
contracts; and repairs and replacements of equipment used in maintenance and
repair work;
(f) Costs of maintenance, repair and replacement of
landscaping;
(g) Insurance premiums for the Building Complex,
including all-risk or multi-peril coverage, together with loss of rent
endorsement; the part of any claim paid under the deductible portion of any
insurance policy carried by Landlord; public liability insurance; and any
other insurance carried by Landlord on any component parts of the Building
Complex;
(h) All labor costs, including wages, costs of worker's
compensation insurance, payroll taxes, fringe benefits, including pension,
profit-sharing and health, and legal fees and other costs incurred in
resolving any labor dispute;
(i) Professional building management fees, costs and
expenses, including costs of office space and storage space required by
management for performance of its services;
(j) Legal, accounting, inspection, and other consulting
fees (including fees for consultants for services designed to produce a
reduction in Operating Expenses or improve the operation, maintenance or
state of repair of the building Complex);
(k) Costs of capital improvements and structural
repairs and replacements to the Building Complex to conform to changes
subsequent to the date of issuance of the shell and core certificate of
occupancy for the Building in any Applicable Laws (herein "Required Capital
Improvements"); and the costs of any capital improvements and structural
repairs and replacements designed primarily to reduce Operating Expenses
(herein "Cost Savings Improvements"). Expenditures for Required Capital
Improvements and Cost Savings Improvements will be amortized at a market rate
of interest over the useful life of such capital improvement (as determined
by Landlord's Accountants); however, the amortized amount of any Cost Savings
Improvement will be limited in any year to the resulting reduction in
Operating Expenses; and
(l) Costs incurred for Landlord's Accountants including
costs of any experts and consultants engaged to assist in making the
computations;
"Operating Expenses" do NOT include:
(i) Costs of work, including painting and
decorating, which Landlord performs for any tenant other than work of a kind
and scope which Landlord is obligated to furnish to all tenants whose leases
contain a rental adjustment provision similar to this one;
(ii) Costs of repairs or other work occasioned by
fire, windstorm or other insured casualty to the extent of insurance proceeds
received;
(iii) Leasing commissions, advertising expenses,
and other costs incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated
by condemnation;
(v) Interest on borrowed money or debt
amortization, except as specifically set forth above; or
(vi) Depreciation on the Building Complex.
(7)"Real Estate Taxes" means all real and personal property
taxes and assessments levied against the Building Complex by any governmental
or quasi-governmental authority, including taxes, assessments, surcharges, or
service or other fees of a nature not presently in effect which are hereafter
levied on the Building Complex as a result of the use, ownership or operation
of the Building Complex or for any other reason, whether in lieu of or in
addition to, any current real estate taxes and assessments. However, any
taxes which are levied on the rent of the Building Complex will be determined
as if the Building Complex were Landlord's only real property. In no event do
taxes and assessments include any federal or state income taxes levied or
assessed on Landlord. Expenses for tax consultants to contest taxes or
assessments are also included as Real Estate Taxes. Real Estate Taxes also
include special assessments, license taxes, business license fees, business
license taxes, commercial rental taxes, levies, charges, penalties or taxes,
imposed by any authority against the Premises, Building Complex or any legal
or equitable interest of Landlord. Special assessments are deemed payable in
such
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number of installments permitted by law, whether or not actually so paid, and
include any applicable interest on such installments. Real Estate Taxes
(other than special assessments) are computed on an accrual basis based on
the year in which they are levied, even though not paid until the following
Operating Expense Year;
(8) "Tax Year" means each calendar year during the Term,
except that the first Tax Year begins on the Commencement Date and ends on
December 31 of such year and the last Tax Year begins on January 1 of the
calendar year in which this Lease expires or is terminated and ends on the
date of such expiration or termination. If a Tax Year is less than twelve
(12) months, Real Estate Taxes for such year shall be prorated.
6.2 COMPUTATION AND PAYMENT OF OPERATING EXPENSE RENT.
6.2.1 If the actual Operating Expenses payable by Landlord for
any 0perating Expense Year exceed the Base Operating Expenses ("Excess
Operating Expenses"), Tenant shall pay its Pro Rata Share of the Excess
Operating Expenses ("Operating Expense Rent") to Landlord as provided herein.
Following the end of each Operating Expense Year, Landlord shall submit a
statement ("Operating Expense Statement") to Tenant setting forth the
following:
(1) The total Operating Expense Rent payable by Tenant for the
just completed Operating Expense Year;
(2) The total amount Tenant has paid as Estimated Operating
Expense Rent (hereafter defined) during the just completed
Operating Expense Year;
(3) The difference, if any, between the total Operating Expense
Rent set forth in item (1) above and the Estimated
Operating Expense Rent previously paid as set forth in
item (2) above ("Operating Expense Rent Shortfall");
(4) Tenant's Pro Rata Share of Landlord's estimate of Excess
Operating Expenses for the new Operating Expense Year
("Estimated Operating Expense Rent") determined in
accordance with this Paragraph; and
(5) The amount of the Retroactive Adjustment, if any, in
accordance with the following.
6.2.2 Commencing on the Commencement Date, Tenant shall pay,
at the same time as monthly Minimum Rent is paid, 1/12 of the Estimated
Operating Expense Rent. To the extent an Operating Expense Statement reflects
an Operating Expense Rent Shortfall Tenant will pay such shortfall within 30
days after receipt of the Operating Expense Statement (or receive a credit
for the difference against the next due Rent, as the case may be). Until
Tenant receives an Operating Expense Statement, Tenant shall continue to pay
the Estimated Operating Expense Rent for the prior Operating Expense Year.
However, Tenant is responsible for payment (or is eligible for a credit, as
the case may be) of any difference between the old Estimated Operating
Expense Rent paid for any period of the new Operating Expense Year and the
new Estimated Operating Expense Rent payable for that same period
("Retroactive Adjustment"). Tenant shall commence payment of the new
Estimated Operating Expense Rent beginning on the first day of the month
following the month in which Tenant receives the Operating Expense Statement,
at which time the Tenant shall also pay Landlord or deduct from the next-due
Rent, as the case may be, the Retroactive Adjustment. If, during any
Operating Expense Year, there is a change in the information on which
Tenant's Estimated Operating Expense Rent is based so that the prior estimate
is no longer accurate, Landlord may revise the estimate and there shall be a
corresponding adjustment to the Estimated Operating Expense Rent for the
balance of the Operating Expense Year following notice to Tenant.
6.3 COMPUTATION AND PAYMENT OF TAX RENT.
6.3.1 If the actual Real Estate Taxes payable by Landlord for
any Tax Year exceed the Base Real Estate Taxes ("Excess Taxes"), Tenant shall
pay its Pro Rata Share of the Excess Taxes ("Tax Rent") to Landlord as
provided herein. Following the end of each Tax Year, Landlord shall submit a
statement ("Tax Statement") to Tenant setting forth the following:
(1) The total Tax Rent payable by Tenant for the just
completed Tax Year;
(2) The amount Tenant has paid as Estimated Tax Pent
(hereafter defined) during the just completed Tax
Year;
(3) The difference, if any, between the total Tax Rent
set forth in item (1) above and the Estimated Tax
Rent previously paid as set forth in item (2) above
("Tax Rent Shortfall");
(4) Tenant's Pro Rata Share of Landlord's estimate of
Excess Taxes for the new Tax Year ("Estimated Tax
Rent") determined in accordance with this Paragraph;
and
(5) The amount of the Retroactive Adjustment, if any, in
accordance with the following.
6.3.2 Commencing with the first month of the second Tax Year,
Tenant shall pay, at the same time as monthly Minimum Rent is paid, 1/12 of
the Estimated Tax Rent. To the extent a Tax Statement reflects a Tax Rent
Shortfall, Tenant will pay such shortfall within 30 days after receipt of the
Tax Statement (or receive a credit for the difference against the next due
Rent, as the case may be). Until Tenant receives a Tax Statement, Tenant
shall continue to pay the Estimated Tax Rent for the prior Tax Year. However,
Tenant is responsible for payment (or is eligible for a credit, as the case
may be) of any difference between the old Estimated Tax Rent paid for any
period of the new Tax Year and the new Estimated Tax Rent payable for that
same period ("Retroactive Adjustment"). Tenant shall commence payment of the
new Estimated Tax
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Rent beginning on the first day of the month following the month in which
Tenant receives the Tax Statement, at which time the Tenant shall also pay
Landlord or deduct from the next-due Rent, as the case may be, the
Retroactive Adjustment. If, during any Tax Year, there is a change in the
information on which Tenant's Estimated Tax Rent is based so that the prior
estimate is no longer accurate, Landlord may revise the estimate and there
shall be a corresponding adjustment to the Estimated Tax Rent for the balance
of the Tax Year following notice to Tenant.
6.4 MISCELLANEOUS. If any lease entered into by Landlord with any
tenant in the Building is on a so-called "net" basis, or provides for a
separate basis of computation for any Operating Expenses or Real Estate Taxes
with respect to its leased premises, Landlord's Accountants may modify the
computation of Base Operating Expenses, Base Real Estate Taxes, Tenant's Pro
Rata Share, Operating Expenses and Real Estate Taxes for a particular
Operating Expense Year and/or Tax Year (as applicable) to eliminate or modify
any Operating Expenses and/or Real Estate Taxes which are paid for in whole
or in part by such tenant. If the Building is not fully occupied during any
particular Operating Expense Year or Tax Year, Landlord's Accountants may
adjust those Operating Expenses and Real Estate Taxes which are affected by
occupancy for the particular Operating Expense Year or Tax Year to reflect
100% occupancy. Furthermore, in making any computations contemplated hereby,
Landlord's Accountants may make such other modifications to the computations
as are required in their judgment to achieve the intention of the parties
hereto. In no event will any decrease in Rent pursuant to any provision
hereof result in a reduction of Rent below the Minimum Rent. Delay by
Landlord in submitting any statement for any Operating Expense Year or Tax
Year does not affect the provisions of this Section or constitute a waiver of
Landlord's rights for such Operating Expense Year, Tax Year, or any
subsequent Operating Expense Years or Tax Years.
6.5 DISPUTE. If Tenant disputes an adjustment submitted by Landlord
or a proposed increase or decrease in an Estimated Operating Expense Rent or
Estimated Tax Rent, Tenant shall give Landlord notice of such dispute within
30 days after Tenant's receipt of the adjustment. If Tenant does not give
Landlord timely notice, Tenant waives its right to dispute the particular
adjustment. If Tenant timely objects, Tenant may engage, at its expense, its
own certified public accountants ("Tenant's Accountants") to verify the
accuracy of the statement complained of or the reasonableness of the
estimated increase or decrease. If Tenant's Accountants determine that an
error has been made, Landlord's Accountants and Tenant's Accountants shall
endeavor to agree upon the matter, failing which such matter shall be
submitted to an independent certified public accountant selected by Landlord,
with Tenant's reasonable approval, for a determination which will be
conclusive and binding upon Landlord and Tenant. Tenant agrees that all
information obtained or generated in connection with such audit shall be kept
confidential and may not be disclosed to any other tenants or third parties.
Notwithstanding the pendency of any dispute, Tenant shall continue to pay
Landlord the amount of the Estimated Operating Expense Rent or Estimated Tax
Rent being disputed or adjustment determined by Landlord's Accountants until
the adjustment has been determined to be incorrect. If it is determined that
any portion of the Operating Expenses and/or Real Estate Taxes were not
properly chargeable to Tenant, then Landlord shall promptly credit or refund
the appropriate sum to Tenant.
7. SERVICES.
7.1 Subject to the provisions below, Landlord agrees, without
charge, in accordance with standards determined by Landlord from time to time
for the Building: (1) to furnish running water at those points of supply for
general use of tenants of the Building; (2) during Ordinary Business Hours to
furnish to interior Common Areas heated or cooled air (as applicable),
electrical current, janitorial services, and maintenance; (3) during Ordinary
Business Hours to furnish heated or cooled air to the Premises for standard
office use provided the recommendations of Landlord's engineer regarding
occupancy and use of the Premises are complied with by Tenant; (4) to
furnish, subject to availability and capacity of building systems, unfiltered
treated chilled water for use in Tenant's packaged HVAC systems provided that
such systems are approved by Landlord, including strainers, pumping systems
and controls; (5) to provide, during Ordinary Business Hours, the general use
of passenger elevators for ingress and egress to and from the Premises (at
least one such elevator shall be available at all times except in the case of
emergencies or repair); (6) to provide janitorial services for the Premises
to the extent of the Initial Tenant Finish (including window washing of the
outside of exterior windows); and (7) to cause electric current to be
supplied to the Premises for Tenant's Standard Electrical Usage (items (1)
through (7) are collectively called "Services"). "Tenant's Standard
Electrical Usage" means weekly electrical consumption in an amount determined
by (i) multiplying 3.5 watts/square foot by 59 hours and (ii) multiplying the
product thereof by the number of rentable square feet in the Premises.
"Ordinary Business Hours" means 7:00 a.m. to 6:00 p.m. Monday through Friday
and 9:00 a.m. to 12:00 p.m. on Saturdays, Legal Holidays excepted. "Legal
Holidays" mean New Year's Day, Martin Luther King Day, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day,
and such other national holidays hereafter established by the United States
Government.
7.2 "Excess Usage" means any usage of electricity (1) during other
than Ordinary Business Hours; (2) in an amount in excess of Tenant's Standard
Electrical Usage; or (3) for Special Equipment or for standard HVAC services
during other than Ordinary Business Hours. "Special Equipment" means (a) any
equipment consuming more than 0.5 kilowatts at rated capacity, (b) any
equipment requiring a voltage other than 120 volts, single phase, or (c)
equipment that requires the use of self-contained HVAC units. If Tenant
desires Excess Usage, Landlord will use reasonable efforts to supply the
same. Tenant shall reimburse Landlord for all Landlord's costs of providing
services for Excess Usage, including costs for materials, additional wear and
tear on equipment, utilities, and labor (including fringe and overhead
costs). Computation of such costs will be made by Landlord's engineer, based
on his engineering survey of Tenant's Excess Usage. Tenant shall also
reimburse Landlord for all costs of supplementing the Building HVAC System
and/or extending or supplementing any electrical service,
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as Landlord determines is necessary, as a result of Tenant's Excess Usage.
Prior to installation or use of Special Equipment or operation of the
Premises for extended hours on an ongoing basis, Tenant shall notify Landlord
of such intended installation or use and obtain Landlord's consent. Not less
than 48 hours' prior notice shall be given Landlord of Tenant's request for
such services. Tenant may request that Landlord install at Tenant's cost a
check meter and/or flow meter to determine the cost of Tenant's Excess Usage.
Tenant shall also pay the cost of replacing light bulbs and/or tubes and
ballast used in all lighting in the Premises other than that provided by
Landlord to all tenants of the Building.
7.3 If Tenant requires janitorial services other than those included
as standard Services, Tenant shall separately pay for such services monthly
upon billings by Landlord, or Tenant shall, at Landlord's option, separately
contract for such services with the same company used by Landlord to furnish
janitorial services to the Building.
7.4 Landlord may discontinue, reduce, or curtail Services (either
temporarily or permanently) when necessary due to accident, repairs,
alterations, strikes, lockouts, Applicable Laws, or any other happening
beyond Landlord's reasonable control. Landlord is not liable for damages to
Tenant or any other party as a result of any interruption, reduction, or
discontinuance of Services (either temporary or permanent) nor shall the
occurrence of any such event be construed as an eviction of Tenant, cause or
permit an abatement, reduction or setoff of Rent, or operate to release
Tenant from Tenant's obligations.
7.5 Tenant shall promptly notify Landlord of any accidents or
defects in the Building of which Tenant becomes aware, including defects in
pipes, electric wiring, and HVAC equipment, and of any condition which may
cause injury or damage to the Building or any person or property therein.
8. QUIET ENJOYMENT. So long as an Event of Default has not occurred,
Tenant is entitled to the quiet enjoyment and peaceful possession of the
Premises subject to the provisions of this Lease.
9. DEPOSIT. Tenant has deposited and will keep on deposit at all times
during the Term with Landlord the Deposit as security for the payment and
performance of Tenant's obligations under this Lease. If, at any time, Tenant
is in default, Landlord has the right to use the Deposit, or so much thereof.
as necessary, in payment of Rent, in reimbursement of any expense incurred by
Landlord, and in payment of any damages incurred by Landlord by reason of
such default. In such event, Tenant shall on demand of Landlord forthwith
remit to Landlord a sufficient amount in cash to restore the Deposit to the
original amount. If the entire Deposit has not been utilized, the remaining
amount will be refunded to Tenant or to whoever is then the holder of
Tenant's interest in this Lease, without interest, within 60 days after full
performance of this Lease by Tenant. Landlord may commingle the Deposit with
other funds of Landlord. Landlord may deliver the Deposit to any purchaser of
Landlord's interest in the Premises and Landlord shall be discharged from
further liability therefor. Tenant agrees that if a Mortgagee succeeds to
Landlord's interest in the Premises by reason of foreclosure or deed in lieu
of foreclosure, Tenant has no claim against the Mortgagee for the Deposit or
any portion thereof unless such Mortgagee has actually received the same from
Landlord. If claims of Landlord exceed the Deposit, Tenant shall remain
liable for the balance.
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for the
Permitted Use and for no other purpose, and use it in a careful, safe, and
proper manner and pay on demand for any damage to the Premises caused by
misuse or abuse by Tenant, Tenant's agents or employees, or any other person
entering upon the Premises under express or implied invitation of Tenant
(collectively, "Tenant's Agents"). Tenant, at Tenant's expense, shall comply
with all applicable federal, state, city, quasi-governmental and utility
provider laws, codes, rules, and regulations now or hereafter in effect
("Applicable Laws") which impose any duty upon Landlord or Tenant with
respect to the occupation or alteration of the Premises. Tenant shall not
commit or permit waste or any nuisance on or in the Premises. Tenant agrees
not to store, keep, use, sell, dispose of or offer for sale in, upon or from
the Premises any article or substance prohibited by any insurance policy
covering the Building Complex nor shall Tenant keep, store, produce or
dispose of on, in or from the Premises or the Building Complex any substance
which may be deemed an infectious waste or hazardous substance under any
Applicable Laws, except customary office and cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex; and (ii) provide upkeep, maintenance, and
repairs to all Common Areas. Except as provided in this Section or otherwise
expressly required in this Lease, Landlord is not required to make
improvements or repairs to the Premises during the Term.
11.2 Landlord or Landlord's agents may at any time enter the
Premises for examination and inspection, if Landlord elects, to perform any
obligations of Tenant which Tenant fails to perform, to perform such
cleaning, maintenance, janitorial services, repairs, replacements, additions,
or alterations as Landlord deems necessary for the safety, improvement, or
preservation of the Premises or other portions of the Building Complex, or as
required by Applicable Laws. Landlord or Landlord's agents may also show the
Premises to prospective tenants, purchasers and Mortgagees. Any such reentry
does not constitute an eviction or entitle Tenant to abatement of Rent.
Landlord may make such alterations or changes in other
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portions of the Building Complex as Landlord desires so long as such
alterations and changes do not unreasonably interfere with Tenant's occupancy
of the Premises. Landlord may use the Common Areas and one or more street
entrances to the Building Complex as may be necessary in Landlord's judgment
to complete such work.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1 Tenant shall not make any alterations to the Premises during
the Term, including installation of equipment or machinery which requires
modifications to existing electrical outlets or increases Tenant's usage of
electricity beyond Tenant's Standard Electrical Usage (collectively
"Alterations") without in each instance first obtaining the written consent
of Landlord. Landlord's consent or approval of the plans, specifications and
working drawings for any Alterations shall not constitute any warranty or
representation by Landlord (and shall not impose any liability on Landlord)
as to their completeness, design sufficiency, or compliance with Applicable
Laws. Tenant shall at its cost: pay all engineering and design costs incurred
by Landlord as to all Alterations, obtain all Governmental permits and
approvals required, and cause all Alterations to be completed in compliance
with Applicable Laws and requirements of Landlord's insurance. All such work
relating to Alterations shall be performed in a good and workmanlike manner,
using new materials and equipment at least equal in quality to the Initial
Tenant Finish. All Alterations, repair and maintenance work performed by
Tenant shall be done at Tenant's expense by Landlord's employees or, with
Landlord's prior consent and subject to any conditions imposed by Landlord,
by other persons requested by Tenant; however, if such work is not performed
by Landlord's employees, Tenant shall pay Landlord a supervisory fee upon
receipt of an invoice. If Landlord authorizes such persons to perform work,
Tenant shall deliver to Landlord prior to commencement certificates issued by
insurance companies qualified to do business in the State of Colorado,
evidencing that worker's compensation, public liability insurance, and
property damage insurance (in amounts, with companies and on forms
satisfactory to Landlord) are in force and maintained by all contractors and
subcontractors engaged to perform such work. All liability policies shall
name Landlord, Building Manager, and Mortgagee as additional insureds. Each
certificate shall provide that the insurance may not be cancelled or modified
without 10 days' prior written notice to Landlord and Mortgagee. Landlord
also has the right to post notices in the Premises in locations designated by
Landlord stating that Landlord is not responsible for payment for such work
and containing such other information as Landlord deems necessary. All such
work shall be performed in a manner which does not unreasonably interfere
with Landlord or other tenants of the Building, or impose additional expense
upon Landlord in the operation of the Building Complex.
12.2 Tenant shall keep the Premises in as good order, condition, and
repair and in an orderly state, as on the Commencement Date, loss by fire or
other casualty or ordinary wear excepted.
12.3 All Alterations, including partitions, paneling, carpeting,
drapes or other window coverings, and light fixtures (but not including
movable office furniture not attached to the Building), are deemed a part of
the real estate and the property of Landlord and remain upon and be
surrendered with the Premises at the end of the Term, whether by lapse of
time or otherwise, unless Landlord notifies Tenant no later than 15 days
prior to the end of the Term that it elects to have Tenant remove all or part
of such Alterations, and in such event, Tenant shall at Tenant's expense
promptly remove the Alterations specified and restore the Premises to its
prior condition, reasonable wear and tear excepted.
13. MECHANICS' LIENS. Tenant shall pay for all work done on the Premises
by Tenant or at its request (other than the Initial Tenant Finish) of a
character which may result in liens on Landlord's or Tenant's interest and
Tenant will keep the Premises free of all mechanics' liens, and other liens
on account of such work. Tenant indemnifies, defends, and saves Landlord
harmless from all liability, loss, damage, or expenses, including attorneys'
fees, on account of any claims of laborers, materialmen or others for work
performed or for materials or supplies furnished to Tenant or persons
claiming under Tenant. If any lien is recorded against the Premises or
Building or any suit affecting title thereto is commenced as a result of such
work, or supplying of materials, Tenant shall cause such lien to be removed
of record within 5 days after notice from Landlord. If Tenant desires to
contest any claim, Tenant must furnish Landlord adequate security of at least
150% of the amount of the claim, plus estimated costs and interest and, if a
final judgment establishing the validity of any lien is entered, Tenant shall
immediately pay and satisfy the same. If Tenant fails to proceed as
aforesaid, Landlord may pay such amount and any costs, and the amount paid,
together with reasonable attorneys' fees incurred, shall be immediately due
Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1 Tenant shall not sublet any part of the Premises nor assign or
otherwise transfer this Lease or any interest herein (sometimes referred to
as "Transfer," and the subtenant or assignee may be referred to as
"Transferee") without the consent of Landlord first being obtained, which
consent will not be unreasonably withheld provided that: (1) Tenant complies
with the provisions of Section 14.4; (2) Landlord declines to exercise its
rights under Section 14.3; (3) the Transferee is engaged in a business and
the portion of the Premises will be used in a manner which is in keeping with
the then standards of the Building and does not conflict with any exclusive
use rights granted to any other tenant of the Building Complex; (4) the
Transferee has reasonable financial worth in light of the responsibilities
involved; (5) Tenant is not in default at the time it makes its request; (6)
the Transferee is not a governmental or quasi-governmental agency; (7) the
Transferee is not a tenant or currently negotiating a lease with Landlord in
any Building owned by Landlord in the Denver metropolitan area (including the
Building Complex); and (8) the rent to be paid by the Transferee is not less
than the Rent paid by Tenant for such space
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and is not less than 85% of the rental rate then being offered by Landlord
for similar space in the Building. Transfer includes a sale by Tenant of
substantially all of its assets or stock if Tenant is a publicly traded
corporation, a merger of Tenant with another corporation, the transfer of 25%
or more of the stock in a corporate tenant whose stock is not publicly
traded, or transfer of 25% or more of the beneficial ownership interests in a
partnership or limited liability company tenant.
14.2 Following any Transfer in accordance with this Section 14,
Landlord may, after default by Tenant, collect rent from the Transferee or
occupant and apply the net amount collected to the Rent, but no Transfer or
collection will be deemed an acceptance of the Transferee or occupant as
Tenant or release Tenant from its obligations. Consent to a Transfer shall
not relieve Tenant from obtaining Landlord's consent to any other Transfer.
