<PAGE>
As filed with the Securities and Exchange Commission on May 4, 2000
Commission File No. ___________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
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) 416-4000
(Address and Telephone Number of Principal Executive Offices)
CALVIN D. SMILEY
PRESIDENT
TELECOM WIRELESS CORPORATION
5299 DTC BOULEVARD, SUITE 1120
ENGLEWOOD, CO 80111
(303) 416-4000
(Name , Address and Telephone Number of Agent for Service)
----------------------------
COPY TO:
CHRISTY T. O'CONNOR, ESQ.
ASSOCIATE COUNSEL
TELECOM WIRELESS CORPORATION
5299 DTC BLVD., SUITE 1120
ENGLEWOOD, CO 80111
(303) 416-4013
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. / /
<PAGE>
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 per aggregate offering registration
Share price fee
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share 2,197,868 $1.90625(1) $4,189,686(1) $1,106.08
- ----------------------------------------- ---------------- ------------------- -------------------- ----------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
on the basis of Rule 457(c), based upon the average of the bid and
ask prices as of April 27, 2000.
In accordance with SEC Rule 429, of the 5,769,674 shares of our common stock
that are being registered, 3,571,806 shares are being carried forward from
our Registration Statement on Form SB-2 (SEC File No. 333-91717) and declared
effective by the Securities and Exchange Commission on February 24, 2000. The
prospectus included in this Registration Statement also relates to the
offering of securities included in Registration Statement No. 333-91717,
declared effective February 24, 2000.
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 May 4, 2000
PROSPECTUS
MAY ____, 2000
TELECOM WIRELESS CORPORATION
4,899,351 Shares of Common Stock
to be sold by current stockholders
In accordance with SEC Rule 429, this prospectus will, upon the
effectiveness of the Registration Statement on Form SB-2 of which it is a part,
also constitute the prospectus under our Registration Statement on Form SB-2
(SEC File No. 333-91717) which became effective on February 24, 2000.
The selling stockholders identified in this prospectus may use the
prospectus to offer and sell up to 4,899,351 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 "NOYR." We expect it to continue to trade in that market.
These securities involve a high degree of risk. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 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.
<PAGE>
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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary/Summary Of Offering............................................................................3
Risk Factors......................................................................................................5
A Note About Forward-Looking Statements...........................................................................7
Use Of Proceeds...................................................................................................8
Determination Of Offering Price...................................................................................8
Dilution..........................................................................................................8
Selling Stockholders..............................................................................................8
Plan Of Distribution.............................................................................................11
Selected Combined Pro Forma Financial Data.......................................................................13
Selected Historical Financial Data For Combined Businesses.......................................................14
Management's Discussion And Analysis Of Financial Condition And Plan Of Operation................................15
Business.........................................................................................................27
Management.......................................................................................................45
Security Ownership Of Certain Beneficial Owners And Management...................................................53
Certain Transactions And Relationships...........................................................................54
Telecom Wireless' Stock..........................................................................................56
Securities And Exchange Position On Indemnification For Securities Act Liabilities...............................59
Experts..........................................................................................................59
Legal Matters....................................................................................................60
How To Obtain Additional Information.............................................................................60
Index To Financial Statements....................................................................................60
</TABLE>
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.
<PAGE>
PROSPECTUS SUMMARY/SUMMARY OF OFFERING
Telecom Wireless Telecom Wireless Corporation intends to
provide a wireless broadband point-to-multipoint
network to, and become a leading consolidator
in, the Internet service provider or "ISP"
business and the competitive local exchange
carrier or "CLEC" business.
The Offering 4,899,351 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 The common stock of Telecom Wireless is traded
and Market through the OTC Bulletin Board under the
symbol "NOYR." 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.
Address and Phone The address of the principal executive offices
Number 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) 416-4000
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.
<TABLE>
<CAPTION>
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Fiscal Year Ended Six Months Ended
June 30, December 31,
---------------------------------- --------------------------------
1998 1999 1998 1999
--------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Total revenues $ 650,000 $ 523,000 $ 289,000 $ 372,000
Total costs and expenses 2,305,000) (3,968,000) (702,000) (11,937,000)
--------------- ---------------- --------------- --------------
Net (Loss) $ (1,655,000) $ (3,445,000) $ (413,000) $(11,565,000)
=============== ================ =============== ==============
Net (Loss) per common share-basic and
3
<PAGE>
diluted $ (15.08) $ (.92) $ (.10) $ (.72)
=============== ================ =============== ==============
Weighted average shares outstanding - basic
and diluted 109,772 3,759,050 4,028,015 16,138,153
</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. 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, Telecom Wireless is experiencing a cash shortfall.
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.
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.
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.
5
<PAGE>
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.
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.
ACQUISITIONS OF ISP SUBSCRIBERS MAY RESULT IN SUBSCRIBER CANCELLATIONS DUE TO
BILLING PROBLEMS AND UNFAMILIARITY WITH TELECOM WIRELESS' SERVICE
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.
ACQUISITIONS OF COMPANIES MAY DISRUPT TELECOM WIRELESS' BUSINESS AND DISTRACT
MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS
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. 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.
6
<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.
7
<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 information on the selling stockholders based
on the number of outstanding shares of common stock as of April 18, 2000. 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.
The "No. of Shares Beneficially Owned" and "No. of Shares Offered"
columns in the table include shares assumed to be acquired pursuant to repricing
warrants. Telecom Wireless amended the repricing warrants to make them
exercisable for three-quarters of a share of Telecom Wireless common stock for
each share subject to the repricing warrants.The calculation resulted in the
inclusion of 350,224 repricing shares in the registration statement on Form SB-2
(SEC File No. 333-91717) of which this prospectus is a part , and which is the
total number of repricing shares included in the "No. of Shares Beneficially
Owned" and "No. of Shares Offered" columns in the following table.
8
<PAGE>
<TABLE>
<CAPTION>
NO. OF
SHARES BENEFICIALLY OWNED
------------------------- PERCENT OF
REPRICING OUTSTANDING NO. OF
SHARES SHARES NO. OF SHARES
INCLUDED IN REPRESENTED BY SHARES OWNED
NAME TOTAL TOTAL TOTAL OFFERED AFTER SALE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AI International Corporate Holdings
Ltd.(5) 239,851 0 Less than 1% 204,851 35,000
AMS Holdings LLC 35,000 0 Less than 1% 35,000 0
Anglo Irish Nominees (Trusts) Ltd.
A/C GRC241 7,500 7,500 Less than 1% 7,500 0
Arab Commerce Bank Ltd. 11,799 10,714 Less than 1% 11,799 0
Jack Augsback(1) 93,335 0 Less than 1% 5,100 88,235
Damon J. Baldone 31,250 0 Less than 1% 31,250 0
Marshall M. Becker(5) 102,793 0 Less than 1% 87,793 15,000
Stanley Becker(5) 69,082 0 Less than 1% 59,082 10,000
Steve Bell 1,750 750 Less than 1% 1,750 0
Caribbean Investors Group, Ltd 24,999 10,714 Less than 1% 24,999 0
Chelverton Fund Ltd. 29,250 11,250 Less than 1% 29,250 0
Commonwealth Investment Services 50,000 0 Less than 1% 50,000 0
Ltd.
Commtel Services Ltd. 400,000 0 Less than 1% 400,000 0
The Compass Point Group Incorporated 22,400 0 Less than 1% 22,400 0
Robin Costa 50,000 0 Less than 1% 50,000 0
Eurofund Derivatives Limited 3,000 0 Less than 1% 3,000 0
Francis J. Fernandez 12,250 5,250 Less than 1% 12,250 0
Flashnet Communications, Inc. 100,000 0 Less than 1% 100,000 0
Robert L. Franks 1,750 750 Less than 1% 1,750 0
Russell French 50,000 0 Less than 1% 50,000 0
GBS Capital Management, Inc. 42,000 0 Less than 1% 42,000 0
The Geneva Group, Inc. 17,000 0 Less than 1% 17,000 0
Dale Geringer 8,750 3,750 Less than 1% 8,750 0
Richard Geringer 8,750 3,750 Less than 1% 8,750 0
Robert Geringer 3,500 1,500 Less than 1% 3,500 0
Mark R. Gerstle 1,238 0 Less than 1% 1,238 0
William R. Gillespie 3,500 1,500 Less than 1% 3,500 0
Steve Gole 192,500 0 Less than 1% 192,500 0
Daniel A. Gooze 10,500 4,500 Less than 1% 10,500 0
Leonard Gorelick 50,000 0 Less than 1% 50,000 0
Hampton-Porter Investment Bankers(2) 1,550,000 0 6.0% 550,000 1,000,000
Henry L. Haydel 125,000 0 Less than 1% 125,000 0
Michael Haydel 7,500 0 Less than 1% 7,500 0
Patrick S. Haydel 31,250 0 Less than 1% 31,250 0
Haydel, Tedesco, Matthieu,
Ledoux Profit Sharing
Plan FBO K. Gerald Haydel 62,500 0 Less than 1% 62,500 0
David Hettinger 2,085 750 Less than 1% 1,750 335
HyperLight Network Corporation(3) 1,002,627 0 4.1% 550,246 452,381
JHS Associates, Ltd. Retirement
Account(4) 644,750 39,750 2.7% 39,750 605,000
Kiam Interests Ltd.(5) 342,644 0 Less than 1% 292,644 50,000
John Kozik 31,566 5,063 Less than 1% 31,566 0
Victor P. LaRosa 10,500 4,500 Less than 1% 10,500 0
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NO. OF
SHARES BENEFICIALLY OWNED
------------------------- PERCENT OF
REPRICING OUTSTANDING NO. OF
SHARES SHARES NO. OF SHARES
INCLUDED IN REPRESENTED BY SHARES OWNED
NAME TOTAL TOTAL TOTAL OFFERED AFTER SALE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth R. Levine(5) 103,623 0 Less than 1% 88,623 15,000
Deanna Wallin Lipman 14,281 0 Less than 1% 14,281 0
Marie Walch Loughlin 17,750 9,750 Less than 1% 17,750 0
Mach Products, Inc. 28,000 0 Less than 1% 28,000 0
Gray M. Magee, Jr. 3,500 1,500 Less than 1% 3,500 0
Magid Family Trust 6,125 2,625 Less than 1% 6,125 0
Joshua Mailman 587,500 0 2.6% 587,500 0
One Clearlake Centre-VEF III, LLC 40,000 0 Less than 1% 40,000 0
Orienstar Finance Ltd. 375,000 0 1.5% 375,000 0
Robert L. Primm 3,500 1,500 Less than 1% 3,500 0
Princeton Insurance 7,500 1,500 Less than 1% 7,500 0
Robert N. Rosen 1,238 0 Less than 1% 1,238 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. 141,335 42,858 Less than 1% 141,335 0
Mark Stys 19,100 0 Less than 1% 4,000 15,100
Matthew Talbert 82,000 0 Less than 1% 82,000 0
Thomson Kernaghan & Co. Ltd. 207,000 135,000 1.7% 135,000 72,000
Warren Zee 99,750 42,750 Less than 1% 99,750 0
James and Donita Zeller 1,750 750 Less than 1% 1,750 0
------------
TOTALS 4,899,351
============
</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 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.
(2) Telecom Wireless and Hampton-Porter Investment Bankers are parties to
an Investment Banking Agreement under which Hampton-Porter agreed to
perform a variety of investment banking services for Telecom Wireless.
(3) Telecom Wireless and HyperLight Network Corporation entered into
agreements with respect to a new broadband technology. Disagreements
have arisen and HyperLight purports to have cancelled two of the three
agreements. The parties are in negotiations to resolve these disputes.
(4) 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.
10
<PAGE>
(5) Telecom Wireless, at its option, has the right to convert principal and
accrued interest on promissory notes held by these individuals into the
common stock of Telecom Wireless at a price which is equal to 50% of
the five-day average closing bid price of the common stock for the
period immediately prior to the notice of conversion given by Telecom
Wireless. As of April 18, 2000, principal and accrued and unpaid
interest aggregated approximately $778,000. Telecom Wireless included
in the "No. of Shares Beneficially Owned" and "No. of Shares Offered"
columns 828,000 shares for issuance upon conversion of the promissory
notes based on an assumed average five-day closing bid price for its
common stock of $2.00 per share (a conversion price of $1.00 per share)
and a conversion date of September 30, 2000.
After the sales are complete, the selling stockholders beneficially
owning 1% or more of the common stock will be Hampton-Porter Investment
Bankers - 3.9%; HyperLight Network Corporation - 1.8%; and John H. Sununu -
2.4%.
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,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
- privately negotiated transactions.
11
<PAGE>
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.
In addition, 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. Any such pledgee or its transferee will be
identified in this prospectus by post-effective amendment to the registration
statement of which it is a part.
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.
12
<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 2,927,000
Amortization 155,000
Depreciation 222,000
----------------
Total Costs and Expenses 5,185,000
----------------
Income (Loss) From Operations $(4,503,000)
================
Earnings (Loss) Per Common Share B Basic and
Diluted $(1.19)
================
Weighted Average Shares Outstanding B Basic
and Diluted 3,787,612
================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FISCAL YEAR ENDED
JUNE 30, 1999
----------------------------
<S> <C>
OTHER OPERATING DATA
Cash Flow From Operating Activities $(2,354,000)
Cash Flow Used in Investing Activities (130,000)
Cash Flow From Financing Activities 2,276,000
Adjusted EBITDA (1,659,000)
</TABLE>
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.
<TABLE>
<CAPTION>
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FISCAL YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
---------------------------------------------------------------------------
1998 1999 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Access Revenues $ -- $ -- $ -- $ 59,000
Wireless Cable Revenues 636,000 517,000 257,000 307,000
Other 14,000 5,000 32,000 7,000
---------------------------------------------------------------------------
Total Revenues 650,000 523,000 289,000 372,000
---------------------------------------------------------------------------
Costs and Expenses
Cost of Access Revenues -- -- -- 59,000
Cost of Wireless Cable Revenues 337,000 276,000 163,000 167,000
Stock-Based Compensation 928,000 1,548,000 -- 4,517,000
General, Administrative and Other 1,040,000 2,144,000 538,000 7,194,000
---------------------------------------------------------------------------
Total Costs and Expenses 2,305,000 3,968,000 701,000 11,937,000
---------------------------------------------------------------------------
Net (Loss) $ (1,655,000) $ (3,445,000) $ (413,000) $(11,565,000)
============================================================================
Net (Loss) Per Common Share -- Basic
and Diluted $ (15.08) $ (.92) $ (.10) $ (.72)
============================================================================
Weighted Average Shares Outstanding --
Basic and Diluted 109,772 3,759,050 4,028,015 16,138,153
============================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AMERICA'S WEB STATION, INC.
STATEMENT OF OPERATIONS DATA
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>
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 provide a wireless
broadband point-to-multipoint network to, and become a leading consolidator in,
the highly fragmented Internet service provider or "ISP" industry and in the
competitive local exchange carrier or "CLEC" industry. The business plan
provides for aggressive acquisition of ISPs and CLECs coupled with the
concurrent deployment of the fixed wireless broadband technologies. This will
allow Telecom Wireless to provide quality local service to both business and
residential customers while simultaneously satisfying demand for a full range of
bundled services and high speed reliable Internet access. Wireless broadband
services will be provided to both owned and non-owned ISPs and CLECs, and to
building systems integrators. Reductions in operating costs are expected to be
achieved through integration of the operations and systems of acquired ISPs and
CLECs, 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 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
WIRELESS BROADBAND NETWORK
15
<PAGE>
Telecom Wireless intends to establish broadband wireless
communications networks in North America for small and medium sized
businesses and consumers. These networks will allow simultaneous real time
transmission of voice, video and data over the Internet and will allow local
market ISPs and CLECs to provide a full range of products and services
typically offered by national ISP's. Ultimately, Telecom Wireless plans to
build high speed dedicated circuits to connect six geographic regions,
forming a high-speed interconnected network. With our regional hubs and local
ISPs and CLECs properly provisioned and connected, Telecom Wireless will have
the flexibility and capability to offer and support bandwidth intensive
services such as voice over internet protocol and video streaming
applications. By enabling the voice over internet protocol network, Telecom
Wireless will be in a position to provide Internet and Intranet-based
telephony services to businesses and consumers. 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. Pursuant to that contract,
Telecom Wireless was obligated to take delivery of and remit payment on March
15, 2000, for equipment having a purchase price of approximately $3,450,090.
Telecom Wireless has not made the required payment and negotiations are
continuing with the seller and financing sources to procure the funds
necessary to implement the rollout of the wireless broadband strategy in
several markets. 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 customers of owned and non-owned ISPs and
CLECs.
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
turnover 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.
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.
16
<PAGE>
- 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. 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, 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 turnover.
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.
17
<PAGE>
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.
Costs of sales of wireless cable television revenues consist primarily
of
- content costs;
- frequency license leases;
18
<PAGE>
- 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.
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.
19
<PAGE>
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. In addition, the remaining three
definitive agreements expired by September 30, 1999.
For the years ended June 30, 1998 and 1999, Telecom Wireless had
revenues of $650,000 and $523,000, respectively. For the six months ended
December 31, 1998, and 1999, revenues were $289,000 and $372,000, 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 $300,304 for the six months ended December 31, 1999.
20
<PAGE>
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 multimedia distribution system 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.
For the year ended June 30, 1999, and the six months ended December 31,
1999, Telecom Wireless incurred approximately $177,000 and $941,000,
respectively, in M&A-related expenses for outside legal and accounting fees and
costs. Approximately $218,000 of direct external costs as of December 31, 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.
During the six months ended December 31, 1999, Telecom Wireless
incurred non-cash expenses aggregating approximately $7,330,000 for
depreciation, amortization, stock issued for services, stock-based compensation
and imputed interest in connection with financing transactions. We expect
non-cash expenses to continue, but at reduced levels. For the six months ended
December 31, 1999, our net loss was $11,565,000 while negative cash flow from
operations was $2,959,000.
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, provides wireless
cable television services in Key West, Florida. When current management assumed
control of Telecom Wireless in April 1999, Keys Microcable 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 Keys Microcable.
During fiscal 1999 and the six month period ending December 31, 1999,
the following actions were taken to reverse the financial and operational
conditions of Keys Microcable:
- 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.
21
<PAGE>
- 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.
Keys Microcable provides Telecom Wireless with a wireless platform on
which to add additional "bundled" services such as Internet access and voice
over Internet protocol . 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.
DISCUSSION OF AMERICA'S WEB STATION, INC. RESULTS OF OPERATIONS
America's Web Station, Inc., 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, America's
Web 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 America's Web 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, America's
Web has implemented a marketing campaign that management believes has been
favorably received by the local business community. At September 30, 1999,
America's Web had 276 Internet access subscribers and 53 web site hosting
customers.
LIQUIDITY AND CAPITAL RESOURCES
Telecom Wireless had a negative cash flow from operations of $1,421,000
and $2,959,000 for the 12 months ended June 30, 1999, and the six months ended
December 31, 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. As of December 31, 1999, Telecom Wireless had a deficit in
stockholders' equity of $2,988,000 and current
22
<PAGE>
liabilities exceeded current assets by $4,200,000. Substantial additional cash
will be required to implement our business plan. However, changing market
conditions and the adverse financial condition of Telecom Wireless, primarily
its substantial current liabilities, have made it increasingly difficult to
obtain financing.
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.
- 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. Pursuant to that contract, Telecom
Wireless was obligated to take delivery of and remit payment on
March 15, 2000, for equipment having a purchase price of
approximately $3,340,090. Telecom Wireless has not made the
required payment and negotiations are continuing with Adaptive
Broadband and financing sources to procure the funds necessary to
implement the rollout of the wireless broadband strategy in
several markets. 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.
23
<PAGE>
- 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 on each of February 29, March 1 and June 1, 2000. The payment
due February 29, 2000, was paid in shares of Telecom Wireless
common stock. The payment purportedly due March 1, 2000, has not
been made. The parties are in negotiation with respect to the
HyperLight investment.
- In September and October 1999, Telecom Wireless borrowed $625,000
under convertible promissory notes due in October and November
1999. These notes have not been paid. Upon default, the interest
rate increased from 10% to 18% per annum. Telecom Wireless, at
its option, has the right to convert principal and accrued
interest on the notes into the common stock of Telecom Wireless
at a price which is equal to 50% of the five-day average closing
bid price of the common stock for the period immediately prior to
the notice of conversion given by Telecom Wireless. A lawsuit is
pending with respect to these notes and other matters as more
fully described herein.
When present management assumed control of Telecom Wireless in
mid-April, 1999, the market for Internet and Internet-related stocks was strong.
However, since about July 1999, the market for many of such securities has been
highly volatile. 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 forego acquisitions with a significant cash
component. Management believes that the ability of Telecom Wireless to obtain
funding necessary to implement its business plan will depend upon its ability to
adapt the business plan to rapidly changing market conditions and to maintain
and expand its management as required to implement that plan.
Telecom Wireless has adopted the following financing plan:
- Establish broadband wireless communications networks in North
America for small and medium-sized businesses and consumers. We
presently plan to market the wireless broadband services on a
wholesale basis and to subscribers of ISPs we acquire and others
in the communities served by those ISPs.
- Seek mergers, joint ventures or financing arrangements with
larger private or public ISPs and other entities structured
primarily with Telecom Wireless equity. 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.
24
<PAGE>
- Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for 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.
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. First Equity and certain of its investors have sued Telecom Wireless as
described herein.
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.
25
<PAGE>
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.
THE WALL STREET TRADING GROUP. In March 2000, Telecom Wireless entered
into an agreement with The Wall Street Trading Group, San Francisco, California,
for the provision of public relations services. Telecom Wireless agreed to issue
to Wall Street Trading options for the purchase of 1,000,000 shares of Telecom
Wireless common stock at prices ranging from $6.50 to $9.50 per share. The
options are exercisable until March 21, 2000, for "free trading shares." In
accordance with interpretations by the Securities and Exchange Commission,
Telecom Wireless is not presently able to register the option shares for public
sale. Accordingly, it is unlikely these options will be exercised in the near
term, if ever.
OTHER FINANCING ARRANGEMENTS. The Roberts Family Trust is controlled
by James C. Roberts, Chairman of the Board, and Lynne K. Roberts, a Vice
President and the spouse of Mr. Roberts. In April 2000, the Roberts Family
Trust and Calvin D. Smiley, Chief Executive Officer of Telecom Wireless,
agreed to make equity investments aggregating $15 million in Telecom
Wireless. The Roberts Family Trust subscribed to purchase 3,400,000 shares of
common stock at a purchase price of $2.94 per share, or a total of
$10,000,000, and Mr. Smiley subscribed to purchase 2,000,000 shares at a
purchase price of $2.50 per share, or a total of $5,000,000. Each paid the
purchase price in the form of a one-year, full-recourse promissory note
secured by the shares purchased. The buyers are arranging loans also secured
by the shares purchased, the proceeds from which will be used to pay
principal and interest on the promissory notes. Telecom Wireless has agreed
to register the shares purchased and to subordinate its security interest in
the shares purchased to the security interest of the lender if required to
facilitate the loans. The dates the notes will be paid, in whole or in part,
is uncertain. However, the Roberts Family Trust and Mr. Smiley have
represented to Telecom Wireless that the registered shares will not be sold
for a period of one year after the date of issuance, except as required to
meet the requirements of the lenders. In addition, the Roberts Family Trust
and Mr. Smiley are subject to stock sale restriction agreements limiting the
amount of the Telecom Wireless common stock that they can sell as described
under Telecom Wireless' Stock -Shares Available for Future Sale.