Notwithstanding Landlord's consent to a Transfer, Tenant shall continue to be
liable for its obligations. If Tenant collects any rent or other amounts from
a Transferee in excess of the Rent for any monthly period, Tenant shall pay
Landlord the excess monthly, as and when received.
14.3 Notwithstanding the above, if Tenant requests Landlord's
consent to sublet 25% or more of the Premises, Landlord may refuse to grant
such consent in its sole discretion and terminate this Lease as to the
portion of the Premises with respect to which such consent was requested;
provided, however, if Landlord does not consent and elects to terminate the
Lease as to such portion, Tenant may within 15 days after notice from
Landlord to this effect withdraw Tenant's request for consent. If such
termination occurs, it shall be effective on the date designated in a notice
from Landlord and shall not be more than 30 days following such notice.
14.4 Tenant must notify Landlord at least 90 days prior to the
desired date of the Transfer ("Tenant's Notice"). Tenant's Notice shall
describe the portion of the Premises to be transferred and the terms and
conditions. Landlord has, without obligation, 60 days following receipt of
Tenant's Notice to sublet the space on Tenant's behalf or to exercise its
rights pursuant to Section 14.3 if Tenant's Notice discloses that 25% or more
of the Premises is involved. If the space covered by Tenant's Notice is
subleased by Landlord, rent and other sums due from the subtenant will be
paid to Tenant directly and Landlord has no responsibility for the
performance by such subtenant of its obligations under its sublease with
Tenant. If Landlord is unwilling or unable to locate a subtenant (and, if
applicable, declines to exercise its rights under Section 14.3), Landlord
will notify Tenant not later than 60 days after receipt of Tenant's Notice
and Tenant shall be free to sublet the specified portion of the Premises to
any third party on terms substantially identical to those described in
Tenant's Notice, subject to Landlord's consent as set forth above. If Tenant
does not sublet such portion of the Premises within 60 days following
Landlord's notice to Tenant, Tenant must reoffer the Premises to Landlord in
accordance with the provisions hereof prior to subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer are
subject to approval by Landlord. Tenant shall pay Landlord's expenses,
including reasonable attorneys' fees, of determining whether to consent and
in reviewing and approving the documents. Tenant shall provide Landlord with
such information as Landlord reasonably requests regarding a proposed
subtenant, including financial information.
14.6 If a trustee or debtor in possession in bankruptcy is entitled
to assume control over Tenant's rights under this Lease and assigns such
rights to any third party notwithstanding the provisions hereof, the rent to
be paid by such party shall be increased to the current Minimum Rent (if
greater than that being paid for the Premises) which Landlord charges for
comparable space in the Building as of the date of such third party's
occupancy. If Landlord is entitled under the Bankruptcy Code to "Adequate
Assurance" of future performance of this Lease, the parties agree that such
term includes the following:
(1) Any assignee must demonstrate to Landlord's reasonable
satisfaction a net worth (as defined in accordance with generally accepted
accounting principles consistently applied) at least as large as the net
worth of Tenant on the Commencement Date increased by 7%, compounded
annually, for each year thereafter through the date of the proposed
assignment. Tenant's financial condition was a material inducement to
Landlord in executing this Lease.
(2) The assignee must assume and agree to be bound by the
provisions of this Lease.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for any
injury or damage, either proximate or remote, occurring through or caused by
fire, water, steam, or any repairs, alterations, injury, accident, or any
other cause to the Premises, to any furniture, fixtures, Tenant improvements,
or other personal property of Tenant kept or stored in the Premises, or in
other parts of the Building Complex, whether by reason of the negligence or
default of Landlord, other occupants, any other person, or otherwise; and the
keeping or storing of all property of Tenant in the Premises and Building
Complex is at the sole risk of Tenant.
16. INDEMNITY TO LANDLORD.
16.1 Tenant agrees to indemnify, defend, and hold Landlord and
Building Manager harmless from all liability, costs, or expenses, including
attorneys' fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent
caused by the negligence or breach of this Lease by the Tenant or Tenant's
Agents.
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16.2 Tenant shall maintain throughout the Term a commercial general
liability policy, including protection against death, personal injury and
property damage, issued by an insurance company qualified to do business in
the State of Colorado, with a single limit of not less than $1,000,000.00.
Such policy shall name Landlord, Building Manager, and Mortgagee as
additional insureds, be primary to any other similar insurance of such
additional insureds, and provide that it may not be cancelled or modified
without at least 20 days' prior notice to Landlord and Mortgagee. The minimum
limits of such insurance do not limit the liability of Tenant hereunder.
Prior to occupancy of the Premises, and prior to expiration of the
then-current policy, Tenant shall deliver certificates evidencing that
insurance required under this Lease is in effect.
17. SURRENDER AND NOTICE. Upon the expiration or other termination of
this Lease, Tenant shall immediately quit and surrender to Landlord the
Premises broom clean, in good order and condition, ordinary wear and tear and
loss by fire or other casualty excepted, and Tenant shall remove all of its
movable furniture and other effects, all telephone cable and related
equipment in the Building installed for Tenant, and such Alterations, as
Landlord requires. If Tenant fails to timely vacate the Premises as required,
Tenant is responsible to Landlord for all resulting costs and damages of
Landlord, including any amounts paid to third parties who are delayed in
occupying the Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
18.1 Landlord shall maintain casualty insurance for the Building
Complex, the shell and core of the Building and the Premises in such amounts,
from such companies, and on such terms and conditions, including insurance
for loss of Rent as Landlord deems appropriate, from time to time.
18.2 Tenant shall maintain throughout the Term "all risk" or
"multi-peril" insurance for the full replacement cost of Tenant's property
and betterments in the Premises, including tenant finish in excess of the
Initial Tenant Finish.
18.3 If the Building is damaged by fire or other casualty which
renders the Premises wholly untenantable or the damage is so extensive that
an architect selected by Landlord certifies in writing to Landlord and Tenant
within 60 days of said casualty that the Premises cannot, with the exercise
of reasonable diligence, be made fit for occupancy within 180 working days
from the happening thereof, then, at the option of Landlord or Tenant
exercised in writing to the other within 30 days of such determination, this
Lease shall terminate as of the occurrence of such damage. In the event of
termination, Tenant shall pay Rent duly apportioned up to the time of such
casualty and forthwith surrender the Premises and all interest. If Tenant
fails to do so, Landlord may reenter and take possession of the Premises and
remove Tenant. If, however, the damage is such that the architect certifies
that the Premises can be made tenantable within such 180-day period or
neither Landlord or Tenant elects to terminate the Lease despite the extent
of damage, then the provisions below apply.
18.4 If the Premises are damaged by fire or other casualty that does
not render it wholly untenantable or require a repair period in excess of 180
days, Landlord shall with reasonable promptness except as hereafter provided
repair the Premises to the extent of the Initial Tenant Finish.
18.5 If the Building is damaged (though the Premises may not be
affected, or if affected, can be repaired within 180 days) and within 60 days
after the damage Landlord decides not to reconstruct or rebuild the Building,
then, notwithstanding anything contained herein, upon notice to that effect
from Landlord within said 60 days, Tenant shall pay the Rent apportioned to
such date, this Lease shall terminate from the date of such notice, and both
parties discharged from further obligations except as otherwise expressly
provided.
18.6 Landlord and Tenant waive all rights of recovery against the
other and its respective officers, partners, members, agents,
representatives, and employees for loss or damage to its real and personal
property kept in the Building Complex, or for loss of business arising out of
or related the use and occupancy of the Premises which is capable of being
insured against under all risk or multi-peril insurance, including coverage
for damage due to water leakage. Tenant also waives all such rights of
recovery against Building Manager. Each party shall, upon obtaining the
property damage insurance required by this Lease, notify the insurance
carrier that the foregoing waiver is contained in this Lease and use
reasonable efforts to obtain an appropriate waiver of subrogation provision
in the policies.
18.7 Rent shall abate during any period of repair and restoration to
the extent of any recovery by Landlord under its loss of rent insurance
related to the Premises in the same proportion that the part of the Premises
rendered untenantable bears to the whole.
19. CONDEMNATION. If the Premises or substantially all of it or any
portion of the Building Complex which renders the Premises untenantable is
taken by right of eminent domain, or by condemnation (which includes a
conveyance in lieu of a taking), this Lease, at the option of either Landlord
or Tenant exercised by notice to the other within 30 days after the taking,
shall terminate and Rent shall be apportioned as of the date of the taking.
Tenant shall forthwith surrender the Premises and all Interest in this Lease,
and, if Tenant fails to do so, Landlord may reenter and take possession of
the Premises. If less than all the Premises is taken, Landlord shall promptly
repair the Premises as nearly as possible to its condition immediately prior
to the taking, unless Landlord elects not to rebuild under Section 18.5.
Landlord shall receive the entire award or consideration for the taking.
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20. DEFAULT BY TENANT.
20.1 Each of the following events is an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date unless
such failure is cured within 3 days after the due date;
(2) Tenant vacates or abandons the Premises;
(3) This Lease or Tenant's interest is transferred whether
voluntarily or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by process
of law and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any provision
of federal or state law relating to insolvency, bankruptcy, or reorganization
("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against Tenant,
unless dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of an
assignment for the benefit of creditors; the convening by Tenant of a meeting
of its creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant (or any general partner
of Tenant if Tenant is a partnership), that it is unable to pay its debts as
they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises on the
Commencement Date;
(10) Tenant fails to perform any of its other obligations and
non-performance continues for 30 days after notice by Landlord or, if such
performance cannot be reasonably had within such 30 day period, Tenant does
not in good faith commence performance within such 30 day period and
diligently proceed to completion; provided, however, Tenant's right to cure
shall not exceed the period provided by Applicable Law.
20.2 REMEDIES OF LANDLORD. If an Event of Default occurs, Landlord
may then or at any time thereafter, either:
(1)(a) Without further notice except as required by Applicable
Laws, reenter and repossess the Premises or any part and expel Tenant and
those claiming through or under Tenant and remove the effects of both without
being deemed guilty of any manner of trespass and without prejudice to any
remedies for arrears of Rent or preceding breach of this Lease. Should
Landlord reenter or take possession pursuant to legal proceedings or any
notice provided for by Applicable Law, Landlord may, from time to time,
without terminating this Lease, relet the Premises or any part, either alone
or in conjunction with other portions of the Building Complex, in Landlord's
or Tenant's name but for the account of Tenant, for such periods (which may
be greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other terms (which
may include concessions of free rent and alteration and repair of the
Premises) as Landlord, in its sole discretion, determines and Landlord may
collect the rents therefor. Landlord is not in any way responsible or liable
for failure to relet the Premises, or any part thereof, or for any failure to
collect any rent due upon such reletting. No such reentry or repossession or
notice from Landlord shall be construed as an election by Landlord to
terminate this Lease unless specific notice of such intention is given
Tenant. Landlord reserves the right following any reentry and/or reletting to
exercise its right to terminate this Lease by giving Tenant notice, in which
event this Lease will terminate as specified in the notice.
(b) If Landlord takes possession of the Premises
without terminating this Lease, Tenant shall pay Landlord (i) the Rent which
would be payable if repossession had not occurred, less (ii) the net
proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's expenses incurred in connection with such reletting, including all
repossession costs, brokerage commissions, attorneys' fees, expenses of
employees, alteration, and repair costs (collectively "Reletting Expenses").
If, in connection with any reletting, the new lease term extends beyond the
Term or the premises covered thereby include other premises not part of the
Premises, a fair apportionment of the rent received from such reletting and
the Reletting Expenses, will be made in determining the net proceeds received
from the reletting. In determining such net proceeds, rent concessions will
also be apportioned over the term of the new lease. Tenant shall pay such
amounts to Landlord monthly on the days on which the Rent would have been
payable if possession had not been retaken, and Landlord is entitled to
receive the same from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on the
date specified and, on such date, Tenant's right to possession of the
Premises shall cease and the Lease will terminate except as to Tenant's
liability as hereafter provided
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as if the expiration of the term fixed in such notice were the end of the
Term. If this Lease terminates pursuant to this Section, Tenant remains
liable to Landlord for damages in an amount equal to the Rent which would
have been owing by Tenant for the balance of the Term had this Lease not
terminated, less the net proceeds, if any, of reletting of the Premises by
Landlord subsequent to termination after deducting Reletting Expenses.
Landlord may collect such damages from Tenant monthly on the days on which
the Rent would have been payable if this Lease had not terminated and
Landlord shall be entitled to receive the same from Tenant on each such day.
Alternatively, if this Lease is terminated, Landlord at its option may
recover forthwith against Tenant as damages for loss of the bargain and not
as a penalty an amount equal to the worth at the time of termination of the
excess, if any, of the Rent reserved in this Lease for the balance of the
Term over the then Reasonable Rental Value of the Premises for the same
period plus all Reletting Expenses. "Reasonable Rental Value" is the amount
of rent Landlord can obtain for the remaining balance of the Term.
20.3 RECAPTURE OF RENT CONCESSIONS AND TENANT IMPROVEMENT
ALLOWANCES. In the Event of Default by Tenant, in addition to all other
rights and remedies, Landlord shall be entitled to receive from Tenant all
sums, the payment of which may previously have been waived or abated by
Landlord, or which may have been paid by Landlord pursuant to any agreement
to grant Tenant a rental abatement or other monetary inducement or
concession, including but not limited to any tenant improvement or finish
allowance or moving allowance, together with interest thereon from the date
or dates such amounts were paid by Landlord or would have been due from
Tenant but for the abatement, at the rate of eighteen percent (18%) per
annum, until paid; it being understood and agreed that such concession or
abatement was made on the condition and basis that Tenant fully perform all
obligations and covenants under the Lease for the entire term.
20.4 CUMULATIVE REMEDIES. Suits to recover Rent and damages may be
brought by Landlord, from time to time, and nothing herein requires Landlord
to await the date the Term would expire had there been no Event of Default or
termination, as the case may be. Each right and remedy provided for in this
Lease is cumulative and non-exclusive and in addition to every other right or
remedy now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance. The exercise or beginning of the
exercise by Landlord of one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of other rights or remedies. All
costs incurred by Landlord to collect any Rent and damages or to enforce this
Lease are also recoverable from Tenant. If any suit is brought because of an
alleged breach of this Lease , the prevailing party is also entitled to
recover from the other party all reasonable attorneys' fees and costs
incurred in connection therewith.
20.5 NO WAIVER. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a breach
thereof, and no acceptance of full or partial Rent during the continuance of
any breach constitutes a waiver of any such breach or such provision, except
by written instrument executed by Landlord. No waiver shall affect or alter
this Lease but each provision hereof continues in effect with respect to any
other then existing or subsequent breach thereof.
20.6 BANKRUPTCY. Nothing contained in this Lease limits Landlord's
right to obtain as liquidated damages in any bankruptcy or similar proceeding
the maximum amount allowed by law at the time such damages are to be proven,
whether such amount is greater, equal to, or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything in this Section to the
contrary, any proceeding described in Section 20.1(5), (6), (7) and (8) is an
Event of Default only when such proceeding is brought by or against the then
holder of the leasehold estate under this Lease.
20.7 LATE PAYMENT CHARGE. Any Rent not paid within 3 days after the
due date shall thereafter bear interest at 5 percentage points above the
Prime Rate or the highest rate permitted by law, whichever is lower, until
paid. Further, if such Rent is not paid within 3 days after the due date,
Tenant agrees Landlord will incur additional administrative expenses, the
amount of which will be difficult to determine; Tenant therefore shall also
pay Landlord a late charge for each late payment of 5% of such payment. Any
amounts paid by Landlord to cure a default of Tenant which Landlord has the
right but not the obligation to do, shall, if not repaid by Tenant within 3
days of demand by Landlord, thereafter bear interest at 5 percentage points
above the Prime Rate until paid. "Prime Rate" means that rate announced by
Wells Fargo Bank, N.A., or its successor, as its prime rate on the date
closest to the date interest commences.
20.8 WAIVER OF JURY TRIAL. Tenant and Landlord waive any right to a
trial by jury in suits arising out of or concerning the provisions of this
Lease.
21. DEFAULT BY LANDLORD. In the event of any alleged default on the part
of Landlord, Tenant shall give notice to Landlord and afford Landlord a
reasonable opportunity to cure such default. Such notice shall be ineffective
unless a copy is simultaneously also delivered in the manner required in this
Lease to any holder of a mortgage and/or deed of trust affecting all or any
portion of the Building Complex (collectively, "Mortgagee"), provided that
prior to such notice Tenant has been notified (by way of notice of Assignment
of Rents and Leases, or otherwise), of the address of a Mortgagee. If
Landlord fails to cure such default within the time provided, then Mortgagee
shall have an additional 30 days following a second notice from Tenant or, if
such default cannot be cured within that time, such additional time as may be
necessary provided within such 30 days, Mortgagee commences and diligently
pursues a cure (including commencement of foreclosure proceedings if
necessary to effect such cure). Tenant's sole remedy will be equitable relief
or actual damages but in no event
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is Landlord or any Mortgagee responsible for consequential damages or lost
profit incurred by Tenant as a result of any default by Landlord.
22. SUBORDINATION AND ATTORNMENT.
22.1 This Lease will be subordinate to any mortgage, deed of trust
and related documents now or hereafter placed upon the Building Complex
(including all advances made thereunder), and to all amendments, renewals,
replacements, or restatements thereof (collectively, "Mortgage"), unless
Landlord or Mortgagee advises Tenant that it will not be subordinate. Tenant
agrees that no documentation other than this Lease is required to evidence
such subordination.
22.2 If any Mortgagee elects to have this Lease superior to the lien
of its Mortgage and gives notice to Tenant, this Lease will be deemed prior
to such Mortgage whether this Lease is dated prior or subsequent to the date
of such Mortgage or the date of recording thereof.
22.3 In confirmation of subordination or superior position, as the
case may be, Tenant will execute such documents as may be required by
Mortgagee and, if it fails to do so within 10 days after demand, Tenant
hereby irrevocably appoints Landlord as Tenant's attorney-in-fact in Tenant's
name, place, and stead to do so.
22.4 Tenant hereby attorns to all successor owners of the Building,
whether such ownership is acquired by sale, foreclosure of a Mortgage, or
otherwise.
22.5 If it becomes necessary to foreclose the Mortgage, Mortgagee
shall neither terminate the Lease nor join Tenant in summary or foreclosure
proceedings so long as Tenant is not in default under any of the terms,
covenants, or conditions of the Lease. If Mortgagee succeeds to the interest
of Landlord under the Lease, Mortgagee shall not be: (a) liable for any act
or omission of any prior landlord (including Landlord); (b) liable for the
return of any security deposit unless such deposit has been delivered to the
Mortgagee by Landlord or is in an escrow fund available to Mortgagee; (c)
subject to any offsets or defenses that Tenant might have against any prior
landlord (including Landlord); (d) bound by any Rent or additional Rent that
Tenant might have paid for more than the current month to any prior landlord
(including Landlord); (e) personally liable under the Lease, Mortgagee's
liability thereunder being limited to its interest in the Real Property; or
(f) bound by any notice of termination given by Landlord to Tenant without
Mortgagee's prior written consent thereto.
22.6 Tenant acknowledges that a current Mortgagee requires that Rent
payable to Landlord under this Lease be paid directly by Tenant to Mortgagee
upon a default by Landlord under the Mortgage. After receipt of notice from
Mortgagee to Tenant, at the address set forth above (or at such other address
of which Mortgagee has been notified in writing), Tenant shall pay to
Mortgagee all monies due or to become due to Landlord under the Lease. Tenant
shall have no responsibility to ascertain whether such demand by Mortgagee is
permitted under the Mortgage, or to inquire into the existence of a default.
Landlord hereby waives any right, claim, or demand it may now or hereafter
have against Tenant by reason of such payment to Mortgagee, and any such
payment shall discharge the obligations of Tenant to make such payment to
Landlord.
23. REMOVAL OF TENANT'S PROPERTY.
23.1 All movable personal property of Tenant not removed from the
Premises upon vacation, abandonment, or termination of this Lease shall be
conclusively deemed abandoned and may be sold, or otherwise disposed of by
Landlord without notice to Tenant and without obligation to account; Tenant
shall pay Landlord's expenses in connection with such disposition.
23.2 Subject to any purchase money security interests granted by
Tenant, Tenant conveys to Landlord all of Tenant's property at any time
situated on the Premises (and all replacements) as security for the
performance of its obligations; Tenant shall execute such documents as
Landlord requires to evidence and perfect Landlord's security interest, and
for this purpose this Lease is considered a security agreement covering such
personal property. Upon the occurrence of an Event of Default, Landlord may
exercise all rights of a secured party under the Colorado Uniform Commercial
Code. Such security interest is prior and superior to any other security
interest except a purchase money security interest. Tenant's property shall
not be removed from the Premises without Landlord's consent unless such
property is replaced with an item of equal or greater value.
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration or
termination of this Lease, Tenant remains in possession of the Premises and
continues to pay rent without a written agreement as to such holding over,
even though Landlord accepts such rent, such possession is a tenancy from
month-to-month, subject to all provisions hereof but at a monthly rent
equivalent to 200% of the monthly Rent paid by Tenant immediately prior to
such expiration or termination. Rent shall continue to be payable in advance
on the first day of each calendar month. Such tenancy may be terminated by
either party upon 10 days' notice prior to the end of any monthly period.
Nothing contained herein obligates Landlord to accept rent tendered after the
expiration of the Term or relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after expiration
or termination of this Lease or after any notice (other than a demand for
payment of money) by Landlord to Tenant reinstates, continues, extends the
Term, or
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affects any notice given to Tenant prior to such payments. After notice,
commencement of a suit, or final judgment granting Landlord possession of the
Premises, Landlord may collect any amounts due or otherwise exercise
Landlord's remedies without waiving any notice or affecting any suit or
judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not less
than 10 days' notice to execute and deliver to Landlord a written statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified stating the modifications); that there have been no defaults by
Landlord or Tenant (or, if there have been defaults, setting forth the nature
thereof); the date to which Rent has been paid in advance and such other
information as Landlord requests. Such statement may be relied upon by a
prospective purchaser of Landlord's interest or Mortgagee. Tenant's failure
to timely deliver such statement is conclusive upon Tenant that: (i) this
Lease is in full force and effect without modification except as may be
represented by Landlord; (ii) there are no uncured defaults in Landlord's
performance; and (iii) not more than 1 month's Rent has been paid in advance.
Upon request, Tenant will furnish Landlord an appropriate resolution
confirming that the party signing the statement is authorized to do so.
27. MISCELLANEOUS.
27.1 TRANSFER BY LANDLORD. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein
named (and in the case of any subsequent transfers, the then grantor) is
automatically released from and after the date of such transfer of all
liability as respects performance of any obligations of Landlord thereafter
to be performed. Any funds in Landlord's possession at the time of transfer
in which Tenant has an interest will be turned over to the grantee and any
amount then due Tenant under this Lease will be paid to Tenant.
27.2 NO MERGER. The termination or mutual cancellation of this Lease
will not work a merger, and such termination or cancellation will at the
option of Landlord either terminate all subleases or operate as an automatic
assignment to Landlord of such subleases.
27.3 COMMON AREA USE. Landlord may use any of the Common Areas for
the purposes of completing or making repairs or alterations in any portion of
the Building Complex.
27.4 INDEPENDENT COVENANTS. This Lease is to be construed as though
the covenants between Landlord and Tenant are independent and not dependent
and Tenant is not entitled to any setoff of the Rent against Landlord if
Landlord falls to perform its obligations; provided, however, the foregoing
does not impair Tenant's right to commence a separate suit against Landlord
for any default by Landlord so long as Tenant complies with Section 21.
27.5 VALIDITY OF PROVISIONS. If any provision is invalid under
present or future laws, then it is agreed that the remainder of this Lease is
not affected and that in lieu of each provision that is invalid, there will
be added as part of this Lease a provision as similar to such invalid
provision as may be possible and is valid and enforceable.
27.6 CAPTIONS. The caption of each Section is added for convenience
only and has no effect in the construction of any provision of this Lease.
27.7 CONSTRUCTION. The parties waive any rule of construction that
ambiguities are to be resolved against the drafting party. Any words
following the words "include," "including," "such as," "for example," or
similar words or phrases shall be illustrative only and are not intended to
be exclusive, whether or not language of non-limitation is used.
27.8 APPLICABILITY. Except as otherwise provided, the provisions of
this Lease are applicable to and binding upon Landlord's and Tenant's
respective heirs, successors and assigns. Such provisions are also considered
to be covenants running with the land to the fullest extent permitted by law.
27.9 AUTHORITY. Tenant and the party executing this Lease on behalf
of Tenant represent to Landlord that such party is authorized to do so by
requisite action of Tenant and agree, upon request, to deliver Landlord a
resolution, similar document, or opinion of counsel to that effect.
27.10 SEVERABILITY. If there is more than one party which is the
Tenant, the obligations imposed upon Tenant are joint and several.