In addition, Telecom Wireless entered into a similar arrangement with
John A. Hansen. Mr. Hansen is a substantial shareholder in an entity which owns
an Internet service provider which has entered into a non-binding letter of
intent to be acquired by Telecom Wireless. Mr. Hansen subscribed to purchase
347,000 shares of common stock at a purchase price of $2.60, or an aggregate of
$902,200. He also paid the purchase price in the form of a one-year,
full-recourse promissory note secured by the shares purchased.
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.
26
<PAGE>
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 deployment
of a wireless broadband network and 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;
- Development of a fixed wireless broadband network in order to
provide a full range of bundled services and fast and reliable
Internet access to customers of owned and non-owned ISPs and
CLECs.
- developing and offering additional value-added products and
services to business customers and consumers, 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 application service
provider acquisition candidates. Telecom Wireless has entered into non-binding
term sheets with six potential acquisition candidates. Consummation of any of
these acquisitions is subject to negotiation and execution of a definitive
acquisition agreement, completion of due diligence, receipt of legal opinions,
financing, regulatory compliance and other matters.
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.
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. Keys
Microcable has operated a 32-channel wireless
27
<PAGE>
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.
Keys Microcable 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. Keys Microcable served approximately 1,600 cable TV subscribers as of
September 30, 1999.
AMERICA'S WEB STATION, INC. In July 1999, Telecom Wireless acquired all
the stock of America's Web Station, Inc. America's Web 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, America's Web began offering residential Internet service. Its customer
base has grown largely as a result of referrals. At September 30, 1999,
America's Web 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. The broadband services offered by fiber, cable and digital
subscriber lines networks are not suited to all geographic areas for reasons
including short service reach, in the case of digital subscriber lines,
equipment and interconnect problems, and installation time and cost. 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.
Each market will be served by one or more cells located on rooftops.
Each cell will include a switch, a base station radio and an antenna with up to
six operational sectors each. Each sector will cover 60 degrees of market area
and will have a through-put capacity of 25 Mbps, for a maximum of approximately
155 Mbps per cell. Penetration of a market area may begin with one cell, then
expand to multiple cells as demand increases.
28
<PAGE>
Antennas with integrated radios will be installed on rooftops at
residences and multi-tenant residential and commercial buildings. A cable will
connect the rooftop installation to equipment installed inside the building
which will convert the wireless signals to digital subscriber line signals for
transmission without significant loss of bandwidth through copper wire to the
customer's receiving units in the building.
Telecom Wireless plans to deploy Adaptive Broadband equipment in both
the licensed multimedia distribution system frequency spectrums as well as the
unlicensed national information infrastructure. The unlicensed national
information infrastructure 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 in 2000. Pursuant to that
contract, Telecom Wireless was obligated to take delivery of and remit payment
on March 15, 2000, for equipment having a purchase price of approximately
$3,450,090. Telecom Wireless has not made the required payment and negotiations
are continuing with Adaptive Broadband and financing sources to procure the
funds necessary to implement the rollout of the wireless broadband strategy in
several markets. 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.
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 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 asynchronous transfer mode 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 reviews transactions which may provide business or
investment opportunities in the future. Whether these transactions will result
in benefit to Telecom Wireless is unknown.
29
<PAGE>
HYPERLIGHT NETWORK CORPORATION.
Telecom Wireless is investigating a new technology owned and being
developed by HyperLight Network Corporation which involves software and hardware
modulation and compression equipment that appears to be able to transmit data at
rates as high as 45 megabits per second over traditional copper pair
transmission facilities. It also appears to be able to support the 45 megabits
per second transmission over a coast-to-coast dial-up telephone call and with
feasibility of transmission over fiber cable, wireless and coaxial cable under
investigation. The technology is in the development stage. Management has been
informed by HyperLight that it has entered into a testing and development
agreement with an independent third party to ascertain, among other things,
commercial viability of the technology.
TECHNOLOGY MARKETING AND LICENSE AGREEMENT. In September 1999 Telecom
Wireless entered into a five-year agreement with HyperLight granting Telecom
Wireless a non-exclusive world-wide license to market the new broadband
technology. The agreement required Telecom Wireless to pay to HyperLight a
license fee equal to 50% of any revenues generated under the license. The
agreement was terminable by HyperLight if Telecom Wireless failed to place an
order for the products backed by a $50 million irrevocable letter of credit by
November 1, 1999. HyperLight has given us notice of termination of the license
agreement as no purchase order was submitted and no letter of credit was
presented.
SUBSCRIPTION AGREEMENT. In September 1999 Telecom Wireless entered into
a subscription agreement with HyperLight to purchase 250 shares of HyperLight's
Series C common stock in exchange for 500,000 shares of Telecom Wireless's
common stock. The subscription agreement required that we file a registration
statement including the shares issued to HyperLight no later than October 15,
1999. In addition, the fair value of the shares issued by Telecom Wireless was
to be not less than $5,000,000 supported by an independent appraisal. In
November 1999 HyperLight rescinded the offer to sell its securities contained in
the subscription agreement due to our failure to pay for the equity interest in
HyperLight. Subsequently, Telecom Wireless delivered the 500,000 shares to
HyperLight. The subscription agreement provides that HyperLight will retain
possession of the 250 shares of its Series C common stock until the earlier of
our completing payment of our obligations under the interim funding agreement
described below or the sale by HyperLight of more than 50,000 shares of our
common stock pursuant to the registration statement.
INTERIM FUNDING AGREEMENT. In September 1999 Telecom Wireless entered
into an agreement with HyperLight in which HyperLight agreed to assist Telecom
Wireless in making arrangements to acquire an equity interest in Vision Tek,
L.P.(Vision Tek). In exchange, Telecom Wireless agreed to pay $1,200,000 to
HyperLight in four installments of $300,000 each over a period of nine months.
The first installment was paid by FlashNet Communications, Inc. as discussed
below. Telecom Wireless has acquired the equity interest in Vision Tek.
HyperLight agreed to extend the date for payment of the installment due on
December 1, 1999, to February 29, 2000. That installment was paid in shares of
Telecom Wireless common stock. The installment purportedly due on April 1, 2000,
has not been paid.
VISION TEK, L.P. - ASSIGNMENT AND SUBSCRIPTION AGREEMENT. In September
1999 Telecom Wireless entered into an agreement to purchase a 2% liquidating
interest in Vision Tek for $400,000. The interest was purchased by FlashNet but
subsequently was acquired by Telecom Wireless as described below. The interest
in Vision Tek will entitle us to a distribution of 50 shares of Series B Common
stock of HyperLight at such time as the shares are distributed to the partners
of Vision Tek by its liquidator. HyperLight has represented to us that the 250
shares of Series C common stock and the 50 shares of Series B common stock
aggregate 4.9% of the currently outstanding capital stock of HyperLight.
FLASHNET TRANSACTIONS. In September 1999 Telecom Wireless assigned its
rights under the subscription agreement, interim funding agreement and the
assignment and subscription agreement to FlashNet which paid the initial
$300,000 installment to HyperLight under the interim funding agreement
30
<PAGE>
and $400,000 to the seller of the 2% interest in Vision Tek. In November 1999
Telecom Wireless reacquired its rights under the assigned agreements, including
the equity interest in Vision Tek, for consideration consisting of a promissory
note due in April 2000 in the principal amount of $700,000 payable to FlashNet
and convertible into Telecom Wireless common stock at $7.00 per share.
SUBSEQUENT NEGOTIATIONS. In December 1999, Telecom Wireless issued an
additional 452,381 shares of its common stock to HyperLight in exchange for the
agreement of HyperLight to waive the appraisal provision in the subscription
agreement, to extend the maturity date of the $300,000 installment due December
1, 1999, under the interim funding agreement to February 29, 2000, and to
continue renegotiating the agreements in good faith. The ultimate outcome of
these negotiations is unknown.
Although we claim that the agreements with HyperLight have either been
terminated or are unenforceable, we also believe we will be successful in
renegotiating the transactions. However, if Telecom Wireless is not able to pay
all of the $900,000 claimed to be due under the interim funding agreement,
HyperLight may claim it has the right to exercise remedies under the interim
funding agreement and the subscription agreement. One alternative that may be
available to HyperLight is to return the 952,381 shares of Telecom Wireless's
common stock to us, retain all payments made under the interim funding agreement
and cancel the 250 shares of its Series C common stock. The other alternative is
to sue on the debt and retain possession of the 250 shares of HyperLight's
Series C common stock until the obligations are paid in full.
In addition, we are in discussions with venture capitalists and others
to provide the necessary financing under any sales or marketing agreements that
may be negotiated. 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. Even though there is substantial uncertainty,
management believes that our equity interest in HyperLight and the license
agreement, if successfully renegotiated, could have substantial value if the
commercial viability of the technology is established.
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.
ACCESSING THE INTERNET.
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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;
- development of fixed wireless broadband access in order to
provide a full range of bundled services and fast and reliable
Internet access services;
- 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
34
<PAGE>
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.
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.
35
<PAGE>
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 turnover 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.
- 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
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
36
<PAGE>
designation offers. Collectively, these hubs will form a larger
critical mass justifying connection of an asynchronous transfer
mode 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 56 Kb dial up, dedicated high
speed access including digital subscriber lines, 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.
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;
- 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;
37
<PAGE>
- 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.
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 and Atlantic. 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.
38
<PAGE>
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.
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, 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,
39
<PAGE>
and have extensive coast-to-coast Internet backbones. We also compete with
unaffiliated regional and local ISPs in our targeted geographic regions
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 digital subscriber lines.
While these providers have initially targeted the residential consumer, it is
likely that their target markets
40
<PAGE>
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.
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
41
<PAGE>
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.
REGULATION OF MULTICHANNEL MULTIPOINT DISTRIBUTION SERVICE LICENSES
Keys Microcable holds under license several multichannel multipoint
distribution service licenses, sometimes referred to as "wireless cable"
licenses, from the Federal Communications Commission. Although the FCC does not
engage in economic regulation of these licenses, it does regulate the types of
services that can be provided, license terms, and other terms and conditions of
service. In 1998, the FCC permitted multichannel multipoint distribution service
licensees to offer two-way fixed services, in addition to video programming, in
order to promote competition with incumbent local exchange carriers and foster
the deployment of advanced services. This decision significantly expanded the
potential service offerings of multichannel multipoint distribution service
licensees, enhancing the value of this spectrum and leading to greater
consolidation of the licenses by several major telecommunications providers.
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 Tele
42
<PAGE>
communications 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.
EMPLOYEES
As of April 26, 2000, Telecom Wireless and its subsidiaries had 32
full-time employees, including executive officers. Four 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 does not intend to occupy the premises and
is seeking one or more subtenants.
43
<PAGE>
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 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 took the position that Telecom
Wireless was in default under the lease and 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. In March 2000, Telecom Wireless and One Clearlake
Centre entered into an agreement settling the lawsuit. Pursuant to the agreement
Telecom Wireless paid One Clearlake Centre $50,609 and was obligated to pay an
additional $50,609 in early April 2000 when the space was ready for occupancy.
In addition, Telecom Wireless issued to One Clearlake Centre 40,000 restricted
shares of Telecom Wireless' common stock with registration rights as the
security deposit under the lease. However, full payment of the amount due to the
landlord has not been paid and the landlord is threatening to take a default
judgment against Telecom Wireless for the amounts described above.
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.
On March 31, 2000, Telecom Wireless and James C. Roberts, Chairman of
the Board, were sued (Kiam Interests, Ltd., ET AL, v. Telecom Wireless
Corporation, ET AL, case number 00 CIV 2347 pending in the United States
District Court for the Southern District of New York) for $625,000 plus interest
and collection costs in connection with promissory notes issued to investors
through First Equity Capital Securities, Inc. In addition, the investors claim
breach of contract to issue stock purchase warrants and to register the shares
of common stock issuable upon exercise of the warrants and breach of contract to
compensate the placement agent. The maturity dates of the notes were in October
and November 1999. Upon default, the interest rate increased from 10% to 18% per
annum and Telecom Wireless was obligated to maintain an effective registration
statement with respect to the common stock underlying the notes and into which
the holders have the option to convert the notes. Telecom Wireless, at its
option, has the right to convert principal and accrued interest on the notes
into the common stock of Telecom Wireless at a price which is equal to 50% of
the five-day average closing bid price of the common stock for the period
immediately prior to the notice of conversion given by Telecom Wireless. Since
the lawsuit is in the early stages, no assessment of the probable outcome
presently is possible.
On March 16, 2000, Carr, Riggs & Ingram, LLP filed a complaint against
Telecom Wireless (pending in the Circuit Court, Fourteenth Judicial Circuit of
the State of Florida) for $25,743 (less $6,057 previously paid) plus interest,
attorney fees and costs under an alleged oral agreement with respect to
44
<PAGE>
accounting services performed for a company which Telecom Wireless expected to
acquire. Telecom Wireless is investigating this matter. At this early stage of
the proceedings, no assessment of the probable outcome is possible.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the directors and executive officers of
Telecom Wireless:
<TABLE>
<CAPTION>
Beginning of Term of
Service as Director or
Name Age Positions Held Executive Officer
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James C. Roberts 46 Chairman of the Board of Directors April 1999
Calvin D. Smiley 46 Chief Executive Officer, President April 1999
and Director
Kosta S. Kovachev 48 Director April 1999
Robert L. Fredrick 54 Senior Vice President April 1999
Paul J. Hart 49 Chief Executive Officer of TWC February 2000
Acquisitions, Inc.
Esper Gullatt, Jr. 42 Vice President - Business Development March 2000
C. Stephen Guyer 46 Vice President - Corporate Finance and January 2000
Controller
</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.
45
<PAGE>
CALVIN D. SMILEY, 46, has served as an officer of Telecom Wireless
since April 1999 and a director since October 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 a director of Telecom Wireless since
May 1999 and served as an officer from May 1999 to March 2000. 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. Mr. Kovachev graduated with a B.A. from Columbia
University, magna cum laude, Phi Beta Kappa, and received an MBA from the
Harvard Business School.
ROBERT L. FREDRICK, 54, has served as an officer 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. He has resigned from these
positions effective May 6, 2000. 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.
PAUL J. HART, 49, has served as Chief Executive Officer and a director
of TWC Acquisitions, Inc., a wholly-owned subsidiary of Telecom Wireless, since
February 2000. Prior to joining TWC Acquisitions, Mr. Hart served as Executive
Vice President and a director of Espernet.com, Inc., New York, New York, an
Internet service provider, which he co-founded in June 1999. From 1996 to 1998,
Mr. Hart was corporate counsel for Loewen Group International, Inc.,
Philadelphia, Pennsylvania, an international funeral services provider. From
1993 to 1996, Mr. Hart was engaged in the private practice of law as a sole
practitioner in Morristown, New Jersey, where his practice included a wide
variety of representation in the areas of general corporate law, mergers and
acquisitions, intellectual property, and
46
<PAGE>
real estate to domestic and multi-national companies. From 1990 to 1993, Mr.
Hart served as Vice President and General Counsel of Atlantic Container Line,
A.B., South Plainfield, New Jersey, a Swedish shipping and transportation
company. From 1981 to 1990, Mr. Hart served as an attorney with various
subsidiaries of RJR Nabisco, Inc., most recently as Vice President--Law and
Secretary of RJR Nabisco Investments, Inc., New York, New York, from 1989 to
1990.
ESPER GULLATT JR., 42, has been an officer of Telecom Wireless since
April 1999. He was appointed Vice President-Business Development of Telecom
Wireless in August 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.
C. STEPHEN GUYER, 46, has served as Vice President-Corporate Finance
and Controller of Telecom Wireless since January 2000. From 1997 to 1999, Mr.
Guyer was employed by Monaco Finance, Inc., Denver, Colorado, a company involved
in financing of sub-prime automobile purchase contracts, where he served as
Chief Credit Officer. From 1994 to 1997, Mr. Guyer served as Chief Financial
Officer for Staff Administrators, Denver, Colorado, a company engaged in the
business of employee leasing. Mr. Guyer has also served on the faculty of
Chapman University, Orange, California (1990 to 1996) and Denver University,
Denver, Colorado (1983 to 1985). Mr. Guyer received a B.S. degree from McPherson
College, McPherson, Kansas in 1973; a B.A. degree, magna cum laude, from
Metropolitan State College, Denver, Colorado in 1980; and an M.B.A., magna cum
laude, in 1982, and an M.A., summa cum laude, in 1983, from the University of
Denver, Denver, Colorado.
47
<PAGE>
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.
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. James C. Roberts, who served as
Chief Executive Officer of Telecom Wireless from early April until the end of
the fiscal year, was paid $56,250 in salary and bonus for his services during
that period of time.
Telecom Wireless has entered into written employment agreements with
all of its executive officers except Mr. Roberts. Each written agreement has a
term of three years and provides for payment of a base salary, which may be
increased at the end of each year. The annual salaries payable by Telecom
Wireless to its executive officers were as follows as of the date of this
prospectus:
<TABLE>
<CAPTION>
ANNUAL SALARY
-------------
<S> <C>
James C. Roberts $250,000
Calvin D. Smiley $300,000(1)
Robert L. Fredrick $225,000(2)
Paul J. Hart $215,000
48
<PAGE>
Esper Gullatt, Jr. $225,000
C. Stephen Guyer $140,000
</TABLE>
- --------------------
(1) Mr. Smiley has agreed to take any salary in excess of $225,000 in the
form of equity in accordance with compensation arrangements to be
determined.
(2) Mr. Frederick resigned as an officer and employee of the Company
effective May 6, 2000.
Kosta S. Kovachev resigned as an officer and employee of the Company
effective March 21, 2000. Mr. Kovachev has agreed to continue serving as a
director of Telecom Wireless until a replacement can be located. In addition, he
will provide consulting services to Telecom Wireless through July 2000 at the
same rate of compensation as under his employment agreement.
Under the written employment agreement for Mr. Smiley, Telecom Wireless
may terminate his employment at its discretion at any time during the initial
three-year term. However, Telecom Wireless must pay him an amount equal to his
base salary for the remainder of the initial term. After the initial term, his
employment may be terminated by Telecom Wireless without cause upon payment on
the termination date of an amount equal to six times his then monthly base
salary. He may terminate his written employment agreement on 30 days' notice to
Telecom Wireless.
Under the written employment agreement for Mr. Hart, either TWC
Acquisitions, Inc., a wholly-owned subsidiary of Telecom Wireless, or Mr. Hart
may terminate his employment for any reason and at any time during the initial
three-year term upon ten days' written notice to the other party. However, in
the event Mr. Hart's employment should be terminated by TWC Acquisitions without
cause, TWC Acquisitions must pay him severance pay which decreases from 24
months' salary during the first contract year to 12 months' salary during the
last contract year.
Under the written employment agreement with Mr. Guyer, Telecom Wireless
or Mr. Guyer may terminate his employment at any time during the initial
three-year term upon ten days' written notice. Mr. Guyer is not entitled to any
severance pay.
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
adjusted net profits of Telecom Wireless 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.
49
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------
(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
Esper Gullatt, Jr. 200,000 3.6% $10.55 Apr. 13, 2004
</TABLE>
- -------------------
* Canceled under oral agreement effective in January 2000.
** Will be cancelled upon termination of employment on May 6, 2000.
OPTION EXERCISES AND VALUES. None of the options granted to the
executive officers of Telecom Wireless before the end of fiscal year 1999 were
exercisable before the end of that year. In accordance with Securities and
Exchange Commission regulations, the following table nevertheless provides
information on exercises of stock options during the fiscal year and the fiscal
year-end value of unexercised options:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of
Unexercised
Number of In-the-Money
Shares Value Unexercised Options at
Acquired on Realized Options at Fiscal Fiscal
Name Exercise(#) ($) 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
Esper Gullatt, Jr. 0 0 0/200,000 0/$355,600
</TABLE>
- ------------------
* Canceled under oral agreement effective in January 2000.
** Will be cancelled upon termination of employment on May 6, 2000.
GRANT OF ADDITIONAL OPTIONS. In connection with Mr. Smiley's
appointment as Chief Operating Officer and Mr. Gullatt's appointment as Vice
President-Business Development of Telecom Wireless in August 1999, Telecom
Wireless granted each of them 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 the 1999 Plan discussed below.
Pursuant to the employment agreement with Mr. Hart in February 2000,
Telecom Wireless granted him options to purchase 750,000 shares of common stock
at an exercise price of $6.99 per share. In addition, Telecom Wireless has
granted options to Mr. Guyer pursuant to his employment agreement
50
<PAGE>
for the purchase of 300,000 shares of common stock at an exercise price of
$5.795 per share. All of these options vest in equal installments over three
years, beginning one year from the date of grant, and expire on the anniversary
date of their issuance in 2005. For administrative convenience, these options
were not granted under the 1999 Plan discussed below.
Telecom Wireless also granted to Mr. Guyer pursuant to his employment
agreement options for the purchase of 50,000 shares of common stock at an
exercise price of $5.795 per share These options vest in two equal installments,
with the first 25,000 shares vesting six months after his hire date, and the
remaining 25,000 shares vesting on the first anniversary date of his date of
hire, and expire on January 26, 2003. These options were granted under the 1999
Plan discussed below.
AMENDED AND RESTATED 1999 STOCK OPTION AND RESTRICTED STOCK PLAN
The Board of Directors of Telecom Wireless adopted Telecom Wireless'
Amended and Restated 1999 Stock Option and Restricted Stock Plan, which we
sometimes refer to 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 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 1999 Plan presently is administered by the Board. 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 Board or a committee of Board members.
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. As of the date of this prospectus, no securities have been
issued under the 1999 Plan to directors of Telecom Wireless, or to its officers
other than Mr. Guyer. 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.
51
<PAGE>
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.
52
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of April 18,
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 COMMON STOCK PERCENT OF
NAME AND ADDRESS OFFICES HELD OWNERSHIP CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James C. Roberts Chairman of the Board 15,016,634(1) 59.1%
5299 DTC Blvd., #1120 of Directors and Director
Englewood, CO 80111
Calvin D. Smiley Chief Executive Officer, 2,228,278(2) 9.0%
5299 DTC Blvd., #1120 President and Director
Englewood, CO 80111
Kosta S. Kovachev Director 750,000 3.0%
580 Village Blvd., #140
West Palm Beach, FL 33409
Robert L. Fredrick President-TWC Networks, 666,667(3) 2.7%
580 Village Blvd., #140 Inc.
West Palm Beach, FL 33409
Paul J. Hart President-TWC 5,000 Nil
6 Walt Whitman Trail Acquisitions Inc.
Morristown, NJ 07960
Esper Gullatt, Jr. Vice President-Business 228,278(2) 0.9%
5299 DTC Blvd., #1120 Development
Englewood, CO 80111
C. Stephen Guyer Vice President-Corporate --- ---
5299 DTC Blvd., #1120 Finance
Englewood, CO 80111
Hampton-Porter Investment Shareholder 1,550,000(4) 6.0%
Bankers
600 W. Broadway, 14th Floor
San Diego, CA 92101
All executive officers and 18,894,556 74.7%
directors of Telecom Utah
as a group (six persons)
</TABLE>
53
<PAGE>
(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. Includes 700,000 shares issuable upon exercise
of presently exercisable stock options.
(2) Includes 128,278 shares issuable upon exercise of warrants having an
exercise price of $5.275 per share and stock options having an exercise
price of $10.55 per share which are presently exercisable or which
become exercisable within 60 days.
(3) Includes 166,667 shares issuable upon exercise of stock options which
become exercisable within 60 days at an exercise price of $10.55 per
share.
(4) Includes 1,000,000 shares issuable upon exercise of warrants which are
presently exercisable at an exercise price of $5.50 per share.
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.
54
<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 39,750
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 Keys Microcable 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.
STOCK PURCHASE AGREEMENTS BETWEEN THE ROBERTS FAMILY TRUST AND CALVIN D. SMILEY
AND THE COMPANY
In April 2000, the Roberts Family Trust and Calvin D. Smiley, President
and Chief Executive Officer, agreed to purchase 3,400,000 and 2,000,000 shares,
respectively of Telecom Wireless common stock for $10,000,000 and $5,000,000,
respectively. The terms of these transactions are more fully described elsewhere
in this prospectus under Management's Discussion and Analysis of Financial
Condition and Plan of Operation.
55
<PAGE>
LOAN TO OFFICER
In August 1999, Telecom Wireless loaned $65,000 to Kosta S. Kovachev, a
director of Telecom Wireless and one of its executive officers. The loan is
payable in three equal annual installments of principal together with interest
at the rate of 8% per annum.
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.
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 April 18, 2000,
Telecom Wireless had 24,716,716 shares of common stock outstanding, held by
approximately 502 stockholders of record, and 20,000 shares of preferred stock
outstanding held by 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.
In April 2000 the common stock of Telecom Wireless became listed on the
Third Market Segment of the Frankfurt Stock Exchange under the symbol TWI with
the German securities code of 922
56
<PAGE>
026. Telecom Wireless has hired a consultant to assist with investor relations
and the introduction of Telecom Wireless to strategic partners and corporate
financing opportunities in Europe.
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
FISCAL YEAR ENDED JUNE 30, 1999 LOW BID HIGH BID
------------------------------- ------- --------
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>
---------------------
* Not available.
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.
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 formula. The conversion rate is $100 divided by 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 times the number
of preferred shares to be converted.
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
57
<PAGE>
prospectus represent a market overhang. In addition, based on a closing market
price of the common stock of $2-9/16 per share as of April 18, 2000, and as of
that date, Telecom Wireless had outstanding and had agreed to issue options,
warrants and convertible securities for the purchase of up to approximately
13,774,000 shares of common stock at an average price of $6.46 per share,
representing approximately 36% 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 247,167 shares as
of April 18, 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 became eligible for sale under Rule 144 on
or about April 13, 2000.
In May 2000, 160,768 shares underlying stock options issued to
employees under SEC Rule 701 will become eligible for sale in the public market.
Finally, Telecom Wireless intends to register for public sale all shares issued
or issuable, upon exercise of stock options or otherwise, to officers,
employees, consultants and others in compensatory transactions. As of April
2000, the number of such shares was approximately 6,340,000, a substantial
portion of which underly stock options which become exercisable more than 60
days after the date of this prospectus. In March 2000, Telecom Wireless
registered for public sale 2,253,732 shares of the Telecom Wireless' common
stock issued to officers and employees pursuant to the 1999 Amended and Restated
Stock Option Plan and pursuant to Nonqualified Stock Option Agreements. These
shares either are owned by the selling stockholder or may be acquired within 60
days upon the exercise of stock options or otherwise. The average exercise price
of the options is $8.77 for options issued pursuant to the 1999 Amended and
Restated Stock Option Plan and $8.73 for options issued pursuant to Nonqualified
Stock Option Agreements.
Officers and former officers of Telecom Wireless holding an aggregate
of approximately 17,881,833 shares of its common stock and options and warrants
for the purchase of up to approximately an additional 4,023,223 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.
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
58
<PAGE>
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 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.
59
<PAGE>
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.
60
<PAGE>
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
AMERICA'S WEB STATION, INC.
Independent Auditors' Report.......................................F-36
Financial Statements
Balance Sheets.................................................F-37
Statements of Operations.......................................F-38
Statement of Changes in Shareholders' Equity...................F-39
Statements of Cash Flows.......................................F-40
Notes to Financial Statements......................................F-41
UNAUDITED PRO FORMA INFORMATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS....................F-47
UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS....................F-48
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..............F-49
</TABLE>
61
<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
(deficit), 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, December 31,
1999 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 620,666 $ 10,056
Accounts receivable, net of allowance of $14,000 (June 30, 1999)
and $26,398 (December 31, 19998) 49,559 148,366
Accounts receivable - employees - 97,600
Stock subscription receivable (paid in full subsequent to year end)
(Note 11) 352,666 -
--------------- ---------------
Total current assets 1,022,891 256,022
--------------- ----------------
Property and equipment, net (Note 4) 589,797 717,791
--------------- ----------------
Intangible assets
Subscribers list (Note 3) - 225,000
Licenses (Note 14) 523,117 524,117
Goodwill (Note 3) - 177,980
Less accumulated amortization (208,247) (279,298)
--------------- ----------------
Net intangible assets 314,870 647,799
--------------- ----------------
Advance (Note 14) - 700,000
Idle equipment (Note 14) 181,256 174,285
Deferred acquisition costs - 218,513
Deferred offering costs - 175,000
Other assets 18,961 2,792
--------------- ----------------
Total assets $ 2,127,775 $ 2,892,202
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 618,006 $ 2,007,542
Accrued expenses (Note 5) 140,703 152,429
Short-term notes payable (Note 7) - 2,290,385
Current portion of notes payable (Note 8) - 5,662
--------------- ----------------
Total current liabilities 758,709 4,456,018
Note payable, less current portion (Note 8) - 7,772
Note payable (Note 9) 1,276,841 1,276,841
Accrued interest (Note 9) 91,227 140,105
--------------- ----------------
1,368,068 1,424,718
--------------- ----------------
2,126,777 5,880,736
--------------- ----------------
Commitments and contingencies (Notes 6, 10, 11, 14 and 15)
Stockholders' equity (deficit) (Notes 9, 10, 11 and 12)
Preferred stock, $.001 par value, 25,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.001 par value, 100,000,000 shares authorized,
15,107,920 (June 30, 1999) and 17,220,137 (unaudited)
(December 31, 1999) shares issued and outstanding 15,108 17,219
Additional paid-in capital 6,950,836 17,905,528
Accumulated deficit (6,964,946) (18,530,329)
Stock subscription on investment (Note 14) - (2,380,952)
--------------- ----------------
Total stockholders' equity (deficit) 998 (2,988,534)
--------------- ----------------
Total liabilities and stockholders' equity (deficit) $ 2,127,775 $ 2,892,202
=============== ================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
June 30, December 31,
------------------------------------ -----------------------------------
1998 1999 1998 1999
---------------- ---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Internet services $ - $ - $ - $ 57,863
Wireless TV revenues 636,074 517,261 257,230 307,055
Other 13,904 5,393 31,543 6,777
-------------- -------------- -------------- --------------
Total revenues 649,978 522,654 288,773 371,695
Internet service operating costs - - - 58,794
Direct costs - wireless TV 337,155 275,705 163,055 166,908
General and administrative 1,039,764 2,051,568 492,678 4,666,285
Stock based compensation (Note 11) 928,252 1,547,560 - 4,516,513
-------------- -------------- -------------- --------------
Total operating expenses 2,305,171 3,874,833 655,733 9,408,500
-------------- -------------- -------------- --------------
Net loss from operations (1,655,193) (3,352,179) (366,960) (9,036,805)
Other income (expense)
Interest expense (Note 9) - (92,341) (45,614) (2,691,635)
Income from subsidiary (Note 3) - - - 163,057
-------------- -------------- -------------- --------------
- (92,341) (45,614) (2,528,578)
-------------- -------------- -------------- --------------
Net loss $ (1,655,193) $ (3,444,520) $ (412,574) $ (11,565,383)
============== ============== ============== ==============
Net loss per common share
Basic and diluted $ (15.08) $ (.92) $ (.10) $ (.72)
============== ============== ============== ==============
Shares used in computing net loss per
common share
Basic and diluted 109,772 3,759,050 4,028,015 16,138,153
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Shares Amount
-------------- --------------
<S> <C> <C>
Balance - June 30, 1997 113 $ -
Issuance of common stock for acquisition 519,278 519
Sale of common stock 100,000 100
Issuance of stock for services 78,600 79
Net loss - -
-------------- --------------
Balance - June 30, 1998 697,991 698
Issuance of stock for services 12,000 12
Sale of common stock 155,144 155
Common stock issued in connection with business reorganization (Note 3) 13,825,000 13,825
Proceeds of private offering (net of offering costs of $83,095) (Note 10) 120,000 120
Proceeds of private offering (net of offering costs of $359,994) (Note 10) 297,785 298
Stock based compensation (Note 11) - -
Net loss - -
-------------- --------------
Balance - June 30, 1999 15,107,920 15,108
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) 127,935 128
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) 97,227 97
Stock issued for acquisition of Prentice (Note 3) (unaudited) 346,667 347
Stock issued for acquisition of Aweb (Note 3) (unaudited) 28,562 29
Stock issued for cash (unaudited) 100,000 100
Stock issued for services (Note 11) (unaudited) 606,112 605
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) 300,000 300
Stock issued for investment (Note 15) (unaudited) 952,381 952
Rescission of Prentice acquisition (Note 3) (unaudited) (346,667) (347)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) (100,000) (100)
Options and warrants issued (unaudited) - -
Net loss (unaudited) - -
-------------- --------------
Balance - December 31, 1999 (unaudited) 17,220,137 $ 17,219
============== ==============
<CAPTION>
Additional
Accumulated Paid-in
Deficit Capital
-------------- --------------
<S> <C> <C>
Balance - June 30, 1997 (1,823,558) $ 1,721,246
Issuance of common stock for acquisition (41,675) 41,156
Sale of common stock - 92,400
Issuance of stock for services - 1,000,913
Net loss (1,655,193) -
-------------- --------------
Balance - June 30, 1998 (3,520,426) 2,855,715
Issuance of stock for services - 29,988
Sale of common stock - 290,403
Common stock issued in connection with business reorganization (Note 3) - (13,825)
Proceeds of private offering (net of offering costs of $83,095) (Note 10) - 516,785
Proceeds of private offering (net of offering costs of $359,994) (Note 10) - 1,724,210
Stock based compensation (Note 11) - 1,547,560
Net loss (3,444,520) -
-------------- --------------
Balance - June 30, 1999 (6,964,946) 6,950,836
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) - 641,242
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) - 387,771
Stock issued for acquisition of Prentice (Note 3) (unaudited) - 2,426,322
Stock issued for acquisition of Aweb (Note 3) (unaudited) - 199,902
Stock issued for cash (unaudited) - 249,900
Stock issued for services (unaudited) - 2,345,583
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) - 2,161,995
Stock issued for investment (Note 15) (unaudited) - 2,380,000
Rescission of Prentice acquisition (Note 3) (unaudited) - (2,426,322)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) - 100
Options and warrants issued (unaudited) - 2,588,199
Net loss (unaudited) (11,565,383) -
-------------- --------------
Balance - December 31, 1999 (unaudited) $ (18,530,329) $ 17,905,528
============== ==============
<CAPTION>
Stock Total
Subscription on Stockholders'
Investment Equity (Deficit)
--------------- ----------------
<S> <C> <C>
Balance - June 30, 1997 $ - $ (102,312)
Issuance of common stock for acquisition - -
Sale of common stock - 92,500
Issuance of stock for services - 1,000,992
Net loss - (1,655,193)
---------------- --------------
Balance - June 30, 1998 - (664,013)
Issuance of stock for services - 30,000
Sale of common stock - 290,558
Common stock issued in connection with business reorganization (Note 3) - -
Proceeds of private offering (net of offering costs of $83,095) (Note 10) - 516,905
Proceeds of private offering (net of offering costs of $359,994) (Note 10) - 1,724,508
Stock based compensation (Note 11) - 1,547,560
Net loss - (3,444,520)
---------------- --------------
Balance - June 30, 1999 - 998
Proceeds from Private Offering (net of offering costs of $95,625) (Note 10) (unaudited) - 641,370
Proceeds from Private Offering (net of offering costs of $59,382) (Note 10) (unaudited) - 387,868
Stock issued for acquisition of Prentice (Note 3) (unaudited) - 2,426,669
Stock issued for acquisition of Aweb (Note 3) (unaudited) - 199,931
Stock issued for cash (unaudited) - 250,000
Stock issued for services (unaudited) - 2,346,188
Warrants issued for in conjunction with bridge loan - immediately exercised (unaudited) - 2,162,295
Stock issued for investment (Note 15) (unaudited) (2,380,952) -
Rescission of Prentice acquisition (Note 3) (unaudited) - (2,426,669)
Stock cancelled in conjunction with Prentice Rescission (Note 3) (unaudited) - -
Options and warrants issued (unaudited) - 2,588,199
Net loss (unaudited) - (11,565,383)
---------------- --------------
Balance - December 31, 1999 (unaudited) $ (2,380,952) $ (2,988,534)
================ ==============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended For the Six Months Ended
June 30, December 31,
--------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (1,655,193) $ (3,444,520) $ (412,574) $ (11,565,383)
-------------- -------------- -------------- --------------
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 370,423 255,978 91,160 233,048
Stock issued for services 72,741 30,000 30,000 2,346,188
Stock based compensation 928,252 1,547,560 - 2,588,199
Stock issued with bridge financing - - - 2,162,295
Warrants issued - - - -
Allowance for doubtful accounts - - - 12,500
Loss on sale of equipment 18,942 - - -
Changes in assets and liabilities
Accounts receivable (1,803) 12,245 (8,843) (194,014)
Other assets - (3,880) (11,830) 19,126
Accounts payable 127,320 (14,510) 62,317 1,007,958
Accrued expenses 2,831 104,445 (32,934) 382,371
Accrued interest - 91,227 45,614 48,878
Cash overdraft (2,333) - 8,902 -
-------------- -------------- -------------- -------------
1,516,373 2,023,065 184,386 8,606,549
-------------- -------------- -------------- --------------
Net cash used by operating activities (138,820) (1,421,455) (228,188) (2,958,834)
-------------- -------------- -------------- --------------
Cash flows from investing activities
Purchase of equipment (29,244) (121,117) (5,413) (228,353)
Cash acquired from acquisitions - - - 5,878
Acquisition costs - - - (308,143)
License development costs (18,297) - - (1,000)
-------------- -------------- -------------- --------------
Net cash used by investing activities (47,541) (121,117) (5,413) (531,618)
-------------- -------------- -------------- --------------
Cash flows from financing activities
Net activity - due to officer 94,461 (16,667) (2,000) -
Offering costs - - - (175,000)
Payments on short-term notes - - - (127,062)
Proceeds on short-term notes - - - 1,550,000
Proceeds from issuance of common stock 92,500 2,179,305 235,001 1,631,904
-------------- -------------- -------------- --------------
Net cash provided by financing activities
186,961 2,162,638 233,001 2,879,842
-------------- -------------- -------------- --------------
Net increase (decrease) in cash 600 620,066 (600) (610,610)
Cash at beginning of period - 600 600 620,666
-------------- -------------- -------------- --------------
Cash at end of period $ 600 $ 620,666 $ - $ 10,056
============== ============== ============== ==============
</TABLE>
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 $45,614 and $480,462 for the six
months ended December 31, 1998 and 1999 (unaudited).
See notes to consolidated financial statements.
F - 6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
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 issued a note 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 six months ended December 31, 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 DECEMBER 31, 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. The
Company exchanged 463,093 shares for all of the outstanding shares of Keys.
The Company was a shell company with no assets or liabilities. After the
transaction, the shareholders of Keys held 89% of the common stock of the
Company.
Keys was incorporated on May 2, 1995 under the laws of the State of Florida
to operate a wireless cable television 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.), had entered into a Joint Venture Agreement with
Satellite Microcable Corp. to jointly develop a wireless cable television
system to serve Key West and the adjacent Lower Keys.
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 change in the Company's management, which presented
an opportunity to provide funding to 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 the Company 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.
F - 8
<PAGE>
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 - 9
<PAGE>
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 December 31, 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. The Company acquired a 90% interest in
Prentice Technologies, Inc. (Prentice). The Prentice transaction was
rescinded in December 1999. The Company's investment in Prentice had 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 December 31, 1999 and
1998 and the results of its operations and changes in cash flows for the six
months then ended. The results of operations for the six months ended December
31, 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 - 10
<PAGE>
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 - 11
<PAGE>
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 and the six months ended December 31, 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 - 12
<PAGE>
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 a note 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 - 13
<PAGE>
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>
<CAPTION>
<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>
<CAPTION>
Six months ended December 31, 1999 (A)
Revenues $ 371,695
Net (loss) $ (11,565,383)
Basic and diluted (loss) per share $ (.72)
Year ended June 30, 1999
Revenues $ 681,822
Net (loss) $ (3,684,295)
F - 14
<PAGE>
<CAPTION>
<S> <C>
Basic and diluted (loss) per share $ (.89)
</TABLE>
F - 15
<PAGE>
NOTE 3 - ACQUISITIONS (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.
Effective December 29, 1999, the Company completed the rescission of the
Prentice Transaction. The Company reconveyed its 90% ownership in Prentice
and cancelled the 346,667 shares of its common stock that were originally
issued as partial consideration for the acquisition. The note payable to
Prentice in the amount of $253,750 also was cancelled. No payments had been
made on the note since its issuance in September 1999. Options for the
purchase of 550,000 shares and the 100,000 shares of common stock issued to
the sole shareholder of Prentice also were cancelled. This investment had
been accounted for under the equity method because the Company retained only
temporary control of Prentice.
The Company owes Prentice approximately $57,000 relating to operating costs
incurred while the Company subleased office space from Prentice.
The financial statements for the six months ended December 31, 1999 include
$163,057 of the income from the equity in earnings of Prentice subsidiary from
the date of acquisition to the date of rescission.
F-16
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
---------------- ----------------
<S> <C> <C>
Service center property and equipment
Office equipment and computer $ 61,091 $ 210,403
Furniture and fixtures 14,696 25,417
---------------- ----------------
75,787 235,820
---------------- ----------------
Wireless television plant
Machinery and equipment 61,752 29,109
Leasehold improvement headend 35,535 35,535
TV transmission equipment 314,387 353,823
Test equipment 26,879 42,057
Subscriber recoverable equipment 121,502 121,771
Subscriber non-Recoverable Equipment 45,997 45,997
Vehicles and Equipment 49,261 107,588
Engineering 10,164 51,623
---------------- ----------------
665,477 787,503
---------------- ----------------
Total property and equipment 741,264 1,023,323
Less accumulated depreciation (151,467) (305,531)
---------------- ----------------
$ 589,797 $ 717,792
================ ================
</TABLE>
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
---------------- ----------------
<S> <C> <C>
Accrued lawsuit settlements $ 97,000 $ 60,000
Accrued payroll costs 43,703 92,429
---------------- ----------------
$ 140,703 $ 152,429
================ ================
</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.
F - 17
<PAGE>
The equipment presently is in storage in Albuquerque, New Mexico. Lease
payments on this equipment aggregate approximately $45,780 per month and were
scheduled to begin in November 1999.
F - 18
<PAGE>
NOTE 6 - LEASE OBLIGATIONS (CONTINUED)
The future minimum rental payments due under the lease agreements are as
follows:
<TABLE>
<CAPTION>
Year Ending June 30
-------------------
<S> <C>
1999 (six months remaining) $ 274,680
2000 549,360
2001 549,360
----------------
Total $ 1,373,400
================
</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 amortized
approximately $2,000,000 of interest expense over the two month 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 completed a
rescission of the transaction 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 - 19
<PAGE>
In October 1999, the Chairman of the Board of Directors sold an option to a
consultant to purchase 250,000 shares of Telecom Wireless' common stock from
the Chairman for $250,000. The term of the option is two years and the option
exercise price is $.10 per share. The Chairman loaned the $250,000 to Telecom
Wireless. The Consultant has registation rights with respect to the shares for
which the option is exercisable. In January 2000, the Company issued 250,000
shares of its common stock to the Consultant in satisfaction of the loan. The
Company recognized compensation expense of $1,727,571 determined using the
Black Scholes pricing model with the following assumptions: expected life of
two years, 0% volatility, risk free interest rate 5.5% and a dividend yield
of 0%. In January the option was exercised.
In November 1999 the Company signed a note payable to a corporation in the
amount of $700,000, bearing interest 12% per annum. Principal and accrued
interest are due in full in April, 2000. The note is convertible into common
stock of the Company at a conversion rate of $7 per share. This note was entered
into in conjunction with the agreement to acquire an equity interest in another
entity (Note 15).
In December 1999 the company signed a note payable to an individual for
$140,000. The principal and interest at 10% per annum and 7500 shares of the
company's common stock are payable on or before April 21,2000. If not paid
until May 21, 2000, the principal and interest as described above are due
along with 15,000 shares of the company's common stock. If not paid until
June 20, 2000 the Company is obligated to issue 50,000 shares of common stock
in full satisfaction of the debt.
In November 1999 the Company signed a $160,000 note payable to a corporation
which bears interest at the prime rate plus 2% per annum, is due on demand
and provides for security consisting of all assets of the Company that are
not already encumbered.
F - 20
<PAGE>
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>
<CAPTION>
Year Ending June 30,
--------------------
<S> <C>
2000 $ 5,662
2001 5,662
2002 2,110
---------------
$ 13,434
---------------
---------------
</TABLE>
NOTE 9 - NOTE PAYABLE
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 December 31, 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 - 21
<PAGE>
The Company will reflect the obligation as a liability until the Class H
preferred stock is issued. The Company has continued to recognize interest
expense based on the difference between the note and the par value of the Class
H preferred stock to be issued.
F - 22
<PAGE>
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 $387,868 net of $59,383 in offering costs.
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 Company believes it will not have to pay a penalty as
outlined in the agreements. The potential cash penalty as of December 31, 1999
was approximately $30,000.
F - 23
<PAGE>
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. Assuming a $7.00 closing bid price, warrants to purchase
50,628 shares would be issued. These warrants were amended. (Note 15)
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.
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, for services rendered, 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 December 31, 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, for services rendered, 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
F - 24
<PAGE>
5.5% and a dividend yield of 0%. This expense has been recognized for the
year ended June 30, 1998.
F - 25
<PAGE>
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 - 26
<PAGE>
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 per share and the
exercise prices are between $2.55 and $10.55 per share. Approximately
$1,548,000 and $222,500 in compensation expense is included in the June 30,
1999 and December 31, 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 six
months ended December 31, 1999.
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.