27.11 ACCEPTANCE OF KEYS, RENT OR SURRENDER. No act of Landlord or
its representatives during the Term, including any agreement to accept a
surrender of the Premises or amend this Lease, is binding on Landlord unless
such act is by a partner, member or officer of Landlord, as the case may be,
or other party designated in. writing by Landlord as authorized to act. The
delivery of keys to Landlord or its representatives will not operate as a
termination of this Lease or a surrender of the Premises. No payment by
Tenant of a lesser amount than the entire Rent owing is other than on account
of such Rent nor is any endorsement or statement on any check or letter
accompanying payment an accord and satisfaction. Landlord may accept payment
without prejudice to Landlord's right to recover the balance or pursue any
other remedy available to Landlord.
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27.12 BUILDING NAME AND SIZE. Landlord may as it relates to the
Building and Building Complex: change the name, increase the size by adding
additional real property, construct other buildings or improvements, change
the location and/or character, or make alterations or additions. If
additional buildings are constructed or the size is increased, Landlord and
Tenant shall execute an amendment which incorporates any necessary
modifications to Tenant's Pro Rata Share. Tenant may not use the Building's
name for any purpose other than as part of its business address.
27.13 DIMINUTION OF VIEW. Tenant agrees that no diminution of light,
air, or view from the Building entitles Tenant to any reduction of Rent under
this Lease, results in any liability of Landlord, or in any way affects
Tenant's obligations.
27.14 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary contained in this Lease, Landlord's liability is limited to
Landlord's interest in the Building.
27.15 NON-RELIANCE. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its representatives
except as set forth herein.
27.16 WRITTEN MODIFICATION. No amendment or modification of this
Lease is valid or binding unless in writing and executed by the parties.
27.17 LENDER'S REQUIREMENTS. Tenant will make such modifications to
this Lease as may hereafter be required to conform to any lender's
requirements, so long as such modifications do not increase Tenant's
obligations or materially alter its rights.
27.18 EFFECTIVENESS. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option to
lease and it is not effective unless and until execution and delivery by both
Landlord and Tenant.
27.19 SURVIVAL. This Lease, notwithstanding expiration or
termination, continues in effect as to any provisions requiring observance or
performance subsequent to termination or expiration.
27.20 TIME OF ESSENCE. Time is of the essence herein.
27.21 RULES AND REGULATIONS. If rules and regulations are attached
hereto, they are a part of this Lease and Tenant agrees that Tenant and
Tenant's Agents shall at all times abide by such rules and regulations.
27.22 RECORDING. Tenant will not record this Lease. Recording of the
Lease by or on behalf of Tenant is an Event of Default.
28. AUTHORITIES FOR ACTION AND NOTICE.
28.1 Unless otherwise provided, Landlord may act through Landlord's
Building Manager or other designated representatives from time to time.
28.2 All notices or other communications required or desired to be
given to Landlord must be in writing and shall be deemed received when
delivered personally to any officer, partner, or member of Landlord
(depending upon the nature of Landlord) or the manager of the Building (the
"Building Manager") whose office is in the Building, or when deposited in the
United States mail, postage prepaid, certified or registered, return receipt
requested, addressed as provided in Section 1.10. All notices or
communications required or desired to be given to Tenant shall be in writing
and deemed duly served when delivered personally to any officer, employee,
partner, or member of Tenant (depending upon the nature of Tenant),
individually if a sole proprietorship, or manager of Tenant whose office is
in the Building, or when deposited in the United States mail, postage
prepaid, certified or registered, return receipt requested, addressed as
provided in Section 1.12. Either party may designate in writing served as
above provided a different address to which notice is to be mailed. The
foregoing does not prohibit notice from being given as provided in Rule 4 of
Colorado Rules of Civil Procedure, as amended from time to time.
29. PARKING. Landlord will make available parking spaces up to Tenant's
Maximum set forth in Section 1.9, if any, for Tenant's use during the term
hereof. Tenant shall notify Landlord on or before the Commencement Date of
the number of parking spaces up to Tenant's Maximum it will initially require
and, thereafter, Tenant shall give Landlord written notice at least 30 days
prior to the date that Tenant shall require the use of any parking spaces in
addition to those initially accepted, the total of which shall not exceed
Tenant's Maximum. Tenant shall pay the monthly rate in effect for each
parking space utilized as such rate may change from time to time. The monthly
parking rates are currently as follows: $65.00 for an assigned reserved
space, $40 for an unassigned covered space, and $20 for an unassigned deck
(uncovered) space. Landlord reserves the right to determine the type of
parking spaces allocated for Tenant's use. Tenant will receive one monthly
bill for all spaces taken which shall be paid in the same manner and at the
same place as Minimum Rent for the Premises. Tenant has no rights to use
parking spaces except as provided in this Section. The right granted to
Tenant to use any space is a license only and Landlord's inability to make
any space available at any time for reasons beyond Landlord's reasonable
control is not a material breach by Landlord of its obligations hereunder.
The abatement of Tenant's obligation to pay for
15
<PAGE>
unavailable spaces during any period of unavailability constitutes Tenant's
sole remedy. If Tenant fails to timely pay a parking bill, in addition to
being a default under the Lease, Tenant may, at Landlord's option, forfeit
its right to all parking spaces. All vehicles parked in the parking garage
and the personal property therein shall be at the sole risk of Tenant,
Tenant's Agents and the users of such spaces and Landlord shall have no
liability for loss or damage thereto for whatever cause.
30. SUBSTITUTE PREMISES. Landlord has the right at any time upon 30
days' prior notice to Tenant to substitute other space within the Building,
including substantiality comparable tenant finish, for the Premises (the
"Substitute Premises"). Tenant shall relocate to the Substitute Premises on
the date specified in Landlord's notice which will be no sooner than 30 days
after notice. Landlord will pay all reasonable expenses incurred by Tenant to
move its furniture, fixtures, and equipment to the Substitute Premises. The
suite number designation and Exhibit A shall be deemed revised to reflect the
description of the Substitute Premises. Except for such revisions, the
provisions of this Lease are applicable to the Substitute Premises which are
the Premises following Tenant's move.
31. BROKERAGE. Tenant represents it has not employed any broker with
respect to this Lease and has no knowledge of any broker's involvement in
this transaction except those listed in Sections 1.14 and 1.15 (collectively,
the "Brokers"). Tenant shall indemnify Landlord against any expense incurred
by Landlord as a result of any claim for commissions or fees by any other
broker, finder, or agent, whether or not meritorious, employed by Tenant or
claiming by, through, or under Tenant, other than the Brokers. Tenant
acknowledges Landlord is not liable for any representations by the Brokers
regarding the Premises, Building, Building Complex, or this Lease.
32. LEGAL FEES; PREPARATION OF LEASE. Tenant acknowledges that if
Landlord incurs legal fees in connection with the preparation and negotiation
of this Lease in excess of $4,107.50, the amount of such excess shall, at
Landlord's option, be payable to Landlord as a one-time payment of additional
Rent promptly upon the final determination of Landlord's legal fees.
33. COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any one or more
counterpart signature pages may be removed from one counterpart of the Lease
and annexed to another counterpart of the Lease to form a completely executed
original instrument without impairing the legal effect of the signature
thereon.
34. ADDENDUM/EXHIBITS. Any Addenda or Exhibits referred to herein are
attached hereto and incorporated herein by reference.
35. OPTION TO EXTEND. Landlord grants Tenant an option (the "Option") to
extend the term of the Lease for one (1) 1 additional term of two (2) years
(the "Option Term"). The Option applies only to the Premises and is on the
following conditions:
35.1 Notice of Tenant's interest in exercising the Option must be
given to Landlord no earlier than 12 months and no later than 6 months prior
to the Expiration Date ("Tenant's Notice"). Not later than thirty (30) days
after receiving Tenant's Notice, Landlord will notify Tenant of the Minimum
Rent applicable during the Option Term in accordance with subsection 35.5
below ("Landlord's Notice").
35.2 Tenant has 15 days after receipt of Landlord's Notice to
exercise the Option by delivering notice of exercise to Landlord. If Tenant
timely exercises the Option, the Term will be deemed extended on the terms of
this Section and the parties will execute an amendment evidencing the
extension.
35.3 Unless Landlord is timely notified by Tenant in accordance with
subparagraphs 35.1 and 35.2 above, it will be conclusively deemed that Tenant
has not exercised the Option and the Lease will expire in accordance with its
terms on the Expiration Date.
35.4 Tenant's rights pursuant to this Paragraph are personal to
Tenant and may not be assigned. Tenant's right to exercise the Option is
conditioned on: (i) Tenant not being in default at the time of exercise or at
the time of commencement of the Option Term; (ii) Tenant not having subleased
or vacated more than 25% of the Premises or assigned its interest under the
Lease as of the commencement of the Option Term; and (iii) Tenant having the
financial ability to perform its obligations under the Option Term. Upon an
assignment of the Lease, this Paragraph is null and void.
35.5 The Option granted hereunder will be upon the terms of the
Lease, except that the Minimum Rent during the Option Term will be the rate
at which Landlord would lease space in the Building comparable to the
Premises to third parties if such space were available for leasing for a
lease term paralleling the Option Term, but in no event will the Minimum Rent
be less than the Rent in effect immediately prior to commencement of the
Option Term. Such Rent may include escalations and pass-throughs.
35.6 After exercise, or failure to exercise the Option, Tenant shall
have no further rights to extend the Term.
16
<PAGE>
36. COMMON AREA REMODEL. Landlord agrees to use reasonable efforts to
remodel the eleventh floor common area and to complete such remodeling six
(6) months following mutual execution of this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written and it is effective upon delivery of a
fully-executed copy to Tenant.
TELECOM WIRELESS CORPORATION, a Utah PRENTICE POINT LIMITED PARTNERSHIP, a
corporation Delaware limited partnership
By: PRENTICE POINT, INC., General Partner
By: /s/ Calvin Smiley
---------------------------------
Print Name: Calvin Smiley By: /s/ Charles Mcintyre
------------------------- -------------------------------------
Print Title: President Charles McIntyre, Vice President
------------------------
"Landlord"
By: /s/ Carolyn Hariton
---------------------------------
Print Name: Carolyn Hariton
-------------------------
Print Title: Counsel
------------------------
"Tenant"
17
<PAGE>
EXHIBIT A TO LEASE
DIAGRAM OF PREMISES
(Diagram of leased area)
<PAGE>
EXHIBIT B TO LEASE
REAL PROPERTY
PARCEL 1:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER TECHNOLOGICAL
CENTER FILING NO. 2, described as follows:
Beginning at the Northeast comer of said Block 2;
thence Southerly along the Easterly line of said Block 2, the same being the
Westerly line of South Wabash Street, a distance of 437.78 feet to a point of
curvature; thence along a curve to the right with a radius of 75.00 feet and a
central angle of 2DEG. 59'53" an arc distance of 3.92 feet; thence along a
curve to the right whose tangent makes an angle to the right of 26DEG. 06'30"
from the tangent of the preceding curve and having a radius of 80.00 feet and a
central angle of 77DEG. 04'05" an arc distance of 107.61 feet to a point of
tangency; thence along the tangent to the aforesaid curve 141.62 feet; thence at
a deflection angle of 14DEG. 28'39" to the left 120.00 feet to a point on the
Northeasterly line of East Prentice Avenue; thence Northwesterly along said
Northeasterly line at East Prentice a distance of 32.60 feet; thence
Northeasterly at an angle of 88DEG. 18'38" to the right a distance of 438.06
feet to the North line of said Block 2; thence Easterly at an angle of
74DEG. 47'33" to the right and along said North line, a distance of 270.00
feet to the point of beginning,
County of Arapahoe,
State of Colorado.
PARCEL 2:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER TECHNOLOGICAL
CENTER FILING NO. 2, described as follows:
Commencing at the Northeast corner of said Block 2;
thence Westerly along the North line of said Block 2, a distance of 270.00 feet
to the TRUE POINT OF BEGINNING; thence continuing along said North line of Block
2, a distance of 98.43 feet; thence Southwesterly at a deflection angle of
89DEG. 16'39" to the left 203.35 feet; thence on an angle to the left of
90DEG. 00'00", a distance of 45.57 feet; thence on an angle to the left of
75DEG. 30'54", a distance of 211.31 feet to the TRUE POINT OF BEGINNING,
County of Arapahoe, State of Colorado.
PARCEL 3:
An easement for ingress and egress granted in First Amended and Restated Cross
Easement Agreement by and between The Dow Chemical Company and Prentice Point,
Ltd. recorded September 8, 1989, in Book 5769, at Page 19, County of Arapahoe,
State of Colorado.
PARCEL 4:
A license to construct, operate, maintain, repair and replace a concrete
courtyard across the City of Aurora's Rampart Waterline Easement, as granted by
the City of Aurora, Colorado, pursuant to a License Agreement dated August 16,
1985 and recorded September 10, 1985 in Book 4541 at page 336, as assigned to
Prentice Point Associates, L.P., a California limited partnership by Assignment
thereof recorded June 3, 1994 in Book 7581 at Page 122, as assigned to Prentice
Point Limited Partnership, a Delaware limited partnership, by Assignment thereof
recorded January 1, 1997, at Reception No. R7003471.
County of Arapahoe,
State of Colorado.
<PAGE>
EXHIBIT C
PREMISES COMPLETION
[Intentionally Deleted]
<PAGE>
EXHIBIT D TO LEASE
FORM OF FIRST AMENDMENT TO LEASE
[Intentionally Deleted]
<PAGE>
EXHIBIT E TO LEASE
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety
and well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any
continuing violation of these rules and regulations by Tenant shall
constitute a default by Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii)
any such waiver shall not relieve such tenant from the obligation to comply
with such rule or regulation in the future unless otherwise agreed to by
Landlord, (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of complying with these rules and regulations,
unless such other tenant has received a similar written waiver from Landlord,
and (iv) any such waiver shall not relieve such tenant from any liability to
Landlord for any loss or damage occasioned as a result of such tenant's
failure to comply.
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, roof, halls and other parts of the Building not
exclusively occupied by any tenant shall not be obstructed or encumbered by
any tenant or used for any purpose other than ingress and egress to and from
each tenant's premises. Landlord shall have the right to control and operate
the public portions of the Building, and the facilities furnished for common
use of the tenants, in such manner as Landlord deems best for the benefit of
the tenants generally. No tenant shall permit the visit to its premises of
persons in such numbers or under such conditions as to interfere with the use
and enjoyment of the entrances, corridors, elevators and other public
portions or facilities of the Building by other tenants.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior
written consent of Landlord. All awnings, projections, curtains, blinds,
shades, screens and other fixtures must be of a quality, type, design and
color, and attached in the manner approved by Landlord.
3. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building or any tenant's premises, nor placed
in the halls, corridors or vestibules without the prior written consent of
Landlord.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and
no debris, rubbish, rags or other substances shall be thrown therein. All
damage resulting from any misuse of the fixtures shall be borne by the tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
5. There shall be no marking, painting, drilling into or defacement of
the Building, or any part of any tenant's premises that is visible from
public areas of the Building. Tenants shall not construct, maintain, use or
operate within their respective premises any electrical device, wiring or
apparatus in connection with a loud speaker system or other sound system,
except as reasonably required as part of a communication system approved
prior to the installation thereof by Landlord. No such loud speaker or sound
system shall be constructed, maintained, used or operated outside the
premises of any tenant.
6. No bicycles or vehicles and no animals, birds or pets of any kind
shall be brought into or kept in or about the Building or any tenant's
premises, except that this rule shall not prohibit the parking of bicycles or
vehicles in areas specifically designated therefor by Landlord. No cooking or
heating of food shall be done or permitted by any tenant on its premises
except for food prepared in portable microwave ovens (provided that no odors
are emitted such as in the preparation of popcorn). No tenant shall cause or
permit any unusual or objectionable odors to be produced upon or permeate
from its premises.
7. No space in the Building shall be used for the manufacture of goods
for sale in the ordinary course of business, or for the sale at auction of
merchandise, goods or property of any kind. Furthermore, the use of its
premises by any tenant shall not be changed without the prior approval of
Landlord.
8. No tenant shall make any unseemly or disturbing noises or disturb or
interfere with the occupants of the Building or neighboring buildings or
premises or those having business with them, whether by the use of any
musical instrument, radio, talking machine, whistling, singing or in any
other way. No tenant shall throw anything out of the doors or windows or into
or down the corridors or stairs of the Building.
9. No flammable, combustible or explosive fluid, chemical or substance
shall be brought into or kept upon the Premises.
2
<PAGE>
10. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in any
existing locks or the locking mechanism therein, without Landlord's approval.
The doors leading to the corridors or main halls shall be kept closed during
business hours except as they may be used for ingress or egress. Each tenant
shall, upon the termination of its tenancy, restore to Landlord all keys of
stores, offices, storage and toilet rooms either furnished to, or otherwise
procured by, such tenant, and in the event of the loss of any keys so
furnished, such tenant shall pay to Landlord the replacement cost thereof.
Tenant's key system shall be separate from that for the rest of the Building.
11. Landlord reserves the right to inspect all freight to be brought
into the Building and to exclude from the Building all freight which violates
any of these rules and regulations of the Lease.
12. Landlord reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself or
herself to the Building management or watchman, if any, on duty. Landlord
may, at its option, require all persons admitted to or leaving the Building
between the hours of 6:00 p.m. and 7:00 a.m., Monday through Friday, and at
any hour on Saturdays, Sundays and legal holidays, to register. Each tenant
shall be responsible for all persons for whom it authorizes entry in the
Building, and shall be liable to Landlord for all acts or omissions of such
persons.
13. The Premises shall not, at any time, be used for lodging or
sleeping, or for any immoral or illegal purposes.
14. Tenant assumes full responsibility for protecting the Premises from
theft, and each tenant, before closing and leaving the Premises at any time,
shall see that all doors and windows are closed and locked, and all lights
turned off.
15. Landlord's employees shall not perform any work or do anything
outside of their regular duties, unless under special instruction from the
management of the Building. The requirements of tenants will be attended to
only upon application to Landlord, and any such special requirements shall be
billed to Tenant (and paid when the next installment of rent is due) in
accordance with the schedule of charges maintained by Landlord from time to
time or at such charge as is agreed upon in advance by Landlord and Tenant.
16. Canvassing, soliciting and peddling in the Building and on the
Property are prohibited and each tenant shall cooperate to prevent the same.
Peddlers, solicitors and beggars shall be reported to the Building manager or
as Landlord otherwise requests.
17. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards. Tenant shall be responsible to Landlord for any loss
or damage resulting from any deliveries made by or for Tenant to the Building.
18. Mats, trash or other objects shall not be placed in the public
corridors of the Building.
19. Landlord does not maintain suite finishes which are non-standard,
such as kitchens, bathrooms, wallpaper, special lights, etc. However, should
the need arise for repairs of items not maintained by Landlord, Landlord will
arrange for the work to be done at Tenant's expense.
20. Drapes installed by Landlord for the use of Tenant or drapes
installed by Tenant, with Landlord's approval, which are visible from the
exterior of the Building, must be cleaned by Tenant at least once a year,
without notice, at the tenant's own expense.
21. The Building directory located in the Building lobby as provided by
Landlord shall be available to Tenant solely to display its name and location
in the Building, which display shall be as directed by Landlord.
22. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of
good order and cleanliness.
23. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in
any manner except as approved by Landlord.
24. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except
between such hours and in such elevators and under such other conditions as
shall be designated by Landlord.
25. Tenant shall not waste heat or air conditioning and shall cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air-conditioning, and shall refrain from attempting to adjust any
controls other than room thermostats installed for Tenant's use.
3
<PAGE>
26. Landlord shall have sole power and discretion to control the
quantity, size, location, and design of all tenant identification signage. No
such signage shall be erected without Landlord's written consent.
27. The loading dock area is exclusively reserved for authorized traffic
and Tenant shall not use same for temporary parking,
28. No eating, drinking, sleeping, or loitering shall be permitted in
the lobby areas.
29. Landlord may from time to time alter or amend these Rules and
Regulations, and Tenant shall comply with the Amended Rules and Regulations.
4
<PAGE>
COMMTEL SERVICES LTD.
December 22, 1999
Telecom Wireless Corporation
5299 DTC Boulevard, 12th Fl.
Englewood, Colorado 80111
Attention: Dr. James C. Roberts
CEO and Chairman
Settlement Agreement Regarding Bridge Loans Between
Commtel Services Ltd. and Telecom Wireless Corporation
------------------------------------------------------
Dear Jim:
WHEREAS Telecom Wireless Corporation (the "Company"), Commtel Services
Ltd. ("Commtel") and Dr. James Roberts ("Roberts") entered into a series of
agreements relating to Bridge Loans made by Commtel to the Company;
WHEREAS, pursuant to a note and bridge loan agreement between the
Company and Commtel, each dated September 1, 1999 ("Note I" and "Bridge Loan
Agreement I", respectively), Commtel provided the Company with a bridge loan
in the amount of $125,000;
WHEREAS, pursuant to a note and bridge loan agreement between the
Company and Commtel, each dated September 23, 1999 ("Note II" and "Bridge
Loan Agreement II", respectively), Commtel provided the Company with an
additional bridge loan in the amount of $250,000;
WHEREAS, certain obligations under Note I and Bridge Loan Agreement I
were guaranteed by Roberts pursuant to a form of guaranty dated September 1,
1999 (the "Guaranty") between Roberts, Commtel and other bridge lenders;
The parties hereto agree in consideration of the mutual covenants set
forth herein to modify and amend Note I, Bridge Loan Agreement I, Note II,
Bridge Loan Agreement II and the Guaranty as follows:
1. As full performance for its obligations under Note I, Bridge Loan
Agreement I, Note II, and Bridge Loan Agreement II the Company hereby
agrees to issue, and Commtel hereby agrees to accept, 400,000 shares
of common stock of the Company in the name of "Commtel Services Ltd"
issued as of the date hereof (exclusive of the 100,000 shares
described in the next sentence, the "Common Stock"). The Company
agrees to deliver such 400,000 shares of common stock, as well as the
100,000 shares of common stock due from the Company to Commtel
pursuant to an agreement between them dated September 1, 1999 as soon
as practicable, but in no event later than January 7, 2000 to
Prudential Securities, attn: Gerald Malinow, 625 Madison
<PAGE>
Ave., 10th Fl., NY, NY 10022.
The Company agrees to register the Common Stock for resale on or
before June 30, 2000. The Common Stock shall bear a legend reflecting
that such Common Stock shall be restricted from resale into the public
market through and until June 30, 2000. These restrictions shall not
apply to the 100,000 shares of common stock which bear no such
restrictions and which are currently being registered by the Company.
2. In exchange for the issuance and delivery of the Common Stock by the
Company, Commtel hereby accepts such issance and delivery as full
satisfaction of the Company's obligations under Note I, Bridge Loan
Agreement I, Note II, and Bridge Loan Agreement II. Specifically,
INTER ALIA, the Company shall no longer have any obligation to pay
principal and interest to Commtel or to issue warrants to Commtel in
accordance with th terms of Note I, Bridge Loan Agreement I, Note II,
and Bridge Loan Agreement II. Commtel hereby agrees to execute, in goo
faith, any additional documentation which the Company deems necessary
to release all obligations due from the Company to Commtel under Note
I, Bridge Loan Agreement I, Note II and Bridge Loan Agreement II.
3. In addition, Commvest hereby releases all obligations due to it under
the Guaranty. Commtel hereby agrees execute, in good faith, any
additional documentation which Roberts deems necessary to release all
obligations due from Roberts to Commtel under the Guaranty.
4. The provisions of this Agreement and shall bind the successors,
acquirors and assigns of the parties thereto.
Except for the modifications and amendments to the September 1st Agreement
set forth herein, the September 1st Agreement shall remain in full force and
affect pursuant to its terms.
<PAGE>
This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be any original, and such
counterparts shall together constitute but one and the same instrument. Faxed
signatures shall have the same effect of original signatures with respect to
this Agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed as of the day and year first above written.
TELECOM WIRELESS CORPORATION
By: /s/ Calvin D. Smiley
-----------------------------
Name: Calvin D. Smiley
------------------------
Title: President
-----------------------
COMMTEL SERVICES LTD.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
By: /s/ James Roberts
------------------------------
Dr. James Roberts
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is made as of December 22nd, 1999 (the "Effective Date") by
and between ADAPTIVE BROADBAND CORPORATION ("Adaptive Broadband"), a Delaware
corporation with a principal office at 1143 Borregas Avenue, Sunnyvale, CA
94089, and TELECOM WIRELESS CORPORATION ("Buyer"), a Utah corporation with a
principal office at 5299 DTC BLVD. SUITE #1200, ENGLEWOOD, CO. 80111.
RECITAL:
Adaptive Broadband is a developer, manufacturer and supplier of wireless
telecommunications equipment. Buyer desires to provide wireless
communications network services in North America ("Territory") for
Small/Medium Businesses and Consumers ("Markets"). Adaptive Broadband and
Buyer each desire for Adaptive Broadband to sell and Buyer to purchase such
products for use in connection with those services, all on the terms and
conditions set forth in this Agreement.