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 shares were valued at $2.50 per share based on stock transactions for
cash with unrelated parties in December, 1999 and January 2000. The fair
value of the stock or $1,375,000 will recognized over the one-year term of
the contract. Approximately $114,000 was recognized as stock-based
compensation during December 1999. The warrants had no value as determined by
the Black Scholes pricing model using the following assumptions: expected
life 3 years, 0% volatililty, risk-free interest rate of 5.5% on a 0%
dividend yield. 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.
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 - 27
<PAGE>
NOTE 11 - COMMON 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, December 31,
----------------------------------- -----------------------
1998 1999 1998 1999
--------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Net income (loss) - as reported $ (1,655,193) (3,444,520) (412,574) (11,565,383)
Net income (loss) - pro forma $ (1,655,193) (3,444,520) (412,574) (11,690,883)
Earnings (loss) per share - basic and
assuming dilution as reported $ (15.08) (.92) (.10) (.72)
Earnings (loss) per share - pro forma $ (15.08) (.92) (.10) (.72)
</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 Weighted
Average Average
Exercise Exercise
Price of Price of
Options Options
and and
Options Warrants Warrants Options Warrants Warrants
------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <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 1,393,265 2,982,287 9.59 38,265 1,895,487 5.14
-------------- --------------
Exercised - (300,000) 5.51
Cancelled (7,000) (580,000)
------------- -------------
Outstanding December 31, 1999 7,166,325 2,297,509 $9.50 573,265 2,090,709 $ 4.60
============= ============= ============= =============
</TABLE>
F - 28
<PAGE>
NOTE 11 - COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
Options and Warrants
OPTIONS AND WARRANTS OUTSTANDING EXERCISABLE
------------------------------------------------- -----------------------------------
Weighted
Weighted Average Weighted
Average remaining Average
Number Exercise Contractual Number Exercise
Outstanding Price Life Exercisable Price
------------- ------------- ----------- ----------- ---------------
Range of Options and Warrants
Exercisable Price
- -------------------------------------------
<S> <C> <C> <C> <C> <C>
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
December 31, 1999
- -----------------
$2.55 - $7.73 4,163,974 4.43 6.15 2,663,974 4.60
$10.00 - $13.53 5,299,860 $ 11.01 4.75 - $ -
</TABLE>
The weighted average exercise prices for the options and warrants granted are as
follows:
<TABLE>
<CAPTION>
Weighted
Average Grant
Number of Number of 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 December 31, 1999
Less than fair value 2,858,265 300,000 $ 3.26
Equal to fair value - 350,487 1.39
Greater than fair value 661,800 - -
---------------- ----------------
3,520,065 650,487
================ ================
</TABLE>
F - 29
<PAGE>
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 Six Months Ended
June 30, December 31,
--------------------------------- ---------------------------------
1998 1999 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 690,000 $ 1,330,000 $ 855,000 $ 5,956,000
Valuation allowance (690,000) (1,330,000) (855,000) (5,956,000)
-------------- -------------- -------------- --------------
$ - $ - $ - $ -
============== ============== ============== =============
</TABLE>
At June 30, 1998 and 1999 and December 31, 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 December 31, 1999, the Company had approximately $16,415,000 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 - 30
<PAGE>
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 December 31, 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.
F - 31
<PAGE>
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>
<CAPTION>
For the Year Ended June 30,
---------------------------
<S> <C>
2000 (6 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 $20,584 and $120,181 for the six months ended
December 31, 1998 and 1999, respectively.
SERVICES AGREEMENT
In August 1999, the Company entered into a Services Agreement with a
consultant whose services began 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. Compensation costs were reflected in the accompanying
financial statements, for the six months ended December 31, 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 - 32
<PAGE>
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 December 31, 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.
HYPERLIGHT AGREEMENTS
TECHNOLOGY MARKETING AND LICENSE AGREEMENT
In September 1999 the Company entered into a five-year agreement with
HyperLight Network Corporation (HyperLight) granting the Company a
non-exclusive world-wide license to market a product incorporating a new
broadband technology to be acquired by HyperLight. The agreement required the
Company to pay to HyperLight a license fee equal to 50% of any revenues
generated under the license. The agreement was terminable by HyperLight if
the Company failed to place an order for the products backed by a $50 million
irrevocable letter of credit by November 1, 1999. HyperLight has given the
Company notice of termination of the license agreement as no purchase order
was submitted and no letter of credit was presented.
SUBSCRIPTION AGREEMENT
In September 1999 the Company entered into a subscription agreement with
HyperLight to purchase 250 shares of HyperLight's Series C common stock in
exchange for 500,000 shares of the Company's common stock. The subscription
agreement required the Company to file a registration statement including the
shares issued to HyperLight no later than October 15, 1999. In addition, the
fair value of the shares issued by the Company was to be not less than
$5,000,000 supported by an independent appraisal. In November 1999 HyperLight
rescinded the offer to sell its securities contained in the subscription
agreement due to the Company's failure to pay for the equity interest in
HyperLight. Subsequently, the Company delivered the 500,000 shares to
HyperLight. The subscription agreement provides that HyperLight will retain
possession of the 250 shares of its common stock until the earlier of the
Company completing its payment obligations under the interim funding
agreement described below or the sale by HyperLight of more that 50,000
shares of the Company's common stock pursuant to the registration statement.
INTERIM FUNDING AGREEMENT
In September 1999 the Company entered into an agreement with HyperLight in which
HyperLight agreed to assist the Company in making arrangements to acquire an
equity interest in Vision Tek, L.P.(Vision Tek) In exchange, the Company agreed
to pay $1,200,000 to HyperLight in four installments of $300,000 each over a
period of nine months. The first installment was paid by FlashNet
Communications, Inc. (FlashNet) as discussed below. The Company has acquired the
equity interest in Vision Tek. HyperLight claims that the Company is in default
under this agreement as the payment due December 1, 1999, has not been made.
VISION TEK, L.P. - ASSIGNMENT AND SUBSCRIPTION AGREEMENT
In September 1999 the Company entered into an agreement to purchase a 2%
liquidating interest in Vision Tek for $400,000. The interest was purchased
by FlashNet but subsequently was acquired by Telecom Wireless as described
below. The interest in Vision Tek will entitle the Company to a distribution
of 50 shares of Series B Common stock of HyperLight at such time as the
shares are distributed to the partners of Vision Tek by the liquidator.
FLASHNET TRANSACTIONS
In September 1999 the Company assigned its rights under the subscription
agreement, the interim funding agreement and the assignment and subscription
agreement to FlashNet which paid the initial $300,000 installment to HyperLight
under the interim funding agreement and $400,000 to the seller of the 2%
interest in Vision Tek. In November 1999 the Company reacquired its rights under
the assigned agreements, including the equity interest in Vision Tek, for
consideration consisting of a convertible promissory note in the principal
amount of $700,000 payable to FlashNet (Note 7).
SUBSEQUENT NEGOTIATIONS
In December 1999, The Company issued an additional 452,381 shares of its
common stock to HyperLight in exchange for the agreement of HyperLight to
waive the appraisal provision in the subscription agreement, to extend the
maturity date of the $300,000 installment in default under the interim
funding agreement to February 29, 2000, and to continue renegotiating the
agreements in good faith. The ultimate outcome of these negotiations is
unknown.
The Company has accounted for the transactions involving HyperLight as an
advance until certificates evidencing the equity interest in HyperLight have
been delivered to the Company and its obligations with respect to the $900,000
have been satisfied. The Company has recorded the convertible note payable (Note
7) for $700,000 to FlashNet in the financial statements of the Company as of
December 31, 1999. The fair value of the 952,381 shares issued in connection
with the above agreements has been reflected as a stock subscription and netted
in equity at December 31, 1999 since the 250 shares of Series C common stock are
being retained by HyperLight pursuant to the subscription agreement. The fair
value of the shares issued was determined based on the fair market value of the
Company's common stock on the date of issuance, which was $2.50 per share based
on other equity transactions for cash with unrelated persons at about the same
time.
Although the Company claims that the agreements with HyperLight have either
been terminated or are unenforceable, the Company believes it will be
successful in renegotiating the transactions. However, if the Company is not
able to pay all of the $900,000 claimed to be due under the interim funding
agreement, HyperLight may claim it has the right under the interim funding
agreement and the subscription agreement (i) to either return the 952,381
shares of the Company's common stock to the Company, retain all payments made
under the interim funding agreement and cancel the 250 shares of its Series C
common stock, or (ii) to sue on the debt and retain possession of the 250
shares of HyperLight's Series C common stock until the obligations are paid
in full.
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 agreement expired unexercised on February 1, 2000.
F - 33
<PAGE>
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.
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.
F - 34
<PAGE>
TELECOM WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
NOTE 15-SUBSEQUENT EVENTS
(Unaudited)
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.
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. A lawsuit is pending with respect to these notes.
On January 6, 2000, an independent NASD-licensed broker dealer sold 116,000
shares of Registrant's common stock for $290,000, believing such shares could
be sold pursuant to the exception 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
right not be available.
In February 2000, the Company entered into agreements with the holders of the
repricing warrants to exchange their rights under the repricing warrants for
shares of stock. A total of 350,224 shares of common stock were issued in
cancellation of all outstanding repricing warrants.
In February 2000, the Company entered into additional employment agreements
which require annual salaries aggregating $490,000 with 30,500 shares of
stock issued as a signing bonuses and options to purchase 1,550,000 shares of
the Company's common stock. The agreements expire in February 2003. In
addition, two previous employment agreements were increased by $75,000 and
10% respectively. The additional $75,000 is to be paid in discounted stock
options. The total obligation for annual salaries by the Company under all
employment agreements is $1,265,000.
In March 2000, the Company issued 19,753 shares at a value of $100,000 as a
penalty to two target acquisitions that were not consummated.
In March 2000, the Company issued options to 3 employees for the purchase of
18,000 shares of common stock at purchase prices ranging from $4.67 to $7.21
for a term of 5 years.
In March 2000, the Company entered into an operating lease for the purchase
of $117,895 of equipment. The lease requires monthly payments of $1,130
during months 4-6 and $4,498 in months 7-36. The first 3 months are free.
In March 2000, the Company entered into a settlement in regards to a facility
lease in West Palm Beach, Florida. The agreement required the issuance of
40,000 shares of common stock as a security deposit and payments of $50,608
on March 2000, and April 2000. The shares were issued and the first payment
due in March has been made. However, the April 2000, payment has not been
made.
In March 2000, the Company entered into a facilities lease in Denver,
Colorado, which requires monthly payments of $19,343 and expires February 28,
2002. There is an option to extend for an additional two years.
In March 2000, the Company cancelled 3 employment agreements with various
employees, which resulted in cancellation of options for the purchase of
1,200,000 shares of the Company's common stock. Upon cancellation of the
employment agreement with one officer, a consulting agreement was entered
into with the same officer equal to the base salary previously received. The
agreement expires on July 31, 2000. In addition an advance by the Company to
the officer in the amount of $65,000 was evidenced by the signing of a note
in the same amount which will bear interest at 8% per annum with equal annual
installments of principal and interest due through maturity of March, 2001.
In March 2000, the Company entered into an agreement with a consultant for
the provision of public relations services. The Company agreed to issue to
the consultant option for the purchase of 1,000,000 shares of the Company's
common stock at prices ranging from $6.50 to $9.50 per share.
NOTE 15-SUBSEQUENT EVENTS (CONTINUED)
(UNAUDITED) (CONTINUED)
In April 2000, the Company returned 15 transmitters which were not in use and
received a credit from the vendor in the amount of approximately $200,000.
In April 2000, two officers of the Company agreed to make equity investments
aggregating $15 million in the Company. One of the officers subscribed to
purchase 3,400,000 shares of common stock at a purchase price of $2.94 per
share, or a total of $10,000,000, and the other officer subscribed to
purchase 2,000,000 shares at a purchase price of $2.50 per share, or a total
of $5,000,000. Each paid the purchase price in the form of a full-recourse
promissory note secured by the shares purchased which bears interest at 8% and
matures April 2001. The Company has agreed to register the shares purchased.
Pursuant to the contract with Adaptive Broadband, the Company was obligated
to take delivery of and remit payment on March 15, 2000, for purchase price
of approximately $3,340,090, has not made the required payment and
negotiations are continuing with Adaptive Broadband and financing sources to
procure the funds. Additional payments of $3,392,290 each are due on the
first day of June, September and December 2000. the Company may terminate
the agreement without penalty at any time if Adaptive's product technology is
not reasonably competitive in the fixed wireless broadband market.
The Company's agreements with regard to Hyperlite required a payment of
$300,000 in February 2000, which was satisfied through the issuance of 50,492
shares of the Company's common stock. In additional $300,000 was purportedly
due March 1, 2000, and has not been made.
During 2000, the Company entered into various consulting agreements which
resulted in the issuance of warrants for the purchase of 1,050,000 shares of
the Company's common stock. The value of these warrants will be reflected
in the financial statements as services are rendered.
In conjunction with various sales of common stock by the Company in 2000, the
Company issued warrants for the purchase of 195,000 shares of common stock.
In addition the Company issued a warrant for the purchase of 100,000 shares of
the Company's common stock in connection with a $100,000 note payable signed
by the Company in April 2000. The value of the warrants will be recognized
over the term of the loan.
During 2000, the Company has issued 893,500 shares of its common stock in
consideration of $2,220,000 in cash; 650,000 shares were issued in
cancellation of $625,000 in debt; 44,876 shares were issued for services and
40,000 shares were issued as a security deposit on a facilities lease.
Substantially all of the shares have registration rights.
F-35
<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-36
<PAGE>
AMERICA'S WEB STATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------
1998 1997 1999
------------------ ------------------ ------------------
ASSETS (Unaudited)
<S> <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-37
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 19,
1997
(Inception)
Year Ended through Six Months Ended
December 31, December 31, June 30,
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-38
<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 - 39
<PAGE>
AMERICA'S WEB STATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 29,
1997
(Inception)
Year Ended through Six Months Ended
December 31, December 31, June 30,
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 - 40
<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 - 41
<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 - 42
<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>
<CAPTION>
Twelve Months Ending June 30,
------------------------------
<S> <C>
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 - 43
<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>
<CAPTION>
Twelve Months Ending June 30,
-----------------------------
<S> <C>
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 - 44
<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 - 45
<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 - 46
<PAGE>
TELECOM WIRELESS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom America's
Wireless Web
Corp. Station, Inc. Total
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Internet services $ - $ 159,168 $ 159,168
Wireless cable revenues 517,261 - 517,261
Consulting fees 5,393 - 5,393
------------- ------------- -------------
522,654 159,168 681,822
------------- ------------- -------------
Expenses
Direct expenses 275,705 - 275,705
Internet service operating costs - 57,090 57,090
Stock based compensation 1,547,560 - 1,547,560
Selling, general and administrative 2,051,568 232,182 2,283,750
------------- ------------- -------------
Total cost of sales and expenses 3,874,833 289,272 4,164,105
------------- ------------- -------------
Income (loss) from operations (3,352,179) (130,104) (3,482,283)
Other income (expenses)
Interest income - - -
Interest expense (92,341) (7,465) (99,806)
------------- ------------- -------------
Total other income (expense) (92,341) (7,465) (99,806)
------------- ------------- -------------
Income (loss) before income taxes and minority interest (3,444,520) (137,569) (3,582,089)
Income tax expense (benefit) - - -
------------- ------------- -------------
Income (loss) before minority interest (3,444,520) (137,569) (3,582,089)
Minority interest - - -
------------- ------------- -------------
Net income (loss) (3,444,520) (137,569) (3,582,089)
Dividends on preferred stock - - -
------------- ------------- -------------
Net income (loss) available to common stockholders (3,444,520) $ (137,569) $ (3,582,089)
============= ============= =============
Earnings (loss) per common share - basic and diluted $ (.92)
============
Weighted average shares outstanding - basic and diluted 3,759,050
=============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma
----------------------------- Consolidated
Debit Credit Total
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Internet services $ - $ - $ 159,168
Wireless cable revenues - - 517,261
Consulting fees - - 5,393
------------- ------------- -------------
- - 681,822
------------- ------------- -------------
Expenses
Direct expenses - - 275,705
Internet service operating costs 57,090
Stock based compensation - - 1,547,560
Selling, general and administrative (1) 102,206 - 3,204,706
(2) 818,750 -
------------- ------------- -------------
Total cost of sales and expenses 920,956 - 5,085,061
------------- ------------- -------------
Income (loss) from operations (920,956) - (4,403,239)
-------
Other income (expenses)
Interest income - -
Interest expense - - (99,806)
------------- ------------- -------------
Total other income (expense) - - (99,806)
------------- ------------- -------------
Income (loss) before income taxes and minority interest (920,956) - (4,503,045)
-------
Income tax expense (benefit) - - -
------------- ------------- ------------
Income (loss) before minority interest (920,956) (4,503,045)
-------
Minority interest - - -
------------- ------------- ------------
Net income (loss) (920,956) (4,503,045)
-------
Dividends on preferred stock - - -
------------- ------------- ------------
Net income (loss) available to common stockholders $ (920,956) $ - $ (4,503,045)
============= ============= =============
Earnings (loss) per common share - basic and diluted $ (1.19)
============
Weighted average shares outstanding - basic and diluted 3,787,612
=============
</TABLE>
F - 47
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Telecom America's
Wireless Web
Corp. Station, Inc. Total
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (3,444,520) $ (137,569) $ (3,582,089)
------------- ------------- -------------
Adjustments to reconcile net loss to net cash used by operating
activities
Depreciation and amortization 255,978 19,638 275,616
Stock issued for services 30,000 - 30,000
Imputed value of options granted for services 1,547,560 - 1,547,560
Changes in assets and liabilities
Accounts receivable 12,245 (1,562) 10,683
Other assets (3,880) (2,310) (6,190)
Accounts payable (14,510) 8,043 (6,467)
Accrued expenses 104,445 - 104,445
Accrued interest 91,227 - 91,227
------------- ------------- -------------
2,023,065 23,809 2,046,874
------------- ------------- -------------
Net cash used by operating activities (1,421,455) (113,760) (1,535,215)
------------- ------------- -------------
Cash flows from investing activities
Acquisition of equipment (121,117) (8,627) (129,744)
Net change in other assets - - -
------------- ------------- -------------
Net cash used by investing activities (121,117) (8,627) (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)
Sale of common stock/capital contribution 2,179,305 64,125 2,243,430
Net payments on notes payable - (19,796) (19,796)
Net proceeds from notes payable - 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
------------- ------------- -------------
Net increase (decrease) in cash 620,066 (8,880) 611,186
Cash at beginning of period 600 14,758 15,358
------------- ------------- -------------
Cash at end of period $ 620,666 $ 5,878 $ 626,544
============= ============= =============
<CAPTION>
Pro Forma Pro Forma
Acquisition Consolidated
Adjustments Total
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (920,956) $ (4,503,045)
------------- -------------
Adjustments to reconcile net loss to net cash used by operating
activities
Depreciation and amortization 102,206 377,822
Stock issued for services - 30,000
Imputed value of options granted for services - 1,547,560
Changes in assets and liabilities
Accounts receivable - 10,683
Other assets - (6,190)
Accounts payable - (6,467)
Accrued expenses - 104,445
Accrued interest - 91,227
------------- -------------
120,206 2,149,080
------------- -------------
Net cash used by operating activities (818,750) (2,353,965)
------------- -------------
Cash flows from investing activities
Acquisition of equipment - (129,744)
Net change in other assets - -
------------- ------------
Net cash used by investing activities - (129,744)
------------- -------------
Cash flows from financing activities
Net activity on line-of-credit/floor plans - -
Net repayments to related party - (47,489)
Sale of common stock/capital contribution - 2,243,430
Net payments on notes payable - (19,796)
Net proceeds from notes payable - 100,000
Net payments on capital leases - -
Dividends/distributions paid - -
------------- ------------
Net cash provided by financing activities - 2,276,145
------------- -------------
Net increase (decrease) in cash (818,750) (207,564)
Cash at beginning of period - 15,358
------------- -------------
Cash at end of period $ (818,750) $ (192,206)
============= =============
</TABLE>
F - 48
<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.
(2) To record pro forma effect of new employment agreements with certain
officers.
F - 49
<PAGE>
UNTIL AUGUST ___, 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.
<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 $ 1,500
Printing and Engraving 10,000
Transfer Agent's Fee and Expenses N/A
Legal Fees and Expenses 5,000
Blue Sky Qualification Fees and Expenses N/A
Accountants' Fees and Expenses 5,000
Miscellaneous Expenses 5,000
----------
Total $ 26,500
==========
</TABLE>
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 having an unknown value. 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 $2,600. 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
unknown amount of 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.,
held by 13 persons of which nine were accredited investors and four were not
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.
<PAGE>
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. 22 of such persons were accredited investors, five were
off-shore entities and one 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 valued at $122,500 to one entity in
consideration of services rendered to Registrant by that entity. The entity was
an accredited investor.
Effective in April, May and August 1999, Registrant issued non-qualified
options for the purchase of 5,561,192 shares of its common stock for an average
exercise price of $9.84 per share to nine officers and one employee of
Registrant of which eight were accredited investors and two were not accredited
investors.
Between April 14, 1999, and January 31, 2000, Registrant issued 38,046
shares of its common stock valued at $250,222 and issued non-qualified and
incentive options for the purchase of 173,668 shares of its common stock for an
average exercise price of $9.27 per share 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 warrants for the purchase of up to
500,000 shares of its common stock at an exercise price of $5.50 per share and
additional warrants for the purchase of up to 720,000 shares at exercise prices
to be determined to one individual in consideration of future financial
consulting services. The individual was an accredited investor.
Effective in August 1999, Registrant issued warrants for the purchase of
123,222 shares of its common stock at an exercise price of $5.275 per share to
two officers of Registrant, both of whom were accredited investors, in
consideration of management services rendered to a subsidiary of the company
prior to April 1999.
In July and September 1999, Registrant issued 375,229 shares of its common
stock valued at $2,626,603 and options for the purchase of 350,000 shares of its
common stock for an average exercise price of $3.92 per share (but subject to
performance standards) in connection with its acquisitions of America's Web
Station, Inc. and Prentice Technologies, Inc. to three individuals. One
individual was an accredited investor and two were not accredited investors.
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 for an exercise price of $7.00
per share to six persons, of whom five were accredited investors and one was an
off-shore entity. Placement agent fees in the form of a warrant for the purchase
of 300,000 shares of Registrant's common stock for an exercise price of $.01 per
share were paid to First Equity Capital Securities, Inc., a non-affiliated third
party. In November 1999, the warrants were exercised. In January 2000,
Registrant issued the shares underlying the warrants to three persons as
directed by the holder of the warrants. Two of such persons were accredited
investors and the third was an off-shore entity.
In November 1999, Registrant issued to one entity 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. The entity was an
accredited investor.
<PAGE>
In November and December 1999, Registrant issued 952,381 shares of its
common stock valued at $4,630,953 to one entity in connection with its
acquisition of certain technology-related equity interests. This entity was not
an accredited investor.
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 in payment or partial payment of the promissory note.
The holder of the note was an accredited investor.
In January 2000, Registrant issued 1,200,000 shares of its common stock
valued at $2,025,000 and warrants for the purchase of 1,000,000 shares of its
common stock at an exercise price of $5.50 per share to three persons in
consideration of $625,000 in debt cancellation and investment banking services
to be rendered. All three persons were accredited investors.