PROVISIONS:
NOW, THEREFORE, in consideration of the mutual representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
1. SCOPE OF AGREEMENT.
a. EQUIPMENT. Buyer agrees to buy and Adaptive Broadband agrees to
sell to Buyer the products described in and in accordance with
EXHIBIT A attached to this Agreement ("Products") and the services
described in EXHIBIT B attached to this Agreement ("Services")
under the terms and conditions of this Agreement.
b. PURCHASE ORDERS. Buyer may issue purchase orders for any Products
or Services ("Purchase Orders") to Adaptive Broadband via mail or
facsimile, in form and content acceptable to Adaptive Broadband.
The terms and conditions of this Agreement will govern the
relationship between the parties and each Purchase Order.
Therefore, each Purchase Order will automatically be deemed to
include all the terms and provisions of this Agreement, and any
contractual terms and conditions contained in a Purchase Order or
its reverse side will not apply and will be null and void, except
to the extent that Adaptive Broadband expressly accepts such other
or additional terms and conditions in writing with specific
reference to the conflict or addition.
2. PRICING AND PAYMENT.
a. PRICING. All prices are FOB Adaptive Broadband's relevant facility
or its supplier's dock, as may be specified by Adaptive Broadband,
and are valid for the term of this Agreement. The prices for
Products and Services are set forth in EXHIBIT A and EXHIBIT B,
respectively. For so long as Buyer is in compliance with its
obligations under this Agreement, the prices charged to Buyer for
Products under this Agreement will be at least as favorable as
those offered by ADAP to customers purchasing those Products on
like quantities, on like terms, over like periods of time.
b. PAYMENT. All payments by Buyer will be made to Adaptive Broadband
pursuant to the payment terms and conditions set forth in Adaptive
Broadband's Standard Terms and Conditions of Sale, attached to
this Agreement as EXHIBIT C.
3. FORECASTING AND QUANTITY COMMITMENTS.
a. FORECASTS. Each month, Buyer will provide Adaptive Broadband with
(a) a rolling six month forecast of specific Product unit
requirements for each of those six months, and (b) firm Purchase
Order covering its specific Product unit requirements for a
rolling 90 days before desired shipment.
Page 1
<PAGE>
b. FIRM COMMITMENT. Buyer agrees to purchase a minimum of 173,400
AB-Access units (in any combination of access points and
subscriber units) during the term of this Agreement as and when
described in EXHIBIT A.
c. INITIAL PURCHASE ORDER. Within 7 days after the Effective Date,
Buyer will submit to Adaptive Broadband a Purchase Order for
total value of Exhibit D attached. From that Purchase Order,
Buver will accept delivery of the equipment required for initial
UNII trial identified in Exhibit E, within the first 45 days
after the Effective Date. Adaptive Broadband will provide a Test
Plan for the Trial. Telecom Wireless Corp will install this
equipment within 2 weeks after receipt. Then Adaptive Broadband
and Telecom Wireless will jointly conduct that Test Plan and,
upon successful completion of the Test Plan or by March 15th
2000, whichever first occurs, Telecom Wireless Corp agrees to
remit payment in full for all equipment identified in Exhibit D
column "Q1". By June 1st 2000, Telecom Wireless Corp agrees to
take delivery of all equipment in Exhibit D column "Q2". By
September 1st 2000 Telecom Wireless Corp agrees to take delivery
of all equipment in Exhibit D column Q3 and by December 1st 2000
Telecom Wireless Corp agrees to take delivery of all equipment in
Exhibit D column Q4. Subject to the remaining provisions of this
Agreement, Telecom Wireless Corp retains the right to move
Quarterly shipment dates forward or backward, provided that at
the end of Q4 calendar Year 2000, minimum commitments in Exhibit
"A" have been met.
4. GENERAL TERMS AND CONDITIONS.
Adaptive Broadband's Standard Terms and Conditions of Sale is attached
to this Agreement as EXHIBIT C and is hereby incorporated by reference
into this Agreement and made a part hereof.
5. DOCUMENTATION.
Adaptive Broadband will provide to Buyer its standard documentation in
Adaptive Broadband's standard forms, formats, and quantities based on
the size and scope of the relevant order. Additional copies, and any
changes in this documentation required by customization of the Products
or software changes made in response to Buyer requests will be at an
additional charge.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
a. BY ADAPTIVE BROADBAND. Adaptive Broadband represents and warrants
to Buyer that: (i) Adaptive Broadband has all corporate power and
authority to enter into this Agreement and consummate the
transactions contemplated hereby; and (ii) Adaptive Broadband has
all the rights necessary to license the rights and to supply the
Products to Buyer as provided in this Agreement. (iii) Adaptive
Broadband is free to make this Agreement and the making hereof
and/or performance hereunder by it or any of its officers,
directors, employees, contractors, consultants, and agents will
not violate the legal and/or equitable rights or interests of any
third party.
b. BY BUYER. Buyer represents and warrants to Adaptive Broadband and
covenants that: (i) Buyer has all corporate power and authority
to enter into this Agreement and consummate the transactions
contemplated hereby. (ii) Buyer shall not utilize, in any manner
whatsoever the corporate names or any trademark or trade name or
copyright rights belonging to Adaptive Broadband or other Product
manufacturers in connection with any equipment or service without
the prior written approval of Adaptive Broadband or the relevant
manufacturer. This requirement of consent will survive the
expiration or early termination of this Agreement. Buyer will not
contest the validity of any of Adaptive Broadband's or other
Product manufacturer's patents, trademarks, trade names or
copyrights used in connection with Products. (iii) All
governmental approvals, permits, and authorizations from all
applicable parties which are necessary for the performance by
Buyer of its obligations under this Agreement, and in furtherance
of its purposes set forth in the recitals above, will be timely
obtained and maintained by Buyer at its own expense. (iv) Buyer
is free to make this Agreement and the making hereof and/or
performance hereunder by it or any of
Page 2
<PAGE>
its officers, directors, employees, contractors, consultants, and
agents will not violate the legal and/or equitable rights or
interests of any third party.
7. TERM AND TERMINATION.
a. TERM. This Agreement will be effective as of the Effective Date
and will continue for the period ending December 22th 2004
thereafter, subject to earlier termination in accordance with this
Agreement.
b. TERMINATION. Adaptive Broadband and Buyer each may by written
notice to the other terminate this Agreement (i) If a
receiver is appointed for the other party or its property; (ii)
if the other party becomes insolvent or unable to pay its debts
as they mature in the ordinary course of business or makes an
assignment for the benefit of its creditors; (iii) if any
proceedings are commenced by or for the other party under
bankruptcy, insolvency, or debtor's relief law, and those
proceedings will not be vacated or set aside or stayed within
sixty (60) days from the date of the commencement thereof; (iv)
if the other party is sequestered by any government authority; or
(v) if Buyer is liquidated, dissolved, or ceases actively doing
business in connection with the Products. In addition, Adaptive
Broadband may by written notice terminate this Agreement if it is
not satisfied with the sales or promotional performance of Buyer.
c. UPON EXPIRATION OR TERMINATION. Upon expiration or early
termination of this Agreement for any reason, and notwithstanding
that expiration or termination: (i) All provisions of this
Agreement will survive with respect to each Purchase Order
accepted by Adaptive Broadband prior to the effective date of the
expiration or termination until each party's obligations with
respect to that Purchase Order is either satisfied or waived.
(ii) Termination of this Agreement shall be without prejudice to
the rights and remedies of the party which may have accrued to
either party as at the date of expiration or termination. (iii)
Notwithstanding the expiration or early termination of this
Agreement, Section 7 ("Term and Termination") and Section 8
("Miscellaneous") and the provisions of Exhibit C ("Terms and
Conditions") as they apply to any outstanding Purchase Orders and
Products purchased shall remain in full force and effect. (iv)
The "Confidentiality" provision of EXHIBIT C will survive for a
period of 5 years thereafter. (v) Buyer will within 30 days after
expiration or termination return to Adaptive Broadband in (at
Buyer's sole cost and expense) (or at Adaptive Broadband's
request eradicate or destroy) all literature, manuals and
materials supplied to it by Adaptive Broadband and which are in
Buyer's possession but which are not needed by Buyer in
connection with installed Products; all equipment provided to it
by Adaptive Broadband and which Buyer did not purchase, in the
condition in which it was sent by Adaptive Broadband; all
tangible and intangible embodiments of Adaptive Broadband
intellectual property, including software; and any other items
which Adaptive Broadband may reasonably request. (vi) Any
additional payment provisions tied to Buyer's failure to purchase
minimum quantities of Products and Services and the prerequisites
of those payment provisions will survive until Buyer's
obligations under those provisions, if any exist immediately
before or upon that expiration or termination, are satisfied.
8. MISCELLANEOUS.
a. SOLE AGREEMENT; AMENDMENT, WAIVERS. This Agreement (together with
its Exhibits and their attachments which are hereby incorporated
into this Agreement by reference and made a part hereof) contains
the entire understanding between Adaptive Broadband and Buyer with
respect to its subject matter and supersedes all prior
discussions, agreements and understandings between them with
respect to that subject matter. All amendments hereto and all
agreements between the parties supplemental to this Agreement must
be in writing, and signed by the parties hereto. The waiver by
either party of a breach or violation of any provision of this
Agreement must be in writing, and will not operate or be construed
as a waiver of any subsequent breach or violation.
b. INDEPENDENT CONTRACTOR. Each party acknowledges and agrees that
this Agreement establishes an independent contractor relationship
and each disclaims the
Page 3
<PAGE>
existence of any employer/employee relationship or partnership or
joint venture relationship between them. Neither party has
authority to act for, represent, or bind the other and neither
will take or fail to take any action inconsistent with this
paragraph.
c. LIABILITY AND INDEMNIFICATION. (i) The extent of Adaptive
Broadband's liabilities to Buyer and indemnification obligations
are solely and exclusively as set forth in EXHIBIT C. (ii) Buyer
agrees to indemnify and hold Adaptive Broadband and Adaptive
Broadband's successors and assigns harmless from and against any
and all judgments, fines, amounts paid in settlement, damages,
claims, costs, expenses (including attorneys' fees) and
liabilities actually incurred and arising out of or related to
Buyer's breach or threatened breach of this Agreement or any act
or omission by any of Buyer and its agents, employees, successors
and assigns. (iii) Neither Adaptive Broadband nor Buyer will be
liable under this Agreement for any consequential damage
including loss of clientele, loss of business, loss of data, or
loss of profits. Buyer will not be entitled to an indemnity for
goodwill or other compensation upon termination of this Agreement
at any time for any reason.
d. ASSIGNMENT. Neither party may assign either this Agreement or any
of its rights, interests or obligations hereunder without the
prior written approval of the other, which approval will not be
unreasonably withheld or delayed; provided, however, that ADAP may
upon notice to, but not with the consent of Buyer assign this
Agreement to an affiliate, a successor in connection with a
merger, acquisition or consolidation, or to the purchaser in
connection with the sale of all or substantially all of ADAP's
assets or all or substantially all of ADAP's assets related to the
Product line. For purposes of this subsection, a change in
ownership or control of 50% or more of the voting control of Buyer
will be deemed an assignment of this Agreement by it.
e. SEVERABILITY. If any provision of this Agreement is determined by
a court of competent jurisdiction to be unenforceable or illegal,
then it will be deemed removed from the other provisions of this
Agreement which will remain in effect.
f. HEADINGS. Headings in this Agreement are included for convenience
only and themselves have no force or effect.
g. PROPERTY. Without limiting the other provisions of this
Agreement, any ideas, concepts, inventions, know-how,
data-processing and other techniques, software or documentation
developed by Adaptive Broadband (alone or jointly with Buyer) in
connection with any Products or Services will be the exclusive
property of Adaptive Broadband.
h. PUBLICITY. Neither party shall issue any press release or make any
public announcement relating to this Agreement or its subject
matter without the prior written approval of the other; provided
that either party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case
the disclosing party will use its best efforts to advise the other
party prior to making the disclosure).
i. GOVERNING LAW AND RELATED MATTERS. This Agreement and each
purchase order accepted by Adaptive Broadband will be governed by
and construed in accordance with the internal laws of the State
of California, USA, including the U.C.C. as adopted by that
State, but without reference to conflict of laws principles. The
United Nations Convention on the International Sale of Goods will
not apply to this Agreement. Any controversy or claim which
arises out of or relates to this Agreement will be triable only
in a court with jurisdiction located in Santa Clara County,
California, and Adaptive Broadband and Buyer each irrevocably
consent to that venue and to the personal jurisdiction thereof.
Buyer will observe and comply with all applicable governmental
laws, rules and regulations. Buyer will promptly indemnify
Adaptive Broadband for all damages, fines, and related expenses
(including attorneys' fees) resulting from or arising out of
Buyer's violation of any such law, rule or regulation or breach
of this paragraph.
j. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests, and other communications under this Agreement
will be in writing and sent by registered post or facsimile
addressed to:
Page 4
<PAGE>
If to Adaptive Broadband, to: If to Buyer, to:
Adaptive Broadband Corporation TELECOM WIRELESS CORP.
---------------------
1143 Borregas Avenue 5299 DTC Blvd.
Sunnyvale, CA 94089 Suite #1200
Attn: Salvatore Benti Englewood, CO 80111
Attn: General Council
Fax: (408) 732-4244 Fax: (303) 357-0100
WITH A COPY TO: WITH A COPY TO:
Adaptive Broadband Corporation _____________________________
1143 Borregas Avenue _____________________________
Sunnyvale, CA 94089 _____________________________
Attn: General Counsel Attn:________________________
Fax: (408) 732-4244
Any notice sent by fax shall be deemed to be delivered the next working day
following confirmed transmission, and any notice sent by post shall be
deemed to be delivered five working days following the date of posting.
Either party may change the address under this section by giving the other
party proper notice.
IN WITNESS WHEREOF, Adaptive Broadband and Buyer each executed and deliver this
Agreement as of the date first written above.
BUYER: ADAPTIVE BROADBAND CORPORATION:
CO NAME: TELECOM WIRELESS CORPORATION
By: By:
-------------------------------- -------------------------------
Name: Dr. James C. Roberts Name: Salvatore S. Benti
------------------------------ -----------------------------
Title: Chairman and CEO Title: Senior Vice President
----------------------------- ----------------------------
Date: Dec 22nd 1999 Date: Dec 22nd, 1999
------------------------------ -----------------------------
TABLE OF EXHIBITS
Exhibit A - Products and Related Pricing
Exhibit B - Professional Services & Training
Exhibit C - Adaptive Broadband's Standard Terms
and Conditions of Sale
Exhibit D - Year One Equipment Requirement
Exhibit E - UNII Trial Equipment
Page 5
<PAGE>
EXHIBIT A
TO PURCHASE AGREEMENT
PRODUCTS AND RELATED PRICING
PRODUCTS: AB-Access UNII point to multi-point radio system (access points
and subscriber units).
AB-Access UNII point-to-point radio system (access points and
subscriber units)
<TABLE>
<CAPTION>
PRICING AND COMMITMENTS: Unit Price
- ------------------------------------- ---------------------------
subscriber access
"Time Frame" Quantity Commitment* units points
------------ -------------------- --------------- -----------
<S> <C> <C> <C>
1/1/00 - 12/31/00 First 8,400 units $1437 $1920
------- ----- -----
Calendar year 2001 Additional 15.000 units $1437 $1920
-------- ----- -----
Calendar year 2002 Additional 30,000 units $1365 $1824
-------- ----- -----
Calendar year 2003 Additional 45,000 units $1317 $1760
----- -----
Calendar year 2004 Additional 75,000 units $1197 $1600
----- -----
</TABLE>
*Buyer may purchase any combination of Product subscriber units ("SUs")
and access points ("APs") so long as it has ordered and taken delivery
of an aggregate of at least that number of total units listed under
"Quantity Commitment" from January 1st 2000 through the end of the
relevant Time Frame period (e.g., by December 31, 2001, ordered and
taken delivery of at least 23,400 units). To the extent Buyer submits
valid and irrevocable purchase orders in recognition of ADAP's delivery
lead times, Buyer will be deemed to have met its quantity obligation
and Buyer's only obligation with respect to such orders is to take
delivery by such dates.
(a) If Buyer fails to satisfy its unit purchase obligation by the end
of each Time Frame listed above, then with respect to its purchase
deficiency from the quantity commitment related to that Time
Frame, Buyer shall pay to Adaptive Broadband a nonrefundable
amount equal to 5% of the agreed upon subscriber unit purchase
price of those units (whether subscriber units or access points)
which it was obligated to but failed to purchase.
(b) Buyer shall pay to Adaptive Broadband a non-refundable amount
equal to 5% of the agreed upon purchase price of the respective
subscriber units which it was otherwise obligated to but failed to
purchase during the period beginning on the first day of the Time
Frame period in which the termination or cancellation occurs
through the stated expiration date of the Agreement, if.
(i) Buyer terminates or cancels the Agreement for any reason
prior to satisfying its unit Product purchase obligations
set forth above in this Exhibit A, and Adaptive Broadband
has not been in material breach of this agreement after
written notice of breach from Buyer and a thirty (30) day
opportunity to cure (excluding days of force majeure
affecting Adaptive Broadband's ability to perform), or
(ii) Adaptive Broadband terminates or cancels the Agreement for
any reason prior to Buyer satisfying its unit Product
purchase obligations set forth above in this Exhibit A, and
Buyer has been in material breach of this Agreement after
written notice of the breach from Adaptive Broadband and a
thirty (30) day opportunity to cure (excluding days of force
majeure affecting Buyer's ability to perform).
1
<PAGE>
Buyer shall pay these obligations net 30 days after the end of the
applicable Time Frame period and net 30 days after that
cancellation or termination date, as appropriate; provided,
however, that any such penalty payment obligation is contingent
upon Adaptive Broadband maintaining, throughout substantially all
of the relevant time period, current Product technology which is
reasonably competitive in the fixed wireless broadband (25 to 100
megabit data rate per sector) market as measured on a bit-per-Hz
basis and dollars-per-bit basis or other reasonable competitive
analysis bases.
OTHER PRODUCTS:
<TABLE>
<S> <C>
Control Server Hardware $14,000 each
(Includes Control Server Software License)
Element Management System Software $50,000 (one time)
Activation Keys (Unlimited number of SU's)
ATM Switch As per attached pricing
sheet dated 11/24/99
Version 1.4.2
Element Management Server $7,600
Backhaul Transceivers (Master/Slave) As per Page (1) Exhibit "A"
For SU's and AP's
Cabling and Installation Manuals, Rack Tray for As per attached pricing
Server, Rack Tray with monitor, Keyboard and Mouse sheet dated 1 1/24/99
Control Server Software License, ATM WAN Access Version 1.4.2
Interfaces, ATM LAN Access Interfaces, ATM Switch
Video Networking Interface, Power Supply and UPS backups,
SU and AP Mounting Brackets.
</TABLE>
2
<PAGE>
EXHIBIT B
PROFESSIONAL SERVICES AND
TRAINING - RELATED PRICING
Per attached documents entitled "Adaptive Broadband Training," and
"Professional Services".
Page 7
<PAGE>
ADAPTIVE BROADBAND
TRAINING
As of December 14, 1999
COURSE OFFERINGS AND SAMPLE SYLLABUS
NETWORKING TECHNOLOGY (ABA 100) 3 DAYS 12 SESSIONS INCLUDING LAB
COST PER STUDENT $995
Intended Audience: Engineers and technicians familiar with telephonic technology
who need a comprehensive view of networking technology
Description: This is a three day course covering
Length: 3 days
Text: Workbook provided.
Prerequisites: A general knowledge of electronics, wireless telephonics, and
computer basics Certificate Issued: Certificate of Completion Issued. Those who
wish to take more advanced AB Access courses must pass a final exam.
1. AB ACCESS SYSTEM (ABA 101) 2 DAYS 6 CLASS SESSIONS & 1 LAB SESSION COST PER
STUDENT $995
Intended Audience: Engineers and technicians with a need to be technically
familiar with the AB Access System
Description: This is a two day course covering the Base Station and the Remote
CPE Equipment. Topics covered include: theory of operation of both radios,
troubleshooting of AB-Access. systems in general and ADAP equipment in
particular, installation information, and detailed coverage of Adaptive
Broadband's Element Management System.
Length: 2 days
Text: Workbook provided.
Prerequisites: A general knowledge of electronics, wireless telephonics, and
computer basics
Certificate Issued: Certificate of Completion Issued. Those who wish to take
more advanced AB Access courses must pass a final exam.
2. AB ACCESS SYSTEM OPERATOR (ABA 121)
COST PER STUDENT $495
Intended Audience: AB Access System Operator candidates
<PAGE>
Description: This course trains the AB Access Operator to recognize and issue
keyboard commands, to become familiar with AB Access System screens, and to
understand and interpret system messages
Length: 1 day
Text: Workbook provided.
Prerequisites: ABA 100 & ABA 101
Certificate Issued: AB Access System Operator Certification upon passing
3. AB ACCESS SYSTEM ADMINISTRATOR (ABA 131)
COST PER STUDENT $995
Intended Audience: AB Access System Administrator candidates
Description: This course trains the AB Access System Administrator to configure
AB Access network elements, to access AB Net Manager and to control access to AB
Net Manager.
Length: 2 days
Text: Workbook provided.
Prerequisite: AB Access Operator Certification
Certificate Issued: AB Access System Administrator Certification upon passing
4. AB ACCESS NETWORK ADMINISTRATOR (ABA 141)
COST PER STUDENT $995
Intended Audience: AB Access Network Administrator candidates
Description: This course trains the AB Access Network Administrator to (1)
upgrade network elements, (2) to control all access to AB Net Manager, (3) to
install and configure the AB Access network and network elements and (4) to
perform nonAB Access network functions.
Length: 2 days
Text: Workbook provided.
Prerequisite: AB Access System Administrator Certification
Certificate Issued: AB Access Network Administrator Certification on passing:
4.1 AB ACCESS SUBSCRIBER UNIT INSTALLATION (ABA 51)
COST PER STUDENT $495
4.1.1 Intended Audience: AB Access Subscriber Unit Installers
Description: This course trains the student to install and operate the AB Access
<PAGE>
Subscriber Unit.
Prerequisites: A general knowledge of electronics, wireless telephonics, and
computer basics
Length: 1 day
Text: AB ACCESS SUBSCRIBER UNIT (SU) INSTALLATION AND OPERATIONS GUIDE
Certificate Issued: AB Access Subscriber Unit Installer Certification on passing
5. AB ACCESS BASS STATION INSTALLATION (ABA 61)
COST PER STUDENT $495
Intended Audience: AB Access Base Station Installers
Description: This course trains the student to install and operate the AB
Access
Base Station.
Prerequisites: A general knowledge of electronics, wireless telephonics, and
computer basics
Length: 1 day
Text: AB ACCESS BASE STATION SUBSYSTEM (BSS) INSTALLATION AND OPERATOR GUIDE
Certificate Issued: AB Access Base Station Installer Certification on passing
6. AB ACCESS SYSTEM: A NON-TECHNICAL GUIDE (ABA 21) 1 DAY 4 CLASS SESSIONS
INCLUDING LABS
COST PER STUDENT $495
Intended Audience: Administrators and others for whom a general knowledge of the
AB Access system would be useful, but who do not need an engineer's or
technician's level of detailed understanding
Description: Workbook provided
Prerequisites: None. A general knowledge of computers is recommended.
Length: 1 day
Certificate Issued: Certificate of Completion issued.