In January 2000, Registrant issued options for the purchase of 300,000
shares of its common stock at an exercise price of $5.50 per share to one
individual in connection with his employment as an officer of Registrant. The
individual was not an accredited investor.
In February 2000, Registrant issued 400,000 shares of its common stock for
$1,000,000 in cash, a promissory note in the principal amount of $100,000
convertible into common stock at $2.50 per share and warrants for the purchase
of an additional 395,000 shares for an average exercise price of $2.63 per share
to seven persons. Six of such persons were accredited investors and one was an
off-shore entity. Placement agent fees aggregating $100,000 plus warrants for
the purchase of 40,000 shares were paid to Hampton-Porter Investment Bankers and
International Financial Management.
Between February 29, 2000, and May 2, 2000, Registrant issued securities as
follows:
- 1,067,500 shares of its common stock for $1,811,000 in cash to seven
accredited investors in connection with a portion of which Registrant
paid, or is obligated to pay, finders fees to Equitrade Securities and
Spencer Edwards Inc. in the amounts of $9,000 and $20,600,
respectively.
- 202,769 shares of its common stock valued at $1,003,502 to three
accredited investors and one non-accredited investor in consideration
of debt cancellation.
- 5,747,000 shares of its common stock for promissory notes aggregating
$15,902,200 in principal amount to three accredited investors,
including an executive officer and director of Registrant and an
affiliate of an executive officer and director of Registrant.
- 22,476 shares and warrants for the purchase of 250,000 shares at an
exercise price of $.10 per share to three accredited investors, one
non-accredited investor and one offshore investor in consideration of
services 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 Rules 504 and 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. Section 4(2) of the Securities
<PAGE>
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. Registrant believes
that the non-accredited investors to whom the securities were issued
pursuant to Rule 506 had such knowledge and experience in financial
and business matters that they were capable of evaluating the merits
and risks of the prospective investment. Registrant also believes that
all investors were sophisticated in business and financial matters,
had access to the same type of information as would be contained in a
registration statement and did not need the protections that
registration would afford.
On January 6, 2000, an independent NASD-licensed broker dealer sold 116,000
shares of Registrant's common stock for $290,000, 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.
<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 Registration
Statement to be signed on its behalf by the undersigned, in Denver, Colorado, on
May 2, 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 C.
Stephen Guyer, 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 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 May 2, 2000
- ---------------------------------
James C. Roberts
/s/ Calvin D. Smiley President, Principal Executive Officer May 2, 2000
- --------------------------------- and Director
Calvin D. Smiley
/s/ Kosta S. Kovachev Director May 2, 2000
- ---------------------------------
Kosta S. Kovachev
Vice President-Corporate Finance
/s/ C. Stephen Guyer Controller and Principal Financial May 2, 2000
- --------------------------------- and Accounting Officer
C. Stephen Guyer
</TABLE>
<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
3.7 Restated Articles of Incorporation as filed with the Utah
Secretary of State on March 28, 2000
3.8 Amendment No. 1 to Bylaws
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
<PAGE>
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
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.
<PAGE>
10.25** Executive Employment Agreement dated September 23, 1999,
between Telecom Wireless Corporation and Shawn P. Richmond
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
10.42** Lease Schedule No. 1 to Master Lease Agreement (see Exhibit
10.17)
10.43** Transfer and Settlement Agreement dated November 5, 1999, by
and between Telecom Wireless Corporation and FlashNet
Communications, Inc.
10.44** Convertible Promissory Note dated November 5, 1999, payable to
FlashNet Communications, Inc. in the original principal amount
of $700,000
<PAGE>
10.45 Employment Agreement dated February 26, 2000, between Telecom
Wireless and Paul J. Hart
10.46 Employment Agreement dated February 26, 2000, between Telecom
Wireless and Jerry Chiu Hung "Michau" Yuen.
10.47 Non-Qualified Stock Option Agreement dated February 26, 2000,
issued to Paul J. Hart, an employee of Telecom Wireless for
the purchase of 750,000 shares
10.48 Non-Qualified Stock Option Agreement dated February 26, 2000,
issued to Jerry Chiu Hung "Michau" Yuen, an employee of
Telecom Wireless for the purchase of 450,000 shares
10.49 Settlement Agreement dated March 6, 2000, between One
Clearlake Centre-VEF III LLC and Telecom Wireless
10.50 First Amendment to Repricing Warrant
10.51 Letter dated March 22, 2000 regarding Option/Consulting
Agreement between The Wall Street Trading Group and Telecom
Wireless
10.52 Promissory Note dated April 10, 2000, payable by The Roberts
Family Trust to Telecom Wireless in the original principal
amount of $10,000,000 and Security Agreement-Pledge dated
April 10, 2000 relating to the purchase of 3,400,000 shares of
Telecom Wireless common stock
10.53 Promissory Note dated April 10, 2000, payable by Calvin D.
Smiley to Telecom Wireless in the original principal amount of
$5,000,000 and Security Agreement-Pledge dated April 10, 2000
relating to the purchase of 2,000,000 shares of Telecom
Wireless common stock
10.54 Promissory Note dated April 26, 2000, payable by John A.
Hansen to Telecom Wireless in the original principal amount of
$902,200 and Security Agreement-Pledge dated April 26, 2000,
relating to the purchase of 347,000 shares of Telecom Wireless
common stock
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
23.3 Consent of Gerstle, Rosen & Associates, P.A., Boca Raton,
Florida
23.4 Consent of Girardin Baldwin & Associates LLP, Naples, Florida
27.1** Financial Data Schedule
</TABLE>
- ---------------------------------
* To be filed by amendment
** Incorporated by reference from the Registration Statement on Form SB-2
(File No. 333-91717) filed by Telecom Wireless and declared effective
on February 24, 2000
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
TELECOM WIRELESS CORPORATION
Pursuant to the provisions of the Utah Revised Business Corporation Act,
the undersigned corporation adopts the following restated Articles of
Incorporation. These articles only restate and integrate and do not further
amend the provisions of the corporation's Articles of Incorporation as
theretofore amended or supplemented. There is no discrepancy between such
Articles of Incorporation with such amendments or supplements and the provisions
of the restated articles. These restated Articles of Incorporation supersede the
original Articles of Incorporation and all amendments and supplements thereto.
These restated Articles of Incorporation were adopted by the board of
directors where no shareholder action is required.
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is Telecom Wireless Corporation.
ARTICLE II
DURATION
The Corporation shall exist perpetually or until dissolved according to
law.
ARTICLE III
PURPOSES
The purpose of the Corporation is to buy, sell, lease, rent or otherwise
supply used oil field or other industrial equipment to commercial operators; and
to engage in any lawful act or lawful activity under the Utah Business
Corporation Act or under any other federal, state or local laws and regulations.
ARTICLE IV
SHARES
The aggregate number of shares of stock which the Corporation shall have
the authority to issue is one hundred twenty-five million (125,000,000) shares,
consisting of one hundred million (100,000,000) shares of Common Stock having a
par value of $.001 per share and twenty five million (25,000,000) shares of
Preferred Stock having a par value of $.001 per share.
<PAGE>
4.1. PREFERRED STOCK. The Board of Directors is authorized, subject to the
limitations prescribed by law and the provisions of this Article, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Utah, to establish
from time to time the number of shares to be included in each such series and to
fix the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof.
4.1.1 The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and if so, the terms of such voting
rights;
(d) Whether that series shall have conversion privileges and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of that series; and
(h) Any other rights, preferences and limitations of that series.
4.1.2 Dividends on outstanding shares of Preferred Stock shall be paid
or declared and set apart for payment, before any dividends shall be paid
or declared and set apart for payment on Common Stock with respect to the
same dividend period.
4.1.3 If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to
holders of shares of Preferred
<PAGE>
Stock of all series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
4.1.4 Unless otherwise provided in any resolution of the Board of
Directors Providing for the issuance of any particular series of Preferred
Stock, no holder of Preferred Stock shall have any pre-emptive right as
such holder to subscribe for, purchase or receive any part of any new or
additional issue of capital stock of any class or series, including
unissued and treasury stock, or obligations or other securities convertible
into or exchangeable for capital stock of any class or series, or warrants
or other instruments evidencing rights or options to subscribe for,
purchase or receive any capital stock of any class or series, whether now
or hereafter authorized and whether issued for cash or other consideration
or by way of dividend.
4.2. COMMON STOCK.
4.2.1 Subject to the prior and superior rights of the Preferred Stock
and on the conditions set forth in the foregoing parts of this Article or
in any resolution of the Board of Directors providing for the issuance of
any particular series of Preferred Stock, and not otherwise, such dividends
(payable in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to time
out of any funds legally available therefor.
4.2.2 Except as otherwise provided by law, by this Certificate of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issue of any series of the Preferred Stock, the Common
Stock shall have the exclusive right to vote for the election of directors
and for all other purposes, each holder of the Common Stock being entitled
to one vote for each share held.
4.2.3 Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or involuntary, and after the holders of the
Preferred Stock of each series shall have been paid in full the amount to
which they respectively shall be entitled, or a sum sufficient for such
payments in assets of the Corporation shall be distributed pro rata to the
holders of the Common Stock in accordance with their respective rights and
interests, to the exclusion of the holders of the Preferred Stock.
ARTICLE V
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
REDEEMABLE, NON-VOTING, CONVERTIBLE
PREFERRED STOCK, SERIES 1998-1
5.1. DESIGNATION. This Article V 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 ''APreferred
Shares@'' or the "Preferred Stock") and the number of authorized
<PAGE>
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.
5.2. 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.
5.2.1 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.
5.2.2 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.
5.2.3 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.
5.3. REDEMPTION.
5.3.1 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.
5.3.2 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.
<PAGE>
5.3.3 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.
5.3.4 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.
5.3.5 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.
5.4. CONVERSION.
5.4.1 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
<PAGE>
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.
5.4.2 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.
<PAGE>
(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:
(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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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.
5.4.3 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.
5.4.4 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 be less than
<PAGE>
the number of such shares required to be reserved hereunder for issuance
upon conversion of the Preferred Shares.
5.4.5 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.
5.5. 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.
5.6. LEGENDS AND SECURITIES LAW COMPLIANCE.
5.6.1 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.
5.6.2 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.
<PAGE>
5.6.3 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.
5.7. 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
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.
5.8. 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.
5.9. 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.
ARTICLE VI
REGULATION OF INTERNAL AFFAIRS
6.1. SHAREHOLDERS' MEETINGS. Meetings of Shareholders may be called by the
President or by any one Director or by any number of Shareholders owning not
less than ten percent
<PAGE>
of the outstanding shares entitled to vote at such Meeting. Notice of
Shareholders' Meetings shall be given in writing by mailing such notice to the
address of every Shareholder, at the last known address of such Shareholder, at
least ten days prior to the date and hour of said meeting. Publication of notice
of a Shareholders' meeting is not required for any purpose. Any notice required
to be given any Shareholders of this Corporation may be waived by written
instrument signed by such Shareholders.
6.2. BY-LAWS. The majority of the Directors may adopt By-Laws for the
Corporation which are consistent with these Articles and the laws of the State
of Utah and may amend and repeal from time to time any By-Law.
6.3. CONTRACTS WITH INTERESTED DIRECTORS OR OFFICERS. No contract, lease,
or other transaction between the Corporation and any other corporation and no
other act of the Corporation with relation to any other corporation shall, in
the absence of fraud, in any way be invalidated or otherwise affected, by the
fact that any one or more of the Directors or Officers of the Corporation are
pecuniarily or otherwise interested in, or are Officers or Directors of, such
other corporation. Any Officer may recommend or approve, if it is within the
scope of his authority to do so, and any Director of the Corporation may vote
upon any contract or other transaction between the Corporation and any
subsidiary or affiliated corporation without regard to the fact that such
officer or Director is also an officer or Director of such subsidiary or
individually, or any firm or association of which any officer or Director may be
a member, may be a party to, or may be pecuniarily or otherwise interested in,
any contract, lease, or other transaction with the Corporation, provided that
the fact that he individually or as a member of such firm or association is such
a party to, or is so interested in, any contract, lease, or other transaction
with the Corporation, shall be disclosed, or shall have been known, to the Board
of Directors or by a majority of such members thereof as shall be present at any
meeting of the Board of Directors at which action upon any such contract or
transaction shall be taken-, and in any case described in this paragraph, any
such Director may be counted in determining the existence of a quorum at any
meeting of the Board of Directors which shall authorize any such contract,
lease, or other transaction and may vote thereat to authorize any such contract
or transaction.
ARTICLE VII
NO PREEMPTIVE RIGHTS
No holder of shares of the Capital Stock of any class of the Corporation
shall have any preemptive or preferential rights of subscription to any shares
of any class of stock of the Corporation, whether now or hereafter authorized,
or to any obligations convertible into stock of the Corporation, issued or sold.
The term, 'convertible obligations' as used herein shall include any notes,
bonds or other evidences of indebtedness to which are attached or with which are
issued warrants or other rights to purchase stock of the Corporation.
<PAGE>
ARTICLE VIII
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 50 West
Broadway, Salt Lake City, Utah 84101, and the name of its Registered Agent at
such address is CT Corporation System.
ARTICLE IX
INDEMNIFICATION - EXCULPATION
The Corporation shall provide indemnification and/or exculpation to its
Directors, Officers, employees agents, and other entities which deal with it to
the maximum extent provided, and under the terms provided, by the laws and
decisions of the courts of the State of Utah and by any additional applicable
federal or state laws or court decisions.
Dated this 27th day of March, 2000.
/S/ JAMES C. ROBERTS
----------------------------------------
James C. Roberts, Chairman of the Board
<PAGE>
AMENDMENT NO. 1 TO
BYLAWS
OF
TELECOM WIRELESS CORPORATION
(f/k/a Stetson Oil Exchange, Inc.)
The Bylaws of Telecom Wireless Corporation, a Utah corporation (formerly
known as Stetson Oil Exchange, Inc.) (the "Corporation"), are hereby amended as
follows:
1. Article II, Section 4 of the Bylaws shall be deleted in its entirety and
the following substituted therefor:
Section 4. NOTICE OF MEETING. The secretary shall give notice to
shareholders of the date, time, and place of each annual and special
shareholders' meeting no fewer than ten nor more than sixty days
before the date of the meeting. Except as otherwise required by the
Utah Revised Business Corporation Act or the Corporation's Articles of
Incorporation, the secretary shall be required to give such notice
only to shareholders entitled to vote at the meeting.
(a) Except as otherwise required by the Utah Revised Business
Corporation Act or the Corporation's Articles of Incorporation, notice
of an annual shareholders' meeting need not include a description of
the purpose or purposes for which the meeting is called.
(b) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is
called.
(c) Notice of a shareholders' meeting shall be in writing and
shall be given:
(1) by deposit in the United States mail, properly addressed
to the shareholder's address shown in the Corporation's current
record of shareholders, first class postage prepaid, and, if so
given, shall be effective when mailed; or
(2) by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier or by
personal delivery to the shareholder, and, if so given, shall be
effective when actually received by the shareholder.
(d) If an annual or special shareholders' meeting is adjourned to
a different date, time or place, notice need not be given of the new
date, time or place if the new date, time or place is announced at the
meeting before adjournment; provided, however, that if the adjournment
is for more than 30 days, or if after the adjournment a new record
date for the adjourned meeting is or must be fixed pursuant to Section
10(c), notice of the adjourned meeting shall be given to shareholders
of record who are entitled to vote at the meeting.
(e) If two consecutive notices of annual meetings, and all
notices of meetings or of the taking of action by written consent
without a meeting during the period between the two consecutive annual
meetings, have been mailed, addressed to the shareholder at
<PAGE>
the shareholder's address as shown on the records of the corporation,
and are returned as undeliverable, no further notices to such
shareholder shall be necessary until another address for the
shareholder is made known to the Corporation.
2. A new Section 10 shall be added to Article II as follows:
Section 10. RECORD DATE.
(a) In order to make a determination of shareholders (1) entitled
to notice of or to vote at any shareholders' meeting or at any
adjournment of a shareholders' meeting, (2) entitled to take action
without a meeting, (3) entitled to demand a special shareholders'
meeting, (4) entitled to take any other action, or (5) for any other
purpose, the board of directors may fix a future date as the record
date for such determination of shareholders. The record date may be
fixed not more than seventy days before the date of the proposed
action.
(b) Unless otherwise specified when the record date is fixed, the
time of day for determination of shareholders shall be as of the
Corporation's close of business on the record date.
(c) A determination of shareholders entitled to be given notice
of or to vote at a shareholders' meeting is effective for any
adjournment of the meeting unless the board of directors fixes a new
record date, which the board shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting;
provided, however, that if a court orders a meeting adjourned to a
date more than 120 days after the date fixed for the original meeting,
it may provide that the original record date continues in effect or it
may fix a new record date.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at
an annual or special shareholders' meeting is the close of business on
the day before the first notice is delivered to shareholders.
(e) The record date for determining shareholders entitled to take
action without a meeting pursuant to Section 9 is the date the first
shareholder delivers to the corporation a writing upon which the
action is taken.
The foregoing amendments to the Corporation's Bylaws were duly adopted by
the Board of Directors of the Corporation pursuant to a Unanimous Written
Consent to Action effective as of March 30, 2000.
2
<PAGE>
February 26, 2000
Paul Hart
6 Walt Whitman Trail
Morristown, NJ 07960
Dear Paul:
I am pleased to offer to you the position of Chief Executive Officer of a
subsidiary (the "Company") of Telecom Wireless Corporation ("TWC") to be formed
for the purpose of acquiring the stock or assets of Internet service providers
and competitive local exchange carriers and related businesses. If you become
employed by TWC or by different subsidiary of the Company, the term "Company"
shall refer to that entity. The terms of your employment will be as follows:
1. SERVICES. Your duties and responsibilities will be as assigned to you
from time-to-time by the board of directors of the Company or TWC or a member of
senior management of TWC. You agree to provide these services to the best of
your ability in a prompt, efficient and professional manner. Unless otherwise
agreed in writing by the board of directors of TWC, you agree to devote your
full time, attention and energies to the business of the Company.
2. BASE SALARY AND BONUSES. Your annual base salary shall be $215,000,
subject to normal and customary deductions and withholdings, payable in
installments according to the Company's regular payroll schedule. Your job
performance will be evaluated by the Company's board of directors and reviewed
with you annually at about the end of each year and merit raises and/or bonuses
may be awarded in the sole discretion of the compensation committee of the board
of directors of TWC (the "Compensation Committee").
3. HIRE DATE. Your hire date shall be 2/26, 2000.
4. STOCK OPTIONS AND STOCK BONUS. Subject to applicable legal requirements
and the terms of TWC's 1999 Stock Option and Restricted Stock Plan, TWC agrees
to grant to you non-qualified options for the purchase of 750,000 shares of
TWC's common stock, par value $.001 per share, which will vest and become
exercisable in equal installments on each of the first three annual anniversary
dates of your hire date by the Company. Additionally, upon commencement of your
employment, TWC agrees to grant to you 20,000 shares of its common stock
<PAGE>
February 26, 2000
Page 2
as a signing bonus. Unless registered, the shares of common stock issuable upon
exercise of the options and the bonus shares will be restricted under federal
and applicable state securities laws and subject to substantial restrictions on
transfer. You represent and warrant to TWC that you are a bona fide resident of
the state of New Jersey and that you are an accredited investor as that term is
defined in Rule 215 under the Securities Act of 1933 as indicated in Exhibit A
attached hereto and by this reference made a part hereof. TWC agrees to use
reasonable efforts to register the bonus shares and the shares underlying your
stock options for public sale on Form S-8 at the earliest practicable time.
5. PERFORMANCE BONUS. You shall also be entitled to receive bonuses based
on performance upon such terms and in such amounts as shall be defined and
determined by the Compensation Committee based upon the net increase in
revenues, profitability and cash flow of businesses acquired by the Company and
approved by the mergers and acquisitions committee appointed by the board of
directors of TWC. Subject to satisfaction of the performance criteria, your
performance bonus shall not be less than the average bonus to which senior
management of the Company or TWC is currently entitled.
6. EMPLOYMENT AT WILL. Your employment by the Company pursuant to this
letter or otherwise is "at will" and is for no specific period of time.
Accordingly, either you or the Company may terminate your employment by the
Company for any reason and at any time on not less than ten days' written
notice. Upon termination of your employment by either of us, the Company may
immediately relieve you of all duties. In the event, however, your employment
should be terminated by the Company without cause at any time prior to the third
anniversary of your hire date, you shall be entitled to receive severance
compensation based on your base salary as of the termination date, but not to
exceed your base salary as of the termination date for the remainder of the
three-year period following your hire date, as follows:
<TABLE>
<CAPTION>
Number of Months
Period Severance Compensation
------ ----------------------
<S> <C>
Hire Date through First Anniversary Date 24 months
Thereafter through Second Anniversary Date 18 months
Thereafter through Third Anniversary Date 12 months
</TABLE>
Termination "for cause" shall mean, but not be limited to, termination by the
Company of your employment by reason of (i) your gross negligence, dishonesty or
fraud with respect to the Company or others; (ii) your conviction for violation
of any laws other than misdemeanors such as minor traffic violations which do
not reflect upon your honesty, integrity or job performance; (iii) your breach
of
<PAGE>
February 26, 2000
Page 3
any duty, neglect of any duty or failure to perform the services required of you
as provided herein; or (iv) your breach of any material provision of this
Agreement. The Company shall be deemed to have terminated your employment
without cause in the event of: (a) your transfer or relocation to an office
located elsewhere than Manhattan, New York City, New York; (b) the Company
requiring that you report to a person other than one or more members of senior
management of TWC; (c) a substantial diminution of your responsibilities without
cause; or (d) a reduction in your base salary, but only if you promptly give the
Company and TWC notice of the action deemed to be a termination of your
employment without cause and not less than 30 days in which to cure, and you
terminate your employment by the Company not less than five business days after
expiration of the cure period due solely to the Company's failure to cure.
7. VACATION. Following the first six months of employment, you shall be
entitled to twenty (20) paid vacation days each year. Vacation time must be used
during the calendar year in which it accrues. Any accrued vacation time existing
upon termination of your employment shall be paid based upon your then salary.
8. BENEFITS. While you are employed by the Company, you shall be entitled
to participate in any plans and benefits generally available to employees of the
Company. Subject to the terms of the Company's medical and dental plans,
including any waiting period for pre-existing conditions, the Company will pay
all or a portion of the premiums for you and your family members for medical and
dental insurance. In the event your family members are not eligible to be
included in the Company's medical and dental plans at your hire date due to the
terms of such plans, the Company shall reimburse you for COBRA medical insurance
premiums paid by you until such time as your family members become eligible to
participate in such plans.
9. EMPLOYEE MANUAL AND COMPANY POLICIES. You agree to observe and abide by
all provisions of the Company's employee manual when prepared and as thereafter
amended and all Company policies including the prohibition against trading in
the Company's common stock, or options or other rights to acquire that stock,
while in the possession of material non-public information relating to the
Company or other entities, and the prohibition against tipping others about any
such material non-public information.