<PAGE>
ABA 101: AB Access System Syllabus
Length 2 days 6 Class Sessions & an Afternoon Lab Session
DAY ONE
9:30 AM-10:20 AM INTRODUCTION TO WIRELESS BROADBAND
11:00 AM-11:50 AM AB ACCESS SYSTEM AND THE SU
I. Introduction to the AB Access System
A. Basic Operation Philosophy
B. System Applications
II. Theory of Operations
A. Specifications D. Transmitter
B. Features E. Antenna
C. Receiver F. Interfaces
III. Subscriber Unit
A. Subscriber Unit D. Power, Interface
B. Wall Box Considerations
C. Field Alignment E. Associated
Issues
IV. Field Troubleshooting
A. No RF Link D. Poor Data Performance
B. Weak RF Link E. Hands on Exercise
C. No Data Link
LUNCH BREAK
1:00 PM - 1:50 PM BASE STATION
I. Introduction:
A. Hot Standby Master Station Capabilities
B. Specifications
C. Features
II. Theory of Operation
A. Access Point C. Control Server
B. ATM Switch D. Element Management
Server
III. Installation
A. RF Planning
B. Network Planning
C. Physical Installation
D. Interfaces
E. Feedlines
F. Verification of System Operation
IV. Field Alignment/Troubleshooting
A. Test Equipment E. Poor Data Performance
B. No RF Link F. Weak RF Link
C. Weak RF Link G. Hands-on Exercise
D. No Data Link
<PAGE>
2:30 PM - 3:20 PM ELEMENT MANAGEMENT SYSTEM
I. Introduction:
A. Basic Operational Philosophy
B. System Elements
C. Functionality
II. System Setup
A. Management Server Requirements
B. Checking for Connectivity
C. Software Installation
D. Interfaces to the WAN
E. Checking for Connectivity
DAY TWO
9:30 AM - 10:20 AM ELEMENT MANAGEMENT SYSTEM
III. Initialization and Configuration A. Setting Up & Configuring an
Access Point B. Setting Up & Configuring an ATM Switch C. Setting
Up & Configuring a Management Server D. Setting Up & Configuring a
Subscriber Unit
IV. System Maintenance
A. RF Frequencies D. Subscribers
B. PVCs E. IP Address
C. Sub-networks
V. Fault Reporting
A. Subscriber Unit Faults
B. Access Point Faults
C. ATM Switch Faults
D. Management Server Faults
E. Unknown Faults
F. Diagnosing Network Problems
G. Diagnosing RF Problems
11:00 AM-11:50 AM WIRELESS BROADBAND AND THE FUTURE
LUNCH BREAK
1:00 PM - 3:20 PM ELEMENT MANAGEMENT SYSTEM
Hands On Session
<PAGE>
ADAPTIVE BROADBAND CORPORATION
PROFESSIONAL SERVICES
As of December 15, 1999
Capabilities and Services
ADAP'S COMPLETE RANGE OF TELECOMMUNICATIONS SERVICE CAPABILITIES ENABLES US TO
OFFER THE BROADEST SCOPE OF SERVICES POSSIBLE TO MEET THE VARIED AND SPECIFIC
NEEDS OF OUR CLIENTS. ADAP CAPABILITIES ARE PROVIDED THROUGH OUR OWN STAFF AND
AUGMENTED THROUGH THE USE OF THIRD-PARTY TELECOM SERVICE CONSULTANTS. THIS
ABILITY TO BUILD TEAMS OF ADAP EMPLOYEES AND TELECOM SERVICE CONSULTANTS,
PROVIDES THE CUSTOMER THE BENEFIT OF HAVE THE MOST KNOWLEDGEABLE ENGINEERS,
PROGRAM MANAGERS, TECHNOLOGISTS, AND PROJECT MANAGERS.
- --------------------------------------------------------------------------------
1.1.1.1 INSTALLATION AND MAINTENANCE
Identifies with the customer's need for quality, flexibility, and rapid
response time to installation and maintenance requirements. ADAP's highly
motivated staff ensures that the customer is able to generate revenue as
quickly as possible by providing high quality, timely installation. By
providing operational maintenance and repair for the equipment, ADAP makes
sure that the customer's revenue stream keeps flowing. ADAP is available to
provide these services for all PCS and cellular air interface standards and
equipment manufacturers ADAP products.
- --------------------------------------------------------------------------------
1.1.1.2 PROGRAM MANAGEMENT
ADAP customizes a solution for customers to maximize resources, coordinate
activities, and ensure quality. Our program management services are designed
to promote the most successful system launch for our clients:
- Sophisticated project management software tools
- Creating project implementation strategies
- Establishing project goals including project costs and
schedules
- Scheduling, tracking, and reporting project progress
- Monitoring budget and costs
- Assessing quality control
- Providing site bid procedures and packages
<PAGE>
- --------------------------------------------------------------------------------
RADIO FREQUENCY (RF) ENGINEERING
ADAP provides full service RF engineering. Through our own technical staff and
our staff of consultants, ADAP has provided RF engineering services to assist
customers in planning their network capacity and coverage. Our engineers using
various state-of-the-art design tools. We have also developed unique software
programs to enhance the efficiency of the following services offered by our
organization:
ANALYSIS AND DESIGN:
- Establish design assumptions. Collect design criteria for RF link
budget including coverage area, criteria, and quality, fade
margin, and traffic requirements
- Establish penetration and traffic projections for the service area
- Perform nominal RF system design
- Provide preliminary testing to verify coverage and propagation
characteristics
- Establish initial cell layout based on design criteria and
existing microwave facilities
- Perform microwave interference analysis
- Issue search areas to site acquisition personnel
- Work with site acquisition personnel 'in the process of selecting
the optimum site
- Perform microwave path design
- Determine optimum site parameters: ERP, channel plan, antenna
height and type
- Microcell modeling
- Propagation analysis and coverage design
- Site selection and approval
- Site surveys
- Frequency planning
- Interference control
- System parameter optimization
- Field measurement
- Drive testing
- Traffic analysis and growth planning
- Microwave interference analysis
SYSTEM OPTIMIZATION:
- Perform system field testing and parameter optimization
- Perform functional testing and optimization for implemented sites
- Test plan development
- System drive test and data analysis
- System parameter settings
- Interference control
NETWORK PERFORMANCE AND SYSTEM MAINTENANCE
- Traffic channel utilization forecast per sector
- Floating busy hour traffic per sector (Monday - Friday, weekend)
- Network footprint (RSSI)
- Network quality drive test (call quality and bit error)
- Frequency planning and neighbor list update
- Network parameter setting
- Antenna orientation and down-tilt request
- Network trouble shooting
- Competitive footprint data
- Current 10 worst performance list
- Daily statistical report, including historical data and trends,
weekly and monthly averages
- Investigate and resolve all RF-related problems
<PAGE>
TECHNOLOGY AND SPECIAL PROJECTS:
- Proposal support
- Evaluation of existing and emerging technologies
- Acceptance test plans
- Coverage threshold and link budget evaluation
- Technical evaluation of radio equipment
- -- Tower top amplifiers
- -- Cell enhancers
- -- Filters
- -- Combiners and duplexers
- -- Antenna systems
TRAINING:
- Propagation and technology courses
- Information systems application development and implementation
- Managing with information
- Quality management
- --------------------------------------------------------------------------------
NETWORK ENGINEERING
- Perform ATM switch engineering
- Network Consulting Services
- Conduct switch translations and definitions
- Identify wireline public switch network connection considerations
BELOW IS ADAP'S PROFESSIONAL SERVICES PRICING SCHEDULE AS OF 9/1/1999:
<TABLE>
- --------------------------------------------------------------------------------
Service Type Employment Category Hourly Rate
<S> <C> <C>
Program Management: Program Manager $170
Project Manager $150
Project Coordinator $120
Training: Trainer $100
RF Engineering: Principal Engineer $180
Senior Engineer $150
Design Engineer $108
Associate Engineer $96
Installation & Maintenance: Cell-Site Technician $84
Switch Technician $102
Survey & Install Engineer $120
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
ADAPTIVE BROADBAND'S STANDARD TERMS AND CONDITIONS OF SALE
The following are the terms and conditions under which Adaptive Broadband
Corporation ("ADAP") sells products, except as otherwise agreed to by ADAP in
writing:
1. PRICES AND TAXES. The prices will be those set forth in ADAP's
quotation or bid valid at the time of order. If a quotation has
expired, ADAP reserves the right to extend the validity of the
quotation or issue a new quotation at its discretion. Prices are F.O.B.
shipping point (North American orders) / EX-WORKS (Incoterms, 1990)
ADAP's relevant shipping facility (International orders), in U.S.
dollars and are exclusive of all taxes, tariffs, duties and fees. In
addition to all charges and fees due under any agreement or order
between ADAP and Buyer, Buyer is solely responsible for and agrees to
pay amounts equal to any taxes, tariffs, duties and fees (however
designated) and any interest, fines and penalties (collectively, "Tax")
resulting from or arising out of that agreement or order, exclusive of
taxes based on ADAP's net income. Without limiting the generality of
the foregoing, Buyer is solely responsible for and agrees to pay,
either through the relevant product invoice or a separately issued
invoice, all sales taxes resulting from or arising out of that
agreement or order unless, within 30 days after shipment, ADAP receives
export documentation satisfactory to ADAP evidencing the export of the
relevant products out of the United States. If a Buyer within the
United States wishes to have the agreement or order treated as sales
tax exempt, ADAP must receive a resale or exemption certificate
satisfactory to ADAP prior to shipment. Buyer will pay on ADAP's behalf
any Tax levied upon ADAP or reimburse ADAP for any such Tax paid by
ADAP. This Section will apply during and after termination of any
agreement between the parties.
1. ORDERS. No order submitted by Buyer will be deemed accepted by ADAP
unless and until confirmed in writing by ADAP's authorized
representative. No order which has been accepted by ADAP may be
canceled by the Buyer except with the agreement in writing of ADAP and
on terms that the Buyer will indemnify ADAP in full against all loss
(including loss of profit), costs (including the cost of all labor and
materials used), damages, charges and expenses incurred by ADAP as a
result of cancellation including, at a minimum, the terms set forth in
Section 10 below.
1. PAYMENT. All payments by Buyer will be made in U.S. dollars in the U.S.
pursuant to one of the following terms, without offset:
OPTION 1: Confirmed, Irrevocable Letter of Credit acceptable to ADAP
and payable in U.S. dollars at sight upon presentation of documents
confirming shipment (i.e, Invoice, Packing List, Air Waybill) through
any major United States state or national bank. Validity must be at
least 120days for shipment and 150 days for negotiation of documents;
partial shipments must be allowed; the letter of credit value must
state F.O.B. shipping point (North American orders) or EX-WORKS
(Incoterms, 1990) ADAP's relevant shipping facility (International
orders). Estimated freight and handling charges can be provided upon
request. All banking charges are to buyer's account.
OPTION 2: 25% down-payment in U.S. dollars at the time of order with
the balance due two weeks prior to shipment. Wire transfer information:
Bank of America, 1850 Gateway Blvd., Concord, CA 93420, ABA# 121000358,
Acct Name Adaptive Broadband Corporation, Acct Number 1233727981,
Reference Invoice # and PO # and Contract #, By Order Of [Buyer's
Name]; or such other wire transfer information as ADAP may indicate.
OPTION 3: If Buyer continually satisfies ADAP's credit approval process
and requirements and if ADAP provides Buyer with prior written approval
of credit terms, then net 30 days after the relevant invoice date.
If ADAP agrees to OPTION 3 above or if ADAP agrees in writing to
different or additional payment terms, then:
a. If during the period of performance of an order the financial
condition of the Buyer is determined by ADAP not to justify the
terms of payment specified, ADAP may demand that payment be made
in accordance with one of the two options above.
b. ADAP reserves the right to make deliveries in installments, all
installments to be separately invoiced and paid for by Buyer when
due per invoice without regard to other scheduled deliveries. If
shipments are delayed by the Buver for any reason, payment will
become due from the date on which ADAP is prepared to make
shipment and storage will be at Buyer's risk and expense.
c. In the event of default in payment by Buyer: (i) ADAP may suspend
performance of its obligations; (ii) Buyer agrees to pay ADAP's
standard late charges plus interest on the delinquent payment from
the due date thereof until such payment and all interest thereon
is received at the rate of 1.5_% per month, but not in excess of
the lawful maximum (which charges and interest are not in lieu of
any other right ADAP may have for Buyer's breach); and (iii) in
the event of litigation or collection activity arising out of
Buyer's non-payment, Buyer will promptly pay the reasonable costs
and expenses incurred by ADAP, including attorney's fees.
1. DELIVERY, SECURITY INTEREST, DELAYS. Delivery will be F.O.B. shipping
point (North American orders)/ EX-WORKS (Incoterms, 1990) ADAP's
relevant shipping facility (International orders). Freight and handling
charges are to be either remitted in advance or collected under a
confirmed, irrevocable Letter of Credit as outlined above. All
shipments are subject to availability and all references to dates are
references to delivery F.O.B. shipping point (North American orders) /
EX-WORKS (Incoterms, 1990) ADAP's relevant shipping facility
(International orders). Any dates for delivery
Page 8
<PAGE>
quoted by ADAP or provided in an accepted order are approximations only
and ADAP will not liable for delay in shipment for any reason. Title to
product transfers and Buyer assumes all risk of loss upon delivery of
product by ADAP to the initial carrier. Insurance will be provided by
ADAP upon request and collected with freight and handling charges. In
the absence of instructions to the contrary, ADAP, on behalf of Buyer,
will select the carrier but will not be deemed thereby to assume any
liability in connection with the shipment nor will the carrier be
construed to be an agent of ADAP. Claims for loss or damage to products
in transit must be made to the carrier and not to ADAP. Buyer will be
responsible for all storage, rigging, drayage and other charges to and
at Buyer's site. Buyer hereby grants ADAP a security interest in the
products and all cash and non-cash proceeds thereof as security for all
of Buyer's obligations hereunder. Upon request by ADAP, Buyer will
promptly execute any instrument required to perfect such security
interest; provided that in any event ADAP is hereby appointed Buyer's
attorney-in-fact to do all acts which ADAP deems reasonably necessary
or desirable to perfect and continue to perfect such security interest
and to protect the collateral. ADAP will not be liable for any damages
or penalty for delay in delivery or for failure to give notice of delay
when such delay is due to the elements, acts of God, delays in
transportation, delay in delivery by ADAP's vendors or any other causes
beyond the reasonable control of ADAP. The delivery schedule will be
extended by a period of time equal to the time lost because of such
delay.
1. PATENTS. If notified promptly in writing of any action (and all prior
claims relating thereto) brought against Buyer alleging that Buyer's
use or other disposition of product infringes a United States patent or
copyright, ADAP will defend such action at its expense and will pay the
costs and damages awarded against Buyer in such action, provided that
ADAP will have sole control of and authority with respect to the
defense of any such action and all negotiations for its settlement or
compromise. If a final injunction is obtained in such action against
Buyer's use of the product or if in ADAP's opinion the product is
likely to become the subject of claim or infringement, ADAP will, at
its option and at its expense: procure for Buyer the right to continue
using the product; or replace or modify the same so that they become
non-infringing; or accept return of the product and refund or credit
the amount of the original net purchase price, less a reasonable charge
for depreciation and damage. ADAP will not have any liability to Buyer
if the alleged infringement is based upon: (a) use or sale of the
product in combination with other products or devices which are not
made by ADAP; (b) use of the product in practicing any process; or (c)
the furnishing to Buyer of any information, service or other
assistance. No costs nor expenses will be incurred for the account of
ADAP without the prior written consent of ADAP. In no event will ADAP's
total liability to Buyer under or as a result of compliance with the
provisions of this clause exceed the sum paid to ADAP by Buyer for the
allegedly infringing product. The foregoing states the entire liability
of ADAP with respect to alleged infringement of patents and copyrights
by the product or any part thereof or by its operation. This Section
states the entire liability of ADAP for any infringement of patent,
copyright, trademark, trade secret, or other intellectual property
rights. Buyer will defend, indemnify and hold ADAP harmless against any
loss, damages, costs, fees (including attorneys' fees) and expenses
awarded against or incurred by ADAP for alleged infringement of any
patents, copyrights, trademarks, or other intellectual property rights
of any person or entity which result from ADAP's use of or compliance
with Buyer's designs, specifications or instructions.
1. PRODUCT CHANGES. ADAP reserves the right, without prior approval from
or notice to Buyer, to make changes to products or their specifications
(a) which do not materially adversely affect the performance of the
product or reduce performance below any contract specification; (b)
when required for purposes of safety; (c) to meet product
specifications, or (d) when required to conform with any applicable
statutory or regulatory requirements. ADAP reserves the right to make
product improvements without incurring any obligation or liability to
make the same changes in products previously manufactured or purchased.
ADAP also reserves the right to modify the pricing and availability of
models in its product lines based on market conditions, component
availability, and other business considerations; and to require that
Buyer implement and utilize software upgrades as a condition of
maintenance contracts and warranty.
1. WARRANTY
PRODUCT MANUFACTURED BY ADAP:
a. Products manufactured by ADAP are warranted against defects in
material and workmanship for a period of one (1 ) year from
date of delivery as evidenced by ADAP's packing slip or other
transportation receipt.
b. ADAP's sole responsibility under this warranty will be to either
repair or replace, at its option, any component which fails during
the applicable warranty period because of a defect in material or
workmanship, provided Buyer has promptly reported same to ADAP in
writing. All replaced products and parts will become ADAP's
property.
c. ADAP will honor the warranty at the repair facility designated by
ADAP. It is Buyer's responsibility to return, at its expense, the
allegedly defective product to ADAP. Buyer must obtain a Return
Material Authorization (RMA) number and shipping instructions from
ADAP prior to returning any product under warranty. Transportation
charges for the return of the product to Buyer will be paid by
ADAP within the United States. For all other locations, the
warranty excludes all costs of shipping, customs clearance and
other related charges. If ADAP determines that the product is
notdefective within the terms of this warranty, Buyer will pay
ADAP all costs of handling, transportation and repairs at the then
prevailing repair rates.
d. All the above warranties are contingent upon proper use of the
product. These warranties will not apply (i) if adjustment,
repair, or product or parts replacement is required because of
accident, unusual physical, electrical or electromagnetic stress,
neglect, misuse, failure of electric power, environmental
controls, transportation, failure to maintained properly or
otherwise in accordance with ADAP specifications, or abuses other
than ordinary use; (ii) if the product has been modified by Buyer
or has been repaired or altered outside ADAP's repair facility,
unless ADAP
Page 9
<PAGE>
specifically authorizes such repairs or alterations in each
instance; or (iii) when ADAP serial numbers, warranty data or
quality assurance decals have been removed or altered.
e. No person, including any dealer, agent or representative of ADAP
is au thori zed to assume for ADAP any other liability on its
behalf except as set forth herein. If any payment is due ADAP for
services performed hereunder, it will be subject to the same
payment terms as the original purchase.
PRODUCTS MANUFACTURED BY OTHERS:
For products not manufactured by ADAP, the original manufacturer's or
licensor's warranty will be assigned to Buyer to the extent permitted
by the manufacturer or licensor and is in lieu of any other warranty,
expressed or implied. For warranty information on a specific product, a
written request should be made to ADAP.
ALL PRODUCTS:
THE FOREGOING WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER EXPRESS OR IMPLIED WARRANTIES, OBLIGATIONS, AND LIABILITIES
ON THE PART OF ADAP. EXCEPT FOR THE EXPRESS WARRANTIES STATED HEREIN,
ADAP DISCLAIMS ALL WARRANTIES ON PRODUCTS FURNISHED HEREUNDER,
INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ADAP WILL HAVE NO
RESPONSIBILITY FOR ANY PARTICULAR APPLICATION MADE OF ANY EQUIPMENT.
Any description of equipment, whether in writing or made orally by ADAP
or its agents, specification sheets, models, bulletins, drawings, or
similar materials used in connection with Buyer's order are for the
sole purpose of identifying the equipment and will not be construed as
an express warranty. Any suggestions by ADAP or its agents regarding
use, application or suitability of the equipment will not be construed
as an express warranty. No warranties may be implied from any course of
dealing or usage of trade. Buyer agrees that the exclusion of all
warranties, other than those expressly provided herein, is reasonable.
1. ACCEPTANCE OF PRODUCTS. Unqualified acceptance of products will occur
upon delivery, unless ADAP is notified in writing within ten days from
Buyer's receipt that the products do not meet ADAP's specifications or
that Buyer is making a claim for shortages or other errors in delivery.
Failure to give such timely notice constitutes a waiver of all such
claims by Buyer. ADAP's sole obligation for any non-confoming products
will be limited to repair or replacement at ADAP's option, pursuant to
the provisions of the foregoing Warranty clause.
1. INSTALLATION. In the event ADAP agrees with Buyer to install or perform
maintenance on any product(s) to be supplied, Buyer will pay ADAP's
then current standard charges for such installation or maintenance.
1. CANCELLATION AND RESCHEDULE CHARGES. In the event Buyer defaults, ADAP
may decline to make further shipments and/or may terminate Buyer's
order without affecting ADAP's rights and remedies including, but not
limited to, any right to cancellation charges and quantity price
adjustments. If ADAP continues to make shipments after Buyer's default,
ADAP's action will not constitute a waiver nor affect ADAP's legal
remedies. In the event Buyer (a)cancels any order or portion thereof
with the requisite ADAP consent; or (b) fails to meet any obligation
hereunder, causing cancellation or rescheduling of any order or portion
thereof or (c) requests a rescheduling of scheduled product and such
request is accepted by ADAP, Buyer agrees to pay ADAP
cancellation/reschedule charges as a percentage of the list price of
the canceled or rescheduled product, said charges having been agreed
upon not as a penalty, but as a result of the diffculty of computing
actual damages. Such cancellation/rescheduling charges may be set by
ADAP in its business judgment in each instance. Buyer may not cancel or
reschedule any order or portion thereof after shipment.
1. EXPORT. Regardless of any disclosure made by Buyer to ADAP of an
ultimate destination of the product(s), Buyer will not export, either
directly or indirectly, any product(s) or non-ADAP equipment
incorporating such product(s) without first obtaining a license from
the U.S. Department of Commerce or any other agency or department of
the United States Government, as required. Buyer will use its best
efforts to insure that none of the products will reach any country
where U.S. laws would forbid ADAP to market or distribute the products.
1. SOFTWARE LICENSE AND SUB-LICENSE.
a. ADAP grants to Buyer the non-exciusive license to use the Software
(defined below) in connection with the Products, subject to the
terms and conditions set forth below. ADAP grants to buyer the
non-exclusive license to sub-license the Software to those of
Buyer's customers which utilize Products. When granting to
customers the right to use Software, Buyer shall incorporate in
such sub-license terms that offer no less degree of protection to
ADAP's (or its licensor's) interest in the Software as those set
out below.
b. "Software" means any program in machine readable code (howsoever
provided by ADAP to Buyer), and intended to be loaded into the
memory of a processor unit(s), which provides operating
instructions and user related application instructions (as well as
associated documentation used to describe, maintain and use such
programs), incorporated in any of the Products by ADAP or supplied
to Buyer by ADAP for use on or in connection with any of the
Products; however, Software shall not mean any source code.
c. The Products and Software include software which is licensed by
third parties to ADAP ("Third-Party Software"). Buyer agrees to
comply with all of the requirements and restrictions of all
licenses which apply to Third-Party Software, and Buyer authorizes
ADAP to execute and deliver all agreements and documents on
Buyer's behalf in order to comply with the foregoing obligations.
Page 10
<PAGE>
d. Set out below are the terms and conditions of the software
license granted by ADAP to Buyer. In sub-licensing software to
its customers, Buyer shall incorporate in such sub-licenses
terms which offer no less degree of protection than those set
out below: (i) The Software and the documentation are
unpublished copyright works and may be used on any
installation with a configuration mentioned in the Agreement,
provided the Software is in use on only one installation at
any one time. (ii) Neither the Software nor the documentation
may be copied in whole or in part, except for backup and
archival purposes. (iii) The copyright notices and trademarks
contained in the Software, on the data medium, and in the
documentation as supplied to Buyer must appear on all copies
made by Buyer. (iv) Save for Buyer's right to grant
sub-licenses to its customers to use the Software in object
code form, Buyer may not transfer part, download, or in other
way make available to others the Software and the
documentation delivered to it. (v) Buyer shall not have the
right to modify the Software or to create derivative works
based on the Software, save as provided under applicable laws.
(vi) No warranty applies if failure of the Software has
resulted from misuse or misappropriation.
e. If a new release of the Software contains new functions, and Buyer
wants to use these new functions, the new release shall be subject
to a supplementary charge. No license is granted for any new
release until Buyer pays associated additional fees. Buyer will be
responsible for costs of software/hardware upgrades of equipment
supplied by third parties to support such new releases.
1. CONFIDENTIALITY.
a. Buyer and ADAP each agree to use the other's Confidential
Information (defined below) it receives or otherwise obtains
solely for purposes of benefiting the business relationship
between them. The receiving party ("Recipient") shall not
duplicate any Confidential Information of the other party
("Disclosing Party") except as may be strictly necessary in
furtherance of that purpose. The Recipient agrees to maintain
all of the Disclosing Party's Confidential Information it
receives or otherwise obtains in confidence, using at least
that standard of care which it accords its own Confidential
Information to protect the Disclosing Party's Confidential
Information. The Recipient agrees not to disclose the
Disclosing Party's Confidential Information to any other party
except those of the Recipient's directors. officers,
employees, agents, consultants, advisors and affiliates
(collectively, "Agents") involved in furthering that purpose
whose duties justify the need to know such Confidential
Information. The Recipient's Agents who are to receive
Confidential Information shall be advised of the confidential
nature of the Confidential Information and shall have agreed
in writing to be bound by the terms of this Section. The
Recipient agrees that at no time shall it or its Agents use or
knowingly permit any other person or entity to examine, use,
or derive benefit from the Confidential Information. These
obligations will survive for a period of ten years from the
date of the relevant disclosure or for such longer period as
such Confidential Information may be entitled to legal
protection from disclosure by operation of law.
b. "Confidential Information" means information in its broadest
sense, including but not limited to computer programs,
databases, trade secrets, know-how, inventions, improvements,
discoveries, techniques. business and marketing records,
merchandising and marketing techniques, plans and data,
strategies, new products, financial data. budgets,
projections, work papers, files, contracts, and client and
supplier information and lists; provided, however, that this
Section 13 shall not apply to Confidential Information which
(i) is or becomes generally available to the public other than
as a result of disclosure by or through the Recipient or its
Agents; (ii) was available to the Recipient on a
non-confidential basis prior to disclosure by the Disclosing
Party as evidenced by documentation in the Recipient's
possession (unless the Recipient knows that such Confidential
Information is subject to another confidentiality agreement);
(iii) becomes available to the receiving party on a
non-confidential basis from a source other than the Disclosing
Party (unless the Recipient knows that such Confidential
Information is subject to another confidentiality agreement);
or (iv) was developed by or for the Recipient independently of
and without reference to any of the Disclosing Party's
Confidential Information. Any Confidential Information
developed by ADAP (alone or jointly with Buyer) in connection
with any Products or services provided by ADAP will be the
exclusive property of ADAP.
c. Upon the Disclosing Party's request, the Recipient shall
immediately (i) return all Confidential Information it has
received, including tangible items containing or representing
Confidential Information and all copies thereof made by such party
or its Agents; (ii) erase or destroy all Confidential Information
it has received which is contained in computer memory or data
storage apparatus; and (iii) destroy all materials incorporating
or based on such Confidential Information which were prepared by
or for such party or its Agents.
d. Notwithstanding the foregoing, either party may disclose any
Confidential Information to the extent required by a valid
subpoena or order issued by a court of competent jurisdiction
or by a governmental body, provided that the party subject to
such requirements shall (i) immediately notify the Disclosing
Party of the existence, terms and circumstances relating to
the requirement, if permitted by law; and (ii) cooperate with
the Disclosing Party in asserting objections or providing a
defense to such requirement or obtaining a protective or
equivalent order. Buyer and ADAP agree that the obligations
under this Section 13 are of great importance to ADAP and form
a substantive condition of any transaction by it. Since
monetary compensation may not adequately cover the failure of
such obligations, Buyer and ADAP specifically agrees to submit
to injunctive relief from the courts where suitable and
adequate relief may be obtained in order to give effect to
these confidentiality obligations.