10. CONFIDENTIALITY AGREEMENT. You agree, both during and after your
employment by the Company, not to reveal confidential or proprietary information
or trade secrets ("Confidential Information") owned, used by or in the
possession of the Company or any subsidiary or affiliate of the Company, to any
individual or entity. Should you reveal or threaten to reveal Confidential
Information, you agree that the Company shall be entitled, without notice to
you, to an injunction restraining you from disclosing Confidential Information
or from rendering services to any entity to which Confidential Information has
been or is threatened to be disclosed. This right to an
<PAGE>
February 26, 2000
Page 4
injunction shall not be the exclusive remedy of the Company which may also seek
other remedies including damages.
11. ARBITRATION. Except as specifically provided herein to the contrary, in
the event of any differences, claims or disputed matters relating to or arising
from your employment by the Company, we agree to submit such matters to
arbitration by the American Arbitration Association or its successor in Denver,
Colorado. Either party can invoke arbitration upon ten days' notice to the other
party. The determination of the arbitrator shall be final and absolute. The
arbitrator shall be governed by the duly promulgated rules and regulations of
the American Arbitration Association or its successor, and the pertinent
provisions of the internal laws of the State of Colorado, relating to
arbitration. The decision of the arbitrator may be entered in a judgment in any
court of the State of Colorado or elsewhere. The arbitrator shall have no power
to award exemplary or punitive damages.
5. MISCELLANEOUS. (i) This Agreement sets forth our mutual understanding,
supersedes all prior written or oral understandings and agreements and may be
modified only by a writing signed by both of us; (ii) Employee shall not have
the right to assign all or any portion of his rights, duties or obligations
under this Agreement to any other person. Subject to the foregoing, all terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors, assigns, legal representatives, heirs
and estates of the parties hereto; (iii) This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Colorado; (iv)
The failure of either of us 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; and (v) All notices required hereunder shall be deemed to have been
given when in writing upon the earlier of personal delivery or three days
following deposit in the United States mails by certified or registered mail,
postage prepaid, to the party at the addresses set forth above. Either party
hereto, by notice duly given, may change the address for the giving of notice.
Sincerely,
/s/ Calvin D. Smiley
------------------------------------------
Calvin D. Smiley, CEO and President
Accepted and agreed to this 26th day of February, 2000.
<PAGE>
February 26, 2000
Page 5
/s/ Paul Hart
--------------------------------------------
Print Name: Paul Hart
<PAGE>
February 27, 2000
Jerry "Michau" Yuen
2323 84th Street, 3rd Floor
Brooklyn, NY 11214
Dear Michau:
I am pleased to offer to you the position of Executive Vice
President-Business Development of a subsidiary (the "Company") of Telecom
Wireless Corporation ("TWC") to be formed for the purpose of acquiring the stock
or assets of Internet service providers and competitive local exchange carriers
and related businesses. If you become employed by TWC or by different subsidiary
of the Company, the term "Company" shall refer to that entity. The terms of your
employment will be as follows:
1. SERVICES. Your duties and responsibilities will be as assigned to you
from time-to-time by the board of directors of the Company or TWC and/or your
immediate supervisor. You agree to provide these services to the best of your
ability in a prompt, efficient and professional manner. Unless otherwise agreed
in writing by the board of directors of TWC, you agree to devote your full time,
attention and energies to the business of the Company.
2. BASE SALARY AND BONUSES. Your annual base salary shall be $135,000,
subject to normal and customary deductions and withholdings, payable in
installments according to the Company's regular payroll schedule. Your job
performance will be evaluated by your supervisor and/or the Company's board of
directors and reviewed with you annually at about the end of each year and merit
raises and/or bonuses may be awarded in the sole discretion of the board of
directors of the Company.
3. HIRE DATE. Your hire date shall be February 26, 2000.
4. STOCK OPTIONS AND STOCK BONUS. Subject to applicable legal requirements
and the terms of TWC's 1999 Stock Option and Restricted Stock Plan, TWC agrees
to grant to you non-qualified options for the purchase of 450,000 shares of
TWC's common stock, par value $.001 per share, which will vest and become
exercisable in equal installments on each of the first three annual anniversary
dates of your hire date by the Company. Additionally, upon commencement of your
employment, TWC agrees to grant to you 10,500 shares of its common stock as a
signing bonus. Unless registered, the shares of common stock issuable upon
exercise of the options and the bonus shares will be restricted under federal
and applicable state securities laws and subject to substantial restrictions on
transfer. You represent and warrant to TWC that you are a bona fide resident of
the state of New York and that you are an accredited investor as that term is
defined in Rule 215 under the Securities Act of 1933 as indicated in Exhibit A
attached hereto and by this
<PAGE>
February 27, 2000
Page 2
reference made a part hereof. TWC agrees to use reasonable efforts to register
the bonus shares and the shares underlying your stock options for public sale on
Form S-8 at the earliest practicable time.
5. PERFORMANCE BONUS. You shall also be entitled to receive bonuses based
on performance upon such terms and in such amounts as shall be defined and
determined by the board of directors of the Company based upon the net increase
in revenues, profitability and cash flow of businesses acquired by the Company
and approved by the mergers and acquisitions committee appointed by the board of
directors of TWC.
6. EMPLOYMENT AT WILL. Your employment by the Company pursuant to this
letter or otherwise is "at will" and is for no specific period of time.
Accordingly, either you or the Company may terminate your employment by the
Company for any reason and at any time on not less than ten days written notice.
Upon termination of your employment by either of us, the Company may immediately
relieve you of all duties. In the event, however, your employment should be
terminated by the Company without cause at any time prior to the third
anniversary of your hire date, you shall be entitled to receive severance
compensation based on your base salary as of the termination date, but not to
exceed your base salary as of the termination date for the remainder of the
three-year period following your hire date, as follows:
<TABLE>
<CAPTION>
Number of Months
Period Severance Compensation
------ ----------------------
<S> <C>
Hire Date through First Anniversary Date 24 months
Thereafter through Second Anniversary Date 18 months
Thereafter through Third Anniversary Date 12 months
</TABLE>
Termination "for cause" shall mean, but not be limited to, termination by the
Company of your employment by reason of (i) your gross negligence, dishonesty or
fraud with respect to the Company or others; (ii) your conviction for violation
of any laws other than misdemeanors such as minor traffic violations which do
not reflect upon your honesty, integrity or job performance; (iii) your breach
of any duty, neglect of any duty or failure to perform the services required of
you as provided herein; or (iv) your breach of any material provision of this
Agreement. The Company shall be deemed to have terminated your employment
without cause in the event of: (a) your transfer or relocation to an office
located elsewhere than Manhattan, New York City, New York; (b) the Company
requiring that you report to a person other than the chief executive officer of
the Company; (c) a substantial diminution of your responsibilities without
cause; or (d) a reduction in your base salary, but only if you promptly give the
Company and TWC notice of the action deemed to be a
<PAGE>
February 27, 2000
Page 3
termination of your employment without cause and not less than 30 days in which
to cure, and you terminate your employment by the Company not less than five
business days after expiration of the cure period due solely to the Company's
failure to cure.
7. VACATION. Following the first six months of employment, you shall be
entitled to twenty (20) paid vacation days each year. Vacation time must be used
during the calendar year in which it accrues. Any accrued vacation time existing
upon termination of your employment shall be paid based upon your then salary.
8. BENEFITS. While you are employed by the Company, you shall be entitled
to participate in any plans and benefits generally available to employees of the
Company. Subject to the terms of the Company's medical and dental plans,
including any waiting period for pre-existing conditions, the Company will pay
all or a portion of the premiums for you and your family members for medical and
dental insurance. In the event your family members are not eligible to be
included in the Company's medical and dental plans at your hire date due to the
terms of such plans, the Company shall reimburse you for COBRA medical insurance
premiums paid by you until such time as your family members become eligible to
participate in such plans.
9. EMPLOYEE MANUAL AND COMPANY POLICIES. You agree to observe and abide by
all provisions of the Company's employee manual when prepared and as thereafter
amended and all Company policies including the prohibition against trading in
the Company's common stock, or options or other rights to acquire that stock,
while in the possession of material non-public information relating to the
Company or other entities, and the prohibition against tipping others about any
such material non-public information.
10. CONFIDENTIALITY AGREEMENT. You agree, both during and after your
employment by the Company, not to reveal confidential or proprietary information
or trade secrets ("Confidential Information") owned, used by or in the
possession of the Company or any subsidiary or affiliate of the Company, to any
individual or entity. Should you reveal or threaten to reveal Confidential
Information, you agree that the Company shall be entitled, without notice to
you, to an injunction restraining you from disclosing Confidential Information
or from rendering services to any entity to which Confidential Information has
been or is threatened to be disclosed. This right to an injunction shall not be
the exclusive remedy of the Company which may also seek other remedies including
damages.
11. ARBITRATION. Except as specifically provided herein to the contrary, in
the event of any differences, claims or disputed matters relating to or arising
from your employment by the Company, we agree to submit such matters to
arbitration by the American Arbitration Association or its successor in Denver,
Colorado. Either party can invoke arbitration upon ten days'
<PAGE>
February 27, 2000
Page 4
notice to the other party. The determination of the arbitrator shall be final
and absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association or its successor, and the
pertinent provisions of the internal laws of the State of Colorado, relating to
arbitration. The decision of the arbitrator may be entered in a judgment in any
court of the State of Colorado or elsewhere. The arbitrator shall have no power
to award exemplary or punitive damages.
5. MISCELLANEOUS. (i) This Agreement sets forth our mutual understanding,
supersedes all prior written or oral understandings and agreements and may be
modified only by a writing signed by both of us; (ii) Employee shall not have
the right to assign all or any portion of his rights, duties or obligations
under this Agreement to any other person. Subject to the foregoing, all terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors, assigns, legal representatives, heirs
and estates of the parties hereto; (iii) This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Colorado; (iv)
The failure of either of us 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; and (v) All notices required hereunder shall be deemed to have been
given when in writing upon the earlier of personal delivery or three days
following deposit in the United States mails by certified or registered mail,
postage prepaid, to the party at the addresses set forth above. Either party
hereto, by notice duly given, may change the address for the giving of notice.
Sincerely,
/s/ Calvin D. Smiley
-------------------------------------------
Calvin D. Smiley, CEO and President
Accepted and agreed to this 29th day of February, 2000.
/s/ Jerry Michau Yuen
-------------------------------------------
Print Name: Jerry "Michau" Yuen
<PAGE>
SECURITIES ISSUED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 ("THE ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
TELECOM WIRELESS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, hereinafter referred to as the "Option" or the
"Agreement," made on the 26th day of February, 2000, between TELECOM WIRELESS
CORPORATION, a Utah corporation (the "Company"), and PAUL HART ("the Optionee"),
residing at 6 Walt Whitman Trail, Morristown, New Jersey 07960.
The Company hereby grants an option (the "Option") for the purchase of
750,000 shares of common stock (the "Option Shares") of the Company, $.001 par
value per share ("Common Stock"), to the Optionee at the price and in all
respects subject to the terms, definitions and provisions of this Agreement. The
Option is NOT granted pursuant to the terms of the TELECOM WIRELESS CORPORATION
1999 Stock Option Plan (the "Plan") and shall not reduce the shares of Common
Stock available for issuance under the Plan.
1. DESIGNATION OF OPTION. The option granted hereby is a Nonqualified
Option which is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code.
2. OPTION EXERCISE PRICE. The option exercise price is $6.99 for each
share.
3. OPTION PERIOD. The option period during which this Option may be
exercised shall expire at 12:00 o'clock p.m., Denver time, on the 26th day of
February, 2005.
4. EXERCISE OF OPTION.
4.1 STANDARD VESTING. The number of shares optioned shall be divided as
nearly as possible into three (3) equal installments. The first installment
shall accrue and the Option shall be exercisable with respect to the shares
included therein on the date which is one year after the grant of the Option.
Each succeeding installment shall accrue and the Option shall be exercisable
with respect to the shares included therein on each yearly anniversary date
thereafter. An option may be exercised when installments accrue and at any time
thereafter within the option period set forth in Section 3 above with respect to
all or a part of the shares covered by such accrued installments, subject,
however, to further provisions of this Section 4.
4.2 DEFERRED VESTING. Notwithstanding subsection 4.1 herein, in the
event Optionee was a member of the Board of Directors of the Company at the time
the grant of this Option was approved, this Option shall not be exercisable
until the grant of this Option shall have been ratified, confirmed and approved
by the shareholders of the Company in the manner required by law.
4.3 ACCELERATED VESTING. Except as provided to the contrary in
subsection 4.2 herein, all Options shall immediately vest and become exercisable
in full upon a Change in Control, even if all or any portion of the Options
shall not have vested in accordance with subsection 4.1 herein. "Change in
Control" shall mean (i) any transaction or series of transactions in which any
person or group of persons, other than Dr. James C. Roberts, directly or
indirectly (a) becomes the beneficial owner of outstanding securities of the
Company having 30% or more of the power to vote upon the election of the
Company's directors or (b) acquires 50% or more of the Company's assets, or (ii)
the occurrence of any transaction or event in connection with which all or
substantially all of the voting securities of the Company are exchanged for,
converted into, acquired for or constitute solely the right to receive cash,
securities, property or other
<PAGE>
assets, or (iii) the conveyance, sale, lease, assignment, transfer or other
disposal of all or substantially all of the Company's property, business or
assets otherwise than in the ordinary course of business.
4.4 RIGHT TO EXERCISE. The Option shall be exercisable only during the
option period by the Optionee while the Optionee is in "continuous employment
with the Company;" provided, however, if the Optionee's employment is terminated
by Optionee for cause or by the Company without cause, the Optionee shall have a
period of three (3) months from the date his employment terminates in which to
exercise the Option to the extent the Option was exercisable at the time of
termination, but in no event later than the expiration of the option period. If
the Optionee should die during this three (3) month period, the Option may be
exercised by the person or persons to whom the rights under the Option passed by
will or the laws of descent and distribution to the same extent and during the
same period the Optionee could have exercised the Option had he not died. In the
event the Optionee should terminate his employment by the Company without cause
or the Company should terminate his employment with cause, then all unexercised
Options granted to Optionee shall be forfeited and canceled effective upon such
termination.
4.4.1 If the Optionee should die or become permanently and totally
disabled while employed by the Company, the Option or unexercised portion
thereof, to the extent exercisable at the time of his death or disability, may
be exercised by Optionee, his conservator or legal guardian or by the person or
persons to whom his rights under the Option passed by will or the laws of
descent and distribution not later than twelve months after the Optionee's death
or not later than twelve months after the Optionee's disability, but in no event
later than the expiration of the option period.
4.4.2 The Option granted shall be void if not exercised during the
option period. Except as otherwise provided, the option period shall terminate
in the event the Optionee ceases to be an Employee of the Company (including any
Subsidiary Corporation) if that date is earlier than the term of the Option.
4.4.3 For the purposes of the foregoing, "continuous employment
with the Company" shall mean the absence of any interruption or termination of
employment by the Company and/or by a corporation in which the Company owns
capital stock having a majority of the voting power with respect to the election
of directors ("Subsidiary Corporation"). Continuous employment shall not be
considered interrupted in the case of leave of absence approved by the Company
or the Subsidiary Corporation.
4.5 METHOD OF EXERCISE. This Option shall be exercisable by a written
notice which shall:
4.5.1 State the election to exercise the Option, the number of
shares in respect of which it is being exercised (which must be in multiples of
one hundred (100) shares), the person in whose name the stock certificate or
certificates for such shares of Common Stock is to be registered, his address
and Social Security number (or if more than one, the names, addresses and Social
Security numbers of such persons);
4.5.2 Contain such representations and agreement as to the holder's
investment intent with respect to such shares of Common Stock as may be
satisfactory to the Company's counsel;
4.5.3 Be signed by the person or persons entitled to exercise the
Option and, if the Option is being exercised by any person or persons other than
the Optionee, be accompanied by proof, satisfactory to counsel for the Company,
of the right of such person or persons to exercise the Option.
4.5.4 Payment of the purchase price of any shares with respect to
which the Option is being exercised shall be by cash or certified check,
previously acquired shares having a fair market value equal to the option price
or previously acquired shares having a fair market value less than the option
price, plus cash or certified check, and shall be delivered with the notice of
exercise. The certificate or certificates for shares of Common Stock as to which
the Option shall be exercised shall be registered in the name of the person or
persons exercising the Option.
4.6 RESTRICTIONS ON EXERCISE. As a condition to his exercise of this
Option, the Company may require the person exercising this Option to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
2
<PAGE>
5. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner and may be exercised during the lifetime of the Optionee only by him and
after his death by the person or persons to whom his rights under the Option
passed by will or the laws of descent and distribution.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Whenever a stock split,
stock dividend or other relevant change in capitalization occurs, the number of
shares that can thereafter be purchased, and the option price per share, under
each Option that has been granted and not exercised, and every number of shares
used in determining whether a particular option is grantable thereafter, shall
be appropriately adjusted.
7. NOTICES. Each notice relating to this Agreement shall be in writing and
delivered in person or by certified mail to the proper address. Each notice
shall be deemed to have been given on the date it is received. Each notice to
the Company shall be addressed to it at its principal office, attention of the
Secretary. Each Optionee or other person or persons then entitled to exercise
the Option shall be addressed to the Optionee or such other person or persons at
the Optionee's address set forth in the heading of this Agreement. Anyone to
whom a notice may be given under this Agreement may designate a new address by
notice to that effect.
8. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon each successor of the Company. All obligations imposed upon the
Optionee and all rights granted to the Company under this Agreement shall be
binding upon the Optionee's heirs, legal representatives and successors. This
Agreement shall be the sole and exclusive source of any and all rights which the
Optionee, his heirs, legal representatives, or successors may have in respect to
the Option or Common Stock granted or issued thereunder, whether to himself or
to any other person.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement which should arise
under, or as a result of, or in any way relate to, the interpretation,
construction or applicability of this Agreement will be determined by the Board
of Directors of the Company. Any determination made hereunder shall be final,
binding, and conclusive for all purposes.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed as of the day, month and year first above written.
TELECOM WIRELESS CORPORATION
By
-------------------------------------------
Calvin D. Smiley, President and CEO
---------------------------------------------
Optionee: PAUL HART
3
<PAGE>
SECURITIES ISSUED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 ("THE ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
TELECOM WIRELESS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, hereinafter referred to as the "Option" or the
"Agreement," made on the 26th day of February, 2000, between TELECOM WIRELESS
CORPORATION, a Utah corporation (the "Company"), and JERRY "MICHAU" YUEN ("the
Optionee"), residing at 2323 84th Street, 3rd Floor, Brooklyn, New York 11214.
The Company hereby grants an option (the "Option") for the purchase of
450,000 shares of common stock (the "Option Shares") of the Company, $.001 par
value per share ("Common Stock"), to the Optionee at the price and in all
respects subject to the terms, definitions and provisions of this Agreement. The
Option is NOT granted pursuant to the terms of the TELECOM WIRELESS CORPORATION
1999 Stock Option Plan (the "Plan") and shall not reduce the shares of Common
Stock available for issuance under the Plan.
1. DESIGNATION OF OPTION. The option granted hereby is a Nonqualified
Option which is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code.
2. OPTION EXERCISE PRICE. The option exercise price is $6.99 for each
share.
3. OPTION PERIOD. The option period during which this Option may be
exercised shall expire at 12:00 o'clock p.m., Denver time, on the 26th day of
February, 2005.
4. EXERCISE OF OPTION.
4.1 STANDARD VESTING. The number of shares optioned shall be divided as
nearly as possible into three (3) equal installments. The first installment
shall accrue and the Option shall be exercisable with respect to the shares
included therein on the date which is one year after the grant of the Option.
Each succeeding installment shall accrue and the Option shall be exercisable
with respect to the shares included therein on each yearly anniversary date
thereafter. An option may be exercised when installments accrue and at any time
thereafter within the option period set forth in Section 3 above with respect to
all or a part of the shares covered by such accrued installments, subject,
however, to further provisions of this Section 4.
4.2 DEFERRED VESTING. Notwithstanding subsection 4.1 herein, in the
event Optionee was a member of the Board of Directors of the Company at the time
the grant of this Option was approved, this Option shall not be exercisable
until the grant of this Option shall have been ratified, confirmed and approved
by the shareholders of the Company in the manner required by law.
4.3 ACCELERATED VESTING. Except as provided to the contrary in
subsection 4.2 herein, all Options shall immediately vest and become exercisable
in full upon a Change in Control, even if all or any portion of the Options
shall not have vested in accordance with subsection 4.1 herein. "Change in
Control" shall mean (i) any transaction or series of transactions in which any
person or group of persons, other than Dr. James C. Roberts, directly or
indirectly (a) becomes the beneficial owner of outstanding securities of the
Company having 30% or more of the power to vote upon the election of the
Company's directors or (b) acquires 50% or more of the Company's assets, or (ii)
the occurrence of any transaction or event in connection with which all or
substantially all of the voting securities of the Company are exchanged for,
converted into, acquired for or constitute solely the right to receive cash,
securities, property or other
<PAGE>
assets, or (iii) the conveyance, sale, lease, assignment, transfer or other
disposal of all or substantially all of the Company's property, business or
assets otherwise than in the ordinary course of business.
4.4 RIGHT TO EXERCISE. The Option shall be exercisable only during the
option period by the Optionee while the Optionee is in "continuous employment
with the Company;" provided, however, if the Optionee's employment is terminated
by Optionee for cause or by the Company without cause, the Optionee shall have a
period of three (3) months from the date his employment terminates in which to
exercise the Option to the extent the Option was exercisable at the time of
termination, but in no event later than the expiration of the option period. If
the Optionee should die during this three (3) month period, the Option may be
exercised by the person or persons to whom the rights under the Option passed by
will or the laws of descent and distribution to the same extent and during the
same period the Optionee could have exercised the Option had he not died. In the
event the Optionee should terminate his employment by the Company without cause
or the Company should terminate his employment with cause, then all unexercised
Options granted to Optionee shall be forfeited and canceled effective upon such
termination.
4.4.1 If the Optionee should die or become permanently and totally
disabled while employed by the Company, the Option or unexercised portion
thereof, to the extent exercisable at the time of his death or disability, may
be exercised by Optionee, his conservator or legal guardian or by the person or
persons to whom his rights under the Option passed by will or the laws of
descent and distribution not later than twelve months after the Optionee's death
or not later than twelve months after the Optionee's disability, but in no event
later than the expiration of the option period.
4.4.2 The Option granted shall be void if not exercised during the
option period. Except as otherwise provided, the option period shall terminate
in the event the Optionee ceases to be an Employee of the Company (including any
Subsidiary Corporation) if that date is earlier than the term of the Option.
4.4.3 For the purposes of the foregoing, "continuous employment with
the Company" shall mean the absence of any interruption or termination of
employment by the Company and/or by a corporation in which the Company owns
capital stock having a majority of the voting power with respect to the election
of directors ("Subsidiary Corporation"). Continuous employment shall not be
considered interrupted in the case of leave of absence approved by the Company
or the Subsidiary Corporation.