1. DISCLAIMER AND LIMITATION OF LIABILITY.
A. ADAP'S TOTAL LIABILITY IS LIMITED TO THE NET PRICE OF THE
PRODUCTS SOLD HEREUNDER, EXCLUDING ANY CHARGES STATED
SEPARATELY FROM THE PRODUCT PRICE ON THE INVOICE. BUYER'S SOLE
REMEDY FOR LIABILITY OF ANY KIND, INCLUDING NEGLIGENCE, WITH
RESPECT TO
Page 11
<PAGE>
THE PRODUCTS, SOFTWARE, AND DOCUMENTATION FURNISHED HEREUNDER IS
LIMITED TO THE REQUEST FOR ADAP, AT ADAP'S OPTION, TO REFUND THAT
NET PRICE FOR THE ITEMS AND MATTERS INVOLVED, EXCEPT THAT IN THE
CASE OF A BREACH OF WARRANTY, BUYER'S SOLE REMEDY IS TO RETURN THE
PRODUCT TO ADAP FOR REPAIR OR REPLACEMENT IN ACCORDANCE WITH THE
"WARRANTY" SECTION OF THESE TERMS AND CONDITIONS.
B. WITH RESPECT TO SERVICES, ADAP'S LIABILITY FOR ANY SERVICE IS
LIMITED TO THE RE-PERFORMANCE OF THE SERVICE. ADAP DOES NOT
WARRANTY PROPOGATION OR PATH PERFORMANCE. ALL SURVEYS ARE ACCURATE
AS OF THE DATE THE SURVEY WAS CONDUCTED.
C. IN NO EVENT WILL ADAP BE LIABLE TO BUYER FOR (I) REPROCUREMENT
COSTS; (II) INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL
DAMAGES; (III) ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE,
DATA OR PROFITS ARISING OUTOF OR IN CONNECTION WITH THIS AGREEMENT
OR THE USE OR PERFORMANCE OF ADAP PRODUCTS, WHETHER IN AN ACTION
OF CONTRACT OR TORT, INCLUDING NEGLIGENCE AND STRICT LIABILITY,
EVEN IF ADAP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
D. NO ACTION, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE,
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT
BY EITHER PARTY MORE THAN EIGHTEEN (18) MONTHS AFTER THE CAUSE OF
ACTION HAS ACCRUED, EXCEPT THAT AN ACTION FOR NON-PAYMENT MAY BE
BROUGHT WITHIN EIGHTEEN (18) MONTHS OF THE DATE OF LAST PAYMENT.
1. GENERAL PROVISIONS.
a. These terms and conditions together with the Purchase Agreement to
which it is attached together constitute the entire agreement
between the parties with respect to the subject matter hereof and
thereof and supersede all proposals, oral and written, all
previous negotiations and all other communications between the
parties with respect to that subject matter. These terms and
conditions will prevail and govern notwithstanding any different,
conflicting or additional terms and conditions which may appear on
any order or other document submitted by Buyer, all of which will
be deemed null and void. Deviations from these terms and
conditions are not valid unless confirmed in writing by an
authorized representative of ADAP.
b. The rights and obligations under these terms and conditions may
not be assigned without ADAP's prior written consent and any
attempt to do so without such consent will be void.
c. These terms and conditions will be governed by and construed in
accordance with the internal laws of the State of California
without reference to conflict of laws principles and not including
the United Nations Convention on Contracts for the International
Sale of Goods. Any controversy or claim arising out of or relating
to these terms and conditions or any matter or transaction
contemplated hereby will be triable only in a court with
jurisdiction located in Santa Clara County, California, and ADAP
and Buyer each irrevocably consent to that venue and to the
personal jurisdiction thereof.
d. Buyer will pay to ADAP all costs, fees and expenses (including
attorneys' fee) incurred by ADAP in enforcing, or attempting to
enforce, any of its rights under these terms and conditions or any
contract of sale between them.
e. All rights and remedies, whether conferred hereby or by any other
instrument or law will be cumulative and may be exercised
singularly or concurrently. Failure by either party to enforce any
contract terms will not be deemed a waiver of future enforcement
of that nor of any other term. If any provisions of this contract
are held invalid under any applicable law, rule, regulation or
treaty, such invalidity will not affect other provisions of this
contract which can be given effect without the invalid provisions
and to this end, the provisions of this contract are declared to
be severable. Notwithstanding the above, such invalid provision or
clause will be construed, to the extent possible, in accordance
with the original intent of the parties.
f. Any typographical, clerical or other error or omission in any
sales literature, quotation, price list, acceptance of offer,
invoice or other document or information issued by ADAP will be
subject to correction without any liability on the part of ADAP.
g. Where products include radio frequency communications equipment,
certain regulations of telecommunications regulatory authorities
apply. It is the sole responsibility of the Buyer to ensure
compliance with all such regulations and all other applicable laws
and rules and to procure and maintain at its own expense any
relevant license from such regulatory authority to install,
operate and maintain the equipment.
Page 12
<PAGE>
Exhibit "D" To Purchase Agreement - Year One Equip.
FROM
- ---------------------------------
Adaptive Broadband Corporation
1143 Bonnegas Avenue
Sunnyvale, CA 94089
Attention: David A. Reynolds
TO ADDRESS CORRESPONDENCE TO
- --------------------------------- -----------------------------------
Telecom Wireless Corporation Adaptive Broadband Corporation
5299 DTC Blvd 20885 Redwood Road #400
Suite 1200 Castro Valley, CA 94546
Englewood, CO 80111 Attention: David A. Reynolds
James C. Roberts
Tel: Telephone (510) 886-3787
Quote date: 20-Dec-99 Fax: Fax (510) 886-4500
------------- email [email protected]
This quotation number must appear
on all quotations and related
correspondence.
- --------------------------------------------
QUOTATION NUMBER ADAP 122099-DR
- --------------------------------------------
Delivery required by: Terms: Per Agreement Date of earliest
shipment: March 2000
Reply required by: F.O.B.: Sunnyvale, CA Ship via: Surface
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Item Quantity Description Unit Price Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SU-F051B 8,280 Single UNII Band Subscriber Transceiver, Supports 1,437.00 11,898,360.00
Both ATM and Ethernet Autosensing, Encryption
APT051B 120 Single UNII Band Access Point Transceiver, Supports 1,920.00 230,400.00
Both ATM and Ethernet Autosensing, Encryption
CA-030 8,400 CAT-5 Cable with RJ-45 Interface to transceiver 75.00 630,000.00
MASU-01 1 Subscriber Unit Install Manual 50.00 50.00
MA-BS-01 1 Base Station Installation Manual 50.00 50.00
MA-NM01 1 Network Management Manual 100.00 100.00
BS-CS-01 20 Control Server (Cell 4350) w/Control Server License 14,000.00 280,000.00
RKMN-01 20 Rack Tray with Monitor, Keyboard and Mouse 3,000.00 60,000.00
NMSE-01 1 Element Management System, Tower Config. 7,600.00 7,600.00
NM-K05 1 EMS S/W Activation Keys (Unlimited License) 50,000.00 50,000.00
BR-01 8,400 Tilt Brackets - Azimuth and Elevation List 16.00 134,400.00
Wall Box 8,400 AB-Access Wall Box 40.00 336,000.00
---------------
Total $13,635,375.00
===============
<CAPTION>
- -------------
Item Q1 Q2 Q3 Q4
- -------------
<S> <C> <C> <C> <C>
SU-F051B 2,070 2,070 2,070 2,070
APT051B 30 30 30 30
CA-030 2,100 2,100 2,100 2,100
MASU-01 1
MA-BS-01 1
MA-NM01 1
BS-CS-01 5 5 5 5
RKMN-01 5 5 5 5
NMSE-01 1
NM-K05 1
BR-01 2,100 2,100 2,100 2,100
Wall Box 2,100 2,100 2,100 2,100
3,450,090 3,392,290 3,392,290 3,392,290
</TABLE>
Remarks:
TWC will provide own ATM Switches, complete with (7) ATM-23 or 10BaseT
Interfaces, necessary routers or hubs that will install behind remote SU's, and
PC Workstations, and all necessary cabling.
Pricing does not include shipping nor installation.
<PAGE>
Exhibit "E" To Purchase Agreement - UNII Trial Equip.
FROM
- ---------------------------------
Adaptive Broadband Corporation
1143 Bonnegas Avenue
Sunnyvale, CA 94089
Attention: David A. Reynolds
TO ADDRESS CORRESPONDENCE TO
- --------------------------------- -----------------------------------
Telecom Wireless Corporation Adaptive Broadband Corporation
5299 DTC Blvd 20885 Redwood Road #400
Suite 1200 Castro Valley, CA 94546
Englewood, CO 80111 Attention: David A. Reynolds
James C. Roberts
Tel: Telephone (510) 886-3787
Quote date: 20-Dec-99 Fax: Fax (510) 886-4500
------------- email [email protected]
This quotation number must appear
on all quotations and related
correspondence.
- --------------------------------------------
QUOTATION NUMBER ADAP 122199-DR
- --------------------------------------------
Delivery required by: Terms: Per Agreement Date of earliest
shipment: January 2000
Reply required by: F.O.B.: Sunnyvale, CA Ship via: Surface
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Item Quantity Description Unit Price Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SU-F051B 3 Single UNII Band Subscriber Transceiver, Supports 1,437.00 4,311.00
Both ATM and Ethernet Autosensing, Encryption
APT051B 6 Single UNII Band Access Point Transceiver, Supports 1,920.00 11,520.00
Both ATM and Ethernet Autosensing, Encryption
CA-030 9 CAT-5 Cable with RJ-45 Interface to transceiver 75.00 675.00
MASU-01 1 Subscriber Unit Install Manual 50.00 50.00
MA-BS-01 1 Base Station Installation Manual 50.00 50.00
MA-NM01 1 Network Management Manual 100.00 100.00
BS-CS-01 1 Control Server (Cell 4350) w/Control Server License 14,000.00 14,000.00
RKMN-01 1 Rack Tray with Monitor, Keyboard and Mouse 3,000.00 3,000.00
NMSE-01 1 Element Management System, Tower Config. 7,600.00 7,600.00
NM-K01 1 EMS S/W Activation Keys (100 SU's) 2,500.00 2,500.00
BR-01 9 Tilt Brackets - Azimuth and Elevation List 16.00 144.00
Wall Box 9 AB-Access Wall Box 40.00 360.00
---------------
Total $44,310.00
===============
</TABLE>
Remarks:
TWC will provide own ATM Switches, complete with (7) ATM-25 or 10BaseT
Interfaces, necessary routers or hubs that will install behind remote SU's, and
PC Workstations, and all necessary cabling.
Pricing does not include shipping nor installation.
<PAGE>
AB-Access Price List v1.4.2
<PAGE>
PROMISSORY NOTE
$140,000.00 December 23, 1999
FOR VALUE RECEIVED, the undersigned, Telecom Wireless Corporation promises to
pay to the order of Leonard Gorelick at 8375 Eagle Ridge Drive, Cincinnati,
OH 45243 as defined in the schedule below:
<TABLE>
<CAPTION>
Date of re-payment, Principal Interest Free trading shares of the common stock of
- ------------------- --------- -------- ------------------------------------------
On or before Telecom Wireless
- ------------ --------------------------------------------
<S> <C> <C> <C>
April 21, 2000 $140,000.00 * 7,500 shares
May 21, 2000 $140,000.00 * 15,000 shares
June 20, 2000 zero zero 50,000 shares or a number of shares with a
bid price totaling $262,500.00 (two
hundred sixty two thousand five hundred
dollars) whichever is greater.
</TABLE>
* Interest due will be calculated at a rate of 10% per annum on a prorated
basis at the time of payment.
All or any part of the aforesaid principal sum may be prepaid at any time and
from time to time without penalty. The amount of shares due shall be
determined by the date of payment and will not be pro-rated.
In the event of any default by the undersigned, Telecom Wireless shall be
responsible for any and all costs associated with enforcing the terms of this
agreement.
The maker and all other persons who may become liable for the payment hereof
severally waive demand, presentment, protest, notice of dishonor or
nonpayment, notice of protest, and any and all lack of diligence or delays in
collection which may occur, and expressly consent and agree to each and any
extension or postponement of time of payment hereof from time to time at or
after maturity or other indulgence and waive all notice thereof.
This note is made and executed under, and is in all respects governed by, the
laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
BORROWER: Telecom Wireless Corporation
By: /s/ James C. Roberts
----------------------------------------
Dr. James C. Roberts, Chairman/CEO
LENDER: Leonard Gorelick
By: /s/ Leonard R. Gorelick
----------------------------------------
Leonard Gorelick
<PAGE>
HYPERLIGHT NETWORK CORPORATION
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into for the purpose of
TELECOM WIRELESS CORPORATION purchasing 250 shares of Series C Common Stock
of HyperLight Network Corporation ("HyperLight"), subject to Telecom paying
the consideration described below. In offering and selling these shares to
Telecom, HyperLight is relying on exemptions from registration provided by
Sections 4(2) and 4(6) of the Federal Securities Act of 1933 and Rule 506 of
Regulation D thereunder, as well as exemptions from registration under
applicable state law.
HYPERLIGHT NETWORK CORPORATION HAS NOT REGISTERED THE SERIES C COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE BLUE SKY OR
SECURITIES LAWS.
IF YOU PURCHASE THESE SHARES, YOU WILL NOT BE ABLE TO SELL, TRANSFER,
ASSIGN OR OTHERWISE DISPOSE OF THESE SHARES EXCEPT IN COMPLIANCE WITH THE
RESTRICTIONS ON TRANSFER CONTAINED IN THIS STOCK SUBSCRIPTION AGREEMENT AND
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
TELECOM WIRELESS CORPORATION will pay the following to HyperLight as
payment for the 250 shares of Series C Common Stock:
500,000 shares of restricted common stock of Telecom Wireless
Corporation, which shares will be included in a registration
statement on Form S-3 for resale by HyperLight. Telecom will
file that registration statement no later than October 15,
1999, and will use its best efforts to obtain effectiveness of
such registration statement as soon as possible thereafter.
Telecom will deliver a certificate for these shares no later
than September 15, 1999, Telecom represents that these shares
have a fair market value of not less than $5,000,000, and such
valuation will be supported by an independent appraisal if
requested by HyperLight. If the independent appraisal reflects
that the value of the 500,000 shares of Telecom Wireless
Corporation common stock is less than $5,000,000, or the
shares are not included in an effective registration statement
by not later than December 1, 1999, Telecom Wireless will
promptly (but not later than December 15, 1999) pay HyperLight
additional consideration (which must be cash or a
cash-equivalent) equal to $5,000,000, so that the total
consideration is equal to $5,000,000.
Although HyperLight will issue a certificate for the Series C
Common Stock, it will retain such certificate until the
earlier of: (i) Telecom completing its payment obligations
described in the preceding paragraph and in the Interim
Funding Agreement being entered into between the parties on
this date, or (ii) HyperLight selling more than 50,000 shares
of the Telecom common stock pursuant to the
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 1
<PAGE>
contemplated registration statement. If Telecom defaults in
any obligation described in the immediately preceding
paragraph before HyperLight delivers the certificate to
Telecom, HyperLight may (in its discretion) cancel such
certificate upon the return to Telecom of 500,000 shares of
Telecom common stock. In such event, HyperLight may retain all
cash paid to it pursuant to the preceding paragraphs.
Alternatively, HyperLight may treat this agreement as being in
full force and effect and may bring legal action to enforce
the payment obligations contemplated by the preceding
paragraphs, together with any consequential damages that might
result from such default and interest on the amount due at the
rate of 1% per month.
Telecom agrees that such investment is being made entirely on the
terms and conditions stated herein. It is understood that this Subscription
Agreement is not binding until HyperLight accepts it in writing and then only
in accordance with the terms of this Subscription Agreement.
In connection with Telecom's proposed purchase of the shares of
Series C Common Stock, Telecom represents as follows:
1. Telecom understands that an investment in HyperLight is one of
high risk, and a significant possibility exists that Telecom may lose its
entire investment. Without limiting the generality of the foregoing, Telecom
specifically understands that:
The proceeds to be received from Telecom will not be
sufficient for HyperLight to accomplish its corporate objectives as
outlined in the due diligence information received by Telecom.
HyperLight does not yet own the intellectual property
underlying the broadband communications technology which underlies
HyperLight's business plan, but HyperLight expects to acquire such
intellectual property in the near future in exchange for the issuance
of 2,500 shares of Series B Common Stock.
Any additional capital which may be raised by HyperLight will
dilute Telecom's interest in HyperLight;
HyperLight has entered or will shortly enter into an agreement
by which an unaffiliated entity by which that entity will have an
option to acquire 817 shares of Series A Preferred Stock to be issued
by HyperLight for a total investment of $8,170,000, a portion of which
investment will include the reimbursement of expenses previously
incurred by such entity. That entity will also obtain an option to
enter into an exclusive manufacturing agreement for the broadband
communications units, as well as obtaining certain marketing rights.
The Series A Preferred Stock will be created with voting rights,
liquidation and dividend rights, and other rights and preferences which
will be senior to the Series C Common Stock.
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 2
<PAGE>
HyperLight can offer no assurance that its technology will
ever result in a broadband communications unit of the type witnessed by
representatives of Telecom becoming available commercially or, if it
becomes commercially available, that it will become a commercial
success.
The Series C Common Stock has not yet been authorized pursuant
to a certificate of designation filed with the Delaware Secretary of
State, but will be authorized within fifteen days of Telecom's purchase
of the shares pursuant to this agreement by filing a certificate of
designation for the Series C Common Stock which will provide for the
same rights and preferences as currently exist for the Series B Common
Stock, plus the following:
The shares of Series C Common Stock will be entitled to one
vote, in person or by proxy, for each share of Series C Common
Stock standing in his name on the books of HyperLight to be
cast at any meeting of shareholders of HyperLight;
After the time that HyperLight has issued 10,000 shares of its
capital stock, and unless the holdes of a majority of the
outstanding shares of Series C Common Stock agree to waive
their pre-emptive rights as to any transaction, the holders of
Series C Common Stock will have the pre-emptive right to
purchase shares of any capital stock being offered by
HyperLight to any other person on the most favorable terms and
conditions then being offered. This pre-emptive fight will
expire on the earlier of the date HyperLight first completes
an offering of its shares to the public pursuant to a
registration statement effective under the Securities Act of
1933, as amended.
HyperLight is in the process of negotiating certain
compensation arrangements with four persons who are, and who will
continue to be, key employees of HyperLight. Telecom will not be
required to approve such compensation arrangements. The key employees
of HyperLight are as follows:
J. Mark Strong, President, Director
Linda W. Priest, Chairman, Vice President, Treasurer,
Assistant Secretary, and Director
David H. Wollins, Secretary and Director
Madison E. Priest, employee
HyperLight and its predecessor are involved in certain
litigation involving its intellectual property, which is in the
preliminary stages and, although HyperLight believes it has good claims
and meritorious defenses, there can be no assurance with regard to the
possible outcome of the litigation.
Telecom has the right to ask for and obtain further
information regarding the foregoing or any other information about
HyperLight, which Telecom deems to be relevant to its decision to
subscribe to purchase the Units being offered hereby.
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 3
<PAGE>
2. The shares of Series C Common Stock are being acquired by Telecom
for its own account and not on behalf of any subsidiary or any other person or
entity. The shares of Series C Common Stock are being acquired for investment
purposes and not for resale or distribution.
CAVEAT: CERTAIN STATEMENTS CONTAINED HEREIN AND WHICH HAVE BEEN GIVEN TO
TELECOM IN OTHER DOCUMENTS USING THE TERMS "MAY", "EXPECTS TO", AND OTHER
TERMS DENOTING FUTURE POSSIBILITIES, ARE FORWARD-LOOKING STATEMENTS. THE
ACCURACY OF THESE STATEMENTS CANNOT BE GUARANTEED AS THEY ARE SUBJECT TO A
VARIETY OF RISKS, WHICH ARE BEYOND HYPERLIGHT'S ABILITY TO PREDICT OR
CONTROL. THESE RISKS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
PROJECTIONS OR ESTIMATES CONTAINED IN THIS REPORT. THESE RISKS INCLUDE, BUT
ARE NOT LIMITED TO, THE POSSIBILITY THAT THE DESCRIBED OPERATIONS OR OTHER
ACTIVITIES WILL NOT BE COMPLETED ON ECONOMIC TERMS, IF AT ALL. THE OPERATIONS
CONTEMPLATED BY HYPERLIGHT ARE ATTENDANT WITH HIGH RISK. THERE CAN BE NO
ASSURANCE THAT HYPERLIGHT WILL SUCCEED IN OPERATING THE CONTEMPLATED
BUSINESS, AND IT IS IMPORTANT THAT EACH PERSON CONSIDERING AND INVESTMENT
PURSUANT TO THIS SUBSCRIPTION AGREEMENT UNDERSTANDS THE SIGNIFICANT RISKS
WHICH ACCOMPANY THE PROPOSED CONDUCT OF HYPERLIGHT'S FUTURE OPERATIONS.
3. Neither Telecom nor HyperLight is aware of the payment of any
commission or other remuneration to any person in connection with the
execution of this transaction or the purchase of the Series C Common Stock.
4. The undersigned acknowledges receipt of documents defining the
Series A and B Common Stock and the Series A Preferred Stock (which preferred
stock has not yet been formally created), and such additional information
disclosing the business, financial condition, and management of HyperLight as
the undersigned has deemed necessary or appropriate for the purposes of
considering this investment.
5. HyperLight has given Telecom the opportunity to ask questions of
and to receive answers from persons acting on HyperLight's behalf concerning
the terms and conditions of this transaction and the opportunity to obtain
any additional information regarding HyperLight, its business and financial
condition which HyperLight possesses or can acquire without unreasonable
effort or expense including (without limitation) all minutes of meetings of
the Boar Directors of HyperLight or committees thereof, and other relevant
documents requested by Telecom. In addition, Telecom has made such other
financial or other inquiry as Telecom deems necessary or appropriate in the
conduct of Telecom's due diligence investigation and has not relied on due
diligence of any other party in connection herewith.
6. Telecom acknowledges and understands, however, that HyperLight
has not authorized any person to make any statements on its behalf which
would in any way contradict any of the information which HyperLight has
provided to Telecom in writing, including the information set forth in this
Subscription Agreement, and Telecom further represents to HyperLight that
Telecom has not relied upon any such representations regarding HyperLight,
its business or financial condition, or this transaction in making any
decision to acquire the Series C Common Stock. If Telecom becomes aware of
conflicting information, Telecom will discuss this with management of
HyperLight.
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 4
<PAGE>
7. Telecom's present financial condition is such that it is unlikely
that it would be necessary for Telecom to dispose or leverage of the Series C
Common Stock in the foreseeable future.
8. Telecom acknowledges and understands that there is no market for
any class of HyperLight's capital stock and there can be no assurance that
any such market will ever develop.
9. Telecom understands that the Series C Common Stock being acquired
hereby are and will continue to be restricted securities within the meaning
of Rule 144 of the General Rules and Regulations promulgated under the
Securities Act of 1933, as amended (the "Act"), and applicable state
statutes, and consents to the placement of an appropriate restrictive legend
or legends on any certificates evidencing the Series C Common Stock and any
certificates issued in replacement or exchange therefor and acknowledges that
HyperLight will cause its stock transfer records to note such restrictions,
10. Telecom understands that the Series C Common Stock being
acquired hereby will be subject to the following co-sale rights and rights of
first refusal:
Each holder of outstanding equity securities of HyperLight has (and by
executing this Subscription Agreement Telecom specifically grants) a
right of first refusal with respect to any transfer by it of any shares
of any class or series of equity securities of HyperLight. In addition,
any person seeking to purchase shares of any class or series of equity
security from Telecom must offer and be prepared to purchase all shares
held by all other holders of equity securities on the same price and
terms. The foregoing rights will expire upon the completion of an
initial public offering by HyperLight. The following transactions are
specifically excepted from the foregoing provision:
(i) Transfers of shares for estate planning purposes; and
(ii) Transfers of common stock by a shareholder which
aggregate less than I% of the total number of shares
of common stock outstanding during any twelve month
period unless transfer of a larger amount has been
approved by the Board of Directors of HyperLight.
(NOTE THAT HYPERLIGHT IS ATTEMPTING TO AMEND THE
FOREGOING PROVISION SO THAT THE PROVISION WILL READ:
"TRANSFERS OF COMMON STOCK BY A SHAREHOLDER WHICH
AGGREGATE NOT MORE THAN 1% OF THE TOTAL NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING DURING ANY TWELVE
MONTH PERIOD UNLESS TRANSFER OF A LARGER AMOUNT HAS
BEEN APPROVED BY THE BOARD OF DIRECTORS OF
HYPERLIGHT." THERE CAN BE NO ASSURANCE THAT THIS
CHANGE WILL BE ACCEPTED THE BY REQUISITE PARTIES.)
11. Telecom agrees to disclose to any proposed buyer or transferee
of the Series C Common Stock the restrictions relating to the sale or
transfer of the Series C Common Stock.
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 5
<PAGE>
12. By Telecom's execution below, it is acknowledged and understood
that HyperLight is relying upon the accuracy and completeness hereof in
complying with certain obligations under applicable securities laws.
13. Telecom has reviewed the terms of this Subscription Agreement
and all of the documents attached hereto, delivered in connection herewith or
otherwise referenced herein with its legal, investment tax, and financial
advisors to the extent Telecom, deems such consultation appropriate, and
Telecom has also consulted with such advisors with regard to the advisability
of this investment to the extent Telecom deems such consultation to be
appropriate. Telecom acknowledges that HyperLight has advised Telecom that it
recommends that Telecom obtain such advice and consultation, Telecom further
acknowledges that it has neither sought nor received any advice from
HyperLight or any of its agents or affiliates with respect to any aspect of
this Subscription Agreement or the Investment under this Subscription
Agreement.
14. Telecom acknowledges that an investment in the Series C Common
Stock of HyperLight is a suitable investment for it, taking into
consideration the restrictions on transferability and the other
considerations affecting the Series C Common Stock and HyperLight as
described herein and in the documents attached hereto, and in the
investigation that Telecom has made.
15. This Agreement may be amended or modified only in writing signed
by the parties hereto. No evidence shall be admissible in any court
concerning any alleged oral amendment hereof. This Agreement fully integrates
all prior agreements and understandings between the parties concerning its
subject matter.
16. This Agreement binds and inures to the benefit of the
representatives, successors and permitted assigns of the respective parties
hereto.
17. Each party hereto agrees for itself, its successors and its
permitted assigns to execute any and all instruments necessary for the
fulfillment of the terms of this Agreement.
18. This Agreement is made under, shall be construed in accordance
with and shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, subject to acceptance by HyperLight, the
undersigned has completed this Subscription Agreement and tendered payment as
set forth above to evidence the undersigned's commitment to purchase the
Securities as set forth above.
TELECOM WIRELESS CORPORATION
Date: , 1999
-------------------
Tax ID #: By: /s/ James C. Roberts
-------------------- -------------------------------------------
James C. Roberts, Ph.D., President
5299 DTC Boulevard, Suite 1200
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 6
<PAGE>
Englewood, CO 80111
SUBSCRIPTION ACCEPTED SUBJECT TO THE TERMS HEREOF.
HYPERLIGHT NETWORK CORPORATION
9/13 , 1999 By /s/ J. Mark Strong
- --------------- ---------------------------------------
J. Mark Strong, President
HYPERLIGHT NETWORK CORPORATION SUBSCRIPTION AGREEMENT PAGE 7
<PAGE>
ASSIGNMENT AND SUBSCRIPTION AGREEMENT
Madison E, Priest, in consideration of the receipt of $400,000 and
other good and valuable consideration as set forth in paragraph 3, below, and
described elsewhere herein, hereby assigns, conveys, and transfers to Telecom
Wireless Corporation ("TWC") that portion of his interest in VisionTek, L.P.,
a dissolved Delaware limited partnership in liquidation ("VTLP"), equal to 2%
of 100% of the liquidating distribution of VTLP.
Mr. Priest and TWC both understand that VTLP is in liquidation, that
Linda W. Priest (Mr. Priest's wife) is the liquidator of VTLP, and that VTLP
will be assigning its intellectual property, personal property, and other
assets, subject to its liabilities (including litigation pending in various
courts with Level One Corporation and Zekko Corporation), to HLN Network
Corporation, a Delaware corporation ("HLN") in consideration of 2,500 shares
of Series B Common Stock of HLN. It is also the understanding of Mr. Priest
and TWC that HLN will distribute the Series B Common Stock to the partners of
VTLP in accordance with their interests in liquidating distributions.
1. To induce TWC to enter into this assignment and subscription
agreement, Mr. Priest represents and warrants to TWC as follows:
a. Mr. Priest owns the interest in VTLP being assigned
to TWC free and clear of all encumbrances, liens, and
other liabilities.
b. Mr. Priest has the legal capacity to assign his
interest in VTLP and his future interest in HLN,
subject only to the approval of the liquidator of
VTLP and the Board of Directors of HLN.
c. Mr. Priest did not encounter TWC through any form of
public advertising or general solicitation.
d. The interest in VTLP being assigned hereby will
entitle TWC to a distribution of 50 shares of Series
B Common Stock of HLN when such shares are
distributed to the partners of VTLP by the
liquidator. To the extent this interest results in
fewer than 50 shares, Mr. Priest will assign
additional shares to TWC; to the extent this interest
results in greater than 50 shares, Mr. Priest retains
such shares.
2. To induce Mr. Priest to enter into this assignment and
subscription agreement, TWC represents and warrants to Mr. Priest as follows,
with TWC's understanding and agreement that VTLP and HLN will each rely on
these representations and warranties as though the representations and
warranties were made directly to HLN and VTLP:
a. TWC understands that an investment in VTLP and
(following the liquidating distribution) HLN is one
of high risk, and a significant possibility exists
that TWC
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 2
<PAGE>
may lose his entire investment. Without limiting the
generality of the foregoing, TWC specifically
understands that:
The proceeds to be received from TWC will
not be sufficient for HLN to accomplish its corporate
objectives as outlined in the due diligence
information received by TWC.
The ownership of the intellectual property
that forms the basis for the Technology owned by VTLP
(which will be assigned to HLN) is primarily with
VTLP, but also is possibly with certain individuals
including, without limitation, Mr. Priest, Mrs.
Priest, and J. Mark Strong. TWC understands that,
although these persons have agreed to assign their
interests in the intellectual property, the
Technology, and the other assets of VTLP, they have
not yet done so.
HLN has entered or will shortly enter into
an agreement by which an unaffiliated entity by which
that entity will have an option to acquire 817 shares
of Series A Preferred Stock to be issued by HLN for a
total investment of $8,170,000, a portion of which
investment will include the reimbursement of expenses
previously incurred by such entity. That entity will
also obtain an option to enter into an exclusive
manufacturing agreement for the broadband
communications units, as well as obtaining certain
marketing rights. The Series A Preferred Stock will
be created with voting rights, liquidation and
dividend rights, and other rights and preferences
which will be senior to the Series B Common Stock.
HLN can offer no assurance that its
technology will ever result in a broadband
communications unit of the type witnessed by
representatives of TWC becoming available
commercially or, if it becomes commercially
available, that it will become a commercial success.
The Series B Common Stock has been
authorized pursuant to a certificate of designation
filed with the Delaware Secretary of State and which
TWC has reviewed to the extent it has determined such
review to be necessary or appropriate.
The interest in VTLP is subject to the
provisions and restrictions contained in the limited
partnership agreement for VTLP, which TWC has
reviewed to the extent it has determined such review
to be necessary or appropriate.
HLN is in the process of negotiating certain
compensation arrangements with four persons
(including Mr. Priest) who are, and who will continue
to be, key employees of HLN. TWC will not be required
to approve such compensation arrangements.
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 3
<PAGE>
As you have been previously advised, VTLP is
involved in certain litigation involving its
intellectual property which is in the preliminary
stages and, although VTLP and HLN believe they have
good claims and meritorious defenses, there can be no
assurance with regard to the possible outcome of the
litigation.
TWC has received a significant amount of
information, and has the right to continue to ask for
and obtain further information regarding the
foregoing or any other information about VTLP and HLN
which TWC deems to be relevant to its decision to
subscribe to purchase the interests being offered
hereby.
b. The interest in VTLP, and the shares of Series B
Common Stock of HLN to be distributed upon the
liquidation of VTLP are being and will be acquired by
TWC for his own account and not on behalf of any
other person or entity. The Securities are being
acquired for investment purposes and not for resale
or distribution.
CAVEAT: CERTAIN STATEMENTS CONTAINED HEREIN AND WHICH HAVE BEEN GIVEN TO TWC IN
OTHER DOCUMENTS USING THE TERMS "MAY", "EXPECTS TO", AND OTHER TERMS DENOTING
FUTURE POSSIBILITIES, ARE FORWARD-LOOKING STATEMENTS. THE ACCURACY OF THESE
STATEMENTS CANNOT BE GUARANTEED AS THEY ARE SUBJECT TO A VARIETY OF RISKS WHICH
ARE BEYOND VTLP'S OR HLN'S ABILITY TO PREDICT OR CONTROL. THESE RISKS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE PROJECTIONS OR ESTIMATES CONTAINED
IN THIS REPORT. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE POSSIBILITY
THAT THE DESCRIBED OPERATIONS OR OTHER ACTIVITIES WILL NOT BE COMPLETED ON
ECONOMIC TERMS, IF AT ALL. THE OPERATIONS CONTEMPLATED BY HLN FOLLOWING THE
LIQUIDATION OF VTLP ARE ATTENDANT WITH HIGH RISK. THERE CAN BE NO ASSURANCE THAT
HLN WILL SUCCEED IN OPERATING THE CONTEMPLATED BUSINESS, AND IT IS IMPORTANT
THAT EACH PERSON CONSIDERING AND INVESTMENT PURSUANT TO THIS SUBSCRIPTION
AGREEMENT UNDERSTANDS THE SIGNIFICANT RISKS WHICH ACCOMPANY THE PROPOSED CONDUCT
OF HLN'S FUTURE OPERATIONS.
c. Neither Mr. Priest nor TWC is aware of the payment of
any commission or other remuneration to any person in
connection with the execution of this assignment to
acquire interests of VTLP from T,&. Priest, or the
purchase of the Series B Common Stock.
d. TWC acknowledges receipt of documents defining the
Series B Common Stock and such additional information
disclosing the business, financial condition, and
management of VTLP and HLN, as it has deemed
necessary or appropriate for the purposes of
considering this investment.
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 4
<PAGE>
e. HLN and the liquidator for VTLP have each given TWC
the opportunity to ask questions of and to receive
answers from persons acting on their behalf
concerning the terms and conditions of this
transaction and the opportunity to obtain any
additional information regarding VTLP, HLN, its
respective business and financial condition which HLN
or VTLP possesses or can acquire without unreasonable
effort or expense including (without limitation) all
minutes of meetings of the Board of Directors of HLN
or committees thereof, and other relevant documents
requested by TWC. In addition, TWC has made such
other financial or other inquiry as TWC deems
necessary or appropriate in the conduct of TWC'S due
diligence investigation and has not relied on due
diligence of any other party in connection herewith.
f. TWC acknowledges and understands, however, that
neither VTLP nor its liquidator, nor HLN has
authorized any person to make any statements on its
behalf which would in any way contradict any of the
information which VTLP or HLN has provided to TWC in
writing, including the information set forth in this
Subscription Agreement, and TWC further represents to
Mr. Priest, HLN and VTLP that TWC has not relied upon
any such representations regarding HLN, VTLP, its
respective business or financial condition, or this
transaction in making any decision to acquire
interests in VTLP and, upon distribution, the Series
B Common Stock. If TWC becomes aware of conflicting
information, TWC will discuss this with management of
HLN and the liquidator of VTLP.
g. TWC'S present financial condition is such that it is
unlikely that it would be necessary for TWC to
dispose of or leverage either his interest in VTLP or
the Series B Common Stock when received upon
distribution from VTLP, in the foreseeable future.
h. TWC acknowledges and understands that there is no
market for the interests in VTLP or for any class of
HLN's capital stock and there can be no assurance
that any such market will ever develop.
i. TWC understands that the interests in VTLP being
acquired hereby are, and the shares of Series B
Common Stock will be and will continue to be
restricted securities within the meaning of Rule 144
of the General Rules and Regulations promulgated
under the Securities Act of 1933, as amended (the
"Act"), and applicable state statutes, and consents
to the placement of an appropriate restrictive legend
or legends on any certificates evidencing the
Securities and any certificates issued in replacement
or exchange therefor and acknowledges that VTLP and
HLN, as appropriate, will cause its stock transfer
records to note such restrictions.
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 5
<PAGE>
j. TWC understands that the Series B Common Stock which
will be acquired on receipt of a liquidating
distribution from HLN will be subject to the
following co- sale rights and rights of first
refusal:
Each holder of outstanding equity securities of HLN
has (and by executing this Subscription Agreement TWC
specifically grants) a right of first refusal with
respect to any transfer by it of any shares of any
class or series of equity securities of HLN. In
addition, any person seeking to purchase shares of
any class or series of equity security from TWC must
offer and be prepared to purchase all shares held by
all other holders of equity securities on the same
price and terms. The foregoing rights will expire
upon the completion of an initial public offering by
HLN. The following transactions are specifically
excepted from the foregoing provision:
(i) Transfers of shares for estate planning
purposes; and
(ii) Transfers of common stock by a shareholder
which aggregate less than 1% of the total
number of shares of common stock outstanding
during any twelve month period unless
transfer of a larger amount has been
approved by the Board of Directors of HLN.
k. TWC agrees to disclose to any proposed buyer or
transferee of the Series B Common Stock the
restrictions relating to the sale or transfer of the
Securities being purchased hereby.
l. By TWC's execution below, it is acknowledged and
understood that VTLP and HLN, and each of them and
their respective officers, directors, and liquidator,
is and are relying upon the accuracy and completeness
hereof in complying with certain obligations under
applicable securities laws.
m. TWC has reviewed the terms of this Subscription
Agreement and all of the documents attached hereto,
delivered in connection herewith or otherwise
referenced herein with its legal, investment, tax,
and financial advisors to the extent TWC deems such
consultation appropriate, and TWC has also consulted
with such advisors with regard to the advisability of
this investment to the extent TWC deems such
consultation to be appropriate. TWC acknowledges that
VTLP and HLN has each advised TWC that it recommends
that TWC obtain such advice and consultation. TWC
further acknowledges that it has neither sought nor
received any advice from HLN or VTLP, or any of their
respective agents or affiliates with respect to any
aspect of this Assignment and Subscription Agreement
or the Investment under this Assignment and
Subscription Agreement.
n. TWC acknowledges that an investment in VTLP and in
the Series B Common Stock of HLN is a suitable
investment for it, taking into consideration the
significant risks
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 6
<PAGE>
associated with their business, the restrictions on
transferability and the other considerations
affecting VTLP and the Series B Common Stock and HLN
as described herein and in the documents referenced
herein, and in the investigation that TWC has made.
3. This Agreement may be amended or modified only in writing
signed by the parties hereto. No evidence shall be admissible
in any court concerning any alleged oral amendment hereof This
Agreement fully integrates all prior agreements and
understandings between the parties concerning its subject
matter.
4. This Agreement binds and inures to the benefit of the
representatives, successors and permitted assigns of the
respective parties hereto.
5. Each party hereto agrees for itself, its successors and its
permitted assigns to execute any and all instruments necessary
for the fulfillment of the terms of this Agreement.
6. This Agreement is made under, shall be construed in accordance
with and shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, subject to acceptance by the liquidator for VTLP
and HLN, the undersigned has completed this Assignment and Subscription
Agreement and tendered payment as set forth above to evidence the undersigned's
commitment to purchase the Securities as set forth above.
TELECOM WIRELESS CORPORATION
Date: 9/13 , 1999
---------------
SSN: By: /s/ James C. Roberts
------------------------------- -------------------------------------
James C. Roberts, Ph.D., President
5299 DTC Boulevard, Suite 1200
Englewood, CO 80111
SUBSCRIPTION ACCEPTED SUBJECT TO THE TERMS HEREOF.
HYPERLIGHT NETWORK CORPORATION
9/13 , 1999 By /s/ J. Mark Strong
- ----------------- --------------------------------------
J. Mark Strong, President
VISION TEK, L.P.
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 7
<PAGE>
By:
-------------------------------------
Linda B. Priest, Liquidator
PRIEST-TELECOM WIRELESS CORPORATION ASSIGNMENT AND SUBSCRIPTION AGREEMENT PAGE 8
<PAGE>
HYPERLIGHT NETWORK CORPORATION
INTERIM FUNDING AGREEMENT
This INTERIM FUNDING AGREEMENT is made as of this 13th day of
September, 1999 between Hyperlight Network Corporation, a Delaware
corporation ("HLN"), and Telecom Wireless Corporation ("TWC").
In consideration of HLN's agreement to assist TWC in making
arrangements by which TWC may acquire equity in Vision Tek, L.P. from certain
limited partners of Vision Tek, L.P., and for other good and valuable
consideration (the sufficiency of which both TWC and HLN acknowledge), TWC
agrees to pay to HLN of the amount of $1,200,000 (which payment will be made
in accordance with the schedule set forth in paragraph 1, below.
1. PAYMENT SCHEDULE. This rights granted in this Agreement will
expire immediately if TWC fails to make any of the following payments to HLN,
and any equity purchased or otherwise acquired by TWC in Vision Tek, L.P. or
HLN will be deemed to have waived any economic rights or voting rights until
payment has been made in full, plus interest thereon at 1.5% per month from
the date the payment was originally due and which will be in default unless
paid within fifteen days of the date due:
(a) $300,000 on or before September 10, 1999 (for the period
September 1, 1999 through December 1, 1999;
(b) $300,000 on or before December 1, 1999;
(c) $300,000 on or before March 1, 2000; and
(d) $300,000 on or before June 1, 2000.
Such payments will be due whether or not TWC has acquired any equity in
Vision Tek, L.P. or HLN. If TWC does not acquire any interest in Vision Tek,
L.P. or HLN, all payments HLN received as a result of this Interim Funding
Agreement will be converted to debt on HLN's books. Such debt will bear
interest at 8% per annum, and repayment of such debt will be made in level
payments over a 24 month period commencing on the first day of the month
after HLN has recognized six months of positive cash flow. These payments
will be in default unless paid within thirty days of the date due, and the
obligation to make payment will be represented by a promissory note in
standard commercial form. If HLN has not received positive cash flow during
the 24 months following the termination of this agreement, TWC will be
granted a preferential liquidation right in a form to be negotiated, in
addition to the requirement that the amount be repaid after sufficient
positive cash flow has been received. For the purposes of this paragraph, the
term "positive cash flow", means earnings before income taxes, depreciation,
and amortization determined in accordance with generally accepted accounting
principles, consistently applied, and after subtracting the principal portion
of any debt service obligation.
2. NONTRANSFERABILITY OF RIGHTS. The rights granted herein may not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way (whether by operation of law or otherwise) except with the written
consent of the other party, which consent may not be
HYPERLIGHT NETWORK CORPORATION INTERIM FUNDING AGREEMENT PAGE 1
<PAGE>
unreasonably withheld. HLN acknowledges that TWC is engaged in certain
negotiations for a business combination with FlashNet. HLN hereby accepts an
assignment of this agreement to FlashNet in conjunction with a completion of
such business combination. HLN agrees to keep all material non-public
information received in regard to TWC's proposed business combination with
FlashNet confidential.
Any assignment, transfer, pledge, hypothecation or other disposition of the
rights or any attempt to make any such levy of execution, attachment or other
process will cause the rights, automatically and without any action by HLN,
to terminate immediately upon the happening of any such event, provided,
however, that any such termination of the rights or either of them under the
foregoing provisions of this Section will not prejudice any rights or
remedies which HLN may have under this Agreement or otherwise.
3. ACQUISITION OF INTERESTS IN VISION TEK, L.P. or HLN. TWC agrees,
represents and warrants that it will acquire all interests in Vision Tek,
L.P. or HLN that he may acquire from the owners thereof in compliance with
all applicable federal and state laws regulating the offer and sale of
securities.
4. NOTICES. All notices under this Agreement are to be delivered by
(i) depositing the notice in the mail, using registered mail, return receipt
requested, addressed to the address below or to any other address as the
party may designate by providing notice, (ii) telecopying the notice by using
the telephone number set forth below or any other telephone number as the
party may designate by providing notice, (iii) overnight delivery service
addressed to the address below or to any other address as the party may
designate by providing notice, or (iv) hand delivery to the individual
designated below or to any other individual as the party may designate by
providing notice. The notice shall be deemed delivered (i) if by registered
mail, four (4) days after the notice's deposit in the mail, (ii) if by
telecopy, on the date the notice is delivered, (iii) if by overnight delivery
service, on the day of delivery, and (iv) if by hand delivery, on the date of
hand delivery.
If to HLN:
HyperLight Network Corporation
188 North Lake Drive
Naples, Florida 34102
Attention: J. Mark Strong - President
Telecopy No.: 941-403-3528
with a copy (which does not constitute notice) to:
Norton - Lidstone, LLC
Suite 850, The Quadrant
5445 DTC Parkway
Englewood, CO 801 11
Attn: Herrick K. Lidstone, Jr., Esq.
HYPERLIGHT NETWORK CORPORATION INTERIM FUNDING AGREEMENT PAGE 2
<PAGE>
Telecopy: 303-221-5553
and to
Wollins, Hellman & Green
720 South Colorado Blvd
Suite 620-S
Denver, CO 80222
Attn: David H. Wollins, Esq.
Telecopy: 303-758-81 11
If to TWC:
Telecom Wireless Corporation
5299 DTC Blvd, 12" Floor
Englewood, CO 801 11
Attention: Jay W. Enyart, Esq. - Corporate Counsel
Telecopy No.: 303-357-0190
5. GOVERNMENTAL AND OTHER REGULATIONS. The exercise of the rights,
and TWC's and HLN's performance of their respective obligations hereunder is
subject to all applicable federal and state laws, rules and regulations, and
to such approvals by any regulatory or governmental agency which may, in the
opinion of counsel, be required.
6. CORPORATE APPROVALS. By executing this Agreement, the undersigned
represent and warrant to the other that it has obtained all necessary
corporate approvals, and that this agreement is a legal, valid, and binding
agreement of the respective signatories.
IN WITNESS WHEREOF, HLN and TWC have caused this Agreement to be executed in
their respective names by their respective Presidents, as of the date first
above written.
HYPERLIGHT NETWORK CORPORATION TELECOM WIRELESS CORPORATION
(Seal)
By: /s/ J. Mark Strong By: /s/ James C. Roberts
--------------------------------- --------------------------
J. Mark Strong, President James C. Roberts, President
HYPERLIGHT NETWORK CORPORATION INTERIM FUNDING AGREEMENT PAGE 3
<PAGE>
Technology Marketing and License Agreement
This Technology License Agreement ("Agreement") is entered into
between HYPERLIGHT NETWORK CORPORATION, a Delaware corporation ("Licensor")
and TELECOM WIRELESS CORPORATION, a Utah corporation with its stock symbol
(OTCBB:NOYR) ("Licensee").
Recitals
A. Licensor and its predecessors have developed certain Technology and
has, or will, enter into an agreement with an unaffiliated entity (the
"Licensor's Designated Manufacturer") to manufacture DSX Units which
will incorporate the Technology for commercial purposes.
B. Licensor is in the process of obtaining ownership of, and the right to
grant a license, manufacturing, and marketing rights with respect to
the Technology and the DSX Units.
C. Licensor and the Licensor's Designated Manufacturer are also planning
to test the Technology to determine the produceability and scalability
of the DSX Units, which will incorporate the Technology.
D. The Licensor's Designated Manufacturer will conduct certain testing of
the Technology and the DSX Units and, if the testing is completed
satisfactorily, is expected to enter into a license agreement for the
manufacture of the DSX Units, incorporating the Technology into the DSX
Units.