4.5 METHOD OF EXERCISE. This Option shall be exercisable by a written
notice which shall:
4.5.1 State the election to exercise the Option, the number of
shares in respect of which it is being exercised (which must be in multiples of
one hundred (100) shares), the person in whose name the stock certificate or
certificates for such shares of Common Stock is to be registered, his address
and Social Security number (or if more than one, the names, addresses and Social
Security numbers of such persons);
4.5.2 Contain such representations and agreement as to the holder's
investment intent with respect to such shares of Common Stock as may be
satisfactory to the Company's counsel;
4.5.3 Be signed by the person or persons entitled to exercise the
Option and, if the Option is being exercised by any person or persons other than
the Optionee, be accompanied by proof, satisfactory to counsel for the Company,
of the right of such person or persons to exercise the Option.
4.5.4 Payment of the purchase price of any shares with respect to
which the Option is being exercised shall be by cash or certified check,
previously acquired shares having a fair market value equal to the option price
or previously acquired shares having a fair market value less than the option
price, plus cash or certified check, and shall be delivered with the notice of
exercise. The certificate or certificates for shares of Common Stock as to which
the Option shall be exercised shall be registered in the name of the person or
persons exercising the Option.
4.6 RESTRICTIONS ON EXERCISE. As a condition to his exercise of this
Option, the Company may require the person exercising this Option to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
2
<PAGE>
5. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner and may be exercised during the lifetime of the Optionee only by him and
after his death by the person or persons to whom his rights under the Option
passed by will or the laws of descent and distribution.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Whenever a stock split,
stock dividend or other relevant change in capitalization occurs, the number of
shares that can thereafter be purchased, and the option price per share, under
each Option that has been granted and not exercised, and every number of shares
used in determining whether a particular option is grantable thereafter, shall
be appropriately adjusted.
7. NOTICES. Each notice relating to this Agreement shall be in writing and
delivered in person or by certified mail to the proper address. Each notice
shall be deemed to have been given on the date it is received. Each notice to
the Company shall be addressed to it at its principal office, attention of the
Secretary. Each Optionee or other person or persons then entitled to exercise
the Option shall be addressed to the Optionee or such other person or persons at
the Optionee's address set forth in the heading of this Agreement. Anyone to
whom a notice may be given under this Agreement may designate a new address by
notice to that effect.
8. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon each successor of the Company. All obligations imposed upon the
Optionee and all rights granted to the Company under this Agreement shall be
binding upon the Optionee's heirs, legal representatives and successors. This
Agreement shall be the sole and exclusive source of any and all rights which the
Optionee, his heirs, legal representatives, or successors may have in respect to
the Option or Common Stock granted or issued thereunder, whether to himself or
to any other person.
9. RESOLUTION OF DISPUTES. Any dispute or disagreement which should arise
under, or as a result of, or in any way relate to, the interpretation,
construction or applicability of this Agreement will be determined by the Board
of Directors of the Company. Any determination made hereunder shall be final,
binding, and conclusive for all purposes.
IN WITNESS WHEREOF, the Company and the Optionee have caused this Agreement
to be executed as of the day, month and year first above written.
TELECOM WIRELESS CORPORATION
By
-----------------------------------------
James C. Roberts, CEO
-------------------------------------------
Optionee: JERRY "MICHAU" YUEN
3
<PAGE>
SETTLEMENT AGREEMENT executed on March 6, 2000 between ONE CLEARLAKE
CENTRE-VEF III LLC a Georgia limited liability company by and through its agent
LEND LEASE REAL ESTATE INVESTMENTS, INC. a Georgia corporation authorized to
transaction business in the State of Florida ("Plaintiff") and TELECOM WIRELESS
CORPORATION, ("Defendant") relating to Case No. CL 99 1057 AD in the Circuit
Court of the 15th Judicial Circuit in and for Palm Beach County (the "Action")
involving reinstatement of the lease agreement dated July 2, 1999 between
Plaintiff and Defendant (the "Lease") and payment, by Defendant to Plaintiff, of
the amount of $101,217.38 (the "Settlement Sum").
PLAINTIFF AND DEFENDANT HEREBY AGREE AS FOLLOWS:
1. Defendant shall pay to Plaintiff, and Plaintiff shall accept from
Defendant, the Settlement Sum, which shall be in full and complete payment,
settlement and discharge of any and all claims by Plaintiff against Defendant
under the Lease including all rent due and to become due through March 31, 2000,
and which shall be paid as follows: (a) $50,608.69 on or before March 8, 2000
and (b) $50,608.69 on the date Defendant takes possession of premises under the
Lease which is expected to be on or about April 1, 2000. The Lease is hereby
modified sot that the security deposit provided for thereunder shall no longer
be a letter of credit but shall be 40,000 restricted shares of common stock of
Defendant and Plaintiff and Defendant shall, as promptly as possible enter into
an escrow agreement with respect to such shares as a security deposit and which
shall also provide (a) for piggy-back registration rights for such shares and
(b) at such times as the shares become registered, 10,000 of such shares shall
be returned to Defendant and the security deposit shall then and thereafter be
reduced to 30,000 shares. Parties understand that any demolition and removal of
walls contemplated to be accomplished as part of the landlord's work prior to
commencement of occupancy shall not be done but all other contemplated tenant
improvements under the Lease shall be done prior to Defendant's occupancy.
Tenant shall reimburse Landlord for all CAT-5 wiring and expenses related
thereto within 30 days after occupancy.
2. All pending motions, depositions, discovery due dates and other
activities in the Action shall be adjourned and postponed until the final date
for payment of the Settlement Sum. Upon payment in full of the Settlement Sum:
(a) each of Plaintiff and Defendant, for themselves and their respective heirs,
successors, officers, directors, present and former employees and assigns,
remise, release and forever discharge each other from and against any and all
claims and demands which they have or may have based upon any facts or
circumstances that arose or existed on or prior to the date hereof except that
all obligations on the part of both parties under the Lease shall survive this
release; and (b) the parties shall execute and file in the Action a stipulation
of dismissal with prejudice.
3. Plaintiff and Defendant shall execute such other and further documents
as are typical for settlements of this type and as may reasonably be requested
by the other party in order to implement or further assure the terms hereof. Any
dispute as to the appropriateness of any such document or any provision thereof
shall be resolved by Mark A. Buckstein ("Mediator") in his sole and absolute
discretion.
4. Plaintiff and Defendant each shall bear the costs of their respective
attorneys and experts and each has executed this agreement freely and
voluntarily after consulting with their own counsel and, if appropriate,
experts, and not based upon any advice or recommendations by the Mediator. The
fees and expenses of the Mediator shall be borne by Defendant and Plaintiff
equally.
5. In the event of the default in payment of the Settlement Sum, Plaintiff
shall, after five days notice and failure to cure be entitled to a judgment for
possession via ex parte procedure and may pursue all claims for damages
permitted under the Lease.
<PAGE>
IN WITNESS WHEREOF, Plaintiff and Defendant have executed this Settlement
Agreement on and as of the date first above written.
Plaintiff Defendant
By /s/ Terrell E. Daffer By /s/ Robert. Frederick
----------------------------------------- ------------------------------
Terrell E. Daffer, Senior Vice President Robert Frederick, Senior
of Lend Lease Real Estate Investments Vice-President
<PAGE>
FIRST AMENDMENT TO
REPRICING WARRANT
This Amendment is to that certain Repricing Warrant issued by Telecom
Wireless Corporation, a Utah corporation (the "Company"), to the undersigned
(the "Holder") on or about ________________, 1999.
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. Notwithstanding anything in the Repricing Warrant to the contrary, the
number of Repricing Shares issuable upon exercise of the Repricing Warrant shall
be equal to the number of Purchased Common Shares times .75 and the Repricing
Warrant shall be exercisable in whole or in part at an Exercise Price of $.001
per share at any time to and including the Repricing Date (March 24, 2000). All
other exercise or conversion rights granted to the Holder in the Repricing
Warrant are terminated.
2. The address for giving of notice to the Company shall be as follows:
Telecom Wireless Corporation
5299 DTC Blvd., Suite 1120
Englewood, Colorado 80111
Attention: General Counsel
(303) 416-4000
(303) 221-1777 (fax)
All defined terms in this Amendment shall have the meaning ascribed to them
in the Repricing Warrant. In the event of any inconsistency between this
Amendment and the Repricing Warrant, the terms of this Amendment shall control.
Witness our signatures this _____ day of March, 2000.
TELECOM WIRELESS CORPORATION
By:
----------------------------------------
Calvin D. Smiley, President and CEO
HOLDER:
-------------------------------------------
Print Name:
--------------------------------
-------------------------------------------
Signature, if held jointly
Print Name:
--------------------------------
<PAGE>
[LETTERHEAD]
March 22, 2000
MR. JAMES ROBERTS
TELECOM WIRELESS CORP.
5299 DTC BLVD., SUITE 1120
ENGLEWOOD, CO 80111
303-416-4000
RE: OPTION/CONSULTING AGREEMENT FOR TELECOM WIRELESS CORP. (OTC BB: NOYR)
On behalf of The Wall Street Trading Group, Inc. ("WSTG"), I submit the
following proposal to you whereby WSTG will:
1. Utilize a proprietary network of contacts in the financial community in
an attempt to broaden the institutional investor base and increase public
awareness of Telecom Wireless Corp. (OTC BB: NOYR), thereby potentially
enhancing share value and stock liquidity.
As compensation, Telecom Wireless Corp. (OTC BB: NOYR) hereby agrees to the
following:
1. Immediately assign to WSTG an option to purchase two hundred fifty
thousand (250,000) free trading shares of NOYR stock at 6 1/2 per share.
Option will expire on March 21, 2001 (Option Expiration Date).
2. Immediately assign to WSTG an option to purchase two hundred fifty
thousand (250,000) free trading shares of NOYR stock at 7 1/2 per share.
Option will expire on March 21, 2001 (Option Expiration Date).
3. Immediately assign to WSTG an option to purchase two hundred fifty
thousand (250,000) free trading shares of NOYR stock at 8 1/2 per share.
Option will expire on March 21, 2001 (Option Expiration Date).
4. Immediately assign to WSTG an option to purchase two hundred fifty
thousand (250,000) free trading shares of NOYR stock at 9 1/2 per share.
Option will expire on March 21, 2001 (Option Expiration Date).
All controversies, causes of action, and equitable claims arising out of or
relating to this letter of understanding, or the business dealings between
the parties, shall be resolved by binding arbitration in San Francisco,
California, through any professional arbitration/mediation organization,
i.e., American Arbitration Association, JAMS, etc., in accordance with their
rules for resolving commercial disputes. Judgment upon any reward rendered
by the arbitrator(s) may be entered in any court having jurisdiction over the
parties. The parties authorize arbitrator(s) to grant equitable relief as
well as monetary damages. The prevailing party, as determined by the
arbitrator(s), shall be entitled to recover from the other party all costs
and expenses (including reasonable attorney's fees) incurred in connection
with the arbitration. All awards rendered in the arbitration shall be final,
binding, and non-appealable.
Both parties have read, fully understand, and agree to the contract above.
/s/ Bruce K. Dorfman 3/22/00
- ------------------------------ -------
Bruce K. Dorfman, President Date
Wall Street Trading Group
/s/ James Roberts 3/22/00
- ------------------------------ -------
James Roberts, Duly Authorized Date
Telecom Wireless Corp.
<PAGE>
PROMISSORY NOTE
$10,000,000.00 Englewood, Colorado
April 10, 2000
The undersigned, THE ROBERTS FAMILY TRUST, promises to pay to the order of
TELECOM WIRELESS CORPORATION, a Utah corporation, 5299 DTC Blvd., Suite 1120,
Englewood, Colorado 80111, the sum of Ten Million Dollars ($10,000,000.00), with
interest at the rate of eight percent (8%) per annum, payable in full one year
after the date hereof or earlier to the extent of proceeds received by the maker
from one or more loans secured in whole or in part by the collateral described
herein.
This note shall be in default and shall be immediately due and payable in
full without notice or demand if the maker hereof (i) shall cease to be an
executive officer and director of Telecom Wireless Corporation for any reason
whatsoever, or (ii) shall be in breach or in default in the performance of any
term, provision or condition of this note, that certain Subscription Agreement
of even date herewith between the maker and Telecom Wireless Corporation, or
that certain Security Agreement - Pledge, also of even date herewith.
This note is secured by 3,400,000 shares of the common stock, par value
$.001 per share, of Telecom Wireless Corporation, or any successor thereof into
which such shares should be converted, issued in the name of The Roberts Family
Trust. The holder agrees to subordinate its security interest in the collateral
on commercially reasonable terms to one or more lenders which provide loans
secured in whole or in part by the collateral and which remit all of the loan
proceeds directly to the holder in payment or partial payment of this note.
IT IS AGREED that if this note is not paid when due or declared due
hereunder, the entire principal and accrued interest thereon shall draw interest
at the rate of twelve percent (12%) per annum, and that failure to make any
payment of principal or interest when due or any default under any encumbrance
or agreement securing this note shall cause the whole note to become due at
once, or the interest to be counted as principal, at the option of the holder of
the note. The makers and endorsers hereof severally waive presentment for
payment, protest, notice of non-payment and of protest, and agree to any
extension of time of payment and partial payments before, at or after maturity,
and if this note or interest thereon is not paid when due, or suit is brought,
agree to pay all reasonable costs of collection, including a reasonable amount
for attorneys' fees.
THE ROBERTS FAMILY TRUST
Due April 10, 2001 By: /s/ James C. Roberts
--------------------------- ----------------------------------
James C. Roberts, Trustee
<PAGE>
SECURITY AGREEMENT -- PLEDGE
This Security Agreement ("Agreement") is made as of the date set forth
below between The Roberts Family Trust ("Debtor"), whose mailing address is 6057
South Kenton Street, Englewood, CO 80111, and Telecom Wireless Corporation, a
Utah corporation ("Secured Party"), whose mailing address is 5299 DTC Boulevard,
Suite 1120, Englewood, CO 80111.
AGREEMENT
1. COLLATERAL. Debtor, for consideration, hereby grants to Secured Party
a security interest in the following property, delivered to Secured Party,
and any and all additions and substitutions thereto or therefor from time to
time delivered or agreed to be delivered by Debtor to Secured Party, and any
other property, rights or interests of Debtor which shall at any time come
into the possession, custody, or control of Secured Party, for any purpose
and in any manner, and the proceeds, products, and accessions of and to any
of the foregoing (hereinafter the "Collateral"): 3,400,000 shares of the
common stock of the Secured Party (the "Collateral"), as represented by
Certificate No.____, dated_____, issued in the name of Debtor. Debtor
has delivered, or will deliver when issued, the certificates representing the
Collateral to the Secured Party.
2. OBLIGATIONS SECURED. This Security Agreement shall secure the following
obligations (the "Obligations"):
2.1 the payment of a promissory note ("Promissory Note"), dated April
10, 2000, executed and delivered by Debtor to Secured Party in the original
principal amount of $10,000,000, payable as to principal and interest as
therein provided;
2.2 performance by Debtor of the terms of the Subscription Agreement ,
of even date herewith ("Subscription Agreement"), between Debtor and
Secured Party; and
2.3 performance by Debtor of the terms hereinafter set forth.
3. WARRANTIES AND COVENANTS OF DEBTOR.
3.1 Except for the security interest granted hereby, Debtor is the
owner of the Collateral, free from any liens, security interests,
restrictions, setoffs, adverse claims, assessments, defaults, prepayments,
defenses, and conditions precedent, except as disclosed thereon or to
Secured Party.
3.2 Debtor will defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein.
3.3 Debtor will not sell or offer to sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of Secured Party. Further, Debtor will not permit the Collateral to
be attached or replevined.
3.4 Unless and until Secured Party expressly agrees to another course
of action, Secured Party shall also have a security interest in all
securities and other property, rights or interests of any description at
any time issued as dividends or as the result of any
<PAGE>
reclassification, split-up or other corporate reorganization. Debtor shall
hold in trust for and deliver promptly to Secured Party in the exact form
received, all such securities or other property which comes into the
possession, custody or control of Debtor. Upon demand Debtor shall execute,
assign and endorse all proxies, applications, acceptances, stock powers,
chattel paper, documents, instruments and other evidences of payment or
writings constituting or relating to any of the Collateral or such other
property. All assignments and endorsements by Debtor shall be in such form
and substance as may be satisfactory to Secured Party, and Debtor hereby
waives presentment, notice of dishonor, protest, demand and all other
notices with respect thereto.
3.5 Debtor will pay all taxes and assessments of every nature which
may be levied or assessed against the Collateral.
4. DIVIDENDS AND VOTING RIGHTS. During the term of this Agreement, and so
long as the Debtor is not in default under this Agreement, the Debtor shall have
the right to vote the Collateral on all corporate questions with respect to
which the Collateral has voting rights. If Debtor defaults in the performance of
his obligations under this Agreement, then Secured Party shall have the right to
demand that all dividends with respect to the Collateral declared and issued by
the Debtor to be paid directly to or retained by Secured Party and the nominees
of the Secured Party shall have the right to exercise all voting rights with
respect to the Collateral.
5. SECURED PARTY'S RIGHTS. Secured Party shall be under no duty to exercise
or to withhold the exercise of any of the rights, powers, privileges and options
expressly or implicitly granted to Secured Party in this Agreement, and Secured
Party shall not be responsible for any failure to exercise such rights, nor for
its delay in so doing. Secured Party shall be deemed to have exercised
reasonable care as custodian of the Collateral if it takes such action to
protect and preserve the Collateral as Debtor shall request, but failure to
honor any such request shall not be deemed to be a failure by Secured Party to
exercise reasonable care.
6. EVENTS OF DEFAULT. Debtor will be in default under this Agreement upon
the happening of any of the following events or conditions:
6.1 Default in the payment or breach of performance of any obligation,
covenant or liability or breach of any representation or warranty contained
herein, in the Note or in the Subscription Agreement;
6.2 The making or furnishing of any warranty, representation or
statement to Secured Party by or on behalf of Debtor which proves to have
been false in any material respect when made or furnished;
6.3 Loss, theft, sale or encumbrance to or of any of the Collateral,
or the making of any levy, seizure or attachment thereof or thereon;
6.4 Death, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy or insolvency laws of,
by or against Debtor;
6.5 Any levy or attempted levy by the Internal Revenue Service or the
Department of Revenue for the State of Colorado upon the assets of Debtor;
2
<PAGE>
6.6 The occurrence of any material event adversely affecting the
management, business, affairs, financial condition, or prospects of the
Secured Party.
7. RIGHTS UPON DEFAULT. Upon default and at any time thereafter, Secured
Party may declare, without notice of default or acceleration, all Obligations
secured hereby immediately due and payable, and Secured Party shall have all the
rights and remedies of a secured party under Article 9 of the Colorado Uniform
Commercial Code ("UCC") or other applicable law and all the rights provided
herein and in the Note, all of which rights and remedies shall, to the full
extent permitted by law, be cumulative. Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties. Any
notice of sale, disposition or other intended action by Secured Party, sent to
Debtor at the address of Debtor specified herein at least five (5) days prior to
such action, shall constitute reasonable notice to Debtor. Secured Party may
retain the Collateral in a strict foreclosure as provided by the UCC. If the
Collateral is to be sold, Secured Party may conduct a private or public sale in
one or more lots. If Secured Party elects to conduct a public sale, it shall be
considered commercially reasonable if it advertises such public sale for five
consecutive days in a newspaper of general circulation in and about Denver,
Colorado which need only refer to the name of Telecom Wireless Corporation, a
general description of the business of Telecom Wireless Corporation, a
description of the Collateral and a statement of the debt owed to Secured Party.
Expenses of retaking, holding, preparing for sale, selling or the like shall
include Secured Party's reasonable attorney fees and legal expenses, and the
same, together with all advances made by Secured Party on behalf of Debtor,
shall be part of the Obligations secured hereby.
8. POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact to execute or endorse, in the event of a default, any
instrument, certificate, proxy, receipt or other document to effectuate a
transfer of the Collateral, to vote the Collateral at any shareholders meeting,
or to obtain dividends declared or issued by Telecom Wireless Corporation. This
power of attorney shall be irrevocable and deemed to be coupled with an
interest.
9. RESTRICTED STOCK. Debtor acknowledges that the Securities Act of 1933 or
any other state or federal law prohibits or restricts the customary manner of
sale or distribution of any of the Collateral. Therefore, unless the Collateral
is registered, Secured Party may sell such Collateral privately or in any other
manner deemed advisable by Secured Party at such price or prices as Secured
Party determines in its sole discretion. Debtor recognizes that such prohibition
or restriction may cause the Collateral to have less value than it otherwise
would have and that, consequently, such sale or disposition by Secured Party may
result in a lower sales price than if the sale were otherwise held. Secured
Party shall have no obligation to register the Collateral for sale and may be
sold subject to restrictions on transfer arising under federal and state
securities law, rules and regulations.
10. NO WAIVER. No waiver by Secured Party of any default shall operate as a
waiver of any other default or of the same default on a future occasion. The
taking of this Security Agreement shall not waive or impair any other security
that Secured Party may have or hereafter acquire for the payment of the above
indebtedness, nor shall the taking of any such additional security waive or
impair this Security Agreement; but said Secured Party may resort to any
security it may have in the order it may deem proper.
11. OTHER LIENS. At its option, but without obligation to Debtor, Secured
Party may discharge taxes, liens, or security interests or other encumbrances at
any time levied or placed on
3
<PAGE>
the Collateral, may order and pay for the maintenance and preservation thereof
and may pay any necessary filing or recording fees. Debtor agrees to reimburse
Secured Party on demand for payment made or any expense incurred by Secured
Party pursuant to the foregoing authorization.
12. SUCCESSORS. All rights of Secured Party hereunder shall inure to the
benefit of its legal representatives, successors and assigns; and all promises
and duties of Debtor shall bind his legal representatives, successors or
assigns.
13. SEVERANCE. Should any provision of this Agreement be deemed unlawful or
unenforceable, said provision shall be deemed several and apart from all other
provisions of this Agreement and all remaining provisions of this Agreement
shall be fully enforceable.
14. CONFLICT OF LAWS. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Colorado. Further, the place where
this Agreement is entered into, and the place of performance and transaction of
business shall be deemed to be the State of Colorado, and in the event of
litigation, the exclusive forum, venue and place of jurisdiction shall be the
City and County of Denver, State of Colorado.
DATED this 10th day of April, 2000.
DEBTOR:
THE ROBERTS FAMILY TRUST
By: /s/ James C. Roberts
---------------------------------------
James C. Roberts, Trustee
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 10th day of April,
2000, by James C. Roberts, as Trustee of The Roberts Family Trust.
WITNESS my hand and official seal.
My Commission Expires: January 7, 2001
/s/ Sandra L. Brock
------------------------------------------
Notary Public
4
<PAGE>
PROMISSORY NOTE
$5,000,000.00 Englewood, Colorado
April 10, 2000
The undersigned, CALVIN D. SMILEY, promises to pay to the order of TELECOM
WIRELESS CORPORATION, a Utah corporation, 5299 DTC Blvd., Suite 1120, Englewood,
Colorado 80111, the sum of Five Million Dollars ($5,000,000.00), with interest
at the rate of eight percent (8%) per annum, payable in full one year after the
date hereof or earlier to the extent of proceeds received by the maker from one
or more loans secured in whole or in part by the collateral described herein.
This note shall be in default and shall be immediately due and payable in
full without notice or demand if the maker hereof (i) shall cease to be an
executive officer and director of Telecom Wireless Corporation for any reason
whatsoever, or (ii) shall be in breach or in default in the performance of any
term, provision or condition of this note, that certain Subscription Agreement
of even date herewith between the maker and Telecom Wireless Corporation, or
that certain Security Agreement - Pledge, also of even date herewith.
This note is secured by 2,000,000 shares of the common stock, par value
$.001 per share, of Telecom Wireless Corporation, or any successor thereof into
which such shares should be converted, issued in the name of Calvin D. Smiley.
The holder agrees to subordinate its security interest in the collateral on
commercially reasonable terms to one or more lenders which provide loans secured
in whole or in part by the collateral and which remit all of the loan proceeds
directly to the holder in payment or partial payment of this note.
IT IS AGREED that if this note is not paid when due or declared due
hereunder, the entire principal and accrued interest thereon shall draw interest
at the rate of twelve percent (12%) per annum, and that failure to make any
payment of principal or interest when due or any default under any encumbrance
or agreement securing this note shall cause the whole note to become due at
once, or the interest to be counted as principal, at the option of the holder of
the note. The makers and endorsers hereof severally waive presentment for
payment, protest, notice of non-payment and of protest, and agree to any
extension of time of payment and partial payments before, at or after maturity,
and if this note or interest thereon is not paid when due, or suit is brought,
agree to pay all reasonable costs of collection, including a reasonable amount
for attorneys' fees.
Due April 10, 2001 /s/ Calvin D. Smiley
------------------------------ ----------------------------------
Calvin D. Smiley
<PAGE>
SECURITY AGREEMENT -- PLEDGE
This Security Agreement ("Agreement") is made as of the date set forth
below between Calvin D. Smiley ("Debtor"), whose mailing address is 821 W. 126th
Court, Westminster, CO 80234, and Telecom Wireless Corporation, a Utah
corporation ("Secured Party"), whose mailing address is 5299 DTC Boulevard,
Suite 1120, Englewood, CO 80111.
AGREEMENT
1. COLLATERAL. Debtor, for consideration, hereby grants to Secured Party
a security interest in the following property, delivered to Secured Party,
and any and all additions and substitutions thereto or therefor from time to
time delivered or agreed to be delivered by Debtor to Secured Party, and any
other property, rights or interests of Debtor which shall at any time come
into the possession, custody, or control of Secured Party, for any purpose
and in any manner, and the proceeds, products, and accessions of and to any
of the foregoing (hereinafter the "Collateral"): 2,000,000 shares of the
common stock of the Secured Party (the "Collateral"), as represented by
Certificate No.____, dated____, issued in the name of Debtor. Debtor has
delivered, or will deliver when issued, the certificates representing the
Collateral to the Secured Party.
2. OBLIGATIONS SECURED. This Security Agreement shall secure the following
obligations (the "Obligations"):
2.1 the payment of a promissory note ("Promissory Note"), dated April
10, 2000, executed and delivered by Debtor to Secured Party in the original
principal amount of $5,000,000, payable as to principal and interest as
therein provided;
2.2 performance by Debtor of the terms of the Subscription Agreement,
of even date herewith ("Subscription Agreement"), between Debtor and
Secured Party; and
2.3 performance by Debtor of the terms hereinafter set forth.
3. WARRANTIES AND COVENANTS OF DEBTOR.
3.1 Except for the security interest granted hereby, Debtor is the
owner of the Collateral, free from any liens, security interests,
restrictions, setoffs, adverse claims, assessments, defaults, prepayments,
defenses, and conditions precedent, except as disclosed thereon or to
Secured Party.
3.2 Debtor will defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein.
3.3 Debtor will not sell or offer to sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of Secured Party. Further, Debtor will not permit the Collateral to
be attached or replevined.
3.4 Unless and until Secured Party expressly agrees to another course
of action, Secured Party shall also have a security interest in all
securities and other property, rights or interests of any description at
any time issued as dividends or as the result of any reclassification,
split-up or other corporate reorganization. Debtor shall hold in trust for
and
<PAGE>
deliver promptly to Secured Party in the exact form received, all such
securities or other property which comes into the possession, custody or
control of Debtor. Upon demand Debtor shall execute, assign and endorse all
proxies, applications, acceptances, stock powers, chattel paper, documents,
instruments and other evidences of payment or writings constituting or
relating to any of the Collateral or such other property. All assignments
and endorsements by Debtor shall be in such form and substance as may be
satisfactory to Secured Party, and Debtor hereby waives presentment, notice
of dishonor, protest, demand and all other notices with respect thereto.
3.5 Debtor will pay all taxes and assessments of every nature which
may be levied or assessed against the Collateral.
4. DIVIDENDS AND VOTING RIGHTS. During the term of this Agreement, and so
long as the Debtor is not in default under this Agreement, the Debtor shall have
the right to vote the Collateral on all corporate questions with respect to
which the Collateral has voting rights. If Debtor defaults in the performance of
his obligations under this Agreement, then Secured Party shall have the right to
demand that all dividends with respect to the Collateral declared and issued by
the Debtor to be paid directly to or retained by Secured Party and the nominees
of the Secured Party shall have the right to exercise all voting rights with
respect to the Collateral.
5. SECURED PARTY'S RIGHTS. Secured Party shall be under no duty to exercise
or to withhold the exercise of any of the rights, powers, privileges and options
expressly or implicitly granted to Secured Party in this Agreement, and Secured
Party shall not be responsible for any failure to exercise such rights, nor for
its delay in so doing. Secured Party shall be deemed to have exercised
reasonable care as custodian of the Collateral if it takes such action to
protect and preserve the Collateral as Debtor shall request, but failure to
honor any such request shall not be deemed to be a failure by Secured Party to
exercise reasonable care.
6. EVENTS OF DEFAULT. Debtor will be in default under this Agreement upon
the happening of any of the following events or conditions:
6.1 Default in the payment or breach of performance of any obligation,
covenant or liability or breach of any representation or warranty contained
herein, in the Note or in the Subscription Agreement;
6.2 The making or furnishing of any warranty, representation or
statement to Secured Party by or on behalf of Debtor which proves to have
been false in any material respect when made or furnished;
6.3 Loss, theft, sale or encumbrance to or of any of the Collateral,
or the making of any levy, seizure or attachment thereof or thereon;
6.4 Death, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy or insolvency laws of,
by or against Debtor;
6.5 Any levy or attempted levy by the Internal Revenue Service or the
Department of Revenue for the State of Colorado upon the assets of Debtor;
6.6 The occurrence of any material event adversely affecting the
management, business, affairs, financial condition, or prospects of the
Secured Party.
2
<PAGE>
7. RIGHTS UPON DEFAULT. Upon default and at any time thereafter, Secured
Party may declare, without notice of default or acceleration, all Obligations
secured hereby immediately due and payable, and Secured Party shall have all the
rights and remedies of a secured party under Article 9 of the Colorado Uniform
Commercial Code ("UCC") or other applicable law and all the rights provided
herein and in the Note, all of which rights and remedies shall, to the full
extent permitted by law, be cumulative. Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties. Any
notice of sale, disposition or other intended action by Secured Party, sent to
Debtor at the address of Debtor specified herein at least five (5) days prior to
such action, shall constitute reasonable notice to Debtor. Secured Party may
retain the Collateral in a strict foreclosure as provided by the UCC. If the
Collateral is to be sold, Secured Party may conduct a private or public sale in
one or more lots. If Secured Party elects to conduct a public sale, it shall be
considered commercially reasonable if it advertises such public sale for five
consecutive days in a newspaper of general circulation in and about Denver,
Colorado which need only refer to the name of Telecom Wireless Corporation, a
general description of the business of Telecom Wireless Corporation, a
description of the Collateral and a statement of the debt owed to Secured Party.
Expenses of retaking, holding, preparing for sale, selling or the like shall
include Secured Party's reasonable attorney fees and legal expenses, and the
same, together with all advances made by Secured Party on behalf of Debtor,
shall be part of the Obligations secured hereby.
8. POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact to execute or endorse, in the event of a default, any
instrument, certificate, proxy, receipt or other document to effectuate a
transfer of the Collateral, to vote the Collateral at any shareholders meeting,
or to obtain dividends declared or issued by Telecom Wireless Corporation. This
power of attorney shall be irrevocable and deemed to be coupled with an
interest.
9. RESTRICTED STOCK. Debtor acknowledges that the Securities Act of 1933 or
any other state or federal law prohibits or restricts the customary manner of
sale or distribution of any of the Collateral. Therefore, unless the Collateral
is registered, Secured Party may sell such Collateral privately or in any other
manner deemed advisable by Secured Party at such price or prices as Secured
Party determines in its sole discretion. Debtor recognizes that such prohibition
or restriction may cause the Collateral to have less value than it otherwise
would have and that, consequently, such sale or disposition by Secured Party may
result in a lower sales price than if the sale were otherwise held. Secured
Party shall have no obligation to register the Collateral for sale and may be
sold subject to restrictions on transfer arising under federal and state
securities law, rules and regulations.
10. NO WAIVER. No waiver by Secured Party of any default shall operate as a
waiver of any other default or of the same default on a future occasion. The
taking of this Security Agreement shall not waive or impair any other security
that Secured Party may have or hereafter acquire for the payment of the above
indebtedness, nor shall the taking of any such additional security waive or
impair this Security Agreement; but said Secured Party may resort to any
security it may have in the order it may deem proper.
11. OTHER LIENS. At its option, but without obligation to Debtor, Secured
Party may discharge taxes, liens, or security interests or other encumbrances at
any time levied or placed on the Collateral, may order and pay for the
maintenance and preservation thereof and may pay any
3
<PAGE>
necessary filing or recording fees. Debtor agrees to reimburse Secured Party on
demand for payment made or any expense incurred by Secured Party pursuant to the
foregoing authorization.
12. SUCCESSORS. All rights of Secured Party hereunder shall inure to the
benefit of its legal representatives, successors and assigns; and all promises
and duties of Debtor shall bind his legal representatives, successors or
assigns.
13. SEVERANCE. Should any provision of this Agreement be deemed unlawful or
unenforceable, said provision shall be deemed several and apart from all other
provisions of this Agreement and all remaining provisions of this Agreement
shall be fully enforceable.
14. CONFLICT OF LAWS. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Colorado. Further, the place where
this Agreement is entered into, and the place of performance and transaction of
business shall be deemed to be the State of Colorado, and in the event of
litigation, the exclusive forum, venue and place of jurisdiction shall be the
City and County of Denver, State of Colorado.
DATED this 10th day of April, 2000.
DEBTOR:
/s/ Calvin D. Smiley
---------------------------------------
Calvin D. Smiley
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
The foregoing instrument was acknowledged before me this 10TH day of
April, 2000, by Calvin D. Smiley.
WITNESS my hand and official seal.
My Commission Expires:
------------------------------------------
Notary Public
4
<PAGE>
PROMISSORY NOTE
$902,200.00 Seattle, Washington
April 26, 2000
The undersigned, JOHN A. HANSEN ("Maker"), residing at 26600 S.E. 158th
Street, Issaquah, Washington 98027 promises to pay to the order of TELECOM
WIRELESS CORPORATION, a Utah corporation ("TWC"), 5299 DTC Blvd., Suite 1120,
Englewood, Colorado 80111, the sum of Nine Hundred Two Thousand Two Hundred
Dollars ($902,200.00), with interest at the rate of eight percent (8%) per
annum, payable in full one year after the date hereof or earlier as provided
herein.
This note shall be in default and shall be immediately due and payable in
full without notice or demand if the Maker hereof shall be in breach or in
default in the performance of any term, provision or condition of this note,
that certain Subscription Agreement of even date herewith between the Maker and
TWC, or that certain Security Agreement - Pledge of even date herewith signed by
Maker.
This note is secured by 347,000 shares of the common stock, par value $.001
per share, of TWC, or any successor thereof into which such shares should be
converted, issued in the name of Maker. The holder shall subordinate its
security interest in the shares of the common stock of TWC on commercially
reasonable terms to one or more lenders which provide loans secured in whole or
in part by such collateral and which remit the first $250,000 of the loan
proceeds to Brigadoon.com for the benefit of Fanz.Net, Inc., and remit the
balance of such loan proceeds directly to TWC in payment or partial payment of
this note.
IT IS AGREED that if this note is not paid when due or declared due
hereunder, the entire principal and accrued interest thereon shall draw interest
at the rate of twelve percent (12%) per annum, and that failure to make any
payment of principal or interest when due or any default under any encumbrance
or agreement securing this note shall cause the whole note to become due at
once, or the interest to be counted as principal, at the option of the holder of
the note. The makers and endorsers hereof severally waive presentment for
payment, protest, notice of non-payment and of protest, and agree to any
extension of time of payment and partial payments before, at or after maturity,
and if this note or interest thereon is not paid when due, or suit is brought,
agree to pay all reasonable costs of collection, including a reasonable amount
for attorneys' fees.
MAKER
Due April 26, 2001 By: /s/ John A. Hansen
------------------------- ---------------------------------------
Print Name: John A. Hansen
-------------------------------
<PAGE>
SECURITY AGREEMENT -- PLEDGE
This Security Agreement ("Agreement") is made as of the date set forth
below between JOHN A. HANSEN ("Debtor"), whose mailing address is 26600 S.E.
158th Street, Issaquah, Washington 98027, and Telecom Wireless Corporation, a
Utah corporation ("Secured Party"), whose mailing address is 5299 DTC Boulevard,
Suite 1120, Englewood, Colorado 80111.
AGREEMENT
1. COLLATERAL. Debtor, for consideration, hereby grants to Secured Party a
security interest in the following property, delivered to Secured Party, and any
and all additions and substitutions thereto or therefor from time to time
delivered or agreed to be delivered by Debtor to Secured Party, and any other
property, rights or interests of Debtor which shall at any time come into the
possession, custody, or control of Secured Party, for any purpose and in any
manner, and the proceeds, products, and accessions of and to any of the
foregoing (hereinafter the "Collateral"):
(a) 347,000 shares of the common stock of the Secured Party , as
represented by Certificate No. 5773-7, dated April 26, 2000, issued in the name
of Debtor;
Debtor has delivered, or will deliver when issued, the certificates representing
the Collateral to the Secured Party.
2. OBLIGATIONS SECURED. This Security Agreement shall secure the following
obligations (the "Obligations"):
2.1 the payment of a promissory note ("Promissory Note"), dated April
26, 2000, executed and delivered by Debtor to Secured Party in the original
principal amount of $902,200 payable as to principal and interest as
therein provided;
2.2 performance by Debtor of the terms of the Subscription Agreement,
of even date herewith ("Subscription Agreement"), between Debtor and
Secured Party; and
2.3 performance by Debtor of the terms hereinafter set forth.
3. WARRANTIES AND COVENANTS OF DEBTOR.
3.1 Except for the security interest granted hereby, Debtor is the
owner of the Collateral, free from any liens, security interests,
restrictions, setoffs, adverse claims, assessments, defaults, prepayments,
defenses, and conditions precedent, except as disclosed thereon or to
Secured Party.
3.2 Debtor will defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein.
3.3 Debtor will not sell or offer to sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of Secured Party. Further, Debtor will not permit the Collateral to
be attached or replevined.
<PAGE>
3.4 Unless and until Secured Party expressly agrees to another course
of action, Secured Party shall also have a security interest in all
securities and other property, rights or interests of any description at
any time issued as dividends or as the result of any reclassification,
split-up or other corporate reorganization. All assignments and
endorsements by Debtor shall be in such form and substance as may be
satisfactory to Secured Party, and Debtor hereby waives presentment, notice
of dishonor, protest, demand and all other notices with respect thereto.
3.5 Debtor will pay all taxes and assessments of every nature which
may be levied or assessed against the Collateral.
3.6 Debtor will give Secured Party immediate notice of the occurrence
of an event that does or may constitute a default hereunder or under the
Promissory Note or Subscription Agreement.
4. DIVIDENDS AND VOTING RIGHTS. During the term of this Agreement, and so
long as the Debtor is not in default under this Agreement, the Debtor shall have
the right to vote the Collateral on all corporate questions with respect to
which the Collateral has voting rights. If Debtor defaults in the performance of
his obligations under this Agreement, then Secured Party shall have the right to
demand that all dividends with respect to the Collateral declared and issued by
the Debtor to be paid directly to or retained by Secured Party and the nominees
of the Secured Party shall have the right to exercise all voting rights with
respect to the Collateral.
5. SECURED PARTY'S RIGHTS. Secured Party shall be under no duty to exercise
or to withhold the exercise of any of the rights, powers, privileges and options
expressly or implicitly granted to Secured Party in this Agreement, and Secured
Party shall not be responsible for any failure to exercise such rights, nor for
its delay in so doing. Secured Party shall be deemed to have exercised
reasonable care as custodian of the Collateral if it takes such action to
protect and preserve the Collateral as Debtor shall request, but failure to
honor any such request shall not be deemed to be a failure by Secured Party to
exercise reasonable care.
6. EVENTS OF DEFAULT. Debtor will be in default under this Agreement upon
the happening of any of the following events or conditions:
6.1 Default in the payment or breach of performance of any obligation,
covenant or liability or breach of any representation or warranty contained
herein, in the Note or in the Subscription Agreement;
6.2 The making or furnishing of any warranty, representation or
statement to Secured Party by or on behalf of Debtor which proves to have
been false in any material respect when made or furnished;
6.3 Loss, theft, sale or encumbrance to or of any of the Collateral,
or the making of any levy, seizure or attachment thereof or thereon;
2
<PAGE>
6.4 Death, insolvency, assignment for the benefit of creditors by, or
the commencement of any proceeding under any bankruptcy or insolvency laws
of, by or against Debtor, Brigadoon.com or Fanz.Net, Inc.;
6.5 Any levy or attempted levy by the Internal Revenue Service, the
taxing authority of any state or other jurisdiction, or any creditor upon
the assets of Debtor;
6.6 The occurrence of any material event adversely affecting the
business, affairs, financial condition, or prospects of the Debtor;
6.7 If the Debtor shall not become a director of Secured Party within
90 days after the date hereof or shall become but thereafter shall cease to
be a director of Secured Party for any reason whatsoever.
7. RIGHTS UPON DEFAULT. Upon default and at any time thereafter, Secured
Party may declare, without notice of default or acceleration, all Obligations
secured hereby immediately due and payable, and Secured Party shall have all the
rights and remedies of a secured party under Article 9 of the Colorado Uniform
Commercial Code ("UCC") or other applicable law and all the rights provided
herein and in the Note, all of which rights and remedies shall, to the full
extent permitted by law, be cumulative. Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties. Any
notice of sale, disposition or other intended action by Secured Party, sent to
Debtor at the address of Debtor specified herein at least five (5) days prior to
such action, shall constitute reasonable notice to Debtor. Secured Party may
retain the Collateral in a strict foreclosure as provided by the UCC. If the
Collateral is to be sold, Secured Party may conduct a private or public sale in
one or more lots. If Secured Party elects to conduct a public sale, it shall be
considered commercially reasonable if it advertises such public sale for five
consecutive days in a newspaper of general circulation in and about Denver,
Colorado which need only refer to the name of Telecom Wireless Corporation, a
general description of the business of Telecom Wireless Corporation, a
description of the Collateral and a statement of the debt owed to Secured Party.
Expenses of retaking, holding, preparing for sale, selling or the like shall
include Secured Party's reasonable attorney fees and legal expenses, and the
same, together with all advances made by Secured Party on behalf of Debtor,
shall be part of the Obligations secured hereby.
8. POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured Party
as Debtor's attorney-in-fact to execute or endorse, in the event of a default,
any instrument, certificate, proxy, receipt or other document to effectuate a
transfer of the Collateral, to vote the Collateral at any shareholders meeting,
or to obtain dividends declared or issued by Telecom Wireless Corporation. This
power of attorney shall be irrevocable and deemed to be coupled with an
interest.
9. RESTRICTED STOCK. Debtor acknowledges that the Securities Act of 1933
or any other state or federal law prohibits or restricts the customary manner of
sale or distribution of any of the Collateral. Therefore, unless the Collateral
is registered, Secured Party may sell such Collateral privately or in any other
manner deemed advisable by Secured Party at such price or prices as Secured
Party determines in its sole discretion. Debtor recognizes that such prohibition
or restriction may cause the Collateral to have less value than it otherwise
would have and that, consequently, such sale or disposition by Secured Party may
result in a lower sales price than if the sale were otherwise held. Secured
Party shall have no obligation to register the Collateral for sale
3
<PAGE>
and may be sold subject to restrictions on transfer arising under federal and
state securities law, rules and regulations.
10. NO WAIVER. No waiver by Secured Party of any default shall operate
as a waiver of any other default or of the same default on a future occasion.
The taking of this Security Agreement shall not waive or impair any other
security that Secured Party may have or hereafter acquire for the payment of the
above indebtedness, nor shall the taking of any such additional security waive
or impair this Security Agreement; but said Secured Party may resort to any
security it may have in the order it may deem proper.
11. OTHER LIENS. At its option, but without obligation to Debtor,
Secured Party may discharge taxes, liens, or security interests or other
encumbrances at any time levied or placed on the Collateral, may order and pay
for the maintenance and preservation thereof and may pay any necessary filing or
recording fees. Debtor agrees to reimburse Secured Party on demand for payment
made or any expense incurred by Secured Party pursuant to the foregoing
authorization.
12. SUCCESSORS. All rights of Secured Party hereunder shall inure to the
benefit of its legal representatives, successors and assigns; and all promises
and duties of Debtor shall bind his legal representatives, successors or
assigns.
13. SEVERANCE. Should any provision of this Agreement be deemed unlawful
or unenforceable, said provision shall be deemed several and apart from all
other provisions of this Agreement and all remaining provisions of this
Agreement shall be fully enforceable.
14. CONFLICT OF LAWS. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado. Further, the
place where this Agreement is entered into, and the place of performance and
transaction of business shall be deemed to be the State of Colorado, and in the
event of litigation, the exclusive forum, venue and place of jurisdiction shall
be the City and County of Denver or the County of Arapahoe, both in the State of
Colorado.
DATED this 26 day of April, 2000.
DEBTOR:
JOHN A. HANSEN
/s/ John A. Hansen
----------------------------------------
Print Name: John A. Hansen
-----------------------------
4
<PAGE>
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this_____, day of
April, 2000, by John A. Hansen.
WITNESS my hand and official seal.
My Commission Expires:
----------------------------------------
Notary Public
5
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Telecom Wireless Corporation
----------------------------------------------------
America's Web Station, Inc.
Phoenix Communications, Inc. (inactive)
TWC Acquisitions, Inc.
TWC Investments, Inc.
TWC Networks, Inc.
<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/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
Denver, Colorado
May 3, 2000
<PAGE>
EX. 23.3
GERSTLE, ROSEN & ASSOCIATES, P.A.
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of our report of Telecom
Wireless Corporation and Subsidiary dated September 22, 1998 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/ Gerstle, Rosen and Associates, P.A.
Gerstle, Rosen & Associates, P.A.
Aventura, Florida
May 2, 2000
<PAGE>
EXH. 23.4
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
May 2, 2000