E. If the Licensor's Designated Manufacturer fails to exercise its option
to enter into a license agreement for the manufacture of the DSX Units,
the Licensor will use its best efforts to make the DSX Units available
to the Licensee through another manufacturer.
Now, therefore, in consideration of the mutual promises and
covenants contained herein, the sufficiency of which both the Licensor and
the Licensee acknowledge, the parties agree as follows:
1. Definitions
a. The term "Effective Date" means the later of the following: the
date the last party executes this Agreement and delivers it to the other
party, or the date the Licensor designates a Licensor's Designated
Manufacturer to the Licensee pursuant to paragraph 3.b, below.
b. The term "IP" means the Technology together with any other
intellectual property anywhere in the world, including patents, patent
applications, copyrights, trademarks, service marks, logos, Internet domain
names, trade names, trade secrets, and other confidential or proprietary
information based on, related to, or in connection with the Technology which
is owned by the Licensor.
<PAGE>
c. The term "Technology" means that certain high speed, broadband
technology useful in carrying voice, data and video signals in either analog
or digital format owned by the Licensor, including all improvements and
enhancements thereto owned by the Licensor.
d. The term "Territory" means the entire world.
e. "DSX Units" mean those certain switchable and routable, DSX,
broadband transmission DSX Units developed and built for testing purposes
only by Madison Priest that employ the IP. The term "DSX Units" when used
herein does not include units that are not switchable or routable which are
commonly referred to as "DSL Units."
2. License.
a. Subject to any license for the DSX Units and the Technology
incorporated therein which is delivered to the Licensee in connection with
the acquisition of the DSX Units from the Licensor's Designated Manufacturer
and subject further to the additional terms and conditions contained herein,
Licensor grants Licensee a non-exclusive, irrevocable but terminable in
accordance with the provisions of this Agreement, non-transferable license to
market the DSX Units to provide video, data, and telephony ("Broadband
Services") pursuant to the terms and conditions of this Agreement. Although
this license is non-transferable, the Licensee may enter into distributor
sublicenses and end-user sublicenses with other parties as permitted in
Paragraph 4 below. This license does not grant the Licensee any authority to
market the DSX Units in Governmental Applications as defined in Exhibit "A".
b. Subject to any license for the DSX Units and the Technology
incorporated therein which is delivered to the Licensee in connection with
the acquisition of the DSX Units from the Licensor's Designated Manufacturer
and subject further to the additional terms and conditions contained herein,
Licensor further grants Licensee a non-exclusive, irrevocable but terminable
in accordance with the provisions of this Agreement, non-transferable license
to market, directly and indirectly, all products related to Broadband
Services containing DSX applications then being offered by the Licensor in
the Territory. Although this license is non-transferable, the Licensee may
enter into distributor sublicenses and end-user sublicenses with other
parties as permitted in Paragraph 4 below.
c. Licensee will maintain at its own expense all regulatory
compliance necessary or appropriate for it to comply with its obligations
under this Agreement. Licensee will, on Licensor's request not more
frequently than annually, provide the Licensor with documentation to
substantiate such regulatory compliance. If the Licensee seeks to market the
DSX Units outside of the United States, Licensee will, prior to entering into
the first distributor sublicense or end-user license outside of the United
States, provide the Licensor with documentation substantiating such
regulatory compliance. In addition, the Licensee will notify the Licensor
each time there is a material change to regulatory compliance required by
this paragraph.
3. Acquisition of DSX Units from the Licensor's Designated Manufacturer
<PAGE>
a. Licensee agrees that it will acquire the DSX Units only from the
Licensor's Designated Manufacturer, as the Licensor's Designated Manufacturer
may be designated from time-to-time by the Licensor subject to the terms and
conditions the Licensor's Designated Manufacturer or the Licensor may impose.
It is expected that the terms will include, but may not be limited, to the
following:
i. Use and installation of the DSX Units in a manner consistent
with the Licensor's Designated Manufacturer's and the
Licensor's instructions;
ii. Maintenance of any labeling or other identification installed
on any DSX Units by the Licensor's Designated Manufacturer;
iii. Each right to use the DSX Units will be conditional on the
end-users continuing compliance with the revenue-sharing and
accounting provisions of this agreement and any successor
agreement addressing those points; and
iv. Prevention from disassembly of or reverse engineering the DSX
Units in any respect.
v. Notification and compliance provisions imposed on the end-user
and distributor similar to those imposed on the Licensee in
paragraph 2(c), above.
b. Licensee agrees that the Licensor may designate from time-to-time
one or more Licensor's Designated Manufacturers with whom it has a
manufacturing relationship with respect to the Territory and which are
capable of producing the DSX Units, but the Licensee further agrees that the
Licensor:
i. has no obligation to maintain any particular manufacturing
relationship;
ii. has no obligation to set or establish the terms or conditions
of any acquisition of DSX Units;
iii. has no liability with respect to delivery obligations or any
warranty with respect to any DSX Units licensed by the
Licensee; and
iv. offers no warranty with respect to any DSX Units, including
specifically (and without limitation) no warranty of
merchantability or fitness for a specific purpose, which
warranties the Licensor specifically disclaims.
The Licensee agrees that, with respect to any DSX Units marketed by the
Licensee pursuant to this License Agreement, the Licensor has no liability to
the Licensee or any sublicensee under Article 2 of the Uniform Commercial
Code ("Sales") as adopted in any state of the United States or any comparable
law, custom, or practice anywhere in the world. The Licensee specifically
acknowledges and agrees that, to the extent the Licensee or any sublicensee
requires any warranty, delivery obligation, or other term or condition of
purchase, the Licensee or sublicensee must negotiate such terms with the
Licensor's Designated Manufacturer.
4. Sublicense.
a. (i) The Licensor hereby grants the right and privilege to the
Licensee to market the DSX Units and to enter into sublicenses consistent
with this Agreement with other distributors for the purpose of marketing the
DSX Units (a "distributor sublicense"), provided all sublicensees agree that
any distributor sublicense granted (which distributor sublicense is
<PAGE>
directly or indirectly related to the subject matter of this Agreement) is
specifically subject to the terms of this Agreement.
(ii) The Licensor hereby grants the right and privilege to
the Licensee to market the DSX Units and to enter into sublicenses consistent
with this Agreement ("end-user sublicense") with persons who will place the
DSX Units in service to provide (or obtain) Broadband Services.
(iii) The Licensee will promptly notify the Licensor of any
distributor sublicense or end-user sublicense entered into by the Licensee,
and will provide a copy of the sublicense agreement to the Licensor as
executed by both the Licensee and the sublicensee within five days of the
sublicense having been executed by the parties.
b. The Licensee agrees to monitor the performance of all persons
with whom it has entered sublicenses as to their compliance with the terms of
this License Agreement and to enforce the terms of this License Agreement
from time to time as may be necessary against any of its sublicensees to
ensure such sub-licensee's compliance with the terms of this License
Agreement and the sublicense agreement.
c. Each distributor sublicense granted hereunder must be expressly
stated to be subject to, and terminable upon termination of, this Agreement.
Upon termination of this Agreement or any distributor sublicense granted
hereunder, the Licensee must obtain from each distributor sublicensee and
return to the Licensor each Unit acquired from the Licensor's Designated
Manufacturer or any other source pursuant to this Agreement unless the
Licensee and the Licensor make other arrangements with respect to the
continuation of any of the sublicenses on other terms following such
termination.
d. Each end-user sublicense not then in default will survive the
termination of this Agreement.
e. Each end-user sublicense and distributor sublicense will be in a
form as may be designated from time-to-time by the Licensor. Neither the
Licensee nor any other person but the Licensor has any authority to make any
changes to the form of sublicense except to complete any blanks set forth on
the form. The end-user sublicense agreements and the distributor sublicense
agreements will, among other provisions, provide that they:
i. are expressly subject to the terms of this Agreement,
ii. provide adequately for the protection of the Technology and
the integrity of the DSX Units,
iii. provide for the accurate reporting of all revenues received
from the further license of the DSX Units and such other
information necessary to determine, accurately, the license
fee required hereunder,
iv. provide for the ability of the Licensee and its agents or
representatives to review and audit the relevant books and
records of the sublicensee, and
v. appoint the Licensor as the Licensee's agent for all actions
of the Licensee permitted or required under the sublicense
(with the understanding that the
<PAGE>
Licensor will not be required to take any action, and that the
responsibility for taking any actions lies solely with the
Licensee).
vi. Compliance with all federal, state, local, provincial, or
other domestic regulations in the United States or elsewhere
necessary or appropriate for it to comply with its obligations
under any end-user sublicense or distributor sublicense, as
appropriate. Licensee will, on Licensor's request not more
frequently than annually provide the Licensor with
documentation to substantiate such regulatory compliance. In
addition, the end-user sublicensee or the distributor
sublicensee will notify the Licensee (which will promptly
notify the Licensor) each time there is a material change to
regulatory compliance required by this paragraph.
vii. Provide for termination and assignment provisions consistent
with Paragraph 11 hereof
5. License Fee
a. In consideration for the license granted by Licensor under this
Agreement, Licensee shall pay Licensor a fee as set forth in Exhibit A (the
"License Fee").
b. Each installment of the License Fee shall be due and payable in
accordance with the Payment Schedule set forth in Exhibit A. All amounts not
paid within ten (10) days of the due date shall bear interest at the rate of
one and one-half percent (1.5 %) per month, or at the highest rate allowed by
law, whichever is less, from the date due until paid. Failure of Licensee to
pay any amounts when due shall constitute sufficient cause for Licensor to
terminate this Agreement. Each payment of any installment of the license fee
shall be accompanied by reasonably detailed records from the Licensee
sufficient to allow the Licensor to determine whether the calculation of the
Licensee Fee appears to be correct.
c. Licensee shall, in addition to the other amounts payable under
this Agreement, pay all sales, use, value added or other taxes, federal,
state or otherwise, however designated, which are levied or imposed by reason
of the transactions contemplated by this Agreement.
d. Licensor, its agents and representatives, shall have the right to
review and audit the Licensee's books and records relating to the accrual and
the payment of the license fee from time-to-time during the Licensee's normal
business hours. The Licensee will pay 110% of the costs of any such audit or
review (including the reasonable costs of employees of the Licensor involved
in such audit or review) if any audit or review of the Licensee's books and
records pursuant to this paragraph reveals:
i. an underpayment of the License Fee by more than 5%; or
ii. failure by the Licensee to maintain books and records reasonably
necessary to determine the amount of the license fee due to the extent
the Licensee accrues any obligation to pay the Licensor a fee; or
iii. failure by the Licensee to ensure that its sublicensees maintain
adequate books and records to the extent the Licensee accrues any
obligation to pay the Licensor a fee; or
iv. failure by the Licensee to receive adequate reports from any
sublicensee from whom reports may be due.
<PAGE>
6. Ownership
a. Title. Licensee and Licensor agree that Licensor owns and will
continue to own all proprietary rights, including patent, copyright, trade
secret, trademark and other proprietary rights, in and to the IP, including
any corrections, fixes, enhancements, updates or other modifications thereto,
whether made by Licensee, or any third party.
b. Title to DSX Units. The Licensor disclaims any warranty as to
title to the DSX Units. The Licensee acknowledges that the Licensee must
obtain whatever warranties as to title to, or merchantability, or fitness for
a particular purpose of, the DSX Units the Licensee may desire from the
Licensor's Designated Manufacturer.
7. Limitations Period
No arbitration or other action under this Agreement, unless
involving death or personal injury, may be brought by either party against
the other more than one (1) year after the cause of action arises.
8. No Consequential Damages
Licensor shall not be liable to Licensee for indirect, special,
incidental, exemplary or consequential damages (including, without
limitation, lost profits) related to this Agreement or resulting from
Licensee's use or inability to use the IP or the inability of the Licensor's
Designated Manufacturer to make DSX Units available in quantities sufficient
to meet any purchase order submitted by Licensee, or arising from any other
cause of action whatsoever, including contract, warranty, strict liability,
or negligence, even if Licensor has been notified of the possibility of such
damages.
9. Limitation on Recovery
Under no circumstances shall the liability of Licensor to Licensee
exceed the amounts paid by Licensee to Licensor under this Agreement.
10. Indemnification
Licensor shall indemnify and hold harmless Licensee from and against any
claims, including reasonable legal fees and expenses, based upon infringement
of any United States copyright, trademark, or patent by the DSX Units.
Licensee agrees to notify Licensor of any such claim promptly in writing and
to allow Licensor to control the proceedings. Licensee agrees to cooperate
fully with Licensor during such proceedings. Licensor shall defend and shall
have the further right, in its sole discretion, to settle at its sole expense
all proceedings arising out of the foregoing.
11. Terms and Termination
<PAGE>
a. Effective Date and Term. This Agreement and the license granted
hereunder shall take effect upon the Effective Date that the last party
executes this Agreement and shall continue (unless sooner terminated pursuant
to paragraph 11.b, below, for 5 years following the Effective Date.
b. Termination. Each party shall have the right to terminate this
Agreement and the license granted herein upon the occurrence the following
events (each an "Event of Default"):
(i) In the event the other party violates any provision of this
Agreement.
(ii) In the event the Licensee (A) terminates or suspends its
business, (B) becomes subject to any bankruptcy or insolvency
proceeding under Federal or state statute, (C) becomes
insolvent or subject to direct control by a trustee, receiver
or similar authority, or (D) has wound up or liquidated,
voluntarily or otherwise.
(iii) Within 30 days from the date the last party executes this
Agreement and delivers it to the other party upon the request
from either party that the parties enter into a new agreement
setting forth in more detail the obligations of the parties
hereto.
(iv) By the Licensor if the Licensee does not provide the Licensor
with a purchase order for a minimum of 50,000 DSX Units,
backed by an irrevocable letter of credit for $50,000,000 (not
later than November 1, 1999), which purchase order and letter
of credit are satisfactory to the Licensor in the Licensor's
sole discretion.
c. Notice and Opportunity to Cure. Upon the occurrence of an Event
of Default, a party shall deliver to the defaulting party a Notice of Intent
to Terminate that identifies in detail the Event of Default.
(i) If the Event of Default (described in 11(b)(i), (ii), or
(iii)) remains uncured for thirty (30) days, the
non-defaulting party may terminate this Agreement and the
license granted herein by delivering to the defaulting party a
Notice of Termination that identifies the effective date of
the termination, which date shall not be less than thirty (30)
days after the date of the Notice of Intent to Terminate.
(ii) If the Event of Default (described in 11(b)(iv)) occurs, the
Licensor may terminate this Agreement and the license granted
herein by delivering to the Licensee a Notice of Termination
that identifies the effective date of the termination, which
date shall not be less than five (5) days after the date of
the Notice of Intent to Terminate.
d. Effect of Termination. Termination of this License Agreement does
not operate to terminate any end-user license then existing that is in
good-standing. The Licensor may give notice to the holder of the end-user
license and the distributor sublicense at any time after the occurrence of an
Event of Default, however, and direct the end-user licensee and the
distributor sublicensee to make all future payments and owe all further
obligations to the Licensor.
<PAGE>
12. Assignment
a. Licensee shall not assign or otherwise transfer the license
granted hereby to anyone, including any parent, subsidiaries, affiliated
entities or third parties, or as part of the sale of any portion of its
business, or pursuant to any merger, consolidation or reorganization, without
Licensor's prior written consent, which consent the Licensor will not
unreasonably withhold. Licensor acknowledges that Licensee is engaged in
negotiations for a business combination with FlashNet. Licensor hereby
accepts an assignment of this agreement to FlashNet in conjunction with the
completion of such business combination. Licensor agrees to keep all material
nonpublic information received regarding Licensee's proposed business
combination with FlashNet confidential.
b. Licensee may enter into sublicense arrangements with end-users of
the DSX Units or distributors provided such arrangements:
i. are expressly subject to the terms of this Agreement,
ii. provide adequately for the protection of the Technology and
the integrity of the DSX Units,
iii. provide for the accurate reporting of all revenues received
from the further license of the DSX Units and such other
information necessary to determine, accurately, the license
fee required hereunder,
iv. provide for the ability of the Licensee and its agents or
representatives to review and audit the relevant books and
records of the sublicensee, and
v. appoint the Licensor as the Licensee's agent for all actions
of the Licensee permitted or required under the sublicense
(with the understanding that the Licensor will not be required
to take any action, and that the responsibility for taking any
actions lies solely with the Licensee).
13. Arbitration
The parties shall settle any controversy arising out of this
Agreement by arbitration in Denver, Colorado, in accordance with the rules of
the Judicial Arbiter Group, Inc., Denver, Colorado ("JAG"). The parties shall
agree upon a single arbitrator or, if the parties cannot agree upon an
arbitrator within thirty (30) days, then the parties agree that a single
arbitrator shall be appointed by the JAG. The arbitrator may award attorneys'
fees and costs as part of the award. The award of the arbitrator shall be
binding and may be entered as a judgment in any court of competent
jurisdiction.
14. Notices
All notices under this Agreement are to be delivered by (i)
depositing the notice in the mail, using registered mail, return receipt
requested, addressed to the address below or to any other address as the
party may designate by providing notice, (ii) telecopying the notice by using
the telephone number set forth below or any other telephone number as the
party may designate
<PAGE>
by providing notice, (iii) overnight delivery service addressed to the
address below or to any other address as the party may designate by providing
notice, or (iv) hand delivery to the individual designated below or to any
other individual as the party may designate by providing notice. The notice
shall be deemed delivered (i) if by registered mail, four (4) days after the
notice's deposit in the mail, (ii) if by telecopy, on the date the notice is
delivered, (iii) if by overnight delivery service, on the day of delivery,
and (iv) if by hand delivery, on the date of hand delivery.
LICENSOR:
HyperLight Network Corporation
188 North Lake Drive
Naples, Florida 34102
Attention: J. Mark Strong - President
Telecopy No.: 941-403-3528
with a copy (which does not constitute notice) to:
Norton Lidstone, P.C.
Suite 850, The Quadrant
5445 DTC Parkway
Englewood, CO 801 11
Attn: Herrick K. Lidstone, Jr., Esq.
Telecopy: 303-221-5553
and to
Wollins, Hellman & Green
720 South Colorado Blvd
Suite 620-S
Denver, CO 80222
Attn: David H. Wollins, Esq.
Telecopy: 303-758-81 11
LICENSEE:
Telecom Wireless Corporation
5299 DTC Blvd, 12th Floor
Englewood, CO 80111
Attention: Jay W. Enyart, Esq. - Corporate Counsel
Telecopy No.: 303-357-0190
15. General Provisions
<PAGE>
a. Complete Agreement. The parties agree that this Agreement is the
complete and exclusive statement of the agreement between the parties, which
supersedes and merges all prior proposals, understandings and all other
agreements, oral or written, between the parties relating to this Agreement.
b. Amendment. This Agreement may not be modified, altered or amended
except by written instrument duly executed by both parties.
c. Waiver. The waiver or failure of either party to exercise in any
respect any right provided for in this Agreement shall not be deemed a waiver
of any further right under this Agreement.
d. Severability. If any provision of this Agreement is invalid,
illegal or unenforceable under any applicable statute or rule of law, it is
to that extent to be deemed omitted. The remainder of the Agreement shall be
valid and enforceable to the maximum extent possible.
d. Governing Law. This Agreement and performance hereunder shall be
governed by the laws of the State of Delaware.
e. DSL License. When and if Licensor commences the marketing and
sale of DSL licenses, the Licensor will provide Licensee with a license on
the most favorable terms offered to third parties for placing orders for
similar quantities and delivery requirements.
f. Read and Understood. Each party acknowledges that it has read and
understands this Agreement and agrees to be bound by its terms.
AGREED:
LICENSOR:
HyperLight Network Corporation Date: 9/13 , 1999
-------------------
By: /s/ J. Mark Strong
--------------------------
J. Mark Strong, President
188 North Lake Drive
Naples, Florida 34102
Telephone: 941-403-3527
Facsimile: 941-403-3528
LICENSEE:
TELECOM WIRELESS CORPORATION Date: , 1999
-------------------
By: /s/ Dr. James C. Roberts
--------------------------
Dr. James C. Roberts, CEO
5299 DTC Blvd, 12th Floor
Telephone: 303-357-0000
Facsimile: 303-357-0100
<PAGE>
EXHIBIT A
TO
TECHNOLOGY MARKETING AND LICENSE AGREEMENT
License Fee and Payment Schedule
1. License Fee
The License Fee shall be 50% of any revenues the Licensee receives
from any person attributable to any end-user sublicense for the commercial or
consumer use of the DSX Units (as that term is defined in this agreement).
Subject to the exceptions contained in the following sentence, if
the Licensor offers any third party a more favorable License Fee, this
agreement will be automatically amended to adopt such more favorable License
Fee. This does not include any license terms offered to the Licensor's
Designated Manufacturer for the sale of DSX Units or DSL Units in Government
Applications, defined as follows:
(A) to employ the IP, including all portions thereof, and to use, sell,
and offer to sell products purchased, leased, or otherwise acquired
from licensees and sublicensees of Licensor, or for which Interactive
has paid a royalty to Licensor pursuant to Paragraph 1, above, using or
based upon the IP and any portion thereof to provide integrated
broadband systems (the "Broadband Systems") to the U.S. Government, its
agencies, departments and designees which may include the provision of,
directly and indirectly, Broadband Services to other governmental
entities and
(B) to market worldwide, directly and indirectly, all products related
to such Government Applications then being offered by Licensor.
2. Payment Schedule
a. The Licensee must make payment of all amounts due to the Licensor
within five business days after the Licensee's receipt of payment from its
sublicensee.
b. TWC will provide accounting for all billing on a Quarterly basis
and TWC will provide copy of audited financials within 60 days of the close
of any quarter.
<PAGE>
GERSTLE, ROSEN & ASSOCIATES, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
MARK R. GERSTLE, C.P.A. ROBERT N. ROSEN, C.P.A.
January 28, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Telecom Wireless Corporation
Ladies and Gentlemen:
Gerstle, Rosen & Associates, P.A. has read and reviewed the language
appearing under the caption "Experts" in the preliminary prospectus of
Telecom Wireless Corporation (the "Company"), included as a part of Amendment
No. 1 to Registration Statement on Form SB-2, with regard to Item 304 of
Regulation S-B and a change in the independent accountants for the Company
during the two most recent fiscal years. We have no changes to or
disagreements with such language and are in agreement therewith.
Sincerely,
/s/ Gerstle, Rosen & Associates, P.A.
Gerstle Rosen & Associates, P.A.
ONE TURNBERRY PLACE - 19495 BISCAYNE BOULEVARD - SUITE 705
- AVENTURA, FLORIDA 33180
DADE (305)937-0116 - BROWARD (954)389-1616
- BOCA RATON (561)347-8917 - PALM BEACH (561)687-2192 - FAX (305)937-0128
COMPSON FINANCIAL CENTER - 980 NORTH FEDERAL HIGHWAY - SUITE 401
- BOCA RATON, FLORIDA 33432
PHONE (561)447-4000 - FAX (561)447-4004
5100 TAMIAMI TRAIL NORTH - SUITE 103 - NAPLES, FLORIDA 34103
PHONE (941)262-1773 - FAX (941)263-0166
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF TELECOM WIRELESS CORPORATION
America's Web Station, Inc.
Phoenix Communications, Inc. (inactive)
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Sys-Group, Inc.
d/b/a/ Prentice Technologies, Inc. on Form SB-2, as amended, of our report
dated May 26, 1999 on the consolidated financial statements of Telecom
Wireless Corporation and Subsidiaries, appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Ehrhrardt Keefe Steiner & Hottman PC
Ehrhrardt Keefe Steiner & Hottman PC
Denver, Colorado
February 1, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telecom Wireless
Corporation on Form SB-2, as amended, of our report dated October 26, 1999 on
the consolidated financial statements of Telecom Wireless Corporation and
Subsidiaries, appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Ehrhrardt Keefe Steiner & Hottman PC
Ehrhrardt Keefe Steiner & Hottman PC
Denver, Colorado
February 1, 2000
<PAGE>
GERSTLE, ROSEN & ASSOCIATES, P.A.
[LETTERHEAD]
January 28, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Telecom Wireless Corporation
Ladies and Gentlemen:
Gerstle, Rosen & Associates, P.A. has read and reviewed the language
appearing under the caption "Experts" in the preliminary propsectus of
Telecom Wireless Corporation (the "Company"), included as a part of Amendment
No. 1 to Registration Statement on Form SB-2, with regard to Item 304 of
Regulation S-B and a change in the independent accountants for the Company
during the two most recent fiscal years. We have no changes to or
disagreements with such language and are in agreement therewith.
Sincerely,
/s/ Gerstle, Rosen & Associates, P.A.
Gerstle, Rosen & Associates, P.A.
<PAGE>
GIRARDIN BALDWIN & ASSOCIATES LLP
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this amended Registration Statement of Telecom
Wireless Corporation of our report of America's Web Station, Inc. dated July
30, 1999 appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Girardin Baldwin & Associates LLP
GIRARDIN BALDWIN & ASSOCIATES LLP
Certified Public Accountants
Naples, Florida
January 31, 2000
